Quick takes

Citation

Gorrell, C. (2009), "Quick takes", Strategy & Leadership, Vol. 37 No. 5. https://doi.org/10.1108/sl.2009.26137eae.003

Quick takes

Article Type: Quick takes From: Strategy & Leadership, Volume 37, Issue 5

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

Smart complexityDaniel Mahler and Adheer Bahulkar

Product and service complexity is nothing new, but it has been allowed to proliferate because it drove sales. Amid an economic crisis, it’s now tempting to attack complexity because it drives costs. But how? If reducing complexity were easy, everybody would have done it already.

Smart Complexity

The answer offered here is a new complexity management philosophy: “Smart Complexity.” The approach is based on the idea that innovation in complexity management can go beyond company-specific problems, or tweaking methodologies or accounting techniques. Complexity management can actually shift the way you view your business. Smart Complexity challenges the notion that every new product variant drives growth. Instead of asking, “What do we cut?” the approach prompts us to ask, “How much do we need in the first place?”

Basic premises

Complexity governance has to eliminate the counterproductive conditions that perpetuate more product variants as the only driver of growth. In the new paradigm, marketers and salespeople (and even external partners such as retailers) can be trained to drive product growth without changing the product itself. Why can’t existing products be supported by innovative advertising campaigns, win the arguments for increased shelf space based on customer buying patterns, and grab the internal attention and incentives? Such approaches can actually be both cheaper to implement and less of a gamble than over reliance on the product innovation pipeline. But they don’t happen overnight. The Smart Complexity approach moves complexity management to a new organizational philosophy: one that promises far greater potential, but requires firm leadership commitment.

Process overview

There is a four-pronged approach to complexity management. It starts with consumer research to find the right level of variety. It adds richer SKU-based data on costs across each step of a newly transparent value chain. It brings this data to a cross-functional, integrated decision process, based on fact-based discussions. Finally, it implements process changes to ensure complexity is governed and managed over time. Graphs illustrate this.

Final word

Desirable complexity drives consumer-buying decisions. Undesirable complexity unduly complicates internal processes without making a whit of difference to the consumer. Smart Complexity distinguishes between the two. A critical lesson of Smart Complexity is that top management needs to continually review the competitive effects of complexity.

Exploring “analytics” to make better decisions – the questions executives need to askLiam Fahey

“Analytics” – which emphasizes statistical and quantitative analysis, including explanatory and predictive models – has emerged as the cornerstone of business performance analysis. The avowed intent of analytics professionals is to help executives make more informed decisions, but despite their powerful new tools there’s no guarantee that truly valuable insights will flow from the mountains of data. The following are tested principles executives can use to guide the process and outputs of analytics as well as for engaging with analytics professionals.

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  Not asking questions is a grievous error.

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  Executives should be active participants in the process of shaping and extracting value from analytics. The questioning process helps develop the collaboration between executives and professionals that ensures that the knowledge and skills of both contributes to the decision-making capability of the firm.

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  Set the context; begin by defining a specific need or business performance issue.

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  The new understanding or insight must come complete with its implications relevant to the specific business issue.

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  Clearly present the business implications for thinking and decision-making. Analytics professionals must recognize that the value of analytics work resides in its decision value.

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  Co-creating insights is essential to producing quality results. It requires that executives ask for preliminary insights or key emerging findings at a relatively early stage in the analytics process. This allows executives to influence how the analytics professionals focus and conduct the remaining stages of the analysis work, and it alerts executives to the possibility that their thinking on a topic or issue may need to change.

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  Challenge each new insight by learning what is genuinely new about it, what new actions might be indicated, and what the implications are of taking them.

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  Articulate the reasoning for each insight.

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  Judgments influence insight, therefore it is critical to understand whose minds were involved, and what their “mental models” are.

Don’t sit on the sidelines

Executives cannot be bystanders in the world of analytics. Even without expertise in specific analysis methods, they can greatly contribute to value extraction through the questions they ask. By signaling that analytics must explicitly address key business issues, executives send a strong message that decision value is the ultimate test of analytics work.

CaseA pharmaceutical company harnesses the power of analyticsT.E. Clifton III

A major pharmaceutical company sought to better target key industry opinion leaders, better understand the competitive landscape in key research communities, and, ultimately, better create a strategy for the company going forward. The meant harnessing the power of analytics technology to study tens of thousands of relationships and keep this information continuously updated.

