Digital transformation’s first step

Most leaders we speak with are considering how to use digital technologies to improve business and financial performance. Research shows that digitally transforming a customer interaction or operational process can significantly improve bottom-line performance and enhance competitiveness. To exploit the potential of digital technology, the optimal strategy is to identify high-potential/low-risk opportunities, find enterprise-wide technological solutions and learn as you implement.

Digital business can be a game-changer. According to a multi-industry McKinsey study, digitizing the customer experience can boost sales and profits an average 20% over five years. From an operational perspective, leveraging digital technology can drive cost reductions, leading to a 36% improvement in profits after five years.

Digital technology can impact every facet of a company’s business model. Two areas in particular can yield significant value:

  • Improve the customer experience: Digital technology enables customers to get information and tools when they want it, as they want it. For example, the rapid rise of mobile computing has triggered major changes in buyer behaviour. Banks have responded by delivering their products and services through “always on” and data-driven mobile channels — and enabling more targeted and timely cross-selling of complementary products.
  • Automate manual back-office tasks: Digitizing boring, repetitive and error prone tasks can reduce cost and improve cycle times. One of our clients reaped major efficiencies by automating basic-level customer service (through enabling customer self-service) and the review and payment of expense reports.

Every sector can benefit from enabling digital technology. In fact, some of the necessary ingredients are already in place. Specifically, many firms already incorporate digital technologies like Big Data analytics, ERP systems, and cloud services. Unfortunately, these tools are often deployed selectively within a line of business or functional silos with little consideration paid to the bigger enterprise-wide impact, standards etc.

Nominate champions

Digital transformation can be the most difficult business shift many companies face; it is part technology adoption, part process redesign and part behavioural/cultural change. This transformation should be not undertaken without strong leadership at the C-suite and board levels; it is vital that these mission-critical initiatives have senior champions who possess an organization-wide and holistic customer view. Some firms have gone so far as to create the role of a Chief Digital Officers to lead digital efforts.

Understand the impact

The return on your digital investment can be compelling — and difficult to accurately estimate. Firms can not rely only on aggregated numbers like McKinsey’s; they need to undertake a wide-ranging business-case analysis that considers the full range of benefits including cost savings, improvements in customer satisfaction and higher cross-selling rates. The business impact should be measured through digital targets to evaluate progress and influence future investment and roll-out decisions.

Take an end-to-end view

Maximizing the value of digital requires a consideration of scope and scale that cuts across the firm. For example, automating sales activities will have important implications for inventory availability, product design and marketing channels. Managers also need a 360-degree view of organizational issues like available skills, cultural impact and change requirements.

In the above areas, we have found that companies need a detailed view of user needs and behaviour as well as formal and informal workflows. Digital transformation will often precipitate a need to refine processes, the nature of the service, and in some cases, the operating structure.

Carefully choose your opportunity

Leaders need to prioritize what to digitize. Trying to bite off more than you can chew may ruin the business case, quickly bog down implementation, and lead to conflict over scarce resources. On the other hand, having too narrow a focus may leave significant value on the table. Whatever the choice, managers must ensure the potential business value is compelling, the selected initiatives align to business priorities and they have the right resources and partners to execute. Leaders also have to accept that over time, some lines of business, activities or jobs will be displaced by digital technologies; these shifts — often sudden — can have important organizational ramifications.

Going digital is a journey. Hype may turn transformation into a sprint but in reality it should be seen as a marathon. Starting with a digital pilot is prudent for the technologically risk averse or inexperienced. In some cases like iTunes or Netflix, digitally transforming a product may call for a totally new business model. Managers will maximize digital’s value when they: select “low hanging fruit” opportunities, prudently invest based on the right risk/reward profile, get their workflows optimized and ensure the right resources and change methodologies are employed.

