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Enhancing Strategic Responsiveness
Published: Tue 29 Jul 2014

As has often been noted, developments in the business environment are unfolding with increasing rapidity and are increasingly inter-related, meaning the time within which strategic responses must be implemented is getting shorter while the strategic complexity of what must be dealt with is increasing.

It is always possible to respond strategically to any challenge more rapidly on subsequent occasions. An important contributor to strategic response delays is the time taken to undertake strategic analysis, including specifying and collecting required information.

 

REDUCE CYCLE TIME

Over a decade ago, News Ltd established a national organisation to provide one stop advertising placement and billing for clients that previously needed to deal separately with each of its state-based newspapers. Account managers were appointed to undertake strategic analysis to support advertising campaign propositions to major clients. The strategic analysis studies were taking about three months to prepare and by the time they were ready the client advertising needs had changed. What was needed was a creative rethink of the traditional mental model that prescribed how advertising propositions were prepared. This rethink cut the three month preparation cycle to one month and required:

  1. Additional investment in maintaining detailed market profiles for all key client sectors that could be drawn upon by the relevant account management team when required; and
  2. Streamlining proposition report preparation.

News Ltd provides a typical example of an organisation that had no alternative other than to accelerate the strategic analysis processes it was undertaking; the process time was cut to a matter of weeks and large scale real time simulation modelling predicts cutting strategic analysis to a matter of minutes in the decade ahead. The strategic analysis processes requires on-going fundamental systemic rethinks if strategic responsiveness is to continue supporting the organisation’s competitiveness.

 

RETHINK ASSUMPTIONS

Typically, leadership teams are more inclined to rethink the assumptions upon which their positions are based rather than the positions themselves, which is deemed to be less threatening. The position “I believe that our financial strategy needs to be more tightly controlled” and the response “Why do you hold this view?” is more likely to trigger a subsequent dialogue regarding underlining assumptions and, as assumptions are reviewed from different perspectives, a more flexible strategic analysis response process is likely to emerge.

 

Diagram 1: A Holistic Systemic View of The Strategic Leadership Process

 

STRATEGIC POSITIONING SUPPORT

Up to roughly the early 1990s, most organisations undertook strategic analysis on a step by step sequential basis to an annual timetable. In the late 1990s most organisations adopted an emphasis on short term cost reduction at the expense of strategic positioning (similar to the strategic posture adopted in the late 2000s). However, by the early 2000s it became evident that investment in strategic positioning needed to be given a higher priority and be undertaken more frequently and more rapidly than in the past. Investment was needed to provide a variety of strategic support data and data visualisation systems that provide parallel processing on an on-going basis. Easy access to these support systems by all contributors to the strategic analysis process as and when required is essential.

Typically, where in-house central strategic analysis report compilation teams were established, the loss of control over the process by the responsible executive team was often reflected in output delays. The tendency has been to either outsource this function or configure it under direct control of the responsible executive team.

 

IN SUMMARY

So, in summary, strategic responsiveness can be significantly improved over time if members of the strategic leadership team:

  1. Share mental models explicitly and collaborate purposefully with all stakeholders;
  2. Spread strategic considerations over the short, medium and longer term;
  3. Adopt a broadening scope of consideration in which focussed creativity is applied; and
  4. Create systemic, strategic and ongoing learning opportunities and stand back and reflect on experiences.

 

Converting Surprises Into Competitive Advantages
Published: Wed 25 Jun 2014

In the past 40 years, business has become more complex and, as a consequence, more vulnerable to surprises. Shell Oil was one of the pioneers of pre-emptively managing surprises in the late 1960s. Shell’s anticipation of the 1970s Middle East energy crisis is often claimed to be the foundation for the global competitive edge they maintained for several decades -- the crisis was a surprise for the rest of the world, but Shell had prepared for it and was able to respond rapidly.

No business could anticipate all surprises through scenario analysis or other procedures -- the cost and time required to cover all possibilities would be prohibitive, if it were even possible. The key to responding to surprises is to practice developing contingency plans for selected high impact potential surprises.

 

IDENTIFY POTENTIAL SURPRISES

In a list of 100 potential surprises that you may be able to identify, the 10% with the highest impact will account for a majority of the total disruption that may be caused by all surprises on the list. Selecting which surprises to focus on when developing scenarios and contingency responses is less important than practicing the ability to respond to surprises as and when they arise. Practicing responding to surprise scenarios is the key; when a surprise unfolds, you want to be well rehearsed in rapidly developing contingency plans and rolling out appropriate responses. This approach to dealing with surprises has characterised successful leadership strategy for thousands of years.