Decision analytic approach

To do this, the company adopted a “decision analytic” approach. This involved assigning executives to work closely with data and analytics experts to understand the challenge, the available data, and the “realm of the possible” in analytic techniques and technologies. The project’s goal was for the team of executives and analytic experts to co-craft a decision analytic solution that would help the executives understand relationships between and among different key participants in the research communities.

The team focused the decision analytic solution on a combination of “Social Network Analysis” or SNA supported by deep-web harvesting of the required data from Internet-accessible databases. (The “deep web” consists the databases behind surface web pages, which return dynamically-generated pages of results based upon users’ queries. Deep web harvesting tools can automatically query these sites, and process the results pages into forms suitable for analytics.)

The results

As the solutions and the analytics evolved, executives developed significant insight into the research communities the company was targeting. The executives identified several key opinion leader candidates, and also developed an appreciation for the pattern of competitor activity across the community.

The end result – pooling the executives’ deep appreciation of the business purpose, with the analytics practitioners’ extensive understanding of the data and “realm of the possible” analytic techniques (SNA and others), resulted in discovery of critical insights neither group would have found on its own.

Lesson

The key to the success of this effort was direct involvement by the executives in the analytics activity. The executives continually challenged the analysts, asked thoughtful questions, kept the overall process focused on the key business drivers, and successfully blended their understanding of the kinds of insights the company required with the analysts’ ability to generate insights from large volumes of data.

A comprehensive strategy for globally integrated operationsDave Lubowe, Judith Cipollari and Patrick Antoine

The “R-O-I Framework” for making global integration operational is a proposed solution to the need business leaders have to cut costs, optimize resources, and improve capital productivity, on a global basis. This business strategy tool emphasizes repeatable processes, optimized assets and integrated operations, all on a global basis and supported by strong leadership, organizational structures and technology. Its development was based upon the best practices of some 20 leading companies surveyed.

The three ROI elements must be addressed concurrently. They consist of these components:

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  Repeatable processes – eliminating inefficiency, optimizing effectiveness, and managing exceptions; 95% of companies surveyed focused extensively on this.

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  Optimized assets – managing core versus non-core activities, optimizing locations and establishing virtual operations; 80% of companies focused extensively on this.

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  Integrated operations – optimizing global competencies via partnering and managing end-to-end processes on a global basis; 70% focused extensively on this.

Are you ready?

Despite an increasing awareness among CEOs and other business leaders of the importance of global integration, stumbling often occurs when it comes to establishing the operational capabilities needed to support global integration; for example, many still manage their processes, assets and operations locally. Top performers, however, have a systemic view and are integrating processes, assets and operations on a global basis.

A self-assessment guide

To help determine your own organization’s level of global integration, a self-assessment is offered.

Repeatable processes:

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  How will you eliminate redundancies to support efficient global operations?

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  How can you optimize the effectiveness of your operations to establish high quality standards while focusing on the areas that really matter to customers?

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  In what ways are you managing the exceptions to repeatable, standardized processes, keeping exceptions to no more than 20 percent of all transactions?

Optimized assets:

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  How will you identify core versus non-core processes? What is your plan for managing the non-core processes via outsourcing or other solutions?

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  What will you do to locate processes strategically on a global basis to optimize assets, talents, resources, distance to markets and other key factors of production?

Integrated operations:

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  What is your partnering strategy to optimize global competencies?

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  How can you manage every process from end-to-end, within and beyond company walls, on a global basis?

Leadership, organization, and technology are three additional areas in this self-assessment questionnaire.

Entering the Chinese mid-market segment: key to long-term success?Heiko Gebauer, Thomas Fischer and Elgar Fleisch

Strategists see Chinese markets as having three major components. They are:

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  the high-end, which is the traditional entry point for branded products of international companies;

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  the mid-market, a wide swath of the market where customers are looking for products that meet local needs and are available at local prices; and

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  the low-end, where intense local competition for sales to low-wage customers forces razor thin margins.

Target the mid-market

Increasingly, analysts believe that long-term success largely depends on winning in the huge mid-market. This mid-market is now the fastest growing segment with the highest sales potential. Companies that conquer the unique challenges of this segment will probably dominate the entire Chinese market because they will have the advantage of economies of scale and scope. But success in the mid-market will require a specific set of competencies for both domestic and international companies. These are summarized in an exhibit.