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

Getting started with Big Data

Leveraging Big Data can help every company significantly improve competitiveness and financial results. At the same time, poorly conceived and executed initiatives can lead to wasted investment and organizational distraction. Not surprisingly, the question of how best to reap the benefits of Big Data is triggering extensive deliberations in many companies. What is ‘best practice’ in launching a Big Data strategy?

Big Data is a set of activities for collecting and analyzing various types of data located within and outside the organization. The insights derived from this analysis are used to enhance business performance such as boosting advertising efficiency, improving supply chain responsiveness or improving service levels.

Most large companies are already in the Big Data business. The amount of data collected is growing exponentially thanks to the digitization of virtually every customer and operational interaction. In a typical Fortune 500 firm, terabytes of data are being amassed through regular business activities such as point-of-sale transactions, barcode tracking, web traffic or social media communications. This data torrent – when properly mined — affords management a valuable opportunity to learn about consumer behaviour or internal operations, enabling them to optimize tactics for better performance. At the same time, realizing the Big Data vision presents significant technical and organizational challenges. These challenges can increase the chances that managers will embark on expensive or poorly designed initiatives – or become paralyzed due to complexity.

In our experience, the best way to get into Big Data is to start with a sensible roll out plan and leverage best practices. This plan should consider four key elements:

1.  Data

Any plan should begin with a review of the relevant internal and external data, according to the 4 Vs: volume (the amount of data and its location); variety (types of data, both structured and unstructured); velocity (how quickly the data changes) and veracity (the accuracy and availability of the data). In many firms, data is siloed by function or business line; is not standardized and; it comes in various stages of completeness. Getting quality data can be difficult and time-consuming. It may be desirable to outsource this data integration and clean up to specialist firms who can make it ‘analytics-ready.’

2.  Hypotheses

It is easy to get side-tracked if you dive right into analysis without any strategic guideposts. Not all insights are equally important. Like other major initiatives, it is essential the Big Data effort links to business priorities and metrics. One way to do this is to start with a limited number of pilots based on specific hypotheses that directly impact strategic goals. Successful pilots can generate early wins that justify further investment, and can produce important insights around the business, as well as test out first generation capabilities.

3.  Analytics

To effectively and efficiently mine the data, the team should carefully choose the appropriate analytical methodology or model for each business problem. The analytics will vary whether the goal is workflow optimization (e.g., minimizing inventory levels, delivery times) or predictive analytics (e.g., anticipating consumer behaviour, forecasting events). However, managers can easily over-speculate on solutions, choosing costly and complicated tools that require expensive or scarce talent. Judicious CIOs will take a “great is the enemy of good’ approach to choosing their models and depth of analysis.

4.  Capabilities

Many IT environments are not conducive to quick or easy Big Data deployments. These infrastructures can be a heterogeneous mix of new and legacy hardware & software, lacking in data standardization and centralized control. To exploit Big Data opportunities, firms will need a unique combination of data experts, software tools and management capabilities as well as supporting governance practices. This capability should be developed with practicality in mind. Initially, CIOs could outsource Big Data needs to a cloud-based analytics service limiting upfront investment and accelerating time to value. Over the long term, the organization can look to develop world-class capabilities through employing specialized talent, bespoke software tools and private cloud architectures.

As with other strategic initiatives, a prudent way of getting into Big Data would be to start small and target actionable insights. Ongoing attention should be paid to ensure the learnings are understood by the staff and implemented into existing workflows. Where necessary, new processes or practices may be needed to fully leverage the insights. Learning by doing will prompt managers to connect different analytical models together to address wider problems that span functions and business units.

Firms that are winning with Big Data are often the quickest out of the gate with a practical plan, based on a thorough understanding of their data, staff and IT environment. Big Data will be a game changer for companies who can deploy the right analytics and capabilities against their most pressing business issues.

