Tuesday, September 13, 2022

Manage Your Customer Portfolio for Maximum Lifetime Value

Learned a lot lending an editorial hand here:

MIT Sloan Management Review, September 13, 2022

by Fred Selnes and Michael D. Johnson

Traci Daberko/theispot.com

Many companies have embraced the importance of creating closer, more valuable relationships with customers. But most do little to actively manage their portfolios of weaker and stronger relationships, other than keeping them diversified. They’re missing significant opportunities.

When we wrote about customer portfolio management (CPM) and our research into customer portfolio lifetime value (CPLV) for this publication in 2005, we emphasized the need to balance a “large, leaky bucket” of weaker customer relationships alongside closer and higher-value customer relationships. But according to our latest research, there is much more that businesses can and should be doing to drive future revenue. These actions depend on both market conditions and a company’s resources.

Growing a company’s customer portfolio requires continual investments across a range of weaker to stronger relationships. Our updated CPLV model shows that a clear understanding of when and how much to invest in, leverage, and defend different customer relationships is an essential determinant of both current and future revenues and costs.

Most companies lack a basis for developing this understanding. Business leaders seeking to optimally manage the ecosystem of customer relationships face a complex problem — and for most, de facto CPM practices are more likely to focus myopically on either current sales or their most valuable customers. However, our model shows that what’s really required is to integrate multiple dimensions (not just scale, but also variances in customers’ needs and wants) and tactics (relationship conversion, leverage, and defense) across the whole customer portfolio.

Our CPM framework and CPLV model enable executives to answer the following key questions as they seek to grow and optimize their company’s customer portfolio:
  • How central is developing customer relationship strength to our strategy and competitive advantage? More specifically, when and how much should we invest in converting weaker relationships to stronger relationships?
  • How do we leverage these investments once relationships are created?
  • How do we protect the relationships we have created to minimize customer churn?
The CPM framework we’ve constructed and applied over the past two decades rests on a fundamental principle: It’s in a company’s best interest to view its market strategy as a long-term investment in the strength of relationships over an entire portfolio of current and future customers. Its core element is the segmentation of customers by their relationship with a brand — progressing from strangers to acquaintances to friends and, finally, to partners.

Our CPLV model illuminates how these relationships relate to the value proposition of a company by predicting a seller’s future revenues from and costs associated with the different relationship segments. These predictions are based on a set of parameters that includes market growth over the course of a product life cycle, unit cost over time, the cost and probability of deepening relationships, relationship premiums, and switching costs and probabilities. By running extensive simulations within the model, we have identified three explicit goals for an effective CPM growth strategy: relationship conversion, relationship leverage, and relationship defense. Read the rest here

Thursday, September 8, 2022

How Smart Products Create Connected Customers

Learned a lot lending an editorial hand here:

MIT Sloan Management Review, September 8, 2022

Jon Krause/theispot.com

As leaders of legacy product and service companies anchored in traditional value chains seek ways to prosper in the digital economy, one of the most important questions they can ask is, “How can we turn our existing customers into digital customers?” Digital customers don’t simply buy products and services: Their interactions with those products and services generate data that companies leverage to provide them with greater value over time. Those data insights also help companies attract new customers, create fresh revenue streams, and expand the scope of their businesses. This customer-generated data, which is often combined with other data streams, has fueled the growth engines of companies built on digital platforms, like Amazon and Google.

Legacy companies typically collect episodic data from discrete events — the sale of a product or the shipment of a component, for instance. Amazon and Google capture a continuous stream of data at every customer touch point on their platforms that is used to generate a new class of insights that play a more expansive role in their businesses. All of their customers are digital customers. Now, thanks to technologies such as sensors, the internet of things (IoT), and artificial intelligence, legacy firms, too, can transform their customers into digital customers who generate streams of data via their interactions with connected products.

Sleep Number uses sensors in its mattresses to track its customers’ sleeping heart rates and breathing patterns. This data enables the company to identify chronic sleep issues, such as sleep apnea and restless legs syndrome, and expand its business scope beyond mattresses to wellness provision. Sensors on Caterpillar heavy machinery produce data that enables the company to track wear and tear, predict component failures, and create new revenue streams from maintenance services. Chubb is installing sensors in the buildings it insures to detect water leaks before they become claims. In this way, the company is expanding beyond damage compensation to damage prevention.

For all its promise, harnessing value from digital customers also brings new challenges for legacy companies. They must develop new value propositions, build out their data infrastructures and strategies, staff for new digital and product design capabilities and competencies, and rework innovation processes to create a feedback loop using valuable customer interaction data. And they must learn to market and sell their new value proposition to create a new digital customer base — and reap the benefits of their digital transformation. Read the rest here.

Thursday, August 25, 2022

How “Corporate Explorers” Are Disrupting Big Companies From the Inside

Insights by Stanford Business, August 24, 2022

by Theodore Kinni

|iStock/Alexey Yaremenko

The conventional wisdom holds that disruptive innovation is beyond the ken of large, incumbent companies. But then there are companies like Microsoft, which transformed its ubiquitous Office software suite into the Office 365 subscription service. “If Microsoft had done that as a startup, it would be a multi-unicorn,” says Andrew Binns, a founder and director of the strategic innovation consultancy Change Logic. “Office 365 is a whole new business model, but nobody talks about it as disruptive innovation.”

