Insights

Where’s The Beef?

Many years ago, in a course on information theory, I learned that one way to measure the value of information was by quantifying the quality of relevant decisions made with and without it. A few case studies suggested that the concept, while clear from a common sense perspective, was hard to apply in practice. But a recent project experience provided an example as to the relevance of the concept.

The organization that was involved was a major component supplier to the automotive industry, supplying both the new car makers and the parts and service aftermarket. Like many in that industry, they had for a long time invested in bringing the voice of the customer into their organization. The particular project that came under scrutiny was oriented towards the aftermarket side of the business.

This voice of the customer project had been in place for almost ten years, providing quarterly reports on almost thirty metrics that were summarized in a newsletter form and distributed quite widely throughout the firm. The marketing team responsible for this project had received negative comments about its value, and the effort was even on the table as a possible cost-saving measure. To evaluate options going forward, we tried to apply the information value concept.

The process we implemented involved a small team, including two from the marketing group that was responsible for the effort, a regional sales executive, a pricing specialist, a product development specialist, and an operations manager, all with experience in the relevant product and market segments. We took the last five years of the survey, question by question, and identified the largest two-period changes that had been measured. In a few cases, we exaggerated those changes to bring some additional drama to the process. We then asked the team to look at each question separately, and to tell us what decision options would be motivated by the changed results we presented to them.

The remarkable finding was that for eleven of the questions, even with exaggerated changes for several of them, the team reported back that they really couldn’t identify any changes that the firm would make based upon shifts in the voice of the customer metrics for each of those questions. As one of them commented, we kept looking at some of these questions and asked the familiar question from the TV commercial: “Where’s the beef?”

To further test the value of these questions, we constructed a few artificial scenarios and developed a voice of the customer profile that we thought would be seen if those scenarios developed. For example, in one scenario, we postulated that a competitor had achieved a technology breakthrough that improved durability for the product line by 20%. When we gave the same team these scenarios, they did easily come up with decision options, but reported back that the eleven questions under review made little or no impact on their analysis and recommendations.

The final test took place in the subsequent quarter. The team continued to ask all of the same questions, but in the internal newsletter, didn’t provide any data or mention of the eleven suspect questions. They got back about a dozen emails saying “Good job on the improved format”, but not a single question about the missing data elements.

The value of customer insights cannot be overstressed. Over and over, we’ve seen examples as to how firms were able to achieve market success by bringing customer voices into their plans and decisions. But, like any investment, it needs to be focused and to emphasize insights that make a difference. The simple review process that this firm employed, just asking what decisions would be impacted by each information element, is a straightforward approach to bringing the information value concept into play.

Author: George F. Brown, Jr.

[related-case-study]

Insights

Whatever Happened To Growth?

Earlier this year, one of our clients invited us to participate in an off-site meeting involving managers from his organization.   The purpose of the meeting was to address the slowdown in the firm’s business that appeared to be accompanying the sluggish economy.  Our client hoped that the team would be able to identify action plans that would enable it to meet the performance goals that had been set for the year, despite these challenging market conditions.

The first day’s meeting involved a series of presentations from marketing, sales, and financial leaders within the firm.  A clear picture was painted – of a sales slowdown late in 2000 that was continuing through the time of this meeting.  After these presentations, three teams were formed.  The first team was assigned to target “customer conversions” from this firm’s two main competitors, the second team to evaluate the firm’s prospects of gaining business from within new markets, and the third team to focus on short-term margin improvements opportunities.

The reports from these teams at the end of the first day were discouraging.  The “customer conversion” team had quickly speculated that each of its two competitors had also formed a conversion team – and the results of these strategies would be something like a “swap meet” during which the three firms exchanged a few customers, all at lower than currently prevailing prices.  The “new markets” team announced that the firm’s marketing planners had looked at new market opportunities a few months earlier in the context of the firm’s planning process, but had not put into place any concrete action plans.  The “margin improvement” team decided to rename itself the “archeological team”, since it viewed its main challenge as that of digging up the memos on travel restrictions and hiring freezes that had been issued almost every year during the 1980s and early 1990s.  As the first day’s session concluded, one participant effectively summarized the mood of the meeting by asking “Whatever happened to growth?”

Lessons from Growth Leaders

On the second day of the off-site meeting, Blue Canyon was invited to offer our perspectives on this firm’s growth challenges.  To begin these discussions, we shared several lessons from growth leaders in other business-to-business firms.  Such lessons are often useful in helping to create a strategy to ensure that growth is something that results from planning and action, rather than something that “just happens”.

One case study involved a business-to-business supplier who was in the enviable position of being not only the market share leader, but also being positioned within the high-value segments of its industry.  This firm had a long-standing reputation for the best products and for a commitment to service.  Its market position and customer roster were like a beacon to competitors.  When we began to work with this supplier on strategy, this firm’s executives were concerned about possible market share erosion should they fail to match the competition’s lower prices.

This firm’s customers had a different perspective.  Their questions were about “what was coming next” and about “next generation products and even more services”.  This firm’s major customers had accepted this firm as an important and valued supplier and looked to this supplier for innovation and leadership.

