Archive for the ‘Performance Improvement’ Category

Being a frugal innovator

Apple and Google recently created a buzz as they launched their latest phones with all sorts of new features.

Improved cameras, fingerprint sensors and gizmos to save battery life were among the offerings to win over the public.

Slick designs and major international product launches may make innovation seem like a sophisticated practice that’s easy for companies with big budgets and plenty of time, but what if you don’t have that luxury.
The reality is that some of the most successful innovators get significant results without outspending their rivals. For example, Procter & Gamble minimizes research and development (R&D) investment and time by getting product teams to tap into the creativity and problem-solving efforts of outside entrepreneurs, universities and start-ups.

Apple has launched some of the world’s most successful products despite spending less on R&D (as a percentage of revenues) than many of its competitors. And companies such as Amazon and Google have used quick, low-cost experiments to quickly gain consumer knowledge and to identify and scale winning ideas, while also to pulling the plug on white elephant projects.

Most companies need a practical approach to innovation that can be used regularly to get good results.

More than 15 years of client work and research has taught me there’s a middle way between ad hoc initiatives and building expensive innovation factories. We developed a system I call the Thrifty Innovation Engine (TIE), which offers companies an alternative approach.

It’s based on the view that innovation is simply fresh thinking that comes from inside or outside of the organization, combined with actions to create market results through higher revenue, or lower cost.

Here’s how the process worked for a software client. This firm’s approach to innovation veered from rushing emergency product upgrades for single clients to funding ‘new venture’ business units that looked well beyond a two-year planning horizon. Neither approach delivered the expected business results, but they did generate plenty of politics and expenses to boot. We helped the client implement a TIE – a 120 day innovation germination and commercialization process.

Phase 1 – 10 days

Assessment, priority-setting and getting a team together

This was vital, as management didn’t have a clear picture of spending, or accountability. A small team of product managers, programmers, financial analysts and marketers looked at ideas and bucketed them according to potential customer appeal, capabilities, financial returns and ease of commercialization. The team then chose five ideas for customer feedback.

Phase 2 – 20 days

Market validation

We introduced the five ideas to 16 strategic and prospective clients and four industry leaders through a series of sessions. Our goal was to find out how each idea met customer needs, what features were important and how emerging technological trends could be used. Two of the ideas generated significant customer interest and were placed in the commercialization pipeline.

Phase 3 – 75 days

Commercialization

A small and highly motivated group of programmers were dedicated to each idea, along with a budget and internal mandate. This wasn’t a sideline project starved for internal support. The core project group continued to be accountable and provide input but were told to use a minimalist touch. Low cost, speed and client consultation were guiding principles. For example, the team was encouraged to use lean methods such as open source tools. Each team also collaborated with the clients to minimize risk and assure market acceptance.

Phase 4 – 15 days

Final steps

The team reviewed the process and what they learned to fine tune the framework, which included committed resources, defined practices, metrics and knowledge management policies. A system was also set up to track the business results and customer feedback and to cycle these findings back into the TIE knowledge bank.

Developing an innovation engine like this won’t guarantee your firm becomes the next Apple or Google, however it can help your efforts become more productive and ensure your great ideas are market driven and not long shots.

Overcoming the pain of Technical Debt

Many businesses are hamstrung by expensive and inflexible information technology. To wit: The average firm’s spend on IT has swelled to the equivalent of between 4 percent and 6 percent of revenue, thanks in part to neglect, poorly executed integrations and the breakneck speed of technological change.

While the exact toll of lost productivity and hampered innovation for any given firm is difficult to quantify, it’s safe to say that the true cost IT is greater than what appears on a company’s ledger. Research firm Gartner estimates the total cost of poor systems architecture, design and development will reach US$1 trillion in 2015. Put another way, that’s an average of US$1 million per organization, according to analytics firm Cast Software, and US$3.61 per line of code.

This hidden expense is referred to as “technical debt.” Reining in technical debt is an ongoing challenge for IT leaders because the cost of lost opportunities is tricky to peg while the cost of modernizing legacy systems is immediately tangible and often significant. But understanding technical debt is vital for organizations angling to improve performance through new technologies, improved agility and tighter cost controls.