Binns, along with Charles O’Reilly, a professor of organizational behavior at Stanford Graduate School of Business, and Michael Tushman of Harvard Business School, finds that more and more established companies are overcoming the obstacles to innovation with the help of what they call corporate explorers. Corporate explorers are managers who build new and disruptive businesses inside their companies. Sometimes with a formal mandate, sometimes not, they use corporate assets to support and accelerate the development of these new ventures.

Binns, O’Reilly, and Tushman studied a number of these entrepreneurial insiders and report their findings in The Corporate Explorer: How Corporations Beat Startups at the Innovation Game. The book builds on the trio’s continuing research into ambidextrous organizations — companies that succeed over the long haul by simultaneously exploiting their existing businesses and building new ones that drive future growth.

In a recent interview, O’Reilly and Binns described the traits of corporate explorers and the conditions they need to thrive. Read the rest here.

Thursday, August 11, 2022

When it comes to changing culture, think small

strategy+business, August 11, 2022

by Theodore Kinni

Illustration by PM Images

Effective leaders know that long-term corporate success requires a strong organizational culture that is well aligned with a company’s purpose and strategy. As Lou Gerstner wrote, describing the turnaround he orchestrated at IBM in the 1990s, “I came to see, in my time at IBM, that culture isn’t just one aspect of the game—it is the game.” Nevertheless, it remains commonplace for corporate transformations, mergers and acquisitions, and other large-scale initiatives to lose momentum after running headlong into cultural barriers. What gives?

This is a question that Roger Martin, a CEO advisor and the professor emeritus of strategic management at the University of Toronto’s Rotman School, has been mulling for 30 years. In his latest book, A New Way to Think: Your Guide to Superior Management Effectiveness, a compendium of his writings for the Harvard Business Review, he observes that leaders typically approach culture change in one of two indirect ways.

Most often, Martin told me in an interview, they attempt to change the culture by edict. “They say something like, ‘I’m CEO, and this is a very bureaucratic organization. Everything takes too long. This will be a nonbureaucratic company because I say so.’”

The other commonly used approach relies on structural changes, Martin explains. “The CEO says, ‘This place is bureaucratic because the finance department is overbearing. So, the CFO will now report to the COO, and the COO has a mandate to keep finance from getting involved in things in which it shouldn’t get involved.’”

Unfortunately, neither approach is powerful enough to successfully change an organizational culture on its own. “They don’t work, because they don’t change the shared interpretations and norms within an organization,” says Martin. “The truth about culture is that the only way you can change it is by changing the way individuals work with one another. If you can change that, then you will find the culture has changed.” Read the rest here.

Wednesday, July 20, 2022

Saudi Arabia’s dynamic television and video market

Learned a lot lending an editorial hand here:

PwC Strategy&/MBC Media Solutions, July 2022

by Karim Sarkis, Karim Daoud, Carla Khoury, Nadim Samara, and Jamil Kabbara

Saudi Arabia’s vibrant and rapidly growing entertainment and media (E&M) industry is making an important contribution to the country’s culture and its economic diversification. In particular, the TV market is undergoing transformation and the over-the-top (OTT) video market is dynamic and developing as new technologies emerge. Globally, audiovisual content has become a respected cultural artefact and is experiencing record levels of demand—in which Saudi Arabia can now participate.

The Saudi market’s E&M growth potential stems from its distinct features—high rates of content consumption, including TV, streaming, video sharing, and gaming; impressive adoption of smartphones; robust social media; fast connectivity; and advertising growth opportunities. Indeed, while streaming and mobile penetration are changing how video is consumed, TV retains a majority share of viewership. Digital technology allows viewers to blend linear and streaming, curating their own content.

To grab more of this market, TV and video players should know their viewers intimately so that content producers can predict programming needs, grow viewer numbers, and create content to gain audience share domestically, regionally, and internationally. Media companies should continue with extending their offerings to on-demand streaming, digital transformation, innovation, data analytics, social media engagement, and digitally enabled advertising. To support such customer-centric change, media players should deepen partnerships with telecom operators, technology companies, and content creators, while building their internal capabilities to become more innovative. Read and download report here.

Thursday, June 30, 2022

Accelerating digital: A win-win-win for customer experience, the environment and business growth

Learned a lot lending an editorial hand on this report:

Economist Impact, June 2022

Digitally advanced firms are accelerating ahead of the competition. They are able to use real-time data insights to transform customer experiences and to improve their sustainability footprint. Discover how businesses can overcome data access and activation challenges to drive profitable growth.

The business landscape is constantly evolving and, with it, digital transformation. Businesses are under pressure to adapt to new competitors, increasingly from non-traditional markets, and to navigate ongoing geopolitical and economic uncertainty. At the same time, they need to become more sustainable and socially responsible, driven by government mandates and customer demands. Our new study shows that digitally driven businesses are able to embrace these rapid changes in their markets and deliver better customer experiences to drive profitable growth.

Indeed, the vast majority of firms we surveyed (99%) are leveraging new digital business models to tackle these challenges and drive greater agility, a trend that has been accelerated by covid-19. Over half (55%) of businesses expect a long-term increase in their use of digital technologies as a result of the pandemic, according to research by the European Investment Bank.

