Archive for the ‘Change Management’ Tag

On values-driven change management

Every business leader knows businesses must adapt to their environment or become discredited and irrelevant over time. But how do you do this as quickly and painlessly as possible?

While there are many leadership styles, the odds of a successful transformation improve when a leader’s values and behaviours are congruent with the mandate of the company, and are seen as aspirational.

Maurizio Bevilacqua, the mayor of Vaughan, Ont., is spearheading significant cultural change, transforming operational productivity, enhancing service levels and improving employee engagement while bringing newfound respect to city politics. His values-driven approach to leadership offers many lessons for people tasked with leading major transformation in any organization.
The mayor is no stranger to the public sector. He has served in government for many years, including as a Member of Parliament for Vaughan for 22 years. In 2010, he left federal politics and was elected mayor of the city. From the get go, Bevilacqua adopted a different leadership style from a typical politician. His approach relies less on command and control management and more on setting the right example and instilling in the culture aspirational, humanistic values.

Values-driven leadership is not new in the private sector. Many of the world’s most successful business leaders — Steve Jobs (Apple), Herb Kelleher (Southwest Airlines) and Jerry Greenfield and Ben Cohen (Ben & Jerry’s) — have imprinted similar values in their companies with great results.

Bevilacqua’s values-driven leadership is demonstrated through a variety of practices and programs. For example, positivity, servitude and goodness are regularly invoked as guiding principles from strategy development on down to personal actions at Vaughan City Hall.

The mayor believes in improving employee engagement through small but personal gestures such as praising the dedicated efforts of employees both privately and publicly, placing a personal phone call for special occasions or simply saying thank you. The commitment isn’t just lip service. He and the members of council provided written commitment to the Vaughan Accord — a 12-point document that defines the principles of public service — a promise of responsible, co-operative, transparent and effective governance.

So far, the mayor’s approach has paid off in spades. Vaughan is now among the top municipal performers in Canada in voter satisfaction, economic development and staff excellence. To wit, a recent Citizen Survey revealed that 90 per cent of Vaughan residents are “very” or “somewhat satisfied” with city services overall, while 95 per cent rated quality of life “good” or “very good.” These numbers have all increased during the Bevilacqua’s tenure.
Furthermore, a fresh, business-friendly environment has led to a 18.3 per cent increase in new business creation since he assumed office. Similarly, his values-driven change has had a positive effect on staff excellence; employee engagement and demonstrated leadership competencies are up 13 and 17 per cent, respectively, compared with 2009.

Mayor Bevilacqua’s leadership style and methods are congruent with other best practice change practices:

  • Develop an inspiring narrative and values Leaders need to appeal to their staff’s spirit as well as logical brain using a simple message communicated regularly;
  • Engage all stakeholders Ignoring some groups, especially skeptics, may short change the effort and create unwanted opponents;
  • Model desirable behaviours Credibility is everything. If leaders talk the talk, they need to walk the walk;
  • Support your staff Nothing slows momentum faster than a leader who does not help their team overcome roadblocks; and
  • Be patient Real change takes time, courage and perseverance

Without a doubt, Mayor Bevilacqua is on the right track to transforming Vaughan. Yet, he should be mindful of the sage words of Pericles, Athen’s leader during the Peloponnesian War. “What I fear more than the strategies of our enemies,” lamented Pericles, “is our own mistakes,” a warning all leaders should heed.

To discuss this topic please email me at mitchell.osak@ca.gt.com

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5 steps to rebrand your business

The successful rebranding and strategic pivot of Tangerine, formerly ING Direct, was the product of strategic insight, thorough analytics and diligent planning. Just as critical was the firm’s ability to pull off a complex transformation in a time of market uncertainty and regulatory change. With 70% to 80% of change initiatives ending in failure, Tangerine holds many lessons for companies looking to strategically reposition themselves or undertake other change initiatives.

“Managing change can be both challenging and rewarding,” says Peter Aceto, president and CEO of Tangerine. “Since we all perceive change differently, it is a journey that must be met with honesty, regular communication, reassurance and, above all, a positive attitude.”

