Archive for July, 2011|Monthly archive page

Great innovators: Nature vs Nurture?

These days virtually every company looks to gain competitive advantage by launching innovative products and programs.  In many companies, innovation is more about people than it is about sub-optimal capital, structure or strategy. With this reality, how can managers spark more innovative thinking within their existing human capital pool?

A recent issue of Working Knowledge from the Harvard Business School published an excerpt from an interesting new book. Written by authors Clayton Christenson (of disruptive innovation fame), Jeff Dyer and Hal Gergersen, The Innovator’s DNA argues that innovation skills can be taught, cultivated and embedded into a company’s DNA. 

Conventional wisdom says that innovators are typically right brain individuals with a strong independent streak and flair for out of the box thinking.  For a firm to become more innovative, they need to attract as many of these unique people as possible.  Unfortunately for this line of thinking, a significant amount of academic and medical research on twins confirms that the majority of creativity skills are not simply genetic traits endowed at birth.  Rather, they can be developed and fostered. The research shows that 60-75% of our innovation skills come through learning – first from understanding the skill, then practicing it, and finally from gaining confidence in our creativity capacity.

If innovators are made and not born, then which attributes are important?  The authors canvassed approximately 5,000 executives to understand the different skills that separate innovators from the average executive.  Their research identified 5 major skill sets (4 behavioural, one cognitive) that can be taught and nourished:

Observing

Innovators spend a lot of time studying the market and technology ecosystem with a focus on customers, products, and competitors.  The observations gleaned in one place often serve as new ideas or ways of doing things in other places.  As an example, many of Steve Job’s ideas for Apple’s innovative Macintosh computer and mouse came from Xerox PARC’s research facility.

Associating

Innovative people are often able to identify, synthesize and recombine disparate ideas or technologies – a cognitive process known as Associating – into something new.  While some see this as a welcome confluence of events, innovative people have a knack of connecting seemingly unrelated factors into new concepts or problem solving.  On a corporate level, well-known innovators such as P&G and 3M incorporate associational strategies into their innovation programs. Our firm helps companies develop Associating skills through specialized facilitation and creativity-enhancing learning.

Questioning

Innovators are passionate and curious people who spend more time than the average person asking and valuing questions.  These questions seek to bring clarity and solve difficult problems by challenging conventional wisdom or key assumptions.   Out of the answers come breakthrough insights, ideas and results. Albert Einstein may be the most famous example of this kind of innovator.

Experimenting

Innovative people thrive on new experiences, experimentation and change.  Very often, their restless nature translates into a impetus for launching pilot programs to test hypotheses and new products.  One of the most prolific inventors of all time, Thomas Edison was a relentless tinkerer who also headed an industrial laboratory and major corporation (Edison General Electric, later GE).

Networking

Innovators understand the power of the network in identifying and catalyzing new thinking and action.  These people expend a lot of effort collaborating with others on existing projects as well as seeking to connect with new people and organizations for inspiration, new ideas and resources. As an example, Steve Jobs was coaxed by a friend to check out a small and eccentric computer graphics company named Industrial Light & Magic.  He ended up buying the firm for $10M and turned it into Pixar, which he eventually took public for $1B.

Inculcating these five talents in whole or in part in people can lead to significant increases in individual and organizational innovation. Akin to a person’s DNA, these discovery skills are necessary building-blocks for firm’s to ramp up innovation capabilities and outcomes.

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

Renewable energy’s moment of truth

After 30 years of booms and busts, the renewable energy industry is at a crossroads.  Between 2003 and 2008, the sector (which includes solar, wind, biomass and geothermal technologies) expanded rapidly, propelled by strong government support, high levels of private investment, technological innovation and high fossil fuel prices. However, since 2008 the RE industry has stumbled due to slower economic growth, power generation over capacity and declining competitiveness due to falling natural gas prices.   

Will the sector bounce back and grow to become a mature industry or will it fall victim to the classic boom-and-bust new technology cycle?  Two recent arguments highlight the current level of uncertainty surrounding the business. 

Booz & Co. argues that RE has finally evolved into a self-sustaining industry based on some key developments:

Geographic dispersal

RE sources are no longer confined to a few regions or markets. For perspective, 55% of the U.S.’s RE capacity in 2005 was located in just two regions (the western and southeastern regions).  Today, thanks to generous subsidies these two regions represent just 40% of a larger total capacity.  Dispersal is also occurring globally with each region now able to select the optimal mix of energy sources that suits their needs.

Technology diversity

RE is more diverse today than it was 20 years ago (when biomass was the only game in town) thanks to major advances in solar and wind technologies.  These advances have delivered major improvements in project usability, cost reduction and generation capacity.  As a result, most local areas now enjoy a variety of competitive RE alternatives; falling installation & operating costs and; a greater range of consumer and industrial applications.

