Culture for a digital age

Posted in Aktuellt, Board work / Styrelsearbete, Digitalisering / Internet, Leadership / Ledarskap, Strategy implementation / Strategiimplementering on August 23rd, 2017 by admin

Risk aversion, weak customer focus, and siloed mind-sets have long bedeviled organizations. In a digital world, solving these cultural problems is no longer optional.

Shortcomings in organizational culture are one of the main barriers to company success in the digital age. That is a central finding from McKinsey’s recent survey of global executives, which highlighted three digital-culture deficiencies: functional and departmental silos, a fear of taking risks, and difficulty forming and acting on a single view of the customer.

Each obstacle is a long-standing difficulty that has become more costly in the digital age. When risk aversion holds sway, underinvestment in strategic opportunities and sluggish responses to quick-changing customer needs and market dynamics can be the result. When a unified understanding of customers is lacking, companies struggle to mobilize employees around integrated touchpoints, journeys, and consistent experiences, while often failing to discern where to best place their bets as digital broadens customer choice and the actions companies can take in response. And when silos characterize the organization, responses to rapidly evolving customer needs are often too narrow, with key signals missed or acted upon too slowly, simply because they were seen by the wrong part of the company.

Can fixes to culture be made directly? Or does cultural change emerge as a matter of course as executives work to update strategy or improve processes?1 In our experience, executives who wait for organizational cultures to change organically will move too slowly as digital penetration grows, blurs the boundaries between sectors, and boosts competitive intensity. Our research, which shows that cultural obstacles correlate clearly with negative economic performance, supports this view. So do the experiences of leading players such as BBVA, GE, and Nordstrom, which have shown what it looks like when companies support their digital strategies and investments with deliberate efforts to make their cultures more responsive to customers, more willing to take risks, and better connected across functions.

Executives must be proactive in shaping and measuring culture, approaching it with the same rigor and discipline with which they tackle operational transformations. This includes changing structural and tactical elements in an organization that run counter to the culture change they are trying to achieve. The critical cultural intervention points identified by respondents to our 2016 digital survey—risk aversion, customer focus, and silos—are a valuable road map for leaders seeking to persevere in reshaping their organization’s culture. The remainder of this article discusses each of these challenges in turn, spelling out a focused set of reinforcing practices to jump-start change.

Calculated risks

Too often, management writers talk about risk in broad-brush terms, suggesting that if executives simply encourage experimentation and don’t punish failure, everything will take care of itself. But risk and failure profoundly challenge us as human beings. As Ed Catmull of Pixar said in a 2016 McKinsey Quarterly interview, “One of the things about failure is that it’s asymmetrical with respect to time. When you look back and see failure, you say, ‘It made me what I am!’ But looking forward, you think, ‘I don’t know what is going to happen and I don’t want to fail.’ The difficulty is that when you’re running an experiment, it’s forward looking. We have to try extra hard to make it safe to fail.”

The balancing act Catmull described applies to companies, perhaps even more than to individuals. Capital markets have typically been averse to investments that are hard to understand, that underperform, or that take a long time to reach fruition. And the digital era has complicated matters: On the one hand, willingness to experiment, adapt, and to invest in new, potentially risky areas has become critically important. On the other, taking risks has become more frightening because transparency is greater, competitive advantage is less durable, and the cost of failure is high, given the prevalence of winner-take-all dynamics.

Leaders hoping to strike the right balance have two critical priorities that are mutually reinforcing at a time when fast-follower strategies have become less safe. One is to embed a mind-set of risk taking and innovation through all ranks of the enterprise. The second is for executives themselves to act boldly once they have decided on a specific digital play—which may well require changing mind-sets about risk, and inspiring key executives and boards to think more like venture capitalists.

An appetite for risk
Building a culture where people feel comfortable trying things that might fail starts with senior leaders’ attitudes and role modeling. They must break the status quo of hierarchical decision making, overcome a focus on optimizing rather than innovating, and celebrate learning from failure. It helps considerably when executives make it clear through actions that they trust the front lines to make meaningful decisions. ING and several other companies have tackled this imperative head-on, providing agile coaches to help management learn how to get out of the way after setting overall direction for objectives, budgets, and timing.

However, delegating authority only works if the employees have the skills, mind-sets, and information access to make good on it. Outside hires from start-ups or established digital natives can help inject disruptive thinking that is a source of innovative energy and empowerment. Starbucks, for example, has launched a digital-ventures team, hiring vice presidents from Google, Microsoft, and Razorfish to help drive outside thinking.

Also empowering for frontline workers (and risk dampening for organizations) is information itself. For example, equipping call-center employees with real-time analysis on account profiles, or data on usage and profitability, helps them take small-scale risks as they modify offers and adjust targeting in real time. In the retail and hospitality industries, companies are giving frontline employees both the information (such as segment and purchase history) and the decision authority they need to resolve customer issues on the spot, without having to escalate to management. Such information helps connect the front line to the company’s strategic vision, which provides a compass for decision making on things such as what sort of discount or incentive to offer in resolving a conflict or what “next product to buy” to tee up. Benefits include improvements in the customer experiences (due to faster resolution) and greater consistency across the business in spotting and resolving problems. This lowers cost at the same time it improves customer satisfaction. In addition, frontline risk taking enables more rapid innovation by speeding up iterations and decision making to support nimbler, test-and-learn approaches. These same dynamics prevail in manufacturing, with new algorithms enabling predictive maintenance that no longer requires sign-off from higher-level managers.

Regardless of industry, the critical question for executives concerned with their organization’s risk appetite is whether they are trusting their employees, at all levels, to make big enough bets without subjecting them to red tape. Many CFOs have decided to shift all but the largest investment decisions into the business units to speed up the process. The CFO at one global 500 consumer-goods company now signs off only on expenditures above $250,000. Until recently, any spend decision over $1,000 required the CFO’s approval.

Making bold bets
At the same time they are letting go of some decisions, senior leaders also are responsible for driving bold, decisive actions that enable the business to pivot rapidly, sometimes at very large scale. Such moves require risk taking, including aggressive goal setting and nimble resource reallocation.

A culture of digital aspirations. Goals should reflect the pace of disruption in a company’s industry. The New York Times set the aspiration to double its digital revenues within five years, enabled in part by the launch of T Brand Studio as a new business model. In the face of Amazon, Nordstrom committed more than $1.4 billion in technology capital investments to enable rich cross-channel experiences. The Irish bank AIB decided customers should be able to open an account in under ten minutes (90 percent faster than the norm prevailing at the time). AIB invested to achieve this goal and saw a 25 percent lift in accounts opened, along with a 20 percent drop in costs. In many industries facing digital disruption, this is the pace and scale at which executives need to be willing to play.

Embracing resource reallocation. Nimble resource reallocation is typically needed to back up such goals. In many incumbents, though, M&A and capital-expenditure decisions are too slow, with too many roadblocks in the way. They need to be retooled to take on more of a venture-capitalist approach to rapid sizing, testing, investing, and disinvesting. The top teams at a large global financial-services player and an IT-services company have been reevaluating all of their businesses with a five- to ten-year time horizon, determining which ones they will need to exit, where they need to invest, and where they can stay the course. Such moves tax the risk capacity of executives; but when the moves are made, they also shake things up and move the needle on a company’s risk culture.

The financial markets are double-edged swords when it comes to bold moves. While they remain preoccupied with short-term earnings, they are also cognizant of cautionary tales such as Blockbuster’s 2010 bankruptcy, just three years after the launch of Netflix’s streaming-video business. Companies like GE have nonetheless plunged ahead with long-term, digitally oriented strategies. In aggressively shedding some of its traditional business units, investing significantly to build out its Predix platform, and launching GE Digital, its first new business unit in 75 years, with more than $1 billion invested in 2016, GE’s top team has embraced disciplined risk taking while building for the future.

Customers, customers, customers
Although companies have long declared their intention to get close to their customers, the digital age is forcing them to actually do it, as well as providing them with better means to do so. Accustomed to best-in-class user experiences both on- and off-line with companies such as Amazon and Apple, customers increasingly expect companies to respond swiftly to inquiries, to customize products and services seamlessly, and to provide easy access to the information customers need, when they need it.

A customer-centric organizational culture, in other words, is more than merely a good thing—it’s becoming a matter of survival. The good news is that getting closer to your customers can help reduce the risk of experimentation (as customers help cocreate products through open innovation) and support fast-paced change. Rather than having to guess what’s working in a given product or service before launching it—and then waiting to see if your guess is right after the launch takes place—companies can now make adjustments nearly real-time by developing product and service features with direct input from end users. This is already taking place in products from Legos to aircraft engines. The process not only helps derisk product development, it tightens the relationship between companies and their customers, often providing valuable proprietary data and insights about how customers think about and use the products or services being created.

Data and tools
Underlying the new customer-centricity are diverse tools and data. Connecting the right data to the right decisions can help build a common understanding of customer needs into an organizational culture, fostering a virtuous cycle that reinforces customer-centricity. Amazon’s ability to use customers’ previous purchases to offer them additional items in which they might be interested is a significant element in its success. The virtuous circle they’ve created includes customer reviews (to reassure and reinforce other shoppers), along with the algorithms that share “what customers who looked at this item also bought.” Of course, Amazon has also invested heavily in automated warehouses and a sophisticated distribution model. But even those were tied to the customer desire to receive merchandise faster.

A unifying force
At its best, customer-centricity extends far beyond marketing and product design to become a unifying cultural element that drives all core decisions across all areas of the business. That includes operations, where in many organizations it’s often the furthest from view, and strategy, which must be regularly refreshed if it is to serve as a reliable guide in today’s rapidly changing environment. Customer-centric cultures anticipate emerging patterns in the behavior of customers and tailor relevant interactions with them by dynamically integrating structured data, such as demographics and purchase history, with unstructured data, such as social media and voice analytics.

The insurance company Progressive illustrates the unifying role played by strong customer focus. Progressive’s ability to persuade customers to install the company’s Snapshot device to monitor driving behavior is revolutionizing the insurance space, and not just as a marketing tool. Snapshot helps attract the good drivers who are the most profitable customers, since those individuals are the ones most likely to be attracted by the offer of better discounts based on driving behavior. It also gives the company’s underwriters actual data in place of models and guesswork. This new technology is one that Progressive can monetize into a business unit to serve other insurers as well.

Busting silos
Some observers might consider organizational silos—so named for parallel parts of the org chart that don’t intersect—a structural issue rather than a cultural one. But silos are more than just lines and boxes. The narrow, parochial mentality of workers who hesitate to share information or collaborate across functions and departments can be corrosive to organizational culture.

Silos are a perennial problem that have become more costly because, in the words of Cognizant CEO Francisco D’Souza, “the interdisciplinary requirement of digital continues to grow. The possibilities created by combining data science, design, and human science underscore the importance both of working cross-functionally and of driving customer-centricity into the everyday operations of the business. Many organizations have yet to unlock that potential.”2 The executives we surveyed appeared to agree, ranking siloed thinking and behavior number one among obstacles to a healthy digital culture.

How can you tell if your own organization is too siloed? Discussions with CEOs who have led old-line companies through successful digital transformations indicate two primary symptoms: inadequate information, and insufficient accountability or coordination on enterprise-wide initiatives.

Getting informed
Digital information breakdowns echo the familiar story of the blind men and the elephant. When employees lack insight into the broader context in which a business competes, they are less likely to recognize the threat of disruption or digital opportunity when they see it and to know when the rest of the organization should be alerted. They can only interpret what they encounter through the lens of their own narrow area of endeavor.

