Archive for the ‘Communications & Telco Industry’ Category

6 steps to transformation

To everything, turn, turn, turn.

There is a season, turn, turn, turn.

And a time to every purpose under heaven.

The Byrds

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

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

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

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

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

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

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

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

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

6.  Course correct the plans and activities when necessary.

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

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

Loss of talent

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

Things get worse before they get better

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

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

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

Guaranteeing integrated marketing

Many marketing departments resemble the Tower of Babel:  disparate teams, speaking different languages, working at cross paths and often not getting along.  In business parlance, this is called an integration problem.  Like the challenges facing the denizens of Babel, poor integration can wreak havoc on a company’s marketing effectiveness and brand image. Luckily, CMOs can overcome these problems by tweaking their structures, processes and practices and driving tighter strategic alignment.

Loose integration occurs when different customer-facing groups (e.g., marketing, sales, customer service) pursue different institutional (or personal) agendas. We have seen the implications of weak integration in dozens of our clients and the firms we benchmark.  Symptoms include: schizophrenic brand messages; tactics that run counter to the marketing strategy; duplication of effort and; in-fighting around who controls the priorities and budget.

The root causes of loose integration often arise unintentionally.  For example, programs are implemented unevenly; customer and channel fragmentation leads to a plethora of conflicting messages and tactics and; the growth of marketing outsourcing increases the odds of misalignment.  Not to be minimized is the personal dimension where department heads or employees purposely pursue agendas that are not aligned with the marketing strategy.

An almost fully integrated company  (complete integration is probably unrealistic) stands a good chance of delivering superior marketing performance as defined by lower cost and higher levels of customer acquisition and retention, higher levels of innovation and a stronger brand image. Examples of highly ‘integrated’ firms include: Apple, Four Seasons, Nike, Coca-Cola, McDonald’s and Victoria’s Secret.

Leaders can preempt and overcome the harmful effects of low integration by considering three, interrelated, approaches:

1.  Drive strategic congruence across the company

Brand internally

Your employees are market ambassadors as well as influencers within their organizations. Getting them to read and execute off the same marketing script will minimize integration issues.  Some management action items include evangelizing the marketing mission and strategy across the company, regularly communicating the firm’s value proposition and point of difference, and quickly updating stakeholders with any important changes to the program, partners, etc.

Make planning visible

A transparent and inclusive planning process increases integration and alignment by ensuring all views are aired, promoting fact-driven decision making, exposing management bias and reducing organizational uncertainty.

In-source more activities

The more marketing agencies and contractors are used, the greater the chance of integration problems, tracing to complexity-induced errors and strategy-execution gaps. Bringing more work and functions in house (and ensuring they are properly managed) will improve integration.

2.  Break down silos

Revamp the structure

A business maxim says that structure should follow strategy.  Often the structure gets out of sync and needs to be corrected.  Some ways to do this include organizing around capabilities or strategic goals like customer acquisition and retention, and introducing a shared service-delivery model that centralizes program execution.

Rogers Communications uses a couple of different structures to drive integration. “We bring people from across the organization and regardless of reporting relationships on teams to focus around common goals such as retention or acquisition,” says John Boynton, chief marketing officer. “Another approach is around execution. For example, with social media executions we have a hub-and-spoke model with experts in the hub giving advice and assistance to those in the spoke trying to use social media for varying different objectives.”

Clarify roles and responsibilities

Unclear accountability and decision rights naturally lead to conflicting programs and duplication of effort, not to mention internal strife. One way to address this problem is to clarify and formalize roles and responsibilities with charters and circulate them to key stakeholders.

3.  Use one playbook

Fine-tune the management systems & culture

Employees often work at cross-purposes when their goals, metrics and incentives are not aligned.  Leaders need to ensure there is a shared marketing mission, lexicon and performance measurement systems that is congruent with corporate priorities and integrates every activity up and across the organization.