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

Building a high performance culture

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

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

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

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

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

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

1. A shared vision & values

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

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

2. Free flow communications

Powerful cultures feature high levels of communications

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

3. A right-size organization

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

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

4. Commitment to employee growth

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

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

5. Merit-based performance management systems

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

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

6. Comfort with change

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

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

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

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

Blockbuster innovation

Companies could learn much about innovation from the Spanish general, Hernan Cortes.  In 1518, Cortes was instructed to sail to Mexico and overthrow the Aztec empire. According to the story, he proceeded to scuttle his boats after putting down a mutiny of some of his staff. This sent a powerful message to his soldiers that there was no retreat. They would conquer Mexico or die in their efforts. History judged his decision successful (if not immoral). His small army of 500 soldiers conquered the country in a mere two years.  What management lessons can be gleaned from this historical episode?

An “all or nothing” strategy seems counter-intuitive when looking at the best way to commercialize risky innovations.  Conventional wisdom says that launching small, measurable experiments or pilots is the best, lowest risk approach to introducing new products or technologies. Though this seems like a prudent tack, it has not necessarily produced market wins. Numerous studies show that the success rate for new products has stubbornly hovered around 10-20%. Fortunately, there may be a better way to commercialize innovation.

A professor at Harvard Business School, Anita Elberse, has studied creativity-driven industries like music, sports, movies and publishing.  In her book Blockbusters, Elberse found that the companies with superior financial returns had strategically focused their efforts and capital on producing movie blockbusters, recruiting superstar athletes or signing popular authors. To use a baseball metaphor, these firms always swing for the fences instead of playing it safe trying for singles and doubles. According to her data, these industries exhibit a ‘winner take all’ dynamic; less than 10% of projects, teams or entertainers produced more than 90% of industry revenue and profit.

In “winner take all” markets, the best strategy is to singlehandedly aim for blockbuster products.  The best way to do this is to focus investment and management attention on proven entities, assets or projects, like a movie sequel, a superstar free agent athlete or a popular book franchise.  Funding a limited number of major innovations is not enough. You also need to front-load your sales and marketing effort to boost initial channel distribution and trigger word-of-mouth effects. Elberse considers a blockbuster strategy a lower risk approach because it improves the odds of success early on and enables firms to cut their losses if results do not pan out.

Applicability to other markets

While Elberse studied the creative and sporting industries, other information-driven sectors may experience similar blockbuster dynamics. Industries with high fixed costs, a low marginal cost (when producing more) and a high marginal profit (on each additional sale) can quickly evolve into “winner take all” markets, particularly when digital technologies reduce customer search costs and eliminate the need for physical proximity between the buyer and seller. There are many reasons for all CEOs to consider this approach for their business:

Rallying the troops

Big innovation bets focus employee and supplier attention, create positive urgency and prevent individual or departmental agendas from stealing resources. 

Reduces complexity

Many R&D projects, particularly small ones, can develop institutional momentum making them difficult to cancel.  Managing this portfolio can generate significant complexity, increasing organizational cost and diffusing effort.  A blockbuster strategy eliminates these wasteful costs plus allows managers to best leverage scale economies in areas like media buying and raw material purchases.

Satisfy real customer needs

Movie studios concentrate investment and time on stories, actors and directors with proven consumer appeal (e.g., a sequel).  The discipline of only targeting key customer needs in profitable segments with real innovation improves the chances of market success.

Elberse’s learnings are relevant to many other industries including education, training, professional services and software. However, not every firm is a good fit. We believe enterprises should have three characteristics:

1.  Self-awareness

Companies that are good at placing the right innovation bets tend to have a good sense of what their core competencies are and where they need to partner or bypass.

2.  Decisiveness

Though having a good innovation evaluation process is important, management still needs to make tough calls quickly in periods of uncertainty.  Moreover, following a blockbuster strategy requires firms to have a culture and performance measurement system that is tolerant of failure.

3.  Nimbleness

Rigid plans lead to risky, binary decisions. Even in the movie industry, extensive consumer research still takes place.  Producers don’t hesitate to make edits or change endings based on focus group research.