I first encountered the dangers of technical debt when I did consultant work for a medium-sized manufacturer. In our search for savings, we found that maintaining one legacy system was consuming nearly 85 percent of the firm’s IT maintenance budget while rendering the integration of new applications difficult and risky. Worse, support activities were diverting scarce resources away from growth-enabling automation initiatives.

In that instance the firm was able to successfully phase out the old system while phasing in a new, more effective and cost-efficient replacement. But the question remains: Why did the firm’s IT leaders run up so much technical debt in the first place?

“The challenge is twofold,” explains Mike Grossman, founder IDI Systems, an automation development firm that regularly confronts technical debt in the course of infrastructure projects. “First, how can you economically and practically support current processes and business capabilities with existing — and potentially deteriorating — code, tools and processes? And second, how and when are you going to transition these old systems to support your new business objectives?”

Think of a legacy IT system as an old clunker. The driver understands that buying a new car is cheaper and easier in the long run, but either doesn’t have the down payment on hand or can’t spare a day without wheels. So instead of efficiently getting where they need to go, they’re stuck trying to keep an old car running by repairing old parts and adding new ones.

Where the metaphor falls flat, however, is in underscoring the value proposition of abandoning the old. The difference between a messy legacy IT system and a modern, fully integrated and efficient one is greater than the difference between an old car and a new one. While either vehicle will get you where you want to go, a world-class IT system can take your firm places that your current infrastructure would never allow. This is due to the opportunities for innovation that arise from a top-notch system.

That’s not to say that eliminating technical debt is as simple as hiring a team of developers to rebuild your infrastructure from the ground up. Before any such decision is made, consider the following steps:

  • Calculate your existing technical debt. To do this, compare the capabilities of your current software and hardware to industry-leading versions.
  • Determine your firm’s goals. Consider both the extent to which your current activities depend on your legacy system and what new functionality you will require for future, growth-generating activities.
  • Identify and align around the priority areas for remediation.
  • Find and deploy talent to replace or redesign legacy systems.
  • Measure and track progress at a senior level along the way.

And remember: Even after you’ve successfully upgraded your IT systems, the threat of running up technical debt remains. This is due both to the changing nature of technology and of business. While senior leaders ought not to obsess over technical debt, keeping a vigilant eye on the efficiency and capabilities of IT operations can be the difference between running in place and forging forward.

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

The Internet of Things is here

We are entering the age of the “Internet of Things,” where sensors, computers and devices are connected in a self-managing ecosystem. At home, this could mean your alarm clock communicating with your coffee maker or your thermostat communicating with your window blinds. In business, this could mean your barcode scanners communicating with your suppliers or your assembly lines communicating with to your repairmen.

In other words, the Internet of Things automates an entire activity, such as building management, medical diagnostics, logistics or manufacturing.

For example, Apple has developed an Internet of Things ecosystem that enables various devices to communicate with each other with the express goal of one day “owning the living room.” Google is also aiming to enter the space by developing driverless cars and increasingly sophisticated remote home monitoring systems.

Some of the technological drivers behind The Internet of Things include: the rise of affordable, high-performance computing, the availability of inexpensive and accurate sensors, widespread access to high-speed wifi, the emergence of sophisticated algorithms and the ability to tie everything together through software interfaces.

The Internet of Things affords tremendous opportunities for increasing productivity, inventing new services and freeing up human capital to re-focus efforts on strategic rather than menial initiatives. Firms that are first movers in the space and that are able to develop the right business models will not only resolve big customer problems and cut costs but also recast the markets in which they operate.

In short: The Internet of Things is coming to every market that has been — or can be — digitized.

Case Study: Sahara Force India Formula One

Competing in the Formula One circuit is one of the most challenging and technologically advanced undertakings in the world. Increasingly, advantage goes to the team that can better leverage insight drawn from data generated in practice and during races to execute real-time enhancements to the car and provide critical information to the driver.

That’s why Sahara Force India partnered with Univa, a cloud-technology vendor, to create an integrated, closed-loop platform of sensor feedback, advanced data collection and analysis and on-the-fly hardware and software optimization.

“Sahara Force India is second-to-none in pushing boundaries to achieve speed, innovation and capability,” says Gary Tyreman, chief executive of Univa. “Leveraging the Internet of Things enables SFI to reduce development engineering time and money, and take in-race performance to levels which once were considered impossible.”

