Emerald Group Publishing Limited
Copyright © 2006, Emerald Group Publishing Limited
These brief summaries highlight the key points and action steps in the feature articles in this issue of Strategy & Leadership.
Catherine Gorrell is president of Formac, Inc. a Dallas-based strategy consulting organization (firstname.lastname@example.org) and a contributing editor of Strategy & Leadership.
Leading the vigilant organizationGeorge S. Day and Paul J.H. Schoemaker
Organizations that are effective in developing the peripheral vision of their business environment can gain tremendous advantages over rivals.
What is peripheral vision?
This is the capacity to detect, interpret and act on the critically important but weak and ambiguous signals of fresh threats or new opportunities that emerge on the periphery of their usual business environment.
To paraphrase Charles Darwin, it is not the strongest nor the most intelligent who succeed, but the ones most responsive to change. Organizations without peripheral vision capability are vulnerable to being blind-sided by rivals who see and take advantage of early, easily missed signals sooner. They may even risk their own long-term survival.
The danger for an organization that seeks to “mind” a broad periphery is that their attention may become too diffused. The BBC avoided this by:
mobilizing the organization to be more inquisitive;
directing attention to specific challenges;
broadly tracking various trends and tastes; and
assigning clear accountabilities.
Best practices for ensuring greater accountability include:
Assign the responsibility to an existing functional group (choices are cited);
mobilize ad hoc issue groups;
create a high-level lookout (like IBM’s “crow’s nest”);
create “game changing” initiatives (like Royal Dutch/Shell);
invest in start-up ventures; and
Lessons from the periphery
There are six guiding principles to successfully manage how an organization monitors its peripheral business environment. These core lessons prevent becoming overloaded, distracted or confused:
Peripheral vision is more about anticipation and alertness, than prediction.
The problem is not a lack of data, but a lack of good questions.
Scan actively, but with an open mind, because the periphery will not always come to you.
Use multiple perspectives to better understand the periphery.
When catching glimpses from the periphery, probe before jumping.
Balancing peripheral and focal vision is a central leadership challenge.
Somewhere in your organization there is probably someone who knows about weak but potentially important signals of changes on the periphery. But how well is your whole organization designed to capture and share these insights? Peripheral vision does not happen automatically in organizations. Organizations operating in complex environments need to make deliberate investments of resources and attention to improve their peripheral vision. Be a scanner.
Giving up the illusion that you can predict the future is a very liberating moment. All you can do is to give yourself the capacity to respond to the only certainty in life – which is uncertainty. The creation of that capability is the purpose of strategy (Lord John Browne, Group Chief Executive of BP).
How to combat a culture of excuses and promote accountabilityJeff Grimshaw, Gregg Baron, Barry Mike and Neill Edwards
When it comes to accountability problems in companies, the common complaint is that people are not doing what is needed or what is expected. Many senior executives express frustration because employees do not perform at a competitively high level, or employee non-compliant behavior continues despite both warnings and pep talks.
The real underlying cause of accountability problems is “fundamental attribution error.” There are two parts of this error. First, there is the tendency for people to assume that what a person does is based more on what “kind” of person he/she is, rather than the situational influences on that person. And, second, people evaluate their own behavior as if it were affected by outside forces beyond their control.
Chalking up an organization’s accountability deficits to employees’ character flaws or the “kind of people” they are (rather than identifying and managing situational influences) equips leaders with an excuse for not taking responsibility for ensuring accountability in the organization. In other words, one reason why so many leadership conversations about accountability problems produce little action is that during the conversation the leaders find a way to rationalize why they are not really accountable for solving the problem.
Though personal responsibility is critically important, leaders who take an unbalanced view – that is, make the fundamental attribution error of assuming a person’s character is the source of all accountability problems – do a disservice to themselves and their organizations. In fact, they under perform as leaders.
Organizations tend to run the way they are designed. So when leaders encounter an accountability problem, they should:
Assess the situational factors in the organization that are promoting or hindering accountability.
Take action to design and manage some elements of the organization differently – take away excuses and in their place create conditions that will promote accountability. The article delineates the key four factors for creating an accountability culture.