When formal systems are lacking, companies need to be pragmatic. “Our goal is to define and create a marketing culture where it is okay to have discussions at the outset to establish decision makers and inputers,” says Boynton. “This can save a lot of time and avoid disparate executions and decisions.”

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

Measuring social media ROI

Deploying winning social media programs is a top priority for most companies.  While its early days with these initiatives, management being management still wants quantifiable value and ROI.   How do you determine if your social media program is delivering the goods?

Social media may be the brave new world of marketing but the tools to measure its returns are too often anachronistic.  Traditional approaches to measuring ROI calculate the returns in terms of short-term goals (e.g., sales increases, new product awareness) to their program expenditures. In many cases, measurement frameworks are solely based on traditional advertising metrics such as reach and frequency.  The customer’s digital behavior is usually ignored. This narrow focus has two problems. First, it is fixated on the short term (“show me how my company’s Facebook ‘likes’ will improve market share next quarter”). Secondly, traditional ROI methods ignore more qualitative factors — such as the value of a tweet about a brand — that flow from the unique characteristics of the internet and have no obvious equivalents in analogue media metrics.  Many leaders still do not fully appreciate that they are entering into interactive “conversations” with customers that takes time to cultivate. There are always several objectives in using social media so its important to declare in each strategy/tactic what the primary objective is so the focus is there

Since the digital world is so different, returns from social media investments will need to be measured in terms of customer brand engagement (i.e. relationships) tied to particular social media applications — as well as in dollars. Engagement with a brand includes obvious measures such as the number of visits and time spent with the application as well as rich conversations, such as the influence of blog comments and Twitter pages.

To evaluate their social media programs, it’s imperative to bring ROI into the 21stcentury by adding the impact of long-term customer engagement in the financial analysis.  This method takes into account not only short-term goals such as increasing sales in the next month via a social media marketing campaign or reducing costs next quarter due to more responsive online support forums, but also long-term relationship value due to social media investments. Marketers who don’t understand and can’t measure how this relationship influences a customer’s behavior will be unable to get a true picture of social media effectiveness and program ROI.

Fact is, it is very difficult to directly link social media performance metrics directly to business results. Therefore, we recommend managers use measurable social objectives as a bridge between social media performance and business results.  To do this, managers would initially identify social objectives like brand awareness, brand engagement and word-of-mouth impact.  These would explicitly measure the value of operating in the social media environment as well as tie directly to existing marketing objectives.

To undertake the analysis, managers would link social media performance metrics (e.g., Likes, Comments, Shares) to each social media objective.  These objectives would then connect (or bridge) to strategic marketing objectives like purchase intent or improved brand image which can then be linked to real business results like sales lift.  Rogers Communications Inc. is pioneering this approach.

“There are always several objectives in using social media so its important to declare in each strategy/tactic what the primary objective is so the focus is there. Its usually a combination of traditional reach/frequency, online metrics such as click throughs, and new metrics such as positive-negative-neutral mentions, reposts, likes, etc,” says John Boynton, chief marketing officer of Rogers Wireless. To further drill down into the true value of a social media initiative, marketers could use a variety of online tests, control groups and other testing tools to validate the social media results and compare to other analog marketing tactics. Not surprisingly, calculating the ROI of a sophisticated social media campaign is not easy.  The challenges range from matching online customer profiles with offline purchases to determining the size of the test and control samples.

“The hardest part of evaluating social media variables with a test and control approach is isolating some variables such as geography and business results. Rogers works deeply with a few select strategic partners in this area like Facebook and Google to solve this over a period of time while remaining committed,” says Boynton. Yet, even modest social media programs will benefit from plugging-in, segment-level estimates and proxy measures to quantify how the customer actions translate through brand awareness, brand engagement and word of mouth to impact purchase behavior and, ultimately, the bottom line.

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

Gold medal partnerships

These days, many companies are looking to build their brands, target new customers and launch new services using marketing sponsorships, outsourcing arrangements or business development alliances.  To do this, managers need to master partnership management with complementary firms, government agencies and non-government organizations.   Identifying the need for a partnership, however, is easier said than making one work. A myriad of issues can complicate key business relationships, including poor communication, misaligned objectives between the organizations, and weak integration between the entities.  