Utilizing a blockbuster approach goes against conventional wisdom.  However, there are many examples of hurting companies like AppleIBM and Xerox that followed this strategy and have re-emerged as winners.  Managers should understand their operational dynamics, consider the strong financial business case, and analyze the impact of digital tools like search bots or recommendation engines that create “winner take all” effects.

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

Marketer as anthropologist

Many companies prioritize learning customer needs above any other marketing activity so that they can create better products and service experiences. Typically, marketers will use traditional qualitative techniques like focus groups, surveys and one-on-one interviews. Unfortunately, these tools often fail to generate breakthrough insights. Standard qualitative methods are good at telling firms what is happening but not the why it’s happening. To get to the root cause of a consumer’s actions, marketers need to explore the recesses of their mind to identify subconscious drivers of behaviour. Anthropology is a very effective way to do this.

Simply put, anthropology is the study of people and civilization, past and present. It incorporates teachings from a wide range of disciplines, from psychology and biology, to the humanities and sociology. Anthropology is increasingly being used by companies (Starbucks, Lego, Herman Miller and Nokia are pacesetters) to better understand latent consumer needs and as well as societal and religious influences on their behavior.

In action

The following example shows anthropology in practice. A firm in the spa industry engaged us to help redesign its customer experience and service offering for female patrons. The client wanted to address any unmet customer needs and better differentiate their customer experience. Conventional research techniques regularly produced muted feedback, which led to copycat store designs and products. We wanted to go deeper into the consumer’s subconscious to find unmet needs and drivers that triggers behaviour. To get there, we employed anthropology to probe fundamental beliefs and values around their body image and wellness as well cultural influences. For example, how do women define beauty?  What role does human touch play? And, how can a spa experience help satisfy a women’s intrinsic needs? Our findings upended conventional thinking and led to a revamping of how the facilities were designed and how the services and benefits were communicated, resulting in higher client retention, an enhanced brand image and increased rates of cross selling.

Conventional qualitative research techniques take people at their word. This can be risky for brands.  At their core, consumers are often irrational, driven by motives or external influences that are unseen even to themselves. Using anthropology as complementary research can produce a more holistic and penetrating view of the consumer in their real life condition. Likewise, anthropology’s rigorous, academic-driven methodology preempts the emergence of erroneous assumptions around a customers’ behaviour that could have been shaped by a firm’s culture, the bias of its managers, or increasingly, the large but imperfect data stream flowing in.

Anthropologist have a number of data-collection instruments at their disposal including artifact analysis, quotidian diaries, and observational studies. Importantly, practitioners approach their research without hypotheses, gather­ing large quantities of information in an open-ended way, with no preconceptions about what they will find. The collected data is raw, personal, and first­hand — not the incomplete or artificial version of reality that is generated by most market research tools.

Anthropology is particularly helpful in understanding the dynamic world of social media. “Companies are beginning to use anthropology to understand the stream of consciousness within social medial that flows with ‘here’s what I’m doing/thinking/wanting now,’” says Lynn Coles a leading marketer. “Anthropological research helps us better understand and inhabit the social communities to identify behavioral patterns as well as the emerging dialect within a particular community so we can better communicate with our target consumers.”

Basic approach

1. Frame the issue

Anthropology requires the marketer to frame the problem in human — not business — terms. Doing so gets to the core of how a customer experiences a service or product. For example, a business problem could be:  How can a wireless provider reduce churn? The corresponding anthropological issue would be: How do our customers experience our service, and why are they leaving?

2. Assemble the data

The raw data is codified in a form of carefully organized diaries, videos, photographs, field notes, and objects such as packages. Although this open-ended data collection casts a very wide net, it requires a disciplined and structured pro­cess that needs to be overseen by anthropologists skilled in research design and organization.

3. Find patterns, insights

The anthropologist then undertakes a careful analysis of the data to uncover themes or patterns. When organized in themes, a variety of insights will emerge about how a customer feels, their goals and what drives their actions.

