Keeping up with the Joneses

You don’t have to be a psychologist to know that people instinctively measure their own standing, satisfaction and performance relative to others.  In a variety of studies, Larkin found that this trait is the most powerful workplace motivator.  According to Larkin, “…in deciding how hard we work and how well we think we’re performing, social comparisons matter just as much [as financial incentives].” Comparing themselves to their peers incites employees to work harder in order to be recognized or to maintain prestige. Absolute compensation does matters, but only to a point.

Follow the leaders

Larkin studied the impact of social comparison at a large enterprise software firm.  Hundreds of salespeople were offered one of two reward choices.  One option was to defer receiving a commission on a sale till the end of a financial period.  Deferral enabled the salesperson to receive a bonus payment but prevented them from recording a sale for a “Club” membership, a select group of the highest performing sales people. The other option was to record the sale and commission right away.  This choice disqualified the salesperson from the commission bonus but improved their chances of attaining “Club” membership, which though prestigious, carried no meaningful financial benefit.

The findings were telling.  Salespeople would forego the opportunity to make extra money if doing so would earn them positive recognition from their peers. Specifically, a sales representative was willing to give up nearly $30,000 in bonus (approximately 5% of their pay) to join the “Club.” Larkin believes club members “were not more likely to be promoted, leave for a better job, or make higher commissions in the future. It really was all about the recognition of and comparison with their peers, and many of them were willing to pay for it.”

The downside of comparison

On the other hand, social comparison also can lead to insecurity-driven cheating. Larkin studied author behavior in the large Social Science Research Network, an academic paper archive where authors can track statistics on how many times their paper has been downloaded, cited and viewed.  Researchers found that authors were more likely to download their own papers repeatedly when a colleague’s paper was performing especially well on the site, or when a very similar paper to an author’s was newly released and received significant downloads. “Again, what was surprising to us was how little we found in terms of the economic reasons for doing this,” Larkin says. “By far, the biggest predictor of this behavior was fear of being socially inferior to one’s peers.”

Management implications

This research has significant ramifications for talent management.   Companies need to more deeply consider the important role of peer comparison – now supercharged thanks to social networking – when designing compensation and measurement plans.  Paying each employee solely according to his or her performance can backfire, since it can lead to resentment or unethical behavior by workers who believe they are underpaid compared with their colleagues. In order to better motivate employees, firms may want to consider more uniform and standardized salary scales, combined with ancillary incentive programs and contests that exploit the positive effects of social comparison.

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

Obviously, capabilities, competition and financial position have a major impact on plan success.  However, I have learned through consulting to dozens of organizations that bad strategy can result from problems in their strategic planning approach – if there is one.  

Weak thinking = poor plans

Strategic plans that miss the mark share many characteristics, including:

• Aping one’s competition – Firms are often under the mistaken belief that they can go down the same strategic path as their competitors but somehow achieve better results. Management over-reliance on benchmarking and best practice analysis can easily lead to “copycat” strategies that do not deliver strategic differentiation and are not a good fit with the company’s capabilities and culture. 
• Over-emphasizing the customer – It’s natural for strategy to fall out of a focus on the customer, with lots of attention paid to the value proposition and branding. Giving short shrift to other vital areas of the business – supply chain, HR and customer service – creates significant operational and financial risks and reduces the likelihood that the company will capitalize on opportunities.
• Using fuzzy metrics – In their zeal to measure progress, managers often create a laundry list of (often conflicting) goals, which masquerades as strategy.  In other cases, firms neglect to choose any metrics making measurement impossible.  Goals are the outcome, not the source, of a strategy.
• Lacking practicality – Weak strategic plans are overly long, lack focus, are full of fluff and short on actions. All too often, manager’s substitute disciplined planning for blue sky thinking with no clear idea how to get there.

A number of process and psychological factors lie at the heart of bad strategic thinking, including:

1. Vanilla approaches – Too much strategy is developed as a ‘fill in the box exercise’ using templates that have little relevance to the business challenges or available expertise.  These exercises rarely feature the deep strategic thinking (e.g., counterfactual analysis or simulations) needed to craft high potential/low risk plans.
2. Hubris – Anyone who has ever participated in a SWOT analysis knows that managers regularly overestimate their firm’s strengths and underestimate their competitors, the potential threats they face, execution difficulties or the resources required.  Furthermore, many cultures have an inward-looking bias that assumes their capabilities are market-beaters – which they usually are not.  
3. An inability to choose – Strategy is as much about what not to do and as it is about what to do.  High levels of management ego and consensus-based decision-making will create conditions where firms are unable to focus on a few strategic priorities, resulting in tepid or confusing plans.