ING Direct was purchased by Scotiabank in 2012. The new entity had two ambitious goals to be achieved by 2014: first, to rebrand under a new name and identity (soon to be Tangerine); second, to expand beyond the firm’s core positioning (tagline: “Save your money”) to include new services and products relevant to their Web-based customers (tagline: “Forward banking”).

Execution missteps, such as ignoring cultural issues, poor planning or lack of management follow through, make real change very difficult to pull off. The challenge for a 1000+ employee bank like Tangerine is to execute major change initiatives with existing resources without compromising existing revenues, service levels or regulatory compliance.

“While it definitely had its challenges,” says Mr. Aceto, “I can say that we’ve come out stronger than ever before while staying true to our core values and the brand that Canadians know and love.”

Tangerine’s leadership deserves credit not only for formulating the right strategy, but also for executing on that strategy — arguably a much bigger challenge. The company pulled off the repositioning without missing a profitability beat or alienating its parent company. Since announcing its name change, Tangerine has exceeded its profitability and custom acquisition goals without compromising its image.

What best practices for managing change can other companies learn from Tangerine?

Start at the top

Successful change requires cross-functional involvement by senior leadership throughout the entire transformation process. Management accountability ensures appropriate focus, ownership and resources, as well as providing timely attention when unexpected problems arise (as they inevitably do). In alignment with Scotiabank, Mr. Aceto personally led the brand transition from the initial discussion through the planning and execution. He was also active in removing resource and organizational roadblocks when they occurred.

Create a narrative

A “change story” should be developed at the outset, connecting the change with who you are as an organization, how you generate consumer value and where you are going. Where cultural change is required, management needs to deploy detailed programs outlining target behaviours, processes and practices. Tangerine expended a considerable amount of effort developing a positive narrative for its customers, employees and partners — namely, that the acquisition was the best way of enabling future growth beyond the core business.

Communicate regularly

The likelihood of misinformation, rumour and uncertainty is quite high during transitions. To avoid these traps, leaders must regularly communicate to all stakeholders in a direct, honest and succinct fashion. Initially, key messages should articulate a desired end-state, a high-level roadmap and the benefits and risks associated with the strategy. Once the transformation has begun, communications should reinforce the narrative, acknowledge positive role models and provide progress updates.

Pay attention to the human element

Management actions early on signal to workers the priority and tenor of the change initiative, as well as what life will be like post-change. Successful change pays attention to each employee by creating individual metrics and adjusting priority lists. While plans and processes are important, ignoring the human dimension can scuttle buy-in and morale and increase business risk. When necessary, Tangerine’s managers undertook the “tough” conversations with employees in the spirit of mutual respect.

Don’t mess with success

Tangerine’s leadership, planning and execution were vital to ensuring the transformation happened in fewer than 18 months. However, credit must also be given to the role played by Scotiabank. Many acquirers feel compelled to take charge and be highly prescriptive in their oversight. Scotiabank’s post-acquisition leadership team understood much of what they were buying was a unique culture and aligned early on with Tangerine’s senior team to avoid over-managing during the transition or in ongoing operations.

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

Using behavioural economics to trigger action

Behavioural economics posits that all human behaviour, including in business, is shaped by irrational and unconscious influences, such as bias, social pressure and cognitive inertia. The notion of psychology as a driver of economic action is not new: As an academic discipline behavioural economics dates back to the 1970s, and the foundational principle back at least to Adam Smith’s The Theory of Moral Sentiments (1759). Behavioural economics has, however, only in recent years found widespread currency within the business world, spurred by a plethora of bestsellers, including Thinking Fast and Slow (2011) by Daniel Kahneman and Predictably Irrational (2oo8) by Dan Ariely.

Increased interest from the business community is due to the insights gleaned from the discipline, which have been used to successfully “nudge” customer behaviour in a variety of sectors, such as wealth management, insurance, customer products and retail. Specifically, behavioural economics has been used by product managers to guide consumers toward certain product choices (i.e., “choice design”), by marketers to develop brochures and Web sites that more persuasively communicate marketing messages and by service managers to design better support experiences.