From these insights, our client learned several important lessons.  It realized that in the business-to-business world, “strategic account” and “strategic supplier” relationships were two sides of the same coin.  It realized that they had developed critical competencies that allowed them to earn the position it held with its major customers, and that straying from these competencies would be a prescription for disaster.  This firm’s customers wanted this supplier to “Raise the Bar” and, when it did so, its prospects for growth remained solid.

A second lesson involved a manufacturer that reaches markets through a number of third-party distributors.  A number of years ago, this company had concluded that it was imperative that it “Join Winning Teams” with regard to its distribution decisions.  As it examined its customer chains, this firm recognized that success with end customers depended upon critical supplier->distributor team competencies – in service, logistics, technical support, and inventory management.  Meeting these critical success factors required best-in-class supplier->distributor teams targeted carefully on specific end customer relationships.

Research into this firm’s end customers uncovered two distinct clusters of “winning teams” that would achieve sustained growth.  Discussions with organizations involved in one growth cluster yielded compliments about the knowledge, familiarity, and commitment that this supplier->distributor team brought to the end customer relationship.  According to these end customers, the relationship had been characterized by exceptional performance:  the supplier->distributor team was viewed as “world class” in terms of their business systems and processes.  In the other growth cluster, the supplier was viewed as an incredible innovator, one that could be counted upon the “keep us ahead of the competition”.  This evaluation gained this supplier and its distributors a seat at the table with certain end customers, resulting in a competitive position that was all but impenetrable.

Growth lessons from this example include the importance of selective decisions about the intermediaries and major customers with which to invest and the payoff that can result from developing and showcasing competencies that create ‘win-win-win’ outcomes in business-to-business customer chains.  To get beyond “transactional” relationships, investments and competencies are both needed.  Growth plans must focus on the “winning team” opportunities within which payoffs can be realized.

A third growth lesson emerged from a firm facing a vicious cycle in its business-to-business market.  This firm and its main competitors were trapped in a cycle of price competition that led to margin pressures. These margin pressures forced service and quality reductions and opened the door to competitors eager to buy the business at a still lower price.  One executive in this firm worried that the cycle might “swirl us right down the drain” before long.  The financial results – lower revenues despite higher unit volumes, and substantially lower profits – underscored the seriousness of his concern.

This firm decided that to reverse this situation and resume growing, it must “Change the Game”.  Its question was how to do it.  The solution that this firm reached was centered on its major customer relationships.  With a selected group of major customers, this firm committed to market-based pricing.  In fact, it promised these customers a steady pattern of reduced prices over the next several years.  Doing so allowed it to take price out of the equation and create a foundation from which it could change the game.

This supplier also committed to higher quality and service standards for these selected major customers, and instituted collaborative processes to “take costs out of the system”.  Delivering on this commitment was a major challenge, and forced the firm to reinvent its approaches, processes, and programs.  Multi-functional teams were assigned to each major customer, and key experts from across these functional groups invested quite seriously in developing insights and coming up with action plans.  Surprisingly quickly, this firm discovered short-term action opportunities, and was rewarded by its major customers with more business.

Growth for this firm involved a decision to recognize, for the first time, that some of its customers were critical to its success.  It learned that new approaches involving ‘special treatment’ to these relationships were appropriate – and imperative.  It learned that there could be virtuous cycles as well as vicious cycles in the major customer environment, and that changing the direction of these cycles could only occur with proactive effort and commitment from across the organization.  The supplier confirmed that the touch points in major customer relationships were far more extensive than sales->purchasing, and that some of the most valuable interactions involved rather surprising combinations of people from the two organizations.

Best-in-Class Growth Lessons

Our research, as illustrated in the experiences described above, has clearly pointed to some best-in-class growth lessons that can be learned and implemented by strategic account organizations in other business-to-business environments.  Blue Canyon Partners, Inc. and SAMA are sponsoring a new research project to extend this knowledge base and share information that helps to answer the question “Whatever Happened to Growth?” for executives and practitioners working in the strategic accounts environment.

Critical knowledge foundations about driving growth with strategic accounts fall into several categories, including:

• Relationship Assessment.  Strategic account relationships can be systematically categorized along several Tiers, from Supplier to Preferred Supplier to Extended Enterprise Member to Partner.  The growth potential and the guidelines for strategic account management vary across these Tiers in a systematic fashion, which can guide strategic account managers in developing their forecasts and action plans.

• Competency Assessment.  There are three categories of organizational competencies that are especially relevant in the business-to-business strategic accounts environment:  the Relationship Competency, the Implementation Competency, and the Innovation Competency[1].  Where a business-to-business supplier stands with respect to each competency can be assessed, uniquely in the context of each individual strategic account.  From this assessment, focused action plans can be developed to enhance the specific competencies most likely to enable a strategic accounts team to take a major customer relationship to the next level.