After completing steps 1 and 2, then attribute any remaining traces of the accountability problem to “the kind of people” who still are not doing what is needed and expected and do whatever is appropriate to solve that problem.
This approach also works just as well as a tool for prevention. At the outset of any new strategy or business initiative, ask: is it reasonable for us to expect that people are going to do the things we need them to do?
And if the answer is “no” or “we’re not sure,” leaders have an opportunity to make changes and prevent accountability problems before they occur.
Complexity: customization’s evil twinBob Anderson, Christian Hagen, Joe Reifel and Eric Stettler
Many companies are dealing with an over abundance of complexity in the form of custom-designed products, services and IT functions. Reasons for this range from trying to meet the unique needs of every customer in every segment, to focusing more on increasing revenues than profits, to blurring lines of accountability in the aftermath of mergers and acquisitions. The results: a tangle of increased production and service costs, reduced margins, slower time to market, and a clumsy multi-channel delivery process that is severely damaging the customer experience and operating efficiency.
An overview for how to start
The initial focus should be on identifying the complexity drivers across the organization. This is an end-to-end analysis. The company must obtain an in-depth understanding of the tradeoffs between customization and complexity on the entire value chain and on profits. A key to this understanding is determining where combining modules of products or services can reduce unnecessary complexity. Also important is to price the product or service through a total-cost-of-ownership analysis in which the economics of a product are calculated from the customer’s perspective. Knowing which feature a customer values and which components support those features, the company can then focus on those areas, while reducing costs and complexity in other areas. If customers value particular features, keep them, raise the price, and become more aggressive in communicating the product’s superiority. This is the essence of a differentiation strategy.
Last, the company must change its business processes and decision-making to consider both internal challenges as well as its position in the marketplace. In a complexity reduction, the company cannot be attached to “how things are,” but must be open to challenging beliefs regarding customer values and reconfiguring structures and processes to meet customers’ changing needs.
Good versus bad complexity: word of caution
In response to complexity problems, many companies are scrambling to streamline their offerings and operations. But simply eliminating complexity is a mistake. There is good and bad complexity. Good complexity is necessary and adds value for the company and the customer. It is the kind required to customize products and services and help companies increase revenues, profits, and customer loyalty.
Complexity becomes unnecessary and value draining when companies fail to address the trade-off between customization and complexity – between the costs associated with customization, the value derived from it, and the price that should be charged for it. Clearly, a lot of valuable learning occurs in the management of the tradeoff between customization and complexity. So, complexity per se is not the problem. The problem is the inability to manage and control it. And in the end, by weeding out the “bad” complexity, the company should see marked improvement in both its delivery capabilities and bottom-line performance.
Business alliances at Eli Lilly: a successful innovation strategyGary Stach
Eli Lilly’s strategic focus is to foster strong organic growth rather than expanding through mergers and acquisitions. To do so, Lilly achieves critical mass in certain key capabilities and complements those efforts by developing “virtual size” from partnering efforts throughout its operations.
Lilly’s commitment to collaboration/partnerships as a fundamental part of their strategy is now deeply rooted. Their successes rest upon their ability to create the best opportunities for themselves and for their partners. This ability stems from a continuous learning approach to partnering and core practices such as these:
Creating an Office of Alliance Management with two roles: ombudsman working on behalf of the success of the overall partnership; and builder of overall alliance capabilities by maintaining close relationships with external experts, and defining and applying key lessons from alliance experiences.
Training alliance managers in the basics of alliances and good alliance techniques and behaviors, plus matching the qualifications of Lilly’s alliance managers and other personnel with the needs of specific partnerships.
Formalizing an alliance-management process, consisting of well-refined tools (developed over the years) to help jump-start certain procedures or to help deal effectively with various issues as they pop up. The process is a relatively predictable lifecycle that is common to every corporate-alliance relationship.
Emphasizing communications, both face-to-face and using technology to keep in touch and develop camaraderie. The catch phrase is “when in doubt, talk” – at every point in the life of the alliance.