Getting strategy right

How can senior leaders ensure that the optimal level of strategic thinking takes place without stressing the organization? I have distilled down 20 plus years of strategy development and research into 3 best practices for creating winning strategy:   

Get the right people meeting often

Strategy is best developed by a senior team representing the key functions and lines of business.  These individuals should have an intuitive sense of the business and where it is going – what the Germans call a fingersptizengefűhl or fingertip feel.  To foster healthy debate, participants should hold key personality traits such as critical thinking, open communications and introspection as well as being regularly engaged in the process.

Utilize the right process

Without a doubt strategic frameworks like Porter’s Five Forces or SWOT analysis are useful to understand a firm’s market position and recognize opportunities.  However, an effective planning approach should also include other tools such as business simulations, failure analysis and game theory.  These techniques will help produce breakthrough ideation, challenge assumptions & bias and dissect competitive threats. 

Does it pass strategic muster?

Great strategy is powerful yet practical.  It should:

1. Emphasize a few, actionable priorities that will directly drive profitability and competitive position; 
2. Include a coherent operational plan that is coordinated between functions and business partners;
3. Feature tight integration between the customer and operational sides of the business; 
4. Have an eye towards long term competitiveness and strategic flexibility without sacrificing its medium term focus;
5. Demonstrate aspects of strategic uniqueness that can not be easily replicated by others.

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

The evolving landscape

Recent market, technological and consumer developments have put the shopping experience at the center stage of retail marketing and operations. Stores and chains are increasingly seen by buyers as undifferentiated and unexciting; consumer spending has stalled and; pure-play Web retailers and online shopping tools have come into their own.  At the same time, social networking’s popularity is exploding while bored, confused or fickle customers increasingly demand education, aesthetics and entertainment as part of their retail experience.  To stay relevant and competitive particularly in the mid-market and premium segments, merchants will need to regularly orchestrate and promote compelling on and offline shopping memories.  That memory itself will become the one of the products – i.e. the “experience.” 

Evolving consumer behavior is a major factor impacting the customer experience. For one thing, sales channels are changing.  Online sales, already 7% of all transactions, are forecasted to hit 15% by 2019 (source:  Google).  Although in its infancy, mobile commerce is expected to explode over the next few years.  Increasingly, buying decisions are being made before the consumer visits the web or traditional store.  Twenty years ago, 70-80% of all grocery purchasing decisions were made at a store.  Today, it is less than 50% according to Joel Rubinson, former chief research officer of the Advertising Research Foundation.  Typically, consumers will first research products online or canvas their friends and then decide what they will buy before going to a store.  Or, they may forego a trip to the store altogether and make purchases via the Internet. 

Moreover, social networking is enabling consumers to take control of how marketing messages are distributed and consumed – at the expense of company-sponsored sites.  Buyers now attach significant value to online reviews and often spend more money online after reading product recommendations by other consumers.  Facebook, for example, accounts for 38% of social media page referrals online (source: MDC Partners, a marketing firm).  According to pundits, reviews like these are trusted some 12 times more than advertising messages.

These changes have important consequences. When shoppers think about a brand, they now consider their entire buying and service experience.  To be successful, marketing campaigns will now have to encompass and integrate all of the touch points of a company’s relationship with a consumer, including the first moment of contact when a product search begins, through the sale and service, and eventual product disposal and replacement. Though consumers have far more control over marketing messages than they ever have, retailers still have plenty of scope to guide opinions. That’s where experiential marketing comes in.

Who is getting it

Recently, a number of retailers have pushed marketing boundaries to create innovative experiences that integrate entertainment, social media, information and traditional advertising. Two examples were highlighted in a recent issue of the Knowledge@Wharton newsletter:

Macy’s

In 2010, Macy’s hit the mark with a couple of highly successful marketing programs that integrated a number of different experiential elements.   During New York’s Fashion Week, the retailer provided customers with a “magic fitting booth,” which allowed them to “try on” virtual outfits and post images of themselves in their new clothes on Facebook. All year round, shoppers were able to use their phones to watch videos for fashion tips from designers and makeup artists. For the holiday season, Macy’s launched an animated website with an online tool enabling customers to send letters to Santa Claus. The site, which received more than 1M letters, was combined with a fundraising drive for a children’s charity and a mail order guide.