Too big to fail

RE is now big business supporting a strong foundation of global and local players who have committed billions of dollars to new production capacity, distribution and R&D.  This investment is unlikely to evaporate in a market slowdown.  In most regions, a large ecosystem of critical support services has evolved including project installers, sub-contractors, and energy brokers.  This ecosystem can help accelerate RE’s share of the energy market beyond current single digit levels.

So RE has a bright future…or does it? A recent article in Foreign Affairs, “The Crisis in Clean Energy” contends that the industry is headed for a crash due to 3 fundamental challenges:

Weak economics

Most RE programs are not financially viable without generous government subsidies, regulations, and tax credits. This intervention has led to market distortions that do not reflect optimal investment allocation and market pricing. Capital has flooded into technologies and capacity that are subsidized and easy to build today but are unlikely to be innovative and large enough to compete against traditional energy sources in the long term.  In fact, over 85% of all RE investment has been plowed into technology that is not financially viable without subsidies.  Any declines in the price of traditional fuels – oil, natural gas and coal – will only worsen RE’s competitiveness and increase the reliance on subsidies.

Fading incentives

Given the existing economic and political climate, the RE sector can no longer rely on strong political and fiscal support.  Many governments are already pruning vital subsidies and tax credits.  Overall, these incentives provided 20% of all 2010 global RE investment.  Falling government support can not come at a worse time.  New industries typically depend on large and steady public/private investments to move from a start-up to a commercially-viable sector.  Moreover, the embryonic RE industry – utilities and multi-nationals notwithstanding – features hundreds of small firms who are highly vulnerable to changes in public policy and costs.

The bear is here

Equity markets are already foreshadowing problems. The WilderHill New Energy Global Innovation Index, which tracks the performance of 100 clean energy stocks worldwide, fell by 14% in 2010, underperforming the S&P 500 by more than 20%. As equity markets go, so does critical early stage technology and commercialization funding.  In fact, many North American venture capital firms have already scaled back or have canceled their RE investment arms.

Perhaps both arguments are right.  If the RE industry can weather short term economic storms and kick the subsidy habit, then it may be able to fully leverage a foundation of global industry players, capacity and expertise. The next 12 months will be interesting.

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

How to fix CRM

Boulevard of Broken Dreams is not only a popular song but a metaphor for the history of Customer Relationship Management programs at some firms.  Thousands of companies have consumed billions of dollars of capital and countless hours with little to show for their CRM investments.  Without a new, strategic deployment approach, senior leaders will be much more cautious about prioritizing and deploying new CRM systems. 

CRM is a widely implemented suite of technology and business processes used to manage a company’s sales, marketing and support interactions with its customers and sales prospects. Arriving on the scene about 15 years ago, CRM systems – including demand generation, sales force automation and analytics – promise much to organizations.  A myriad of potential benefits include driving tighter 1:1 customer relationships, more precise targeting of segments with tailored offers, better decision support and increased program efficiencies.  

Unfortunately, the reality did not meet the promise.  According to a MIT Sloan School study, 55% to 75% of firms fail to meet the expected return on their CRM investments.  Furthermore, research from marketing consultancy, CSO Insights, indicated that less than 40% of companies had end-user CRM adoption rates above 90% of full capabilities.  Simply put, CRM has yet to deliver the goods.

Dashed results trace to a number of factors.  For one thing, management exuberance and competitive pressures often lead to business case shortcuts and rash over-spending. Secondly, implementation and integration challenges within complex IT infrastructures can push out ROI and reduce available capabilities.  Thirdly, organizational dynamics – a lack of a clear strategy, poor planning and insufficient training as examples – will minimize internal buy-in and adoption.  Fourthly, CRM often triggers a tsunami of customer data which can easily overload the capabilities and resources of marketing departments.  Finally, CRM will do little for products or a company with a poor value proposition or weak market differentiation.

Despite the challenges, CRM’s potential remains too compelling to ignore.  There is now a wealth of learning from successful companies that can help reduce design, implementation, and integration risk.  With the aid of research published in MIT’s Sloan Management Review, I have put together some best practices to assist gun-shy managers get the most out of their existing and proposed CRM investments:

Align CRM to your Business Strategy

CRM has the ability to positively (and negatively) transform an organization’s relationship with its clients.  As such, firms must take care to ensure that CRM strategies and investments are not inconsistent with their brand positioning, value proposition and business model. In order to minimize customer and cost risk, managers need to undertake a thorough analysis up-front in order to design the optimal strategy and program.

Start small but don’t under-invest

Although CRM is a mature technology, its implementation will still benefit from a measured deployment that can build early momentum & support, garner learnings in flight and measure ROI at key milestones. At the same time, firms must be careful not to be ‘penny wise and pound foolish’ by starving young CRM initiatives of the needed skills & resources, technology spend and internal priority.

