Quick takes

Strategy & Leadership

ISSN: 1087-8572

Article publication date: 6 September 2011

Citation

Gorrell, C. (2011), "Quick takes", Strategy & Leadership, Vol. 39 No. 5. https://doi.org/10.1108/sl.2011.26139eaa.003

Publisher

:

Emerald Group Publishing Limited

Copyright © 2011, Emerald Group Publishing Limited


Quick takes

Article Type: Quick takes From: Strategy & Leadership, Volume 39, Issue 5

These brief summaries highlight the key points and action steps in the feature articles in this issue of Strategy & Leadership.

Vijay Govindarajan: innovation coach to the developed and developing worldBrian Leavy

Strategy & Leadership asked Professor Vijay Govindarajan, one of the world’s foremost experts on innovation execution and the co-author of The Other Side of Innovation (2010), to discuss innovating for emerging markets, building the right innovation team, innovation planning as learning, and his newest concept, emotional infrastructure.

Innovating for emerging marketsDeveloped-world multinationals are struggling in emerging markets. Historically, multinationals innovated in rich countries and sold these products in poor countries. Today reverse innovation, taking unique business models from poor countries to rich ones is a winning formula. But new organizational systems are required so that full business capabilities for reverse innovation in emerging markets – including product development, manufacturing, and marketing – are possible.

Executing innovationCompanies like New York Times, IBM, Corning, Thomson Reuters, Analog Devices, and Deere use the “forget-borrow-learn” framework to drive innovation execution. They forget the core business success formula, borrow key assets from core business, and learn to resolve unknowns:

  • Do not “isolate” new businesses or “spin them off.” This forfeits the advantage of using existing assets, such as brands, manufacturing facilities, relationships with customers, areas of technical expertise and much more.

  • Create a special plan to guide disciplined experiments for quicker learning. Quicker learning leads to better decisions, and better decisions lead to better results.

  • Create a special innovation initiative team: a partnership between a Dedicated Team (using a mix of insiders and outsiders, with new job descriptions) and shared staff, who supports the project while sustaining its performance engine responsibilities.

Building “emotional infrastructure”Emotional infrastructure (EI) is the hallmark of innovative companies:

  • It is what engenders a healthy emotional climate within an organization, and enables employees to have a candid, constructive, and open dialogue about ideas – essential to innovation.

  • EI is a perceptible energy field that makes people go the extra mile, not for financial gain but for their colleagues and their company. It is what binds the organization together, creating a resilient and high-performing whole.

  • Emotional infrastructure is distinct from emotional intelligence or corporate culture. Culture is about “how we do things around here,” whereas an emotional infrastructure – or the lack of one – explains “why we do it.”

Case studyLearning to use design thinking tools for successful innovationJeanne Liedtka

This Virginia Darden Professor and expert on innovation execution, shows that design thinking is a process of continuously redesigning a business to achieve both product and process innovation. In this case study of two managers – both highly capable and committed, both seeking to innovate – a design thinking approach with a set of four tools enables one to succeed with his initiative while the other struggles.

Lessons to be learned

  1. 1.

    Success was all about learning. Learning only occurs when we step away from the familiar and accept the uncertainty that inevitably accompanies new experiences. Innovation means moving into uncertainty.

  2. 2.

    Customer intimacy. Have a deep and personal empathy with customers as people, rather than as demographic or marketing categories. A focus on improving their lives (not just selling them products), allows perception of new opportunities (unarticulated needs) that others miss.

  3. 3.

    A low-risk approach. Expect to make mistakes and therefore adopt a portfolio-based, experimental approach, in which multiple small experiments are done to test the ideas in action. Reduce risk whenever possible and increase learning by partnering with suppliers, giving them skin in the game.

  4. 4.

    Don’t bet on analysis alone. Do not seek the one right “answer” or look only for “big” wins at the outset, or to be able to “prove” the value of the idea before moving into the marketplace. All of these beliefs are fatally flawed in the context of the uncertainty surrounding growth.

The tool kitUse the set of tools routinely practiced by successful innovation firms (see box “The innovation toolkit”).

  • Journey Mapping – the ethnographic technique to follow the customer home to explore their problems in life.

  • Assumption Testing – a prototyping technique long practiced within any firm’s R&D area.

  • Co-creation – the surest way to de-risk a new offering is to involve your value chain partners in the innovation’s small initial experiments.

