Change your thinking before you change your strategy

3-way-pieIn another recent HBR articleMark Bonchek and Barry Libert, argue that organisations wanting to undertake a transformation are in need of a new mental model and new measurement model just as much as a new business model.

You have to change how you think before you can change what you do, and then change what you measure to close the loop.

The authors cite examples of companies trying to copy the business model of another and failing as they had not change the way they thought or measured results. The primary example given is the Southwest Airlines business model and the attempts to copy it by Continental Lite, Ted by United, and Song by Delta which all failed. Whereas JetBlue, which has emulated all three models, has succeeded.

Southwest cofounder Herb ‘Kelleher is known for saying: “I tell my employees that we’re in the service business, and it’s incidental that we fly airplanes.” Other carriers fly airplanes that carry people. Southwest serves people using airplanes.”

“Traditional carriers were still thinking about their business as flying planes rather than thinking about serving people, still worrying about capturing share rather than growing the market, and still measuring success based on how well they utilized planes rather than how well they served passengers.”

“In contrast, companies like JetBlue decided to emulate Southwest’s entire system: mental model, business model, and measurement model. Like Southwest, JetBlue focuses on people over planes, with a mission to “bring humanity back to air travel.” Beyond the usual financial metrics, JetBlue also measures the strength of its culture and the quality of its experience.”

You can read the full article here.

 

 

Are you Customer Centric or Competitor Centric?

Cus-v-compIn a recent guest post on HBR, Tara Nicholle-Nelson, explains that companies need to obsess over their customers, not their rivals. As she explains, “The question is not who your competition is but what it is.”

Your competition is any and every obstacle your customers encounter along their journeys to solving the human, high-level problems your company exists to solve.

Nicholle-Nelson goes on to articulate that companies need to change their thinking from selling a ‘product’ in a one-time transaction to selling a ‘transformation’ from the “status quo to the new levels and possibilities“.

In turn, your customers are everybody whom has the “problem your business exists to solve”, not just somebody whom has brought something from your previously.

As Harvard marketing professor Theodore Levitt once said: “People don’t want to buy a quarter-inch drill. They want a quarter-inch hole.”

You can read the full article here.

Aussie and example of Australian companies that ‘get it’

aussieIt was good to see at a panel discussion at this year’s annual CMO, CIO and ADMA Executive Connections breakfast event, evidence that some Australian companies are really starting to get what it means to be customer centric.

Particularly Aussie, an Australian retail financial services group,  where Aussie Home Loans’ general manager of customer experience and technology, Richard Burns explained he saw a danger in appointing a chief customer officer. “Debates around who owns the customer, I think, are a waste of time,” he said.

“Debates around who owns the customer, I think, are a waste of time.”

“It shows there are some tensions in the culture, which have to be worked through. Because if everyone in the organisation is not passionate about the customer, you will spend a lot of useless time debating what you should be doing.

“Originally my title was general manager, customer, and I changed that because I didn’t want people in the organisation thinking, ‘well you can take care of the customer’. Part of my role is making sure we are all passionate about the customer – that’s part of the ongoing challenge I have. But to say there is one person, I think is very risky.”

At Aussie Home Loans, a number of operational procedures are taking shape in a bid to break down the siloed approach, according to Burns, such as activity-based working.

“If you came into the studio where my team sits, you wouldn’t be able to tell who’s in technology and who’s in marketing,”

“If you came into the studio where my team sits, you wouldn’t be able to tell who’s in technology and who’s in marketing,” he said. “We have also adopted agile right across the business. That started in technology, but now literally every single team, with every single initiative we undertake, is cross-functional. Right through to executive level, everyone can see what the main priorities are, what we are doing and why.”

Read the full recap here.

Why Poor Management Practices are like Viruses

Now we’ve all worked for companies that exhibit poor or bad management practices. Many of us find these practices a great source of frustration. But why do these practices exist? Why do the managers and executives that purport these practices not only continue to survive but thrive?

In this short YouTube video, London Business School Professor, Freek Vermeulen, outlines why bad management practices continue to thrive rather than die out with competitive pressure and ‘progress’.

