Emerald Group Publishing Limited
Copyright © 2008, Emerald Group Publishing Limited
These brief summaries highlight the key points and action steps in the feature articles in this issue of Strategy & Leadership.
A conversation with Gary Hamel: it’s time to reinvent managementRobert J. Allio
What the business world needs most is a new set of principles upon which to guide an ongoing search for a new management model and give it fresh impetus. This is what the world-renowned strategic thinker Gary Hamel sets out to do in his latest book, The Future of Management. Here’s what he had to say about how to meet this challenge in a recent interview with Strategy & Leadership Contributing Editor Robert J. Allio.
Numerous points are presented in this Q & A conversation. The following are a composite of selected issues and responses.
Issue: Why have we reached the “end of management” in its traditional aspects and need radical management innovation? Can’t incremental improvements in the use of management and productivity tools make a difference?
Reply: First, recent developments have increased the urgency for radical innovation. These include the use of new tools like the Internet to allow coordination and aggregation of human effort and the different expectations of the current workforce.
Second, we’ve worked for 100 years to improved efficiency, quality, reliability and productivity. In many industries, these improvements can make failing companies into average businesses – but they’ll never make the mediocre spectacular.
Third, what most limits performance is not the operating model or the business model, but the management model. Management is the single largest constraint on business performance. And we can change that. Management as we practice it today is just another old technology that needs to be reinvented.
Issue: What are the components for radical management innovation?
Reply: A redistribution of power is critical. If you gave people the skills and opportunity to exercise their imagination, they will take advantage of it. Individuals are adaptive and innovative, companies are not.
A second priority component is deconstruction of what we already believe about management. We need to separate out what part of what we believe is a habit or an artifact of decisions made long ago and what part of how we behave is simply a conceit that simply makes us feel good as managers. If you start a discussion about these issues, people will be surprisingly honest.
Finally, leaders must point people towards new principles. There’s not a lot of wealth left to be gained from mining old principles. The challenges that we face today lie outside the boundaries of management as usual. We can no longer rely on a management model that has its roots in the Nineteenth Century.
How leaders can use powerful narratives as change catalystsStephen Denning
For success, a company must embrace innovation. For innovation, a company must be comfortable with change. To set the stage for adaptive innovation, what matters at the outset is what leaders say and how they say it: whether it inspires enthusiasm for the required risk taking – or the opposite.
The “how to say” is equally important as the content. Premise 1: drop the traditional mode of communication, in which the leader states the problem to be dealt with, followed by an analysis of the options, and a recommended conclusion.
Do NOT use the traditional mode of communication:
Define problem >> Analyze problem >> Recommend solution
Premise 2: inspire enthusiasm for change by using a fundamentally different communication model in which a leader communicates by first getting attention, then stimulating desire, and only then reinforcing with reasons.
Use three steps:
Get attention >> Stimulate desire > > Reinforce with reasons
3 Steps for effective presentation to get action
Step 1 – get the audience’s urgent, rapt attention. Begin with stories that are negative! Negative messages are more attention getting than positive ones.
Step 2 – elicit the desire for a different future. To gain enthusiastic buy-in, leaders need to appeal to the heart as well as the mind.
Step 3 – reinforce with reasons. The desire for change may wane unless it is supported and reinforced by compelling reasons why the change makes sense and should be sustained. But where the reasons are placed in a presentation is crucial.
Of the three steps, the middle step – stimulating desire for change – is the most important. Without desire for change, there is no energy or enthusiasm And without desire for change, there is nothing for reason to reinforce. It’s desire for change that drives the change process. So if transformational leaders do only one thing, they should make sure that they stimulate desire for change.
Create a capability across the organization
If change is to be pervasive throughout the organization, then it’s not enough for top management to be able to inspire enthusiasm for innovation. Many leaders will be needed throughout the organization, who in turn need to have the capability to create new champions in their audiences. An ability to spark enthusiasm for change thus becomes an essential competence for all leaders in the organization.
Tools for converting consumers into advocatesJohn Blasberg, Vijay Vishwanath and James Allen
Fact: satisfaction ratings, market share and even sales data give a picture that is distorted and frequently misleading! They look backward, not forward. These metrics reveal little or nothing about the future consumer behavior, which is what really should be guiding growth strategy.
What is an alternative? Research shows that the most accurate way to measure consumers’ loyalty is to ask them just one question – “How likely are you to recommend this product to a friend or colleague?” By taking the percentage of promoters and deducting the percentage of detractors, executives can determine a metric known as Net Promoter® Score (NPS). NPS gives you insight into both the rational and emotional sides of consumer behavior. It tells whether consumers believe a product offers the right combination of features, performance and price. And, in a world of brand proliferation, where it’s become increasingly difficult for any brand to develop a relationship with consumers, NPS can reveal whether consumers identify emotionally with a brand and feel listened to and understood by the company that makes it.
Increasing your ranks of promoters
How can consumer product companies and brands increase consumer loyalty and lift their NPS scores – and spur growth? Through four steps that involve:
Addressing the issues irritating passives and turning off detractors, in order to stanch defections.
Harnessing deep consumer understanding to customize product offerings to precise segments of consumers to meet their distinct needs and tastes.
Working to create a great product experience, not just a great product.
Making sure you deliver what you’ve promised to consumers.
Creating a truly consumer-focused organization
NPS allows a company to stay in balance as it continuously takes the pulse of consumers. Like any good metric, NPS allows executives to experiment and accelerate learning. It helps consumer product companies understand their core consumers and design propositions to continually captivate them, opens a window into new opportunities for innovation (which companies can uncover by probing passives and detractors for what would increase their loyalty), and helps clarify marketing objectives by enabling companies to define the attributes of its best consumers.
