Archive for the ‘Executing Strategy’ Category

3 ways to maximize sponsorship ROI

If you followed the World Cup, you would have noticed the many corporate sponsors of the event, the teams and players (i.e. the properties). Sponsoring the right property can give a brand a major boost in awareness and appeal. However, having the wrong approach or property could waste the investment and compromise the firm’s brand image. Fortunately, there are some best practices to follow to maximize a sponsorship’s potential.

Corporate sponsorship is big business. Annual global investment exceeds $25-billion, growing at almost 10% each year. Sports — teams, events and athletes — make up the majority of spend. Growth is being driven by an increase in the number of new properties like rock bands, festivals and charities, the rising value of some properties as well as the growing practice of tiering sponsorship support (think platinum, gold, silver levels).

Sponsorships are an important way for many companies to get their brands in front of elusive, skeptical and mobile consumers who are regularly bombarded by numerous marketing messages. Opportunities can range from naming rights on a stadium and client relationship events to limited edition products and custom advertising programs. Sponsorships can significantly build a business (think Michael Jordan and Nike) or hurt a brand image, as was the case when Kate Moss’ personal issues led to major problems for Chanel and H&M. How do you ensure you get the most value from this powerful but risky marketing tool?

The best programs get three things right:

1.  Align the opportunity to business objectives

Given the range of properties, you need to use a thorough process to filter and analyze the sponsorships to find strategic congruence between the property, brand and target audience. When affinities are lacking, the opportunity and investment could be wasted. In a high-profile program we studied, a mismatch between the firm’s customer base (women, 18-49) and the properties’ core audience (men 18-24) led to a lower than expected ROI.

2.  Promote the sponsorship

Companies often spend a lot of money acquiring sponsorship rights but very little on the promotional support that would magnify its impact. Various studies suggest that underperforming programs spend less than $1 on promotion for every $1 spent on sponsorship rights. The lack of marketing support may trace back to management neglect or the need to limit spending after paying for the rights. In one case, a client of ours believed that becoming a concert sponsor alone would drive their business. Though the sponsorship was deemed a success, management acknowledged that a lack of promotional support resulted in the firm missing out on millions of dollars in merchandise sales. Conversely, higher performing companies spend more than $1.50 in promotion for every $1 in sponsorship. Not only do these firms magnify their sponsorship investment but they also integrate their properties within their marketing mix.

3.  Evaluate performance

Despite the importance of sponsorships, many firms do not effectively quantify the impact of their expenditures. This is not surprising given the difficulty of linking sales directly to sponsorships. Successful companies use a variety of approaches. The simplest way is to survey customers, partners and employees on program impact and lessons learned. Firms can also tie total program spending to key metrics such as unaided awareness or purchase intent, and then link them to sales using regression analysis. The most sophisticated approach uses econometrics to ascertain links between programs, awareness and sales, and then isolate the impact of sponsorships from other marketing and sales activities.

Maximizing sponsorship value can be a challenge, especially when firms have multiple properties, customer segments and marketing tactics. BMO Financial Group is a major sponsor that has figured this out. The bank successfully operates a North American-wide program with dozens of properties and partners including: NBA Basketball (Toronto, Chicago), NHL Hockey (St. Louis, Chicago) Major League Soccer (Toronto, Montreal), amateur sports and the Calgary Stampede.

The Bank looks at sponsorships strategically, with a proven approach to identifying, evaluating and managing sponsorship deals. Each property — whether it is in sports, arts or regional events — aims to reach diverse customer segments within local communities as well as appeal to broader national audiences. The bank magnifies the impact of its sponsorships by integrating its elements with other marketing activities. For example, BMO was able to quickly maximize its sponsorship of the Toronto Raptors during their 2014 playoff run by increasing media advertising and launching a new Twitter campaign.

Finally, BMO sees a deal signing as the beginning of an iterative win-win relationship between the parties and not an end in itself. Justine Fedak, senior vice-president and head of brand, advertising and sponsorships for BMO, emphasizes the importance of long-term partnership. “Similar to marriage, a sponsorship begins with a mutual understanding of shared values and then evolves over time. Gone are the days when you slap a logo on something and walk away.”

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

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The best way to grow

For the first time since 2008, the majority of executives we speak with are talking about growth, not cost cutting. Companies refuse, however, to throw caution to the wind; they want to avoid the pitfalls and high cost of an acquisition. Many leaders are looking to organically grow by expanding into new, adjacent categories. While less risky in many ways, new market entry is not a no-brainer. Success requires both deliberate planning and a start-up mindset.