Firms that are able to capture and derive value from new streams of data, and offer new products and services rooted in digital capabilities, can improve their operational efficiency, reduce their carbon footprint and boost customer satisfaction. This can translate into improvements in both revenues and profit margins, with 80% of our survey respondents stating that some form of digital transformation contributes over half of their profits today. Moreover, 95% expect some, most, or all of their revenue to be digitally enabled within five years.

However, there is often a wide gulf between the digital ambitions of firms and their ability to use data insights at scale, which would enable employees to make better real-time decisions and drive higher levels of innovation.

To better understand these trends, Economist Impact has undertaken an ambitious research programme. We have examined the state of digital transformation in businesses across five sectors in which digitalisation offers substantial opportunities for growth and competitive advantage: construction and infrastructure; manufacturing; transportation and logistics; energy; and healthcare and pharmaceuticals. Our global survey of 500 multinational firms identifies the ongoing barriers they face in executing their digital strategies. We offer cross-industry insights on how these barriers are being overcome based on economic analysis of firms that are successfully using digital business models to boost their customer satisfaction, sustainability metrics and revenues, and interviews with experts. Read and download the report here.

Tuesday, June 21, 2022

To improve management, build a decision factory

strategy+business, June 21, 2022

by Theodore Kinni

Illustration by Lava4images

by Don A. Moore and Max H. Bazerman, Yale University Press, 2022

“We think of organizations as decision factories,” write professors Don A. Moore and Max H. Bazerman in their new book, Decision Leadership. It’s an apt simile. Knowledge workers, whose output is typically decision-driven, now number more than 1 billion worldwide. Moreover, as the number of rote tasks that are automated increases, many more employees are being freed for higher-level work that entails decision-making.

Given this reality, it’s no surprise that boosting the decision intelligence of the workforce is moving up the leadership agenda. But Moore and Bazerman, holders of endowed chairs at the University of California, Berkeley’s Haas School of Business and Harvard Business School, respectively, take an even more expansive position on decision leadership—a stance that sets up a formidable ambition for this relatively short book.

“We aim to define leadership in a new way, one grounded in the belief that leaders’ success depends not only on their ability to make good decisions but also on their ability to help others make wise decisions,” they write. “In our view, great leaders create the norms, structures, incentives, and systems that allow their direct reports, the broader organization, consumers, investors, and other stakeholders to make decisions that maximize collective benefit through value creation.” To support their new definition of leadership, Moore and Bazerman seek to weave together the various threads of behavioral economics that pertain to decision-making and then translate them into practical advice for leaders who want to both improve the quality of their own decisions and bolster the decision prowess of their companies. Read the rest here.

Friday, June 3, 2022

Mastering Innovation’s Toughest Trade-Offs

Learned a lot lending an editorial hand here:

MIT Sloan Management Review, June 2, 2022

by Christopher B. Bingham and Rory M. McDonald

Dan Page/theispot.com

Innovation is frustratingly hit-or-miss. More than 90% of high-potential ventures fail to meet projected targets, while roughly 75% of the products released each year bomb. Few established organizations remain dominant over time, as revitalization efforts fail or backfire, costing companies time and money and creating openings for competitors; even fewer generate above-average shareholder returns for more than a couple of years.

These failures are often attributed to a lack of money, talent, or luck. But we think the underlying cause is that innovation in dynamic environments — those characterized by novelty, resource constraints, and uncertainty — is rife with critical tensions. When left unaddressed or mishandled, these tensions sink teams and organizations. Until now, there has been little focus on these tensions in practice or theory, leaving leaders blind to their existence and without the rigorous approaches needed to successfully manage them.

To address this, we conducted hundreds of interviews at organizations in diverse industries on five continents and surfaced eight questions that every innovation leader must be able to answer correctly. We’ll discuss each in turn and provide practical guidance for harnessing the tension that underlies each question. Read the rest here.

Thursday, June 2, 2022

A kinder, gentler deal

strategy+business, June 2, 2022

by Theodore Kinni

Photograph by Say-Cheese

by Barry Nalebuff, Harper Business, 2022

Anyone who has been the underdog in a negotiation is going to eat up Barry Nalebuff’s new book, Split the Pie. The Milton Steinbach Professor at the Yale School of Management, who cofounded Honest Tea as a side gig, combines logic and empathy in a strategy that undercuts power-driven negotiating tactics.

The simple principle that drives Nalebuff’s approach is this: the negotiation pie—that is, the value produced by the deal, over and above the value that the parties to the deal can create on their own—should be equally spilt. It doesn’t matter who has the most power or who needs the deal the most—what matters is the value stemming from the deal and the inability of either party to achieve it without the other. In this sense, all the parties to the deal have a legitimate claim to an equal share of the negotiation pie.

Nalebuff illustrates this concept with an easily followed example: a pizzeria will give Alice and Bob a 12-slice pizza if they can agree how to split it. If they can’t, it will give them half a pie, but unequally divided: four slices to Alice and two slices to Bob. These no-deal slices comprise what Roger Fisher and William Ury called the BATNA (best alternative to a negotiated agreement) in their best-selling negotiation book, Getting to Yes.