Our firm has identified a number of best practices around designing and implementing winning partnerships.  To illustrate these, we will look at two very different examples:  1) the Olympics and; 2) the software industry.

The Olympic Games

Recently, strategy+business magazine looked at the Olympics Games as a model for effective partnership management.  To successfully pull off the games, the International Olympic Committee must orchestrate a tightly choreographed dance of hundreds of sponsors, broadcasters and service firms. The IOC and its corporate partners have developed a world-class partnering model, based on the successful completion of many games (now including London) as well as a few painful experiences (think Montreal 1976).  Some of the IOC’s key learnings include:  

  1. Prioritize the brands

To maximize the value of the marketing sponsorships, all parties need to work closely to uphold the rules around brand usage and exclusivity.  Furthermore, corporate partners will drive better results when they have a clearly defined and powerfully articulated brand message that intersects the needs and desires of all stakeholders.

  1. Cultivate a few key relationships

Better outcomes are achieved by having fewer, deeper and longer term business relationships as opposed to more numerous, shorter term, and more superficial arrangements.  This ‘less is more’ strategy triggers each partner to invest more resources, capital and effort against longer term goals and to work more diligently through teething pains.

  1. Anticipate political pressure

The involvement of the public sector or a NGO usually brings some form of subtle (or not so subtle) political pressure that could run contrary to the financial interests of all players.  Managers should be aware of potential risks when structuring partnership deals and develop contingency plans to handle unexpected problems or political interference.

Software Industry

My firm was engaged to help a software company resurrect a stalled business development alliance with a global IT services firm.  Initially, the client thought they had the key ingredients – great technology and strong personal rapport at senior levels – for a winning relationship. We quickly discovered, however, through internal research that the partnership needed a structural, process and cultural tune-up to realize its potential. Three key lessons emerged:

  1. Align around common goals

At the outset, it is crucial that all players agree on what a successful partnership looks like, how it is evaluated and where their marketing and operational strategies converge to produce a mutually beneficial relationship. Not surprisingly, alliances based on similar long-term objectives & values, a ‘win-win’ deal and a ‘partnership mind set’ have a much greater chance of flourishing.

  1. Establish troubleshooting mechanisms

When disparate organizations come together, there is a good chance that modest disagreements and latent misperceptions could rapidly escalate to derail program implementation.  It is vital to deploy a high-level, cross-organization steering group that can quickly resolve issues before they can jeopardize the entire alliance. Moreover, this senior team can also support ongoing priority-setting and resource allocation.

  1. Foster intra-preneurialism

Rock solid contracts and detailed plans can not deal with all the demands and snafus that come with executing partnerships.  It is up to the ‘people in the trenches’ to make partnerships burgeon.  These vital individuals are most effective when they can act like intra-preneurs i.e. internal entrepreneurs.  To encourage these behaviors, key managers need a high level of empowerment, sufficient resources, and the opportunity to communicate extensively with their counterparts.

Some final and poignant thoughts come from John Boynton, Chief Marketing Officer, of Rogers Communications Inc. “Rogers prefers bigger partnerships. Bigger to us is a deeper, longer term, more integrated relationship. You know when you have a done a good job when you can’t tell who in the room is from which side. Getting one partnership or sponsorship to work on as many levels as possible provides a better return.”  To a prominent sponsor like Rogers, great partnerships are based on strong customer appeal.  “A lot of sponsorships don’t make sense to customers”, says Boynton, “because the target audience doesn’t line up in the “sweet spot”, or that companies choose the sponsorship based on profile or personal interests. Having a very tight overlap with the sweet spot and ensuring the sponsorship addresses the target customer’s “passion” are the keys.”

Despite the best intentions, many business partnerships will ultimately fail.   They need not.  Managers can follow a variety of marketing and organizational best practices to improve their odds of long term success.

