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Emerald Group Publishing Limited
The individual enterprise: all for one and one for all
Article Type: Quick takes From: Strategy & Leadership, Volume 43, Issue 4
Catherine Gorrell is a veteran strategy consultant newly based in Portland, Oregon (email@example.com) and a contributing editor of Strategy & Leadership.
These brief summaries highlight the key points and action steps in the feature articles in this issue of Strategy & Leadership.
The individual enterprise: all for one and one for all
Fred Balboni, Saul J. Berman and Peter J. Korsten
Most businesses are profoundly underestimating the full opportunity afforded by our rapidly evolving IT revolution. As mobile data traffic grows 80 percent per year, businesses can capitalize on this if they use sophisticated data analytics to distill insights and context from this increasing volume of digital information. The intersection of the dual trends in mobile technology and analytics create huge opportunities.
Key problem: Many of those who have developed strategies for mobile haven’t yet moved beyond the first wave – using mobile as a new channel through which they can transact with customers, or as an enterprise communications tool, for example. The struggle is to understand its implications for transforming their entire value chain and find opportunities to create new businesses and services.
Opportunity: By combining the power of analytics with the ubiquity of mobile, organizations have the opportunity to provide employees with “mobility” solutions that will enable them to work more effectively than ever before. Information platforms, tailored to each employee’s specific needs, can dynamically reconfigure workflows to get the right information – and only the right information – to the right employee, at the right time, in the right place.
Premise: Together mobile and analytics will redefine the way we work. The power lies simply in what information is delivered to whom, when, and where.
Solution: Create a well-designed “Individual Enterprise.”
Five building blocks for creating the Individual Enterprise are presented as well as the steps needed to achieve this vision. The latter are applicable across all organizations and industries.
1. New business value as individuals and the enterprise can do more with less by increasing employee efficiency and making processes more customer focused.
2. Better responsiveness with mobile analytics can accelerate the return on information investment.
3. Mobility apps with time, location, speed and ever more situational dimensions embedded and across devices – smartphone, tablets and wearables – makes possible an anywhere-anytime business environment.
4. Employees gain the flexibility to create their own work experiences, and be free to find better ways of getting things done across the ecosystem.
The confluence of two technologies, mobile and analytics will change the way business gets done, putting real-time contextual information at employees’ fingertips and providing predictive recommendations and insights to improve decision making in the moment.
By creating an Individual Enterprise, organizations will be able to discover, define and refine new and emerging customer wants and needs, and create truly unique, exciting customer experiences.
Customer-focused IT: a process of continuous value innovation
It’s not exaggerating to say that almost all companies are now information companies. This transition to a digital economy produces opportunities to link information technologies in a firm’s products and services with the IT systems in its operations. This empowers companies to make their competitive shift to become more customer-centric.
The key question is, can the IT role and operation be adapted to support the company’s shift? It means that a firm’s IT operations must truly understand and deliver customer value.
Risks of not shifting IT’s focus
Too many of the individuals in corporate IT departments view the world from a technical perspective, which can prevent them from seeing and responding to consumer trends, untapped opportunities and challenges. This inattention to customer focus not only denies IT function a seat at the table in the C-suite, but more importantly, robs a firm of the function’s vibrant participation in value creation.
Increasingly, IT-based products and services serve as the brand of an organization, which is inextricably linked to the customer experience. But if there is an absence of customer focus in the IT function, it will lead to customer value erosion.
A customer-focused IT function
Customer orientation elevates customers to the primary focus of decision-making within corporations. That’s the easy part. What needs serious innovation is enlisting the full resources of the IT function – architecture, algorithms, big data and connectivity – to satisfy customer needs, solve customer problems and produce new customer value. This movement from technology to customer focus requires a shift in perspectives, practices and processes.
The best way for companies to set the customer focus in IT function is to take the customer journey, preferably with actual customers. The idea is to study 1) characteristics of the customer, 2) context of customer use, and 3) indirect effects. Six key action fronts are offered to make this transition happen.
Customer-focused IT represents a shift in organizational culture, a shift from considering technical excellence as an end in itself to customers as the centrally important stakeholder of an organization. The key to building this kind of organization is leadership at the senior levels.