The field can provide hundreds of potential “triggers” to augment behaviour, depending on the business objective, situation and context. Psychologists Robert Cialdini, Noah Goldstein and Steve Martin identify 50 different possible applications in The Small Big: Small Changes That Spark Big Influence (2014). Three among the list include:

  1. Leverage social proof: People will make the same decisions as a group with which they identify. Nudge people to adopt a new behavior by showing them a training video featuring their peers doing the same thing.
  2. Invoke first names: Get and keep people’s attention by frequently using their first name. A sales representative’s repeated use of a prospect’s name will cue their attention through the clutter of other sensory inputs and focus attention on the key message.
  3. The power of loss avoidance: Individuals strongly prefer avoiding losses to acquiring gains. Marketing studies have shown that consumers would rather avoid a $5 surcharge then get a $5 discount even though the net effect is the same.
    Case study: behavioural economics in action

Communications Case Study

A technology company was struggling with customer support issues, resulting in unsustainable levels of customer churn, high support costs and wasteful discounting. We were tasked with identifying the root cause of the problem and recommending fixes.

We reviewed the support scripts and escalation processes and listened to call records. Using the lens of behavioural economics to look for unconscious biases, explicit and implicit incentives and insidious social pressures, we discovered both that the existing scripts were ineffective and that the prescribed escalation process was not being followed by most service reps.

While management believed more resources and training were the answer, we convinced them to first experiment with a pilot program that featured rewritten scripts and process redesign. These changes included a variety of nudges to trigger the desired service experience, including:

  • Establishing a rapport from the get-go: People are more easily persuaded by those that they like and have some connection with.
  • Starting with the bad news but ending on a high note: Getting bad news out of the way shows empathy, acknowledges responsibility and allows for a good finish.
  • Following the script: Because a good process is only effective if it is consistently applied, we recommended having service reps formally and publically commit to following the revised protocol.

By implementing insights gleaned from behavioural economics, customer satisfaction scores increased, service escalations fell and cross-selling rates improved.

Behavioural economics for your business

As mentioned earlier, how you should apply behavioural economics insights to your business depends on your circumstances and your goals. However, here are five general tips to guide your strategy:

1.  Understand the business context:  What business problem are you trying to solve?
2.  Audit key customer decision points:Look for hidden bias, social and incentive pressures and opportunities to catalyze desired actions.
3.  Prioritize your opportunities: The economic, operational and brand impact of each decision should be considered.
4.  Identify suitable nudges:This should involve an optimized choice design that guides actions and decisions toward your desired result.
5.  Experiment, measure and scale: Only then will you discover the optimal strategy for your business.

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

6 steps to transformation

To everything, turn, turn, turn.

There is a season, turn, turn, turn.

And a time to every purpose under heaven.

The Byrds

In today’s dynamic business environment, it is axiomatic that firms must in some part reinvent themselves to compete at a high level. Yet, this is easier said than done. Transformation is hard and as economists say, ‘there is no such a thing as a free lunch’. Fortunately, change agents can fall back on some battle tested lessons to improve their chances of success.

Many Canadian companies such as Target, Blackberry and Rogers are dealing with industry, customer, or technology challenges. These issues can range from battling a disruptive competitor or adapting to a zero growth market to trying to leverage the potential of digital technology or adjusting to new consumer behavior. Should they rise to the occasion, firms can ramp up competitiveness, boost profitability and enhance their brand image.

Genuinely transforming an organization’s core strategy, key activities or operating model is part art and part science – and loaded with risk. The challenge is akin to converting a car into a bus during a road trip: The car needs to adroitly mutate without breaking down or running off the road. The driver must be mindful of picking the right destination, taking the right route, choosing the right passengers and maintaining a vigorous but safe speed.