Interestingly the reasons are similar to the continuance of viruses in nature and therefore Vermeulen calls these bad management practices, corporate viruses.

The three conditions that allow them to continue to exist are:

  1. There are short term benefits and therefore they are associated with success;
  2. The gestation period may be many years and there is an inability to understand the relationship between cause and effect; and
  3. The practice is easy to imitate and therefore spreads faster than it kills.

There is however one thing companies, particularly those in homogeneous industries, can do to aid innovation and increase the competitive advantage – stop doing things that don’t work or in other words “stop doing stupid things”.

 

Can you still win when you out-source your front line?

callcentreI have to admit, up to this point, my customer centric mindset has led me to believe that if there is one area of your business that you should not outsource, its your front line. These teams are the people interacting directly with your customers and delivering ‘moments of truth’, delight or misery to them every day. They are essentially your brand. But the fact is, many business units and organisations do outsource their internal and external front lines, generally for cost reduction purposes.

But as this interview with a Vodafone Spain executive demonstrates, it is possible to outsource your front line and deliver a great customer experience in line with your brand promise. And its no different to how you should align all your teams inside your organisation to deliver successful customer outcomes. So hold off on the ‘in-sourcing’ and ‘re-shoring’ and read this interview undertaken by McKinsey with Vodafone Spain’s, Carmen López-Suevos Hernández.

Vodafone Spain started with a situation that looked like this:

  • almost fully outsourced (onshore & offshore)
  • large number of vendors as each customer service function had outsourced individually
  • often short term contracts
  • ranked last for service levels among major Spanish mobile providers
  • cost pressures made it hard to in-source
  • first contact resolution rates were low
  • call volumes were growing
  • costs were actually increasing (despite the goal of outsourcing)
  • vendors found it difficult to work with Vodafone
  • focus on costs meant relationships were transactional with an emphasis on volumes and fixed prices
  • vendors disliked the constant price pressures
  • vendors with multiple contracts found it was like working with different companies

Vodafone realised it had to refocus on quality of service, not just cost and reevaluate vendor relationships and front line agents who serve their customers.

Vodafone always had goal to reduce overall cost to serve and reducing cost per call is one avenue to do this but when you squeeze vendors on price, they squeeze back by:

  • reducing the quality of people,
  • reducing the ratio of team members to team leaders,
  • reducing the attention given to development & retention

Attrition increases while skills fall and the result is fewer calls resolved on first contact and up front cost benefits are essentially lost as call volumes rise.

The other way to reduce the overall cost to serve is to reduce volumes by solving more calls at first point of contact. This could allow a higher price per call which vendors could re-invest in further quality improvements while Vodafone still comes out in front.

Vodafone realised it needed to change a lot about how they operated, their mind-sets about the role of vendors, performance expectations of them and how they interacted with them. And while they indeed needed to reduce number of vendors and sites, what they really needed was a new operating model.

Fundamentally Vodafone wanted call centre agents whom could turn customers into brand advocates, not just handle calls.

After a 3 year transformation Vodafone Spain was now ranked first for customer satisfaction among major Spanish mobile providers and operating costs fell by double digits. Not a bad turnaround.

And for all the gory detail on how Vodafone did this, you can read how Vodafone did this here.

 

New Organisational Models

networkI recently came across an article by Josh Bersin, whom is linked to Deloitte, discussing the results of a worldwide Deloitte survey into organisational design and the changes afoot in companies worldwide.

The conclusion reached by the report “is that today’s digital world of work has shaken the foundation of organizational structure, shifting from the traditional functional hierarchy to one we call a “network of teams.” This new model of work is forcing us to change job roles and job descriptions; rethink careers and internal mobility; emphasize skills and learning as keys to performance; redesign how we set goals and reward people; and change the role of leaders.

Surprisingly, at least to me, was that only 38% of companies claim to be organised along functional lines. Many respondents believe they are already working in a “network of teams” – at least from a day-to-day perspective – but I think some of those have considered the informal networks that inevitably exist across functional domains to get things done, as evidence that they are working in a team-based model as opposed to a functional one.