Customer preeminence: the lodestar for continuous innovation in the business ecosystem
As the business landscape inevitably transitions to customer-focused continuous innovation, so too will there be a concomitant transformation in the way successful companies are managed. A competitive customer-centric focus requires a management approach with certain features:
Work is done by self-organizing teams that can mobilize the full talents of those doing the work.
Work is focused directly on meeting customers’ needs.
A “lens,” sometimes a person with the title “product owner,” focuses attention on the customers’ needs. In companies like Apple, the App community produces the same effect by focusing on mass customizing the needs of millions of customers.
Work proceeds in an iterative fashion and progress toward fulfilling the needs of customers is assessed at every stage.
The creative approaches have various names, like Agile, Scrum, Kanban and Continuous Development.
Whether a single Scrum team or the large Apple platform for App development, they are part of the same management ideology:
Total focus on the customer.
Ideology of enablement, rather than control: managers are enablers, not controllers.
Flat horizontal structure, not the vertical structure of hierarchical management.
Inspiring to the people doing the work, rather than dispiriting.
Not an easy change
Change is strongly resisted by those that have a vested interest in perpetuating hierarchical management and their long-standing attitudes, values and assumptions support the status quo. Horizontal management is not just a new process or methodology, but a different ideology – a different way of viewing and acting in the world. Instead of a focus on efficiency, predictability and detailed internal plans, it’s a commitment to self-organization, rapid learning, continuous improvement and a high-speed iterative approach to innovation. And at every step the customer is now central.
For many mature firms, the question is not whether the transition is going to happen. It’s when. For firms that can learn from their customers and adapt quickly, elegantly and intelligently the opportunities are greater than ever before. The movement towards the new customer-centric way of management is the best way to arrive at this better prospect.
A new M&A methodology: five lessons in anticipating post-merger resource interactions and challenges
Sayan Chatterjee and Nir N. Brueller
The most common reasons for merger and acquisition (M&A) failure are post-merger integration breakdowns and overpaying for the target firm. Yet many firms do succeed because they:
1. Are better at learning about the target than other potential acquirers.
2. Have superior insight about the operational competencies and resources needed to succeed with the post-merger value chain.
A new Merger Information Advantage strategic framework based on the authors’ research allows firms to develop their own merger information advantage when they are considering an acquisition.
The insight underlying the framework
An M&A will usually lead to modifications of the value chains of the participating firms. In some M&A transactions this modification has a profound effect on the profit logic driving the M&A and how the resources of the two firms must interact post-merger based on the value chain built around this profit logic.
Develop an information advantage model to understand the ramifications of the merger on the specific profit logic of the joined companies. To facilitate this, the authors identify five broad categories of profit logics that drive most M&As. Each of these five categories has unique integration challenges.
1. Capacity pooling (roll-ups),
2. Capacity consolidation (horizontal mergers),
3. One-stop-shop (bolt-on),
4. Focused intervention (restructuring), and
5. New business model.
By identifying the profit logic involved and preparing a playbook to address the applicable impediments before the deal is struck, most firms can gain a significant information advantage.
Verify the operational and marketplace realities, which involves a new approach to due diligence. Using the Merger Information Advantage strategic framework, the due diligence required for a successful acquisition has a unique focus.
Traditional due diligence looks at the financial metrics and what they say about the health of the target firm.
The Merger Information Advantage focus should also identify the future resource interactions and assess the availability of the funds and talents they require if an acquisition is to succeed.
A key predictor of M&A success is the ability of an acquirer to repeatedly achieve this information advantage. Skillful acquirers institute an acquisition process built around successfully analyzing the resource interaction before their competition does and making a well-considered offer before a bidding war can start. A repeatable acquisition process allows a firm to really understand one type of resource interaction in-depth. This post-merger value chain assessment proficiency becomes their competitive advantage. Acquisition programs that produce repeatable success are most likely in rollups, one-stop shop, focused intervention or restructuring acquisitions.