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

Four secrets of innovation success

Before Silicon Valley, there was Bell Labs the R&D organization of the former telephone monopoly, AT&T.  For much of the 20th century, New York/New Jersey-based Bell Labs led the world in groundbreaking R&D that spawned some of the greatest inventions ever created.  A new book by Jon Gertner, “The Idea Factory:  Bell Labs and the Great Age of American Innovation,” documented the history of the lab and what companies can learn to kick start their innovation engines.

Among its many accomplishments, Bell Labs can take credit for many disruptive innovations that have impacted virtually every consumer and organization.  These include the invention of:  the transistor and semiconductor, the communication satellite, the silicon solar cell (precursor of all solar-powered devices), optical fiber, the UNIX operating system, the C programming language, foundational cell phone technology and the laser.  Importantly, Bell’s breakthrough thinking also crossed over into management practice. Their mathematicians were the first to apply statistical analysis to manufactured products, creating what is today known as quality control.

It would behoove managers to explore the secrets behind Bell Labs stunning success. Based on my 20 years of helping organizations innovate, I think they got 4 key things right.

Leadership

Behind every innovative organization there is usually strong, consistent and visionary leadership.  At Bell Labs, the man most responsible for building a culture of creativity was Mervin Kelly.  Between 1925 and 1959, Kelly was employed at Bell Labs, rising from researcher to chairman of the board. His vision was to establish an “institute of creative technology” that needed a “critical mass” of talented people to foster a “busy exchange of ideas.”  Kelly provided the critical leadership and management practices that allowed innovations and a supporting culture to flourish.

Credo

The Bell Labs’ mantra could have been stated: to boldly envision the future, move deliberately and build things.  It was clear to everyone that the ultimate aim of their organization was to transform new knowledge into transformational things that can be commercialized.  Behind this credo was a recognition that the innovation process was serendipitous and that real breakthroughs took a long time. This required both management and researchers to exhibit patience – having the time to do what was necessary – and to be practical, working on things with a commercial focus in mind.

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This institution employed some of the smartest people in America, purposely recruiting across many disciplines, thinking styles and roles.  They put them under one roof, giving them the freedom to create and the duty to support each other.  Providing this autonomy was critical in ensuring the researchers were empowered and not hamstrung by organizational barriers to creativity.  Forcing collaboration was essential to mobilizing the necessary brain power, breaking down information silos, and avoiding politics.  For example, every expert was required to mentor new hires in order to transfer their subject matter expertise and to reinforce the organization’s esprit de corp. Bell Labs would end up pioneering the development of cross-functional, cross-specialty teams working under one roof on major initiatives.  Although harmony and sharing were important values, there was also recognition that creative tension and project competition was useful in solving certain hard-to-crack problems.

Organizational dynamics

At Bell Labs, management used a variety of organizational strategies to encourage a busy exchange of ideas and to create a culture of collaboration.   For example, satellite labs were set up in the phone manufacturing plants to improve the odds of commercialization and to foster 3-way collaboration between the manufacturers, design engineers and researchers.  From an office perspective, the laboratories and common areas were physically laid out to ensure that people and ideas flowed freely and randomly.  The physical proximity of individuals was seen as important to driving collaboration; communicating via the phone was not enough.  In another case, there was an office open door policy (this before the era of cubicles) to encourage free-flow communications.

Two fundamental lessons can be drawn from the Bell Lab’s story.  First, to generate breakthrough innovation (as opposed to incremental improvements that are easily matched in the market) organizations must leverage both sides of the R&D coin:  basic research plus commercialization-focused development.  Second, innovation can just as easily happen with deliberate corporate teams as it could with young entrepreneurs working out of their garages.  Today’s dominant approach to innovation in IT – Facebook’s “move fast and break things,” and Google’s “gospel of speed” – is not the only way to produce R&D breakthroughs and winning products. Though technological revolutions happen quickly, they tend to evolve slowly.  Firms would be wise to spend the requisite time getting the technology, culture and products right.