• Strategic Accounts IdeaBank.  A practitioner’s inventory of “best practices and creative practices” has emerged from working with growth leaders among business-to-business firms in many industries.  The ideas included in this IdeaBank reflect action steps that strategic account leaders and teams have developed and implemented in order to meet the ongoing challenge of ensuring that their strategic accounts are their firm’s engines of growth.  These ideas are as diverse as is the strategic accounts environment itself, from globalization[2] to services[3] to ‘e’[4].  Accompanying these ideas are assessments of what elements – within the business environment, the company, or the strategic account organization – were important for success.

The research project being launched by Blue Canyon Partners, Inc. and SAMA is designed to extend this knowledge base and make it available to participants and SAMA membership.  The first phase of the research will involve placing Blue Canyon’s  assessment tools, as described above, on the SAMA web site.  Participants in the research project can assess one or more of their strategic account relationships using these tools.  The participant can compare their strategic account relationship and the associated competencies with benchmark information gathered from Blue Canyon’s previous research.  This feedback will be accompanied by ideas as to the areas of focus that will most likely be successful.

A second phase of the research will involve one-on-one interviews with participants in the earlier phase identified as potential contributors of best practices or creative practices to the IdeaBank.  Summaries of the ideas that emerge from these discussions will be included in future research papers and in presentations and discussions at the SAMA 2002 Annual Conference.

Answering the Question

For many organizations, strategic accounts can be the solution to the challenge posed by the question, “Whatever Happened to Growth?”  This will occur when strategic account teams and executives make the case to their organization that growth prospects are real and that investments in strategic account relationships will yield a high rate of return.

We believe that this research project will help strategic account teams and executives make this case in three ways.  First, it will document how growth leaders have realized success through strategic account relationships – and identify clear and actionable ideas about how to start the growth process.  Second, it will strengthen a systematic process that defines the investments in key competencies that will advance each specific strategic account relationship.  Third, it will provide information to realistically quantify the payoff that a firm can expect if it invests in its strategic account relationships.  Blue Canyon Partners, Inc. and SAMA invite you to participate in this important research process and to share in the benefits that will emerge.

[related-case-study]

Insights

Mistakes That Could Have Been Avoided

As we begin to climb slowly out of the deepest, darkest recession on recent record, it’s normal to want to simply get up, wipe the dirt off our knees, and move blithely ahead saying to ourselves “Phew, that was a close one; never want to go there again.”  For the most part this is a very common reaction that many business leaders have as they look forward to brighter prospects in 2011 and beyond.  As you look ahead, however, we believe it’s important to look at lessons learned, mistakes that could have been avoided, learning from the past business cycle in order to avoid these pitfalls tomorrow.

A way to learn from these lessons is to ask the question: How can we know which industries and customers are good choices in both good times and in difficult times?

Our answer is not that one industry is ultimately superior to another, or that one type of customer is guaranteed to help you over another.  Instead, as we discuss in our strategy book, CoDestiny[1], we advocate that you to follow these three guidelines:

1. Understand your current and prospective pathways to market — your customer chains – and learn who is involved, including later-stage customer chain participants.
2. Examine each stage of your customer chain to understand the participant’s economics drivers, what motivates their purchase decisions, and the competition.
3. Create win-win outcomes for all customer chain participants. If you can create value for each customer along the customer chain, you will be rewarded for this value.

One executive recently shared the following:  “My previous employer was a 35 year old company that was a highly valued electronic parts supplier serving the automotive industry. The company produced such high-end, uniquely designed exterior lighting parts that we had an almost exclusive supplier position with the major automotive companies in Detroit.  As you can image, historically the firm’s fortunes ran parallel to this industry — when the car manufacturers slowed down, so did we.  For decades, the firm’s leadership understood the volatility and risk of this business and managed it accordingly—right up until last year.  In one week during 2009, leadership learned that a competitor had delivered two proposals to two of the firm’s largest, long-time customers, offering to undercut the firm’s prices and essentially buy the business.  When the firm was asked for a response, senior management offered price reductions in an attempt to match the competitor within 1.5 percentage points, and assumed that the supplier-customer relationship was strong, secure, and could survive these pricing challenges.  Unfortunately, in both cases the business was awarded to the competitor who had offered rock bottom pricing.  The relationships did not survive this challenge, and nor did the firm.”

As this story illustrates, there are some firms who clearly faltered during the recent tough times.  Other firms, however, have not only survived the severe downturn, but have managed to solidify their positions and steer clear of these challenges.  As an example, we worked with a firm which also had strong and important customer relationships in the automotive industry.  Unlike the story above, this firm did well over the last few years.  This supplier also offered unique, differentiated products, had healthy supplier-customer relationships, and managed to aggressively cut costs in order to respond with needed pricing reductions when asked.  This firm remains in business, and is currently enjoying the benefit of the automotive industry’s rebound.

So, why did the latter firm prosper and the other not? To the casual observer, each firm faced similar challenges and possessed similar strengths going into this recession.  They both served the same industry, they both had nurtured strong customer relationships, they both offered quality products and services, and they both were willing to offer decreased prices.

