Archive for October, 2012|Monthly archive page

9 steps to faster change

Changing the behavior of staff and partners is critical to business success; yet as much as 70% of change management initiatives fail. It would not be an understatement to say that poor change competencies have ominous consequences for a firm’s ability to remain competitive and financially strong.  Failure need not be a forgone conclusion.  Managers can improve their chances of success by heeding the latest research in behavioral psychology and emerging best practices.

Below are nine proven change management guidelines, based on our 20+ years of consulting plus thought leadership by Morten Hansen, a management professor at Berkeley, INSEAD:

1.  Keep things simple

Focus on changing one behavior at a time. When a company or individual has 10 priorities, it might as well have none. Research on multi-tasking indicates that people are more productive when they focus on one task at a time.  Moreover, when you want to modify more than one behavior, sequence the changes.

2.  Make goals actionable

Demanding vague or unrealistic change is ineffective and often de-motivating.  According to research on goal setting, targets need to be concrete and measurable to be attainable. The same goes with behavior. For example, “listen actively” is vague and not measurable. On the other hand, “paraphrase what others said and check for accuracy” is concrete and measurable. To ensure compliance, we ask employees to document the desired behavior and sign it as a pledge.

3.  Tell a compelling story, repeatedly

Regularly communicate a single, inspiring story across the organization. This “narrative” should resonate with a person’s brain (i.e. what’s good for them and the company) and their heart (i.e. its emotional or spiritual appeal).  Use stories, metaphors, pictures, and physical objects to paint a challenging image of “where we are now” and a better vision of “where we want to be.”

4.  Be practical

According to Diffusion theory, embracing a new behavior typically follows a diffusion curve — early adopters, safe followers, latecomers and malcontents. Managers need not try to change everyone all at once, just the key adopters/influencers who will prod cautious employees towards compliance. To begin, leaders should enlist a few early adopters to embrace the change.  Then, managers should find and convince the influencers, who will do their magic within their organizational networks.  These influencers are often not senior managers but people with many informal connections and lots of sway and credibility.Advertisement

5.  Activate the peers

According to Social Comparison theory, people look to those in their immediate circle for guidance for what are acceptable behaviors. Peers can set expectations, shame us or provide positive role models. We typically recommend companies establish change agents throughout the organization and encourage them to set expectations and respectfully put pressure on their co-workers. Companies can also utilize Gamification, an innovative and fun way to drive change compliance through employee game playing.

6.  Leverage leadership

All too often, change initiatives come up short when employees disengage after not seeing their managers “walk the walk.” In our change management efforts, we recommend that all leaders be consistently engaged through narrative development and implementation as well as modelling good behavior.  Of course, the leadership must proactively support the change effort by rewarding good behavior and censuring non-compliance.

7.  Tweak the management system

In many cases, organizational policies (e.g., performance measures, compensation schemes, etc.) are barriers to change.  Managers should identify and remove these potential roadblocks in advance of launching any change initiatives. As well, managers should promote good behavior by changing the hiring, promotion and firing criteria.  Be mindful, says Dan Pink in his book Drive, that extrinsic rewards (e.g., pay increases) only work when you try to change non-creative behaviors.

8.  Change the situation

Behavioral Decision theory says that adjusting the situation around a person can trigger change. As an example, Google’s aim was to promote healthier eating among their employees. Using the cue that people tend to grab what they see first, the company stationed the salad bar in front of the room. Google promotes behavioral change, not by telling them directly (eat salad!), but indirectly, by shaping their choices.

9.  Don’t neglect coaching

Many change initiatives require the individual to take on new skills or behaviors that are alien to them.     Especially difficult are behaviors with a high tacit component (e.g., listening better). In these cases, using sticks and carrots will not always work or be appropriate. To ensure sufficient change momentum, firms should provide teaching and coaching facilitation as needed.

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

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Opening up innovation

Hundreds of companies are pursuing open innovation strategies (OI) to kick start creativity and crack difficult R&D problems.  OI is a relatively new approach to fostering innovation.  Instead of relying solely on internal R&D, OI programs help firms leverage expertise and resources outside of the company.  In many cases, this has proven to be a smart and cost-effective way to become more innovative.  However, the reality can be very different.  Opening up your innovation strategy to outsiders is not always easy nor does it always pay immediate dividends. Managers seeking to maximize OI’s potential should first look to establishing the right management practices and program tactics.

