Emerald Group Publishing Limited
Copyright © 2008, Emerald Group Publishing Limited
Article Type: Quick takes From: Strategy & Leadership, Volume 36, Issue 4
Encouraging front-line employees to rise to the innovation challenge
Almost every company includes innovation on their core mission and values statement. In many cases, this is delegated to a centralized group. But, centralized innovation will always be limited by the available talent, attention, insights and instincts of the managing group. Furthermore, for the rank and file at the front line, innovation is a well-meaning corporate speech topic, but too often they are not truly part of the creative team.
The Strategos solution is to create a complementary system for stimulating potentially valuable ideas and managing the process of converting the best of them to innovations that have an impact on competitiveness: “Front-Line Innovation.”
How Front-Line Innovation works
There is a great deal of complement between Front-Line Innovation and the centralized innovation approach. Front-line innovation results in many ideas with local application that require fast, simple, and cheap development, whereas centrally developed innovation results in few big ideas with company-wide application, that require time-consuming, complex, and expensive development.
Front-line employees, those closest to the customers and the work of delivering the offering, have fresh ideas and genuine insights. Their ideas and insights, however, may not be adequately framed, given the business plans of the organization. To be effective the effort must be locally managed and staffed. Local decisions and quick actions reduce the need for scarce corporate managerial talent.
Components of the model
The implementation of a front-line program lies within a set of six components applied systemically and thoughtfully: people, process, tools, technology, governance, and metrics. Each is discussed.
Benefits: making the most of your “most valuable assets”
The Front-line Innovation program treats engaged employees as exceedingly valuable assets. It surfaces new leaders and gives them the tools to create and act on ideas that are aimed at the most difficult problems facing the organization. It builds a capacity for creativity, resilience and agility into the fabric of the organization. Each organization must learn how to optimize its own process of frontline innovation –developing best practices for managing people, process, tools, technology, governance and metrics. Clearly, a creative front-line employee is a potent competitive weapon when supported by such a system.
Value 2.0: eight new rules for creating and capturing value from innovative technologies
Business “rules” (for the way value is created) are changing, necessitating transformational change. The confluence of several factors – the Internet, innovative new technologies, changing consumer preferences driven by the millennial generation, intensified global competition, and the proliferation of fast-evolving social technologies that connect people and ideas – is what is at the core of the need to change. Impacted are both start-ups and established businesses.
IBM Consulting has identified eight new rules through research and refinement analysis. These rules, referred to as Value 2.0, illustrate unique ways in which emerging technologies are enabling new value creation in an enterprise. They fall into three broad categories.
Category 1: Capitalizing on new markets and business models
Three rules hold the potential to capitalize on emerging market opportunities, develop new revenue streams, grow market share, and secure first mover advantage.
Rule #1: Grab and monetize the long tail of demand. If you only offer limited products and services, people will only buy those. Value 2.0 challenges the 80/20 rule.
Rule #2: Get ready – Your customers value digital content. The music industry is a test case for this.
Rule #3: Jump in – Virtual worlds are real business. Virtual worlds and other three-dimensional (3D) online environments have quickly evolved to become one of the hottest areas of Value 2.0, representing a new frontier of opportunity.
Category 2: Getting closer to markets and customers
These rules illustrate how large enterprises can create new value with emerging technologies by becoming more intimate with customers, gaining better information and insight from the social Internet and forming community experience around customer solutions.
Rule #4: Trust the network – it really does know more than you. Mining web information for business intelligence and insight is just beginning.
Rule #5: Embrace customers. Today’s emerging technologies enable a new level of customer intimacy by changing the way enterprises connect and build customer relationships.
Rule #6: Use social networks to create solutions.
Category 3: Creating new capabilities
This next set of new rules looks at Value 2.0 in terms of how emerging technologies inside the enterprise can build capability. Flexibility of business models and systems is becoming a critical aspect of creating value in today’s marketplace, especially as disruptive forces incapacitate existing enterprise models. Fostering rapid, collaborative innovation is another key to staying competitive in today’s marketplace.