There was, however, one major difference between these firms – their customer’s customers. The first firm’s electronic parts were placed on vehicles that were not selling well, and the latter firm’s parts were placed on vehicles – military vehicles and hybrid vehicles – that sold quite well during the recession. The first supplier’s willingness to cut prices to try to match the competition was not enough; the vehicle itself was caught in a descending death spiral and no matter how much cost was taken out and how far prices were slashed, the supplier could never gain enough volume to offset the aggressive margin squeeze.  The math just wasn’t going to work.

In contrast, the second firm had the wherewithal to develop a better plan from the start. This supplier recognized that they needed to look beyond their direct customer, the automotive manufacturer, and focus on being positioned with growing end customer segments.  In other words, this supplier proactively picked winning customer chains, and as the economy turned downward, this firm worked closely and collaboratively with its major customers to maintain its position of strength.

One secret for success is to align with winning customer chains. You can find these winning customer chains by paying attention to participants along the customer chain who are best positioned to respond successfully in the face of change. These participants are ones that know how to bring value to their customers and concurrently capture value for their own shareholders.  The second supplier’s resilience was due in a large part to two winning customer chains:  one that involved the vehicle manufacturer who sold specialty vehicles to the military and the other was the vehicle manufacturer who sold new, high-end hybrid automobiles to environmentally oriented consumers.  In each of these two customer chains, the automobile manufacturer was offering a distinctive product to its customers and was consequently being rewarded for those products.  As such, the supplier who planned, designed, and engineered its parts to partner with its automotive customers in order to participate on the new hybrid and military vehicles was rewarded with sustainable volume.

We advocate that this lesson of picking your winning customer chains should not simply be used to weather a tough economic environment, but instead should inform your growth strategy on an on-going, consistent basis.  For organizations that seek to sustain and grow their business, they must align with winning customer chains – those that are healthy, growing, and resilient.

Author: Atlee Valentine Pope

[related-case-study]

Insights

Implementation Competencies: Creating Long-Term Growth Foundations

A global industrial systems company found that its business environment was shifting rapidly.  The firm had experienced market share losses with some customers and had received sharp (and unpleasant) communications from several of this firm’s largest national accounts.  This firm’s executives believed that their product quality was superior to that of competitors, and the firm had a long-standing policy of market-based pricing.  This loss of business and degradation of customer relationships was therefore unanticipated.

Recognizing the severity of this situation, the firm undertook a systematic effort to assemble “messages from the market” to guide its decisions.  It learned that expectations were sharply different from those of previous periods.  It learned that customers placed a very high value on service delivery related to new project introductions, logistics cycles, and technical support associated with the use of this supplier’s products.  More and more customers were basing purchase decisions on the company’s skills in implementing its programs, rather than on product quality and pricing alone.

This firm is far from alone in having to accept the importance placed upon the implementation competency by its customers.  Across industries, implementation skills have become a key basis by which customers differentiate among their suppliers.  There are multiple reasons why the importance of implementation has escalated, including:

• Customer implementation of “just-in-time” approaches to manufacturing and logistics, requiring that suppliers be able to function successfully within this environment.
• Cycle-time reductions in the product development and introduction processes, requiring that supplier contributions to technology and design evolve at parallel speeds.
• High expectations regarding quality and service on the parts of end customers, requiring that suppliers be part of a “response chain” capable of timely and effective resolution of end customer problems.
• Globalization of business into diverse environments with widely varying labor skill levels and factory environments, requiring that suppliers be able to ensure the effectiveness of their offering independently of where it is used.

The list of factors that have underscored the importance of implementation skills goes on and on – including universal factors like those above and account-specific factors unique to the business environment of each supplier-customer relationship.  Strategic account executives must anticipate higher and higher expectations relating to implementation from their customers, and get into a position to respond to them without having to go through the difficult times that were faced by the industrial systems supplier described earlier.

The Implementation Competency:  A Growth Driver

Our research[1] into the relationship between strategic account relationship management competencies and growth spotlights the importance placed on implementation.  We examined three major clusters of competencies relevant to success with strategic account relationships – Relationship Competencies, Implementation Competencies, and Innovation Competencies.  All three types of competencies are important, with strong correlation to growth with strategic accounts and to account stability.

The Implementation Competency reflects the ability of a supplier to not only meet the expectations of its strategic account, but to get ahead of problems and to produce results.  The challenges identified by the industrial systems supplier described earlier reflect the dimensions of this competency.  Can the firm deliver on time, in full, at proscribed levels of quality?  Do the firm’s processes allow for ‘seamless’ transactions with its strategic account – regardless of whether the processes involve product design, logistics, technical support, order entry, or some other activity?

Strong Implementation Competencies play a critical role with respect to strategic account relationships.  We find that strong Implementation Competencies allow a firm to move from a transactional “Supplier” relationship to the higher tiers where relationships become more strategic and where the supplier gains (at minimum) a ‘last look’ at the business.  While Relationship Competencies may start the growth process, the long-term foundations for growing relationships depend critically on the Implementation Competency.

A key lesson emerges from an examination of the factors that customers cite as important with respect to Implementation Competencies:  the focus shifts from the account executive to the firm.