Companies face many barriers when expanding into new categories or markets. Achieving meaningful brand differentiation is difficult particularly when the market has been commoditized. In other cases, competition has locked up channel partners such as retailers or distributors, preventing the new player from gaining sufficient access to the market. Finally, generating a strong ROI will be tough if the entrant is unable to achieve sufficient volume or economies of scale.

Canadian financial services giant, Sun Life Financial, provides a number of lessons for sensibly expanding into complementary markets. In 2010, Sun Life made the strategic decision to expand its investment management presence in Canada with Sun Life Global Investments, seeing it as a complement to their successful insurance franchise. Sun Life Global Investments was launched with a handful of employees, 12 funds and zero assets under management. Fast forward to 2014, the firm has grown to nearly 140 employees, 87 funds and $7.8B in client assets under management. How did they do it, particularly in a tough investment management climate?

Once the decision to add asset management to their strategic growth priorities was made, the Company moved quickly to assemble the right team. First, they recruited within Sun Life Financial high-performers who were familiar with the culture, brand and practices. To maintain momentum, this internal start-up was quickly supplemented with external hires who possessed key investment industry experience.

Secondly, the team explored and then aligned around a singular mission – to bring the best asset managers and investment solutions from around the world to the Canadian investor.

“We focus on the end investor and work closely with advisors and pension plan sponsors to build solutions that meet investor needs,” says Lori Landry, chief marketing officer and head of institutional business at Sun Life Global Investments. “We fill in gaps where other offerings may fall short, and we work hard to put the customer at the centre of everything we do”.

With a strong team and mission in place, senior managers got to work on developing a brand and marketing strategy that best leveraged their channel and addressed investors’ and financial advisors’ needs in a compelling way. The goal was to build a distinct reputation for Sun Life Global Investments as an asset manager with a unique and authentic value proposition (offering the best global investment managers and products regardless of provider) and go-to-market approach (sell through trusted and expert advisors or through employers), while leveraging the awareness and credibility of the corporate Sun Life Financial brand.

As the above example demonstrates, companies need to really understand their own business, target customer’s needs and market dynamics when looking to expand into new markets. This simplified four-step framework can help managers evaluate growth opportunities:

The market gap

  • Is there a value ‘gap’ between what providers deliver and what customers want? Changing buying habits (e.g. mobile commerce) and a recessionary mindset is shaking up the customer’s value equation in many categories, putting a reliance on thoroughly ‘knowing your customer.’
  • Does the market have untapped ‘white space?” New technologies and business models give firms an ability to reorder existing product categories or create new ones (e.g. iTunes)

The offering

Available capabilities

  • Which competencies, assets and customer relationships can be quickly leveraged? The fastest way to market and ROI is by using existing capabilities and then driving scale economies.
  • Can the resource gaps be quickly addressed? Sustaining early market success will depend on identifying resource and skills gaps early on and quickly filling them.

Competitive reaction

  • What competitive moves could hamper your plans? Many executives give short shrift to understanding their competition. The reality is that most incumbents will not sit idly by and let you steal market share without responding. Managers can analyze competitive moves by using simulation tools like business war gaming and game theory.
  • Do non-industry players pose a threat? Large and profitable companies in low-growth environments may also choose to leverage their scale, customer franchise or new technologies to compete in your target market (e.g., Rogers in home monitoring).

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

 

Fixing strategic procurement

The current approach to strategic procurement (or sourcing) might be outliving its usefulness in many companies. The original idea was to bring disciplined buying policies and formalized supplier management to the procurement function in order to improve operational and financial results. Like many well-meaning initiatives, however, its implementation has been a mixed blessing. To achieve its potential, managers should rethink and enhance how strategic procurement is executed.

Penny wise, pound foolish

The promise behind strategic procurement was to reduce input and administrative costs, minimize risk and increase supplier collaboration by employing a variety of practices, including: reducing the number of vendors to maximize negotiating leverage and cut the cost of procurement; insisting that suppliers pitch their services through formal request for proposal (RFP); and centralizing buying authority to prevent ad hoc purchases. For numerous firms, the reality has not met expectations, for many reasons:

1.  Barriers to cost reduction

Many private and public sector organizations have not realized long-term cost savings and, in fact, are seeing higher costs. Cost stickiness traces to numerous factors, many of which were unanticipated: using a small number of approved vendors can incite them to engage in oligopolistic pricing behaviour; suppliers end up passing along their higher administrative and pitching costs, and; excluding lower cost providers from an approved vendor list limits price competitiveness.