Bloomingdale’s

This merchant understands the critical role of human contact in delivering powerful retail experiences.  Bloomingdale’s 8,000 in-store “associates” play a key role in delivering and enabling experiences.  Their responsibilities include collecting customer information in databases.  This information is then used for marketing programs such as birthday alerts or shopping recommendations based on previous purchases. “What we don’t want to lose is the assurance and authenticity of human contact: the touch, the feel, the laugh, the personal knowledge” says Tony Spring, President and COO of Bloomingdale’s.

Making it real

Incorporating the above elements – plus emerging mobile and location-based services – into the marketing and operational model will lead to further evolution of the shopping experience. To remain competitive and efficient, retailers will need to develop a holistic “customer experience” vision and strategy that integrates both traditional and new media, while addressing every point of the purchase/service continuum.  Making this vision a reality will requires firms to revamp their organizational structure in order to bridge functional silos like digital marketing, public relations, store design, advertising and merchandising.

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

A recent global survey (the second one in as many years) of 4,500 business executives by MIT’s Sloan Management Review explored key barriers and success drivers around DA. The results dovetail closely with our consulting experience in a number of data-intensive Canadian organizations.  Below are some of the key findings and implications:

Analytics is growing in strategic importance

Increasingly, managers see analytics in strategic terms – outflanking competition, transforming customer relationships, sparking operational innovation – and not just a means of incrementally improving business performance.  According to the survey, 58% of respondents viewed DA as a source of competitive advantage, up from 37% in the previous survey.

Not surprisingly, the study found that “experienced” firms are extracting significantly more benefit from DA than “basic” users.  The most experienced DA companies (who utilize tools like data visualization, advanced modelling and sophisticated data mining) reported a 50% year-over-year improvement in competitiveness.  Conversely,  organizations that are employing basic functionality such as spreadsheet-based budgeting and forecasting cited a 5% year-over-year decline in competitive advantage. What are the lagging companies missing?

Leveraging analytics requires a trio of competencies

Many would suggest that deploying high performance hardware and software solutions is the best way to enhance DA capabilities and deliver a strong return on investment.  Though resources and technology are important, the respondents – particularly the experienced users – reported that demonstrated competencies in 3 areas is more crucial:

1. Managing information, in areas such as integrating data silos, making data usable, deploying collaboration tools;
2. Maintaining analytics expertise, around using predictive analytics, supporting scenario development, automating algorithms etc;
3. Fostering a data-oriented culture. 

The findings and our research confirms that there is no “typical” roadmap as to which competency is more important or should come first.  They are all prerequisites.   

Like many good things, there is a risk of over-indulging in DA before a company can fully digest its capabilities. For example, the sheer amount of data can slow down decision making by creating “analysis paralysis” as well as lead to significant data management and hardware/software costs.  Leaders must set yearly DA priorities while ensuring their functional groups/divisions align to the data that directly impacts key metrics – versus what is merely “nice to have” information.

Data-oriented cultures have unique attributes

Analytics-focused companies go beyond clichés to incorporate specific cultural norms and practices that leverage analytics capabilities and learnings.  A significant majority of respondents reported that data-oriented cultures had the following key elements:

• View analytics as a core enabler of business strategy and day-to-day activities;
• Senior leaders and middle manager champions regularly support DA across the organization;
• An emphasis on communicating data and insights vertically and horizontally, especially to the front-line employees who need them on a daily basis;

The more experienced a firm is with DA, the greater is their ability to overcome internal challenges around sharing information, sustaining focus and coping with poor processes.  Only 30% of experienced DA users considered organizational issues to be difficult to resolve compared with 60% of basic users.

Resources still matter

When it comes to enabling sophisticated analytical modelling, data visualization and knowledge management there is no free lunch. Companies still need the right methodologies and a robust, enterprise-wide IT infrastructure to effectively collect, process, report and manage the data.  Furthermore, there must be sufficient analytics expertise and tools at both the manager and specialist levels to effectively manage the data through its life cycle as well as to leverage it strategically.