Shell and others selected potential high impact surprises for scenario analysis and contingency planning by using the joint wisdom (gut feel) of their executives supported by input from various think-tanks.

 

RANK ON IMPACT AND PROBABILITY

Potential surprises are ranked based on their relative disruptive impact and their probability of occurrence. A set of scenarios are developed and contingency plans formulated along the lines suggested below as soon as a negative trending probability pattern emerges for a type 1 surprise (those that were expected but do not occur) or as soon as a positive trending pattern emerges for a type 2 surprise (those that were not expected but do occur).

 

Figure 1 - Types of Surprises

 

For a potential surprise that has reached the pre-determined probability threshold, we need to ask the following four questions:

  1. What is the worst outcome that might be generated for our business’s supply system?
  2. What is the best outcome that might be generated for our business’s supply system?
  3. What is the worst outcome that might be generated from our demand system?
  4. What is the best outcome that might be generated from our demand system?

 

WORKED EXAMPLE

 

DEVELOP SCENARIOS

Using the answers to these questions, four scenarios can be developed (see diagram 2 below). We then focus on developing responses that support the best/best scenario (#2) whilst minimising the potential impact of the worst/worst scenario (#3) – scenarios #1 and #4 can be disregarded, as the best outcome for the business will be secured by pursuing scenario #2 while trying to mitigate scenario #3.

 

Figure 2 - Extreme Outcome Scenarios for a Surprise

 

CONTINGENCY STRATEGIES

Contingency strategies that aggressively leverage the best/best outcome opportunities while mitigating potential threats arising from the worst/worst outcome are progressively formulated as the likelihood of the surprise increases.

Contingency strategies that were previously developed are activated when a potential surprise reaches the pre-determined probability threshold. If the surprise that emerges has not been previously analysed, the experience gained in pre-empting other surprises will facilitate a rapid strategic response anyway, which helps to secure significant competitive advantage.

Corporates and Start-ups Collaborate for Innovative Hedged Growth
Published: Fri 20 Jun 2014

Partnership Networks are independent businesses that have agreed to collaborate with a corporate sponsor in exchange for funding or other support. Examples include the Century 21 real estate network, businesses funded by and operating under the Virgin brand and Microsoft Competency Partners. Partnership networks in which the independent businesses are all start-up businesses and the purpose of the collaboration is to successfully commercialise an innovative market outcome involving a significant customer usage simplification, which we’ll call “start-up partnership networks,” are likely to be significant contributors to commercial innovation in the decade ahead.

Partnership networks have evolved to address performance issues in traditional corporate networks. Over time, individual corporate branches are transformed from a fully administered branch into independently owned and managed branches that operate within agreed guidelines. After the transformation, branches typically increase performance and the corporate network culture starts to transform into a partnership network culture. Walmart transformed from a centralised leadership to a branch level distributed leadership culture facilitated by NCR and Teradata technology.

 

Partnership networks can be characterised by their:

  1. Method of funding: is the network self-funded via capital raised from individual members (e.g., agricultural produce co-operatives), is it funded by a corporation seeking to enhance or diversify its competitiveness (e.g., a bank purchases an independent mortgage broking network) or is it funded via a financier seeking a return?
  2. Funder’s involvement: is the network run by the funder, the members or a mix of both?
  3. Stage of member development: are members typically start-ups, rapid growth or mature entities?
  4. Primary purpose: to provide enhanced marketing support, to commercialise an innovative customer outcome, or to provide access to a new market?

 

GE’s “Illuminated Minds” videos series (moderated by GE CMO Beth Comstock) discussed the future importance of partnership networks in which an organisation, such as GE, invests scaling up funds in a number of start-ups that are each providing an innovative contribution to the desired market outcome, to enhance the organisation’s strategic position without generating disruptive issues for existing governance policies. The discussion concluded that partnership networks were likely to play an important competitive role in the period ahead.

 

Drawing on research and advisory involvement over several decades with a diversity of emerging partnership networks in different commercial contexts, we will look at some of the trends likely to increase the rate of partnership network growth and discuss the two key strategies to extract the potential of a start-up partner network.

 

Trends Likely to increase the rate of growth of start-up partner networks

  1. Alignment with community expectations: remuneration packages need to be internationally competitive, as major corporations compete internationally for executive talent drawn from a limited pool. However, escalating competition for talent has created a widening gap between the highest and lowest paid. Community and shareholder supported activism against excessive executive salary packages is likely to increase in the period ahead. Partnership networks offer a way of securing the contribution and risk taking of expensive talent without breaching community or shareholder expectations.

