Quick takes

Citation

Gorrell, C. (2013), "Quick takes", Strategy & Leadership, Vol. 41 No. 2. https://doi.org/10.1108/sl.2013.26141baa.003

Quick takes

Article Type: Quick takes From: Strategy & Leadership, Volume 41, Issue 2

Why Agile can be a game changer for managing continuous innovation in many industries Stephen Denning

The idea that firms need to become nimble to flourish or even survive is not new. But to ensure survival now many firms must focus on achieving competitive advantage through continuous product and process innovation derived from insights gained from interacting with their customers. Addressing changing customer needs means being able to nimbly adjust what the firm produces, what it sells, how it sells it and even who sells it. This degree of nimbleness can’t be achieved by the hierarchical bureaucracies that prevail in most large organizations today.

To address the need for nimbleness, a collection of management practices and values, under the labels of Agile, Scrum, and Kanban, have been field-tested in organizations around the world, almost all in the software industry.

US manufacturing took a different pathWhile Agile became a huge movement in software development, US manufacturing took a different path. Agile was a poor fit with the hierarchical bureaucracy common in large US manufacturing firms.

But the next winners in the rapidly changing world of manufacturing will be those firms that have mastered the agility needed to generate rapid and continuous innovation based on customer needs – and Agile, Scrum and Kanban techniques offer a unique opportunity to devise radical management practices to produce it.

Eight prevalent myths about Agile are addressed along with a description of how the approach really works in practice.

BottomlineThe shift to Agile is not just a matter of adopting one or two particular management tactics. Agile involves a radically different kind of management with a different goal (delighting the customer), a different role for managers (enabling self-organizing teams), a different way of coordinating work (dynamic linking), different values (continuous improvement and radical transparency) and different communications (horizontal conversations). A single fix is not enough; companies need systemic change. When the practices and values of Scrum and Agile are applied to manufacturing, the results are a new way of doing business.

Using the customer journey to road test and refine the business model David W. Norton and B. Joseph Pine II

Innovative thinking is allowing companies to create new, more valued offerings, processes and relationships with their customers. This can be seen in customer-centric companies, such as Royal Caribbean, that are seeking to craft the ideal customer interaction. This is their “customer journey,” the sequence of events that customers go through that shapes their experience and their perceived value of the company’s offerings.

Managing this customer journey, done right, is so much more than good marketing or than making incremental improvement in current offerings. Journey management can help companies innovate, allocate resources and transition from an old business model to a new one based upon a new job customers want done. The goal should be to align business strategy and the experiences that create most value for customers, over the whole extent of the customers’ transaction.

Foundations to build onWhat consumers desire, and what businesses must create to avoid commoditization, are experiences, memorable events that engage each customer in an inherently personal way.

The often-told stories of “how Apple does it,” for example, indicate one thing above all others: experiences matter.

How toA customer journey strategy has four principles:

1. 1.

   Align the customer journey and business strategy.

2. 2.

   The metric for success is “time well spent.”

3. 3.

   Co-create the customer-journey strategy.

4. 4.

   Business requirements and priorities flow from well-designed customer journeys.

The key tool to enable company leadership to understand how all of the parts fit together is a set of well-crafted scenes that describe the experience from the customer’s point of view and that identify the required performance by various operating units. By “scening” the encounters to capture the overall experience, the business strategy is translated into an easy-to-understand narrative that clarifies exactly how to deliver the experience. A customer journey concept can be quantitatively tested to give companies an indication of how much value the changes to the experience will create for consumers and the company or brand.

Bottomline: Planning the customer journey can be a powerful strategic weapon. Competitors may be able to replicate some of the things a rival does, but if they don’t know how to structure the sequence of events or why the company has set up the customer journey the way it has, they won’t easily replicate its success.

InterviewLaurence Capron analyzes corporate development’s build, borrow and buy options Brian Leavy

What are we still missing in our approach to corporate development that might help us to sustain corporate growth? This is the question that Build, Borrow or Buy: Solving the Growth Dilemma by Laurence Capron and Will Mitchell, sets out to address.