2.  Reduced innovation & choice

The initial approach to strategic procurement was developed for a relatively stable business world. Yet, today’s economy is anything but that. Yesterday’s approved vendors (chosen because of their size, pedigree etc.) may not be the highest value suppliers today if they have not kept pace with new technological and business model developments. As a result, the client may not be exposed to cutting edge insights and technology. Moreover, incumbent vendors have a vested interest in restricting the amount of innovation that drives down pricing (read: their profits) or is outside their core competence. One of our packaged goods clients revamped their entire strategic procurement strategy after they got tired of watching their competition get to market first with new technologies and a steadily improving cost structure, all generated within their supplier network.

3.  Hamstringing operational performance

Forcing suppliers to engage through a poorly crafted statement of work or bidding process can inadvertently increase the risk of bad operational performance. In one high-profile example, many of the problems with the launch of the Healthcare.gov portal were blamed on the U.S. government’s procurement processes as well as requirements definitions. This is not solely a public sector concern. We have seen many expensive initiatives go off the rails because the original RFPs were focused more on satisfying the requirements of the procurement team than with meeting critical business needs like quickly getting to market or maximizing quality.

Gaps in implementation

According to our experience and research, procurement problems trace to missteps in program execution rather than business model design. The issues vary and could include: focusing on purchase price rather than total, long-term cost; relying on negotiations and supplier leverage strategies rather than broader ‘win-win’ collaboration opportunities; under-investing in procurement capabilities, and; over-involving purchasing in every supplier interaction.

Reinvigorating the model

Strategic procurement needs to evolve into a more bespoke capability. “Historically, strategic purchasing has been used to drive costs down by leveraging economy of scale along with the hope that being a significant customer carries clout,” says Mitchell Lipton, operations manager at auto parts supplier CTS. “In today’s economy there is still a place for strategic purchasing but it is no longer a one-size-fits-all solution.”

Senior leaders should realign their procurement organization to business needs and look for opportunities to add value across the entire design-sourcing-manufacturing continuum. They can do this by asking four important questions:

  1. Where can procurement work more effectively with other key functions — without getting in the way — to ensure strategic alignment?
  2. How can buyers expand beyond a short-term cost-savings mindset to include an emphasis on long-term value such as greater collaboration, continuous learning and innovation creation?
  3. What is the right mix of local and specialized versus national and generalist suppliers?
  4. What tools, processes and skills are needed by the buying organization to improve its performance?

Twenty-first century procurement is no longer just focused on cost or guaranteed delivery. According to Lipton, “In business today the key is speed and staying ahead of the value curve. When dealing with suppliers the most important attribute is flexibility and a philosophy of continuous improvement. You need a supplier that can respond to your changing needs plus has a culture of finding how to do it better.”

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

Implement through Gamification

I rarely reference the work of other consultants, except when it is produced by Bridges Business Consultancy, an implementation-focused firm based in Singapore. An example of their excellent global industry research is attached.

My two key takeaways from their study are:

  1. Despite high awareness of the problem, managers remain challenged implementing their strategies and changing
  2. Employee communication, engagement and sustained management focus remain barriers

Our North American experience finds similar results.  To close this strategy-performance gap, we are increasingly using Gamification strategies to kickstart transformation and sustain change. Please contact me if you would like to discuss your change management needs at, mosak@quantaconsulting.com.

http://www.slideshare.net/SpeculandRobin/strategy-implementation-survey-results-2012?utm_source=Strategy+Implementation+Survey+2012+Findings&utm_campaign=survey&utm_medium=email Thank you.

 

Another view: Strategy vs Implementation

This article is another in our series of guest posts by thought leaders.  Enjoy. Mitchell

There is a question currently circulating around that shouldn’t be and it is, “What is more important, strategy or its implementation?”

In the last 10 years the implementation of strategy has established itself as a field in its own right and since Execution: The Discipline of Getting Things Done by Larry Bossidy and Ram Charanwas published, 2004 and Bricks to Bridges – Make Your Strategy Come Alive by myself, 2005, every year there has been a steady increase in the number of books being published on the subject.

A main reason strategy implementation has become a field in its own right is because of the high rate of strategy implementation failure. The statistic that nine out of 10 implementations fail, (which we published in 2002) has become a rallying call among leaders to change the way they have been approaching implementation. Today leaders know that applying traditional change management to execution does not work. It takes a conscious effort focusing on eight areas to achieve excellence in execution. The eight areas are:

Eight Areas of Excellence in Execution.

