Emerald Group Publishing Limited
Copyright © 2011, Emerald Group Publishing Limited
Article Type: Quick takes From: Strategy & Leadership, Volume 40, Issue 1
These brief summaries highlight the key points and action steps in the feature articles in this issue of Strategy & Leadership.
A tipping point for foreign outsourcing economicsStephen Denning
Decades of outsourcing manufacturing have left US industry without the knowledge and the capacity to invent the next generation of high-tech products that are critical to rebuilding its economy. After competencies have been outsourced, US companies can no longer compete in the key task of actually making the goods. The threat to the manufacturing commons is a matter of survival, given that once the expertise goes overseas, there is no simple way to bring it back.
Companies that use outsourcing for short-term profits, are undermining the future of their own companies as well as the manufacturing sector.
Investment bankers have pushed outsourcing, urging it on companies so that they too can cash in on the short-term profits.
Conventional accounting ignores the real long-term costs of loss of knowledge, ability to innovate, and production capacity.
Countries hosting the outsourcing are using every possible means to encourage companies to manufacture abroad.
The cost savings of outsourcing are diminishing as the cost of labor rises in China and other developing countries, thus eroding the core rationale for outsourcing.
What’s the root cause?The problem isn’t just the decline of manufacturing. The root cause of the threat is the decline of management itself. Outsourcing and the loss of whole sectors of the economy are just one of the negative consequences of old-model management practices of “Shareholder Capitalism,” the idea that the prime directive of a company is maximizing investor profit. Any firm that adopts short-term profit-making as its only goal will likely be inexorably drawn into a set of activities with negative long-term consequences.
Addressing the problem through a new management modelFirst, recognize the deleterious effect of management focused on short-term profits. Changing the system requires the adoption of radical management with a different goal (delighting the customer), a different role for managers (enabling teams), a different methodology for coordinating work (dynamic linking) and different values (continuous improvement and radical transparency) and different communications (horizontal conversations).
Solving the problem: eight battlefronts
Pursue customer value, not just short-term profit.
Upgrade accounting to incorporate full costs and risks.
Help create an appropriate industrial commons.
Retrieve “lost” industries.
Exploit digital fabrication.
Transform the supply chain.
Exploit time as a competitive weapon.
Next stepsLeaders now have smarter options than just seeking short-term profits by choosing foreign outsourcing that risk undermining the firm’s, and a country’s, long-term future.
A leader’s guide to internal corporate venturing 2.0Michael E. Raynor
Innovation is critical to business success. And a best practice to creating innovation in business systems or products has been to adopt the model of venture capitalists: “Variation → Selection → Retention.” Yet, despite corporate “idea hunts” and “innovation tournaments” to stimulate entrepreneurial innovation, efforts very rarely turn up anything dramatically innovative. Worse, they sometimes end up making the folks whose ideas were rejected feel ignored or shunned. What started out as a way to build enthusiasm for innovation and drive long-term corporate growth ends up alienating most of the participants and convincing the innovation skeptics that they were right all along.
Core problem: Why do so many companies have such a difficult time adapting the behaviors that work so well in the venture capital ecosystem to the corporate environment?
Answer: The root cause lies in the very real differences between established companies and start-ups that no amount of organizational redesign or process creativity can overcome. Therefore corporations should not attempt to be VCs. Better innovation begins with a fundamentally different approach to an internal innovation strategy.
Focus → shape → persistThe first step is to focus the corporation’s efforts on opportunity areas that are strategically relevant. Begin by identifying those high-level spaces that will define the future of your industry. Using, for example, using a scenario-based planning exercise that can often be conducted in two to three weeks, it is possible to identify a manageable list of where the most meaningful opportunities are likeliest to emerge.
Focus → shape → persistShifting from selecting ideas to “shaping” them is perhaps the largest break from existing standard practice. Most organizations have any number of ideas floating around, some of which keep resurfacing year after year without ever seeming to get any meaningful traction or to be successfully dispatched. The reason is very often that there is a kernel of truth somewhere in the idea but it has proven impossible to develop a viable business plan.