Of course, traditional quantitative and qualitative research methods have their place and should remain part of a marketer’s analytical tool kit. However, anthropology will play an increasing role in uncovering the consumer’s subconscious needs as well as societal/religious behavioral drivers, areas that are largely impervious to standard qualitative techniques. Producing this holistic view will allow marketers to design more relevant products and services that deliver higher value.

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

Preempting strategic decline

For the last five years, companies have been struggling to cope with stagnant growth, shrinking margins and reduced product differentiation. The next five may be downright dangerous, especially given today’s powerful headwinds. For some organizations like Volvo, Canada Post, Barnes & Noble and Olympus, their very reason for being is increasingly in doubt. To prosper, all companies need to soberly assess whether its time for a strategic reset — before it’s too late.

A strategic reset is a deliberate (but not rash) pivot away from a stagnant market towards new growth market(s), often driven with a revitalized business model and management practices. Resets are often needed for mature brands, divisions and even entire companies. Many firms like IBM, Cisco, Apple and Xerox have adroitly managed these pivots while others like Blackberry, The Wall Street Journal, and Live Nation are currently struggling to pull them off.

Symptoms of decline usually include deteriorating financial returns, limited pricing and channel power and high levels of customer dissatisfaction. According to our experience and research, firms should start worrying if they find themselves facing:

Falling market attractiveness: The size of the market by revenue and volume is flat or declining. At the same time, your costs continue to grow leading to shrinking margins.

Minimal brand differentiation: Customers perceive little, meaningful difference between products and tend to switch often.

Looming external threats: Large markets are appealing for disruptors when barriers to entry are falling and incumbents appear complacent.  New players (think Apple’s iTunes circa 2003) unencumbered by legacy assets or culture can exploit new technologies and channels to leapfrog incumbents and reorder markets to their advantage.

An underperforming business model: In many cases, your business model is not delivering a sustainable competitive advantage. For example, your patents have expired or have been bypassed; it is difficult to maintain cost competitiveness or deliver meaningful product innovation; and, finally, the way you create value has become obsolete due to industry developments like the emergence of open-source software.

The strategic danger is further magnified by the economic realities of the day such as globalized competition, increasing regulation and the rapid dissemination of new ideas. Declining internal performance combined with this dynamic environment can create a perilous situation where adverse changes in a firm’s competitive position can come quickly and out of the blue.

Yet, decline is not inevitable and management is not powerless. The saying “adversity brings opportunity” holds much truth. Many firms — even those on life support — will still retain key competencies and assets such as intellectual property, customer relationships, cash reserves, trusted brands and institutional knowledge that can be leveraged into other products and markets. Moreover, a fear of decline can be a powerful wake up call for organizational transformation.

To strategically reset their business, we recommend CEOs follow these six steps:

Acknowledge the strategic challenge: All executives need the facts and courage to face reality, as well as the alignment and perseverance of the organization to move forward.

Know your core competencies: Pivots are easier and faster to execute when you leverage your core capabilities. It is vital to understand what these are in terms of skills, assets and market relationships.

Find a winning value proposition for an appealing market: Recognizing your future is not an easy process and should be undertaken as an iterative strategic and innovation process, not a static exercise. Not surprisingly, successful pivots will target your existing customers in existing or new segments.  You will need to deeply understand their current and unmet needs to fashion a powerful, new value proposition.

Redesign your model: Winning in your target market will often require a re-tuned business model to profitably deliver your new value proposition. To move forward smoothly, it may be necessary to cast aside traditional management practices such as how you determine ROI, organize your staff and measure results.

Move boldly but prudently: A reset involves a balancing act between safeguarding current revenue and investing and re-organizing around a new business. Furthermore, it will not always be clear where the next home run will be. Savvy managers will test a lot of promising innovations before making any big bets. Given the risks and urgency, firms will need to foster world-class execution efforts.