Theme 1: the changing context for corporate development and the need to consider the full range of resourcing optionsToo few companies consider the full range of “build, borrow and buy” growth options in their corporate development efforts. In today’s business environment, diversifying with multiple grow modes is smart, if it is done in a disciplined and systematic way.

In contrast, staying with a single growth mode has many inherent risks:

• •

  An over-reliance on internal growth (build), can make your company slow to acquire the new resources you need to survive in a fast moving environment;

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  Making too many acquisitions (buy) within a short period of time can lead to organizational incoherence and fragmentation;

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  Relying too heavily on licenses, contracts and alliances (borrow) can make you vulnerable to your partners’ shifting priorities.

The important thing to remember is that each of the three growth modes is just a tool, not your strategy. No pathway is inherently superior to others; superiority is solely a function of context.

Theme 2: internal development and when to buildThe key consideration when choosing the internal development mode is the “relevance” of the firm’s internal resources. Part of this process involves assessing a firm’s “knowledge fit” and its “organizational fit” when seeking to develop the targeted resources.

Theme 3: external pathways – when to borrow, when to buyIn their mania for control, executives often choose M&A, yet 70 percent of acquisitions fail. Used appropriately, however, options such as basic contracts and alliances can provide access to third-party resources under more flexible terms and at lower risks and costs than an acquisition. Criteria for “borrow” vs “buy” decisions are offered.

Theme 4: managing the resource portfolio dynamicallyPeriodic realignment is needed. This involves two main directions:

• •

  Securing greater control over resources of increasing strategic value.

• •

  Reducing or relinquishing control over increasingly peripheral resources.

Choosing carefully among different growth modes, and developing the right blend of options, will help an organization take speedy advantage of emerging opportunities, while minimizing the cost of doing so.

Tool for growth option assessmentThe Resource Pathways Framework (see exhibit) provides the basis for developing and communicating a rationale for growth mode realignments in ways that colleagues across the organization will find much easier to relate to and support.

CaseCisco’s corporate development portfolio: a blend of building, borrowing and buying Laurence Capron

In order for companies to achieve viable growth, business leaders must evaluate all three alternative pathways: to build (internal innovation), to borrow (alliances), or to buy (acquisitions). For many firms, the optimum approach is a blend of all three. Cisco, the world’s largest maker of networking equipment, provides an excellent example.

Enlightening statisticsOffered, as proof of the benefits for using a balanced growth approach, is research on 150 telecom firms companies from Europe, US and Asia, regarding their modes of corporate growth. By complementing their internal development with licensing agreements, alliances and acquisitions, the “balance portfolio” firms had a higher chance of survival over a five-year period versus firms that pursued only one of the strategies. They had a:

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  46 percent greater survival than those that just sought alliances;

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  26 percent higher survival rate than those using just M&A;

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  12 percent higher survival rate than companies using only internal development.

Cisco’s successCisco has, over the years, learned how to develop the capability to use the full range of development modes. It has also learned how to blend them into a balanced and effective resource portfolio, which it manages dynamically, working to constantly replenish resourcing options and keep them relevant to its own ever-evolving corporate ambitions in a constantly changing competitive landscape.

Although Cisco’s well-earned reputation is that of a best-in-class acquirer of innovative high-tech companies, it is also adept at complementing acquisitions with strong internal development and alliances. Its balanced approach is rounded out by corporate support activities – in-house venture expertise, strategic use of flexible incentives, an expansive resource-scanning horizon and robust execution skills – that keep it well supplied with new resources and customer-oriented solutions.

The base strength of Cisco’s corporate development is its ability to carefully evaluate sourcing options and engage adaptively and creatively with internal and external innovators. Examples of Cisco’s various practices are presented:

buying, building via intrapreneurial activities, borrowing via alliances, borrowing via basic contracts, borrowing via corporate venture activities, and borrowing via crowd-sourcing.

Going forwardAs a guide to making build-buy-borrow decisions, the Case offers sample questions and a “Resource Pathways Framework Model” (see Table 6-1).