Nalebuff’s solution is to focus on the additional slices that Alice and Bob get if they make a deal. He splits the six additional slices in half. This gives Alice a total of seven slices (her BATNA of four slices plus her half of the six slices in the negotiation pie) and Bob gets five slices (his BATNA of two slices plus his half of six slices in the negotiation pie). Voilà.

“The pie framework will change the way you approach negotiations in business and life,” writes Nalebuff, who has been teaching this approach to MBA students and executives at Yale for the past 15 years, as well as online at Coursera. “It will allow you to see the negotiation more clearly and more logically. It will lead you to an agreement where the principle applied doesn’t depend on the specifics of your situation. It will help you make arguments that persuade others by identifying inconsistencies in their approach.” Read the rest here.

Tuesday, May 24, 2022

Persuasion, Hollywood style

strategy+business, May 23, 2022

by Theodore Kinni

Photograph by Archive Holdings Inc.

I usually associate pitching with characters like the late inventor and pitchman Ron Popeil, who earned a spot in America’s cultural history—and a small fortune—hawking products such as the Chop-O-Matic, the Pocket Fisherman, spray-on hair, and the Showtime Rotisserie and BBQ oven on late night TV. (“Set it, and forget it!”) But that’s a reductionist view, at best. Pitching is a form of interactive selling that business leaders at all levels need to master.

“We define a pitch as a scheduled meeting for the specific intention of trying to promote an idea, business project, or script,” write Peter Desberg and Jeffrey Davis in their new book, Pitch Like Hollywood. As the title suggests, Desberg, a clinical psychologist and a professor emeritus at California State University, Dominguez Hills, and Davis, a screenwriter and professor at Loyola Marymount University School of Film and Television, look to the film industry for lessons in pitching. And rightly so. Movies and TV shows are typically sold on the strength of a pitch to studio executives that can take anywhere from an hour to several days, depending on the size of the project.

Though CEOs tend to be polished presenters, pitching a new strategy to the board or an acquisition offer to the founders of a promising startup is not the same thing as making a presentation. “The biggest difference is the interactivity. Pitching is not a one-way presentation—it’s not, ‘I’m gonna tell you, and you’re gonna sit and listen to me,’” Davis told me during a video interview with the two authors. “A pitch is less controlled. If your pitch is good, you’re involving the people you’re pitching. You are trying to get their opinions, to get to what’s important to them, and to get them to help you shape your pitch to really make it work.”

This interactivity gets to the root cause of many failed pitches—mishandling criticism. “If a catcher asks a pitcher a hostile question or points out a flaw, and the pitcher gets defensive or counterattacks, the conversation dies,” said Desberg.

For their pitch to avoid this fate, leaders should take a lesson from a story the authors relate about a creative director at an ad agency who pitched six potential campaigns to a tire company executive. When he’d finished, the exec looked at him and said, “I hate everything you’ve shown me.” Unflustered, the creative director asked, “Which one do you hate the least?” That question led to a conversation that ended in a successful campaign.

Like the creative director, good pitchers see criticism as a green light. “They’re thinking, ‘This person is trying to enter a creative collaboration with me. I’ve got to nurture the heck out of that,’” said Davis. “Show business, like all business, is more collaborative than ever. If you’re not a collaborator, you have no future in business.” Read the rest here

Thursday, May 12, 2022

Unleashing the power of government transformation: The Ministry of the Future

Learned a lot lending an editorial hand here:

PwC Strategy& Ideation Center, May 2022

by Fadi Adra, Yahya Anouti, Raed Kombargi, Paolo Pigorinia, and Dima Sayess

Middle East governments have ambitious plans to transform their countries in the face of economic, social, and technological challenges. This task has been made more urgent and difficult by the COVID-19 pandemic. The difficulty is that many of the ministries and agencies responsible for envisioning and guiding transformation are hampered by their own roles, operating models, capabilities, and governance structures. If these ministries and agencies are to play a leading role in national transformation, they will have to first transform themselves.
The challenges for Middle East governments are substantial. They include changes in the region’s social fabric, mounting economic competition, technological advances, rising barriers to global trade, and budgetary pressures.In this environment, there is an urgent need for purpose-driven ministries and agencies that are fully accountable for delivering high-impact services. Too often, however, government itself becomes an obstacle to the achievement of national transformation. The sheer bulk of the region’s governments, attributable mainly to public-sector employment acting as a social safety net and weak private-sector and economic integration, reduces governmental efficiency, effectiveness, and decision-making ability. The over-involvement of government in operations and service delivery prevents private-sector engagement and expansion, hinders innovation, and creates negative competition. Moreover, few governments to date have fully taken advantage of the power of technology to lower the barriers to decision making, policy formulation, and performance evaluation.

