Strategic Innovation - trends, challenges and best practices
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Transcript of Strategic Innovation - trends, challenges and best practices
Organisation InnovationOrganisation Innovation
Start Ups
Incubators
Clusters
Innovation Networks
Spin-outs
Alliances
Outsourcing And
Off-shoring
Pushing The Boundaries Of The Firm
Small & Medium
Sized Enterprises
Innovative Business
Organisation
Innovative Business
Organisation
Organisation Design
Mega Trends
?OutsourcingAnd
Offshoring
Understanding Innovation
And Organisations
Setting the Climate And ConditionsFor Sustainable, Innovative
Organisations
Time Management
Clusters And
Innovation Networks
Our World In The Next
10-20 years
InfluencingOthersBuilding And
Managing Alliances
Our World In The Next 10-20 YearsOur World In The Next 10-20 Years
Organisation Technology
The Future
Everything Around Us Is Changing….
Context People Trends Generational
Service
$
I thought …
• I had a job for life• my skills would last a life-time• my food was safe• my government would care for me in old age• my savings policies were guaranteed• politicians could be trusted• information was held in libraries• institutions were ‘secure’• the enemy was in ‘the east’• the EEC was a trading group• it was good to have less children• and they would leave home before 25• we would always be manufacturers• a telephone had to be plugged in• that loyalty counted for something• that the trains and planes were safe• I’d die around 70
So what hasn’t changed?
Personal information will become a saleable commodity
Work life balance replaced by work life divide/bend
Employee retention a key measure of corporate performance
Privacy, spirituality, and an aversion to being seen as a cog in themarketing gears of thousands of companies will stir new approaches.
Inter generational politics and wealth sharing becomes a major issue
Lingering age prejudice drives out of the market precisely those olderworkers whom the young will then resent having to support.
Society divides on generational lines - each one espousing different value sets
Attitudes towards working mothers and children in general becomemore friendly as the demographic problem becomes better known.
Women will become more important in business organisations. Therewill be a feminisation of the society as a whole
Peop
le
• Customers are becoming more cynical and therefore demanding.
• Shift from choice (already too much) to fitness for purpose / needs
• Consumer tolerance for "either / or" choices will decline significantly. They will want it all when they make significant buying decisions.
• Consumers will increasingly grow to need assistance in making choices from the great amount of information that will be available
• In the short term, the customer service will continue to move offshore. There will be a public backlash against companies that rely extensively on outsourced service
• People will depend on fewer providers to be their source of goods and services.
• People equate service with relationships which means other people. They may use technology to communicate; but, a "real person" is still the goal.
Cu
stom
er
Reduction of complexity
Matching expectations
Understanding
Relevance
Short cuts
Advice
Time
Guide/coach
Org
anis
ati
on
• There will be major power struggles between governments and multinationals and other corporations
• More Outsourcing, BPO and offshoring
• Partnerships, Joint Ventures and Alliances will become more important than mergers & acquisitions.
• The growth of international networks and temporary relationships within these networks and are smaller, nimbler, quicker.
• Organisations which are not quick to anticipate and change will not survive
• Wal-Marti-zation: "Wal-Mart is the logical end point and the future of the economy in a society whose pre-eminent value is getting the best deal.“
• Managing the corporate brand is going to become more important and any corporate 'irresponsibility' could result in a brand dying overnight.
• Evidence of trustworthiness will be more important.
Tech
nolo
gy •A huge growth in "designer"
drugs aimed at areas such as hair growth, fat reduction, child sex selection etc
• Next generation communications leading to very cheap and fast video conferencing coupled with an energy crisis -> reduced travel, home working etc.
• Intelligent / functional clothing
• Bio / life technologies will have an overwhelming impact
• Insurance companies will use bio-information analysis to predict behaviour and set costs. There will be major issues over privacy raised from this.
• Green energy becomes popular and is forced on industrial west.
• In 10 years: Artificial intelligence will automate quite a lot of present work done by humans.
So what will it all look like ?...
