Archive for June, 2010|Monthly archive page

Overcoming Management Denial

As a strategy consultant, I come across management denial all the time.  Management denial is the inability of an organization to acknowledge a major problem or shift strategic direction despite clear and credible evidence in favor of change.    Most often, MD is problematic but not fatal to the health of the organization.  In some noteworthy cases, however, the impact of MD can be close to disastrous. For example, MD is one of main reasons why Toyota was unable to first accept and then deal with its serious quality, design and complexity issues.  This leadership failure resulted in a major decline in shareholder value, profitability and reputation.  On an industry basis, the inability of the Recording Industry to first comprehend and then deal with the Napster and iTunes threats resulted in a permanent drop in total industry value and revenues.

Management denial arises from many factors.  In general they all contribute to a “that’s the way we do things here” orthodoxy that few employees are able to challenge let alone overturn. For instance, the more successful or stable the company, the more likely their strategies, goals and culture will evolve to create a self-reinforcing “ideology” that is inculcated throughout the firm.  When this happens, management will often develop strategic hubris and choose to ignore contrary facts that do not fit the paradigm.  In other cases, high levels of MD can be found in overly political cultures that concentrate power, information and access.  Managers within this milieu often see change in zero-sum terms and will resist attempts to change the status quo.  MD also arises in firms that contain institutional biases which serve to filter out unpopular news or minimize strategic options that don’t fit the official ideology.  Institutional bias is often found in the strategic planning, account management and market research areas.

Many industries, such as education, publishing, and financial services, already display symptoms of MD.  Although they are poised for rapid change in the near future, the market leaders will probably be the last ones to transform themselves, even if they realize they must in order to survive. Virtually every executive in these firms are aware of game-changers like globalization, digitization, mobile communications, and sustainability. Yet, many managers remain in denial about their impact on their business, claiming that consumers don’t change quickly, that existing products are superior, that people won’t give up on familiar experiences, and so on.  

To minimize the effects of MD, companies should stop looking at threats and opportunities through traditional eyes and logic. Instead, the moment firms spot signs of change, they must figure out which strategies and capabilities to keep, enhance and discard. Executives can follow a number of practices to do this-

  1. Utilize advanced analytical tools – Different analytical approaches can help stress-test conventional wisdom.  For example, management could regularly use external consultants for fresh thinking and to glean lessons from others.  As well, firms could employ war gaming and scenario planning to rigorously explore all opportunities and threats.
  2. Challenge the “sacred cows”  – It is always prudent to challenge conventional wisdom within the planning and market research process, asking questions such as:  What is good performance? And, how well do customers like our products and experiences?
  3. Track the data – Tracking key performance indicators across all functional groups will provide the data necessary to enable early and objective decision making.
  4. Get on the “forgetting curve” – Senior management must rigorously identify and cull behaviors, practices, and beliefs that create strategic inertia or barriers to change.
  5. Foster employee diversity – Companies must recruit beyond their industry to attract employees who can bring fresh skills, experiences and beliefs.

For more information on our services and work, please visit the Quanta Consulting Inc. web site.

Better CSR Reporting: One Report

Senior executives who devote considerable amounts of time and money to CSR activities often pay little attention to how the results are reported to other managers, board members and external stakeholders. How companies report on these non-financial metrics – information on environmental, social, and governance performance – has important ramifications on their reputation, strategic effectiveness and business risk. In a politically charged, dynamic and risky world, organizational leaders need the right tools to better identify, describe, and confront the issues around environmental and social sustainability that their companies increasingly encounter.  Better reporting is not only an internal requirement.  Today, key external stakeholders like fund managers are demanding it.