I have witnessed many successful transformations over the past 25 years. Though each case is different, winning companies tended to have strong Boards that empowered current or incoming CEOs to:

1.  Unify cross functional leadership around a new vision and change rationale, both of which were turned into a compelling narrative and an ambitious change plan;

2.  Quickly engage employees, suppliers and partners to build support for the new vision and roadmap;

3.  Test ‘sacred cow’ assumptions about what drives revenues, brand image, customers and costs;

4.  Make tough decisions around priorities, funding and resourcing, as they fit within the new vision;

5.  Go for quick wins that build on early momentum;

6.  Course correct the plans and activities when necessary.

The recent shake-up at Rogers is a good example (so far) of how to kick off a transformation. It is no secret that Rogers has had issues with poor customer service and rapidly changing market dynamics. A new CEO, Guy Laurence, was brought onboard in December 2013 to turn things around. At the outset, he spent a few months analyzing the entire business. One of the first things Laurence did was travel the country listening to employees, customers and partners about what ailed the company, the root causes of problems and where were the sources of growth. These learnings served as the foundation for a new customer-centered strategic vision focused on two go-to-market pillars – consumer and business – versus wireless, cable and media. Next, Laurence designed a simpler two-division structure that could drive both these pillars. Tough choices were (and will be) made around strategic priorities, staffing key positions, as well as defining new roles and responsibilities. Finally, Laurence is spending time communicating this plan down and across the company. Time will tell if his efforts bear fruit.

Yet, leaders should be mindful of hidden or unintended consequences during transitional periods. While a successful transformation can rejuvenate an organization, it can also hamstring a firm over the long-term. Risks are embedded in the financial and personnel trade offs that need to be made early in the change process. In particular:

Loss of talent

Inevitably, significant talent and institutional knowledge will be lost, the value of which is difficult to estimate early in the process. Rogers’ new structure eliminated the CMO position and replaced it with three smaller jobs. This decision left CMO John Boynton without an appropriate role and no job. Losing a wireless industry pioneer and seasoned marketer (#28 on Forbes’ list of the World’s Most influential CMOs) is never a good thing, potentially compromising long-term management depth and expertise. Having said that, Roger’s structural change is another firm’s gain.

Things get worse before they get better

Changes in structure, people and practices always bring hiccups. It takes time and money (e.g., you may need to invest IT) to execute with excellence, which you may not have when you need to deliver strong quarterly numbers. Furthermore, the confusion, strife or uncertainty around change efforts can lead to drops in employee engagement and brand image scores not to mention unintended employee and customer turnover. Not surprisingly, Laurence has acknowledged the potential for challenges over the next couple of quarters.

Change is inevitable. Leaders will improve the odds of transformation success if they follow best practices, stay the course and not ignore the potential ramifications of the decisions they make early in the process.

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

Building a high performance culture

When it came to defining the number one driver of organizational performance, no one hit the nail on the head quite as well as esteemed management scholar Peter Drucker who stated unequivocally, “Culture eats strategy.” Drucker understood companies that build powerful cultures tend to outperform their peers over time. However, building or revitalizing a culture is easier said than done. The challenges should not prevent leaders from embarking on what will be a long and potentially painful journey. Where do you begin, especially in mature organizations?

A culture is an organization’s norms, practices and values as defined by its senior leadership, history and market position. Culture is vital to corporate and employee performance in that it acts as a mobilizing spirit, an enterprise-wide lingua franca, and a strategic anchor. Building a vibrant culture is equal parts strong leadership, defined values, effective change management and supportive organizational tools.

Research has found that firms with high performance cultures (which include strong organizational competencies like rich communications and focused leadership) will significantly outperform their competition. For example, a 2007 McKinsey global study on organizational and cultural performance (encompassing 115,000 employees across 231 organizations) found companies scoring in the top quartile are 2.2 times more likely to generate superior profitability than likely bottom quartile companies. It is no coincidence that many market leaders such as P&G, Apple, Zappos, Google and Disney are known for their strong, enabling cultures.

Given today’s hyper-competitiveness and rapid diffusion of technology, maintaining a vibrant and distinctive culture may be one of the few areas left where managers can generate long-term competitive advantage.

Nurturing transformation is not easy. It will falter without a sustained leadership commitment and changes to management systems. According to Chris Boynton, principal at human capital consulting firm Red Chair, “Culture is the way we do things around here, so the ideal way to change the culture and make it stick is to get the leadership front and centre, and align the management systems around the desired change.”