Ensure marketing is up to the task

To maximize returns, managers must ensure that marketing and IT has robust capabilities as well as fundamental consumer knowledge before making any investments.   If important analytics, demand generation and marketing communications capabilities are not in place at the outset, CRM will never realize its promise. 

Don’t neglect the human dimension

Maximizing internal alignment and participation is vital to the success of CRM.  Delivering this requires proven change management tools as well as providing adequate training and support resources.  Moreover, companies must safeguard retention and their brand image by making sure their customers will not resent CRM-driven sales & marketing programs aimed at them.

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

Consumer behavior in 2011: back to the future

Few people would be surprised to see that American consumers have changed their spending habits as a result of the current recession. Determining whether these changes herald a ‘new normal’ was the goal of a recent study by the consultancy, Booz & Co.  The firm spent the past two years collecting data on how the recession has impacted the practices and values of American consumers.  To gain a historical perspective, the researchers also utilized Young & Rubicam’s BrandAAsset Valuator (BAV), an ongoing 20 year survey on consumer behavior.

Booz’s study found that the recession has merely accelerated changes in consumer beliefs that were occurring over the 2005-2009 period (per the BAV survey). These changes represent a significant shift back to historical purchase drivers and lifestyle values.  Traditional purchase drivers put more emphasis on humane product and corporate attributes such as “kindness & empathy” (+391%), “socially responsible” (+63%) and “high quality” (+124%).  This swing has come at the expense of other brand values like “exclusivity” (-60%), “sensuous” (-30%) and “daring” (-20%).  Although the data is U.S.-centric, Booz believes it is applicable to all markets, including Canada.

Overall, the study found that firms scoring in the top 20th percentile in the BAV survey on the humane values identified above enjoyed almost three times higher product usage and brand preference than their peers who scored lower against these values.  Companies that do not adjust to this ‘new normal’ may face a future characterized by falling product demand, declining pricing levels and a loss of competitiveness versus their more attuned and agile rivals.   

Booz distilled their findings into 4 guiding principles:

1.  Frugality is fashionable

According to the data, more than 65% of U.S. respondents now prefer a simpler lifestyle with fewer possessions and less emphasis on displays of wealth.  Significantly, the figure rises to 77% for millennials (those born between 1980 and 1995). Not surprisingly, these attitudinal shifts are driven by record levels of household debt and a slowing economy that prevents consumer spending from growing faster than personal income. Moreover, the transition from spending to savings – savings levels are now approaching 5% of income versus 1% in 2005 – also suggest that a new era of parsimony is here. 

Consistent with their emphasis on frugality is people’s desire to be more self-reliant in order to attain a greater sense of control, empowerment and status. Brands such as Weight Watchers, Craftsman and LeapFrog that stress “educational,”  “helpful”  and “durable” attributes scored more than 200% better than their competition on BAV measures such as likelihood to refer to friends, ability to charge premium prices and propensity to repurchase.  To cope with this new milieu, marketers must improve their positioning and value proposition if they are going to maintain competitiveness in the mass market.    

2.  Transparency creates trust

The combination of economic and environmental bad news plus the rise of social media has fostered a large class of jaded consumers.   The study showed that consumer confidence and trust in a firm’s product claims, environmental footprint and social impact across every industry has fallen by nearly 50% over the past 2 years.  Increased consumer cynicism has driven a stake through many brands reducing their differentiation, image and value perception.  One important way  to restoring trust is for organizations to increase their transparency in areas like strategy, core values, supply chain and environmental footprint. 

3.  Change is ubiquitous

Consumers are changing in far-reaching ways.  According to the research, 55% of all Americans are part of a movement towards a simpler, more purpose-driven lifestyle.  As an example, 88% of respondents reported they now purchase less expensive brands than they used to.  Furthermore, 78% of consumers indicated they are happier with a more back-to-basics lifestyle.     Interestingly, not one demographic, socio-economic group or region was unaffected by this attitudinal and spending shift. Whether the firm is Hermès or H&M, they need to stay relevant by relentlessly delivering quality products and service at a fair price.

4.  Companies must care

In today’s marketplace values matter and consumers are speaking with their wallets.  The study found that 71% of U.S.consumers are now aligning their spending with their core values such as community, honesty, self-reliance and adaptability. Moreover, almost 66% of people said that they avoided companies whose values contradicted their own.  Managers must look for opportunities to align their business model to these values, whether through robust Corporate Social Responsibility programs, new products or services or via ethical business practices.      

Despite these early signs of change, more research is needed over the next couple of years to determine if these attitudinal changes have led to a permanent shift in spending and behavior.  Not surprisingly, many companies are not waiting for these results to change their approach.

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