The corollary to this is that every part of the organization reaches different conclusions about their digital priorities, based on incomplete or simply different information. This contributes to breaks in strategic and operating consistency that consumers are fast to spot. There isn’t the luxury of time in today’s digital world for each division to discover the same insight; a digital attacker or more agile incumbent is likely to swoop in before the siloed organization even knows it should be mounting a response. So the first imperative for companies looking to break out of a siloed mentality is to inspire within employees a common sense of the overall direction and purpose of the company. Data and thoughtful management rotation often play a role.

Data-driven transparency. Data can help solve the blind-men-and-the-elephant problem. A social-services company, for instance, created a customer-engagement group to better understand how customers interact with the company’s products and brands across silos—and where customers were running into difficulty. Among other things, this required close examination of how the company collected, analyzed, and distributed data across silos. The team discovered, for example, that some customers were cancelling their memberships because of the deluge of marketing outreaches they were receiving from the company. To address this, the team combined customer databases and propensity models across silos to create visibility and centralized access rights with regard to who could reach out to members and when. Among other achievements, this team:

created segment-specific trainings that offered an integrated view of each segment’s suite of needs and offerings that would meet them
drew on information from different parts of the organization to give a more developed picture on engagement, retention, and the total number of touches associated with various segments and customers
showed the net effect of the entire organization’s activities through the customer’s eyes
embedded this information into key processes to ensure information was accessible in a cross-disciplinary way—breaking siloed viewpoints and narrow understandings of the overall business model
Management rotation. Another way to achieve better alignment on the company’s direction is to rotate executives between siloed functions and business units. At the luxury retailer Nordstrom, for example, two key executives exchanged roles in 2014: Erik Nordstrom, formerly president of the company’s brick-and-mortar stores, became president of Nordstrom Direct, the company’s online store, while Jamie Nordstrom, formerly president of Nordstrom Direct, became president of the brick-and-mortar stores. This type of rotation can be done at different levels in an organization and helps create a more consistent understanding between different business units regarding the company’s aspirations and capabilities, as well as helping create informal networks as employees build relationships in different departments.

Instilling accountability
The second distinctive symptom of a siloed culture is the tendency for employees to believe a given problem or issue is someone else’s responsibility, not their own. Companies can counter this by institutionalizing mechanisms to help support cross-functional collaboration through flexibly deployed teams. That was the case at ING, which, because it identifies more as a technology company than a financial-services company, has turned to tech firms for inspiration, not banks. Spotify, in particular, has provided a much-talked-about model of multidisciplinary teams, or squads, made up of a mix of employees from diverse functions, including marketers, engineers, product developers, and commercial specialists. All are united by a shared view of the customer and a common definition of success. These squads roll up into bigger groups called tribes, which focus on end-to-end business outcomes, forcing a broader picture on all team members. The team members are also held mutually accountable for the outcome, eliminating the “not my job” mind-set that so many other organizations find themselves trapped in. While this model works best in IT functions, it is slowly making its way into other areas of the business. Key elements of the model (such as end-to-end outcome ownership) are also being mapped into more traditional teams to try to bring at least pieces of this mind-set into more traditional companies.

Start by finding mechanisms, whether digital, structural, or process, that help build a shared understanding of business priorities and why they matter. Change happens fast and from unpredictable places, and the more context you give your employees, the better they will be able to make the right decisions when it does. To achieve this, organizations must remove the barriers that keep people from collaborating, and build new mechanisms for cutting through (or eliminating altogether) the red tape and bureaucracy that many incumbents have built up over time.

Cultural changes within corporate institutions will always be slower and more complex than the technological changes that necessitate them. That makes it even more critical for executives to take a proactive stance on culture. Leaders won’t achieve the speed and agility they need unless they build organizational cultures that perform well across functions and business units, embrace risk, and focus obsessively on customers.

Source: McKinsey.com, August 2017
By Julie Goran, Laura LaBerge, and Ramesh Srinivasan
About the authors: Julie Goran is a partner in McKinsey’s New York office, where Ramesh Srinivasan is a senior partner; Laura LaBerge is a senior practice manager of Digital McKinsey and is based in the Stamford office.
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Customers’ lives are digital—but is your customer care still analog?

Posted in Aktuellt, Customer care / Kundvård, Digitalisering / Internet, Strategy implementation / Strategiimplementering on June 20th, 2017 by admin

Digital customer care is still new territory for many companies. They can learn a lot from the natives.

Today’s customers expect digital service. More and more are getting it, too, across sectors from telecommunications to banking and from utilities to retail. For example, telco customers conduct roughly 70 percent of their purchases either partly or wholly online—and 90 percent of their service requests as well.

The rapid shift to digital customer care (or e-care) should be good for everyone. Automation and self-service cuts transaction costs for providers. When e-care is done well, customers prefer it, too. Our research among telecommunications customers shows that customers who use digital channels for service transactions are one-third more satisfied, on average, than those who rely on traditional channels. And since companies that excel in customer satisfaction also tend to create more value for their shareholders, there is even more incentive to get e-care right.

Despite e-care’s advantages, however, many companies struggle to give their customers a consistently good digital experience. The same research revealed that while more than two-fifths of service interactions with telecommunications companies begin on an e-care platform, only 15 percent are digital from start to finish. We’ve also found that use of digital service channels lags a long way behind awareness. In Europe, for example, 98 percent of mobile phone users in one survey knew their provider offered a service website, but only 37 percent made use of it. In the United States, meanwhile, only 18 percent of mobile users said they used their providers’ online service platforms.

And e-care is getting more complex to implement. Not only do customers now want access to a fully comprehensive range of online service offerings—they also want to access these offerings using a variety of platforms, including both conventional web browsers and a growing pool of mobile devices and dedicated apps. Customers expect their experience to be continuous and consistent as they migrate from one platform to another, but they also want service options that make sense in the context in which they are asking for help.

Finally, customers are getting harder to impress. The rapid rise of “digital native” companies, such as Spotify or Uber, exposes customers to simple, streamlined user experiences designed from the ground up for digital delivery. Established companies that build their e-care offerings and processes on top of, or alongside, more traditional channels often find it hard to meet the same standards.

That comparison is becoming increasingly important. When customers think about the e-care service they receive from their bank or phone company, they don’t compare it with its competitors in the same industry but with the other digital services they use every day. When the online experience doesn’t meet their expectations, customers go back to the phone. As a result, some telecoms companies have seen call-center volumes—and costs—rise as they attempt to move to a digital service model.

Making e-care work
Companies that have been able to move more customer-care services to online channels and articulate strong e-care offerings excel across seven dimensions:

Simplicity starts with a clean, clear, and intuitive design that requires few mouse clicks or screen touches to achieve the desired task. The main functionalities are easy to find and well explained. The language is concise, simple, and easy to understand. Apple offers a wide range of products aimed at very different customers, for example, but its product information and support websites use the same clean, pared-down design, with key information presented clearly and more detail available with a minimum of clicks. In financial services, companies such as PayPal have dramatically simplified online payments, in many cases requiring only the recipient’s email address or mobile-phone number as identification.

Convenience means customers are offered a wide variety of services and a choice of support channels. User interfaces are easy to navigate and critical information is not hidden within long pages or complex menu hierarchies. Even better are sites that use data intelligence to tailor page content dynamically based on who is accessing it. Similarly, biometric identification techniques using fingerprint or voiceprint technologies accelerate authentication steps and reduce the mental burden on users without comprising security. One telecom company has developed a dynamic FAQ system that suggests possible support articles as soon as a customer begins to type a query and that loads the most relevant content automatically without requiring a page refresh.

Interactivity reflects the fact that customers now expect their online experiences to be dynamic and interactive, with blogs, social-media feeds, user reviews, and customer forums all playing important roles in modern e-care. These are especially important for millennial consumers, who have grown up steeped in social media and online interactions. Accordingly, an active user community is central to UK-mobile-phone-network giffgaff’s strategy. Users receive account credit for helping others with their queries, and individual community members are regularly highlighted on giffgaff’s support website. One of the company’s core product offerings—a bundle of text messages, voice minutes, and data known as a “goodybag”—was introduced as a direct result of suggestions on user forums. Moreover, through interactive games and a cocreation system that lets users build new services for other community members, customers now help set giffgaff’s direction.

Consistency is essential: customers require that the appearance, functionality, and information available in e-care services be consistent regardless of which device or software they use. Amazon, for example, shows customers essentially the same menus, the same links, and the same tone and language across all of its mobile and website channels, giving customers the same experience as they move from one channel to the next. This commitment significantly reduces any need for relearning after each switch—and any attendant digital friction.

Value results only if e-care works for the customer. Services must be designed to reflect the user’s individual needs, rather than the company’s internal processes, and must evolve as those needs change. One insurance company, for example, uses real-time rendering technology to create a customized video presentation of the coverage included in the customer’s quotation. The video combines professionally scripted and presented content with customer-specific data drawn from multiple sources, and its content is adjusted based on the customer’s choices and responses during the presentation.

Desirability is a product not only of a consistently appealing visual design but also of the tone and presentation of the site’s content. Both usually require adaption to suit local tastes, which may require dramatically different choices depending on the specific context. For instance, Chinese websites are typically very crowded, with lots of information available, while sites in the United States and Western Europe tend toward a more streamlined aesthetic.

Brand is not just a label: it is how customers experience a company’s products and services. Given that e-care has become one of the primary ways customers interact with a business, brand reinforcement should be a primary e-care goal rather than an afterthought. The best companies therefore integrate their brand values deeply into the design of their e-care offerings.

To buttress its message of providing exactly the services its customers need, one mobile-phone company has tailored its service experience to support unique “moments of truth” in the customer journey. Once a customer logs in, the website’s navigation changes dynamically based not only on what the customer is doing but also on behavioral insights based on previous interactions with the company.

A customer who’s usually pressed for time may see just three simple plan alternatives, cutting through the clutter, while one who wants to be assured of getting the best deal will see more detail on plan options, so she can feel in control. The site then guides the customer through activation steps, offers clear instructions on how to get the most from the service, and anticipates the most common questions with detailed answers.

Measuring up
To understand how leading players measure up under this harsh scrutiny, we evaluated the e-care offerings of more than 20 major telecommunications companies across the world, covering both online services and dedicated apps. We tested half a dozen common service activities, including access to billing and consumption information, technical-support queries, and sales or upgrade queries.

Our approach looked at the way e-care platforms were designed and presented to the user, the functionalities on offer, and the information available within each of our target service activities. Under each of those three main concepts, we rated the offerings across the seven dimensions described above.

Are you ahead of the pack?
Overall, our analysis should be sobering reading in all sectors for incumbents that are digitizing their customer-service offerings. We found only one area—the presentation of information using simple, jargon-free language—where most of the companies surveyed are demonstrating best practices. Elsewhere, we did find examples of best practices, but they have not been adopted by every company, and they are not always consistently applied even when they have been adopted.

The best websites and apps in our survey sample, for example, offer a wide range of services using a clear, easily understandable architecture that requires few clicks to access relevant content. Several, but by no means all, companies provide a convenient search function to help customers access technical support. Only a few make “search” the core navigation method for technical-support information.

Indeed, not many of the surveyed companies are taking full advantage of digital platforms’ unique capabilities. Interactive features such as support wizards or explanatory videos were rare. Only the very best-performing companies managed to integrate their e-care offerings seamlessly with live channels (such as e-calling or traditional telephone support) to create a truly multichannel experience. And just a handful have deployed the most advanced e-care technologies, such as artificial intelligence or chatbots.

For many of the services we evaluated, customer experience was inconsistent between web and app platforms. Apps sometimes offered less functionality and frequently provided less information than their web counterparts, which companies tended to position as the full-service option. On further examination, differences in look and function between apps and web often arose because of the relatively recent introduction of app offerings, or the use of different design and development teams.