Through consulting to a variety of sectors, I have identified six ingredients of winning cultures. The role and scope of these drivers will vary depending on the firm’s existing culture, leadership, and external circumstances.

1. A shared vision & values

Strong cultures stress the “we” over the “I” and adopt a unifying creed (i.e. purpose, sense of history)

  • We see our market and customers in the same way
  • We know where we are going
  • We subscribe to the same core values and narratives

2. Free flow communications

Powerful cultures feature high levels of communications

  • There is open and frank conversation on any topic based on a commonly understood lexicon
  • Information flows freely across silos and up and down the hierarchy
  • There are regular conversations between managers and subordinates as well as with key external stakeholders (e.g., customers, suppliers)

3. A right-size organization

Leaders strive to design the optimum management system for the business strategy.

  • There are defined roles & responsibilities and information rights
  • ‘Structure follows strategy’
  • Any organizational change is thoroughly considered and painstakingly executed

4. Commitment to employee growth

Strong cultures view employees as assets, to be nurtured and empowered.

  • Firms seek to get employees in the right roles. ”Even a motivated and trained employee in the wrong role or team, like a nurtured seed in a poor garden, will just not grow and produce,” says Boynton.
  • Workers are regularly challenged with interesting work and supported with the right amount of training and coaching
  • Organizations strive to get their recruiting, hiring, and on-boarding processes right

5. Merit-based performance management systems

Employees will only perform as well as they’re managed. For example, emphasizing the positive is the typical approach to feedback. However, according to Boynton, “Praise drives greater performance than critiques, yet we spend most performance conversations focused on shoring up their weakness.”

  • Performance management systems are transparent, objective and regularly utilized
  • Individual and supplier metrics align with corporate goals and values
  • Companies tolerate a reasonable amount failure but seek to learn from them

6. Comfort with change

Given today’s uncertain business climate, rapid change is critical for success.

  • Change is recognized as a fact of life and a strategic necessity
  • All stakeholders are regularly consulted and engaged before change occurs
  • A high level of trust underpins change initiatives, reducing fear and improving collaboration

No doubt, getting all six characteristics right will not be easy or quick. This is a people-driven exercise so there is no substitute for patient leadership, strong values & narratives, and supporting mechanisms such as collaboration tools and internal training. Fortunately, firms can significantly boost performance if they master only 2-3 of these while continuing to strive for improvement in their under-developed areas. Given the financial rewards, there is no better time to start than the present.

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

9 steps to faster change

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

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

1.  Keep things simple

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

2.  Make goals actionable

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

3.  Tell a compelling story, repeatedly

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

4.  Be practical

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

5.  Activate the peers

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

6.  Leverage leadership

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

7.  Tweak the management system

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

8.  Change the situation

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

9.  Don’t neglect coaching

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

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

The best way to reduce labour costs

Curbing labour costs is vital for companies looking to sustain profitability and maintain competitiveness.  The typical approach to achieving this is straightforward albeit unsophisticated.    A senior leader will establish a labour cost objective and then work with their department or business heads to convert this target into a headcount reduction.  The criteria on who to let go is frequently subjective, based on who is perceived to be redundant or non-core, too expensive or on the wrong side of a senior decision maker. All too often, this approach fails to achieve the desired savings, even after years of cutbacks. Even worse, blunt cuts can lead to precipitous declines in capabilities and morale, compromising the long-term health of the business. 

Well-meaning efforts fail to produce enduring savings for one fundamental reason:  broad-stroke tactics do not address the structural causes of high labour expenses.  A while back, I worked with a CEO who needed to systematically reduce labour costs but was jaded by previously ineffective efforts.  My mandate was threefold:  1) understand the barriers that prevent long term labour cost reduction; 2) develop strategies that slashed cost but not capabilities and morale, and; 3) create mechanisms that prevent wages from creeping back surreptitiously.