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

Are bundles bad for business?

According to conventional wisdom, product bundles are a great way to build customer loyalty, drive revenues and improve your brand image.  With a bundling strategy, consumers who purchase one product are tempted with incentives to buy  another, often complementary product.  The marketing premise – supported by solid evidence in many firms – is that companies can maximize total customer revenue by offering a second product at discount versus selling each product individually. Not surprisingly, bundling has become popular in many B2C and B2B markets ranging from telecommunications to financial services.

Bundle with care

Does bundling’s good reputation hold up to research? No, according to professors Alexander Chernev and Aaron Brough in a recent article in the Harvard Business Review.  Their research found significant problems with bundling. Specifically:

  • Consumers will pay more for a single expensive item, such as a TV, than they will for a combination of that item and a cheaper one, such as a radio.  In their study, people were willing to spend $225 on one piece of luggage and $54 on another when the items were offered separately. However when the bags were offered as a package, people were willing to spend just $165 for both
  • Bundling will have a negative effect on the perceived value of a product when a less expensive item is added as part of a bundle. The research found that when consumers were offered a choice between a gym membership and a home gym, slightly more than half preferred the home gym. But when a fitness DVD was included with the home gym, only about a third chose it.

It’s all in your head

In 5 experiments, real consumers were shown a series of real brand name products—phones, jackets, backpacks, TVs, watches, shoes, luggage, bikes, wine, and sunglasses – varying in price.  Respondents in one group were asked how much they would pay for each item by itself, and those in another group were asked how much they would pay for a bundle combining a high-priced and a low-priced item.

Psychological factors – specifically a process named categorical reasoning – are behind this consumer behavior. People naturally tend to classify products as either expensive or inexpensive.  This categorization influences how they judge products. When an expensive item is bundled with an inexpensive one, people categorize the bundle as less expensive, and this lowers their willingness to pay for it.    

It’s the bundle and price points that matter.  Categorical reasoning does not happen when lower priced products are valued side by side against more expensive products. This effect is only seen only when the two items are considered part of the same offering. Moreover, categorical reasoning does not arise out of differences in the perceived quality of the bundled products. Devaluation can happen when both items are of similar quality and brand image but different price points.

Marketing implications

Bundles aren’t and shouldn’t go away so fast.  However, this research suggests that firms should use them carefully. For example:

  1. Get consumers to focus on non-price attributes like reliability, performance or design.  This will eliminate the price effect since people categorize along just one dimension at a time. The findings show that when customers focus on one of those attributes, they’re much less likely to categorize items in terms of their expensiveness.
  2. Design bundles where each product has similar perceived value, image and price points.

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

Can RIM regain its mojo?

Attacked on many front by well-capitalized and innovative foes, RIM is facing what many consider an existential threat.  A year ago, RIM was the smartphone market share leader with a lock on the lucrative corporate sector.  How times have changed.  Over the past 2 quarters, RIM has been steadily loosing market share to Apple and Google. Apple’s iPhone has set the consumer standard for smartphone innovation and design while Google’s Android platform is gaining traction with powerful functionality, an open-source operating system and zero cost to channel partners. Consumer polls that measure Product Desirability consistently favour the iPhone and Android platforms over RIMs. If RIM did not have enough to worry about, Apple’s new iPad has outflanked the market by creating an entirely new product category, forcing RIM and others into catch-up mode.

Despite these worrisome signals, it is too early for RIM to wave the white flag.  The firm still maintains significant corporate capabilities, a strong brand and a large (and still growing) customer base.   What RIM’s management needs to do is to return to the strategic principles that made them category leaders in the first place.