     
  2. Securing sustainable growth: In the 1950s, Peter Drucker and others argued simplistically that satisfied customers were the key to organisational performance and sustainable growth. Many subsequent attempts have been made to specify the key to sustainable business success. Aligning the interest of shareholders and business leadership was the best way to secure performance that benefitted all stakeholders, but this approach has often resulted in marginalising some critical stakeholders. By the 1990s, it was proposed in a highly influential book “The Loyalty Effect” authored by Frederick F. Reichheld (who was at the time a director of Bain & Company) that the key to performance sustainability is to ensure that value created is equitably shared amongst the stakeholders that create the value. Partnership networks provide opportunities to align effort invested and risk taken with an appropriate return from the value created.

     
  3. Risk-hedged pathway to future corporate growth: Start-ups tend to perceive risk differently to corporations with established governance policies and cultures. Start-ups are better able to deal with rapidly unfolding commercialisation risks that executives in mature business units would find cumbersome to deal with, often in environments in which speed of commercialisation can deliver competitive advantage. In addition, the extended lead time before start-ups start turning a profit can adversely affect executive bonus payments and result in short term bonus driven thinking and decisions at the expense of longer term performance.

 

“...When the situation has been reversed and Virgin has partnered with a small management team ready to take on a new market sector or territory, I like to think that we have held true to our principles and given our partners the time, space and capital they needed to build their businesses … Virgin Active is now a leading business in the sector, and Matthew is chief executive. Virgin supplied the brand, the reputation and sometimes the capital that the business needed. The management team provided the industry knowledge, the local expertise and, above all, the passion and commitment to make it all work.”

-- Richard Branson

 

Enhancing Start-Up Partner Network Performance

Start-Up partner networks are about simplifying, from the customer’s perspective, complex demand processes in order to deliver a valued outcome. For example, instead of leasing a motor vehicle, servicing and maintaining it, dealing with taxation paper work, negotiating petrol discounts and making vehicle replacement arrangements, an innovative customer outcome would be to offer the customer a fixed cost per kilometre travelled and handle all the above functions on behalf of the customer. The first time such a fleet management contract was offered it would have involved a bank’s leasing arm establishing a start-up partnership by bringing together the expertise necessary to deliver the customer outcome.

The key to identifying potential customer outcome opportunities is to undertake a detailed demand process analysis. An approach is outlined below and is the initial stage in undertaking a Strategic Arena Analysis®.

 

Diagram 1: Generic Template for Mapping Demand Processes

Demand process analysis brings into focus:

  • Opportunities to meet customer needs before the main purchase; e.g., how to find relevant information to understand the different offers that are currently available
  • Opportunities to meet other needs that arise as a consequence of the main purchase; that is, including possible post-purchase requirements
  • Demand processes that are “one-off” events and therefore offer little opportunity to pre-, post-, up- or cross-sell to meet additional customer needs.

 

Demand Process Checklist to Generate Outcome Opportunity Possibilities

  • Make it easier or unnecessary for customers to determine their requirements and justify the purchase decision while minimising post-purchase dissonance
  • Screen potential suppliers using agreed selection criteria
  • Establish a fund to finance purchases at a lower cost of capital
  • Assume responsibility for installing, deploying or setting up the purchase
  • Modify other products or processes to work seamlessly with the purchase
  • Adapt the purchase to its particular context or to a specific use
  • Maintain the purchase by anticipating the need for service or replacement components
  • Anticipate the need for consumables used by the purchase and related purchases
  • Use the purchase more productively by training personnel or by providing support
  • Emerging possibilities to use big data for competitive advantage.

 

Diagram 2 - Continuous Improvement to Deliver Sustainable Risk Managed Performance

 

To sustainably grow a start-up partner network while managing innovation risks, corporations need to ensure that they develop processes that continuously enhance support for the network, as shown above in diagram 2. This know-how improvement must include the ability to successfully establish and support start-up partnership networks and, by tracking expected future returns and risks, determining when the timing is right to transform into a growth network partnership, a mature corporate network, or to divest.

Assisting start-up network partners to improve their ability to identify, assess and fund scaling-up for the commercialisation of agreed demand process outcome opportunities is increasingly likely to involve the capture and analysis of big data. Improving the ability to support the growth of start-up partners by learning methodically and progressively how to improve performance from joint experiences faster than competition is a basis for significant on-going competitive advantage.

The Customer Culture Imperative
Published: Wed 11 Jun 2014

After an extended period of growth through acquisition under the leadership of Jack Welsh, Jeffrey Immelt assumed responsibility for the leadership of GE in 2000 and one of the early changes he introduced was to re-establish the importance of customer and innovation culture as the key contributors to future growth strategy. An article in the Harvard Business Review outlined GE’s rationale for this strategic re-positioning of marketing and the specific action that was taken by GE to secure this transformation. Immelt’s marketing culture advocacy slowly became typical of the position adopted by an increasing number rapidly growing organisations.