Here’s how it works: The Sahara Force India analytics team monitors and models car performance in race conditions, generating more than one terabyte of data over the course of a typical race. Trackside engineers and the driver then use insight derived from this influx of information to adjust things such as brake sensitivity and suspension, thereby improving car performance and informing seasonal development plans.

This raises an important point. The Internet of Things requires more than an investment in connectivity-enabled hardware and software. It also requires developing the human knowhow to manage, draw insight from and optimize the system based on the data that’s being captured.

How you can benefit from the Internet of Things

For many firms, the Internet of Things poses a significant threat due to its disruptive nature. For others, it stands as a significant opportunity to outflank the competition. But regardless of how each firm reacts to the rise of the Internet of Things, the fact remains: every company will be affected. This is because the need to serve customers better, faster, with greater ease and at a lower cost will invariably spur Internet of Things investments and strategies.

With that in mind, here are five things you should consider before implementing an Internet of Things strategy:

  1. List the current and emerging needs of customers, suppliers and distributors that your firm is not currently equipped to provide.
  2. Identify how an Internet of Things offering might address those issues and generate value within your enterprise and market. For example, you may want to improve your understanding of customer behaviour in order to improve service.
  3. Think more broadly about an Internet of Things offering than bottom line impact. How could it position your firm for future competitiveness?
  4. Consider your potential Internet of Things offering in terms of its key components: software, hardware and people. Can you leverage existing resources to cut costs?
  5. Analyze how your organization would need to be restructured in order to deliver a successful Internet of Things offering.

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

Internet of Things offering than bottom line impact. How could it position your firm for future competitiveness?

Consider your potential Internet of Things offering in terms of its key components: software, hardware and people. Can you leverage existing resources to cut costs?
Analyze how your organization would need to be restructured in order to deliver a successful Internet of Things offering.

Unleash performance

Every company wants to improve margins, be more agile and generate higher levels of innovation — and they often spend a considerable amount of effort trying to get there. Improving business performance, however, is easier said than done. The executives we speak with bemoan their organization’s challenges such as lack of flexibility, poor employee engagement, and stagnant productivity. Is this feedback the entire story, or does something else account for the gap between intent and results?

Any productivity and performance discussion inevitably comes down to what the employee is doing and how does the organization enable their success. When we ask workers what frustrates them we get an earful. The first culprit is their long task list, which often limits focus and follow through on any one activity. Their second frustration is the need to adhere to corporate policies and practices that seem to be disconnected with their performance priorities and the firm’s strategic goals. Both these issues have a basis in two important but often unexplored areas.

Psychological barriers Individual frustration with their workload has some form of psychological underpinning. While many managers complain about being overloaded with responsibilities, very few are willing to jettison any of them. For one thing, they are hesitant to stop things because they don’t want to admit that they are doing low-value or unnecessary work. This is especially true in recessionary times or when firms are in cost-cutting mode. Second, some employees are workaholics who take pride in having a full plate. These individuals will take on more work even when they know it’s counter-productive for them or the company. Finally, many people fall victim to the sunk cost fallacy i.e. they are reluctant to quit something after they have invested so much time and reputation in it. Productivity strategies that fail to address these psychological considerations will likely fail.

Organizational dynamics Well-meaning, but onerous, corporate norms and practices can drag down operational performance and drive up hidden costs. Examples of these obligations include the need to regularly engage multiple stakeholders for input or buy-in even when they are not critical to an initiative’s outcome, or; the requirement to perform certain time-consuming, administrative tasks that generate more effort and cost than they were intended to save. These types of over-management can have unexpected consequences. For one, it creates an organizational paradox: companies regularly start new things — forms, committees, initiatives — but have a much harder time stopping ones that exist. The result is ever-increasing complexity. Furthermore, when managers over-react to problems by instituting new policies or processes, they can inadvertently reduce business performance by distracting people from their objectives, fragmenting their effort and slowing down operational tempo. Leaders need to carefully consider the long-term implications before adding or changing processes and practices.

The interplay of all of these factors drive organizational complexity, extend project lead times and foster operational inefficiency. Given the powerful institutional and psychological factors, how can you unshackle your organization?