Revisiting the concept of a competitive “cash advantage”
Joseph Calandro, Jr
Adherents of the concept of maximizing shareholder value often push corporate executives to distribute “excess cash,” that is, cash not needed in current operations. But when defining and evaluating cash and capital-based strategies, there is an equally compelling opposing position:
Substantial cash reserve can provide a critical strategic advantage under certain circumstances, such as during financial crises and other periods of distress.
The presumption that “excess cash” should be distributed so it won’t be wasted on dubious acquisitions or far-fetched growth schemes can be particularly troubling from a strategic perspective because:
Running out of cash is a common cause of corporate failures.
Cash holdings that today may appear to be in “excess,” tomorrow may be barely adequate to sustain operations, especially if tomorrow brings with it significant levels of distress.
Distress and the resulting need for cash often go hand-in-hand because at the moment of crisis – be it operational, financial and/or macroeconomic – a firm will often confront “a timeless irony: when you need money most, the most likely sources of it are likely to be hurting as well.”
Holding ample cash, though it may appear to be “excess cash” to can be considered a source of competitive advantage from two different but intimately related perspectives:
First, holding ample cash prior to periods of operational, financial or macroeconomic distress mitigates the risk of becoming a “forced seller.”
Second, it enables a firm to take strategic advantage of the “forced selling” of others during and after periods of distress. Significantly, there is both contemporary and historical precedent for this type of strategic approach.
More risk on the horizon? The risk of further macroeconomic distress may currently – as of mid-2015 – be increasing. As an indication of this, a financial innovation-inspired boom is underway in the captive reinsurance market. If financial risk in the insurance/reinsurance industry manifests in a material way it could disrupt claims payments thereby causing some firms to suffer cash shortages when they are possibly most in need of cash.
A scenario test. A form of scenario planning can be used by executives to identify a set of existential conditions that would test a company’s cash reserves. For example, they might create a scenario that depicts the simultaneous write-downs of significant accounts receivable and inventories along with some form of credit impairment that disrupts funding requirements.
Case: S Group’s vision for strategic transformation: “Your Own Store”
Kari Neilimo, Hannu Kuusela, Elina Närvänen and Hannu Saarijärvi
The S Group – an international, multi-format, multi-industry, grocery retailer and service provider of Finnish origin, formed as a network of customer cooperatives – reached and successfully dealt with a strategic turning point. Its transformation began with creating a renewed vision.
Companies making major and often disruptive changes that necessitate a fundamental reassessment of their strategies, structure and the very basis of their business model need a mental picture of what operational change would actually look like to guide these strategic transformations. The role of the vision as such a tool is often underplayed, or worse, viewed as a palliative exercise devoid of real content and meaning. But when a vision is developed with a well-conceived strategic context – with a realistic plan for gaining competitive advantage, a transformation agenda and an effective set of strategic initiatives to implement the plan – a vision can be an effective tool available to executives driving transformation. As management researcher John Kotter noted: “Good managers keep the change management process under control while good leaders create the vision to drive the change.”
A vision reassesses customer value
Here are the insights gained from S Groups dramatic strategic transformation. They are applicable to companies across almost all industries and markets.
New value: S Group’s CEO strongly believed that their new Your Own Store vision was the key to the process of their transformation. The key ingredients were that the vision 1) had strategic relevance 2) was a reinterpretation of the company’s core purpose, 3) was directly linked with action, 4) and produced new value fort important stakeholders.
Customer focused: The new vision was to be based on customer centricity, by reflecting the true diversity of benefits their customers valued. Customer value was viewed in four dimensions:
Economic (focus on price),
Functional (focus on solutions),
Emotional (focus on customer experience), and
Symbolic (focus on building positive meanings for customers).
Engagement: Implementation of the new vision involved taking a variety of actions such as communications, acquisitions, new investments and engaging employees to deliver the newly envisioned experience. Most importantly, actions were taken to insure the vision was not just words on paper, but something that was realized in everyday work.
To be energizing a vision must be both feasible and inspiring. As this case shows, such a vision can help executives re-direct the organization and realign all activities and processes toward future success. Without the support of a clear vision, it may be difficult for all stakeholders to grasp the need to change and create a sense of urgency that is necessary in order to challenge the status quo.