MasterclassWill business model innovation replace strategic analysis? Stan Abraham

Businesses are intensely focused on innovation to achieve sustainable success. And much of this attention has been given to moving beyond innovating products, services, and strategies, to innovation of the company’s business model. But a management team’s work can be derailed if there is confusion: is its business model the same as its business strategy? Are they synonymous? Which to reassess, and when?

Clarifying strategy vis-à-vis business models

1. 1.

   The business model identifies who are the customers and how to make money by providing them with value; the model has four interlocking elements that together create and deliver value:

   • •

     customer value proposition;

   • •

     profit formula;

   • •

     key resources;

   • •

     key sustainable, repeatable, scalable processes to deliver value.

2. 2.

   The business strategy is how a company actually competes – how it beats competitors by being different.

3. 3.

   Strategic analysis develops or assesses the business’ competitive advantage.

Business modelsEvery viable organization has a business model. Trader Joe’s, Apple, Dell, Progressive Insurance and Netflix are examples cited. As a company grows or responds to changes in its environment, that business model changes. The easiest route to business model innovation is through adjacencies: changing the parts of the business model (cited below).

Business model canvas, shown in Exhibit 1, promotes an understanding of the current business model and whether it just needs to be tweaked or replaced. It is composed of these nine building blocks:

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  Customer segments.

• •

  Value propositions.

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  Channels.

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  Customer relationships.

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  Revenue streams – represents the cash a company generates from each customer segment – how, how much, and in what proportion?

• •

  Key resources.

• •

  Key activities.

• •

  Key partnerships.

• •

  Cost structure.

Business strategiesAn exclusive focus on business model innovation has limitations. It won’t help an organization develop a competitive advantage, outperform its competition, acquire or merge with another organization, or diversify. For these actions, strategies and strategic analysis are needed. Strategy marries external analyses – the industry and competition, markets, and other environmental trends – with an organization’s capability and resources to find ways to become a stronger competitor (or find a market space with no competition) and grow.

Going forwardBusiness models do indeed differ from strategies. An organization needs both. Ultimately doing a reassessment of both the business model and strategies will energize managers’ thinking and get them more engaged in readying the company for the future.

Managing a supply chain’s web of risk Vikram Chakravarty

Supply chain optimization and global sourcing present a significant source of competitive advantage for many companies, but also an increasingly dangerous “web of risk” stretching upstream and downstream throughout the supply chain and distribution chain. This risk has many hidden elements:

Increasing probability of damage. One survey cites more than one-third of the 100 most costly property losses in the past four decades occurred within the past eight years.

Business risk trade-offs. There is the obvious higher cost with managed risk versus lower upfront cost with unmanaged risk, but the true cost of downtime from unanticipated supply chain interruption is both direct – the immediate repair, production and product quality problems or the lost revenue – and indirect:

• •

  Reduced brand value and erosion of customer loyalty.

• •

  Loss of exclusive relationships when customers try competitor products and discover them acceptable.

• •

  Customers making a conscious decision to diversify their supply.

• •

  Loss of first mover advantages or failure to pre-empt distribution in a new market.

ApproachesManaging distribution chain risk requires more sophisticated analysis of dynamic supplier systems to identify the many strands in the web of risk. As a general rule, most companies need to model the extent to which the loss of an individual component supplier puts an entire assembled product at risk, and the capacity of a secondary or tertiary supplier to compensate for the loss of supply. Tracking mergers among key suppliers will reveal changing consolidation of risk.

Additionally, five levels of risk management are offered as well as the classic seven mitigation approaches for identifiable individual risks.

Creating a culture where managers are both accountable and remunerated for their risk management decisions underscores the importance of intelligent risk strategy to the company’s well being.

Bottomline

• •

  Watch out for the false choice between visible costs and invisible savings.

• •

  The “web of risk” lies within the chain of dependencies that exist upstream, in parallel operations and downstream.

• •

  Don’t omit adding new mechanisms for assessing risk across the supply chain due to supplier single sourcing, transportation or contingent access.

• •

  The goal is to diversify the company’s activities and design its business and finances to permit only a gradual degradation of revenues as opposed to a complete failure in the event of unpredictable calamities.