Nothing breeds complacency like success. The CEO and board cannot let this happen. It is better to manage your destiny than wait for events to overtake you. A strategic reset, however, will take guts and guile. Most managers will find it easier to ignore realities and resist change than to embrace it. A healthy first step is to recognize that renewal is about building a bridge to the future without burning the bridges from the past.

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

 

Banking goes digital

The banking industry is changing, whether it likes it or not. In the past, the business was driven by capital-deployed, risk-management competencies and branch coverage. The financial meltdown of 2008, however, changed much of that. The sector now features low growth, increased regulations and leverage limits. To make matters more complex the emergence of digital technologies is transforming the way customers want to deal with banks and opening up market opportunities for aggressive and focused competitors. Increasingly, banks will need to address this “new normal“ by enabling their customers with “any time, any place” digital capabilities and capitalizing on Big Data insights that come from mining the reams of daily customer and operational interactions.

Despite the rise of transformational technologies, bankers in 2014 run their businesses pretty much as they did in 2008. Most of the executives we speak with continue to hope that traditional profit drivers — high fees, exchange-rate volatility and a growing economy — reassert themselves. However, hope is not a strategy especially when consumer behaviour has fundamentally changed.

The arrival of mobile computing, social media, digital payments, and web-based, face-to-face communications like Skype have radically changed the way people buy products and interact with organizations. Not surprisingly, these technologies have created opportunities for disrupters to enter the sector with low-cost, focused offerings unencumbered by legacy business models. In the United States, for example, Walmart has introduced reloadable pre-paid offerings that act like checking accounts. PayPal and Bitcoin are now enabling payments outside the banking system. Covestor links individual investors with portfolio managers who meet their investment needs.

It is bewildering how slow many financial institutions have been in adopting digital technologies and exploiting Big Data, compared to other industries. For example, while music stores, electronics stores, and other retailers have reduced or even eliminated physical distribution, large banks have expanded it. Many blue-chip firms like Cisco, Walmart and IBM already employ Big Data and mobile strategies to deliver new services, streamline their operations and reduce cost. If banks want to compete better and protect their franchise, they need to act more like mobile and digitally driven competitors like Apple, Google and Facebook — who not incidentally command much higher market capitalizations.

TD recently identified digital transformation as a corporate priority, and built capabilities back from the customer’s needs and desired online experience. “When we’re working on new online or mobile banking features, we put ourselves in the customer’s shoes to see things from their perspective, says Rizwan Khalfan, senior vice-president, digital channels, TD Bank Group. “We know customers are quick to adopt new ways to bank that make managing their finances simpler. It’s not just about paying a bill on your mobile, it’s about creating a great customer experience across all our distribution channels.”

Prudent bankers are starting small, testing extensively and then boldly scaling. Khalfan says, “When we launched the ability to deposit cheques using your mobile phone in the U.S., we spent time perfecting the little features that will make it an overall better experience. We know it’s hard to hold your phone and take a photo by pressing a small button, so on our app, customers can press any part of the screen to take a photo of the cheque and the photo won’t be taken until the camera has focused properly. We’ll be leveraging those learnings when we roll out that capability in Canada later on this year.”

Across the pond, British bank Barclays is taking a bold approach to digital transformation. Its strategy is to use technology to get closer to customers and simplify their lives. In order to become the “Go-To Bank” for consumers, the firm rapidly launched some breakthrough services like Pingit (Euorpe’s first mobile payment app) and CloudIT (a cloud-based service that allows consumers to store documents and photos online). When launching Pingit, Barclay’s dispensed with their traditional multi-year business case. Mike Walters, head of UK Corporate Payments, was recently quoted in The Economist as saying: “The rate of change in mobile app technology is so fast that the best thing for us is to be aware of our customer trends, and then be fast to execute.”