Conceptually, OI is a more distributed, participatory, and decentralized approach to innovation, based on the fact that knowledge and problem solving today is widely distributed. The premise is that no company, regardless of its size and capability could innovate effectively and efficiently on its own.  There are two sides to OI.  The first is the “outside in” approach through which ideas and technologies are brought into the firm’s own innovation process.  This is the most popular type of OI.  The other, less commonly recognized approach is “inside out,” where a firm’s dormant or under-utilized technologies are disseminated externally, to be incorporated into others’ innovation processes.

Simply put, OI works.   Innocentive, a well-know OI services firm, found that in 30% of cases problems that could not be solved by experienced corporate R&D staffs were cracked by non employees. Other Innocentive research on problems broadcasted from 2001 to 2004 found that each question received (on average) detailed attention from more than 200 people and 10 solution submissions.

The genesis for OI was in the Open-Source software community, where thousands of programmers collaborate to develop and troubleshoot software code. In the past few years, the notion of Open-Source problem solving moved beyond software to industries as diverse as airlines, custom integrated circuits, pharmaceuticals, content production, and packaged goods. Companies like P&G, Whirlpool, 3M, Philips, and Eli Lilly have successfully leveraged OI to improve R&D productivity, increase the pace of innovation, re-purpose inventions and gain greater market differentiation. We have helped organizations successfully leverage OI strategies to address a variety of business challenges including identifying customer service fixes, brainstorming product names and finding new uses for spin-off technology.

Reaping the rewards from OI, however, depends as much on program design and process as it does from getting creative ideas.  To improve OI’s effectiveness, companies should consider how they can fine tune their strategy, culture and management systems.  Below are 6 best practices in designing and implementing a winning OI program:

Ready, aim, fire

OI must be aligned with corporate goals.  Managers should carefully consider where and when to deploy – and don’t deploy – an OI initiative.  Specifically, a firm should look externally for ideas and technologies that fit with their business model.  On the other hand, dormant internal ideas and technologies that don’t fit the model or corporate strategy should be monetized by releasing them to the outside world.

Engage the right players

The more diverse the people and entities canvassed, the more likely a problem will be solved or an idea germinated.  Here’s why. True innovation often happens at the intersections of different technologies or disciplines; individuals tend to link problems that are distant from their fields with solutions they’ve encountered in their own work.  Furthermore, OI should engage individuals beyond a user community or supply chain to include inventors, universities, research labs and start ups.  Managers should be mindful that these people can be influenced but should not be managed.

The question

Managers would be prudent to consider the maxim, “garbage in, garbage out” when it comes to defining the problem, opportunity or requirements.  If the “spec” is not clearly articulated, the OI outreach may not receive a sufficient number of good responses.  Accordingly, crafting the right pitch is part skill and art.  Too much or too little information will limit the number of quality and quantity responses.

OI inside

OI requires a supportive business system – process, structure, knowledge management and cultural norms – within the enterprise to identify opportunities, work with the contributors and manage the disparate activities.  This system should regularly encourage network communications and face-to-face interactions to foster awareness, collaboration and mutual trust.

Payment plus…

OI programs should provide reasonable compensation to the individuals for their contributions – if they are used.  However, managers should be mindful of two other proven behavioral drivers when creating participatory incentives.  First, many contributors seek peer or public recognition for their efforts.  Secondly, many people enjoy and have a passion for solving problems.

Focus on the prize

Ultimately, innovation commercialization and adoption is what really matters, and this depends on the efforts of employees and partners.  These vital cogs can not be ignored. Internal business owners and stakeholders like product managers, engineers, and project managers are critically important to executing the OI program and determining which solutions or ideas are worthy of further study and implementation.

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

Better pricing

The way many firm’s price their products is at odds with their target value proposition, brand image and possibly, financial goals. A recent essay in the Harvard Business Review, Pricing to Create Shared Value outlines a better approach to pricing products and services. Shared-value pricing asks firms to collaborate with their customers to redesign pricing schemes that will increase total value and trust in the brand.  Properly built and implemented, the business benefits are compelling, including: improved customer retention & acquisition, higher customer satisfaction and greater financial returns.