Best practice is not enough
As they move further into the digital world, many incumbents clearly have work to do to give their customers the best e-care experience. But that’s no reason to set their sights too low. Leading companies not only make their digital channels highly useful and consistent at every customer touchpoint—they also make them fun and emotionally appealing. They personalize the experience and keep it relevant across the entire customer life cycle. For these top digital players, e-care doesn’t just work, it builds a brand that engages and delights customers.

That’s the standard, and it’s lifting customer expectations for everyone else. To keep up, traditional companies must measure their own performance against the best of the best of best—and embrace a culture of rapid, continuous evolution and improvement. There’s no time to lose.

Source:McKinsey.com, June 2017
Authors: Jorge Amar and Hyo Yeon
About the authors: Jorge Amar is an associate partner in McKinsey’s Stamford office, and Hyo Yeon is a partner in the New York office.
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Customer relationship automation is the new CRM

Posted in Aktuellt, Försäljning / Sales, Strategy implementation / Strategiimplementering on November 1st, 2016 by admin

Our digital universe is vast and growing exponentially, expected to swell to 44 zettabytes of data by 2020. (For reference, one zettabyte is 1,000,000,000,000 gigabytes.)

Companies have attempted to use this tremendous amount of data in ways that make our lives better. In the consumer world, retailers analyze and apply data in real time for a number of uses: to predict purchasing behaviors and optimize which products get shown on a page as someone scrolls; to allow financial institutions to pinpoint and stop fraudulent transactions in a fraction of a millisecond; and to help health care companies more effectively diagnose and treat patients, to name just a few examples.

But in the enterprise world, data has traditionally been siloed, unwieldy, and manually entered into database systems such as customer relationship management software, or CRM. And other than moving from on-site to the cloud, CRM has not changed much since its inception in the 1990s.

How robotics and machine learning are changing business.
I run an enterprise technology company, and we’ve seen just how consistently data can be used to help improve sales. But for all its good intentions to provide sales managers with a way to monitor pipeline and sales activity, we all know that CRM is still hugely inefficient. Reps are required to spend time manually entering data, and then spend more time searching through it. While senior management clearly values the ability to monitor reps through CRM, the vast majority of salespeople dislike the extra work and overhead it creates and internet-salesgenerally use CRM begrudgingly — and rarely to its full potential. This administrative work becomes more significant when you consider that, on average, reps spend only 11% of their time actively selling.

This, of course, seems horrendously outdated, given that we live in an era of Amazon recommendations and Siri. What if enterprise workflows were as smart and easy to use as Siri? What if sales reps benefited from suggested next actions, the way that drivers and shoppers do? What if CRM as we’ve known it is dead?

Just as Amazon proactively suggests to someone who has purchased a stroller that they may also want to buy the coordinating car seat, enterprise apps should proactively advise enterprise users on what the highest-value or most-urgent tasks are so they can prioritize them. Artificial intelligence and decision-support algorithms that can offer data-driven suggestions will unleash a new level of productivity among workers, allowing everyone to focus on what matters and to continually help one another improve.

Turning this into reality may be closer than you think, thanks to machine learning and predictive data engines.

For the majority of sales reps, their most frequent tasks right now aren’t necessarily their most important and they waste too much time calling the wrong people with messages that don’t resonate. Harnessing the power of machines to recommend actions and approaches allows every salesperson to become data driven, freeing their time to focus on the human trust and relationship aspects of closing business.

As interactions between reps and customers become more digital – whether it’s an exchange via Facebook, email, or text or a website visit — data analytics is beginning to demystify and delineate what successful sales reps are doing that others aren’t, what’s effective, and how to get others in the sales organization behaving in these same ways.

The profound limitations of traditional CRM are laid bare in today’s automated, predictive world. The days of using CRM merely as a sales tracking tool are over. The future of CRM, and of all software, is in suggested next actions powered by predictive analytics and a deep knowledge of a specific industry and business function’s workflows.

CRM isn’t dead (yet), but reps will cease to use it unless it can get smart and save them time, rather than burden them with time-intensive data entry and lookup. The future of CRM is harnessing predictive data to become a proactive system. Sales reps who are able to leverage robot assistants are the ones who will thrive in this new world.

Source: HBR.org, October 28, 2016
By: Clara Shih. Clara Shih is the CEO and founder of Hearsay, an enterprise technology company serving the financial services industry, and is a board member of Starbucks Corporation.
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Transforming operations management for a digital world

Posted in Aktuellt, Board work / Styrelsearbete, Digitalisering / Internet, Executive Team / Ledningsgruppsarbete, Strategy implementation / Strategiimplementering, Technology on October 13th, 2016 by admin

When combined, digital innovation and operations-management discipline boost organizations’ performance higher, faster, and to greater scale than has previously been possible.

In every industry, customers’ digital expectations are rising, both directly for digital products and services and indirectly for the speed, accuracy, productivity, and convenience that digital makes possible. But the promise of digital raises new questions for the role of operations management—questions that are particularly important given the significant time, resources, and leadership attention that organizations have already devoted to improving how they manage their operations.

At the extremes, it can sound as if digitization is such a break from prior experience that little of this history will help. Some executives have asked us point blank: “If so much of what we do today is going to be automated—if straight-through processing takes over our operations, for example—what will be left to manage?” The answer, we believe, is “quite a lot.”

More digital, more human
Digital capabilities are indeed quite new. But even as organizations balance lower investment in traditional operations against greater investment in digital, the need for operations management will hardly disappear. In fact, we believe the need will be more profound than ever, but for a type of operations management that offers not only stability—which 20th-century management culture provided in spades—but also the agility and responsiveness that digital demands.

The reasons we believe this are simple. First, at least for the next few years, to fully exploit digital capabilities most organizations will continue to depend on people. Early data suggestdw1 that human skills are actually becoming more critical in the digital world, not less. As tasks are automated, they tend to become commoditized; a “cutting edge” technology such as smartphone submission of insurance claims quickly becomes almost ubiquitous. In many contexts, therefore, competitive advantage is likely to depend even more on human capacity: on providing thoughtful advice to an investor saving for retirement or calm guidance to an insurance customer after an accident.

That leads us to our second reason for focusing on this type of operations management: building people’s capabilities. Once limited to repetitive tasks, machines are increasingly capable of complex activities, such as allocating work or even developing algorithms for mathematical modeling. As technologies such as machine learning provide ever more personalization, the role of the human will change, requiring new skills. A claims adjuster may start by using software to supplement her judgments, then help add new features to the software, and eventually may find ways to make that software more predictive and easier to use.

Acquiring new talents such as these is hard enough at the individual level. Multiplied across an organization it becomes exponentially more difficult, requiring constant cycles of experimentation, testing, and learning anew—a commitment that only the most resilient operations-management systems can support.

Seizing the digital moment
And if digital needs operations management, we believe it’s equally true that operations management needs digital. Digital advances are already making the management of operations more effective. Continually updated dashboards let leaders adjust people’s workloads instantly, while automated data analysis frees managers to spend more time with their teams.

The biggest breakthroughs, however, come from the biggest commitment: to embrace digital innovation and operations-management discipline at the same time. That’s how a few early leaders are becoming better performers faster than they ever thought possible. At a large North American property-and-casualty insurer, for example, a revamped digital channel has reduced call-center demand by 30 percent in less than a year, while improved management of the call-center teams has reduced workloads an additional 25 percent.

Achieving these outcomes requires organizations to tackle four major shifts.

Digital and analog, reinforcing each other
Digitization can be dangerous if it eliminates opportunities for productive human (or “analog”) intervention. The goal instead should be to find out where digital and analog can each contribute most.

That was the challenge for a B2B data-services provider, whose customized reports were an essential part of its white-glove business model. Rather than simply abandon digitization, however, the company enlisted both customers and frontline employees to determine which reports could be turned into automated products that customers could generate at will.

Working quickly via agile “sprints,” developers tested products with the front line, which was charged with teaching customers how to use the automated versions and gathering feedback on how they worked. The ongoing dialogue among customers, frontline employees, and the developer team now means the company can quickly develop and test almost any automated report, and successfully roll it out in record time.

Driving digital, enterprise-wide
Developing new digital products is only the beginning, as a global bank found when it launched an online portal. Most customers kept to their branch-banking habits—even for simple transactions and purchases that the portal could handle much more quickly and cheaply.

Building the portal wasn’t enough, nor was training branch associates to show customers how to use it. The whole bank needed to reorient its activities to showcase and sustain digital. That meant modifying roles for everyone from tellers to investment advisers, with new communications to anticipate people’s concerns during the transition and explain how customer service was evolving. New feedback mechanisms now ensure that developers hear when customers tell branch staff that the app doesn’t read their checks properly.

Within the first few months, use of the new portal increased 70 percent, while reductions in costly manual processing means bringing new customers on board is now 60 percent faster. And throughout the changes, employee engagement has actually improved.

Realigning from the customer back
The next shift redesigns internal roles so that they support the way customers work with the organization. That was the lesson a major European asset manager learned as it set out on a digital redesign of its complex, manual processes for accepting payments and for payouts on maturity. The entire organization consisted of small silos based on individual steps in each process, such as document review or payment processing—with no real correlation to what customers wanted to accomplish. The resulting mismatch wasted time and effort for customers, associates, and managers alike.

The company saw that to digitize successfully, it would have to rethink its structure so that customers could easily move through each phase of fulfilling a basic need: for instance, “I’ve retired and want my annuity to start paying out.” The critical change was to assign a single person to redesign each “customer journey,” with responsibility not only for overseeing its digital elements but also for working hand in glove with operations managers to ensure the entire journey worked seamlessly. The resulting reconfiguration of the organization and operations-management systems reduced handoffs by more than 90 percent and cycle times by more than half, effectively doubling total capacity.

Making better leaders through digital
The final shift is the furthest reaching: digital’s speed requires leaders and managers to develop much stronger day-to-day skills in working with their teams. Too often, even substantial dw2behavior changes don’t last. That’s when digital actually becomes part of the solution.

About two years after a top-to-bottom transformation, cracks began to show at a large North American property-and-casualty insurer. Competitors began to catch up as associate performance slipped. Managers and leaders reported high levels of stress and turnover.

A detailed assessment found that the new practices leaders had adopted—the cycle of daily huddles, problem-solving sessions, and check-ins to confirm processes were working—were losing their punch. Leaders were paying too little attention to the quality of these interactions, which were becoming ritualized. Their people responded by investing less as well.

Digital provided a way for leaders to recommit. An online portal now provides a central view of the leadership activities of managers at all levels. Master calendars let leaders prioritize their on-the-ground work with their teams over other interruptions. Redefined targets for each management tier are now measured on a daily basis. The resulting transparency has already increased engagement among managers, while raising retention rates for frontline associates.

Organizations investing in human and digital capabilities can start by asking themselves several critical questions:

Do we really understand how customers interact with us now, and how they want to in the future?

How can we give customers the experience they want, no matter which digital and human channels they use?

How can we speed our metabolism so we can uncover new opportunities for better performance?

Can our culture become flexible enough for us to collaborate effectively with our customers through constant change?

Capturing the digital opportunity will require even greater operations-management discipline. But digital also makes this discipline easier to sustain. Adding the two together creates a powerful combination.

Source: McKinsey.com, October 2016
By: Albert Bollard, Alex Singla, Rohit Sood, and Jasper van Ouwerkerk
About the authors: Albert Bollard is an associate partner in McKinsey’s New York office, Alex Singla is a senior partner in the Chicago office, Rohit Sood is a partner in the Toronto office, and Jasper van Ouwerkerk is a senior partner in the Amsterdam office.
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Digital in industry: From buzzword to value creation

Posted in Aktuellt, Board work / Styrelsearbete, Digitalisering / Internet, Executive Team / Ledningsgruppsarbete, Försäljning / Sales, Strategy implementation / Strategiimplementering on August 28th, 2016 by admin

From supply chains to production to customer experience, digitization is transforming the way industry functions—and unleashing global opportunities for value creation.