Without a sustained top-down commitment, change won’t come easy or quickly. Traditional business and IT models, low digital literacy among many executives and a risk-averse culture will slow down digital adoption in some areas. Yet, bankers don’t have a choice if they want to protect their franchise and find new avenues of growth. They would be would be wise to heed the words of well-known British philosopher Allan Watts: “The only way to make sense out of change is to plunge into it, move with it, and join the dance.”

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

Fixing strategic procurement

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

Penny wise, pound foolish

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

1.  Barriers to cost reduction

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

2.  Reduced innovation & choice

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

3.  Hamstringing operational performance

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

Gaps in implementation

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

Reinvigorating the model

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

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

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

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

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

6 Big Data Mistakes

Big Data is all the rage across many enterprises.   The potential payoffs are compelling.  For example, research out of MIT found that firms leveraging Big Data  achieve, on average, 5-6% greater productivity and profitability than their peers.  McKinsey calls Big Data a game changer for sales and marketing along with other areas of the business. But like anything else, getting the most out of data means knowing what not to do. Companies looking to extract value from their terabytes of data should make sure they avoid the following 6 mistakes.

Boiling the ocean

Big Data can be big work. It is easy to burn through a lot of time and cost finding insights that don’t materially address major business challenges like getting closer to customers or improving operational performance. One way to ensure value is to ask research questions whose answers will directly impact key corporate goals. This focused method also enables your company to ‘learn as they go’ and develop quick wins that justify further effort and investment.

Only considering data in silos

In many organizations, the majority of data resides in functional areas or business units — not in an enterprise-data warehouse. Only analyzing siloed data reduces your chances of finding key insight that can affect a company because you are limiting the number of variables and quantity of data under consideration.  However, bridging these silos is easier said than done; organizational and data issues may hinder an enterprise-wide data mining effort. In other cases, managers often limit their analysis to existing digital data. This approach could miss out on insights that are discovered when analog data (such as social feedback and qualitative research) is ‘datafied.’

Ignoring bias

There are good reasons why Big Data resembles science. The analytics can be challenging and methodological errors are not uncommon. “There is significant risk of the analytics being wrong,” says Neil Seeman, founder & CEO of global online data collection firm, The RIWI Corporation. “Systematic bias can easily slip into enormous data sets. Or, not understanding unknown bias in the data set results in false conclusions. Case in point was the early analysis of large HIV data sets; this did not consider the influence of intravenous drug use.”

Focusing on cause instead of correlation

Understanding precise cause and effect is difficult and impractical. What’s more actionable is uncovering correlations — patterns and associations that help predict what will happen next time. Managers should be mindful of looking for and expecting data perfection. For example, the shelf life of market-based insights could be measured in days or even hours. Often it is better to quickly make decisions with 80% confidence in the data than to wait for perfection farther out in the future.

Disregarding qualitative knowledge

Data analytics can deliver many insights but it often cannot tell the entire story. Take the drivers of consumer behaviour as an example. It is difficult to comprehend what drives action without looking at qualitative research tools like behavioural psychology or anthropology as well as expert opinion. These tools should be used to fill in knowledge gaps.

Forgetting about instinct and creativity

At a certain point in the future, the leaders in each sector will have comparable Big Data capabilities and access to the same data. To wit, the Open Data movement is making terabytes of the same data available to everyone. Like other innovations, the greatest returns will flow to those who use the tools and methodologies in the most creative way. As well, management instinct will continue to play a key role in setting Big Data priorities and figuring out how to combine disparate information into more powerful conclusions.

A dangerous assumption made by some companies is to think your entire team should be made up only of credentialed “data science” experts. According to Seeman, “Experience in this fledgling field of data science often eclipses the value of fancy degrees from prestigious universities. What are needed are curiosity seekers with demonstrable experience in pattern recognition and exploiting data for real value. In my case, everything I learned about Big Data came through experimentation, failure, and asking really dumb questions — through efforts to solve the problem of how to collect a unique data stream from every country and territory in the world.”