While a strategic account manager’s  ‘heroic efforts’ can yield significant gains in the Relationship Competency, it takes organization-wide efforts to demonstrate competency in implementation.  We’ve all too often seen companies create strategic account teams in an attempt to cover up shortfalls in their Implementation Competencies.  Somehow, their view was that individual sales executive heroism could counterbalance organizational incompetence.  It doesn’t work.  Top-performing companies make an organization-wide commitment to the strategic account relationship by functioning well on a company-to-company basis.

Our research suggests that two specific dimensions of the Implementation Competency are most closely linked to strategic account relationship growth:

• Processes
• Linkage

While other dimensions of the Implementation Competency are also important, our research findings suggest the actions that strategic account executives and teams can take along these two dimensions in order to strengthen their performance with respect to implementation – and thereby take their strategic account relationships to a higher level.

Focus on the Processes Central to the Strategic Account Relationship

Processes are the first of two Implementation Competency dimensions closely linked to growth.  The existence and quality of the Processes that are involved in transactions with strategic accounts are critical.  Contributions to the Process dimension of the Implementation Competency occur not only in the course of ‘day-to-day’ transactions, but also during ‘crisis periods’ within the business environment.  Solid firms have processes that function smoothly on a day-by-day basis.  Exceptional firms have processes that can withstand the stress of crises.

As part of our research, we developed three clusters of strategic accounts along the growth spectrum (from top performers to underperformers) and correlated supplier performance along the various competency dimensions. The chart below summarizes our research findings with respect to Process strengths.  It shows that suppliers that achieve stronger Process skills realize better performance in terms of faster growing accounts:

The firms working with top-performing accounts demonstrated nearly twice the level of Process competency than those whose accounts showed average performance, and the firms whose accounts performed at average levels showed about twice the level of competency as those whose accounts were underperformers.
Messages from best-practice organizations – those whose accounts fell within the top performer category – are very clear:  It takes an organization to build strong Implementation Competencies.  These messages are suggested by the following observations from firms that have developed strong Implementation Competencies:

• “All of our operational management people are measured and rewarded on customer satisfaction and growth.”

• “We look at how we’re performing across our key processes that underlie every aspect of our customer relationship – delivery, support, sales, R&D, every function.  Then we look at how we can improve, tighten up and generally get to higher levels for this customer relationship.”

Developing effective Processes involves much more than the sales team working with the customer’s purchasing group.  It’s all about company-to-company touch points – contact points that work.  It’s about the front office, the back office, the factory floor, and the loading dock all delivering.

We have found that quality firms, those that have gone through formal processes related to quality improvement, score well along this dimension.  They understand their processes, they understand how these processes connect to their customers, and they understand how to make them better.  We have also found, unfortunately, that companies that perform poorly along this dimension are often unable to even define which are the critical processes that are relevant to success with their most important customers.

Focus on the Linkages between Supplier and Strategic Account Processes

Closely linked to the Process dimension is the Linkage dimension of the Implementation Competency.  Linkages are best described as processes, programs and systems that interface, connect or intertwine the supplier and customer.  Examples include order entry systems, demand forecasting programs, and web-based engineering processes.  Strong and effective Linkages between the processes and people of the supplier and strategic account organizations are critical for continued improvement and for initiatives to “take costs out of the system”.

Again, the connection between stronger Linkage skills and faster growing strategic accounts is clear from the graph below:

[related-case-study]

Insights

In-Career Education and Implementation Competencies

Rudy Giuliani once noted that “Change is not a destination, just as hope is not a strategy.”  The wisdom in that statement was recently underscored during a webinar I conducted on the topic Best Practices in Strategy Implementation, sponsored by the Institute for the Study of Business Markets[1].  The webinar technology that was used allowed for some real-time polling of the participants.

The very striking finding that emerged from the use of this polling technology was that only 26% of the respondents said that their companies offered any in-career education programs related to implementation[2].  Most corporations today spend well over $1000 annually per employee on education and training.  Such programs span a wide range of topics – from how to develop strategy to how to motivate employees to how to use the newest IT tools.  But the finding from this poll, as well as what I’ve heard over and over in discussions with executives in many different companies, is that very little of this money is spent on developing competencies related to implementation projects.  My translation of this, in the spirit of Giuliani’s quote, is that successful change management is thought to only require the definition of the destination, perhaps sprinkled with a pinch of hope.

The assumption that is made by those corporations that don’t sponsor in-career education relating to implementation competencies, at least implicitly, is that employees should know how to manage and contribute to those types of projects.  Somewhere in their genes or background, there should be the skills necessary to bring them to a successful conclusion.

Unfortunately, that’s a bad assumption in many cases.  There are processes that best practice companies have put into place that have been documented to save time and money and lead to better results – one of the few instances in which there isn’t a necessary choice of the form “Pick any two – better, cheaper, or faster”.  Investments in implementation competencies can pay quite a dividend along all three of those metrics.

There is quite a bit that can be learned on this topic, from the basic elements of blocking and tackling relating to project management to creative practices that enhance the ability of the implementation team to avoid detours and manage surprises that arise during the project.  There are best practice skills relating to even the monitoring process through which a company’s leadership provides direction and problem-solving support to key implementation teams.