Of course working in a formal network of teams where functional silos no longer exist brings with it its own challenges. As articulated by Bersin, the problem becomes “how we coordinate and align these teams, how we get them to share information and work together, and how we move people and reward people in a company that no longer promotes “upward mobility” and “power by position” in leadership.

Bersin believes there are four key ingredients to success for a ‘network of teams’ model:

  1. Shared values and culture: As people operate in geographically dispersed teams which are closer to customers, they need guidelines and value systems to help them decide what to do, how to make decisions, and what is acceptable behavior.
  2. Transparent goals and projects: People operating in teams and small groups have to work with other teams, and they can’t do this unless goals are clear, overall financial objectives are well communicated, and people know what other people are working on.
  3. Feedback and a free flow of information: As teams operate and customers interact with the company, we must share information about what’s working, what isn’t working, what’s selling, and what problems we have to address. While local management and team leadership (i.e. a plant manager or sales leader) should take immediate responsibility for errors, others need to know what problems are taking place, so they can respond to support the team. This takes place today in digital information centers, analytics dashboards, and free flowing feedback systems that have replaced annual engagement surveys and performance reviews.
  4. People are rewarded for skills and contribution, not position: Finally, the network of teams rewards people for their contribution, not their “position.”The days of “positional leadership” are going away (i.e. “I’m the boss so you do what I say.”) to be replaced by growth and career progression based on your skills, alignment with values, followership, and contribution to the company as a whole.

Organisations based on purely functional lines are being replaced. So too are those early attempts to break down those silos with “matrix organisations” that were essentially a ‘paper over’ or band-aid and not an adequate response to the problem, Bersin explains…

Many of us remember the old fashioned “matrix organizations” which were popular in the 1980s. Well today the “matrix” makes a company look more like a series of Hollywood movies, where people take their skills and functional expertise, they work on a “project” or “team” or “program” to get work done, and as they learn and the company adapts, they move into another team over time.

As Bersin articulates, its not as though executive positions disappear – although no doubt many middle management ones would – but their roles are also changing.

While there are still senior executives in the company, leadership now becomes a “team sport,” where leaders must inspire and align the team, but also be good at connecting teams together and sharing information.

You can read the full blog post here, including links to the research.

Want an example of a “network of teams” model already implemented in a corporate environment? If so, then check out this interview with two executives – one current, one former – from ING banking group in the Netherlands, on its transformation to an ‘agile’ way of working.

Unlearning old ways

In a recent HBR article, Why the problem with learning is unlearning, Mark Bonchek contends that in this age of Digital disruption, companies have been too focused on learning new ways of doing things and have not paid enough attention to unlearning the ways of the past.

In every aspect of business, we are operating with mental models that have grown outdated or obsolete, from strategy to marketing to organization to leadership. To embrace the new logic of value creation, we have to unlearn the old one.

Boncheck clarifies that its not about forgetting what has been learnt in the past, but acquiring the ability to re-frame the situation and use a different mental model.

He gives the example of Porter’s Five forces and the essence behind the model that limits or boundaries must be set and then argues the likes of Google, Uber, Faebook and AirBnB don’t subscribe to this notion of setting limits.

They look beyond controlling the pipe that delivers a product and instead build platforms that enable others to create value. They look to create network effects through ecosystems of customers, suppliers, and partners.

Boncheck also articulates the core problem with modern marketing is the existing “one-to-many mindset” where we pretend “everything is linear and transaction”…

  • We segment into discrete buckets even though people are multidimensional.
  • We treat customers as consumers even when they want to be cocreators.
  • We target buyers and run campaigns that push messages through channels even though real engagement increasingly happens through shared experiences.
  • We move people through a pipeline that goes in one direction even though the customer journey is nonlinear.

He then asserts that “instead of using relationships to drive transactions, we could be building brand orbits and embedding transactions in relationships. Instead of customers being consumers, we could have relationships with them in a variety of roles and social facets. Beyond delivering a value proposition, we could be fulfilling a shared purpose.”