Before they can transform their countries, governments need to become fit-for-transformation in seven ways. They must become:
  • DIGITALLY POWERED: Relying on advanced and emerging technologies to enable solutions and conduct operations
  • ANTICIPATORY AND PROACTIVE: Utilizing horizon scanning, foresight, scenario analysis, and best practices to address emerging and potential challenges and opportunities
  • CUSTOMER-CENTRIC AND HOLISTIC: Adopting a customer-focused, whole-of-life approach to service delivery
  • COLLABORATIVE AND PARTICIPATORY: Taking advantage of the collective resources, capacities, and expertise of the public sector, private sector, and citizens in order to design, deliver, and assess solutions
  • AGILE AND DYNAMIC: Employing lean and flexible organizational structures staffed with fluid, crossfunctional, and accountable teams
  • INNOVATIVE AND RESILIENT: Ideating, prototyping, piloting, and delivering creative and future-proof solutions that make government resilient
  • EVIDENCE-BASED AND RESULTS-ORIENTED: Using targets and indicators to set, monitor, and evaluate clearly defined objectives, impacts, and outcomes 

Thursday, May 5, 2022

Getting and staying motivated

strategy+business, May 5, 2022

by Theodore Kinni

Photograph by ATU Images

Get It Done: Surprising Lessons from the Science of Motivation
by Ayelet Fishbach, Little, Brown Spark, 2022

In the early years of the last century, Hanoi had a rat problem. To solve it, the French colonial government placed a one-cent bounty on the rodents, which could be claimed by anyone who delivered a rat’s tail. Thousands of tails were tendered, but Hanoi’s rat population didn’t shrink. Instead, tailless rats were running through streets, and rat farms were discovered. To make money selling rats’ tails, you need lots of rats breeding more rats. The moral of the story: be careful which behaviors you reward.

Ayelet Fishbach, the Jeffrey Breakenridge Keller Professor of Behavioral Science and Marketing at the University of Chicago Booth School of Business, tells the tale of Hanoi’s rats in Get It Done. The book is a deep dive into a veritable ocean of behavioral research, including a substantial number of studies conducted by the author. This area of scholarship is so full of codicils and complications that it’s a wonder that managers can motivate themselves, let alone the people in their charge.

Consider the role that progress plays in motivation. Will you be more motivated if you focus on how far you’ve already traveled toward a goal or if you keep your attention trained on how far you have left to go? The not-so-simple answer, explains Fishbach in chapter 5, is: it depends. What’s your emotional predilection—are you a glass-half-empty or glass-half-full kind of person? Is the goal you are pursuing a conditional one with all-or-nothing benefits that are paid on completion or an accumulative one from which you derive benefits as you go? And how far along on the path are you: how close are you to reaching your goal? Your answers to those questions determine how you should use progress as a motivational force. What’s more, if you don’t ask those questions and answer them properly, the progress that you’ve made toward your goal could become a demoralizing force and an obstacle to its achievement.

Every chapter in Get It Done reiterates the multifaceted nature of self-motivation and underscores the critical nuances in the kind of advice found in sound bites on social media... read the rest here

Wednesday, April 20, 2022

Break the Link Between Pay and Motivation

Learned a lot lending an editorial hand here:

MIT Sloan Management Review, April 20, 2022

by Jonas Solbach, Klaus Möller, and Franz Wirnsperger

Neil Webb/theispot.com

Pay-for-performance (PFP) compensation systems were invented in the industrial age to drive individual performance — and despite research showing that this approach is ill suited to much of the knowledge work performed in organizations today, the practice persists as the norm.

Compensation systems remain stuck in the past for several reasons. The first is, essentially, inertia: Companies have been using PFP for decades, and the best practices disseminated by compensation consultants usually derive from it. Additionally, most leaders are either not aware of the research on PFP or dismiss it as unreliable. Finally, leaving PFP behind and taking the leap required to design and implement a new compensation system can be a fearful prospect, given the potential impact on performance and results as a consequence of getting it wrong.

However, organizations may have more to lose by failing to move beyond PFP. We conducted a large-scale experiment with a target-independent compensation system. The results point to a strong business case for leaving PFP behind.

The Dysfunctional Elements of PFP

For the past 50 years, academics such as Edward L. Deci and Jeffrey Pfeffer, and pundits such as Alfie Kohn and Daniel H. Pink, have been arguing that PFP is inherently dysfunctional. This stems from two primary sources.

First, PFP is focused on narrowly defined outcomes, such as the number of sales closed, but it ignores the ways in which those outcomes are produced. This introduces the possibility that chance — or, worse, unethical behavior — will be rewarded and that the quest to achieve the promised reward will undermine other desirable behaviors, such as teamwork and collaboration.

Second, PFP provides the extrinsic motivation of financial reward, but it ignores powerful and beneficial intrinsic motivators, such as the joy of the task itself, a sense of contributing and belonging to a team, and personal development. (See “Shifting Thinking on Motivation and Compensation.”) Financial rewards prompt employees to pursue specific targets and avoid activities that do not lead directly to achieving those goals. PFP suppresses intrinsic motivation, leading at best to compliance — and it fails to nurture an enduring employee commitment to or identification with the company. In the long run, this lowers overall performance.

For all of the dysfunctions it can generate, PFP has its uses. It can drive superior performance when jobs offer little or no opportunity for intrinsic motivation. When jobs are monotonously simple or volume-driven, extrinsic motivation provides a focal point for employee effort and behavior. But PFP undermines the performance of work that requires people to explore complex problems, develop creative solutions, and achieve qualitative results that cannot be fully specified in advance. Moreover, when performance targets become obsolete, such as when production lines shut down and sales crashed during the initial round of COVID-19 lockdowns, PFP loses its motivational power because it cannot deliver the rewards that it promised.