A further motivation for developing strong implementation competencies emerged from recent research on the challenges of making changes to a firm’s business model[3].  Such business model changes are frequent, typically motivated by sound strategic thinking, related to factors that range from profit improvement to growth to new market entry to the introduction of new technology.

In essentially all cases, such changes represent a major challenge to implement.  That reality underscores the importance of the following finding from the research cited above.  By a very substantial margin, the two reasons cited as responsible for situations in which the new business model failed to deliver the hoped-for results were “Implementation process was poorly managed” and “Internal resistance to the new business model”.  Those two factors emerged from a long list of potential problems that spanned a spectrum from a flawed strategy to customer resistance to competitor responses.  The teams that will be responsible for implementing business model changes will have to grapple with challenges aplenty, some involving the technical aspects of the change, some involving gaining buy-in from customers and other key third-party organizations, and some involving challenges associated with resistance from within the corporation itself.

As is the case with other type of management education, you can learn a lot about the key competencies that should be emphasized as part of in-career education program from experiences, both good and bad.  An overview of some of these foundations, drawn from case study experiences with leading business firms, is included in CoDestiny[4] and in a recent compilation of articles on Best Practices in Strategy Implementation[5].  While those references suggest a long list of possible areas for focus, as a first priority, I suggest that there be an emphasis on skill development in three categories.

First is the basic blocking and tackling of effective project management.  Every project associated with implementation, change management, new business models, or similar motivations has complexity that can only be addressed through a structured and orderly approach, drawing upon best-in-class tools to manage and monitor the project.  The project team needs to have clarity as to assignments and responsibility at a very detailed “What – Who – When” level of detail.  There are many toolkits available for use by those managing the project, some provided by third-party vendors, others developed within the corporation.  But making such tool kits and their instruction manuals available isn’t enough.  Implementation leaders and project team members need to be well-versed in the use of these tools, including gaining the experiences that have been developed by previous practitioners.

Second are processes by which key insights are gained from the internal and external constituencies that will be impacted by the changes planned.  This not only responds to the challenge underscored by the finding on internal resistance to change, but also to the reality that customers, channel partners, suppliers, and many other external organizations are likely to have an important “vote” on the success of the project.  One of the best practice lessons that emerges over and over is the need to fully understand the external implications of change, and get into a position to sell the concept and gain support from key third-party constituencies.  One project manager with whom I recently worked said that “Bringing the voice of our customers into our project plan was the single most important ingredient behind our success.  They warned us of multiple problems that each had the potential to derail what we were doing.” His insight is common among leaders and organizations that have brought external messages into the project plan.

There is as second dimension to this recommendation regarding bringing key insights into project planning and management.  One of the realities of most change management projects is that they will lead into some uncharted waters.  It’s as much of a bad assumption to assume your team can grapple its way through such waters as it is to assume that they are genetically able to manage complex projects effectively.  Drawing upon lessons from other environments, through processes as simple as talking to people with the right experiences through ones as formal as benchmarking, can allow a team to navigate such uncharted waters without running aground.  Insights and information are keys to the success of many projects.  The ability to gain such insights must be a central part of the skill set of project leaders and their teams.

The third suggested focus in terms of competency development involves the ability to plan for uncertainty and surprises.  It is a rare when a project of any magnitude doesn’t involve both, and project success along all dimensions – schedule, budget, and outcome – is often determined by whether the unanticipated twists and turns derail the project or not.  Scenario planning is a skill, one that can be learned and embedded into project management processes and disciplines.  Sometimes the alternative scenarios reflect the changes that inevitably occur in the business environment, from frequent ones like business cycles to infrequent ones like tsunamis.  Other scenarios are driven by competitor responses (or customer responses) to the changes being implemented.  The more the implementation team is able to monitor changes and have plans in place to address them, the more likely they are to succeed.

In all three of the categories outlined above, some of the learning that should be included in in-career education programs is general, but some of it has to be specific to each firm.  The latter focus on customization must reflect your firm’s business environment; its key systems and processes; the nature of your company’s critical relationships with suppliers, distributors, and customers; and many other factors.  Companies that have implemented strong in-career education programs on this topic combine a general approach to managing implementation with components that have been developed in-house for use within their firm.

Skills in managing implementation and change can help you reach important destinations, and solid skills and competencies can ensure that hopes are realized.  The business environments in which we all operate will demand more and more agility on the part of our companies, in order to realize the opportunities that are emerging and address the challenges that are inevitable.  The companies that build solid foundations in terms of competencies relevant to implementation and change will be those that are able to celebrate the destinations that they reach and the hopes that they realize.

Author: George F. Brown, Jr.

[related-case-study]

Insights

If Speaking Is Silver, Then Listening Is Gold

A recent project provided an opportunity to examine the relationships between a machinery manufacturer and the dealer network through which they went to market. The project was motivated by an executive in the manufacturing firm who observed that “Relationships with our dealers are getting out of sync. More and more frequently, there are issues that are getting in the way of doing business. And without our dealer network solidly behind us, we’re out of business in a heartbeat.” This executive knew that their sales were driven by dealer activity, and that the relationships with the end customers that used this firm’s machinery were the responsibility of those dealers.