Plan better

Leaders need to take into account their firm’s actual capabilities and capacity during their planning exercises. This allows them to better match their resources and skills with project and activity demands. Furthermore, using portfolio management methodologies can help pre-empt misaligned priorities and resource conflicts.

Tweak the performance management system

There is a strong correlation between what workers are measured on and how they behave. Many companies evaluate employee performance based on effort and number of tasks, not results or value. While effort should count for something, performance measurement systems must prioritize individual value creation on strategic or “lights on” activities that link directly to key goals and key performance indicators, not “busy work.”

Focus on strategic execution

As every company knows, execution is often the difference between a winning strategy and business failure. Looking at execution “strategically” and not as an afterthought can significantly improve project outcomes and reduce cost. For example, there should be clear visibility across the organization to what is being done, where and by whom with particular clarity and alignment as to “who owns what” decisions and interdependencies. All projects and practices should be regularly evaluated for relevance and efficient deployment. Finally, each project and committee should have a charter, which stipulates end-of-life dates so people understand things come to an end.

Address collectively

The best way to accelerate individual and initiative performance — given their psychological and cross-functional basis — is to employ a cross-functional team to analyze and tackle the root cause problems. This approach, though time-consuming, ensures issues become visible, collaboration is maximized and cross-organizational action is triggered.

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

The crowd makes the decision

Watch out Howard Stern: your role as judge on America’s Got Talent could be in jeopardy, thanks to Crowdsourcing — a proven, web-powered way to raise money and troubleshoot problems. And, this may be just the beginning. Research published in the K@W newsletter (a Wharton Business School publication) shows organizations can now gain significant value by leveraging the crowd to make important decisions on which projects to focus on or which creative execution to choose.

Crowdsourcing is the online process of obtaining needed services, ideas, or funding by soliciting contributions from a large group of people outside of an organization or its supplier network. Raising money, in particular, is very popular. One of its leading platforms, Kickstarter has raised more than $1-billion in pledges for 135,000 projects from 5.7 million donors, a Wikipedia posting notes. Offering an alternative to bank or venture financing is one thing, but can the wisdom of the crowd compete with experts to decide which projects to pursue or talent to back?

New research Professors Ethan Mollick (Wharton) and Ramana Nanda (Harvard) looked at this question by analyzing how theatre projects get funded, and later performed in market. Studying these types of decisions is a good test of crowdsourcing’s potential because they require both a subjective (i.e. artistic taste) and objective assessment (i.e. determine the long-run success of the project). Importantly, the U.S. arts world is a good test bed for evaluating crowdsourcing decisions. Since 2012, more money has gone to the arts through crowdfunding than the government-run National Endowment of the Arts.

The researchers compared the funding decisions by theatre experts and the crowd on six projects. The experts were experienced judges who worked for the NEA. The crowd was participants in a Kickstarter campaign. The findings were thought-provoking. The decisions of the experts and crowd were very similar with a 57% to 62% concurrence on the choices. Yet, decision alignment does not automatically translate into good decisions.

To measure the quality of the choices, the researchers also analyzed the economic impact of the successful theater projects. They found that many of them evolved from a one-night only event into recurring performances that, in some cases, provided dozens of employment opportunities not to mention long-term revenues.

Implications for companies Crowdsourcing decision-making is an appealing tack for many companies. Many decisions, especially ones with subjective criteria, can benefit from multiple lenses that remove the bias of internal experts (e.g., the ‘not invented here’ syndrome), or produce additional opinions when expertise is lacking. Tapping the crowd can be faster and less expensive than finding subject matter experts or using consultants. Finally, relying on the crowd could avoid the internal politicking that comes with high-stakes choices that lack objective data.

A variety of decisions can be made by the crowd. For example, marketers can use it to help them choose the brand messages or advertising creative that best resonates with their target audience. Furthermore, venture capitalists can leverage a community of technologists or consumers to help them decide which startups to fund. Importantly, tapping the crowd does not negate the importance of internal experts, who can still be used to make sure the crowd’s choice passes the ‘common sense test’ and that decisions incorporate all the data.