Seeking Alternatives to Pay-for-Performance at Hilti

Leaders at Liechtenstein-based Hilti Group, which offers products and services to the construction industry, have had their own misgivings about the effectiveness of PFP and whether its focus on individual performance is out of step with the company’s collaborative culture. Read the rest here.

Tuesday, April 19, 2022

It’s not enough for CEOs to empathize with employees

strategy+business, April 19, 2022

by Theodore Kinni

Illustration by Klaus Vedfelt

In the novel City of God, E.L. Doctorow wrote, “You find invariably among CEOs that life is business. There is an operative cruelty which is seen as an entitlement.” The three-time winner of the National Book Critics Circle Award for Fiction delivers this judgment as an aside, but it is a particularly disturbing indictment of business leaders.

I asked Rasmus Hougaard, founder and CEO of the leadership training consultancy Potential Project, what he thought of Doctorow’s observation during a recent video interview. He immediately pointed to J. Willard Marriott, founder of Marriott International, as a notable exception. Marriott reputedly lived the hotel business sans cruelty, and his famous dictate “Take care of associates and they will take care of the customers” remains a mainstay of the company’s culture after nearly 100 years.

And yet, admitted Hougaard, “there are a lot of CEOs in other companies [about whom] you could say the absolute opposite. It is almost as if they think, ‘Now that I’m a senior executive, I don’t have to be nice anymore.’” It is those CEOs who might find his new book, Compassionate Leadership: How to Do Hard Things in a Human Way, most valuable.

Hougaard and coauthor Jacqueline Carter, director of Potential Project North America, argue that the hard-nosed people management once espoused by CEOs like “Chainsaw Al” Dunlap and “Neutron Jack” Welch is a loser’s game. “It’s clear that entitlement is dying and for good reason,” Hougaard told me. “Anybody who says, ‘I can be mean, because now I have the power,’ gets punished, because people won’t work with them.” CEOs who live up to Doctorow’s caricature by shutting down their emotions and coldly making decisions that harm people also incur a personal cost. Hougaard adds: “You turn into someone who you probably won’t like.”

Often, empathy is touted as the antidote to mean business. But Hougaard thinks that an approach to leadership based solely on empathy has its own adverse side effects. Read the rest here.

Tuesday, March 22, 2022

A Field Guide for Human Capital Decision Intelligence

Learned a lot lending an editorial hand on this field guide:

Deloitte, March 22, 2022

By Dan Roddy, David Mallon, and Marc Solow

Organizations everywhere are standing on the threshold of a new era in decision-making. A global mining company uses data captured from the work itself to sense changes in worker skills needed over time, inform workforce development investments, and guide individual employee career choices. A logistics company anticipates truck repair needs, ensuring people and parts are at the ready. A consumer products company uses real-time visualizations of their distribution channels to identify the root causes of customer service issues within minutes and assign resources to solve them. A high tech company tracks the markers of company culture across a virtual workforce, ensuring their “secret sauce” isn’t diluted by distance.

So here companies stand, with a newfound capability for making better work, workplace, and workforce decisions within their reach and yet, just beyond their grasp. In Deloitte’s 2020 Global Human Capital Trends survey, conducted a few months before the onset of the COVID-19 pandemic, a mere 3% of nearly 9,000 respondents—only 3 in 100 globally—told us they had all the information needed to make people decisions.

The situation hasn’t improved in the COVID-19 context. If anything, people issues are murkier—and the ability to respond to them more urgent—today than before the pandemic struck. Witness the many business headlines featuring managerial missteps, even among the world’s most sophisticated companies. For most, the decision intelligence necessary to align and optimize work, workplace, and workforce in pursuit of mission and strategy remains at best an unfulfilled promise.

The technological enablers needed to consistently deliver actionable insights to leaders at all levels of the organization are at hand. They promise to support a new decision intelligence—to help leaders make sound and timely decisions—from the strategic-level choices made in the C-suite to the myriad tactical choices made by supervisors and teams every day.

The disconnect between the means of decision intelligence, such as data and sophisticated analytics, and the motivation and ability to wield them in a coherent, consistent manner across an organization is a serious challenge. In a world moving ever faster, employee and corporate performance are at stake, and financial results along with them. The success—and sometimes, the survival—of many companies hinges on their ability to navigate in what John Seely Brown, former cochair of Deloitte’s Center for the Edge, calls a “whitewater world.” To do this, leaders must be able to continuously and quickly identify and respond to internal and external challenges and opportunities arising at the intersection of the workforce, the workplace and work itself. 

What, then, is holding companies back? Read the rest or download free here.

Monday, March 14, 2022

What Is Your Business Ecosystem Strategy?

Learned a lot lending an editorial hand here:

Boston Consulting Group, March 11, 2022

by Ulrich Pidun, Martin Reeves, and Balázs Zoletnik

From media and technology to energy and mining—no major industry is untouched by the rise of business ecosystems. These dynamic groups of largely independent economic players working together to deliver solutions that they couldn’t muster on their own come in two flavors: transaction ecosystems in which a central platform links two sides of a market, such as buyers and sellers on a digital marketplace; and solution ecosystems in which a core firm orchestrates the offerings of several complementors, such as product manufacturers in a smart-home ecosystem. Both types can quickly generate eye-popping valuations; since 2015, more than 300 ecosystem startups have reached unicorn status.