1. People   It is not leadership that implements strategy but people

2. Biz Case    The emotional and numerical rational for adopting the strategy

3. Communication   People can only adopt a strategy if they know about it and understand it

4. Measurement      Change your strategy, change your measures

5. Culture     You must change the day-to-day activities of your staff members and have a culture that support and fosters change

6. Process     There must be synergy between what you say you are going to do- the strategy and what you are doing – the process       

7. Reinforcement    You must reinforce the expected behaviors so that they are continuously repeated

8. Review    The weakest of the eight points among leaders – you must constantly review to make sure the right actions are being taken to deliver the right results

For the last 12 years we have researched strategy implementation and some of our key findings are:

  • Leaders habitually underestimate the challenge of strategy implementation
  • Leaders are taught how to plan not how to execute
  • Leaders frequently return to their offices after creating the strategy and left on their own to work out how to implement it
  • Successful implementation, though not rocket science, does take discipline and structure. It is about doing many right things
  • Many organizations end up back to business as usual within 12 months of launching a new strategy!
  • Implementation never goes according to plan
  • Implementation is a business differentiator.

In Mitchell’s July 18th blog “Strategy or execution?” he argued that he is also seeing a swing towards execution when there should not be. It is interesting to compare Mitchell’s experience based out of Canada and my own based out of Singapore. Our conclusion is the same. The current movement towards execution will slow down and within a couple of years there will be no discussion on which is more important, as both are required for success.

As Mitchell highlighted with his Southwest Airlines examples, they have outperformed their competition not only because they have a strongly defined strategy but also because they are excellent in execution.

A good strategy means that it is not only crafted well but implemented well. When an organization can achieve this the pay off is tremendous. With nine out of 10 organizations failing to successfully implement their strategy, it means for the one in 10 who gets it right that they have a very powerful business differentiator build into the organization’s DNA. Organizations like McDonalds and Ikea demonstrate this point. Both have shown above average returns through the last troubled five years. Even though McDonalds have competitors offering identical products, its ability to execute its strategy under the former stewardship of Jim Skinner, who is credited with turning around company over last eight years, made the difference. McDonalds was one of only two US companies that ended 2008 with an increase in its stock price. It achieve high performance by understanding its 58 million customers a day and customizing its menu to local tastes such as porridge for breakfast in the UK, soup in Portugal and chili in Asia.

Ikea has a business model that everyone knows but no one has been able to successfully copy. Why not, because Ikea executes the model better than anyone else.

A leader today must have the skills to both craft and execute strategy and over the next few years, universities and organizations will be offering courses on both. For example, Oracle includes a course on strategy implementation on its latest leadership development program in Asia Pacific, called “Leading to Win” and Singapore Management University offers a module on implementation as part of its executive training. Both of these examples provide what is so often missing in implementation, a framework. The framework guides leaders on what needs to be done to execute the strategy and identifies the right actions for individuals to take.

Leaders were taught how to plan in university but not how to execute. That is starting to change and as it does the debate between what is more important, strategy or its implementation, will quickly become obsolete, as it should.

Robin Speculand is Chief Executive of Bridges Business Consultancy Int and bestselling author. His latest book is Beyond Strategy – The Leader’s Role in Successful Implementation. His work begins once clients have crafted their strategy and ready to begin the implementation journey. Robin is a masterful event facilitator and an engaging keynote speaker. Visit www.strategyimplementationblog.com

For more information on Mitchell Osak’s strategy thought leadership and consulting services, please visit the Quanta Consulting Inc. web site.

Gold medal partnerships

These days, many companies are looking to build their brands, target new customers and launch new services using marketing sponsorships, outsourcing arrangements or business development alliances.  To do this, managers need to master partnership management with complementary firms, government agencies and non-government organizations.   Identifying the need for a partnership, however, is easier said than making one work. A myriad of issues can complicate key business relationships, including poor communication, misaligned objectives between the organizations, and weak integration between the entities.  

Our firm has identified a number of best practices around designing and implementing winning partnerships.  To illustrate these, we will look at two very different examples:  1) the Olympics and; 2) the software industry.