Channel conflict is nothing new. For most businesses that go to market through dealers, distributors, wholesalers, VARs, integrators, and other channel partners, it is an all-too-common fact of life. The best organizations recognize the many ways in which conflict can surface, and monitor relationships carefully to ensure that things don’t go too far in the wrong direction.

A number of years ago, we did research into the sources of conflict between manufacturers and their channel partners[1]. Over and over, the same seven themes surfaced as sources of conflict, spanning diverse industries and quite distinct categories of channel organizations. Some of these themes were predictable. Margin management, for example, fell at the top of the list. Simply stated, if one of the partners to a business relationship isn’t making money, conflict will surface and the relationship can be assumed to be in jeopardy. Other themes were a bit unexpected. Pricing, not prices, was a frequent source of dissatisfaction for channel organizations that saw the pricing process as unworkable and interfering with sales[2].

In the work with this machinery manufacturer and its dealers, many of the same themes appeared once again, as did the criticality of the message included in the Turkish proverb used as the title of this article. Interviews with executives in two dealer organizations provide insight as to both the need to listen and strategies to avoid conflict and misalignment between manufacturers and their dealers.

The first dealer organization was a rather large one, with multi-state operations and quite a few individual storefronts. This dealership was a family-owned organization, with a long history and deep roots in many of the communities that it served. One of the owners provided the following thoughts:

“Every year, [the machinery manufacturer] visits with us and tells us of their exciting plans for the year – new products, new programs, etc. There’s usually a dog-and-pony show, some fancy new brochures, and most years we can fit in a round of golf and a nice dinner before they head off to their next visit.

“But here’s what never happens. They might casually ask us ‘How’s business?’, but they’ve never asked us to present our own business plans for the coming year. Now we’re not as big as [the machinery manufacturer], but we are a fairly sizeable business and we take running our company seriously. We put plans in place that we think are the right ones for our market and our customers.

“Let me give you an example. They visited here not too long ago, and unveiled three major new initiatives for the coming year, telling us that these would be the route to success for us and make us a lot of money. But from our perspective, only one of the three really fit into our plans. We’ll run with that one, and what they are doing is good and will reinforce our own efforts. But, to be honest, the other two initiatives aren’t going to get a lot of attention, and we actually think one of them is a bit misguided.

“We’ve have been happy to share our opinions with them, but they never asked. Basically they came here to tell us what they were doing, not to listen to what we were doing.”

The second example occurred during discussions with another dealer, in this instance, a smaller organization that only had two locations in a mid-sized Midwestern city. The message that was provided by one of the executives in this firm was as follows:

“We respect [the machinery manufacturer], and they’ve been a good supplier for a long time. Our customers like their product, by and large. But we see a big issue. I can’t put a number on this, but all of us here believe that the cost to sell and the cost to serve have skyrocketed in recent years. I’m honestly not sure we’re making money on this line any more, and I can tell you our salesmen groan a bit when they get a call from [the machinery manufacturer] with a ‘hot lead’. That’s a real warning flag. The sales guys usually do cartwheels if someone gives them a lead to a prospect, but that’s not the case here.”

While this dealer’s concern about whether they were making money on this machinery product line was troubling, this executive’s response to a question about how the manufacturer had reacted to this message was even more so:

“I raised this topic once in a meeting a few months ago, and basically had the door slammed in my face. It was like I had insulted their mothers. They got totally defensive. I was told that other dealers weren’t citing this problem, and that the lead generation program that [the machinery manufacturer] had initiated was getting a lot of praise from other dealers. They didn’t quite tell me I needed to get new salesmen, but that was almost the message.”

These two examples underscore the importance of gaining strong, clear messages from the market and of taking action to address the issues that are included in these messages. Most manufacturers have some sort of voice of the customer program in place to ensure that they get feedback from their end customers, the individuals and organizations that use their products. But far too few have similar programs in place to listen to the issues, concerns, and ideas of their channel partners, organizations that are often critical participants in the customer chains that connect manufacturers to their end customers.

Effectively listening to a business partner is quite different from listening to an end customer in business-to-business markets – and radically different from listening to messages from customers in consumer markets. In business-to-business markets, the insights that can emerge from effective voice of the customer programs focused on end customers are typically centered around the customer’s experience in using the product – covering metrics like reliability, durability, ease of use, functionality, ease of maintenance, and many other metrics. Such voice of the customer programs are also likely to develop insights about key surrounding services – warranty repair, parts availability, etc. – and also about key economic considerations – energy efficiency, maintenance costs, costs associated with downtime, etc. Best-in-class programs go even further and explore the unmet needs of such customers and their vision as to how future product evolution will even better serve their needs.

While that information is clearly important to the manufacturer and also to their dealer network, its focus is quite different from what needs to be learned through “voice of the channel partner” initiatives. The two examples provided earlier spotlight the quite different nature of the learning that can emerge from listening to channel partners. Had the machinery manufacturer asked two simple questions of the dealers cited above, they would have accumulated a wealth of potentially valuable information.