Protect their lucrative corporate niche

First and foremost, RIM must retain the high margin and device-loyal business user that propelled BlackBerry dominance.   To do this, the company must quickly improve enterprise level functionality in areas like system interoperability, stability and security as well as continuing to develop winning channel programs to lock up distribution.  RIM will need to move fast.   Sooner rather than later, Apple will begin aggressively targeting the corporate segment.  Moreover, the days where firms handed out free Blackberries and stipulated that the device was the corporate standard are over.  Increasingly, employees are allowed to use their personal iPhone or Android handsets for work. As a result, there is a risk that RIM’s appeal may be diminishing.

Expand the consumer franchise, RIM’s way

RIM’s prospects will come in large part from their ability to penetrate deeper into the growing yet fickle consumer market.  To date, RIM has appealed to consumers primarily with their BlackBerry Messenger functionality.  While important, this strategy is insufficient by itself to win in today’s consumer market.  RIM must build consumer appeal beyond BlackBerry Messenger the same way they tackled the business segment.  In particular, the firm needs to develop a consumer-focused functionality around mobile productivity similar to what worked with business users while providing enough useful apps to satisfy the majority of users.  This feature set would attract soccer moms scheduling practices or a group of teens planning a party.  As well, the company needs to combine product excellence with newer, more compelling marketing campaigns that plays to its core strengths and consumer needs, namely people who primarily use the phone for different kinds of communications.

Avoid Apple envy

With the BlackBerry Torch, RIM introduced a product that incorporated features that Apple pioneered, such as touch screens and mobile apps.  Despite good reviews, the Torch did not deliver product superiority or stem share losses.  Yet at the same time, RIM was ignoring key weaknesses and opportunities with their operating system and hardware that were more fundamental to their value proposition and core segments. Going forward (especially with their iPad targeted PlayBook), RIM runs the risk of focusing too much time and resources on aping Apple and not enough on understanding and leveraging their own unique business franchise. Management should realize that RIM will never be Apple, nor should they. 

There is nothing pre-ordained about Apple or Google’s success.  Each company has had its share of setbacks.  For their part, RIM has enjoyed an excellent string of product successes and retains some impressive capabilities.  RIMs’ strategic challenge will be how to get back to their earlier winning formula without taking their eye off of a rapidly changing consumer and technological landscape.

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

Improving joint venture performance

Over the past 20 years, Joint Ventures (JV) have become a popular form of business structure.   There are many types of JVs but each share a basic premise: separate businesses agree to develop, for a finite time, a new entity and new assets through the contribution of equity and resources. The partners exercise control over the enterprise and consequently share revenues, expenses and assets.

Although difficult to get an accurate tally, there are likely more than 8,000 JVs in existence worldwide representing hundreds of billions of dollars in combined revenues. JVs have been the preferred strategy for North American and European companies to enter the rapidly growing BRIC (Brazil, Russia, India, China) markets.

When operating well, JVs deliver compelling benefits including simplifying entry into new markets, reducing business risk and conserving scarce capital. 

The operant phrase is, “when functioning well.”  JVs are not easy to form, operate and exit. A number of studies by KPMG, McKinsey and PWC have concluded that no more than 50% of all JVs were seen to be successful by their participants, with the average partnership lasting between 8 and 10 years. For those JVs that soldier on, they often suffer from strategic confusion, slow decision-making, and duplication of effort with the parents.

Two successful JVs provide some important lessons on creating and managing these unique relationships.  CIBC Mellon, a leader in the Canadian Asset Servicing industry, is a successful 14 year JV between the CIBC and Bank of New York Mellon.  Sony and Ericsson created a JV s in 2001 to manufacture mobile phones.  In 2009, Sony Ericsson was the 4th largest mobile phone manufacture in the World.

The following are some key lessons on creating and managing well-run JVs:

 Finding the right partner

  • Look for similar goal, and cultures – Not only must the firm’s culture and business practices be amenable to collaboration but it must have what Tom MacMillan, Chairman of CIBC Mellon, calls “the JV mindset…Some companies are good at working with others, some aren’t” 
  • Ensure a strategic fit – When prospective partners are identified, managers must evaluate the firm’s capabilities, management and financial health against the JV’s needs and their own gaps. In Sony Ericsson’s case, the JV combined Sony’s well-honed consumer electronics expertise with Ericsson’s leading technological knowledge in the communications sector.