In the past few years, we have seen digitization bring its first benefits to the industrial sector, particularly in processing and manufacturing, yet enormous untapped potential remains. Digital capabilities such as e-commerce platforms can significantly improve traditional customer-supplier experiences. Additional advances in automation, big data and analytics, and the Internet of Things create additional opportunities for substantial gains along the entire industry value chain.

Another industrial revolution

Early signs of the digital revolution are already here. Amazon Business, a B2B e-commerce platform launched in April 2015, turned over $1 billion in sales in its first year, growing at an going D 1impressive 20 percent per month. B2B buyers increasingly prefer digital, with 94 percent conducting some form of online research before purchase.

Further changing the rules of the game are the decreasing costs of new processing technologies such as additive manufacturing and advanced robotics. For example, 3-D printing costs came down by 60 percent between 1990 and 2014, and industrial robot costs decreased 5 percent annually between 2000 and 2012.

Put concretely, what does digital bring in terms of performance jump across functions? Let’s start by looking at operations, where our experts have recently shown that the impact potential is significant across all functions.

And this is not science fiction! Pockets of excellence exist across industrial sectors that have proven it can be done.
•In the oil and gas industry, predictive maintenance is eradicating unplanned downtime and costly repairs. Connected plants use remote sensors to forecast and report on the condition and performance of machinery. Early signs of problems are detected and corrected, maintenance resources are directed at the areas of greatest need, and machinery availability is maximized.
•The pulp and paper industry has seen significant increases in productivity through the use of remote temperature monitoring. Kiln sensors monitor lime mud temperature, a leading indicator of calcination. Sophisticated tools aggregate and analyze the temperature readings and automatically optimize the shape and intensity of the flame driving heat through the kiln. The process has resulted in fuel savings as high as 6 percent and a lime throughput increase of 16 percent.
•In manufacturing, repetitive, strenuous, and complex tasks are performed by robots working alongside operators on the shop floor. The operators themselves spend less time waiting for goods or processes or filling in routine documentation, because information systems optimize materials flows and track key performance indicators. Real-time analytics and advanced process control enable errors and quality lapses to be picked up immediately, minimizing rework and scrap, and automated inventory systems—such as wireless-connected boxes with cameras that automatically reorder when their fill level drops below a certain limit—ensure that inventories are accurate, goods can be easily located, and safety stocks are adequate but not excessive.

Advanced modeling techniques for optimizing complex manufacturing sites and supply chains

Working with a basic-chemicals manufacturer with complex operations, we designed an end-to-end advanced model that generates a holistic optimization of the entire supply chain from procurement to commercial. By incorporating detailed price and cost curves into this model and leveraging the latest advanced optimization engines, we developed a systematic optimization tool that was embedded into the company business process.

The company saw a recurring EBITDA margin increase of roughly 5 percent, equal to approximately 6 percent of overall manufacturing, logistic, and raw-material costs. Application of these techniques on more than ten other cases in the process industry suggests a recurring EBITDA margin increase in the range of two to five percentage points, with value creation being proportional to supply-chain complexity.

Let’s not forget the customer: digital has the potential to profoundly reshape the way industrial companies interact with and serve their customers. Let’s have a closer look:
•Where customer access was once constrained by minimum order sizes and the cost to serve in a particular market, e-commerce and web shops allow companies to reach customers they could nevergoing D 2 have reached before; hence cost to serve can be cut by 50 to 70 percent. Online marketplaces such as Amazon Business and Alibaba virtually connect unlimited buyers and sellers, and established players like Grainger are leading the way with their own platforms, capitalizing on 2015’s estimated $1 trillion in B2B digital commerce sales in the United States.
•Suppliers who once relied on subjective analysis and historical knowledge to determine prices can now use faster, data-driven tools to optimize pricing. For example, a leading technical gases company with a large and highly fragmented product portfolio used advanced data analytics and modeling to design a more strategic and logical approach to pricing. The newly developed value-based pricing led to an increased return on sales of 5 percentage points (see sidebar “Pricing”). Emerging markets can tap the potential of digital in the food chain through innovations such as precision agriculture, supply-chain efficiencies, and agriculture-focused payment systems.
•Sales directors can make smarter resource-allocation decisions based on timely inputs from sales reps, individual performance data, and automated recommendations from tools. Reps making sales recommendations no longer have to rely on hunches about what their customers want, but instead make use of targeted insights about products to sell, customers’ success stories, and simulations run with the customer during the sales visit. The ability to attract new customers, improve cross-selling, and reduce leakage can increase revenues by 5 to 15 percent, while customer satisfaction can be increased by 20 to 30 percent.

Digital’s disruptive power

But digital is not only a means to optimize a company’s existing operations. It also gives both attackers and incumbents the power to disrupt value chains, enter new sectors, and create innovative business models. Established companies face threats from new competitors like Amazon Business, which offers millions of products, from automotive components, industrial lifts, and ramps to lab products, protective gear, and electrical equipment.

Impact of value-based pricing

Working with a basic-chemicals manufacturer with complex operations, we designed an end-to-end advanced model that generates a holistic optimization of the entire supply chain from procurement to commercial. By incorporating detailed price and cost curves into this model and leveraging the latest advanced optimization engines, we developed a systematic optimization tool that was embedded into the company business process.

The company saw a recurring EBITDA margin increase of roughly 5 percent, equal to approximately 6 percent of overall manufacturing, logistic, and raw-material costs. Application of these techniques on more than ten other cases in the process industry suggests a recurring EBITDA margin increase in the range of two to five percentage points, with value creation being proportional to supply-chain complexity.

To get ahead of threats like this, industrial companies can use digital to transform and extend their own business models before change is imposed on them by attackers reshaping their industry. Some incumbents are joining digital platforms and B2B marketplaces to aggregate demand and sell direct to end users. BASF, for example, was the first chemicals company to sell products online through Alibaba. Other businesses, such as the 3-D printing start-up Sculpteo, are selling services rather than products. Still others are offering their manufacturing capacity as a service to third parties.

But are companies ready?
Compelling though the opportunities are, our analysis indicates that industrial sectors in general are lagging behind other sectors in terms of digitization: the MGI Industry Digitization shows that while advanced manufacturing and the oil and gas sectors have already gone some way in their digitization journeys, basic goods manufacturing and chemicals and pharmaceuticals are still in the early stages.

Moreover, the McKinsey Industry 4.0 survey of more than 300 manufacturing experts in Germany, Japan, and the United States from January 2016 shows that only 16 percent of manufacturers have an overall Industry 4.0 strategy in place, and just 24 percent have assigned clear responsibilities to implement it.

Five priorities for competing in an era of digital globalization

Five ways to win
Companies that want to get ahead of the digital pack would be wise to take five key steps:
1. Prioritize and scale up. Use structural assessments to determine the customer appetite versus willingness to pay by using mockups to conduct interviews with potential customers and external experts. In addition, weigh the potential impact against the ease of implementation by assessing the degree of innovation or disruption (Is it a substitute? an extension? a breakthrough?), defining the scalability, studying the feasibility of the pilot and full solution, and ascertaining the fit with existing assets and capabilities.

2. Adopt a test-and-learn approach. As technology-driven change accelerates, forecasting and planning are becoming less relevant and reliable. Agility—remaining open to learning and experimentation—is key. And it is crucial when investing in digital solutions to adopt the mind-set of a venture capitalist. This includes trying out ideas quickly with target customers as going D 3soon as they exist to check market interest and price points. It also means being ruthless: if the idea isn’t worth it, kill it immediately. In addition, successful ventures think about monetization potential as soon as interactions with potential customers start, and they proudly copy from other sectors. A focus on scale is also essential, with the ambition being a tenfold increase.

3. Put foundations in place. To maintain the efficiency and stability of existing operations while providing the processing capacity and speed required by new data-driven activities, smart companies move to a two-speed IT infrastructure—overlaying a fast, next- generation cloud-based IT system on their secure, robust, resilient legacy systems. New talent is another priority, especially data and process experts who can connect up various functions, systems, and levels of management; draw insights from all the information generated across the enterprise; and use their knowledge of the whole production chain to help design new products. Meanwhile, job profiles must be rethought to meet new needs, such as maintenance staff who oversee predictive maintenance rather than acting as troubleshooters, and quality specialists who intercept quality issues online rather than detecting faulty parts after production.

4.Treat data as a competitive advantage. Data fuels the algorithms that provide insights into markets, customers, and business processes, so ensure that data management has a clear structure and governance. And considering that even tech giants such as Google have been vulnerable to malicious attacks, be sure to put cybersecurity high on your management agenda. Physical targets such as connected machinery and systems installed for remote access could also be highly susceptible to sabotage by hackers and other attacks.

5. Work across functions, and manage change in the organization. Digitization requires that all departments work together to capture joint benefits for the whole business. Moreover, because these innovations have a major impact on how people work, it is essential to anticipate concerns and build a persuasive case for the employees.
When thinking about digital priorities, identify the technologies and applications that would have the greatest potential impact. But also make sure not to ignore possible barriers to adoption: devise a plan for helping employees use the new technologies and the related new methodologies most effectively. Remember that no organization achieves a successful digital transformation without taking a thoughtful approach to change management, and that it’s the people applying the technology in their daily jobs who will create the additional value.

Digital’s potential in industry is massive, not only in operations, but across all functions of the sector, and the levers that make the most difference to a company’s bottom line vary—from e-commerce to automation to advanced analytics. But industrial companies must begin taking advantage of digital opportunities in order to avoid losing the value to others. A commitment to digitization from top management is critical to succeeding, as is a systematic method of defining priorities and the ability to leverage early success to drive change.

Source: McKinsey.com, August 2016
Authors: Paul-Louise Caylar, Kedar Naik and Oliver Noterdaeme
About the authors: Paul-Louis Caylar is a partner in the Paris office and a coleader of Digital McKinsey in France. Kedar Naik is an associate partner in the Brussels office, where Olivier Noterdaeme is a partner.
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More than digital plus traditional: A truly omnichannel customer experience

Posted in Aktuellt, Customer care / Kundvård, Digitalisering / Internet, Försäljning / Sales, Strategy implementation / Strategiimplementering on August 25th, 2016 by admin

Adding digital channels requires major efforts, yet payoffs can disappoint. Integrating digital and traditional channels into a truly omnichannel offering is even harder—but multiplies the rewards.

In sector after sector, companies are asking how they can adapt to the digital world—how they can build more digital capabilities, create more digital offerings, and even become “digital first” organizations.

But for institutions that have served customers for decades in person and over the phone, digital too often falls short. After the debut of a new app, for example, a jump in sales may not be as big as expected, while hoped-for operational efficiencies—such as a reduction in expensive call-center and in-store customer-support requests—hardly materialize.

Executives naturally wonder why: aren’t customers demanding digital? Without question, they are. But not to the exclusion of other channels, which remain critically important.

omni 3For example, as much attention (and fear) as Amazon may generate among traditional retailers, as of early 2016 about 92 percent of retail sales in the United States—the company’s home and largest market—were still taking place in person. Furthermore, our analysis of market research confirms that many customers (including large majorities in some markets and industries) want to move freely from channel to channel in an omnichannel experience. Accordingly, the digital end-to-end offerings and internal capabilities that companies are building are important not only in themselves but also in the way they support the other channels (see Driek Desmet, Ewan Duncan, Jay Scanlan, and Marc Singer, “Six building blocks for creating a high-performing digital enterprise,” September 2015).