A product strategy for the mid-market

Key factors for formulating the product strategy are:

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  Up-to-date market analysis, early market entry and moderate prices. Involving firms with extensive, direct experience with different product strategies is essential for collecting high-quality data.

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  Setting up separate organizational units targeting the mid-market is likely the best way to implement the product strategy.

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  Localizing research and development, and adjusting manufacturing processes: they seem to present both major challenges and the key to success for the separate organizational unit.

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  Entering the market too early and too ambitious can put the company at risk. Only if domestic companies have already achieved reliable and constant product and service quality should they undertake the adventure towards the mid-market segment.

By entering the mid-market segments, managers may have to adapt to the voids in China’s product markets. Companies, however, must retain their core business proposition even as the market entry changes their business model. If the market entry is too radical, international firms can lose their advantages of global scale and global branding.

Bottom-line

International firms will likely only succeed in China if they take actions that are consistent with a long-term strategic intent, and if they can formulate a product strategy for China’s mid-market segment.

CaseA tiny start-up offers invaluable innovation lessons for large manufacturersMartin Hoegl, Matthias Weiss, Michael Gibbert and Liisa Välikangas

This case is another example that resource scarcity can be a driver for innovation. And proof again that large manufacturers, who are resource rich, can be hobbled by a culture addicted to the status quo when the company faces the need for radical innovation.

Who

There is a small start-up carmaker called Loremo, Inc. in Marl, Germany, that is thriving by challenging resource constraints with bold innovation. Their breakthrough designs and concepts have made them leading contenders in the international competition for the $10-million prize for the first production-ready car to achieve 100 mpg.

How

The engineers of Loremo just didn’t have the money to experiment with expensive lightweight materials or new engine technologies like General Motors or Volkswagen. Nor did they have the resources to spend years developing a prototype car that is not designed for use by the public, as the major automakers have had. Instead, the Loremo engineers had no other choice but to make a virtue of necessity, to develop their car with regular power train technology and affordable materials like steel and plastics, but then to re-consider the traditional principles of automobile engineering, which other companies take for granted. The car’s inventor, Uli Sommer, used sailplanes as a source of analogies for his idea of a super-efficient automobile. Furthermore, he proceeded by not being wedded to costly processes that result from taking a “design stance.” That is to say, they were not committed to design parts to do a particular job, as done by the rest of the industry, but instead borrowed from other industries.

Companies like Ford and General Motors – and perhaps, manufacturers in all the developed countries – might take a lesson from the tiny Loremo car company.

CaseWhen an initiative is stalled by warring factionsLaura Stone

This case of a failing, but ultimately successful, $180-million offshore outsourcing project reveals how taking an elegantly simple approach to resolving complex issues can help teams identify, align and quickly execute on the areas with the greatest impact.

A retail company and a technology service provider recently underwent a turbulent 18-month process to implement a transformational Human Resources (HR) outsourcing initiative. Corporate managers and the service provider executives held divergent views of the cause of the problem. Their disparate agendas thwarted any collaborative actions.

Forging a truly nimble partnership

So how could this $180-million project be saved? The answer lay in creating a strategic partnership. Initially each participant in the project had little regard for the organization’s ultimate goal or the impact that the work had on others. By shifting their focus to the end user, the teams began to rethink the importance of issues. Only after warring parties had created this partnership that the mindset of both parties changed, opening the doors to progress and valuable results. This allowed nimbleness in thinking quickly allowed major changes to occur. In addition, simple operational changes, such as having one point of accountability for each function from both companies helped decrease turnaround time for problem resolution.

Tips and lessons learned

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  Being nimble requires far greater understanding of the whole system, the ability to handle complexity and the skill to capture the essence of a situation with simplicity – all while continuing to build and maintain high trust levels.

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  Use the “back of the napkin” test to distill the central take-aways for teams. If you can explain the core issues, opportunities or actions on the back of a napkin, you will be far ahead of the pack.

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  Continually re-examine the impact of the work and results. Most teams meet weekly or bi-weekly, focusing on the day-to-day. Increase your nimbleness by scheduling monthly half-day meetings that focus only on the strategic work that only your team can do.

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  Deal with the brutal facts head on, thinking through with your team the implications of those facts and then defining the most critical work that must come from your conclusions.

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