 Reaching the right agreement

  • Get a strong business case – A winning JV combines a compelling business case with financially-strong partners.  “Two lousy businesses put together will not make one good business…they will give you one big lousy business.” Says Tom MacMillan.
  • Align around goals, commitments and mutual expectations - To avert conflict and ensure proper resource allocation, all parties must ensure their strategic and financial interests are in sync before commencing operations. To ensure strategic and financial alignment, both Sony and Ericsson agreed in the JV to stop making their own mobile phones.
  • Get the right equity and capital deal – Research says that a 50/50 equity split, with clear responsibilities and rights on both partners, has the greatest chance of success. 

Making the partnership flourish

  • Assign effective leaders – Senior management at both the parents and JV must be skilled at managing through differences in reward systems, cultures and organizational practices.   According to Tom MacMillan, strong Board-level leadership by the partners and day-to-day leadership in the JV may be the most critical factor in ensuring the JV’s success
  • Insist on mutual commitments –  Both partners must honour and maintain their financial and operational commitments even when results are less than ideal or the strategic circumstances of one party changes. This puts an onus on properly capitalizing the JV at the outset and dealing with future investment requirements.
  • Get the governance model right – The ideal governance structure provides sufficient controls to minimize risk without stifling operational flexibility and speed.
  • Anticipate and pre-empt conflict – According to a PWC study, the top 2 reasons why JVs fail are poor financial performance and a change in strategy.  To pre-empt surprises and illuminate important issues, JVs need regular strategic reviews and performance tracking.  Building in transparency and regular management communications will help foster trust and reinforce shared goals.

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

Mobile health care: Its (almost) here

Are we at the tipping point for widespread adoption of mobile health care solutions?  Device usability, power and ubiquity have improved immensely. Mobile networks now cover virtually all of the globe.  And, social networking sites are now a driving force in community-building for tens of millions of people.  Yet, this would not be the first time that expectations have exceeded what is technically and behaviorally possible in the short term.   

Wireless health care delivers major benefits to the 3 Ps: patients, providers and payers.  It speeds diagnosis and treatment, extends services to under-served regions and saves doctors’ and nurses’ time, all compelling factors for over-burdened, expensive health care systems which must cope with aging populations. Mobile health care has many appealing applications for major disease areas like heart disease and diabetes in terms of treatment compliance, remote diagnostics and community-building.

The Economist magazine recently published an excellent overview on the latest developments in wireless health care.  Below are some of  the highlights.  The market-research firm Kalorama Information estimates that the US market for wireless health care devices and services will be $9.6B in 2012, up from $2.7B in 2007. Importantly, significant players like GE, Sprint and Virgin have begun entering the market bringing new applications, scale and credibility. Already,  Apple offers thousands of health-related applications in their App Store.

Mobile health care can already claim successes, particularly in the emerging world.  For example, Medicall Home, a Mexican firm that provides medical consultations by mobile phone, has signed up millions of customers. Some applications have been so successful in the developing world that they are now being adopted in the rich world too. Voxiva, an American firm that has set up mobile health systems in Rwanda and Peru, is helping launch Text4Baby, a public-health campaign to educate pregnant mothers (they receive free text messages with medical advice).  T4B will soon become the biggest deployment in the world.  Virgin HealthMiles is using online social networks to enable friends and family to encourage (or nag) patients electronically on weight loss and exercise.  Thousands of patients already participate in Facebook communities to seek medical support and information.

Fully leveraging these new solutions will not be easy. Firstly, wireless health care will require a standardized Electronic Health Record that can be shared by all health care providers. This remains to be created.  Technical issues continue to hamper system reliability and device inter-operability on existing 3G networks.  To reduce risks (and legal exposure), all devices will need to seamlessly, privately and securely operate on all networks with 99.9% or better reliability.  While tremendous strides have been made with wireless devices, they will still need to demonstrate better performance in terms of usability and battery life in order to support health care applications.  