Embracing connectedness: insights from the IBM 2012 CEO study Saul Berman and Peter Korsten

Our new connected era is fundamentally changing how people engage. Technology now tops the list of external forces impacting organizations. Above any other external factor – even the economy – CEOs expect technology to drive the most change in their organizations over the next three to five years.

Using technology to promote connectivity and collaborationThe view that technology is primarily a driver of efficiency is outdated. CEOs must differentiate their organizations. And findings suggest they intend to do so through new and deeper connections. Increasingly CEOs are focusing on how recent advances in technology allow companies to re-imagine connections among people – customers, employees, partners, investors or the world at large. Technology is an enabler of collaboration and relationships – those essential connections that fuel creativity and innovation.

• •

  It’s allowing organizations to understand and engage customers, consumers, clients and citizens on a more personal level, precisely when, where and how they want.

• •

  It’s providing novel ways of inspiring employees’ individual and collective creativity, and revolutionizing how teams collaborate, make decisions and get work done.

• •

  Technology is the platform for openness and by enabling diversity of thought and the free flow of ideas it fuels innovation:

  – By turning the workforce into a market intelligence network, CEOs are expanding their ability to sense shifts and respond nimbly.

  – By empowering employees to act on their own ideas, CEOs are building employee accountability, initiative and loyalty.

  – By equipping employees to work in an open environment, they are arming the people who represent their brands to the world.

Simply put, partnering gives outperformers the edge they need to tackle the toughest forms of innovation.

Running an open organization

• •

  Empowering employees through values and shared beliefs, and hiring “future-proof” employees.

• •

  Engaging customers as individuals.

• •

  Changing how to partner – scope, governance, social innovation.

• •

  Think like a disruptor.

Bottomline: the connected organization expands people’s reachOften, there’s a tendency to focus on how humans are making the world more digital. But findings suggest the opposite. The digital world is actually making us more personally connected as humans. By erasing the constraints of time and distance, technology is freeing people to do what comes naturally – explore, engage, expand our personal and professional circles and our knowledge.

CaseFidelity Investments: adopting new models of innovation Wendi R. Bukowitz

Fidelity Investments is an American multinational, multi-division financial services corporation and a leader in a highly competitive industry. Its managers are justifiably proud of its many industry innovations over its sixty-plus years. To fuel this flow Fidelity has a centralized group, called Fidelity’s Center for Applied Technology (FCAT), to feed content to its highly decentralized business units.

Taking it to the next level, FCAT’s leadership has further stoked innovation by delivering both content and innovation processes.

• •

  Step 1: create an innovation hub called the Center for Accelerated Innovation (CAI), whose mission is catalyzing innovation at Fidelity.

• •

  Step 2: This group began with selecting a template for innovation. The result was the Fidelity Innovator’s Toolkit.

• •

  Step 3: Working with different business units on specific projects using the tools and processes in the Innovation Toolkit, the framework is a “one-stop shop” that helps people to determine whether they have built a solid foundation to support challenging projects and to identify which elements are important for their specific situation.

The innovator’s toolkitThe CAI selected three top tools as the best way to deliver results through innovation. A discussion of these tools and five key lessons learned are presented.

• •

  Idea management – enabling large groups of people to brainstorm at any time, from any place, with participants from inside and outside the organization, via technology. Using idea-management platforms, business leaders have elicited information from over half of the 40,000 employees about expertise, activity or already-formed solutions that were not otherwise visible.

• •

  Design Thinking – integrating a wide-range concepts and research to unlock creativity and apply it to framing and solving problems. Design Thinking enthusiasts have taken the principles and practices and apply them in their daily business activities.

• •

  Open Innovation – acknowledging that no organization has a monopoly on the best ideas, a Fidelity team joined a peer team from a consumer-packaged goods company to talk about engaging a common customer segment. By combining these different points of view – emotion-driven and fact-based – they were better positioned to assess and respond to their customers’ needs.

Going forward: to apply emerging practices to be more competitive, a company’s best step might be to first acknowledge that its internal development champions/drivers must innovate their approach and scope.

Catherine GorrellPresident of Formac, Inc. a Dallas-based strategy consulting organization (formacplus@gmail.com) and a contributing editor of Strategy & Leadership.

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