“In the area of organizational design, we are seeing an evolution from formal hierarchies to fluid networks. But this requires a substantial amount of unlearning. Our instincts are to think of an organization as an org chart. We automatically escalate decisions to the boss. I often hear executives talk about being “more networked,” but what they really mean is collaborating across the silos. To truly become a networked organization, you need decision principles that create both alignment and autonomy. But this requires unlearning in the areas of management, leadership, and governance.”

The good news, Bonchek contends, is we can practice unlearning. So get started today!

Read the full article here.

 

Blue Ocean Analytical Tools

Following are three analytical tools used in the formulation of a Blue Ocean Strategy. The three tools we will look at are:

  • Strategy Canvas
  • Four Actions Framework
  • Eliminate-Reduce-Raise-Create Grid

The Strategy Canvas

The Strategy Canvas is both a diagnostic tool and an action framework. From a diagnostic point of view, it is used to capture what is happening in the existing market space. The following example from the book describes the US wine market prior to Casella Wines introduction of Yellow Tail.

stratcan

This paints a picture of where the competition is currently investing and the factors they compete on in products, services, delivery and what customers receive from the existing offerings.

Four Actions Framework

The Four Actions Framework asks four key questions to challenge an industry’s preexisting norms.

faf

The eliminate and reduce questions lead you to gaining an insight into how to drop your cost structure while the create and raise questions lead you to gaining an understanding into how to increase customer value and generate new customer demand.

Eliminate-Reduce-Raise-Create Grid

The third tool supplements the second encouraging action. The example below shows how Casella Wines answered those four key questions.

e-r-c-r-grid

This resulted in a strategy canvas that looked like the following for Casella Wines’ new Yellow Tail brand in the US wine market.

stratcan-yt

You can see from the above picture, Yellow Tails curve has three very important characteristics.

  1. Focus: efforts were not diffused across all key factors of the competition
  2. Divergent: the value curve diverges from the competition
  3. Compelling Tagline: ‘a fun and simple wine to be enjoyed every day’

The red ocean or the blue?

I have recently read the “international bestseller” Blue Ocean Strategy and found it a very insightful read. A blue ocean is essentially an uncontested market space where there are no competitors allowing the company that creates it to excel. However, a blue ocean strategy is not just about delivering something customers want that hasn’t been delivered before, its also about delivering a value innovation for the company as well.

Typically main stream strategy theory suggests companies must either choose a high cost differentiation strategy or a low cost price led strategy. Companies that create blue oceans however simultaneously achieve low cost and differentiation.

Red Ocean Strategy

  • Compete in existing market space
  • Beat the competition
  • Exploit existing demand
  • Make the value-cost trade-off
  • Align the whole system of a firms activities with its strategic choice of differentiation or low cost

Blue Ocean Strategy

  • Create uncontested market space
  • Make the competition irrelevant
  • Create and capture new demand
  • Break the value-cost trade-off
  • Align the whole system of a firms activities in pursuit of differentiation and low cost

While a company competing in a red ocean fights for existing customers that that market, a company competing in a blue ocean cultivates an entirely new set of customers as it creates an entirely new market space.

For example Cirque du Soleil didn’t just enter the existing market space of traditional circuses, it created an all new market and captured customers whom were not typically customers of the circus but customers whom were looking to be entertained.

It also reduced its costs when compared to traditional circuses by removing big name star performers and animals.

When Casella Wines introduced its ‘easy to drink’, ‘to be enjoyed by everyone’ wine Yellow Tail, to the US market, it took customers from the two distinctive wine markets – the high end and ultra cheap – and combined them with customers whom would normally drink beer, alcopops or cocktails, to create an entirely new market space.

It also reduced its costs by initially creating only one red and one white and bottling them in the same type bottle. Traditionally red wine and white wine had always been sold in two different styles of wine bottle.

In my next post I’ll explore some of the tools and frame works that have been created to both help identify and execute a blue ocean strategy.

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