Given the success of this cohort of startups, as well as the Big Tech ecosystem players now numbered among the world’s most valuable companies, it’s no surprise that ecosystems are high on the strategic agendas of incumbent companies. More than half of the S&P Global 100 companies are already engaged in one or more ecosystems, and in a recent BCG survey of 206 executives in multinational companies, 90% indicated that their companies planned to expand their activities in this field.

Yet many leaders of incumbent companies are still unsure how to define their ecosystem strategies. This article aims to help them in that pursuit. It is informed by the insights we’ve gleaned from three years of ecosystem research and engagements with large enterprises across industries and geographies. Organized in eight fundamental questions, it offers a step-by-step framework for developing a company’s ecosystem strategy. Read the rest here.

Monday, February 28, 2022

Follow your S curve

strategy+business, February 28, 2022

by Theodore Kinni

Photograph by R A Kearton

Recently, someone on LinkedIn asked me for career advice. LOL. The ink line of my career is a random squiggle with lots of breaks and blotches. It isn’t until about halfway through that the line begins to look like it might be going somewhere. That’s the point at which I found something I enjoyed doing that paid enough for me to keep doing it. I grabbed that like a drowning man does a life ring.

I grabbed Whitney Johnson’s new book, Smart Growth, with similar enthusiasm, because it seemed there might be a more rational and ordered way to view my career. There is. As Johnson might tell it, I didn’t flounder for years; I followed the “S Curve of Learning.”

Johnson, a consultant and speaker, has a knack for picking out theories from the discipline of innovation and applying them to individual growth. In her 2015 book, Disrupt Yourself, she used Clayton Christensen’s theory of disruptive innovation as the foundation for a guide to career-changing moves. In Smart Growth, Johnson applies Everett M. Rogers’s theory of innovation diffusion to forging a career path.

In his 1957 doctoral dissertation, Rogers showed that the number of Iowan farmers adopting a new weed killer followed an S curve: adoption started slowly, with only a few farmers willing to take a chance on the new product; shot upward as the majority of farmers became convinced of its benefits; and then leveled off as the remaining, most cautious farmers finally committed. By the time Rogers’s seminal Diffusion of Innovations was published in 1962, the rural sociologist was convinced that the S curve of innovation diffusion depicted “a kind of universal process of social change.” Indeed, S curves have been used in many arenas since then, and Rogers’s book is among the most cited in the social sciences, according to Google Scholar.

Johnson’s S Curve of Learning follows this well-established path. There’s the slow advancement toward a “launch point,” during which you canvas the (hopefully) myriad opportunities for career growth available to you and pick a promising one. Then there’s the fast growth once you hit the “sweet spot,” as you build momentum, forging and inhabiting the new you. And, finally, there is “mastery,” the stage in which you might cruise for a while, reaping the rewards of your efforts, before you start looking for something new, starting the cycle all over again. Read the rest here.

Wednesday, February 23, 2022

Think Globally, Innovate Locally

Learned a lot lending an editorial hand here:

MIT Sloan Management Review, February 23, 2022

by Satish Nambisan and Yadong Luo

Michael Glenwood Gibbs/theispot.com

Digitization and globalization are converging to transform innovation in multinationals across industries. Companies such as Bayer Crop Science, John Deere, Johnson Controls, Philips, and Unilever are pursuing the promise of what we call digital globalization. They are finding that digitally infused innovation assets, such as data, content, product components, tools, and processes, are not only readily portable across national borders but also amenable to mixing and matching. This digitally enabled innovation generates new offerings, business models, and operations to suit specific country markets — at a faster pace and lower cost than previously.

Fashion brand Tommy Hilfiger has deployed a fully digital design workflow across all of its global apparel design teams. Designers catering to the demands of different markets around the world can create, store, share, and reuse digital design assets. Transforming traditional design and sample production steps into such digital-infused processes enables the label to not only accelerate its innovation but also diversify its offerings.

As promising as digital globalization sounds, however, it is facing headwinds that are driving deglobalization (or localization), including trade restrictions and uncertainties fueled by geopolitical tensions and nationalism. China, for instance, recently passed a host of protectionist laws and regulations aimed at controlling the internet and cross-border data flows. As companies such as Apple, Morgan Stanley, and Oracle have discovered, there is ambiguity around what constitutes personal data and what should be localized in China. This is significantly limiting the portability of multinational companies’ digital innovation assets and raising the level of innovation uncertainty and risk. Geopolitical tensions can also result in more closed and less trusting stances when companies pursue collaborative innovation ventures.

Thus, for multinationals, the coexistence of globalization and localization creates a challenging context for innovation. How, then, can they pursue innovation to take advantage of the forces driving digital globalization while also adapting to the forces driving localization? Read the read here.

Thursday, February 10, 2022

Pay attention to your attention

strategy+business, February 10, 2022

by Theodore Kinni

Illustration by Sean Gladwell

Once upon a time, the Segway was going to revolutionize the transportation industry. Steve Jobs reportedly said that Dean Kamen’s invention had the transformative potential of the personal computer, and venture capitalist John Doerr predicted that Kamen’s startup would reach US$1 billion in sales—a lot of money in 2001, when nobody but tweens believed in unicorns—at record speed. Instead, sightseeing tours and mall cop beats were nearly the only things the two-wheeled, self-balancing personal transporter transformed.