Tapping an external community, however, will not be ideal in every situation. Many leaders will be unwilling to outsource major decisions given their egos or risk aversion. Furthermore, using the crowd for smaller decisions like picking advertising creative could be impractical and demotivating to staff. Finally, leveraging the crowd may lead to poor results if not properly executed.

Starting out While this research is encouraging, its conclusions should be validated for different situations and industries. One way to do this is to compare the internal decision with the crowd’s choice. To do this, it is best to begin with a pilot. The pilot would have a clear objective with well-defined and articulated choices. To maximize the crowd’s value, the target decision should integrate both subjective and objective evaluations. Managers should also carefully pick the community they want to leverage, within the right online platform. Special attention should be paid to maintaining confidentiality and intellectual property requirements before reaching out publicly. When the pilot is finished, managers should compare the results of each decision and the impact of each process.

For now, Howard Stern can rest easy. Crowdsourcing decisions will never replace thorough analysis, time-tested judgment and gut feel. However, these qualities come with a price, which is often high in terms of cost, time and hassle. If crowdsourcing can be validated for other use cases, then tapping wisdom of the crowd will become an important decision support tool.

For more information on our services and 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.

The madness of metrics

Anyone familiar with large organizations has probably heard the phrase “you can’t manage what you can’t measure.”  For most of my management and consulting career, I took this as a truism.  Not any more.  A recent client engagement and a review of the latest research have taught me the dangers of relying too heavily on metrics, especially bad ones, to spur better business results.  This is not to say that metrics have no role; far from it. However, leaders should use them sparingly and consider alternative motivational tools.

Take, for example, work we recently did with a financial services institutions, which had historically earned above industry returns.  Since 2009, it faced two significant headwinds: first, mounting customer churn that marketers believed traced to product issues; and, secondly, shrinking margins, driven by steadily increasing costs and a perceived inability to raise prices. Not surprisingly, employee engagement scores were also floundering. The company was looking to understand what was really going on and improve operational performance.  After undertaking a root-cause analysis, we discovered that many of the problems stemmed from the poor choice and management of newly established metrics. Our fix was relatively simple (though a challenge to sell through parts of the organization): get rid of some (but not all) of the new metrics and focus on a few key performance indicators (KPIs).

CEOs looking to improve corporate performance without damaging employee engagement should heed the following lessons. They include:

Metrics mask problems

Companies often use a metric without understanding what they are trying to improve. For example, our client added a new metric, customer satisfaction, without thinking through what the internal and external drivers of the higher churn were. The first two customer surveys were telling: satisfaction went up but so did churn.  After a deeper analysis, we found that the churn traced primarily to poor service and communication of the product’s value not product performance, which the new metric was based on. This blunt metric led management to focus on the wrong things.

Metrics create conflict

Very often metrics are used in functional or divisional silos, with little consideration paid to how they negatively impact other group’s performance and results. For example, a procurement department’s metrics around cost reduction can put it into direct conflict with the manufacturing group, which is measured on just-in-time raw material supply. Manufacturing managers would understand that paying higher prices is necessary to achieve their objective.

Managers become overly focused on metrics and not performance

Many employees focus their efforts solely on the metrics by which they are measured on. However, their actions may not be congruent with what’s best for the business. This misalignment can be illustrated by the attention paid to measurement systems like scorecards. Many of my client’s managers spent upwards of 20% of their valuable time managing around scorecards — collecting data, positioning the numbers and lobbying their ‘story’.  Their efforts would have been better spent on other (non-measured) corporate goals like innovation and coaching.Advertisement

Metrics lack credibility

Some common measures like brand image and employee engagement lack sufficient credibility to motivate many workers and trigger improved performance. These metrics are often viewed as disconnected from everyday reality, obtuse or too blunt to be practically influenced.  This metrics-induced “credibility gap” contributed to the client’s low employee engagement scores.

Metrics can lead to unintended consequences

Unexpected things happen when organizations focus on some metrics. The pursuit of revenue goals led some members of the company’s sales and service teams to do things that were inconsistent with company values, teamwork and ethical behavior.

Where do we go from here?

To reiterate, metrics are not bad per se.  Bad metrics are bad.  We recommend firms take three steps to reduce metric madness:

Know thyself

Really understand your business and customers, and what drives performance.  Make sure existing metrics reflect these key drivers.  Furthermore, create new Key Performance Indicators (KPIs), if necessary, that can act as proxies for many essential activities. For example, a ‘ship on time, in full’ KPI illuminates a lot of information about a firm’s production, logistics, service and inventory management performance.