There are a number of ways of reporting sustainability impact and CSR activities, including the popular Triple Bottom Line report.  However, many of these accounts suffer from flaws in relevance, methodology and applicability.  Thought leadership coming out of Harvard Business School recommends another approach to reporting non-financial measures and deeds. The “One Report” is an integrated reporting tool that can improve CSR and sustainability strategy as well as drive program excellence.  One Report addresses many of the unique challenges facing corporations where many stakeholders – companies, investors, accounting firms, sell-side analysts, regulators & standard setters, NGOs and the public itself – must interact and collaborate together around various high-profile economic, political and environmental issues.  One Report can deliver an integrated, consistent and jargon-free corporate message to all requisite parties across multiple channels (including Web 2.0 technologies like social media, blogs and YouTube), while describing various threats and opportunities and demonstrating transparency.    The format of One Report challenges management to be much more granular and precise about how they are ‘doing well (for shareholders) by doing good (for stakeholders).’

 One Report delivers many benefits as a CSR reporting mechanism:

 1. Greater clarity around the relationship between financial and nonfinancial key performance indicators.  This enables managers to better understand and confront the trade-offs necessary to balance financial and societal demands.

2. Better management decisions. There is plenty of evidence to support the notion that better measurement leads to better information, an improved decision-making process and ultimately, better decisions.

3. A greater confluence of interests between the company and the broader stakeholder community. Sustained engagement will help shareholders look beyond short term numbers to longer term and broader societal considerations that impact financial returns. As well, it will help some external stakeholders understand the importance of continued investment and decent profits to further environmental and societal sustainability.

4. Reduced reputational risk.  Clear and consistent communications about a company’s financial and non-financial performance can serve as the basis for a constructive two-way conversation, helping to minimize the possibility of misunderstanding.

Properly deployed, One Report serves as a platform to facilitate communication, mutual understanding and trust between disparate actors in different geographies.

A wide range of companies are presently using One Report including: the German chemical giant BASF; the Dutch health-care and electronics company Philips; the Danish pharmaceutical company Novo Nordisk; the Brazilian cosmetics company Natura; and the U.S.-based technology and aerospace company United Technologies.

 Like other reporting tools, there are watch outs to using One Report.  For example:

  1. Company’s need to take their CSR activities seriously and be committed to communicating them broadly in a regular fashion;
  2. Because of intent or culture, transparency (in terms of results or programs) does not always come easy for many firms and executives;
  3. Key information may not be available.  And even if it is, it can not always be directly linked to financial metrics.

 For more information on our services and work, please visit the Quanta Consulting Inc. web site.

Two Best Practices in Sustainability: GE and Nike

Sustainability as a key business driver is quickly moving into maturity.  According to MIT’s Sloan Management Review published in 2009 , there are now a number of firm’s whose strategies and tactics could now be considered best practice. Two of them are summarized below.

General Electric

Background

Early on, GE figured out that there was a compelling business and sustainability case for companies who could reduce their energy and water use, waste, and carbon emissions. Instead of seeing sustainability only as an internal cost, GE saw a large and profitable business opportunity in helping companies move along the sustainability path.

However, GE’s vision was not only externally-focused.   They also wanted to make their operations, culture and practices more sustainable.  The question was:  how do you align the entire company around a sustainability vision and then create a new business in an early-stage sustainability market?

Some Key Moves

In 2005, GE set up Ecomagination as a separate business unit to identify and deliver market-leading environmental solutions which would drive market leadership. Ecomagination was given aggressive top and bottom line goals and was prioritized and resourced accordingly.

GE also saw this initiative as a means to catalyze internal sustainability programs and to ensure management buy-in and compliance.  For example, managers began to be measured on how much energy savings they had achieved.  As well, GE began engaging employees to see where energy savings could be found. Ecoimagination sold and validated these solutions within the GE universe;  later these ideas were turned into products and solutions that were marketed to customers.

GE also proactively sought to influence environmental policies and regulations around climate change through its involvement with nongovernmental organizations and government bodies.  For example, GE pressed for a cap-and-trade carbon emissions system to in order to help clarify policies and regulations around climate change measures.

Results

In 2008, GE generated sustainability sales of $17 billion, up 21 percent from a year earlier.  The Company is aiming for $25 billion in sustainability revenues by 2010.  According to GE’s 2009 sustainability report, the Company has saved $100 million from their energy management measures and cut its greenhouse-gas intensity—a measure of emissions against output—by 41 percent.