Pricing gone wild

Pricing sends clear messages about what the company thinks of its customers and how it wants to deal with them. While many brand messages say, “We value you as a person,” the pricing practices often say, “We only care about your money.” For many firms, every customer, product and service is seen as an opportunity to be monetized — often in a sneaky fashion. Fee-driven industries like retail banking, airlines and telecom are notorious for ‘slice, dice and price’ approaches that regularly ‘nickel and dime’ consumers with many small charges. Other firms, moreover, go further by exploiting any consumer disadvantage (e.g., lack of information, limited choice, buying complexity) to keep prices unfairly high.

However, times are changing. Both B2C and B2B companies face immediate and serious business risks from ill-advised pricing decisions.  More positively, some forward-thinking managers recognize that they can increase revenues and improve their value proposition by collaborating with their customers to retool their pricing policies and goals.

A new pricing paradigm

With a shared-value approach, the company looks to increase customer value and reduce distrust by redesigning its pricing policies around a customer’s full gamut of needs (versus their own).  For example, managers could engage customers to help create new discount schemes, more flexible ways to purchase a service or lower-risk ways to consume a product. This customer-centric approach will transfer more value to consumers, improve trust in the brand, and drive higher product consumption  (as new users and current customers are attracted to a better value proposition).  In some cases, a shared-value approach can help increase prices.

Bruce Silcoff, president of loyalty solutions company Fairlane Group, is a pioneer in shared-value pricing.  “Successful, long-term, buyer-seller relationships are built on a fundamental commitment to shared goals and objectives,” says Silcoff. “While our competition still relies on disjointed fee-based pricing models to achieve profitability, we have been successful at attracting new business and garnering client loyalty by linking our revenue and profitability with the performance of client programs.”Advertisement

Marco Bertini and John T. Gourville, authors of the Harvard Business Review article, cited the 2012 London Olympic Games as an example of shared-value pricing in action.  In earlier games, pricing policies were regularly criticized for being inflexible, inaccessible and overly expensive.  For 2012, the London Olympic Committee’s (LOC) stated goal was to make the 2012 Olympics “Everybody’s Games,” a mission with a strong and intrinsic requirement for the five core principles of shared-value pricing.

Focus on relationships, not on transactions
Using a single, inflexible price or a complicated pricing scheme is about maximizing a firm’s revenues and operational efficiency, not fostering mutually beneficial customer relationships. The LOC’s approach was to value customers more than their money.  For example, they introduced a ‘pay your age’ pricing scheme and multiple pricing levels to increase affordability and flexibility.  They also sought to gain trust by guaranteeing that higher priced tickets would carry a better viewing experience than tickets costing less money.

Be Proactive
Managers often price in reaction to competitive moves or customer complaints, but rarely based on what matters to the customer (their needs).  To be proactive, the LOC eliminated a major sore point from previous games — the requirement that customers purchase tickets for popular and less popular sports within a bundle.  In its place, the LOC had each sport stand on its own, with its own flexible pricing plan.

Put a premium on flexibility
Inflexible pricing schemes reduce total value by making it difficult for firms to adjust prices in response to changing needs or to better share value with customers who perceive product value and features differently. To provide flexibility, the LOC introduced multiple pricing tiers to better appeal to different needs.  Furthermore, they refused to fix the number of seats in each tier, thereby ensuring they were satisfying actual versus anticipated demand

Promote transparency
Many companies maintain opaque pricing schemes in order to maximize revenue and minimize churn.  Not surprisingly, this often backfires by generating mistrust and churn. The LOC took a completely different approach. In order to better manage expectations, the LOC communicated regularly and fully on ticket availability and pricing, as well as the key features of the ordering process and pricing rationale.

Manage the market’s standards for fairness
A company’s pricing strategy should not be at odds with its customer’s expectations of what is fair.  The LOC went to great lengths to explain to the public (the people who paid for the games) the facts and rationale around pay-your-age pricing and discounts, as well as the percentage of tickets sold at each price band, corporate ticket allocations, etc. To reinforce that there was no preferential treatment, the LOC used a lottery to allocate the tickets.