The beauty of NPS is in its simplicity. It allows a company to transform itself into an organization that is completely focused on consumers. Its lessons can easily be understood and used by any level of the company.
The battle of the value chains: new specialized versus old hybridsGillis Jonk, Martin Handschuh, Sandra Niewiem
Increasingly, specialized offerings are within almost every consumer’s reach. The shift toward specialization (driven by globalization, buying via the Internet, modual value chains, and the growth of low-wage economies) is playing out faster than some big companies can adapt. Those at highest risk: the well-established company that views its customers in terms of unique buying segments. Today customers demand a variety of products and services at different times.
Business can best compete by first considering and then creating a number of specialized value chains. Start segmenting in terms of customer needs, not individual customers. This is counter to the conventional wisdom that established firms are more competitive if they continue to adjust and augment a single value chain. Aligning the segments of present or future customer needs can represent an important source of growth and value.
Hybrid vs. specialized value chains
The difference between a hybrid chain and a specialized value chain is that a hybrid focuses on the full breadth of the needs of specific customer segments, whereas the specialized value chain focuses on segments of specific customer needs.
Here are some telltale signs that your hybrid value chain can’t compete effectively against specialized competitors:
Your business segment having a hard time finding growth, yet focused competitors are gaining ground.
Internal complexity is rising, customer satisfaction isn’t.
The potential for horizontal synergies between units can no longer be ignored.
You need to identify external partners, but find more obstacles than opportunities.
Channel conflicts and price cannibalizations are increasing.
Customers are being cherry-picked, their loyalty is eroding, and competitive requests for proposals (RFPs) and tender situations are on the rise.
Assessing value chain specialization
The questions are “when and where to specialize?” Two insights are offered as well as six dimensions to be considered in an analysis of which segments of specific customer needs would gain from value chain specialization.
Bottom line: give up the old assumptions, and start segmenting in terms of customer needs, not individual customers. Then the dialog on value-chain specialization can begin in earnest.
How to develop a customized corporate energy strategyBill Ralston
Does your business have a corporate energy strategy yet? Those who adopt a wait-and-see approach to issues of energy usage and global climate change mitigation legislation are taking a substantial risk. If left unattended or handled poorly, energy issues could cause problems for future business activities and occupy management’s time for decades to come.
Offered in this article is a structure for thinking through the development of a new energy/environment strategy and the business implications of different strategy alternatives:
A four-step process that focuses on the major energy/environment issues requiring corporate decisions.
Two alternate scenarios of the future that span the possibilities.
The basic policy choices for corporations.
The tradeoffs to be made.
Detailed are questions, the forces and drivers that shape energy developments, examples of how to think through the process, evaluation factors for energy/climate change mitigation strategy ideas, and key indicators to monitor for outcomes.
Two scenarios are developed. They cover the spectrum of possibilities for how the future could play out until 2020, just 13 years away. The ‘Stuck on Carbon’ scenario highlights the implications of remaining wedded to carbon energy sources for political and economic reasons, while the ‘Roller Coaster’ scenario highlights the implications of a global policy commitment to limit global warming effects. Although the developments of the Roller Coaster scenario would entail the greatest change, risks, and benefits to companies, even the slower developments in the Stuck on Carbon scenario would entail advantages and disadvantages to companies that call for awareness, preparation, and strategic initiative.
The organizations that will be most affected initially will be those whose operations create a lot of greenhouse gas emissions. But rising energy and climate change mitigation costs will affect all organizations, and consumers, investors, and local governments will increasingly hold them responsible for developing a sustainable model.
Bottom line: Leadership on energy and climate change mitigation is complex. The risks are high. Here are practical means to interpret the global forces buffeting them, to identify new pathways for creating value in the future and to get started. It must be begun today.
A strategic approach to overhead managementJosh Lee and Margaret Covell
The average company spends 23 cents out of every dollar of revenue on overhead. This is significant, considering that most fail at managing it effectively. At too many companies, overhead expenditures are managed by periodically cutting costs, followed by creeping increases, and then required cost cuts. This fatally flawed pattern, known as “roller-coaster” management, devolves into indiscriminate across-the-board cuts or cuts based on benchmarks or subjective perceptions of value provided.
The negative impact of a roller-coaster management of overhead costs is evidenced in surveys:
Two thirds of respondents endured three or more cost-cutting initiatives within the past seven years;
Forty percent of respondents reported that the critical capabilities of their organization were not protected during cost-cutting initiatives
Companies that consistently reduced their overhead ratio had an increase in market value two times that of the roller-coaster approach group.
To set a new course, think assets, not costs
The first step in applying the brakes to this damaging cycle is to change the nature of the conversation about overhead. This requires dispensing with an “overhead is a burden” mindset and fundamentally reframing how one views the nature of overhead spending. It starts with the recognition that the attributes of overhead closely resemble those of an investment and that overhead costs are better thought of as investments in assets.
Overhead requires sustained multi-period funding.
Overhead activities generate outcomes.
Overhead spending benefits multiple constituencies.
Four classes of overhead assets
Overhead assets can be grouped into four classes based on their distinct potential benefit streams. Each class has a different investment logic that specifies how asset performance should be evaluated. For any given function, activities and investments can be classified according to whether they:
Provide a basic service.
Enhance the efficiency of the organization.
Reduce or mitigate risks.
Enable the strategy of the firm.
Bottom line: Armed with a new framework for classifying what is spent and for evaluating the logic behind the investment, management can instill a new discipline to managing overhead. By tirelessly questioning what overhead the company is investing in, for what returns, and over what time frame, the company will significantly increase the value of its investment and reap rewards in the capital market.
Catherine GorrellPresident of Formac, Inc. a Dallas-based strategy consulting organization (firstname.lastname@example.org) and a contributing editor of Strategy & Leadership.