Our first step was to undertake an analysis of internal/external compensation data and key learnings to understand why previous reduction plans did not meet expectations.   Below were some of our key findings:

Wages will unintentionally inflate – There was a propensity for wages over time, especially for talented and loyal workers, to outpace market rates for equivalent skills and experiences. Wage inflation occurs when managers do not link pay increases to productivity gains, corporate results or margin improvements.    This phenomenon is common in large, non-unionized workforces with low turnover, and weak adherence to HR policies.

Compensation policies gone wild – Within this large, decentralized and complex organization, there were different starting salaries and bonus structures as well as mechanisms to control pay raises. Where policies existed, they were rarely used by line managers and HR. This lack of compliance was as much a people issue as it was about good process design.

The risk of short term thinking – While some managers gave thought to the longer term impact on culture and capabilities, the primary focus was on delivering short-term “body count” targets.  Over time, blunt plans led to a shortage of key skills, resulting in quality and service problems and eventually higher costs.  And, by not adjusting the roles and the priorities of the remaining employees the managers were forced to hire expensive temporary workers nullifying the earlier cost savings.

Irrationality rules – Behavioural science teaches us that a person’s natural feelings such as a sense of fairness have a powerful affect on their actions.  We observed that an employee’s salary expectations were influenced as much by what their co-workers were perceived to be earning than what the market was paying. As a result, many employees pushed for higher pay if only to satisfy their sense of fairness and equity.  In turn, overly indulgent managers accommodated these requests in order to maintain harmony.

Our findings pointed to the need for a consistently-applied, cross-functional (Finance, HR and Operations) solution that was objective, pragmatic and aligned with longer term corporate goals and strategies.   Below were some of our recommendations:   

Implement consistent compensation policies

We canvassed internal team leads and the market to identify best practices around compensation.  This learning contributed to the creation of a centralized set of policies and procedures to guide hiring practices and wage levels.  The company used a comprehensive change management program to roll out this framework across the organization and made compliance part of the performance management system.

Align job responsibilities and job categorizations

We worked with HR to better align pay scales with job responsibilities and clearly understood job categories. This reduced the variance between internal and external salary benchmarks and between equivalent employees.  For the first time, pay ceilings and pay floors were established.  A go-forward expectation was made clear:  higher pay comes from higher performance and responsibility. Change management techniques were used to reduce conflict and ensure clarity.      

Retool exit strategies

In many cases, voluntary separation efforts failed to hit their targets.  We worked with HR to improve the design, targeting and communication of severance packages to ensure that highly valued employees were not given incentives to leave.  To retain institutional knowledge and extra capacity, we developed a new program whereby employees targeted for exit were given an option to stay at a reduced salary level.

By implementing the above recommendations, management estimates they will deliver annual labour savings of 7-10% with minimal impact on morale, service levels and operational performance.  This kind of nuanced and holistic approach to labour cost reduction looks to be a winning strategy for many firms.

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

The ten commandments of germinating innovation

Increasing innovation is now the mantra of many executives as they seek to address key developments like sustainability and regulatory change or boost performance in areas like cost reduction or service levels. Considerable attention and resources is now being paid to identifying and implementing organizational strategies that cultivate product, operations and workflow innovation.  

My experience over the past 20 years – which is now buttressed by ample scholarship – is that it is easy to make innovation a corporate priority but it’s a lot harder to germinate it within the organization.  Typical barriers include an inhospitable culture, lack of leadership and sub-optimal management practices. 

Fortunately there are now best practices to fostering innovation in organizations regardless of industry.  Some of these include:

1.         Enable the employee

Innovative enterprises like 3M and Google require employees to spend a specific amount of time on “creative” projects even at the expense of their daily responsibilities.  These firms also design performance measurement and reward systems that reinforce innovation goals. 

2.         Break down organizational silos

Innovation flourishes when there is a rich exchange of data, learnings and technologies between business units, people and functions.  A variety of approaches including knowledge management tools and departmental transfers can help facilitate this cross-pollination.   

3.         Encourage diversity

To avoid groupthink and shared bias, innovative firms focus on hiring and cultivating diversity within their staff, project and management groups.  Diversity, in terms of intellectual approach, is also encouraged in critical areas like analytics and problem solving.  