Focus → shape → persistThe “retention” model of VC-type investing is built around pruning away what fails as quickly as possible, then selling what works at the height of its value. For operating companies, however, the goal is to create value and run it. The mechanism for capturing value is not the one-time sale of equity but cash flow from operations over a period of years.
Going forward: Replace the oft-repeated mantra of “fail fast” with the new motto “learn fast.” Companies can then practice using what they learn to rapidly improve their initiatives in ways that contribute significantly to their success.
Masters of fit: how leaders enhance hiringPreston Bottger and Jean-Louis Barsoux
Senior executives and CEOs often cite how challenging it is to assess external recruits for management positions. Hiring is an aspect of leadership work that has huge repercussions, yet how to select the right person must be a process of continuous improvement.
The game of impression managementThe goal is to find the candidate who is the best match for the job. The leader’s task is to look behind a candidate’s façade using prepared interview questions that discover the essence of the person and ascertain how they will fit in.
“Fit” is shorthand for interpersonal chemistry. But it entails much more, including fit with the job, the team and the organization – and not just with the current needs of the organization, but also with its emerging needs.
1. Fit with the job – what is the candidate’s breadth and depth of experience?Key indicators of fit are:
Has the candidate previously worked within an existing business system, modified the system or created a whole new system?
Does he or she have passion for the job?
Can the candidate truly excel on the two or three dimensions of the job?
2. Fit with the leaderHiring is just one key component of the larger process of building the leadership team. Does the candidate have valued personal qualities? Beware of the negative aspects of those same characteristics, as highlighted in Exhibit 1.
3. Fit with the team and fit with the organizationThe candidate’s credentials and qualities need to be assessed against the background of who’s already on the team and how the newcomer’s capabilities and personality will affect the existing team members and team dynamics. One indicator of the candidate’s “collaborative quotient” (their ability to subordinate personal interests to the common cause) is the number of mentions of “my” and “me” in the course of the discussion.
A two-way challengeFit cuts both ways. The leader therefore needs to be candid and give candidates the context they will need to assess the fit for themselves – even if that means turning down the offer. Here are three precautions: don’t oversell the job; do define your style; do invite questions.
Using stories for advantage: the art and process of narrativeDoug Randall and Aaron Harms
If your speech about new strategy initiatives was not well received, is it because your managerial team “resists change?” Or, maybe, the message delivered was not convincing or clear. The responsibility for producing a successful narrative is on you, the creator, to transfer meaning and motivation, rather than on the audience to receive and interpret your speech.
Effective narratives – stories that win both hearts and minds – enable leaders to achieve difficult goals. When crafted with emotion and logic, potent stories can motivate people to undertake a challenge or transform their behavior. Leaders can learn to be better storytellers and in doing so, increase the likelihood they will achieve their strategic goals.
The art and science of storiesStorytelling requires both structure and creativity. They can be improved by learning how to present the narrative using story-telling techniques.
Three common traps
The empty message. This describes any speech that doesn’t meet the audience’s needs. For instance, a leader talks only about a product’s features, but forgets to tell customers how the product can solve their problems.
The scattershot message. The speaker gives the audience lots of details in isolation, while failing to put them in the context of an overall narrative. The audience doesn’t know where to focus or how to act. The storyteller hasn’t considered: what is the essential story I need to tell, and what actions do I want my audience to take?
The dissonant message. The presentation contains inconsistencies or the story may subtly conflict with what people know to be true. Consciously or subconsciously, the audience loses trust.
How to construct effective narrativesFocus on four elements when crafting effective narratives: audience, purpose, acts, and flow. Each of these elements involves a fundamental choice. Understand these elements, and you’ll be able to get your message across using the right architecture for persuasion.
Yield purposeful resultsA deeper understanding of audiences, a more thoughtful and methodical purpose, and a clear and deliberate narrative structure consisting of carefully chosen acts and inspired flow all combine to yield purposeful results: a powerful message, effectively delivered, received and acted upon.
Emerging market strategy: innovating both products and delivery systemsBala Chakravarthy and Sophie Coughlan
Emerging markets represent a $7 trillion opportunity today and are expected to grow to $20 trillion within a decade, providing over 70 percent of global growth. But this opportunity comes with two daunting hurdles:
Innovating and pricing products to suit customers with extremely low purchasing power;
Coping with missing or totally inadequate government institutions and infrastructure that make it difficult to operate and grow a business.