Asking the large multi-state dealer “What are your growth priorities for the coming year?” would have allowed them to see where their own ideas aligned and where there were not matches. Asking this question far enough in advance to allow plans to be developed taking the information into account could have been invaluable. It’s not that the dealership’s ideas were necessarily the best ones, but it is clear that misalignment between the plans of the manufacturer and the dealership was a prescription for failure. Investing in listening could have averted such misalignment, and turned into pure gold.

Asking the smaller dealer “What can we do together to make more money on our line of machinery?” would have similarly initiated a process through which the disconnect between the manufacturer’s pride in its lead generation program and the groans from the salesmen could have been understood and resolved. Again, it’s not clear that the salesmen were right in seeing this product as being a money-loser when you took into account the cost of selling it. But having the sales team looking to other products as the place to focus their activity is certainly a major problem. Listening to this issue, avoiding a defensive reaction to what was heard, and collaborating with the dealership on solving it could have once again been pure gold.

An effective program of listening to channel partners must focus on the key themes that determine whether the relationship is generating shared successes or not, and identify the sources of conflict that are getting in the way of the ability of both organizations to reward their shareholders through collaboration. Such programs can be an important complement to initiatives designed to hear messages from end customers, and help manufacturers ensure that all of the links in their customer chain are strong and able to handle the challenges of the markets in which they operate.

Author: George F. Brown, Jr.

[related-case-study]

Insights

If You Have Too Many Priorities, You Have None

The wisdom inherent in the frequently heard statement “If you have too many priorities, you have none” is important to remember as firms establish their growth priorities, making decisions that will define the business units and market segments that will be targeted for investments and management attention.  Culling the list, however, is always hard, as many firms frequently see a robust roster of potentially attractive options, each with champions and arguments in support of the concept.  Recent research has found that executives frequently report that they have conflicting priorities and that many of their growth initiatives result in wasted resources[1].  The good news from that same research was that executives who reported the most focused set of priorities also reported the strongest revenue growth.

Making growth choices, while difficult, is therefore very important to business success.  Its importance suggests the value of defining and implementing a formal process, one that allows for comparisons across disparate options, businesses, and markets and one that allows for fact-based decisions.  The process must also provide the basis for discussions and debates among a firm’s leadership team, replacing passion and debate skills with a fact-based foundation that can yield agreement on the difficult choices that must inevitably be made.

In a recent article[2], I outlined a process that has been successfully applied to this challenge by a number of leading business firms in quite distinct markets.  The sections that follow will describe the overall growth choice process and provide short case study examples of the process used to quantify two of the metrics examined in that process.  While the application of the process and the challenges associated in quantifying the metrics included in it vary to some degree from one application to the next, the case studies suggest structures that have been successfully applied in a variety of business settings.  Executives that have been involved in the application of this process have cited its value, not only in terms of helping to reach agreement on growth priorities, but also in terms of defining the specific strengths and weaknesses of each option under consideration, contributing to not only the strategy decision, but also the implementation and monitoring plans that will be used by their company’s leadership teams.

Growth Choices

The growth choices process involves the use of six metrics, three of which focus on the market characteristics and three of which focus on positioning characteristics.  These metrics provide a basis for ranking the options under consideration, and also spotlight the “growth inhibitors” that must be addressed if any of the lower-ranking options are to move to a more attractive position in the future.  Each of the six metrics has multiple dimensions, which enables firms to focus on concrete, measurable factors in the evaluation process.

The three factors that reflect Market Considerations are Headroom, Market Growth, and Margin Improvement Opportunities.  The Headroom metric emphasizes the extent to which the market in which the firm participates offers sufficient room for growth, critically focusing on opportunities in which there is a genuine opportunity for success (as opposed to business that is already “locked in” to one competitor or another).  Market Growth emphasizes the fact that it is always a major plus to be selling into growth, rather than having to battle to take share from existing suppliers.  Margin Improvement Opportunities are closely linked to the intensity of pricing pressures[3] and the criticality of pricing to success for the business unit or segment under consideration.

The second set of factors focuses on Positioning vis-à-vis the competition.  Here, once again there are three factors that can be assessed: Purchase Decision Factors, Short-Term Fit, and Business Drivers.  The quality of positioning with respect to Purchase Decision Factors involves the match (or lack of it) between a business unit’s competitive strengths and the factors that are top on the list in terms of customers’ purchase decisions.  The Short-Term Fit assessment involves such factors as first-mover advantages, sales model and channel advantages, major customer relationships, and the relevance of the installed base.  Evaluation of Business Drivers not only focuses on whether a business unit’s offer addresses the key forces motivating customer interest and solves the problems that are keeping them awake at night, but also whether prospective changes on the horizon work for or against your position.

Accurate assessment along each of these six dimensions is complex and involves many considerations.  Without reflecting all of that dimensionality, the table below provides a quick summary of the assessment themes and a short statement defining the characteristics of assessments that suggest Low, Average, or Strong Potential for growth:

[related-case-study]