Privacy Personal information will be guarded by consumers.
Market Of One.Personalisation and dynamic pricing become the norm
Networked OrganisationsPartnerships and alliances beat the diy enthusiasts
Leveraging The BrandTrusted brands will become even more important than today.
Cyber WarsCriminals will exploit electronic business
Technology OverloadWe’ll struggle to implement the technology we need to be winners.
FlexibilityFlexibility overtakes efficiency as a critical success factor
Globalisation
Shift ToServices
$Rising Costs
DemographicChanges
GrowingImportance
Of Knowledge
Access To Finance
EnvironmentalIssues
Organisation Design Mega TrendsOrganisation Design Mega Trends
Stability
Stability
Change
Change (No Periods Of Stability)
Major Discontinuity
Major Discontinuity
Industrial Age
Information Age
Markets are becoming much more open
Dynamic Competition
Growth And Earnings Pressures
Deregulation
Knowledge Based Competition
Demand For Solutions
Technology is enabling global trading and new business models
Supplier
Distributor
ManufacturerReseller
Consumer
Existing Industry Value Chain
Direct Sales
Direct Sales
Value chains are increasingly disaggregated with activities distributed to their most economic or strategic locations. Companies need to identify the precise areas where they have, or can build, distinctive strengths that will enable them to compete effectively
Value creation no longer cordoned within bounds of corporation…
Integrated Value Chain
Unbundled Value Chain
High transaction costs advantage vertical integration, primary value creationactivities within firm
High transaction costs advantage vertical integration, primary value creationactivities within firm
Falling transaction costs permit verticaldisintegration of primary value creation activities and advantage outsourcing, withcontractual relationships substituting for boundaries of firm
Falling transaction costs permit verticaldisintegration of primary value creation activities and advantage outsourcing, withcontractual relationships substituting for boundaries of firm
Contingent Value Alliances
Previous unbundling of value-added activities creates opportunities to gain competitive edge through multiple sourcingon contingent basis
Previous unbundling of value-added activities creates opportunities to gain competitive edge through multiple sourcingon contingent basis
Standardized systems enable corporations to assemble alliance partners on as needed basis, thereby enhancing flexibilitynecessary to exploit brief windows of opportunity
Standardized systems enable corporations to assemble alliance partners on as needed basis, thereby enhancing flexibilitynecessary to exploit brief windows of opportunity
Value Webs
Alliance Partners Date ProductCisco, EDS October 1997 Mainframe for Internet/intranet integration servicesCisco, Hewlett-Packard October 1998 Internet Platform for combined data, voice, videoCisco, Telcordia October 1998 Open telephony architecture for packet-based networksCisco, HP, EDS November 1998 Turnkey Web site for business-to-business e-commerceCisco, KPMG January 1999 National Solution Centers to showcase networked solutionsCisco, Microsoft January 1999 Network security solutions for enterprise computingCisco, HP, EDS April 1999 Internet protocol usage management and billing system for
ISPsCisco, PeopleSoft April 1999 Quality of Service solutions for end-to-end policy networking
Sales & MarketingManagement
Product Develpt& Marketing
IT Development & Management
Network Development & Management Order Fulfillment &
Service Activation
ServiceAssurance
Billing & Collections
HR Management Financial & Asset Management
Supplier & Partner Management
Customer Care
Substitution of Information for HierarchyFalling cost of delivering information throughout the organization resulting in formal organizational hierarchies giving way to more nimble, network-based structures.
Early experience in a number of industries suggests that organizational structures will evolve to take advantage of an increasingly “connected” workforce.
That said, the vast majority of firms are not yetradically changing their corporate structure to facilitate new decision making behaviors. Still playing out is the degree to which firms will utilize richer information flows to optimize current decision-making practices withoutfundamentally altering corporate structures.
Product/service preferences
(configuration, performance, bundling,price sensitivity)
Behavioral data
(purchase history, channel shopping)
Customer
Supplier
Interactive Customer RelationshipsFalling cost of interaction and connectivity enabling companies to capture unprecedented amounts of data about their customers and to deliver increasingly individualized value propositions.