The challengesHurdle #1: Low purchasing power of customers can be overcome with a stripped-down version of existing products, or products in smaller packs at more accessible price points. A better approach: basic innovation in the business model.
Hurdle #2 Critical voids in infrastructure and institutional services include lack of power, road and rail infrastructure, distribution channels, and governmental efficiencies. Both multinationals and local competitors operating in emerging markets are often required to provide the missing infrastructure on their own to reach customers. A few creative companies have developed business systems that offer additional services and thus build brand loyalty.
Overcoming the first hurdle entails packaging or product innovation, while overcoming the second requires business systems innovation. The strategic sweet spot is solving the two difficulties simultaneously.
The case of Tata Motors is an example of product innovation success that faltered when not adequately supported by a business system. The firm’s ultra-low-priced auto, the Nano, required a redesign of its distribution, financing and service arrangements to make it a success.
In contrast, emphasizing a business system innovation alone can pay off for a company. Cemex cement company, by finding an innovative way for customers to finance purchases, was able to sell existing products to a legion of new consumers at the bottom of the pyramid.
The strategic lessonIn order to fully leverage the opportunities afforded by emerging markets, companies need both product and business-system innovations. Companies that do stand the best chance of dominating the emerging markets they enter. Three cases are described.
Hindustan Unilever Limited (HUL) innovated to sell shampoo to 500,000 villages with small populations in remote parts of India.
The Indian engineering company Godrej & Boyce’s successfully sells a portable fridge for just $69 that runs on batteries and is distributed by villagers trained as salespersons.
Nokia redesigned its cell phone for the Indian market to provide performance at competitive prices, and offers a free phone service called “Nokia Life Tools,” which gives lower-income consumers information ranging from crop prices to health advice.
A reality check for corporate leaders: when managers don’t respect their bossesMarius Pretorius and Ingrid le Roux
Because middle managers are responsible for communicating a company’s vision and goals and guiding their implementation they are a crucial part of the leadership team. But it’s top management’s responsibility to closely monitor whether middle managers are effectively engaging their direct reports in conversations about company strategy. This article proposes a reality check for leaders about the effectiveness of their middle managers.
A symptom of this failure to guide direct reports is that the junior managers say they would be unwilling to follow their boss unless forced or coerced by virtue of the position or organizational authority structure.
In the surveys conducted, the top six categories of actions contributing to supervisory failure by managers were:
Posture: the way leaders treat team members and followers.
Poor people skills and little insight about values and relationships.
Inadequate focus and poor thinking – short-term thinking and being task- instead of person-focused.
Communication failure to share information, not listening to input, not giving feedback, and failing to delegate successfully.
Not giving encouragement, support and coaching.
Lacking expertise, insight, and skills.
What are the consequences of middle managers’ failure to lead?The managerial failure in the categories cited causes to followers feeling an array of negative reactions – demotivated, frustrated, confused, angry – which in turn provokes followers’ reactions – passive aggression, fraud, revenge – which in turn leads to the consequences:
Individuals’ widespread non-engagement.
Decreased team participation, which supports development of a “me-first” culture.
Organization’s suffers lower performance and skills loss when people leave for better opportunities or just do not wholeheartedly participate using all their skills.
When individuals stop volunteering or taking initiative, organizational effectiveness is eroded.
A key insight for middle and upper managers is that they are as likely to be judged by what they do not do as they are for what they do. Exhibit 1 contains many examples.
Lessons learnedThree lesson for middle and upper managers:
In order to learn from mistakes, promote a candid conversation with all parties to identify the causes.
Deliberate training and frequent retraining in the basic tools of being a good manager of people is required.
Measurement and inclusion of subordinate assessments in management scorecards is a must. If you don’t use it to measure the performance of senior and middle managers, you can’t give them appropriate feedback.
Bottomline: Can we afford to pay so much attention to such feedback based on colleagues’ perceptions? After looking at the consequences, the question should be: Can you afford not to?
Catherine GorrellPresident of Formac, Inc. a Dallas-based strategy consulting organization (firstname.lastname@example.org) and a contributing editor of Strategy & Leadership.