Nike

Background

Nike was stung in the 1990s by a public campaign against its Asian labor practices.  To improve its image, the firm embarked on a long process of reinventing its operations around socially responsible production and to meet broad sustainability metrics by 2020.  A key question was:  how could Nike move beyond “compliance” and maximize sustainability by integrating new goals and principles into its business model?

Some Key Moves

Nike formed a senior, multi-functional team who was tasked with driving compliance around stringent social responsibility and environmental standards.  The team’s mission was to review and overhaul its entire design process, product line-up and supply chain.

To galvanize attention, management set aggressive 2020 goals around zero waste, zero toxic materials, closed loop systems as well as sustainable growth and profitability. To monitor progress, Nike created an in-house index to measure product design against these goals.

New, sustainability-inspired design and production strategies were implemented.  For example, Nike reinvented its design process to cut waste and material usage while substituting more sustainable materials and processes. Furthermore, the Company brought its supply chain partners into its effort because it knew it could not achieve its goals without their counsel and involvement.

Results

Under the new design and production methods, Nike’s lead product line – the Considered line of footwear and apparel – delivered:  a 67 percent reduction in waste, a 37 percent cut in energy use, and a dramatic 80 percent drop in solvent use as compared to other Nike products. Nike aims to convert all athletic shoes to Considered line standards by 2011, all clothing by 2015, and all equipment like balls, gloves, and backpacks by 2020.

 For more information on our services and work, please visit the Quanta Consulting Inc. web site.

Private Equity Review: Is the Sector Turning the Corner?

Recently, some of the leading players in the PE industry gathered at the Wharton Private Equity and Venture Capital Conference – “A New Dawn: Investing in the Post-Crisis World,” – to discuss the current state and prospects for the global Private Equity Industry. The past couple of years have been gut wrenching for the majority of firms, driven by unprecedented de-leveraging, a reduction in new capital infusions and significantly lower portfolio valuations. The weaker PE firms have either closed or hunkered down, unable to raise new funds. The larger and savvier firms boasting sufficient liquidity weathered the storm by putting their portfolio companies through tough restructurings and trimming their own management expenses.

The general feeling among the speakers is that the US PE industry is slowly shifting from retrenchment to opportunity. The sector’s best prospects lie in emerging markets while the European PE market is expected to contract.  Some of the key conference takeaways include:

The industry survives to fight another day

Most participants were quite sanguine.  One partner in a large firm, commenting on the so-called death of private equity, said: “It was a great storyline at the depth of the crisis, but I don’t think you will see firms failing by the wayside.” You will see the resilience of the industry as a whole. Some of the larger firms will be a bellwether for that resilience.” 

The larger, well-positioned portfolio companies that aggressively cut costs early on will emerge from the downturn even stronger.  One bonus carried forward from the boom years: Much of the PE financing in place has few or no covenants, which gives companies some breathing room.

 Liquidity remains paramount

Although liquidity is improving, it is nowhere near pre-crash levels.  PE firms have had two years to adjust to a credit retraction and have (by and large) taken the necessary restructuring measures.  Given this ‘new normal,’ PE managers are being proactive in working with their portfolio boards to help them make the difficult decisions needed to ensure survivability. One insider said:  “We are making sure our companies are well capitalized and not over-leveraged, or if there is leverage that it is benign or long-dated. We are shoring up balance sheets where needed.”

PE firms needs to add more value to their portfolios

Smart money and expertise is in demand.  Increasingly, PE firms are providing more value-add support to assist their portfolio companies in areas such as cost control, sales and IT enablement.

New opportunities exist but can they be exploited?

Valuations for North American businesses should remain modest as the economy moves up from the bottom of the business cycle. According to one commentator:  “Historically, the best deals are done coming out of a crisis. Leverage is lower, growth is higher. Leverage and the purchase price are aligned. So this could be a good period.”