Less is more

There should be no more than four to five organization-wide (not siloed) measures that encompass all facets of the business.  Take care not to over-manage these through scorecard creation and reviews. However, changing metrics may require the organization to revamp its compensation and performance measurement systems.

Manage people not numbers

It’s people who generate value, not metrics. This fact may be inconvenient or difficult for some managers but it is a prerequisite for higher performance and engagement. Changing a status quo that benefits many people and is part of a legacy culture is tough. Leaders need to be bold and stick to their guns. It is well worth it.

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

5 Steps to Digital Transformation

Most companies want to better leverage digital technologies — social, mobile and cloud services — to deliver an enhanced customer experience, enable new business models and drive greater operating efficiencies.  They also dread falling behind their bolder, more agile competitors. Yet, most leaders are unclear as how better to use the technology they have or decide which new tools to adopt. How can these laggards prudently catch up?

It is well documented how transformational leaders like Starbucks, Nike, Cisco and Apple have employed digital enablement — organizationally and technologically — to generate new revenues, extend market leadership, and reduce cost by streamlining processes and practices.  Unfortunately, these firms are the exception not the rule.

MIT Sloan Management Review and Capgemini Consulting conducted a survey in 2013 of 1,559 executives and managers spread across a wide range of industries. The survey looked at the state of digital transformation, and the barriers and enablers that are impacting this journey.  To be clear, we are talking about embracing breakthroughWeb 3.0 technologies such as cloud computingcrowdsourcing3D printing andlocation-based analytics, not more common applications like e-commerce or server virtualization.

The study’s key conclusion is sobering but hopeful. Despite the promise (or hype) of a digitally enabled business, most companies have been tentative in fully adopting new technologies and supporting them with organizational changes.  Fortunately, the study also highlights some best practices that point a way forward to fully exploiting potential of digital technology. Some of the study’s key finding are:

  • There is a digital imperative. A convincing 78% of respondents said achieving digital transformation will become critical to their organizations within the next two years.
  • However, words do not match with reality.  Only 38% of respondents said digital transformation was a high priority on their CEOs’ agendas.
  • Awareness of the intent-action gap is a good first step. A strong 63% of the executives acknowledge the pace of technology change in their organization is too slow.
  • Firms that were considered digitally savvy typically outperformed companies that lagged in technological implementation.

There are worrisome but often benign causes for this lethargy.  The study and our research point to many factors, including:

Lack of urgency: Firms with no ‘burning platform,’ competing management priorities or who focus inordinately on short-term results will be less willing to put sufficient focus and resources behind digital initiatives.

Pessimistic culture: Many organizations are naturally risk averse, have management systems that don’t handle technology issues well or display a ‘not invented here’ mindset to technological adoption.

Low digital awareness among leaders: A digital divide exists in many companies between junior or middle managers who understand the potential of digital technology and those leaders who make strategic and financial decisions.

These barriers must be overcome. Entire industries (e.g., travel, music, retailing) have been disrupted by digital pure-plays and/or seen their margins shrink significantly.  Acknowledging the issue is no longer enough; organizations must get in the game.  Here are five best-practice recommendations we have made to a variety of clients:

Raise digital literacy. To begin with, all cross-functional leaders need to understand key digital trends, what their competition (current and emerging) is doing and what are some best practices from outside their industry.  Nike looked beyond the apparel industry to the wireless, controls and sensor industries when launching its Nike+ offering.

Focus the impact. Technology should not be adopted because it is cool and flashy. It must support the core mission and priorities of the firm — not create new ones.  When Starbucks made its digital transition, it added services that would enhance the customer experience (free wi-fi) and streamline operations (add digital payments to speed up the order/payment process).

Organize for success. Companies can take many steps to support transformation, including mandating digital representation on cross-functional teams, forming digital ‘centres of excellence’ and giving enterprise-level authority for digital investments. When media firm Gannett and Columbia University wanted to accelerate its adoption of digital technologies, it created a new chief digital officer position with a mandate to spur technological adoption and relentlessly evangelize the vision.