5.         Create shared values

To take root within a company, innovation must become embedded within the cultural norms and practices.  This requires strong and consistent, top-down executive support as well as a solid business case and company-wide alignment.   

6.         Use stretch goals

Management can trigger innovation by setting aggressive stretch goals around revenue and profit.  When properly used, stretch goals harness a team or individual’s stress and anxiety to look beyond existing strategies towards breakthrough thinking.

6.         Evaluate realistically

Not surprisingly, typical short-term financial measures like payback and ROI are not suitable to evaluate unique innovations, particularly when key information like market size is unavailable.  At an early stage in the innovation project, other metrics like consumer appeal should carry more weight.  To avoid expensive failures, companies also need a gating process that quickly kills off poor innovations. 

7.         Aim for home runs but welcome the small wins

Home run innovation like Apple’s iPad can deliver major rewards but so can a number of smaller improvements, which together, can increase product value, streamline operations or reduce delivered cost.  Small wins also have the benefit of building internal momentum and nurturing organizational learning.  

8.         Engage outsiders

Given the speed of technological change and globalization, virtually no company can innovate by themselves anymore.  Savvy innovators like P&G engage academics, suppliers and customers around the world for good ideas.   As well, emerging open innovation models like crowdsourcing are bringing the ideas and thinking of the masses into the firm.  

9.         Focus on Commercialization

For many firms, innovation is only about R&D.  Insufficient attention is paid to getting the innovation to market in a timely, effective and cost-efficient manner. Truly successful innovators like Apple and GE fully leverage their ideas by being expert at commercialization including marketing, sales and product management.  

10.       Be patient

Innovation usually does not happen overnight.  The innovation process is often unpredictable and false starts are inevitable.   Furthermore, it often takes a long time to refine the idea and commercialize the innovation.    

Getting these elements right will create the right conditions for innovation to flourish.  However, some firms could still under-perform because of a variety of institutional biases and strategic misconceptions.  These will be discussed in an article next week.

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

Big companies can reinvent themselves.

When it comes to large companies changing and adapting to new conditions, conventional wisdom especially around Disruptive Innovation theory, is not optimistic:

  1. Due to a number of factors including size, reward systems and culture, it is extremely difficult for large companies to reinvent themselves.
  2. For change to be successful, companies need to bring in outsiders untainted by functioning in the culture.
  3. Since change has a low probability of success, firms should concentrate on their key competencies and customers and be cautious about moves beyond their core.

A recent study out of Stanford’s Graduate School of Business on IBM’s successful transformation from hardware to solutions provider challenges the above thinking and suggests that large companies are well-suited to reinventing themselves. 

Back in 1999, IBM was a large company facing significant financial and market pressure and an uncertain future.  Internal analysis revealed that the company had failed to capture value from 29 separate technologies and businesses that where internally incubated.  Examples included the first commercial router (Cisco later dominated that market), new technologies to accelerate web performance (Akamai captured this market) and desktop PCs (Dell and Compaq took over this business).  The Stanford authors summed up IBM’s issues this way: “The maniacal focus on short-term results, careful attention to major customers and markets, and an emphasis on improving profitability all contributed to the firm’s ability to exploit mature markets — and made it difficult to explore into new spaces. The alignment that made the company a ‘disciplined machine’ when competing in mature businesses was directly opposite to that needed to be successful in emerging markets and technologies.” Not surprisingly, this assessment may sound familiar to other executives.  

IBM understood that their traditional business model was unsuited to capitalize on emerging technologies and market opportunities.  So, what did they do to change?   Use their global size, client & channel intimacy, and substantial resources & talent to their advantage while ignoring the cliché that large companies can’t be agile.

To focus sufficient management attention and resources, IBM situated its new technologies and products in a new, measurable line of business called the Emerging Business Organization (EBO). In the past, high potential technologies and products were lost in the shuffle when they were sprinkled across traditional business units. In addition, IBM put internal, experienced managers at the top of the new business units, a sharp departure from past practice. These managers had some key advantages that were crucial to success.  They knew their way around the company, they had internal credibility and they were proven leaders.  The logic of the earlier strategy was that younger leaders would be less imbued with the “IBM way” and more likely to try new approaches. More often than not, those leaders failed.  As well, IBM cycled top managers through the EBO, helping cross-pollinate new products, technologies and processes throughout the entire company.  This built internal awareness of EBO products, drove cross-selling and triggered new innovation.  Finally, IBM’s used its strong cash flows to put its money where its mouth was.  They properly invested in the EBO and its initiatives from R&D through to product commercialization.