  • Rapid Prototyping – making small bets fast is nothing more than good old hypothesis generating and testing. Many managers have become so analysis focused that they have forgotten that the best data in an uncertain environment comes from real world trials, not extrapolation of history. A tool like assumption testing, that structures the process, is essential.

These are the kinds of new tools that all managers need to achieve the same kind of disciplined approach to innovation and growth that they bring to the rest of their business.

Strategic issue management as change catalystBruce E. Perrott

Over time, each organization needs to test and balance environmental conditions, its strategy to seize opportunities and counter threats in the environment, and its capability to implement such strategies. If strategies are not in line with conditions of the environment, strategic gaps will impede the ability to achieve organizational objectives.

Environmental turbulenceAs environmental turbulence increases, strategic issues emerge more frequently to challenge implementation of strategy:

  • Turbulence brings into question the responsibilities, balance of power, and decision-making priorities between those who manage and those who govern.

  • The level of turbulence determines the response an organization must make to survive. Low levels of turbulence might require making operational changes but few strategic changes. Higher turbulence levels bring issues that can easily catch the company off guard, especially if they emerge between planning cycles.

Strategic issue management (SIM)Under high turbulence conditions, a company’s periodic planning cycle needs to be supplemented with a dynamic, real-time, strategic-issue-management system. A case study of a prominent Australian healthcare organization shows the eight steps for how its management used the SIM process to identify, rank and address strategic issues in a rapidly changing business environment:

  • In the SIM approach, external issues are manifest as opportunities and threats, and internal issues as strengths and weaknesses. Issues are viewed in the context of the environment, strategy, and capability (E-S-C) framework. A 3x3 Strategic Issue Priority Matrix is used to map the level of urgency and potential impact of each issue.

  • Strategic-issue-processing techniques give managers the ability to identify issues and plan appropriate actions that address high priorities. Stages in this process include capturing issues, reviewing implications, assessing importance, setting priorities, and planning actions.

Bottom line: For companies entering a period of turbulence, the tracking, monitoring, and management of priority issues become imperative for the corporate environment, strategy, and capability to not fall out of alignment. The company’s survival may well depend on having a well-developed process for decision-makers to rapidly put forth critical rebalancing responses.

From social media to social customer relationship managementCarolyn Heller Baird and Gautam Parasnis

Social media holds enormous potential for companies to get closer to customers and, by doing so, increase revenue, cost reduction and efficiencies. As might be expected, social media initiatives are quickly springing up across organizations. However, using social media as a channel for customer engagement will fail if the traditional customer relationship management (CRM) approaches are not reinvented, say these IBM consultants. To successfully exploit the potential of social media, companies need to design experiences that deliver tangible value in return for customers’ time, attention, endorsement and data.

Step #1: recognize that there is a large perception gap between what the customers seek and what the company seeks. Consumers are far more interested in obtaining tangible value, suggesting businesses may be confusing their own desire for customer intimacy with consumers’ motivations for engaging.

  • Finding #1: most customers do not engage with companies via social media simply to feel connected – customers are far more pragmatic, wanting discounts, coupons, and reviews.

  • Finding #2: With social media, companies are no longer in control of the relationship. Instead, customers and their highly influential virtual networks are now driving the conversation, which can trump a company’s marketing, sales and service efforts with their unprecedented immediacy and reach.

  • Finding #3: Most consumers interact only occasionally. Only the Engaged Authors (5 percent) nearly always respond to others’ comments or author their own posts. The Casual Participants (75 percent) occasionally will respond or post their own content. The Silent Observers (20 percent) sit quietly on the sidelines.

  • Finding #4: Most businesses believe social media will increase advocacy, but only 38 percent of consumers agree, and more than 60 percent believe passion for a business or brand is a prerequisite for social media engagement.

  • Finding #5: Consumers do not engage with brands via social media due to privacy and spam concerns, disinterest, and/or distrust of the company.

Step #2: Reinvent the company’s CRM strategy.

  • Recognize social media is a game changer and the customer is in control.

  • Make the customer experience seamless – across social media and other channels.

  • Start thinking like a customer. If you aren’t sure what customers value, ask them.

  • Monetize social media, if that’s what customers want.

Bottom line: Consumers have strong opinions about their social media interactions. Their willingness to engage with companies should not be assumed or taken for granted.