Demographic data
(age, gender, family, home/work locations)
Financial data
(income, assets, credit history)
Filtered marketing
(appropriate in format, relevant to needs)
Customized products, services
(configuration, performance, bundling)
Anticipation of needs
(event-triggered contact)
Direct compensation
(with products, services or cash)
Customer Benefits• Products/services better match individual needs• Less time wasted by irrelevant marketing• Fair compensation for true value of personal information• Supplier anticipates needs and proposes solutions without prompting
Supplier Benefits• Lower marketing costs from targeting most responsive customers• Lower inventory costs from build-to-order automation and improved demand projections• Enhanced loyalty from relationship building, lock-in • Higher margins from targeting most valuable customers
From Mass Market to Mass Customization
TransparentCustomization
CosmeticCustomization
AdaptiveCustomization
CollaborativeCustomization
Provides individuallycustomized goods orservices without explicitlyinvolving customersin customization process
Presents standard product differently to different customers through packaging or display
Offers standard butcustomizable productdesigned to allow usersto alter its performancethemselves or to respond automatically to user needs
Conducts “dialogue” withindividual customers tohelp articulate needs,identify and create preciseoffering to fill those needs
Customers who wouldappreciate customizedproducts but for whomdirect collaborationrequires excessive effort or intrusion
Customers who aresatisfied with standard products but desirecustomized presentationor packaging
Customers whose needs vary greatly from use to use or from person toperson
One-time design decisionsinvolving trade-offs (e.g., length for width, comfort for fit, complexity for functionality)
Supplier-Led Customization Customer-Led Customization
Network Effects and Serial MonopolyNetwork effects are being used to explain the explosive growth patterns that are often seen in the information economy. A network effect is where dominance is rapidly achieved by firms that capture a critical share of the market. Most researchers are pointing out that dominance is unlikely to be sustained for long periods of time as innovation allows competitors to initiate a race to a new tipping point.
1965 1970 1975 1980 1985 1990 1995
Emergence in 1983 of the first fax machines based on the G3 standard,which enabled fax machines from different manufacturers to communicate…
Emergence in 1983 of the first fax machines based on the G3 standard,which enabled fax machines from different manufacturers to communicate…
…increasing the value ofthe fax network to allexisting and future users,and leading to explosiveindustry growth rates
…increasing the value ofthe fax network to allexisting and future users,and leading to explosiveindustry growth rates
Corporate Leadership
Business Unit leaders
Departments, functions, teams and employees
Decentralisation offers close proximity between business lines and marketsand thus fosters cultures of agility, speed and empowerment. As such,businesses for which intimate customer knowledge and rapid response tochanging conditions are critical benefit from decentralised structures.
Decentralisation offers close proximity between business lines and marketsand thus fosters cultures of agility, speed and empowerment. As such,businesses for which intimate customer knowledge and rapid response tochanging conditions are critical benefit from decentralised structures.
The Argument For De-centralisationThe Argument For Centralisation
Even in customer-centric businesses, centralised controls may be necessaryto engender common culture and values and maintain accountability forstandards such as risk management and ethical behaviour. Centralisedstructures also provide links between otherwise insular groups whencross-functional coordination is required.
Even in customer-centric businesses, centralised controls may be necessaryto engender common culture and values and maintain accountability forstandards such as risk management and ethical behaviour. Centralisedstructures also provide links between otherwise insular groups whencross-functional coordination is required.
Considering Competencies
To restructure effectively, organisations must consider the competenciesthat, when maintained at the corporate level or pushed to the line, exploitcompetitive advantage, and achieve balance among the inevitable tradeoffsbetween cost, control and access to markets.
To restructure effectively, organisations must consider the competenciesthat, when maintained at the corporate level or pushed to the line, exploitcompetitive advantage, and achieve balance among the inevitable tradeoffsbetween cost, control and access to markets.