Re-tune practices. Make digital literacy part of key practices like recruiting, research and training.  Create and connect digital transformation metrics to reporting, incentives and the performance management system.  One of our clients in the IT sector requires their planning activities and templates to include a digital lens.

Walk, don’t run. Big bang technology adoption rarely works.  Pick an operational, service or marketing pain point and investigate how digital technology can help solve the problem or improve performance.  Pilot something.  If it works well, scale quickly.  If it doesn’t meet expectations, kill quickly, inculcate the lessons and move on to something else.

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

Curbing avoidable employee absences

Avoidable employee absences are a hidden killer of corporate profitability. Many leaders don’t realize that short-term, unplanned absences can cost the average medium-sized company millions of dollars in payroll expenses not to mention lost productivity and business disruption. To get this financial sinkhole under control, HR leaders must get a handle on the problem and consider some innovative technological and business fixes.

Many types of worker absences are inevitable.  However, the unplanned and avoidable ones may be the most harmful.  Unmanaged or misunderstood, they can quickly lead to operational disruptions and cultural toxicity.  A variety of studies have estimated the aggregate costs of unplanned absences such as sick days and casual non-attendance.  A recent Conference Board of Canada study of 401 medium- to large-sized public and private firms found Canadian workers miss an average of 9.3 work days per year.  This costs employers 2.4% of their gross annual payroll (a $16.6B hit to the economy).  This number is likely understated as it does not include indirect costs like finding replacement worker costs, project delays or missed deadlines.   The absentee problem may be even bigger in the U.S.  A 2010 online survey of employees from 276 organizations conducted by Kronos/Mercer Consulting  found employee absenteeism produced 5.8% of extra payroll costs not including indirect costs.

Blind spot

Surprisingly, only 46% of employers admitted to tracking absences and exploring their causes, according to the Conference Board.  There are understandable reasons for this neglect.  Firstly, many firms cannot quantify the problem or understand its root causes because they do not have the right tracking systems, or because the data is siloed.  Bill Shapiro, CEO of Workplace Medical Corporation, says “If absence costs showed up as an expense line on the divisional P&L statement, it would it would get a lot more attention. The problem is that it is has been too difficult to get a hard number for that cost.”  Secondly, when it comes to reducing labour costs, unplanned absences play second fiddle to other priorities like headcount rationalization since these direct costs are easier to calculate.

Help is on the way

New methodologies and technologies are now available to better diagnose the problem and reverse its negative effects:

Big Data

Anecdotally, we all know that days preceding or following a long weekend or important game will tend to spike absences.  Big Data strategies — understanding what is really going on with attendance and staffing data across the organization and how it correlates to other variables like weather or sporting events — can give firms the insights and predictive tools to fix the problem and optimize practices.   To wit, theFinancial Times relayed a story about a British retailer who submitted the staffing records for thousands of its employees for an independent Big Data analysis.  This analysis discovered the retailer was paying more than 150 employees who had called in sick years earlier and had simply disappeared from the workplace.  Moreover, Big Data learnings can also help managers refine workflow design to minimize physical stress on employees.

Dedicated solutions

Traditionally, unplanned absences are handled manually or within a larger HR information management system. This approach is too primitive to address the issue in real-time, objectively, and proactively.  New, specialized systems address the problem head on by monitoring absences, aggregating the data and tracking the case, from day one.   In Workplace Medical’s solution, an absent employee would first contact a call centre. A service representative would log the absence in specialized software, provide the employee next steps and immediately notify his or her supervisor and HR department.  The rules-based software automates the management of the case including facilitating early intervention, tracking the length and cause of absence and identifying employee patterns.

Gamification

Integrating gamification strategies — a combination of game principles, behavioral psychology and enabling technologies — into attendance practices and processes could minimize the number unplanned absences.   Many firms like SAP and Microsoft have used game playing to promote long-term behavioural change around the adoption of new initiatives and the alteration of long-established practices. They have also used it to increase productivity for mundane or repetitive tasks. Gamification programs work by providing each employee or team significant intrinsic rewards — through enhanced status, feedback or recognition — when they play the game (i.e. comply with attendance policies).  Considerable research has shown  incorporating intrinsic rewards into workflows and practices is more effective than using extrinsic rewards (e.g., pay) or punishment.