The Olympic Games

Recently, strategy+business magazine looked at the Olympics Games as a model for effective partnership management.  To successfully pull off the games, the International Olympic Committee must orchestrate a tightly choreographed dance of hundreds of sponsors, broadcasters and service firms. The IOC and its corporate partners have developed a world-class partnering model, based on the successful completion of many games (now including London) as well as a few painful experiences (think Montreal 1976).  Some of the IOC’s key learnings include:  

  1. Prioritize the brands

To maximize the value of the marketing sponsorships, all parties need to work closely to uphold the rules around brand usage and exclusivity.  Furthermore, corporate partners will drive better results when they have a clearly defined and powerfully articulated brand message that intersects the needs and desires of all stakeholders.

  1. Cultivate a few key relationships

Better outcomes are achieved by having fewer, deeper and longer term business relationships as opposed to more numerous, shorter term, and more superficial arrangements.  This ‘less is more’ strategy triggers each partner to invest more resources, capital and effort against longer term goals and to work more diligently through teething pains.

  1. Anticipate political pressure

The involvement of the public sector or a NGO usually brings some form of subtle (or not so subtle) political pressure that could run contrary to the financial interests of all players.  Managers should be aware of potential risks when structuring partnership deals and develop contingency plans to handle unexpected problems or political interference.

Software Industry

My firm was engaged to help a software company resurrect a stalled business development alliance with a global IT services firm.  Initially, the client thought they had the key ingredients – great technology and strong personal rapport at senior levels – for a winning relationship. We quickly discovered, however, through internal research that the partnership needed a structural, process and cultural tune-up to realize its potential. Three key lessons emerged:

  1. Align around common goals

At the outset, it is crucial that all players agree on what a successful partnership looks like, how it is evaluated and where their marketing and operational strategies converge to produce a mutually beneficial relationship. Not surprisingly, alliances based on similar long-term objectives & values, a ‘win-win’ deal and a ‘partnership mind set’ have a much greater chance of flourishing.

  1. Establish troubleshooting mechanisms

When disparate organizations come together, there is a good chance that modest disagreements and latent misperceptions could rapidly escalate to derail program implementation.  It is vital to deploy a high-level, cross-organization steering group that can quickly resolve issues before they can jeopardize the entire alliance. Moreover, this senior team can also support ongoing priority-setting and resource allocation.

  1. Foster intra-preneurialism

Rock solid contracts and detailed plans can not deal with all the demands and snafus that come with executing partnerships.  It is up to the ‘people in the trenches’ to make partnerships burgeon.  These vital individuals are most effective when they can act like intra-preneurs i.e. internal entrepreneurs.  To encourage these behaviors, key managers need a high level of empowerment, sufficient resources, and the opportunity to communicate extensively with their counterparts.

Some final and poignant thoughts come from John Boynton, Chief Marketing Officer, of Rogers Communications Inc. “Rogers prefers bigger partnerships. Bigger to us is a deeper, longer term, more integrated relationship. You know when you have a done a good job when you can’t tell who in the room is from which side. Getting one partnership or sponsorship to work on as many levels as possible provides a better return.”  To a prominent sponsor like Rogers, great partnerships are based on strong customer appeal.  “A lot of sponsorships don’t make sense to customers”, says Boynton, “because the target audience doesn’t line up in the “sweet spot”, or that companies choose the sponsorship based on profile or personal interests. Having a very tight overlap with the sweet spot and ensuring the sponsorship addresses the target customer’s “passion” are the keys.”

Despite the best intentions, many business partnerships will ultimately fail.   They need not.  Managers can follow a variety of marketing and organizational best practices to improve their odds of long term success.

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

Strategy or execution?

I recently attended a corporate town hall. As part of the Q&A, the CEO stood up and said, “Execution is about results, everything else is a luxury we can not afford at this time.”  The sub-text of his statement was that strategy is about thinking (i.e. inaction, indecision) and execution is about getting things done (i.e. something more important).  This CEO is not alone.  Under considerable pressure to hit aggressive financial targets while minimizing risk, most managers will batten down the hatches and focus on execution. Is this smart business?

Strategic banality

No, but it is understandable given the state of strategy development in many organizations.  Many firms have generic corporate and product strategies that are based on frothy and self-evident statements such as “Our strategy is to become the market leader” or “Our strategy is to maximize customer satisfaction.”  Not surprisingly, these strategies often do not produce the desired results; they are not differentiated, aligned with the enterprise’s core capabilities and well understood internally.  Deploying ineffectual “strategies” can be worse than having no strategy at all, as the process to create them depletes finite resources, uses up valuable time and often leads to employee cynicism. No wonder many results-driven leaders are jaded.