Creating measurement tools – such as Lilly’s Voice of the Alliance and other surveys – to help quantify and improve results over time.
Focusing on knowledge management to quantify and organize what is learned in every alliance, and taking steps to assure that the results are readily available to each and every alliance participant.
Making alliances a true, written corporate priority – and back them with executive endorsement and sponsorship starting all the way at the top, and going all the way down through the entire organization.
Establishing an actual process for forming alliances and helping them work effectively – and sticking to it.
Using a three-dimensional fit model to test the strategic, operational and cultural match up between Lilly and the partners.
Never fail to accept an opportunity to learn and to share the experience with future alliance personnel. That is why Lilly’s Office of Alliance Management was created. The “lessons learned” are used to develop new tools to get better results, with greater efficiencies, using further enlightened techniques.
IBM’s global CEO report 2006: business model innovation mattersGeorge Pohle and Marc Chapman
A key finding of the IBM CEO survey was that competitive pressures have propelled “business model” innovation higher on priority lists. Leaders frequently define their businesses in terms of the products and services they take to market and have focused innovative energy there. But with technological advances and globalization presenting so many new opportunities – and threats – CEOs are now giving business model innovation as prominent a place on their agendas as products/services/markets innovation and operational innovation. The three are “… equally important and inseparable from each other.”
Insights from IBM’s analysis include:
CEOs are now focusing almost 30 percent of their innovation efforts on their business models;
companies that have grown their operating margins faster than their competitors were putting twice as much emphasis on business model innovation as under-performers;
CEOs are using their business model innovations to preempt threats and to create threats to competitors;
cost reduction and strategic flexibility are considered the top benefits from business model innovation; and
business model innovation had a stronger correlation with operating margin growth than the other two categories – products/services/markets innovation and operational innovation.
What model innovative actions are being taken?
Of the six actions cited, the top two are strategic partnerships and organization structure changes. As global connectivity reduces collaboration and transaction costs, companies are taking advantage of the expertise and scale that lies hidden in their own organizations and across the globe. They are assembling a business model fashioned from groups of “specialized” capabilities – combining internal expertise and scale through shared services centers with the capabilities of specialized partners to create truly differentiating business. Hence, partners are not only essential to product and operational innovation, they can be very instrumental in establishing new business models.
The golden spur: innovation independenceLiisa Välikangas and Quintus Jett
Conventional wisdom holds that the best performing, most complex organizations are those inhabited and managed by professionals. But, although professionalization has been highly successful in increasing production efficiency and reliability, an unintended consequence is the loss of the “freedom to explore” that is the banner of effective amateurism. The “freedom to explore” factor is essential to innovation. And innovation is essential to sustained competitiveness.
The word amateur can mean doing something for the love of it. Amateurs engage in activities about which they are passionate. So, wise leaders will encourage amateurism. Why? Because in this age where professionalism is so dominant, amateur creativity and effort brings forth new ideas, as well as playful energy that animates organizational routines. Today’s leadership challenge is learning to manage the independent thinkers that emerge with this new amateurism.
Example of an amateur organization
At a leading nationwide retailer, a group of people has formed an initiative to create a market place of ideas and talent: anyone can pitch a project and invite others to join it. The hypothesis is that such an avenue for ideas and commitment will increase productivity and address an endemic scarcity of resources. Amateur freedom is facilitated by communications technologies that enable individuals to participate increasingly on their own terms.
The experiment has so far confirmed that many people will indeed welcome an avenue for amateur innovating. Even more importantly, the market place for ideas and talent might provide a strategy for a much smoother resource allocation than the current corporate HR processes offer. Rather than a manager allocating staff to projects, employees contribute to projects they judge most compelling. For a company that employs more than 100,000 people, such talent and time fluidity would be a critical source of competitive advantage.
Companies need to unleash their human talent and raise their level of innovation so that they can compete with cheap (yet increasingly skilled) labor in emerging economies such as China and India.
To accomplish this feat, managers must respect their employees’ independence – the very source of innovation. The case for innovation is the case for the labor of love, that is, the work of amateurs.