These findings have significant implications for all companies seeking to gain competitive advantage through analytics.  Firstly, the more a firm leverages DA across and up/down the enterprise the more it will reap in terms of greater efficiencies, improved customer focus and enhanced performance.  Secondly, each company will define the DA path that best suits their competitive position, business requirements and available resources.  Although this article identified guiding principles, there is no ‘best practice’ template. Finally, mutually reinforcing factors such as consistent leadership, cultural receptivity, silo-busting information management systems and analytics expertise are essential to exploit the full potential of analytics.

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

Philosopher René Descartes, in his famous 1641 treatise Meditations on First Philosophy, introduced the idea of an “evil genius,” a powerful force of nature who is equally smart and deceitful. The World has experienced many examples of the evil genius including Soviet dictator Joseph Stalin, Professor and Unabomber Ted Kazynski and Wall Street villain Bernie Madoff. Clearly, Descartes was on to something.  Is there a correlation between creativity/genius and unethical behavior?

Gino and Ariely explored this question in a number of experiments involving employees and students. In one study, the researchers surveyed 99 employees at an American advertising agency, where some roles (e.g., art direction, copywriting) required much more creativity than others.  Gino and Ariely asked the participants to reply to a questionnaire on how likely they were to engage in ethically questionable work behaviors such as “inflate your business expense report” and “take home office supplies from work.”  In another phase of the study, the researchers explored how participants behaved when faced with various hypothetical scenarios that were ethically ambiguous in nature.  Finally, Gino and Ariely looked at whether promoting creativity within a group would trigger an increase in cheating afterwards.

Research results

The study’s findings were telling:

• Inherently creative people cheated more than noncreative types. Specifically, participants who had scored high on a creativity scale were the most likely to exhibit unethical behavior, especially when there was a potential for monetary gain. 
• People who have been primed or induced to be more creative were more likely to display unethical behavior.
• The higher the creativity required for a job, the higher the level of self-reported dishonesty.

Cogito ergo sum

By their very nature, creative individuals have an elastic moral sense that helps them rationalize different behaviors and deal with ambiguous situations. According to Gino, the findings suggest that “…moral flexibility is the mechanism explaining why being in a creative mindset or being a creative person puts you more at risk to do the wrong thing. Our ability to justify things is significantly greater if we are in a creative mindset or when we are creative people.”

Management implications

Obviously, creativity is not a bad thing.  It should be part of most performance measurement systems and corporate priorities, albeit with structural and process safeguards.  In their search for innovative thinking, leaders should be careful not to staff their teams exclusively with creative types or give the decision making responsibilities solely to creative people.  Moreover, Gino cautions that, “As a manager, if you’re highlighting the importance of being creative and innovative, it’s important to make sure that you’re stressing the presence of ethics, too.  She goes on to hope “that managers will start thinking about how to structure the creative process in such a way that they can keep ethics in check, triggering the good behavior without triggering the bad behavior.”

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

Virtually every manufacturer defaults to a disposal or sale strategy when dealing with waste.  BPS looks at waste more strategically by asking a simple question:   What is the maximum value that can be extracted from the by-products given existing inputs, processes and capabilities?   At its full potential, BPS leads to the development of new products, derived from the by-product waste, and delivered through the same production process.

To tie her conceptual thinking into a practical tool, Lee developed a scenario-based model that is driven off the relative value of the original waste-generating product, the cost of waste disposal, and the cost of raw materials:

Scenario 1 – Waste has low value and utility  

Since the by-product is of low value, a company should not commit too much time or capital to repurposing the waste.  To maximize profits, firms would seek to dispose of the waste through traditional means and look for easy and inexpensive opportunities to turn some of the waste into a new product.

Scenario 2 – Waste has significant value and utility

As the value of the waste increases, managers would explore how to “productize” it within the existing operational model.  In some cases, there may be a profit incentive to actually increase the production of the original product in order to generate more “waste.” Though profits of the legacy product might fall due to market saturation or reduced operational efficiencies, the incremental revenue and profits from the secondary product could more than compensate for the loss.

Lee uncovered this insight in her study of Cook Composites and Polymers Co., a manufacturer of gel coats for premium yachts. One of the by-products created in the manufacturing process was styrene, a chemical used to clean molds between batches.  Interestingly, the firm discovered  styrene can also be used to make coating for concrete. Through productizing the styrene waste stream, the company gained more options to optimize the joint production process, creating a win-win situation for both products.