Rule #7: Embed flexibility in business models and information systems.
Rule #8: Foster rapid, collaborative innovation in the enterprise.
Who is leveraging which rule?
Innovative large enterprises tend to experiment with multiple new rules of Value 2.0, while technology start-ups tended to focus on one to two new rules.Large enterprises focus primarily on Value 2.0 in the context of customer intimacy, solutions and social networking. Start-ups, on the other hand, lean more toward exploiting long tail economics and meeting underserved market segments. Both groups, however, had a significant focus on value created by harnessing network intelligence.
Bottomline: Value 2.0 proficiency is critical for global corporations in all industries.
Challenging the advantages of scale: disposable factories and strategies
In fast-moving markets, business is all about change. Knowing what, when, how, and where to affect change is essential to success. But as change becomes more volatile, the prudent leader needs to be reexamining assumptions about the benefits of any action/strategy that creates rigidity: “economies of scale” is one example.
Lead by competitor businesses in China, a challenging approach is being successfully deployed: disposable factories and strategies. The benefits are readily apparent: disposable factories provide a low-risk means of jumping in and out of fast-moving markets. More specifically, they can lower overall costs, save valuable time getting to market, and reduce capital risk of overestimating the demand.
Facilitating learning, create options and reduce risks
The disposable factory is not a new idea. In fact disposable factories are every where: field messes on movie sets and battlefields, concrete mixing plants built adjacent to large engineering works, a Broadway road show company, and special issue magazines staffed by freelancers. The point is that “disposability” is an underappreciated tactic to employ when the situation requires a facility than can be operating quickly at relatively low-cost and then can be quickly disassembled. Disposable factories and disposable strategies are all about investing in options and seeing where things land. Then serious investment follows.
From disposal factory to disposable strategy
The disposable model can also be applied to many other aspects of business. In fast-changing environments, any number of a business’s elements may prove disposable, including organizational structures, management teams, distribution channels, and even strategies. When strategies are at risk of being quickly made obsolete by changing market conditions, businesses must find ways to replace them with ones that are disposable.
Diagnosing the opportunity
So how can you get the most strategic advantage from disposable factories and other disposable strategies? The model should be considered when:
Speed, risk, and the need for particular assets make alternative production models uneconomical.
You face extreme uncertainty owing to a highly dynamic, competitive market or the potential for disruptive innovation.
The size of a business opportunity is not clear.
High-throughput, low-changeover production can reduce your costs.
You need to ramp up production and test markets while your permanent facilities are still on the drawing board.
A first-mover advantage could help you gain significant market share.
Learning the advantages of sustainable growth
In the midst of debates over global warming and the environmental effects of fuel-hungry emerging economies, many companies – such as Toyota, GE, Timberland and Starbucks – regard environmental sustainability as an opportunity to create a competitive advantage and a platform for growth. At this time, conclusive data proving the direct links between sustainability and profitability is lacking. But there is no doubt that:
there are cost savings inherent in sustainable activities;
public sentiment and economic realities continue to shift toward sustainability;
ways to make sustainability a competitive advantage will become more important in the years ahead.
The bottomline: companies need to experiment now with innovative sustainability solutions. These will take careful planning and analysis.
Three levels of sustainability efforts
Consumer-based companies are incorporating sustainability throughout their businesses in: 1) their products’ design and assortment, 2) their supply chains, 3) their operational footprints, and 4) their messaging to consumers, investors, and employees.
These efforts fall into one of three stages: novice, engaged and innovative. Most companies surveyed have a “portfolio” approach to sustainability, tackling some activities within each category.
Novice activities focus on prevention and compliance with standards.
Engaged activities take the next step: incorporating sustainability into daily business functions and core products.
Innovative activities complete the journey to full environmental awareness.