A strong link has been established between a sustainable customer culture and enhanced organisational performance. How is a customer culture established? By tuning into the customer demand process to ensure that every link in the customer value realisation process is in tune with and responsive to evolving developments associated with: customer need shifts, competitor action, socio-political change and change in the relative importance of supply channels. These are sustained by monitoring progress, undertaking culturally aligned recruitment, intensive induction training and openness to new ideas and perspectives.

A recently launched book “The Customer Culture Imperative: A Leader's Guide to Driving Superior Performance” (authored by Dr Linden Brown and Chris Brown) presents extensive research and anecdotal support for the importance of marketing’s re-emergence as a growth driving lever and provides a detailed process for establishing and sustaining an effective marketing culture. Apple, Google, Facebook, GE, Amazon.com and many others are landmark exemplars of organisations primarily driven by innovation embedded in a customer culture.

A diverse panel at the book launch highlighted key aspects necessary to establish and sustain a customer centric culture.

John Parkin from Telstra suggested that customer centricity is about ensuring that every link in the end-to-end customer value delivery process is treated with equal importance -- each link needs to be empowered to act intelligently and courageously, even when this may involve disregarding rules that do not serve the customer’s interests: “…in attempting to close her recently deceased mother’s account, a customer was initially informed that only an account holder can close an account.” It required a customer responsive staffer to take a courageous initiative and disregard the rule that in the circumstances was illogical in order to satisfy this customer’s need. Inappropriate rules are an increasing cause of customer value realisation process malfunction and are likely to become more of an impediment as competitive contexts become more complex. In an attempt to reduce costs in sectors such as banking, we have de-skilled our front line customer service roles; it’s time to either re-skill or automate these front line roles in a more customer friendly manner than we have so far achieved.

John Stanhope of Australia Post referred to the leadership challenges flowing from the need to respond to significant shifts in market demand. In the case of Australia Post, the dramatic rise in parcel traffic related to online purchasing and the equally dramatic collapse in hard copy mail required a strategic rethink of Australia Post’s customer value supply channels to ensure the maintenance of competitiveness in an environment of increasing customer expectations and technological change. The importance of closely monitoring reactions to changes and rapidly adjusting the channel structure in response to feedback sustains the competitive viability of supply channels. Some time ago, a major toothpaste brand became a minor brand because it failed to respond to the shift in toothpaste purchasing from pharmacy to supermarkets.

Professor Adrian Payne of the AGSM discussed another key point raised by the Browns: the importance of benchmarking to provide feedback that highlights to decision-makers progress being made in efforts to improve customer responsiveness. Professor Payne also highlighted how leading customer-centric companies are committed to ensuring that they recruit staff that fit into their customer culture. He referred to the example of a successful airline that sourced behaviour feedback from multiple applicant touch points. The induction process for new staff members and the organisation’s continuing receptiveness to suggestions made particularly by new staff members are other important contributors to rejuvenating and sustaining a customer culture.

Dr Judith MacCormick of Heidrick & Stuggles emphasised the leadership role that a board can play in ensuring that their company establishes and sustains a customer culture. Experience suggests that the more senior the executive is who demonstrates authentic commitment to an initiative the more likely that the initiative will succeed. In a large national technology-driven organisation that introduced an account management system to better service its large customers, account teams were established in NSW and Victoria. The Head of Commercial Operations in NSW participated in every development activity provided feedback and encouraged suggestions from the appointed major account team members. The opposite was the case in Victoria. It is not difficult to guess which team achieved the greater relative success. Imagine the impact on organisational behaviour if the board is seen to acknowledge through its behaviour the importance of customer centricity. Dr MacCormick also made the interesting suggestion that boards should consider the advantages of establishing a marketing committee.

Evidence is mounting that mergers and acquisitions are re-emerging as a key growth strategy. The high failure rate associated with mergers and acquisitions in the past has been partly due to a failure to establish a shared customer culture, so re-emphasising the importance of a customer culture is particularly timely.

The Browns’ book is an essential source of guidance in responding to the imperatives of the period ahead, irrespective of which strategies are adopted to drive future growth. It also establishes the capacity and potential to prosper by facilitating the evolution towards becoming a stakeholder-centric organisation.

5 Traits of People Who Build Lasting Companies
Published: Tue 27 May 2014

Adrenaline might get your idea off the ground initially, but it takes a lot more than that to stay in business.

Often entrepreneurs initially are motivated by pure adrenaline and the insatiable desire to start something from nothing. The ones that last, however, are the founders with tenacious drive, among other qualities.