Emerging markets could save the day

Hungry investors looking for new investments ought to consider fertile PE opportunities in large and rapidly growing emerging markets like Indonesia, Brazil, India, China and Russia.  However, each of these countries are in a different stage of economic maturity and possess a unique combination of opportunities and challenges.  The risks include: immature capital markets, potential currency devaluations, weak infrastructures and political uncertainty.

Furthermore, there are issues finding the right funds to partner with. Since most funds now in operation were established between 2006 and 2008 – and have not yet made distributions – there is not much of a track record on which to judge fund managers.

 For more information on our services and work, please visit the Quanta Consulting Inc. web site.

Successful Green Transformation: The 6 Ps

Environmental sustainability has become a key priority for most companies given its significant impact on profitability, brand image and business risk.  As a result of public and investor scrutiny, executives now need to convert good intentions into real progress.  The tough part, however, is how to do this cost effectively while overcoming internal inertia, maintaining consumer value and aligning suppliers. To help drive a green transformation in your organization, it pays to start with a planning and implementation framework.  Our proven sustainability roadmap focuses on business strategies that target the 6 Ps, as outlined below:

Planning

  • Integrate sustainability building blocks into your corporate strategy, capability-building and budget allocations.
  • Commence analytics, prioritization and goal-setting to catalyze action.  A good start is to conduct Product Lifecycle analysis to understand the environmental impact of each product and operating activity. 
  • Stipulate that new green initiatives must possess a strong business case, including having tangible consumer benefits. 
  • Learn from other’s green strategies.

People

  • Identify and empower a green czar, a single point of responsibility (individual and office) to coordinate green activities up, down and across the organization.    
  • Key individuals should be experienced with sustainability issues as well as possessing solid operational or marketing experience.
  • Embed green goals & metrics into individual incentives, measurement and reporting systems.

Practices

  • Re-jig internal & external policies and processes to accommodate new green criteria and initiatives. 
  • Prioritize green activities into ‘quick wins’ and longer term tactics.  Examples of ‘quick wins’ could include insisting on double-side photo copying and recycling old PCs.  Examples of longer term initiatives could include making sustainability part of the procurement criteria or switching to more energy-efficient lighting systems company-wide.

Products & Services

  • Acquire a deep understanding of which green benefits consumers’ really value and how they impact your pricing, value proposition and market positioning. 
  • Where possible, build in sustainability through bottom-up product development and customer service design.
  • Explore breakthrough green product innovation that establishes new rules, not just follows the old ones.

Promotion

  • Ensure consumers understand why your green products and benefits are different and superior to the competition.
  • Ensure the new messaging is consistent across all on & offline channels.
  • Make certain your key environmental stakeholders like NGOs or retailers see your strategy as credible and are regularly engaged.  

Partners

  • Align your entire supply chain around your sustainability vision, goals and strategies.
  • Where possible, leverage your partner’s complementary green strategies and structures within your plans  

Without a doubt, driving a successful green transformation is  not an easy task for most large, global firms. Environmental legislation is in a state of flux, supply chains are often inflexible, many employees will be resistant to change and consumer needs continue to evolve. However, there are some change management truism’s that will improve the odds of success:  create a compelling business case that generates a sense of urgency for sustainability; utilize a holistic implementation approach that encompasses the entire value chain, maintain a bottom line focus and, above all, be patient. 

For more information on our services and work, please visit the Quanta Consulting Inc. web site.

The Business Stories We Should Tell

A compelling story is one of a company’s most powerful tools to motivate employees, build shared values, attract new employees, transmit key skills and convey a compelling brand message.  A corporate story could be a historical narrative, a rallying call or a common creed that connects all employees past, present and into the future.  Moreover, stories are often foundational in marketing communications and serve as building blocks for learning and planning activities.

Throughout history, stories have played a critical role in human development and interaction.  Every civilization have used their own unique narrative to provide meaning for individuals, foster group cohesion, act as a communication vehicle as well as serve as a roadmap to guide actions and behaviors.  Over time, there have been many examples of powerful narratives that have influenced hundreds of millions of people. For example, the ancient Greeks used mythology to teach morality and ethics while the founders of the United State used stories to articulate their manifest destiny.