Retailers have increasingly recognized this reality, with some folding one-time web-only subsidiaries back into their larger businesses. But in other consumer-facing industries, such as financial services or telecommunications, digital efforts often end up becoming just another channel—in effect, a whole set of subchannels including mobile, social, and chat. Given that channel conflicts have bedeviled large companies for decades, with competition among channels sometimes more intense than with the outside world, adding even more to the list is not ideal. The result? More complexity (and cost) for the company and a less-than-optimal experience for customers.

By contrast, integrating digital into an omnichannel experience breaks down barriers for customers—and for performance, allowing companies to hone their digital skills in a way that takes advantage of their strength in traditional channels. But first, companies must break down their own internal barriers, initially by developing a more sophisticated understanding of how their customers think about all of the channel options. Mapping out the journeys customers follow among the channels reveals the most important opportunities for channels to cooperate, forming a list of changes for the company to roll out. Finally, to ensure the changes last, each major journey will need its own leader and cross-unit team—supported by revamped incentive structures to facilitate cooperation, new performance dashboards, a road map for transformation, and clear communications and governance from top executives.

Getting these steps right provides new opportunities to make customers happy—for instance, by letting them start a loan application on their phone before bed and finish it at a branch the next day after asking a few questions via the call center. Capturing moments such as these turns omnichannel into a major growth platform.

After it tightened the links between its digital and traditional channels, a large regional bank increased sales of current-account and personal-loan products by more than 25 percent across all channels. And a European telecommunications company saw a 40 percent increase in usage of its online service channel, reducing its costs by more than 20 percent while increasing customer satisfaction by more than five percentage points.

The obstacles to omnichannel

Companies are starting to understand the omnichannel imperative. But getting there is proving unexpectedly difficult.

A bias toward bigness. Part of the reason is a misplaced belief that omnichannel’s massive implications require equally massive actions, such as an entirely new IT platform or organization structure to bring all channels together. Too often that “silver bullet” mentality leads only to a massive misallocation of resources. Instead, the companies that are most successful in making the digital and omnichannel transition concentrate on a long, prioritized list of pragmatic initiatives that, as they are implemented, unleash the value trapped in the intersections among poorly coordinated channels. Collectively these initiatives counter two larger problems:

Disregarding diversity. In our experience, most companies tend to build their digital and omnichannel experience believing that most customers have basically the same needs and follow basically the same journeys. In reality, customers are far more diverse, not only in their needs but also in how they want to meet those needs. For example, a recent survey of North American mobile customers showed that while approximately 35 percent would turn to digital channels first in dealing with an administrative issue, such as a change of billing information, only 24 percent would use digital channels for solving a technical problem. And, of course, even with administrative issues, more than half of customers preferred either in-person or phone resolution, illustrating how many different pathways are possible within the same basic journey. Accommodating these different behaviors will require organizations to understand their customers better while becoming more flexible in allowing for more options to reach the same end point.

Curbing cooperation. But the need for greater flexibility usually bumps into a hardened reality. Despite decades of discussion aboutoni 2 conflicting channels, many companies still operate each channel as a separate organization, expecting it to optimize its own performance and service model while showing its own results. Incentives ostensibly designed to encourage performance unintentionally reinforce the channels’ isolation—such as revenue-generation targets that push each channel to increase its own sales volume regardless of any impact on sister channels. Competition becomes even more brutal internally than with the outside world.

The better breakthrough: Start small, from the customer

A better outcome is possible, but only by taking a more disciplined approach to understand how different customers think and behave at each step of their individual journeys. By revealing customers’ most important pain points, the resulting analysis helps the organization see which changes to make first, gradually making an entire process simpler and more effective for customers from beginning to end.

1. Discovering ‘personas’

The first step, describing how customers act, sounds daunting. But it’s actually less so because customers’ behavior usually coalesces around a few major variables. These become the basis for creating “personas” describing major segments of the customer population in a richer way than traditional demographic-based segmentation allows.

For example, in wireless services, the major variables could include customers’ comfort levels with mobile technology, the role mobile technology plays in their lives, their financial sophistication, their occupation, and the way they shop—how much comparison shopping they do and what information sources they use. A “work and play” persona would be a professional who relies heavily on her mobile phone both for her job—communicating with clients, managing her calendar, and making travel arrangements—and for personal activities, such as paying bills, shopping for groceries, and making investments. Her busy schedule leaves little time for shopping, so for major purchases she relies on quick Internet searches to understand features and prices. Her ideal is to buy online and then pick items up in the store on her lunch break, rather than wait for delivery.

By contrast, a “social enthusiast” is a bit younger, less likely to have a job requiring a mobile device, and instead uses his phone mainly to keep up with friends and play multiplayer games. He may be more likely to be on a tight budget, so he researches purchases extensively, looks to social networks for a consensus on the best option, tests it out in person, and sends victorious tweets when he “scores a great deal.”

The same basic patterns repeat across industries—in small-business banking, for example, technology and financial sophistication both matter, as does a business’s size and its financial goals. Describing four to six major personas is usually enough to cover about 80 percent of the customer base.

2. Charting a journey’s map

The next step is to understand the personas’ different needs and follow the steps, both offline and online, that the each persona takes along a given journey. The crucial requirement is to identify the important (and often hidden) pain points that the persona encounters and the resulting areas of opportunity for redesign.

Some of the opportunities may be visible just by mapping all of the current journeys customers can follow across all channels and displaying them together. For the regional bank, two points showed particular problems. In the online channel, about 80 percent of customers dropped out rather than fill in a registration form. And in call centers, more than 98 percent of customers did not ask for an offer. A similar map for the European telco found that regardless of which channel customers started in, if they ended up on the online shop, they abandoned their purchases fully 99 percent of the time. Furthermore, across all channels, 30 percent of orders were never activated.

The reasons for these outcomes tend to differ by persona. The work-and-play user’s main challenges center on time: there’s not enough of it. She may grow impatient at sorting through too many options and give up when a form asks for information that she knows the company already has (“They know where I live—my statement arrives every month like clockwork. This is wasting my time.”) Meanwhile, the social-enthusiast user wants to get the best service and product he can get for the lowest price, without committing to a long contract in case a better option comes along later. He may keep getting timed out of his purchase while looking at his social feeds to figure out if the option he’s considering is really the right one.

3. Designing a portfolio of omnichannel initiatives for each improvement area

These findings lead directly to a multipronged improvement strategy comprising several dozen initiatives, ranging from better data links to prepopulate online order forms to revamped offers and new performance-measurement practices. The goal is for each of the initiatives to be pragmatic and achievable, while together they deliver profound and lasting change.

The most urgent changes typically concern the digital channel, where customers often face a vast range of choices with complex pricing provisions and business rules that make it almost impossible to find the right combination (see sidebar, “Becoming more agile—in IT and in processes”). Instead, a new structure would change the experience from the moment a user arrives on the page. Rather than show the same page for everyone, the new page would vary depending on the user’s persona, which typically could be assigned based on a combination of existing customer data and the user’s prior browsing behavior on the site.

The customer therefore has a much more customized experience. A work-and-play user would be taken directly to two or three simple product options based on phone features and service limits. After choosing one of the options, the user would see a second page of add-ons, such as purchase-protection plans and international coverage. Social enthusiasts, by contrast, would get a more detailed interface that allows them to make separate decisions for the phone and for the service levels, so that they can understand the trade-offs and feel like they’re getting the best bang for their buck. The page they see also would provide user-generated product reviews from other clients, social-network links, a chat feature staffed by sales representatives, and a tool to set up in-store appointments.

4. Enabling continuous refinement and improvement

The effort these changes require is too great for an organization to watch the returns fade away and then repeat the exercise a year or two later. Revisiting its internal governance, performance, and capabilities becomes critical to support essential cultural changes and ensure that the organization’s performance continues to improve as the market evolves.

Although difficult, restructuring the traditional governance approach—in which channels operated almost as separate businesses—is the best defense against the most immediate threat to the omnichannel model’s long-term health: the reemergence of silos. During the transformation process, the organization forms cross-unit teams with representation from each channel and from supporting functions such as IT, marketing, and compliance. Each team operates as a work cell, with accountability for the design and implementation of a set of initiatives. As the changes take hold, the cells become the basis for a new organization structure that continually reassesses how the omnichannel model is functioning, identifying improvement opportunities and translating them into new rounds of initiatives for implementation.

Accountability will also depend in part on new performance targets that encourage collaboration instead of competition among channels. Thatomni 1 means, for example, deciding how to allocate credit for shared sales that start in one channel and end in another, and agreeing on performance indicators that provide concrete evidence the collaboration is occurring. Shared key performance indicators for digital, sales, and IT, such as the speed of change implementation or the level of digital adoption, help show whether the different functions are actually working together or whether they are finding reasons to block new initiatives.

Throughout the organization, people will need new capabilities at every level. Frontline sales and service personnel, for example, will need new and deeper skills in recognizing customer needs, understanding where the customers are in their journeys, and finding the most effective ways to help them depending on which persona they best match and which channels would best serve them. The greater complexity of frontline positions will require more coaching and support from managers, who will need their schedules freed up so that they can spend more time with their teams. And senior executives will need to play a more prominent part in role modeling behavior changes, such as in encouraging problem solving by people closer to the customer rather than imposing solutions from above.

What would it mean for your organization if you could promise your customers that they’ll get the service they need, however they need it? How much more effective would your people be if they didn’t have to worry about losing a customer to another channel? Becoming truly omnichannel is demanding for an organization. But the answers it provides to questions such as these make it worth the investment for organizations willing to make the commitment.

Source: McKinsey.com, August 2016
Authors: Raffaella Bianchi, Michal Cermak and Ondrej Dusak
About the author: Raffaella Bianchi is a senior expert in McKinsey’s Milan office; Michal Cermak and Ondrej Dusek are partners in the Prague office.
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7 things every leader should know about strategy!

Posted in Board work / Styrelsearbete, Executive Team / Ledningsgruppsarbete, Leadership / Ledarskap, Strategy implementation / Strategiimplementering on June 29th, 2016 by admin

1. Business Strategy = compete to be unique, not to be the best
Strategy is not about being the best, but about being unique. Competing to be the best in business is one of the major misconceptions about strategy.

And if you only remember one tip from this list, it should be this one. Many leaders compare competition in business with the world of sports. There can only be one winner. But competing in business is more complex. There can be several winners. It does not have to be a zero sum game – you win, I lose or vice versa.

Within a single industry, you can have several companies beating the industry average, each with a distinctive, different strategy. They are no direct threat to each other. There can be several winners. So the worst possible approach to strategy is to seek out the biggest player in the industry and try to copy everything they do.

2. Business Strategy = compete for profit

Business is not about having the largest market share or about growing fast. It’s about making money.

‘I want to grow my business’ is not a strategy. ‘I want to grow my business’ is the same as saying, ‘I want to be rich’. Those things (unfortunately) don’t happen by themselves. Growing is not a strategy, it’s a consequence. When someone includes growth in their strategy, there should be an orange light starting to blink.

That does not mean that you cannot use the word ‘growth’. I use it a lot in the analysis phase – for example, when you talk about growth areas of the business or when you look for growth platforms – areas where you can reach potential that will give you additional profit.

3. Know your industry before you develop your business strategy
A company is not an island – it’s part of a larger ecosystem, an industry. Each industry has its own characteristics, its own structure. This structure and the relative position your companystrategy has within the industry determines profitability. Certain industries have a higher return than others. Your thinking about the industry and industry competition will determine your thinking about your strategy – how you are going to compete within the industry.

