Archive for November, 2011|Monthly archive page

Social media for the C-Suite

By now virtually every CEO acknowledges that social media technologies are a fact of life and must be considered when developing corporate and brand strategy. In 2011, we reached out to a number of leaders in the industrial goods, financial services, and healthcare sectors to discuss how SM will impact their businesses.  These B2C and B2B firms, already engaged in modest SM marketing, were considering their next level of engagement.  Our conversations cut through SM’s hype, pointed to future areas of value and brainstormed implementation best practices. Below were some of their insights:    

Nothing changes…

While acknowledging its potential, the executives were clear that SM should not detract from what really matters – building, marketing and servicing differentiated and high margin products.  Program ROI is still important, perhaps even more so given the tough economic climate.  Although SM opens up new possibilities to engage customers directly, it remains at the end of the day just another channel.  This group viewed SM in an evolutionary light, whose value will unfold over time but after fits and starts.  They drew parallels to the rise, dashed expectations and rise again of e-commerce, whose emergence did not do away with physical stores.

…But don’t bury your head in the sand, either

Given its hundreds of millions of users and real-time nature, the leaders recognized that SM can have a major – both positive and negative – impact on the brand and their business model.  For example, SM could be a powerful tool for CEOs to magnify and tailor the corporate brand message to different audiences.  Conversely, the CEO can use SM to quickly and directly mitigate bad press and reduce reputational risk. Instead of receiving biased customer feedback from within their organization, senior leaders can leverage SM to collect unfiltered and real-time feedback to customers, partners and employees.

Visionary managers view SM’s potential beyond marketing and brand-building.  For example, some firms are enlisting internal and external communities to provide expert and timely customer service and decision-making support.  In another case, traditional recruiting practices are being disrupted by automated searches within LinkedIn and Facebook’s community of 750M+ members.

Despite the possibilities, none of the executives really knew where these technologies were headed and or how to permanently embed SM practices within their organizations.  To this end, I have assembled below some of our firm’s our best practices, all of which center around the management’s level of  commitment, resourcing and alignment.

1.         Show leadership

If SM is going to play an important role in the company, the CEO must explicitly establish SM’s strategic priority, goals and values. As a new, unproven initiative, SM often runs the risk of losing momentum and internal focus. CEOs should authorize the creation of measurement systems to quantitatively and qualitatively track program impact and market feedback.  To ensure that efforts deliver maximum customer impact,  the C-Suite should ensure that SM strategies are properly funded and staffed.  As well, it is vital that SM communications and programs reflect corporate values and are perceived by its audience as authentic, compelling and relevant.

2.         Prime the organization

Senior leaders must oversee the development of structures and policies that enable SM strategies while ensuring proper governance and internal compliance.  After all, no CEO wants an internal tweet showing up in the NY Times.  At the same time, management should be careful not come across as ‘Big Brother’ in directing and monitoring personal social media efforts.  When developing SM programs, care should be taken to ensure that key information circulates freely across the organization and that these initiatives are designed and managed through a cross-functional lens.   

3.         Test, refine and re-launch

When it comes to new technologies, there is no better way to gain learnings than to jump right in.  The most successful SM pioneers began with an executive-sponsored, cross-functional pilot.   This approach enables managers to better match program requirements with market opportunity and to cope with the deluge of market feedback – for example, deciding on whether some customer opinion is crucial or merely a nice to have.  The C-suite needs to play an ongoing role in guaranteeing that solid initiatives receive adequate funding, and that all learnings are communicated across the organization. 

A ‘walk, don’t run’ approach not only generates critical insights but it also allows firms to carefully review new business practices that may enable them to leapfrog competition.  These breakthrough areas could include crowdsourcing collaboration strategies, developing new gamification models that build consumer loyalty or creating new ways of catalyzing internal change.   

SM can appear scary but it’s really not.  The platforms and tools are not overly complicated, just  overly hyped, rapidly changing and often misunderstood. To successfully leverage SM, CEOs must provide consistent leadership while ensuring that internal efforts maintain strategic clarity, receive sufficient resources and reflect a learning culture.

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

The best way to reduce labour costs

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

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

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

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

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

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

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

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

Implement consistent compensation policies

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

Align job responsibilities and job categorizations

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

Retool exit strategies

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

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

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

Revenue strategies for a zero growth world

A ‘new normal’ is hindering the revenue generation plans of many North American firms. This climate is characterized by zero (or negative) market growth, margin compression, and cutthroat global competition. Historically, price increases would be a manager’s number one weapon to drive incremental revenue. In this environment, however, it is extremely difficult to do this and still maintain market share. Moreover, most attempts to drive revenues through new product innovation end up failing. And, most markets continue to experience downward price pressure due to product commoditization and a growing private label segment.

To crack their revenue problem, managers should look to other industries for lessons on what works, as follows:

Go where the profit is

Many companies are discovering that higher margins and profits may lie, not in their delivered product or service, but in ancillary services that consumers need and competitors ignore. For example, Apple quickly figured out that its iTunes music service was easily as profitable, scalable and “sticky” with consumers – to the tune of $1.5B in revenues – as selling MP3 players and computers. Rolls-Royce, a leading jet engine manufacturer, discovered that servicing its engines and providing spare parts delivered higher margins and more predictable revenues than engine sales alone. Services now account for over 50% of Rolls-Royce’s revenues.