On the surface, the view that strategy is less important than execution is hard to refute. Virtually every manager would agree that you cannot achieve good results without having good execution; similarly, most would concur that having a good strategy alone is no surefire formula for success. But too many people jump to the incorrect conclusion that this makes execution more important than strategy.

Back to basics

Experienced leaders know that strategy is more than clichés. Rather, it is the series of strategic choices (based on thorough analysis and deliberation) organizations make on where to compete and how to win such that they maximize long-term competitiveness and shareholder value at minimal risk. Within this paradigm, execution is about producing results in the context of those decisions. The reality for most companies is that they can’t have great execution without superior strategy. Two well-known examples illustrate this.

Smart phones

It is a foregone conclusion that Apple bested RIM in the battle for smart phone supremacy. Clearly, a large part of Apple’s success traced to its outstanding execution.  However, Apple also made definitive and more coherent strategic decisions about where it would play and how it would compete. These included better choices about its target customers and how to reach them; its value proposition in terms of products and features; and the superior capabilities it needed to deliver that proposition to those customers. It was these superior strategic choices that delivered the profitability, brand loyalty and supply chain agility that enabled Apple to out-execute RIM.

Airlines

Another example can be found in the competitive U.S. airline industry.   Southwest Airlines has outperformed peers for decades primarily due to their more defensible and profitable corporate strategy. Southwest has a more defined target market (the point-to-point economy traveler), a more compelling value proposition (superior price, convenience, and experience), and a closer fit between the value proposition and the capabilities needed to deliver it (e.g., maintaining a simpler fleet, running a point-to-point operation). Of course, the company is a terrific operator in its own right.  But having a better strategy made it possible for Southwest to consistently out-execute its competitors. Unless other airlines improved their strategies, they will never be able to use execution to overcome Southwest’s inherent advantages.

The execution trap

Firms can fall easily into an execution mind-set – to their peril. Market leaders looking to protect their hard-won market share (initially based on a superior strategy) and fully exploit legacy assets will be biased towards execution to drive incremental improvement and minimize risk. Ignoring strategy, however, will leave leaders blind to disruptive products and technologies.  Followers, on the other hand, often succumb to a different kind of cognitive trap.  To grow, these firms will mistakenly look to out-execute the leaders by mimicking their strategies through the flawed use of benchmarking and best practice tools.  Yet, no matter how well followers execute they will still be unable to challenge the leaders who possess superior and proprietary capabilities, technologies and cultures.  Followers will usually be better off finding a more distinctive and compelling strategy.

Companies need a good strategy to have first-rate execution. Developing a winning strategy takes time, and requires systematic analytical thinking plus the courage to challenge prevailing assumptions around customer needs, technology etc.  The ability to execute with excellence depends on how well the strategy is aligned with stakeholders as well as how it fits with the culture and capabilities.  For firms in a rut, refining the strategy may hold the key to unlocking better execution and producing breakthrough results.

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

Strategic cost reduction

In times of declining profitability or strategic inertia, many managers will hastily launch cost reduction programs. Unfortunately, many of these one-off efforts will fail to hit their financial targets while producing collateral damage to the firm’s morale and capabilities.  Companies who approach cost reduction strategically with an eye towards ensuring long term growth and competitiveness will improve the odds of achieving their objectives while minimizing long terms risks.

Cost savings initiatives are not pre-ordained to deliver sub-optimal results.  Failure shares many causes, ranging from timid managers and sloppy implementations to employee resistance and a poor understanding of the firm’s cost structure.  What they all have in common is a tactical, short term approach.  My firm has devised a better way to deliver real and long term cost reduction. Our Strategic Cost Reduction approach considers cost savings activities not as a one-time event but within the context of driving strategic priorities, capabilities and organizational alignment.  We have battle-tested this methodology in over a dozen enterprise-wide, cost reduction initiatives.  Below is a simplified overview of our 3-step approach:

1.         Align on priorities

Common sense dictates that you aim cost savings efforts against non-core, low priority corporate activities. However, in a complicated organization or in the absence of a comprehensive strategic plan these priorities will not always be apparent.  Asking 2 fundamental questions will help shed light on your true cost picture.  i) What are the major short to medium term product priorities and capabilities that guide your capital and resourcing decisions?  To be focused and ensure proper execution, managers should have a list of 4-6 product and capability priorities needed for profitable growth.  And, ii) do the majority of your costs and resources line up against these priorities and capabilities?   