The better you know and understand the industry, the better you will be able to determine elements that will make you stand out, be unique and reap a higher average return than the industry average.

4. Business Strategy = Choice
In my eyes, this is the most simple strategy definition. You need a clear choice of WHO you are going to serve and a clear choice of HOW you are going to serve those clients. It’s about connecting the outside world – the demand side – with your company – the supply side. Or in fancy terms: you need a value proposition for a specific customer segment and to develop unique activities in the value chain to serve them.

The key word is ‘choice’.

You cannot be everything to everybody. You want to target a limited segment of potential buyers with the same needs. Next, you are going to tailor your activities in such a way that they meet these needs. Or in fancy terms: you want to tailor your value chain – your company’s activities – to your value proposition. Strategic innovation is the process to make those choices – defining a new who and how for the organisation.

5. A good business strategy requires you to say NO often
If you have clearly defined what you go for – a clear value proposition for a specific client segment (who) and a set of distinct, unique activities in your value chain to offer the needs of this client group (what), you will find out that there are lots of things that you are not going to do. There will be customers that you are not going to serve, activities that you are not going to perform and services/products that you will not be offering. In strategy, choosing what not to do is equally important.

Using the words of the founding father of modern strategy thinking, Michael Porter: “The essence of strategy is choosing what not to do”. Each business strategy should also have a section where it clearly states the noes.

6. A good business strategy requires you to keep moving
Having a good business strategy means that you have arrived. Competitors move, customers’ needs and behaviors change, technology evolves. One crucial element to determine a future path for your company is to predict these evolutions and trends and incorporate this thinking into the business strategy-building process.

If you don’t, you can miss out on new value that is created in the industry or even left behind and get into trouble.

Think about the smart phone and Nokia and you’ll understand.

7. Scenario thinking is an important strategy tool
The last one of the business strategy principles is not the least important. I don’t have to tell you that facts and figures can only go so far. You need to turn data into assumptions that will fuel your reflection process. The standard way to work with assumptions in a structured way is by scenario thinking – fix some parameters and let other vary. This technique helps your reflection process by offering you possible future routes (read: strategic options) for the company.

I believe that scenario thinking is a crucial skill for anyone who wants to deal with business strategy. Every leader should at least master the basics so that they don’t need a strategy consultant for every reflection process or at least to help them challenge the scenario models that the strategy consultant presents.

Source: jeroen-de-flander.com, April 2016
Author: Jeroen de Flander
Link

Focus on keeping up with your customers, not your competitors

Posted in Aktuellt, Board work / Styrelsearbete, Customer care / Kundvård, Executive Team / Ledningsgruppsarbete, Försäljning / Sales, Strategy implementation / Strategiimplementering on June 28th, 2016 by admin

Every company these days seems to be either contemplating or pursuing digital transformation. Most cite the need to keep up with disruptive and well-established competitors. But perhaps this focus is too narrow. We believe the greatest challenge to companies today is not keeping up with their competitors, but with their own customers.

One reason is that individuals are transforming to digital faster than organizations. Think for a moment about people as tiny enterprises. They’ve redesigned their core processes in the area CF 1of procurement (online shopping), talent acquisition (marketplaces), collaboration (social networking), market research (peer reviews), finance (mobile payments) and travel (room and ride sharing). Have you reinvented your core processes to the same degree?

Customers’ expectations are also more liquid and no longer based on industry boundaries. Customers – whether consumers or business buyers – don’t compare your customer service to that of your competitors, but to the best customer service they receive from anywhere. The same is true for their expectations of your web site, mobile app, loyalty program, branding, and even social responsibility.

So how can you keep up with your customers? You have to start thinking like them.

Customers don’t think in or; they think in and. You have to transcend trade-offs.
The adage used to be that you could pick any two combinations of “cheap, good, or fast.” But today’s customer doesn’t want to make tradeoffs. They want it cheap, good, and fast. As leaders, we are accustomed to thinking of business being about making tough decisions between competing objectives. But we need to think more like our customers. Instead of focusing on how to make tradeoffs, we need to focus on how to transcend them.

Some of the tradeoffs that are most suited to digital transcendence are:
– Big and small: Combine the speed, agility and creativity of being small with the scope, scale and influence associated with being big.
– Complex and simple: Manage the systems and processes to run a global business while creating simple and elegant experiences for customers.
– Global and personal: Achieve universal consistency and reach around the world while delivering relevant, tailored interactions to every customer.

Customers want to be empowered, not controlled. You have to act with empathy.
Business used to be about getting customers to do what you wanted them to do. But customers don’t accept this any more. They don’t like to be told what to do. They want relationships based on reciprocity, transparency and authenticity. If you want to keep up with your customer, you can’t be focused on getting them to do what you want, but instead on helping them do what they want.

This evolution from control to empowerment means a change in the basic building blocks of customer engagement.

– Funnels used to be linear processes that moved customers from one stage to the next. There was no going back until a sale was either won or lost. Now these funnels have become Escherian journeys, fluid, customer-led and multi-dimensional. It’s not about capturing and converting towards a transaction, but connecting and collaborating around a shared purpose.
– Channels used to be pipes connecting you with your customer, carrying carefully crafted messages to passive audiences. Now they are experiences connecting customers to their own desires, and communities connecting customers to each other. It’s not about promoting the features and benefits of your product, but building empathy and understanding of each customer’s intent – and helping them achieve it – as part of an ongoing relationship.

Customers don’t think in straight lines. You need to be non-linear.
To keep up with your customer, you have to let go of linear thinking. Customers today expect you to be where they are, deliver what they want, when they want it, and how they want it. If they’re browsing your website on their laptop, they will expect that when they next come to your site from their mobile device or tablet, or talk to a sales person in your store, branch or call center, you will pick up right where they left off. Business has become like that old game of Twister. You have to be flexible if you are going to win.

This requires rethinking and redesigning core disciplines:CF 2
– Strategy has to go beyond analyzing markets, making plans, and forecasting the future. Strategy also has to build capabilities, transform culture and architect for constant change.
– Campaigns have to be more than one-way communications for one-time responses. They need to initiate and expedite personalized journeys as part of ongoing conversations.
– Personalization needs to go deeper than looking simply at what someone buys. It needs to be based on the subconscious motivations of why someone buys, revealed through real-time analysis of a wide variety of data sources.
– Social can’t be treated merely as a channel for distributing messages. Done right, it’s a context for building genuine relationships that demonstrate how much they really matter.
– Loyalty needs to be more than accumulating points for rewards. To be genuine and enduring, loyalty needs to be reciprocal. If you want their loyalty, you have to be loyal in return.
– Operations need to go beyond the efficiency of the company to the efficiency of the customer. How can you optimize to help customers get more for their time and effort, not just their money?
It’s a significant shift in mindset and practice to reorient from keeping up with competitors to keeping up with customers.

We suggest getting started by assessing where you are.

How does your transformation compare to your customers? In what areas are they moving faster or slower than you are?
Who is setting your customers’ expectations? It’s probably coming from outside your industry.
What kind of relationship do you want to have with your customer? Are you trying to get them to do what you want? Or figuring out how to help them do what they want?
Next, look at where to focus your attention.

Which tradeoffs do you need to transcend? We mentioned a few above. Others include speed and scale, consistent and nimble, high-tech and high-touch.
Where is linear thinking getting in the way? Review the disciplines outlined above and see which ones will have the most impact on your customer experience.
Creating sustainable advantage is more elusive than ever. The new game is designing customer-driven journeys across touch points to help them achieve their intent, and to create more multidimensional relationships. To win this game, stop thinking about just keeping up with your competitors, and start thinking about keeping up with your customers.

Source: HBR.org, 2016
Link
Authors: Mark Bonchek and Gene Cornfield

The adaptive strategy system

Posted in Aktuellt, Board work / Styrelsearbete, Executive Team / Ledningsgruppsarbete, Leadership / Ledarskap, Strategy implementation / Strategiimplementering on June 22nd, 2016 by admin

The strategic hard-turn

The navy officers have a specific term for a large ship making a strong side turn, at high speed: hard turn. This maneuver requires powerful engines and good size rudders (although many modern ships also use other direction-changing systems, besides the traditional rudders). Such maneuver is more spectacular the larger the ship, the higher the speed and the smaller the turn radius are. For smaller or slower ships this is not seen as an extraordinary maneuver, because either the small size or the low speed should allow them to turn quickly enough.

AC 2In the analogy with the business world, the size of the ship is the size of the organization and its speed is the industry clockspeed. The engines’ power and rudders’ efficiency are the organizational capability to quickly and effectively change the Strategy, even when its execution is at mid-course.

So, how to avoid getting locked-in for one or more years in executing our Strategy, finding it difficult to make a ‘strategic hard turn’, in case the Strategy becomes invalid at some point in time (entirely, or partially), along its execution cycle? Or, even more: How to go back to the drawing board, if we discover that some of the hypothesis and assumptions the Strategy was based upon were wrong, and ultimately, how do we know when should we do this?

Some people might say that it’s piece of cake to do all that in small organizations that use simple, intuitive, straightforward strategic choices, plans and execution tools. And they would be right. But more and more strategies and strategic plans tend to become complicated, in an attempt to model the increasingly complex and faster changing business environment, mainly due to the VUCA context (Volatility, Uncertainty, Complexity, Ambiguity).

When a good Strategy becomes wrong
The more frequent phenomenon is that of a well-designed Strategy becoming inappropriate, due to the invalidating effects of the unfolding business reality upon some of its hypothesis and assumptions. But why and where do we need to make these hypothesis and assumptions for our Strategy?

Actually, there is no other way, because the Strategy Formulation and the Strategic Planning processes are all about the future, therefore we need to use certain hypothesis and assumptions within these processes. Otherwise, we wouldn’t be able to make any judgement about what changes do we believe that will be needed for exploiting what we anticipate to be opportunities and for avoiding what we think that may be future threats.

Let’s look at the Strategy Formulation process. Where, along this process, do we need to use hypothesis and to make assumptions and why?

The quick answer to the question above would be: “Wherever we need to make judgements about what will happen in the future, because we need to turn the randomness of the future into an ordered and logic future evolution construct, on which we can build a Strategy”. At a higher detail level, it would go like this:

1. We have to hypothesize about future opportunities and threats, about their magnitude, probability and timing. Furthermore, we have to estimate the trends of various Influence Factors that have a significant, strategic impact upon our industry or upon our business type & model (think of PESTEL and Porter’s 5 Forces, for instance). Then, we have to assume that they will vary within certain tolerance ranges, within which our strategic hypothesis would remain valid.

2. We have to estimate the future impact of the Influence Factors considered upon our business results, should we select one Strategic Choice or another, from the possible ones. They are regarding both the Competitive Factors (how-to-win) and the Market Boundaries (where-to-play). Based on such analysis, we’ll select a mix of Strategic Choices that will define our Strategic Positioning and allow us to build a new/updated Competitive Advantage.

3. Because we can only employ a viable Business Model, we have to anticipate the financial bottom line of our Strategic Positioning.
– Will the Strategic Choices that we’ve selected support a viable Profit Model (or a Value Model, for public/NGO organizations)?
– Will our target customers prefer our product or service to other propositions existing in the marketplace?
– Will they find it convenient to buy it through the sales channels that we have considered?
– Will they regard our product/service as fit for their ‘Job-to-be-Done’, as Clayton Christensen defined it?
Ultimately, will the customers agree to pay the price that will profitably cover our costs, in order to allow us to meet the Success Aspirations of our Strategy?