Super size your solutions

Managers understand that providing products and services deliver higher revenues than products alone. However, what is different today is the nature of these newfangled solutions. Industries as diverse as professional services, transportation, publishing and retail are creating novel solution bundles that take their businesses in new directions. For example, IBM, UPS and Amazon are leveraging their considerable IT and supply chain capabilities to offer client’s innovative performance enhancement solutions that include services like data analytics, consulting, cloud computing services and logistics management. For providers, these new solutions can improve operating leverage, deliver recurring revenue and increase client stickiness. At the same time, these new solutions are subtly redefining the provider’s mission and business model turning them away from a product-focus to an information and IT-driven businesses.

Monetize your latent assets

Content-based firms are beginning to mine the dormant value of their assets, brands and capabilities. Specifically, media companies are evolving from content producers to content custodians and facilitators. For example, leading publications like Bloomberg and The Economist have begun charging higher fees for their subscriptions and have enacted online pay walls. Importantly, they are also exploiting their extensive content and analytics capabilities to deliver research and knowledge leadership services.

Consider new pricing models

Pricing innovation can be cross-pollinated across many sectors. A variable pricing model – where the price changes in real-time based on demand, time or other factors – already proven in the airline industry can be applied to the hospitality, retail, software and entertainment industries. For the past decade, the big aircraft engine companies, including RR, has been providing engines at no charge but billed on a pay-per-time basis (plus support, of course). More than 80% of RR’s engines are now sold this way. New micro payment models like Zipcar (subscription-based and hourly car rentals from staggered locations) and iTunes (purchase 99 cents songs versus more expensive albums) allow consumers to purchase things in small increments from multiple parties, based on their unique needs. Very often, this model spurs product demand, delivers higher margins and increases revenue per use.

Pricing innovation can significantly impact a company’s business model. For a gaming firm like Microsoft, a change could involve the shift from a single X-box game launch every 1-2 years to a 365-day business, with packaged good launches sustained by frequent updates, downloadable content and extensions into social and mobile platforms.

Raise your prices

Contrary to conventional wisdom, it is possible (and essential with rapidly increasing input costs) to raise prices in low growth environments. However, managers need to be smart about how and where they do it. Opportunities to increase prices often exist in sleepy or price inelastic product categories where the firm faces weak or non-existent competition and channel partners, where their pricing is not aligned (i.e. it is too low) with value delivered or where the switching costs of leaving one supplier for another are high.

Organic revenue growth is very possible if leaders are willing to rethink their business model, better understand their customer’s needs & habits, and refine their product and service offering. All that is needed is curiosity, an analytical approach and courage.

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

Are you ready for Web 3.0?

The Internet is poised for another revolution with the onset of Web 3.0 technologies.   The Web 3.0 world integrates relevant search, location-based services, mobile enablement and rich social interaction in a single online experience. This new paradigm, according to British technology thought leader Conrad Wolfram, is where “the computer is generating new information” rather than people.  A Web 3.0 environment dramatically enhances the user experience and delivers rich advertising and promotional opportunities for marketers – if companies can get the business model right.

The Web on Steroids

Web 3.0 technologies hold great promise.  Lets take the example of a 30-something planning their second trip to London.  Like many people, they begin their hotel search with Google and a recommendation site like Trip Advisor.  Quickly, they are inundated with hundreds of pages of hotel links to sift through –  a daunting task that often ends in frustration.  Thanks to sophisticated algorithms embedded in Web 3.0 tools, the hotel search would automatically generate a list of 4-6 relevant options based, for example, on their friend’s Facebook recommendations, where they have stayed before, and what people are saying on Foursquare. 

Changing the rules

At its core, Web 3.0 applications use automated personalization and semantic analytics to filter mass amounts of data to generate its relevance-based content. Pertinent information is the goal:  users quickly want content they can use.  A filter would be based on personal needs, tastes, relationships, location and social currency. This is a radically different paradigm than the current Web 2.0 environment where user-driven, volume-heavy search leads to declining relevance as scale increases and tastes become more important. For example, it is no longer germane who 5000 people think has the best pizza in Chicago; it is who my 10 friends think has the best pizza and how we share the gastronomic experience online.  Ethan Beard, Facebook’s director of platform partnerships, asserts in a Knowledge@Wharton newsletter that “a fundamental shift is taking place online, from an information-based web to the people’s web.” 

Platform symbiosis

Given the infancy of these technologies, it is difficult to predict how Web 3.0 will turn out.   The Web 3.0 ecosystem will likely include an integration of various platforms, environments and tools, including:  the convergence of the virtual and physical world;   an applications layer that includes TV-quality open video, 3D simulations, and augmented reality;  human-constructed semantic standards, and pervasive broadband, wireless connectivity and sensors (e.g., video recorders, cameras). In many cases, Web 3.0 applications will be an extension of existing social media (e.g., Facebook), geosocial networking (e.g., Foursquare) and augmented reality (e.g., Layar) platforms.

Tread carefully

Despite its potential, most organizations will approach Web 3.0 carefully.  Like  other transformational technologies, managers will struggle with how to understand, value and then deploy these new tools.  Some leaders will question – with good reason – the ability of Web 3.0 applications to deliver on their personalized, relevance-based promise due to the vastness of the web, the challenge of working with vague concepts such as “good” or “economical” and the likelihood of inaccurate content negatively impacting results.    Not surprisingly, many users will resist organizational plans to leverage their personal information, buying patterns and recommendations.  Furthermore, people will retain legitimate concerns around the privacy and security of their data.

Although in its infancy,  the move to a Web 3.0 world is clearly underway.  This change is bound to make the online world more exciting or more perplexing depending on your vision and experience.

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

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