Challenges

Dealing with this problem should be a corporate priority.  However, the fix should be designed and implemented with care.  The strategies mentioned above could breed mistrust and resentment; some employees may perceive management as Big Brother watching over them or manipulating them. Moreover, the HR group may be resistant to giving up control of the process to a third party that could expose HR’s dirty laundry, as was the case with the British retailer.

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

Pay people more

My late father used to say that when you pay peanuts you get monkeys.  He may have been on to an old management idea beginning to percolate again. The idea — at odds with conventional wisdom — is that paying people more may boost productivity and reduce cost by increasing employee engagement, reducing attrition and attracting new workers. Though this approach would be unrealistic for many companies, it may be worth pursuing for certain industries and some minimum wage jobs given the problems with traditional approaches.

Organizations are facing strong headwinds.   Margins remain tight, generating real innovation is difficult and consumer demand remains uncertain. Over the long run, managers face looming labour shortages and possible technological disruption.

The productivity puzzle

To cope, firms have implemented headcount reductions, wage freezes and supply chain rationalizations.  Though these have been successful they can only go so far.  The only fertile area left to significantly improve performance is to boost employee productivity.  Yet, increasing worker productivity is easier said than done, for many reasons. For one thing, most companies suffer from chronically low employee engagement (typically only 35% of workers are positively engaged). High employee turnover, poor or non-existent training and pervasive skills gaps also act as brakes on raising worker productivity and containing costs.

It would be naïve to think these problems do not have a compensation component.  Would a wage increase help address these issues?

A novel fix

In 1914, Henry Ford, the father of mass production, famously doubled pay at his factories in order to fight attrition but also so that Ford’s assembly line workers could afford to buy the cars they were making. This strategy paid off immediately and impressively, generating:  higher employee productivity, improved retention, a flood of new applicants and a major boost to the American economy.  The challenges faced by Ford in 1914 would be familiar to many executives today in the retailing, hospitality, construction and manufacturing sectors.

Some recent business cases support the notion that paying people more will generate higher productivity and help cut costs.  For example, Forbes magazine reported companies can reduce the high cost of employee turnover and retention (expenses that can run in the tens of millions of dollars), and job dissatisfaction by paying a higher starting salary and offering more benefits up front. They cite leading retailers like Costco, Trader Joe’s and Zappos as examples of firms that pay and train more, and in turn achieve significantly higher retention and performance levels.  All of these firms have done the math and figured out it’s cheaper and more beneficial in the long run to pay higher starting wages and deliver high value training. According to Lloyd Perlmutter, veteran retailer and president of The Beacon Group, a retail and organizational consultancy: “While base compensation is an important factor for front-line employees, people also respond to cash incentives, fun contests and any additional training and development to add to their skill sets.”

Providing more compensation to some employees can make sense for other reasons. Like Ford, offering higher pay signals to its workers and the market that the firm recognizes employees, values performance and is willing to pay for it.  This enhanced reputation may attract more workers than a company with a low-pay reputation. In addition, a pay increase for some employees may end up being less costly in the long run than the cumulative cost of multiple employee engagement initiatives (the dirty little HR secret is that most fail), dashed worker expectations and wasted management time.

Ask the right questions

Management should tread carefully; many employees are already at the top end of the pay scale or are in non-permanent jobs.  Before committing to a blanket pay increase, managers will want to explore two key questions: 1) what is the true productivity and cost hit of high employee turnover and dissatisfaction and; 2) If the answer to #1 is significant, what wage and/or benefit increase can move the needle without busting the corporate bank.

Dip your toe

Not every industry or business will be a good candidate for a wage-based fix. To test the hypothesis, managers should experiment first with low-performing business units, focusing on minimum wage jobs. Ideal situations will be companies that:

  • Feature high levels of turnover
  • Have difficulty finding employees with the right skill sets
  • Employ low-level workers who can directly impact revenue

Increasing compensation is not a sop to socialists, although one could make an argument that reducing pay disparities is a socially worthwhile goal.  Paying some workers more can make business sense by reducing costs in the long run and kick-starting revenues. Savvy managers should pilot this strategy in a contained department or business unit and carefully study the results.

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