There are many reasons why the Segway never achieved its purported promise, but a lot of them track back to the misplaced focus of Dean Kamen. He didn’t see the forest for the trees. He was so intently focused on one narrow aspect of the Segway—the innovative technology that enabled its intuitive, automatic balance and operation—that he and his early boosters were unaware that its markets were extremely limited. Where in a nation of cities and towns that considered skateboards too dangerous for the sidewalks would hundreds of thousands of Segway riders be allowed to zip around? And short of that, who was going to pay $5,000 to take a Segway for a spin in the driveway?

An overly intense focus on a goal can lead to what cognitive psychologists call goal neglect. That may seem counterintuitive to the average goal-oriented MBA or entrepreneur, but take, for example, the dynamic at work in micromanagement. Often, when leaders micromanage employees, an intense focus on task performance distracts those leaders from the larger goals of the company. They obsess over the trees and neglect the forest—and drive employees crazy while they’re at it.

Where you direct your focus is a function of the brain’s attention system. This system has three subsystems, which Amishi Jha, a professor and the director of contemplative neuroscience for the Mindfulness Research and Practice Initiative at the University of Miami, describes as the flashlight (or orienting system), which enables you to selectively direct and concentrate your attention; the floodlight (or alerting system), which enables you to take in the larger picture; and the juggler (or executive function), which enables you to align your actions to your aims. “What happens with goal neglect is that the flashlight is pointed very intently, but the floodlight is not quite working,” she told me in a recent Zoom interview.

There is nothing inherently wrong with using the flashlight or the floodlight—leaders need both. In both cases, writes Jha in her new book, Peak Mind: Find Your Focus, Own Your Attention, Invest 12 Minutes a Day, “we are paying attention. But our attention is too narrow or too wide, too stable or too unstable. You’re paying attention in some way successfully—but it’s not appropriate for the moment.”

This cognitive error arises from using the flashlight or the floodlight in an unconscious way. An Australian helicopter rappeller gave Jha a dramatic example of this when he told her about fighting one section of bush fire with such intensive focus that he lost track of the rest of the fire until he heard the air being sucked up behind him. The fire had nearly engulfed him. “There is a very enticing emotional quality to dominating something in that way, and so, it pulls you in,” said Jha. “It’s even hard to pull yourself back.”

The feeling of intense focus—of being fully and productively engrossed in a task—is a good indicator that it is time to take a step back and assess if your attention is properly directed. Even better, and more proactively, according to Jha’s research, you can hone your meta-awareness. Read the rest here.

Actuarial outsourcing trends in the insurance industry

Learned a lot lending an editorial hand here:

Deloitte Capital H Blog, February 10, 2022

By Tony Johnson, Maria Itteilag, and Ashlyn Johnson

As insurance industry leaders seek to transform the cost structures, capacity, and capabilities of their companies in response to business, regulatory, and technological challenges, the actuarial function is a natural focus for their attention. The actuarial function is a driver of growth and profitability of insurers, so maximizing its value generation is a tantalizing prospect. At the same time, the function is an expensive one, so a successful transformation can generate significant savings on the cost side by focusing the actuaries’ attention on value-creating activities as opposed to those better suited for other professionals and functions to own.

The promise of getting more for less from the actuarial function is tempered by challenges and risks inherent to transformation initiatives. According to Gartner, 70% of transformation initiatives in finance fail to deliver their expected benefits and our observations suggest that actuarial transformations are no exception.1

However, we also find savvy insurers who are bucking the odds of transformation failure. They are using outsourcing arrangements in the execution of actuarial transformations to bolster implementation success, and as an integral element in the design of a revamped actuarial function that can deliver greater value to insurers at a lower cost. Your company can potentially do the same.

The imperatives of actuarial transformation

Like any business transformation, successful actuarial transformation hinges on the ability to navigate two imperatives: the first imperative is design—the vision of what the function will become, and the second imperative is execution—the journey that must be undertaken to make the vision a reality. Transformation failures are usually rooted in the inability to meet one or both imperatives.

The involvement of actuaries in the design of the transformed function is necessary. After all, who knows the processes better than the people who use them every day? But necessary is not always sufficient. Actuaries are experts in their work, but you should not expect them to be familiar with the transformational potential of new technologies or new ways of structuring workflow and executing tasks. Without a fully informed view of the art of the possible, the new design of the function will not likely reach its full potential.

Moreover, executing functional transformations requires mustering the resources and skillsets needed to implement the transformation while conducting business as usual. In the actuarial function, this often entails using highly specialized and highly paid actuaries to design and implement the transformation. In some cases, the actuaries do not possess the skills needed for this work. In many more cases, they simply do not have the time. As insurance companies begin to transform, their actuaries become overloaded as they try to meet the ongoing dictates and priorities of daily business, as well as the dictates and priorities of the transformation efforts. Many transformations fail when people become overwhelmed while simultaneously performing the work of today and building the capabilities of tomorrow. Read the rest here.