Not surprisingly, many of the World’s most successful firms like Goldman Sachs, P&G, Walmart and HP leverage stories to perpetuate their cultures, inculcate new hires & acquisitions, speak to prospects & suppliers and improve competitiveness through an emphasis on core values like customer satisfaction and innovation.  Famous brands like Apple and Harley Davidson have strategically used interesting narratives to cultivate large brand communities.  Strong brand communities drive early adoption of new products, provide crucial consumer research and deliver ancillary services like support.

Why are stories such a powerful cultural and communication tool?

Stories tap emotional drivers

As demonstrated through the ages, compelling stories are an excellent way to create emotional and spiritual connections given that they tap into powerful social, cultural and psychological drivers.  As a result, meaningful stories are more likely to trigger behavioral change than merely one-off, calls to action. 

Stories are an elegant communication media

A story that is easy to understand and is seen as authentic and compelling will resonate quickly with the largest possible audience, both internally and externally to the firm. On the other hand, another ‘me-too’ mission and vision statement is often easy to forget.

Stories are memorable

We are hard-wired to remember rich, well-articulated stories and images as opposed to facts and figures presented in a Powerpoint deck.

Each organization has the content and obligation to create its own story.  This narrative could be based on one or a combination of the following drivers:  a unique culture, the corporate history, the personal identity of the founder, or a unifying creed.  The most successful stories (and companies) often combine a variety of these drivers in their narrative and include some of the following characteristics:

Leverage universal themes

Powerful stories embrace common cultural, historical and religious themes that are familiar to all.  For example, people will engage quicker when the organization is seen to overcome adversity or is catalyzed by conflict.

Make it personal

Strong narratives foster relevance, build emotional ties and overcome cynicism by establishing personal, almost spiritual connections between the company and individual, transcending products, profits etc.

Keep it very interesting but believable

To motivate employees and customers, your story must be able to hold interest and remain fresh yet not generate disbelief and skepticism.

Creating and codifying your firm’s story is not a simple task.  Company’s would be best served by working with a facilitator or story-teller who could help tease out the content and then craft a compelling narrative.

For more information on our services and work, please visit the Quanta Consulting Inc. web site.

Improving Corporate Learning and Development ROI

It’s never been tougher to build human capital in large, complex organizations.  Often, the greatest upside (and challenge) is with the vital middle management strata who posses the numbers, base skills and authority to significantly improve business performance.  Caught between a rock and a hard place, these folks are expected to be more strategic, adaptable and innovative while trying to cope with rapid change, tighter budgets and increasing regulation.  The optimal way for the firm to build competencies is through management training. Farsighted leaders get this.  Andrall E. Pearson (past president, PepsiCo) echoed this sentiment when he said, “To improve a company fast, develop people fast.”  

However, in most companies there is a pervasive gap between training goals, program delivery and business impact.  Few are satisfied with this status quo.  Corporate buyers are unhappy about spending billions of dollars annually on programs that don’t improve performance, enhance morale and deliver measureable results.  Similarly, thousands of participants’ will sit for days in boring classes that lack relevancy to their day-to-day jobs, business challenges and organizational life.

There are many reasons for this situation.  The vast majority of training programs in areas like strategic thinking and change management are too generic in nature to have a signficant short term impact.    Secondly, for all of their teaching expertise most instructors are educators first and foremost, possessing little real-world business experience.  Finally, most management training programs utilize a traditional lecture-based pedagogy emphasizing rote learning and memorization.  Although effective in some cases, lecturing is less successful in imparting knowledge and skills for complex topics that require a people-centered approach, a holistic organizational view and adaptive & creative thinking.

