Quick takes

Citation

Gorrell, C. (2015), "Quick takes", Strategy & Leadership, Vol. 43 No. 3. https://doi.org/10.1108/SL-03-2015-0028

Quick takes

Article Type: Quick takes From: Strategy & Leadership, Volume 43, Issue 3

Catherine Gorrell

Catherine Gorrell is a veteran strategy consultant newly based in Portland, Oregon (4mcgorrell@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 .

How B2B companies create economic value by designing experiences and transformations for their customers

B. Joseph Pine

Innovation in all aspects of business is the critical component for success today. To get out of the commoditization trap companies must continuously seek targeted ways to attract, engage and excite customers through new possibilities for creating value.

Leading industrial equipment suppliers, for instance, are learning that such innovations need to be based not just on the specifications required by their current customers but, more broadly, on their emerging needs and the experiences of their customers’ customers. Lutron Electronics, GE, Case Construction, Ross Controls and MeadWestvaco Corporation provide case examples how B2B products and services can be designed and marketed as experiences.

Helping customers achieve their aspirations

Customers don’t really want just products, systems or even solutions. They want a better, growing business. Customers that are seeking to grow by adapting to their markets don’t just buy industrial equipment today because they want the equipment; it is always a means to an end. But companies that sell the end, rather than just the means, will create much more business value for their customers and more economic value for their enterprise.

How? Mass customization

The big value creation insight is that in an Experience Economy – an arena where interactions are based on what experiences buyers value – one of the best ways to engage customers is to mass customize goods and services for them. This is because:

• When B2B companies mass customize a product, they compete in the service business of helping their individual business customers define their needs, and then make and deliver customized products to meet those needs for each of their customers and potentially their customers too.

• Mass customizing a B2B service turns it into an individualized experience, an inherently personal, and memorable, interaction.

Two reasons

Industrial companies can create breakthrough innovations by understanding, responding to, and transforming the experience of their customers and their customers’ customers. This approach benefits the company by:

• Developing business where competition has yet to become established.

• Creating economic value by helping customers achieve their aspirations.

Bottomline

To produce offerings that fulfill your customers’ aspirations and transform their offerings, be creative about how to enable your customers to experience the world the way their customers do.

Case: How “The Three Rules” guide strategy and investment decisions at Deloitte Consulting LLP

Jim Moffatt

Based upon a large-scale study by Deloitte consultants Michael Raynor and Mumtaz Ahmed published in 2013 as the book The Three Rules, the answer to “Why do some companies achieve long-term exceptional performance?” can be summarized succinctly and audaciously:

• Rule #1: Better before cheaper – don’t let price dictate how effective you would allow yourself to be.

• Rule #2: Revenue before cost – the kind of investments made in client relationships emphasize long-term revenue opportunity even at the expense of near-term costs.

• Rule #3: There are no other rules – the first two rules apply to both core competencies as well as support services.

These three principles are central to the decision process executives and leaders of exceptional companies practice to shape their thinking about a range of difficult issues – when to invest, when to step back from competition, when to focus on cost-cutting and what it means to emphasize growth.

In this retrospective case, the CEO of the firm offers his perspective on the question, “Does Deloitte think like an exceptional company?” Examining how the three rules apply to the difficult choices this service company has made to compete in a dynamic industry illustrates how leaders can use them as guides to future critical investment decisions.

A services business’s challenges

Deloitte Consulting operates in a competitive management consulting industry where prospective and current client have more options than ever before. This competition produces numerous pressures:

• Commoditization of certain functions and services.

• A race to enter new markets.

• The tradeoffs in the types of revenue to seek.

• A furious battle for talent.

Maintaining a leadership position and adding to it requires an understanding and focus on each clients’ aspirations and then building competencies to make it happen, which sometimes requires counterintuitive investments. Using the three rules and the research behind them as a reference, leaders can identify and understand the underlying principles behind success, and even more critically, they can make certain that all decision makers in the organization understand how decisions that are consistent with the rules have contributed to past successes as well as how they can apply the rules to difficult challenges they face today and in the future.

Three questions

Leaders who want to assess whether their organizations use the Three Rules in their decision-making can ask themselves several key questions:

• Have we taken actions that emphasize quality over price competitiveness?

• Do we emphasize revenue growth over cost-cutting?

• Have we prioritized anything else over quality and revenue growth?