4. Our next set of hypothesis regard the set of capabilities, the so-called Capabilities System, that is required to support our Strategic Choices and turn them from declared into fully effective ones, bringing them to life. Our past experience usually helps us here, but in some cases, more specifically for choices that have not been part of our Strategic Positioning before, we can only use our best judgement (based on the experience of others, if available) about what new processes, channels, tools, resources or competencies will be needed and about their levels and configurations.

5. Once our Strategic Choices are evaluated & rated and the required Capabilities System assessed, we have to see if all this is doable/feasible, in other words, will we be able to close/bridge the corresponding Strategic Coherence Gaps/*, with the resources that we’ll have available and within the Strategic Horizon considered? /* download The Coherence Premium, for a more insightful view on the strategic coherence.

6. The next two hypothesis points are looking more into the Strategic Planning process, or at least into the summarized multi-annual Strategic Plan, that we have to build before actually entering the Strategic Planning process. We have to assume that we’ll be able to close/bridge the Strategic Gaps with a certain deliberate, but logical, breakdown on annual cycles and in a certain sequence along the multi-annual horizon. That may be confirmed by reality, when the execution process unfolds. Or not.

7. Further on, we have to look deeper into the projects that we have to plan, in order to make the changes required for closing/bridging the Strategic Gaps. Because they are projects, we can estimate their costs, duration and resources required (people, tools, information, etc.), allowing us to assess their feasibility, with the means that will be available to us and within the time-frame when we need them to produce the desired effects.

An entirely complementary set of hypothesis and assumptions are used further, within the Strategic Planning and Alignment processes, but they are under a closer loop monitoring by the scorecards structure, therefore they can be corrected much faster, if proven invalid, along the execution cycle.

So, why does a good Strategy become a wrong one? We can probably respond more accurately now, after we’ve sliced the strategic hypothesis & assumptions matter, along the Strategy Formulation process.

Any of the Strategy Formulation workflow steps 1-7, mentioned above, may initially produce some credible and valid foresight. But they are also the hidden anti-Strategy mines that are placed along the execution path.

“No battle plan survives contact with the enemy” – Helmuth von Moltke the Elder
That is because any of our hypothesis may prove wrong, at the soonest moment in time when we we’ll be able to validate them. Those are the moments when any of our assumptions about certain Influence Factors with strategic significance may not be confirmed by reality, as they may go outside of the tolerance ranges within which our Strategy remains valid, … within which our value proposition will continue to be preferred by our target customers and produce the expected financial results.

So, this is how our initial good Strategy may become wrong, along its execution.

Preventing a good Strategy from getting wrong
Invoking our naval analogy, the question is: How can we effectively make the ‘strategic hard-turns’, when needed, and how can we spot the imminent triggering of the ‘anti-Strategy mines’ that are potentially placed along our path, by every hypothesis we have used and by every assumption we have made?

Many strategy practitioners have learned that we cannot design a Strategy and build the subsequent Strategic Plans that are future-proof, no matter how hard we try. That’s because sooner or later, something will go otherwise than we’ve anticipated and our Strategy may quickly turn from being a good one to being wrong or, at least, no longer good enough for reaching our Success Aspirations.

How to make strategic hard-turns?
We might agree, first of all, that the ‘strategic hard-turns’ are mandatory, because making some sort of ‘soft-turns’ instead may be equivalent to continuing for some time with the same Strategy’s execution beyond the point where we’ve found out that it’s no longer a good one.

The worst thing is to continue executing a Strategy, once we realize that it is
no longer a valid one.

But going again, at mid-course, through the whole Strategy Formulation, Strategic Planning and Alignment processes may take as long as when we’ve initially gone through these processes. So, this will certainly slow-down our intended strategic hard-turn. Well, this is not entirely true. At least, most of the time, because the events that will cause our entire Strategy to be wrong are not that frequent. In most of the cases, only a part of our hypothesis and assumptions are invalidated, or only a few of the Influence Factors trip our preset strategic tolerance ranges.

AC 1There is an important caveat to this. Irrespective of how much of our Strategy we change, we require a fully functional Strategy Management System to be in place, with a clear framework of building blocks, logical correlations and well mastered methodology. One of its core functions is to ensure that all the strategic processes are fully traceable, from hypothesis & assumptions, to all the components and the correlations between them. Within such a system, any changes are affecting only what is strictly necessary and the changes are propagated quickly and accurately throughout the entire organization.

This is like equipping our virtual ship with powerful engines and big rudders, enabling it to make strategic hard-turns as effectively as possible. One example of such a system is the Kaplan-Norton BSC Framework.

When do the strategic hard-turns become necessary?
The fact is that we will eventually realize, sooner or later, that a strategic hard-turn would have been necessary. But if that happens late, we are no longer talking about a strong, quick and accurate change of Strategy. In some cases, it may bee to late, as the damage caused by the slow strategic reaction can be substantial for the organization.

The only thing worse than
bad news, is bad news late.

These words are attributed to an anecdotal army general who had them written on a poster placed on the wall behind his desk. The same concept applies to the Strategy Adaptation process. How can we address this?

Here is where the Strategic Warning System (SMS) comes to the rescue. It is designed to monitor the validity of all hypothesis & assumptions used within the strategic processes and to measure the strategically-relevant Influence Factors, triggering an alarm every time an invalidation occurs or a tolerance limit is tripped by the monitored parameters.

The trace-ability of the hypothesis & assumptions and of the tolerance ranges we have used throughout the strategy processes are entered into two registers, one for validity/invalidation monitoring (the Strategic Assumptions Register – SAR) and one for strategic parameters monitoring, related to their preset tolerance ranges (the Strategic Tolerances Register – STR).

The SWS facilitates the accurate propagation of any changes of the Strategic Choices mix and of the required Capabilities System to the Strategic Plan, through the correlations defined between the Strategic Gaps (on the Strategy Formulation side) and the Strategic Objectives / Measures / Initiatives (on the Strategic Planning & Alignment side).

Furthermore, the SWS is easily correlated with the Strategic Scenarios and the Scenario Planning system, due to the scenario triggers that are linked to the most relevant & probable clusters of associated events monitored by the SWS. But the Strategy Adaptation process is even more comprehensive than that. For instance, the diagram below also illustrates how the Strategy adaptation process is enhanced through Strategy Testing (war-gaming).

Strategy Adaptation is not limited to just a generic concept, or an ad-hoc process. It goes much further than that, becoming instrumental when used as a structured system that keeps track of all major hypothesis & assumptions of the Strategy and of all the strategically-relevant Influence Factors, being equipped with the corresponding validation/invalidation points and tolerance ranges triggers. A system that is tightly integrated with the Scenario Planning process and with other Strategy testing methods and tools.

Source: Linkedin.com, June 2016
Author: Mihai Ionescu
Link

An incumbent’s guide to digital disruption

Posted in Aktuellt, Board work / Styrelsearbete, Executive Team / Ledningsgruppsarbete, Strategy implementation / Strategiimplementering on June 13th, 2016 by admin

Incumbents needn’t be victims of disruption if they recognize the crucial thresholds in their life cycle, and act in time.

A decade ago, Norwegian media group Schibsted made a courageous decision: to offer classifieds—the main revenue source of its newspaper businesses—online for free. The company had already made significant Internet investments but realized that to establish a pan-European digital stronghold it had to raise the stakes. During a presentation to a prospective French partner, Schibsted executives pointed out that existing European classifieds sites had limited traffic. “The market is up for grabs,” they said, “and we intend to get it.”Today, more than 80 percent of their earnings come from online classifieds.

About that same time, the boards of other leading newspapers were also weighing the prospect of a digital future. No doubt, like Schibsted, they even developed and debated hypothetical scenarios in which Internet start-ups siphoned off the lucrative print classified ads the industry called its “rivers of gold.” Maybe these scenarios appeared insufficiently alarming—or maybe they were too dangerous to even entertain. But very few newspapers followed Schibsted’s path.

DD 1From the vantage point of 2016, when print media lie shattered by a tsunami of digital disruption, it’s easy to talk about who made the “right” decision and who the “wrong.” Things are far murkier when one is actually in the midst of disruption’s uncertain, oft-hyped early stages. In the 1980s, steel giants famously underestimated the potential of mini-mills. In the 1980s and 1990s, the personal computer put a stop to Digital Equipment Corporation, Wang Laboratories, and other minicomputer makers. More recently, web retailers have disrupted physical ones, and Airbnb and Uber Technologies have disrupted lodging and car travel, respectively. The examples run the gamut from database software to boxed beef.

What they have in common is how often incumbents find themselves on the wrong side of a big trend. No matter how strong their ingoing balance sheets and market share—and sometimes because of those very factors—incumbents can’t seem to hold back the tide. The champions of disruption are far more often the attackers than the established incumbent. The good news for incumbents is that many industries are still in the early days of digital disruption. Print media, travel, and lodging provide valuable illustrations of the path increasingly more will follow. For most, it’s early enough to respond. (For a quick guide to assessing your organization’s position in the digital disruption journey, see “Digital disruption: A discussion guide for incumbents.”

What’s the secret of those incumbents that do survive—and sometimes even thrive? One aspect surely relates to the ability to recognize and overcome the typical pattern of response (or lack thereof) that characterizes companies in the incumbent’s position. This most often requires acuity of foresight3 and a willingness to respond boldly before it’s too late, which usually means acting before it is obvious you have to do so. As Reed Hastings, the CEO of Netflix, pointed out (right as his company was making the leap from DVDs to streaming), most successful organizations fail to look for new things their customers want because they’re afraid to hurt their core businesses. Clayton Christensen called this phenomenon the innovator’s dilemma. Hastings simply said, “Companies rarely die from moving too fast, and they frequently die from moving too slowly.”4
We are all great strategists in hindsight. The question is what to do when you are in the middle of it all, under the real-world constraints and pressures of running a large, modern company. This article looks at the four stages of disruption from an incumbent’s perspective, the barriers to overcome, and the choices and responses needed at each stage.

Where you are and what you need
It may help to view these stages on an S-curve. At first, young companies struggle with uncertainty but are agile and willing to experiment. At this time, companies prize learning and optionality and work toward creating value based on the expectation of future earnings. The new model then needs to reach some critical mass to become a going concern. As they mature—that is, become incumbents—mind-sets and realities change. The established companies lock in routines and processes. They iron out and standardize variability amid growing organizational complexity. In the quest for efficiency, they weed out strategic options and reward executives for steady results. The measure of success is now delivery of consistent, growing cash flows in the here and now. The option-rich expectancy of future gain is replaced by the treadmill of continually escalating performance expectations.

In a disruption, the company heading toward the top of the old S-curve confronts a new business model at the bottom of a new S-curve. The circle of creative destruction is renewed, but thisDD 2 time the shoe is on the other foot. Two primary challenges emerge. The first is to recognize the new S-curve, which starts with a small slope, and often-unimpressive profitability, and at first does not demand attention. After all, most companies have shown they are very good at dealing with obvious emergencies, rapidly corralling resources and acting decisively. But they struggle to deal with the slow, quiet rise of an uncertain threat that does not announce itself. Second, the same factors that help companies operate strongly toward the top of an S-curve often hinder them at the bottom of a new one. Because different modes of operation are required, it’s hard to do the right thing—even when you think you know what the right thing might be.

This simplified model, of a new S-curve crashing slow motion into an old one, gives us a way to look at the problem from the incumbent’s perspective, and to appreciate the actual challenges each moment presents along the way. In the first stage, the new S-curve is not yet a curve at all. In the second, the new business model gets validated, but its impact is not forceful enough to fundamentally bend the performance trajectory of the incumbent. In the third stage, however, the new model gains a critical mass and its impact is clearly felt. In the fourth, the new model becomes the new normal as it reaches its own maturity.

Let’s step through these stages in sequence and see what is going on.