How do your bridge the gap between intent and results?  Our firm has created a unique training model that tailors the content and pedagogy to the client and participant need in a measurable way.  For example:

Customize the curriculum around solving key business issues

For most training programs, teaching generic principles is not enough to help firm’s solve their problems and engage their employees.  The content needs to be tailored around the company’s pressing business issues plus the specific needs of each participant. As one CEO told me, “…we have an aversion against vanilla approaches that don’t apply to our unique challenges and circumstances.”  Moreover, customizing the content enables the firm to better track program impact through actual business results.

Utilize experiential learning methods to catalyze breakthrough thinking and change behavior

Given its common sense and elegance, it is hard to argue against teaching proven theory like Porter’s 5 forces strategy model.  However, we use theory only to provide a framework for further exploration.  To catalyze new learning and activate this knowledge on an ongoing basis, we leverage experiential learning methods such as simulations, games and case studies.  These tools are ideal for teaching complex content as well as facilitating soft skills development like critical thinking, problem solving and communicating.

Use experts who can teach as opposed to expert teachers

Unfortunately, trainers possess a credibility deficit with some managers.  To see this, recall the old adage “those who can’t do, teach”.  Given this bias, we draw on accomplished business practitioners – with a passion for education – to serve as facilitators as well as provide ongoing coaching. Not only do operators bring valuable market experience to the enterprise but they are also more attuned to the everyday people and cultural issues facing the participants.

To be clear, traditional teaching strategies remain effective for transmitting rote skills to lower to mid-level employees.  However, when companies need training schemes to elevate their managers in areas like change management, innovation and strategy and then measure the impact of these programs, a new educational paradigm is needed.

For more information on our services and work, please visit the Quanta Consulting Inc. web site.

Toyota’s Quality Troubles: Blame it on Complexity

Toyota’s recent quality problems and clumsy attempts at managing them stand as one of the most notable corporate stories of the past year.  The Company has faced a barrage of criticism over everything from product design to the failure of company executives to publicly acknowledge the issue head on.  The most damaging indictment may be to the famed Toyota reputation for quality.  Not surprisingly, this story has many lessons for other companies in terms of operational strategy, process design and culture.   

Recently K@W, a newsletter published by The Wharton School of Business, conducted an interview with Professor Takahiro Fujimoto, a leading authority on the automotive industry and the famous Toyota Production System.

Some of his conclusions on the Toyota saga include:

  • Excessive operational and product complexity were the root cause of Toyota’s quality troubles.
  • Historically, Toyota was very good at managing the complexity required to deliver industry-leading quality.  However, the company has reached a point where rapid growth, challenging product requirements and multifaceted operations have combined to raise the complexity level to a point where traditional strategies and norms are no longer as effective.
  • Some of the sources of Toyota’s complexity includes: large numbers of product configurations, intricate production systems and convoluted processes & structures.
  • Company executives were previously aware of the problems but were unable to prevent them.
  • Delays in responding to the crisis were exacerbated by management hubris, flaws in customer feedback mechanisms and a lack of clear ownership over the “complexity” problem.
  • Toyota’s problems are such that they could happen to any large company 

A challenge of any large organization regardless of sector, high operational and product complexity leads to lower productivity, increased duplication, resource misalignments, customer & partner confusion and unwarranted error rates.  

Tackling complexity in a large, multinational enterprise like Toyota is not easy given arduous consumer demands, a lack of quality data, competing stakeholders and implementation difficulties.  A variety of top-down and bottom-up approaches can be used to understand what needs to be cut, reengineered or enhanced without increasing revenue risk. This link outlines a product-focused methodology we have used to reduce complexity in a global B2B company. In this project, we dramatically reduced the number of product SKUs by over 60% leading to major cost reductions and indirect payoffs such as enhanced resource allocation and improved decision-making.

Many firms such as Unilever, P&G and Diageo have successfully undertaken complexity reduction initiatives that have saved millions of dollars.  The Toyota case will serve as a clarion call for other large firms (and not just automakers) who seek to grow profitably while ensuring high levels of customer satisfaction and scalability.

For more information on our services and work, please visit the Quanta Consulting Inc. web site.