Asking these questions can illuminate a harsh reality. In many companies – particularly large, matrixed and decentralized ones – there is a poor connection between key business building priorities and spending.  This leads to inefficiencies and waste as well as under-investment in vital parts of the enterprise. When capital and management attention are finite, leaders must effectively and efficiently allocate capital to their key priorities. 

2.         Focus your cuts

Once a spend-priority misalignment is identified, the key challenge becomes where, what and how to cut – and where to reinvest for growth.  We have witnessed hasty executives radically cut costs at the same time carelessly damaging key competencies and hurting morale.  On the other hand, we have seen hesitant managers aim only for easy, superficial cost savings, ignoring the considerable amount of fat lurking just below the surface.

This is where SCR comes into play:  managers need to cut spending in areas that do not support growth-focused product initiatives and differentiating capabilities.  At the same time they should reinvest some of the savings in high potential, business-building programs. To find the waste and inefficiency, managers should take the costs that were not directly tied to identified priorities in step 1 (e.g., cross business/functional costs and expenses associated with non-priority activities) and then reallocate them against the same priorities and core capabilities to get a true read on costs. This can be accomplished by classifying spending into one of 3 strategic buckets. Of course, each firm will bucket their costs differently depending on their competitive position and strategic choices

1) Differentiating products and capabilities that drive support their unique value proposition and growth. Priorities like product innovation, analytics and brand development could make up 50% of a firm’s total cost structure.  These will often require more, not less, capital and resources than is currently deployed;   

2) Table stakes operations and competencies. Examples of these market ‘cost of entry’ activities include logistics, customer service and manufacturing.  They can often yield savings of 3-10% by area through operational enhancements such as Lean or strategic procurement.

3)  ‘Keep the lights on’ spending that is used to maintain operations. These cost centers (e.g., HR, facilities management, professional services) frequently have the ability to deliver up to 25% reduction in savings through far-reaching cost reduction strategies like outsourcing or performance cutbacks. 

This analysis can yield telling results.  We have seen organizations allocate 50% of their available capital to ‘keep the lights on’ activities yet spend only spending 20% of their capital against strategic and growth-focused initiatives.  On the other hand, we have seen careless firms expend 55% of their capital on multiple growth priorities (still under spending on each of them!) yet spend only 15% on competitive matching functions that support client retention and basic marketing.

To cut strategically, managers should focus cost reduction efforts against Bucket 3 areas that do not directly support growth, ensure customer retention or build market-beating capabilities. If more pruning is needed, the emphasis would move to non customer-facing Bucket 2 activities.  Leaders should be cautious not to mortgage the future by crudely cutting (optimizing is fine) Bucket 1 expenditures.  

3.         Consider business enablers

In many cases, firms with complex organizational structures, processes and policies will be challenged to cut costs, even with SCR and proven cost savings methodologies.  In these environments, leaders should consider more sophisticated cost reduction strategies such as complexity reduction, supply chain re-engineering or in-sourcing expensive outsourced functions.  Not only can these methods produce compelling cost savings, but they also can help accelerate program execution and further develop core capabilities.

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

In praise of middle managers

If the popularity of Dilbert cartoons is any indication, middle managers do not enjoy a sterling reputation.  They are often perceived as bumbling bureaucrats who get in the way of the real work being done in the sales, production or finance departments.  New Wharton Business School research published in their Knowledge@Wharton newsletter may change that perception. The findings suggest that middle managers have a greater impact on company performance than the business strategy, organizational structure or contributions from individual innovators and leaders.

The author, management professor Ethan Mollick, studied the role of individual, team and strategic contributions on firm performance in the computer game industry.  Specifically, he looked at “how performance changes as you combine different people in different companies in different ways.” He used the revenue of each company, controlling for costs, to measure corporate performance. Mollick’s research focused on the development of individual games over a 12 year period.  These projects represented $4B of revenue and included 537 individual producers, 739 individual designers and 395 companies.

Mollick’s findings negated conventional wisdom that says: 1) performance differences between firms are due mainly to organizational factors – such as business strategy, leadership and practices – rather than to differences among employees and; 2) middle managers are typically interchangeable between companies, possessing few unique attributes that propel project success. Mollick concluded that it was middle managers, rather than innovators or company strategy, who best explained the differences in corporate performance. Within the research, managers accounted for 22.3% of the variation in revenue among projects, as opposed to just over 7% explained by innovators and 21.3% explained by the organization itself.