Steps to increase your sustainability advantage
Whether your enterprise’s environmental awareness is just beginning or has progressed to creating a new eco-platform for growth, there are four actions that can help you gain an advantage in this critical area.
Start by determining your enterprise vision. Ask: What does sustainability mean to your company and your brand? What is your motivation and what goals can you set?
Next, assess where you are now.
Think from the beginning to maximize growth opportunities. The biggest opportunities for innovation and bottom-line impact are at the head of the value chain.
Measure outcomes to determine your level of success.
The ultimate idea is to create a sustainable business platform in both the environmental and economic sense of the word.
Using value-chain analysis to discover customers’ strategic needs
Value chains may be defined in two ways: (1) the various value-added stages from purchasing materials to distributing, selling, and servicing the final product (internal); and (2) the value-added stages from raw material to end-user as a product is manufactured and distributed, with each stage representing an industry (external). The external value chain consists of the important upstream/supply and downstream/distribution processes.
For B2B service companies, it is the external value chain that presents many new opportunities for business growth. Even though these processes occur outside the corporation, the strategic opportunities they reveal and areas of risk they highlight warrant careful study.
The profit challenge
B2B service providers all too frequently are serving just the routine operating needs of their customers. The results are disappointing: although market share may be maintained and even grow, margins remain unchanged or, worse, shrink.
To address this situation, a value-chain analysis – combined with other kinds of information – is most useful to discovering the B2B customers’ strategic needs and, hence, creating new projects (new business) that will not only get a receptive audience but also command premium margins.
Value-chain analysis is used for many purposes, but the process of examining customers’ value chains is relatively new. Here is a five-step method for discovering a customer’s particular strategic needs based on a unique application of value-chain analysis.
Step 1 explains how internal and external value chains can be used separately and in related ways.
Step 2 shows how to construct a customer’s value chain.
Step 3 shows how to identify the customer’s business strategy by examining this value chain and using other kinds of information.
Step 4 explains how to use additional information and intelligence to leverage that understanding into strategic needs and priorities.
Step 5 explains how a firm’s marketing function can best use this method of value-chain analysis as a new strategic capability.
The benefits for doing this analysis on important customers include:
Identifying new high value business opportunities (and improving revenue).
Strengthening the B2B customer relationship: clarifying their strategic priorities (regardless of whether their needs are based on a differentiation or low-cost strategy or whether that strategy is implicit or explicit) allows enhanced alignment of actions with desired results.
A better way to design loyalty programs
Numerous factors are converging to create the very competitive landscape of the retail industry today. Retail customers are becoming increasingly savvy in their selection of offerings. New competitors are coming from non-traditional locations. And, according to some analysts, the US retail industry is headed toward a zero-sum game, a place where growth comes from taking customers away from competitors.
This combination of factors translates into a growing risk of customers defecting to competitors. Retaining one’s customers, therefore, is critical to survival. An effective customer loyalty program must to be a central strategy underlying most retailers’ growth objectives. The operative word is “effective”. Despite the widespread prevalence of loyalty programs in the retail industry, customer defection risk within the industry remains high. Research shows that 85 percent of the “loyal” customers are willing to shop elsewhere if properly enticed.
Clearly this defection risk is higher than retailers like. In response, some retailers have adjusted their loyalty programs to align them better with what they believe matters most to their target customers. Presented are three steps to reduce the risk of defection of customers.
Align loyalty strategy with what matters most to target customers. Confirm that the loyalty program focus is not on how it helps or hurts short-term financial and operational performance, but rather how the program changes customers’ subsequent buying decisions.
Recognize that price only buys volume but service earns continued loyalty.
Use your loyalty strategy as both a defensive and an offensive weapon.
All loyalty programs are not equally effective. Retailers that ensure that their loyalty strategy is truly customer-centric and use this strategy to both retain and acquire loyal customers will be the winners in retail’s zero-sum growth game.