Knowing the answers to these questions – and how frequently decisions have aligned with the three principles – will give you a sense of how well the Three-Rules approach to exceptional growth is being observed in your business.

A leader’s guide to an organization-wide strategy journey

Johan Aurik, Martin Fabel and Gillis Jonk

In order to develop effective strategy for a future where discontinuity and disruptive competition are the likely norm, a company’s leadership will need to strive to achieve the new normal in strategy management, one that makes the leap of including talented contributors from many levels of the corporation. To do so, the authors offer a step-by-step, organization-wide approach for developing transformational strategy in a dynamic business environment.

Three principles

The proposed new approach is based on three principles, which, when applied in combination, will set it apart from earlier strategy approaches:

1. Draw inspiration from the future. The emphasis shifts from focusing on research, analyses and generalizations of current issues to looking to the future for strategic inspiration and purpose. Instead of piling on ever more complicated analyses to extrapolate what’s happening, this approach takes direct cues from fundamental trends that are affecting the company now or could affect the company in the future.

2. Be organizationally inclusive. In today’s more complex and faster changing environment, the effectiveness of a small team creating strategy in isolation to be cascaded down through the organization is limited. In contrast, in this approach, leaders draw in those with first-hand experience and knowledge of markets, customers, products, services and processes. An effective strategy, therefore, is organizationally comprehensive, with people across and up and down the company engaged in formulating the strategy.

3. Take a portfolio approach. Competitive advantage has an increasingly brief life span, which means companies not only need to devise more competitive opportunities but also manage them on an ongoing basis. Think of the strategic plan as a portfolio of competitive opportunities with each one managed throughout its life cycle. The opportunities are connected by an overall game plan and continually nurtured and culled by people within the organization. In this way, the firm’s activities stay aligned with its competitive goals and in sync with fast-changing business environments.

Combining the principles. Where strategy was once practiced as a sequential, top-down process of formulation and deployment, this approach changes it into an ongoing process of option evaluation that plays out as leaders enlist the talents of the organization to craft the strategy and capture essential feedback continually throughout the deployment. The resulting competitive strategy becomes the organization’s “new normal.” The key insight for leaders: strategy formulation and effective deployment go hand in hand.

Five steps are described for navigating this strategy journey: Aim, Inspire, Evaluate, Initiate and Embed.

Bottomline

The outcome of the strategy journey is not only a new competitive strategy but also a much more future-aware and anticipatory organization that owns the outcomes. This creates both the opportunity and the need to manage strategy in a way that continuously assesses options.

Masterclass: Understanding China: doing business in the world’s most dynamic economy

Brian Leavy

Understanding the dynamics of doing business in China is a strategic imperative for any corporate leader with global ambitions. Two well-regarded books offer valuable insight into China:

• In When China Rules the World: The End of the Western World and the Birth of a New Global Order, Martin Jacques, provides an insightful and often provocative view of China’s recent development and likely future approach to its newly emerging regional and global leadership responsibilities.

• In Can China Lead? Reaching the Limits of Power and Growth, Regina Abrami, William Kirby and Warren McFarlan, examine a similar theme, but with greater focus on the implications for the world of business.

Key points

China’s “great paradox” is its “huge abundance of human resources and extremely sparse natural resources,” and as it continues to expand the sheer scale of its needs makes it a primary export market for the world’s leading commodity producers.

The way China “handles its rise and exercises its growing power in the East Asian region will be a very important indicator of how it is likely to behave as a global power.”

China’s spectacular rise has not been without its challenges, many of which threaten to derail its ongoing development if fresh approaches cannot be found, including solutions to urbanization, pollution and corruption. Other domestic challenges are the risk of:

• Political stability if the slowdown in the economy doesn’t provide opportunity for the middle class and the income gap between the rich and the poor widens.

• The government’s losing its reputation for competence if it fails to deal with its mounting problems.

• A slowing pace of political reform and failure to achieve greater participation, accountability and transparency.

Succeeding in China

For all enterprises doing business in China, the core insights of conventional business analysis continue to be very relevant. However, context-specific considerations “dramatically differentiate” the Chinese business environment from that of the West. These include the need to align commercial interests, where possible, to national government priorities and with the provincial and local government economic priorities. Decision makers also need to recognize that although China has a strong “hard infrastructure,” its “soft infrastructure” – including health and safety regulations, quality standards, skills certification and re-certification, accounting and auditing protocols, IP and consumer protection – is weak.