“Far from being interchangeable,” Mollick writes, middle managers “uniquely contribute to the success or failure of a firm…. Additionally, even in a young industry that rewards creative and innovative products, innovative roles explain far less variation in firm performance than do [middle] managers.”  While innovators may come up with new games and new concepts, middle managers assume the more crucial role of project manager i.e. executing the initiatives.  Specifically, they decide which ideas are given resources and figure out how to coordinate various initiatives within the larger organization.  Other essential roles played by middle managers included motivating the team, managing budgets, ensuring a free flow of information and facilitating “collective creativity.”  Fortunately for most employees and organizations, these are teachable skills.

In order to see if these skills were transferable, Mollick analyzed individuals who moved between companies. He found that middle managers who switched employers had an even larger impact on performance than those who remained within organizations. “This is not about a person being a good fit in just one specific organization. Their skills are useful anywhere.” It’s more evidence that managers are not “cogs in a machine. There is something innate in them that make them good at what they do.”  A middle management “skill set” appears to be a prerequisite for driving performance in industries and fields that value knowledge, problem-solving and collaboration, like software, advertising, life sciences and professional services.

The above conclusions, however, do not necessarily translate to scale-driven, process-based industries. In these enterprises, Mollick writes, “Individual workers are ultimately replaceable and interchangeable with others who have received the same extensive training.” The business model “does not rely on any individual worker’s skills but rather firm-level processes to hire and train the appropriate individuals for the appropriate roles.”

Mollick’s conclusions have a number of organizational implications:

  1. Pay closer attention to hiring and fostering the right skill set, and less so on corporate fit;
  2. Link a manager’s decision and information rights to their true role and responsibilities;
  3. Align a middle manager’s performance and reward system to a project’s revenue contribution.

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

Avoiding M&A pitfalls

Improving growth and business confidence usually triggers a flurry of M&A activity. Bold CEOs will use M&A to outflank competition, build strategic capabilities and drive profitability. Sounds like a winning formula If only these deals are a proven way to improve financial performance.  Numerous studies have shown that in 60-80% of cases, acquisitions and mergers have not led to long term increases in shareholder value.  While many of these failures can be attributed to business reasons, a great number can be blamed on the failings of human psychology and corporate culture.  Issues such as organizational bias, management self deception and weak planning can all contribute to poor M&A performance. 

Below is a list of the most common deal foible we have seen, with further insights provided by strategy+business magazine.

Dealmaker bias

Deals are often difficult to walk away from because they take on a life of their own.   Since they have invested so much of their time, effort and career equity, dealmakers will typically feel intense psychological pressure to shepherd the deal through to completion.  This pressure can lead to managers favouring information that supports the deal while ignoring information that should give them pause. In other cases, transaction urgency is institutionalized and magnified by a reward system that emphasizes deal completion over ROI. Finally, significant momentum or ‘deal fever’ can often take over an M&A process leading to management blinders around transaction risk or the cost of the deal.   

Self deception

Many organizations regularly and inadvertently deceive themselves into thinking they follow M&A best practices when in fact they don’t.  For example, managers often delude themselves around the extent of their market knowledge, only to bump against deal-breaking information deep into the process.  While companies may have a disciplined M&A approach (designed to reduce risk and streamline their efforts), they will regularly ignore the process out of laziness or arrogance. Finally, leaders will frequently over-estimate their firm’s capabilities and under-estimate competitive threats, resulting in a significant increase in deal risk and resources required.

The numbers trap

Naturally, many companies focus on the purchase price as the primary way to make the business case work.  However, an over-emphasis on the price ignores many other vital factors that can significantly impact long term value and cost.  These include:  the cultural fit between the firms; the ease of post-acquisition integration and the availability of talent in the target firm.

The myth of confidentiality

It is rare that prospective deals stay under the radar for very long, particularly when low to mid-level managers become privy to the process. A confidentiality breach can have major consequences including: a rapid and unexpected rise in the target firm’s stock price (suddenly making the deal less attractive); inciting a competitive response or; provoking turnover in the target firm.

Ignoring the day after

Given the size of many deals, one may be surprised to learn that many companies under-plan around what should happen after the deal is consummated.  This occurs for two reasons.  In the rush to do the deal, managers put off what they think could be easily done after closing.  Secondly, the people running the deal usually lack the expertise to plan and implement the messy work of post-transaction integration. This lack of attention will quickly derail the initiative and push out the time to value. 

There is no bulletproof way to making every M&A deal work.  However, CEOs can improve their odds of success by avoiding these pitfalls. 

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