Margin of safety principle and corporate strategyJoseph Calandro Jr

Corporate strategy inherently involves investment. Strategists in the business community can benefit from the point of view of value investors who apply the “margin of safety principle.”

Value investing overviewStrategists typically approach valuation using either discounted cash flow (DCF), multiples-based and/or comparables-based forms of analysis. Value investors approach it differently, by (1) intensely focusing on managing the risk of loss, (2) managing to absolute rather than relative performance, and (3) making decisions based on conservatively derived bottom-up analyses that are (4) influenced by the margin of safety principle.

A Margin of Safety is achieved:

  • By always buying at a significant discount to underlying business value (which is based on a sophisticated strategic analysis of the balance sheet) and giving preference to tangible assets over intangibles.

  • By replacing current holdings as better bargains come along.

  • By selling when the market price of any investment comes to reflect its underlying value and by holding cash, if necessary, until other attractive investments become available.

Guiding principles and conclusionThere are a number of value investing principles that can help facilitate a value-oriented approach to strategic decision-making:

  • Value investors strive to preserve capital, and therefore they intensely focus on managing the risk of loss. In this context, risk management is not a separate activity but rather is imbedded within the investment process, including how investment performance is assessment.

  • Value investors focus on absolute performance because you cannot spend relative performance. “Good absolute performance” is achieved by managing to the long-term.

  • Value investors assess both risk and reward via bottom-up analysis; not through a model or other form of top-down analysis. Bottom-up analysis involves the careful review of all relevant information in a manner blended with “skepticism and judgment,” which takes time and significant effort to apply. Top-down analysis, on the other hand, is often much faster and easier to apply (especially if quantitative models are used). The difference between these two approaches is significant, and in many ways is at the core of the issues that emerged in the recent credit crisis.

  • Bottom-up analysis is not a panacea but value investors control for error by approaching analysis conservatively.

Bottom line: the global economy is currently highly uncertain given sovereign debt levels, commodity price levels, protracted warfare, and a variety of other factors that executives and strategists must respond to. When doing so it is crucial that they not enhance uncertainty by taking unpredictable or ill-considered actions. The margin of safety principle can be a successful guide to strategic decision-making over time.

Global competition 2021: key capabilities for emerging opportunitiesArmen Ovanessoff and Mark Purdy

The next decade – the 2020s – will test the mettle of executives everywhere, especially as global competition continues to heat up, and as developing-market companies increasingly seek their places on the world stage. Major areas of opportunity are emerging – driven by dependable trends like changing demographics, rapid urbanization, new information and energy technologies.

The companies most likely to be successful in capturing rewards from these opportunities are those that develop fresh thinking in the way they approach operational excellence, customers, innovation, and the trade-off between global efficiency and local relevance.

How to capture those opportunities? First, understand the forces that will drive future growth. Second, examine what some of the most successful companies are doing to harness those forces.

Where the opportunities are – samples:

  1. 1.

    The aging of the global population.

  2. 2.

    Rapid urbanization and migration.

  3. 3.

    IT innovations (cloud computing, analytics and mobile technologies to social media, genomics and robotics).

  4. 4.

    Increasing incomes in emerging markets.

  5. 5.

    Green energy.

Harness the trend opportunitiesFour key capabilities are needed to seize the new growth opportunities created by the trends cited above:

  1. 1.

    Linking unique market strengths to operational excellence:

    • Focus on competitive essence clearly expressed and delivered (IKEA).

    • Out-structure rivals (Toshiba).

    • Out-execute competitors (Ely Lilly).

  2. 2.

    Creating deeper customer connections with IT:

    • Open systems of consumer interaction (Gap).

    • Bring customer into the design process (Lego).

    • Innovate business model for new value to customers (Zipcar).

    • Develop customer-centric business processes (Zara).

  3. 3.

    Taking an expansive view of innovation:

    • Partnering with a wide array of players (P&G).

    • Locating innovation functions wherever they can be executed most effectively (Nokia).

  4. 4.

    Balancing their global scale with their local relevance:

    • Global operational efficiency is key competitive differentiator (Best Buy in China).

    • Be relevant and responsive to more diverse set of customers, partners and stakeholders (Wal-Mart).

It’s time now to look at opportunities and capabilities to prepare for the decade just nine years ahead!

Catherine GorrellPresident of Formac, Inc. a Dallas-based strategy consulting organization (mcgorrell@sbcglobal.net) and a contributing editor of Strategy & Leadership.