Like the adoption of other technologies, the human element looms large.  Patients – particularly the elderly, the largest consumers of health care – will need to embrace new technologies and make the necessary behavioral changes to use them. Furthermore, their health care providers will also need to be wired, compliant and integrated through standardized EHRs.  Given that up to 25% of all physician offices in some geographies are not connected to the web, ensuring close to 100% compliance will take time.  Finally, though technology exists to ensure patient security and privacy, additional safeguards will have to be developed to keep personal information safe.

Given its real and measurable benefits to multiple stakeholders, mobile health care is poised for growth.  As soon as the technical, standards and human issues are sorted out, a broader roll out can be expected.

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

Two Industries Under the Gun: Retail Banking & IT

Each year, Booz & Co. publishes an assessment of twelve major industries, reviewing recent developments and looking out a few years.  Not surprisingly, the past year has been a time of trauma for each industry.  And, none of them look to the future with giddy optimism, particularly retail banking and IT.

Retail Banking

For the foreseeable future, retail banks face a cloudy future. Fortunately, some nimble players will be able to exploit emerging opportunities to increase revenues and maintain margins. 

Banks face lower consumer demand driven by higher personal savings rates, weakness in the commercial real estate and capital markets, and tighter regulations around high margin products like credit cards and overdraft protection. At the same time, retail banks will be challenged to keep operating costs under control tracing to higher regulatory costs, steadily increasing  distribution (e.g., branch) expenses and the need to maintain a secure and reliable IT infrastructure.  Record levels of consumer debt will also require banks to remain vigilant on risk and maintain substantial reserves against defaults.  

On the revenue side, savvy banks will shift from customer acquisition to building deeper client relationships and leveraging them through cross-selling and up-selling.  Appealing customer segments look to be: the growing retired/affluent cohort, rebounding small businesses and the emerging Generation Y bulge.  To drive these opportunities, banks should:  improve new segmentation understanding and targetability;  elevate product and service appeal as well as; enhance the bank’s client experience (i.e. service, support, appeal).

To reduce operating costs, retail bank will need to continue tactical initiativess (e.g., pruning unprofitable branches) as well as further leveraging breakthrough strategies like expanded back office outsourcing; offloading IT services to a Cloud Computing model and; streamlining operations through complexity reduction initiatives.

Information Technologies

This sector – semiconductors, consumer electronics, software, computing, and network infrastructure & services – faces serious revenue and margins threats on all fronts. It is time to batten down the hatches.

Developed markets will maintain sluggish IT growth rates as many of its largest buyers – Financial Services, Consumers and Manufacturing – will continue to be constrained by reduced demand.  Only one major industry buyer, healthcare, is expected to post solid growth.   The IT industry will continue to be battered by pricing pressure due to high penetration of open source software, the aggressiveness of low cost offshore service and hardware providers as well as the challenge of getting buyers to pay for increasingly undifferentiated (and over-engineered) products and services.  

IT companies will succeed by going with the customer flow and running a tighter operational ship.  That means aggressively pursuing growth opportunities in emerging markets and products (e.g., mobile computing), optimizing their channel structures and sales & marketing spend to improve efficiencies and distribution; continuing to “productize” their hardware/software/services solution offerings and; pursuing selected high potential/low risk M&A transactions that extend market penetration and continue to drive scale economies. 

However, future IT prospects may well be decided by how IT firms respond to the challenges posed by rapidly growing IT firms like Acer, Wipro and Huawei found in the emerging BRIC (Brazil, Russia, India, China) markets.  As the BRIC firms move up the IT food chain, they will soon rival many of their Western competitors in terms of product commercialization, R&D and marketing capabilities. Given their significantly lower cost structure (today), their rise will also put pressure on margins.

Coming soon will be our review of two more industries under the gun, packaged goods and engineered products.

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

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