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

Transformational analytics

Companies regularly collect reams of data from their customer interactions and operations. Increasingly, they are looking to build capabilities that can synthesize this raw asset into actionable insights (a competency known as Data Analytics), dramatically improving operational performance, enabling promotion & product ‘mass customization’ and spawning new business models. Leveraging data, however, is easier said than done.  Many companies do not have a data-analytics vision and, therefore, tend to underestimate its potential impact.  Before investing in capabilities (the combination of talent, technology and math), managers should first consider how analytics can transform their business.

For select firms, data and the capabilities that manage it is a competitive differentiator, on par with other valuable assets like a brand. Recent academic research shows that companies that use DA to guide decision making are more productive and experience higher returns on equity than competitors that don’t. However, not all industries offer the same opportunities.  Some sectors like entertainment, construction and services will have modest requirements for high performance analytics, given their market dynamics and structure,.  Based on our consulting experience, we believe that companies in retail, manufacturing, banking, telecom, wholesale, and healthcare industries are best positioned to exploit the breakthrough opportunities provided by data analytics.

Brian Ross, president of Precima, a part of the LoyaltyOne analytics solution is on the front lines of transformational DA.  “We believe that today’s advantage is quickly becoming tomorrow’s necessity.  The first step in this transformation starts at the top. The C-Suite has to establish the long-term vision and align the organization to build the capabilities, processes and tools.”  Strategy-minded leaders should consider the following four areas for breakthrough DA:

1. Optimizing operations

Powerful analytics can significantly improve operational performance, reduce cost and minimize risk.  For example, collating supply chain data onto one integrated platform will allow manufacturers to better collaborate with suppliers during product development, reducing cost, shrinking development time and minimizing the risk of costly errors. In other cases, analytics can enable the deployment of self-optimizing manufacturing systems. McKinsey has written about impact of data analytics on the oil industry.  Operational data from wells, pipelines, and mechanical systems can be collected and analyzed, feeding back real-time commands to control systems that adjust oil flows to optimize production and minimize downtimes. One major oil company has used this approach to cut operating and staffing costs by 10-25% while increasing production by 5%.

2. Transforming marketing & productsAdvertisement

Real time data analytics enables companies to quickly customize products and promotional offers on the fly for different customer segments.  As an example, retailers can track the behavior of individual customers through their usage patterns — both at their site, through social media and from location-specific smartphones — and predict their likely behavior in real time. Once they can predict behavior, retailers can better drive purchases by triggering customized offers, special discounts, or product bundles. In another example, McKinsey works with a personal-line insurer client who leverages DA to tailor insurance policies for each customer, using constantly updated profiles of customer risk, home asset value and changes in wealth.

According to Brian Ross, “Our most telling case studies today lie in enhanced one-to-one communications between vendor and customer. We have seen DA deliver impressive results of 90+% sales lifts, direct response rates as high as 87% and 4% retention gains.”

3. Enhancing decision making

The capability to quickly process and synthesize large amounts of data opens up the possibility of using controlled experiments to test different scenarios around important investment, marketing and operational decisions.  For example, Amazon assigns a number of their web page views to run experiments; they seek to understand which factors promote sales and drive higher user engagement.  McDonald’s has equipped some restaurants with sensors that gathers operational data through tracking store traffic and ordering patterns. The gleaned insights are used to model the impact of variations in menus, restaurant designs, and training on sales and operational productivity.

4. Enabling new business models

Firms with world class analytics competencies have the opportunity to germinate totally new business models and services.  McKinsey has worked with a global manufacturer that learned so much from analyzing its own data that it decided to create a new business doing similar work for other companies. This service business now outperforms the company’s manufacturing one. Information aggregation is another business model that can be spawned from analytics.  Consider this:  UPS regularly collects a mountain of data on shipment patterns, energy usage etc. on the estimated 3-5% of U.S. GDP they ship annually. This data could be mined, synthesized and then sold to organizations that provide economic forecasting services.

Within five years, analytics will be a game-changer for many companies.  However, building capabilities will not be easy or inexpensive. Developing a bold vision of analytics; transformational impact is a good first step.

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