Stage one: Signals amidst the noise
In the late 1990s, PolyGram was one of the world’s top record labels, with a roster boasting Bob Marley, U2, and top classical artists. But, in 1998, Cornelis Boonstra, CEO of PolyGram’s Dutch parent, Koninklijke Philips, flew to New York, met with Goldman Sachs, and arranged to sell PolyGram to Seagram for $10.6 billion. Why? Because Boonstra had come across research showing that consumers were using the new recordable CD-ROM technology (which Philips coinvented) largely for one purpose: to copy music. In hindsight, this is a good example of how, in the early stages of disruption, demand begins to “purify” and lose the distortions imposed on it by businesses.5
The MP3 format had barely been invented, Napster was a mere gleam in Sean Parker’s eye, and PolyGram was riding at the top of its S-curve—but Boonstra detected the first signs of transformational change and decided to act swiftly and decisively. Within a decade, compact-disc and DVD sales in the United States dropped by more than 80 percent. Similarly, Telecom New Zealand foresaw the deteriorating economics of its Yellow Pages business and sold its directories business in 2007 for $2.2 billion (a nine-time revenue multiple)6 while numerous other telecom companies held on until the businesses were nearly worthless.7
The newspaper industry had no shortage of similar signals. As early as 1964, media theorist Marshall McLuhan observed that the industry’s reliance on classified ads and stock-market quotes made it vulnerable: “Should an alternative source of easy access to such diverse daily information be found, the press will fold.” The rise of the Internet created just such a source, and start-ups such as eBay opened a new way for people to list goods for sale without the use of newspaper ads. Schibsted was one of the earliest media companies to both anticipate the threat and act on the opportunity. As early as 1999, the company became convinced that “The Internet is made for classifieds, and classifieds are made for the Internet.”8
It’s not surprising that most others publishers didn’t react. At this early stage of disruption, incumbents feel barely any impact on their core businesses except in the distant periphery. In short, they don’t “need” to act. It takes rare acuity to make a preemptive move, likely in the face of conflicting demands from stakeholders. What’s more, it can be difficult to work out which trends to ignore and which to react to.

Gaining sharper insight, and escaping the myopia of this first stage, requires incumbents to challenge their own “story” and to disrupt long-standing (and sometimes implicit) beliefs about how to make money in a given industry. As our colleagues put it in a recent article, “These governing beliefs reflect widely shared notions about customer preferences, the role of technology, regulation, cost drivers, and the basis of competition and differentiation. They are often considered inviolable—until someone comes along to violate them.”9
The process of reframing these governing beliefs involves identifying an industry’s foremost notion about value creation and then turning it on its head to find new forms and mechanisms for creating value.

Stage two: Change takes hold
The trend is now clear. The core technological and economic drivers have been validated. At this point, it’s essential for established companies to commit to nurturing new initiatives so that they can establish footholds in the new sphere. More important, they need to ensure that new ventures have autonomy from the core business, even if the goals of the two operations conflict. The idea is to act before one has to.

But with disruption’s impact still not big enough to dampen earnings momentum, motivation is often missing. Even as online classifieds for cars and real estate began to take off and Craigslist gained momentum, most newspaper publishers lacked a sense of urgency because their own market share remained largely unaffected. And it’s not like the new players were making millions (yet). There was no performance envy.

But Schibsted did find the necessary motivation. “When the dot-com bubble burst, we continued to invest, in spite of the fact that we didn’t know how we were going to make money online,” recalls then-CEO Kjell Aamot. “We also allowed the new products to compete with the old products.”10 Offering free online classifieds directly cannibalized its newspaper business, but Schibsted was willing to take the risk. The company didn’t just act; it acted radically.

DD 3Now, let’s openly acknowledge how hard it is for a company’s leaders to commit to supporting experimental ventures when the business is climbing the S-curve. When Netflix disrupted itself in 2011 by shifting focus from DVDs to streaming, its share price dropped by 80 percent. Few boards and investors can handle that kind of pain when the near-term need is debatable. The vague longer-term threat just doesn’t seem as dangerous as the immediate hardship. After all, incumbents have existing revenue streams to protect—start-ups only have upside to capture. Additionally, management teams are more comfortable developing strategies for businesses they know how to operate, and are naturally reluctant to enter a new game with rules they don’t understand.

The upshot: most incumbents dabble, making small investments that won’t flatten their current S-curve and guard against cannibalization. Usually, they focus too heavily on finding synergies (always looking for efficiency) rather than fostering radical experimentation. The illusion that this dabbling is getting you into the game is all too tempting to believe. Many newspapers built online add-ons to their classified businesses, but few were willing to risk cannibalizing the traditional revenue streams, which at this point were still far bigger and more profitable. And remember, at this time, Schibsted had not yet been rewarded for its early action: its results looked pretty similar to its peers.

In time, of course, bolder action becomes necessary, and executives must commit to nurturing potentially dilutive and small next-horizon businesses in a pipeline of initiatives. Managing such a portfolio requires high tolerance for ambiguity, and it requires executives to adapt to shifting conditions, both inside and outside the company, even as the aspiration to deliver favorable outcomes for shareholders remains constant.11 The difficulty is the tendency to protect the core at the expense of the periphery. Not only are there strong, short-term financial incentives to protect the core, but it’s also often painful to shift focus from core businesses in which one has, understandably enough, an emotional as well as a financial investment.

No small part of the challenge is to accept that the previous status quo is no longer the baseline. Grocery retailer Aldi has disrupted numerous incumbents globally with its low-price model. Aldi’s future success was visible while Aldi was still nascent in the market. Yet many incumbent supermarkets chose to avoid the near-term pain of sharpening entry price points and improving their private-label brands. In hindsight, those moves would have been highly net-present-value positive with respect to avoided loss—as Aldi has continued its strong growth across three continents.

Stage three: The inevitable transformation
By now, the future is pounding on the door. The new model has proved superior to the old, at least for some critical mass of adopters, and the industry is in motion toward it. At this stage of disruption, to accelerate its own transformation, the incumbent’s challenge lies in aggressively shifting resources to the new self-competing ventures it nurtured in stage two. Think of it as treating new businesses like venture-capital investments that only pay off if they scale rapidly, while the old ones are subject to a private-equity-style workout.

Making this tough shift requires surmounting the inertia that can afflict companies even in the best of times.12 In fact, our experience suggests stage three is the hardest one for incumbents to navigate. As company performance starts to suffer, tightening up budgets, established companies naturally tend to cut back even further on peripheral activities while focusing on the core. The top decision makers, who usually come from the biggest business centers, resist having their still-profitable (though more sluggishly growing) domains starved of resources in favor of unproven upstarts. As a result, leadership often under invests in new initiatives, even as it imposes high performance hurdles on them. Legacy businesses continue to receive the lion’s share of resources instead. By this time, the very forces causing pressure in the core make the business even less willing and able to address those forces. The reflex to conserve resources kicks in just when you most need to aggressively reallocate and invest.

Boards play a significant role in this as well. Far too often, boards are unwilling (or unable) to change their view of baseline performance, further exacerbating the problem. Often a board’s (understandable) reaction to reduced performance is to push management even harder to achieve ambitious goals within the current model, ignoring the need for a more fundamental change. This only worsens problems in the future.

Further complicating matters, incumbents with initially strong positions can take false comfort at this stage, because the weaker players in the industry get hit hardest first. The narrative “it is not happening to us” is all too tempting to believe. The key is to monitor closely the underlying drivers, not just the hindsight of financial outcomes. As the tale goes, “I don’t have to outrun the bear . . . I just have to outrun you.” Except when it comes to disruption, that strategy merely buys time. If the bear keeps running, it will get to you, too.

The typical traditional newspaper operator, likewise, wasn’t blind to a shift taking place, but it rarely managed to mount a response that was sufficiently aggressive. One notable exception was former digital laggard Axel Springer. The German media company was “a mere Internet midget,” according to Financial Times Deutschland, until it leapt into action in 2005. It went on a shopping spree, acquiring 67 digital properties and launching 90 initiatives of its own by 2013.13 Like Schibsted, it saw the value pools moving to online classifieds and made the leap. The lesson is that incumbents can win even with a late start, provided that they throw themselves in wholly. Today, digital media contributes 70 percent of Axel Springer’s earnings before interest, taxes, depreciation, and amortization. The core has become the periphery.

To generate the acceleration needed at this stage of the game, incumbents must embark on a courageous and unremitting reallocation of resources from the old to the new model—and show a willingness to run new businesses differently (and often separately) from the old ones. Perhaps nothing underlines this point more than Axel Springer’s 2013 divestment of some of its strongest legacy print-media products, which accounted for about 15 percent of its sales, to Germany’s number-three print-media player, Funke Mediengruppe. These products, such as the Berliner Morgenpost, owned by Axel Springer since 1959, were previously a core part of the corporate DNA and emblems of its journalistic culture. But no more. They realized that the future value of the business was not just about the continuation of today’s earnings but rather relied on the creation of a new economic engine.

When incumbents lack the in-house capability to build new businesses, they must look to acquire them instead. Here the challenge is to time acquisitions somewhere between where the business model is proved but valuations have yet to become too high—all while making sure the incumbent is a “natural best owner” of the new businesses it acquires. Examples of this approach in the financial sector include BBVA’s acquisition of Simple and Capital One’s acquisition of the design firm Adaptive Path.

Stage four: Adapting to the new normal
In this late stage, the disruption has reached a point when companies have no choice but to accept reality: the industry has fundamentally changed. For incumbents, their cost base isn’t in line with the new (likely much shallower) profit pools, their earnings are caving in, and they find themselves poorly positioned to take a strong market position.

dd 4This is where print media is now. The classifieds’ “rivers of gold” have dried up, making survival the first priority, and sustainability and growth the second. In 2013, the CEO of Australia media company Fairfax Media told the International News Media Association World Congress, “We know that at some time in the future, we will be predominantly digital or digital-only in our metropolitan markets.”14 True, some legacy mastheads have created powerful online news properties with high traffic, but display advertising and paywalls alone are for the most part not enough to generate a thriving revenue line, and social aggregation sites are continuing to drive unbundling. Typical media firms have had to undertake the multiple painful waves of restructuring and consolidation that may be needed while they seed growth and look for ways to monetize their brands.

For the incumbents who, like Axel Springer and Schibsted, have made the leap, the adaptation phase brings new challenges. Having become majority digital businesses, they’re fully exposed to the volatility and pace that comes with the territory. That is, their adaptation response is less a one-time event than a process of continual self-disruption. Think of Facebook upending its business model to go “mobile first.”15 You can’t be satisfied with the first pivot—you have to be prepared to keep doing it.

In some cases, incumbents’ capabilities are so highly tied to the old business model that rebirth through restructuring is unlikely to work, and an exit is the best way to preserve value. Eastman Kodak Company, for example, may have been better off leaving the photography business much faster, because its numerous strategies all failed to save it. When a business is built on a legacy technology that is categorically different from the new standard, even perfect foresight of the demise of film or CDs would not have solved the core problem that the digital replacement is fundamentally less profitable.

The simple fact is that new profit pools may not be as deep as prior ones (as many newspaper publishers have come to believe). The challenge is to adapt and structurally realign cost bases to the new reality of profit pools, and accept that the “new normal” likely includes far fewer “rivers of gold.”

The reality is, most industries are still in stages one, two, and three. That’s why the early experiences of media, music, and travel companies can prove so valuable. These first industries to transition to a digital reality highlight the social and human challenges that by their nature apply to companies in most every industry and geography.

Source: McKinsey.com, June 2016
By: Chris Bradley and Clayton O’Toole
About the authors: Chris Bradley is a principal in McKinsey’s Sydney office, where Clayton O’Toole is a consultant
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