These innovations have generated impressive results. Between 2000 and 2005, EBO projects added $15.2B to IBM’s top line. When compared to IBM’s M&A strategy at the time, EBOs added 19% to IBM’s top-line while M&A delivered 9%.

As the IBM case shows, scale and pedigree can be significant weapons to enabling change. Indeed, other companies such as P&G, J&J and Corning have successfully followed a similar approach to reinventing their business model or shifting product focus. When it comes to change, size does matter.

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

Seven ways to making cost reduction stick

One of management’s dirty little secrets is that most cost reduction initiatives fail to produce significant long-term savings.  According to recent McKinsey research, many executives expect some proportion of the costs cut during the recent recession to return within 12 -18 months.  Earlier research found that only 10 percent of cost reduction programs show sustained results three years later

To be fair, some savings have been easier to achieve than others.  For example, total cost of goods sold have fallen by more than2.5% over the last 10 years due to manufacturing relocation, outsourcing of non-core operations and exploiting lower input costs & IT innovations.  However, selling, general & administrative costs (including R&D) have actually remained flat over the same period reflecting higher labour costs and increased system complexity.   

In the short-term, most companies are successful at generating cost savings of up to 10% through a variety of proven strategies like improving purchasing efficiencies, outsourcing and tactical headcount reductions. Soon afterwards, however, these savings are lost as firms and individuals lose their cost cutting zeal and regain the bad spending habits that got them into trouble in the first place.

Cutting deeper and then making those savings stick requires managers to tackle the root causes of cost and inefficiency.  To do this, firms need to address messy and difficult product, structural, cultural and management challenges:

Product

Many consumer and industrial goods companies as well as service firms market too many underperforming stock keeping units (SKUs) which generates system complexity, increases error rates and prevents the firm from maximizing scale economies.  

Structure

Structural challenges prevent companies from cutting more aggressively.  These barriers include: supply chain resistance, poorly designed & administered purchase controls and siloed & overly-hierarchial organizational structures that minimize scale economies and data flows.  In addition, a lack of circulating information on internal costs and peer performance prevents managers from identifying and quantifying larger reduction opportunities. 

Culture

Many organizations have a growth-focused culture – with enabling performance-measurement systems – which is out-of-sync with an aggressive cost cutting mandate.  In these firms, serious cost cutting programs will dictate people changing attitudes, practices and priorities, something that is not easily done without change management methodologies and patience.  

Management

Generating meaningful cost reduction usually takes more time, communicating and management commitment than is usually bargained for. Furthermore, instituting major headcount reductions and role changes is not something that many EQ-focused managers would willingly embrace.

Increasing competitive and shareholder demands are dictating firms target deeper cuts.  To do this, they will need to go beyond traditional cost reduction strategies towards a more systematic and holistic approach.  There are a number of ways that managers can approach this:

Link cost reduction plans to overall corporate strategy to avoid the wrong kind of cuts that will reduce key capabilities, penalize high performing business units or starve new initiatives.   

Look at cost reduction as a change management issue in addition to a financial one.  As well, consider changing the reward system to incentivize individuals and departments towards driving and sustaining savings.

Clarify roles, decision rights, and information access so that the right individuals at the right level have the right information and empowerment to drive cost reduction.

Pursue SKU rationalization and input harmonization initiatives in order to reduce complexity and achieve scale economies.

Consider vertically integrating some key cost centers like production and logistics in order to capture greater operating leverage.

Explore ‘out of the box’ innovations like crowdsourcing whereby your customers undertake key operations like support, product testing and word-of-mouth marketing.

Treat cost reduction as an ongoing management priority that is measurable and where best practices are shared internally.

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