The operational benefits of manufacturing multiple products in one line will not always be apparent. Competing product priorities could generate capacity and workflow challenges since BPS implies a proportional volume relationship between products.

Scenario 3 – Waste is more valuable than original product

The company may discover that the by-product is more profitable than the legacy product. In this case, a consumer goods producer might deal with the problem by sourcing virgin material to create more of the secondary product. Not only does the company reduce costs for the original product by cutting down on waste, but it also gains competitive advantage over other firms for the secondary product – who are limited to sourcing virgin material.

Environmental questions

While BPS can deliver new revenues and greater operational efficiencies, its environmental benefits are not always clear cut.  According to Lee, “As you create more value and demand for your by-product, and you increase the quantity of everything, then emissions might increase, depending on process characteristics. That could be the unfortunate part of being successful.”  Furthermore, it is hard to quantify the net effect of a joint manufacturing process on the environment, as BPS may change the nature of the environmental impact.  In essence, Lee asks “Is it better to have carbon emissions or toxic waste in a landfill?”

Manufacturers with hundreds of inputs and complex production processes could face a dizzying array of BPS options.  To choose wisely, managers should apply a market lens to focus on what current customers want and what the company is well-positioned to produce. Properly planned and managed, BPS can be the alchemy that turns industrial waste into gold.

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

Some of the World’s most successful companies – IBM, Amazon, Apple and Google etc – have gained a sustainable competitive advantage and industry-leading shareholder returns by moving boldly away from their traditional business models.  To successfully navigate a shift, leadership needs a true picture of their current prospects, a vision for the future and the perseverance and courage to shepherd major change.

BMI is a fancy term to describe company-wide innovation around i) the value delivered to customers and ii) the operating model to deliver that value.  As compared to incremental product and operational innovation, BMI is a more encompassing and complex form of innovation.  It impacts the core beliefs around the business and market.  For example:    

1. Do the targeted customer segments have unmet or emerging needs?
2. What is the ideal product/service mix to satisfy these needs and maximize revenue?
3. What is the most profitable operational model to deliver this value? 

Disruption is coming

Many factors can contribute to an environment where a company would seriously consider revamping its business model.  Markets can become commoditized, resulting in zero profitability for most of its players; a firm’s cost position can become untenable; a technological breakthrough can provide opportunities to serve users in a completely new and powerful fashion or;  a new regulation creates the potential for the industry structure to change.  Bold and visionary leaders who are prepared to make major moves can reap considerable benefits.

Superior returns are attainable

Properly designed and executed, BMI is a proven business-building strategy.  Research from the consultancy BCG has shown that total shareholder returns versus peers for BMI was five times higher than product or process innovation (8.5% vs 1.7%) over a 3 year period and over 55% higher (2.7% vs 1.7%) over a 10 year period. In many cases, BMI practitioners have leapfrogged competition and carved out new market space.   

Your move

Companies often pursue BMI for defensive reasons.  In many cases, however, leaders may choose this strategy in order to change the rules of the game.   BCG studied the implementation of BMI in a variety of industries.  Below are 3 success stories:

1.  Beating Back Competition

In an effort to compete with a successful low-cost airline, Virgin Blue, Qantas launched a new, ultra low cost airline, Jetstar.   Structured as a separate division with a business model designed from the ground up, Jetstar was effective in blunting Virgin Blue’s share growth while providing consumers with a unique and customizable flying experience.   

2.  Reigniting growth

By 2001, Apple’s proprietary and closed approach to hardware and software development had relegated the company’s PCs to niche shares.  By leveraging its unique and compelling core capabilities and brand, Apple was able to create entirely new categories of consumer electronics and smartphones through the iPod and iPhone platforms.  As well, Apple used its proprietary advantages and outsider status to establish the de facto standard for fee-based music downloading, a model that had evaded the music industry for years.

3.  Extending the business model

Ikea discovered, through its experience launching stores in Russia, that the land value surrounding its new outlets would appreciate markedly following a store opening.  The company decided to capitalize on this happenstance by leveraging its brand and real estate competencies to develop adjacent malls.  Ikea’s new division, Mega Mall, now makes more profit on building and managing malls than it does through its retail division.