Big Data is still in its infancy. The first cases studies are still being written. Of course, success will be a product of a strong top-down mandate, having sufficient resources and working with competent partners. At the same time, managers should be mindful of hamstringing themselves by not following a common-sense and continuous-learning approach to project design and implementation.

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

Creating great customer experiences

Creating great customer experiences — what leaders like Disney, Zappos and Nordstrom do on a consistent basis — is one of the few areas left for companies to differentiate and generate good margins. Making it happen, however, is easier said than done; fundamentally, it is a people issue.  How do you get employees to go beyond the call of duty to regularly exceed customer expectations? By empowering them to develop emotional connections with each customer.

A great client experience can happen wherever an organization interacts with a customer. And, it is not limited to face-to-face interactions or front-line staff.  Zappos, an online retailer, provides great experiences through call centres and online dealings. A great customer experience is hard to pin down because the definition of “great” and “experience” are tough to define.

“Clients see good service as table stakes,” says Kathy Kenny, assistant vice-president of product management information delivery at investment-servicing company CIBC Mellon. “They expect us to consistently go above and beyond, anticipate their needs and turn every request into a value-added interaction.”

In general, a wonderful experience has many elements including proactively solving a customer’s problem, delivering unique value and exceeding their expectations.

Here’s an example. A modestly sized client of a private bank was on vacation during a massive rainstorm that had pummeled the city. On his own accord, a representative of the bank did a drive-by of the house and found a large tree was poised to fall on it. The bank employee, on his own, engaged a tree service to fix the problem, informing the client after he returned home. The employee didn’t consult a script or seek advice from a manager. He went the extra mile because it came naturally to him and that was the organizational expectation. The bank’s management believes creating these kinds of experiences — and not financial returns — is the key reason why it enjoys virtually 100% client retention even with above-average management fees.

The difference between a successful transaction and a great experience is the presence of an emotional connection — a happy, content and trusting feeling — between the parties. These connections should occur across the entire customer journey — not just at selected touch points. Research, cited in the Harvard Business Review, found emotionally engaged customers are typically three times more likely to recommend a product and to remain brand loyal (though this is debatable). How do you develop customer-pleasing staff?

Hire for attitude

Emotionally engaging and passionate workers do not materialize out of thin air; they emerge through a strong recruiting process that provides a regular stream of suitable employees. Experiential leaders like Apple and Southwest Airlines use psychological testing and group interviews to see how people treat each other and communicate.

Set lofty expectations, and reinforce them

Management should set high expectations for how they want their customers treated. However, employees won’t take care of customers if they are not trusted, treated with respect or listened to through formal and informal mechanisms. Importantly, management also needs to regularly and visibly reinforce these expectations and positive behaviors.

Encourage emotional connectedness

Despite advances in technology, engaging customers and solving their problems is still largely undertaken through personal contact. Emotion is the grease that more easily facilitates this interaction. Staff members have many ways to introduce emotion including taking ownership of issues (rather than blaming others), displaying empathy, being proactive and always exhibiting good interpersonal habits (e.g., shaking hands, keeping eye contact, and being active listeners).  Organizations should also look toincorporate tenets of behavioural psychology in their service models.

Get out of the way

When people have clear expectations and are trusted to do their jobs, they feel valued and empowered.  As a result, they are more likely to connect emotionally with the customer.  Rules and metrics are helpful but can be detrimental, especially if they stifle creativity and skew behavior.

Capture and share best practices

Great experiences often arise from creative problem solving at the front lines.  These learnings should be captured and shared to improve overall corporate performance.

Of course, motivated employees need supporting technology and operational systems to fulfill their promise. In some cases, companies may need to redesign their service models. However, these can only go so far in delighting customers and producing an experiential advantage. However, firms need to empower motivated front-line staff so they can emotionally connect with customers at every touch point to achieve this end.

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

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