Key issue: can China innovate?

How can innovation, creativity and leadership flourish within a political system that exercises top-down control, including control of ideas, education and university governance? In time, we should not be surprised to find China moving in the direction of wider political empowerment as educational levels and living standards rise, and the tension between “aspiration and authoritarianism” increasingly demands it. However, this will not come easy to the CPC. China can be expected to experiment its way very cautiously towards greater democratization, and the outcome is likely to be “profoundly different from the Western model.”

Interview: Haydn Shaughnessy: Understanding the shift to the new economy

Stephen Denning

Failure to understand the rules of the new economy represents a threat to corporate prosperity and even survival. In his new book, Shift: A User’s Guide to the New Economy, Haydn Shaughnessy provides a comprehensive tour of this emerging new economy. In this interview, he discusses the models and concepts and why the old rules don’t apply.

His main premise is that the new economy is principally a shift from production through enterprises with traditional management in vertically managed structures, towards production in horizontal ecosystems in which individuals and firms choose to cooperate. In this economy, a firm must be co-productive with the app developer community, the content community the advocacy community and the co-creative customer ecosystem, not merely traditional product development and marketing. As in any big shift, this one is also about changed social relationships in the workplace and changed roles.

In place of a single power asymmetry around the control over the means of production, the ecosystem allocates special powers to the entity that facilitates and manages ecosystem processes and interactions via a digital platform, but also distributes power the participants, especially the innovators. Clearly large platform organizations have potent capital resources, but the intellectual property and risk taking lies within the ecosystem.

These ecosystems are increasingly a new power center in the economy. And companies that manage ecosystems through platforms – some of them tiny companies that manage chunks of whole industries – are powerful new economic actors. So there’s also a shift in the power structures of society, and because power is concentrated, and innovation is highly valued, the ecosystem structure has led to an increase in the velocity of change. This has huge implications for how people and organizations operate, produce and distribute value.

And yes, the new economy is not just for new tech companies. Older big companies, like GE and Intel, are well into the shift. The process is about connection with the ultimate customer. The need is 1) to understand what the customer might or might not want; and 2) to project things into the customer space in order to understand their B2B business. It begins with a mind shift.

Bottomline: all companies will be affected, and almost all must sooner or later change to adapt to the realities of the new economy.

Key corporate sustainability drivers:engaged boards and partnerships

Gayle Avery

A new poll of business leaders indicates that two factors are vital to achieving success in reaching corporate sustainability goals – engaging the board of directors and forming wide-ranging collaborative partnerships. The good news revealed by a recent Boston Consulting/MIT Sloan Management Review survey is that there is a strong consensus on the effectiveness of sustainability partnerships. However, fewer than half of the businesses surveyed are following this best practice.

Reasons for sustainability collaborations

In 50 percent of instances enhancing brand and reputation is the principal reason for forming sustainability collaborations. Next come product and service innovation (39 percent), a desire to move an entire market in a more sustainable direction (32 percent) and managing risk (30 percent). Some pressure appears to be coming from stakeholders (25 percent) and following industry trends (21 percent).

Engaging the board

Establishing a targeted governance processes is key to meeting sustainable business goals, and this includes having a board of directors that takes a proactive interest in the process and the results.

Where the board is actively engaged, two thirds of respondents say that their firm’s collaborations are “very” or “quite” successful. The flip side is that the success rate drops to less than half of that in companies where the board is not actively supporting sustainability initiatives.

What holds boards back?

According to the Boston/Sloan research results, these considerations influence boards: unclear financial impact of sustainability initiatives, a lack of sustainability expertise among board members, other priorities, short-termism and the erroneous view that sustainability initiatives conflict with a focus on maximizing shareholder value.

Promising data

The survey found that things are getting better according to a variety of measures:

1. The percent of companies with sustainability as a top management agenda item jumped from 46 to 65 percent between 2010 and 2014.

2. More companies now have a sustainability business case, up from 58 percent in 2009 to 77 percent in 2014.

3. Engagement in sustainability collaborations is expected to grow further; 46 percent of respondents say they expect their company to be involved in more than 10 collaborations in the near future.

Bottomline

The big unanswered question is: will more boards demand sustainability collaborations and will such initiatives get their active support?