Making BMI work

Organizations considering BMI need to ensure they have the capability to design, plan and implement a major transformation.  The challenge of pulling this off must not be underestimated.  Experience is usually scarce as firms do not often retool their businesses.  Moreover, BMI is typically undertaken in times of internal stress, limited resources and competitive pressure. For company’s considering BMI, they would be well served  to use a proven approach to transformation.  Our firm deploys this simplified 4-step process:

Know thyself

• How urgent is the need for change?
• What are our strengths and weaknesses?
• Are there any assets that can be extended beyond the core business? 

Uncover opportunities

• What gaps exist between the current value proposition and delivery model, and industry trends, underserved customers needs/preferences and relative industry competitiveness?
• What new offering, value proposition and operating model can address the gaps?
• How do you generate high margin revenues?

Align

• How do you reorder the value chain?
• What resources – capital, talent, assets, information – are needed?
• What is the impact on the organizational structure and culture?

Implement

• How do you mobilize the organization to change?
• How do you deal with barriers and risks such as customer retention?

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

Coined by Nassim Taleb in his 2007 bestselling book, a Black Swan is a major occurrence that is unexpected and generates a tremendous impact. In spite of its outlier status, human nature invents explanations for a Black Swan after the fact, making them explainable and predictable.   These low-frequency, high magnitude events can be triggered by any one or a combination of factors within the realm of  politics, technology, healthcare, economics, the environment or government policy.  Although they are very difficult to predict, Black Swans have occurred on a regular basis, somewhere on this planet, over the past 75 years. Many commentators believe that catastrophic events are becoming more prevalent due to issues such as climate change, poor regulatory oversight and increased political strife in weak states. 

Not only is the frequency of Black Swans increasing, but so is their magnitude. Dynamic such as faster communications, pervasive global supply chains, and ubiquitous social networking create conditions that increase interdependence, accelerate the pace of change and restrict management control. Disruption can come to a firm directly through its assets, customers and employees or indirectly through its partners, suppliers and regulators. As examples, the great Japanese earthquake of 2011 led to parts shortages in North American plants.  The 2008 collapse of Lehman Brothers triggered a global liquidity crisis. It’s no longer a question of whether a Black Swan will impact your firm, but when and how.  

Typically, large companies rely on enterprise risk management systems, or worse, management judgement, to predict potential interruptions to their operations.  However, standard ERM approaches are problematic when it comes to forecasting Black Swans.  For practical and budgetary reasons, these systems focus on the risks organizations typically encounter – around people, finances and business continuity – while ignoring the myriad of low-frequency risks beyond a company’s control.  Furthermore, these systems can not account for management bias which creates risk blind spots.

Boards and senior leaders have a clear responsibility to protect shareholders and other stakeholder from the effects of credible Black Swans.  What can be done to assess and mitigate the major business risk from these catastrophic events? Booz & Co., a consultancy, recommends that company’s undertake a Disruptor Analysis Stress Test.  Complementing the firm’s existing ERM approach, this test would be periodically administered by a senior team of risk managers and line of business leaders.  

The analysis includes a 4-step process:

1. Understand the current state

To find vulnerable nodes in the business, it is vital to map the full operational profile – relationships, costs, revenues, capital deployed etc – of the firm including its suppliers, channel partners, stakeholders and customers.  This analysis should  go beyond direct relationships to key interdependencies like ‘suppliers of suppliers’ as well as market dynamics such as competition and industry structure

2. Develop the disruptor list

Given the unexpectedness of Black Swans, managers needs to cast a wide net to identify potential disruptions to the operating model. To be comprehensive, this list should encompass every potential interruption across multiple geographies based on what could occur within a 1 year horizon.

3. Asking “what if” questions

During this phase, the team would explore what would happen to the enterprise if one or a more of these events transpired.  This type of scenario development helps discover new hazards and drives further clarity around previously identified risks.  Moreover,  these activities can help uncover informational blind spots and bias while building internal knowledge. 

4. Create contingency plans

Contingency plans are then developed based on the most likely to occur “what if” scenarios.  These plans would include financial, operational and human resource strategies for coping with the scariest Black Swans.  Though this planning is handled internally, many companies may choose to gain an independent, third-party validation of their thinking.

It is virtually impossible to produce quality contingency plans for every possible Black Swan.  Yet, impossibility does not mean senior managers should not try to minimize organizational impact by raising internal awareness, gaining cross functional alignment and making preparations.  Indeed, success favours the prepared mind.

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

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.

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.