Focus on innovation will lead to decentralised structures…
Business Unit 1 Business Unit 2 Business Unit 3 Business Unit 4
…while focus on product quality will lead to centralised structures
Traditional firm activity boundaries with suppliers and customers are breaking down as information technologies make enriched and more continuous information flows with parties traditionally “outside” the firm much more economic.
You
Your CustomersYour Suppliers
The Internet as interaction revolution
“The Information Revolution is allowing us to radically change the cost of interaction just as the machine changed the cost of making things. For example, today, at Boeing, we can design an airplane in St. Louis, Seattle, and Farnborough, England, and have the pieces fit together and assembled in Palmdale, California. Glass fiber carries the billions of bytes of data from one site to another and allows us to work in many different places.”
-Phil Condit, CEO, Boeing Corporation
Geographical boundary decision
Geographical boundary decision
Locating in physical space
Locating in physical space
Competitive advantage of
locations
Competitive advantage of
locationsChallenge – coordinating
activities acrossgeographies
Challenge – coordinating activities across
geographies
Two key organizational questions
Where to locate activities?
Firm scope decisionFirm scope decision
Locating in capability space
Locating in capability space
Core competencies of the firm
Core competencies of the firm
Challenge -Coordinating activities of
partners and suppliers
Challenge -Coordinating activities of
partners and suppliers
How to compete in the value chain?
Aggregated, Vertically Integrated
Disaggregated, Virtually Integrated
Back End Operations
Front End Operations
Coupled, Co-located
Location
Scope
Front End Operations
Back End Operations
Decoupled, Flexibly Located
•Centralized •Robust •Scalable •Standardized
•Decentralized •Flexible •Personalized •Contextualized
How the network impacts the structure of the corporation
Internal decoupling (of the firm’s activities) Firms can decouple back-end infrastructure and shared services from front-end customer facing functions. By centralizing and relocating shared services, firms can maximize comparative advantage across geographical boundaries.
External disaggregation (of the value chain) As business interactions move to electronic networks, interactions costs are reduced. Activities that companies have always believed to be central to their businesses can be offered by specialized entities that offer economies of scale and skill. Firms can disaggregate activities to maximize comparative advantage across firm boundaries.
The future shape of the corporation: Decoupling and Disaggregation
The decoupled organization
Front-back decoupling at Citibank
Geographical decoupling at GECIS (India)
GE Capital International Services employs 10,000 people in India and delivers over 450 processes to thirty different businesses in US, Europe, Japan and Australia. GECIS services 15 of the 20 top businesses in GE. It is the largest private user of international bandwidth (76Mb/sec by Dec 2002). In 2002, GECIS created 5 “capability clusters” called Centersof Excellence (CoEs):
•Finance and Accounting CoE•Collections CoE•Customer fulfillmentCoE•Insurance CoE•Industrial & Equipment Business CoE
SharedValues
Structure Systems
Strategy
Skills
Style
Staff
A set of actions aimed at gaining a competitive advantage
A set of actions aimed at gaining a competitive advantage
How the business or organisation is organised
How the business or organisation is organised
Core capabilities Core capabilities
The formal processes and procedures for doing things
The formal processes and procedures for doing things
Basic ideas about what is right and desirable
Basic ideas about what is right and desirable The way executives
collectively behave, focus, use time, communicate
The way executives collectively behave, focus, use time, communicate
Corporate demographics Corporate demographics
Taking A “Systems” View Of Organisation Design
SharedValues
Structure Systems
Strategy
Skills
Style
Staff
“There is no universal, ‘one best’ way to organize,” because organisational structure is only “themechanism that takes strategy, in the context of environment, resources, and history, andtransforms it into output.”
Nadler and TushmanOrganizational Architecture:Designs for Changing Organizations
Understanding Innovation And Organisations
Understanding Innovation And Organisations
Knowledge Creators
Public Sector
Private Sector
Knowledge Users
Social and Human Capital
UniversitiesS&T Training and Education
Absorptive CapacityFollower firms; Intermediate and End UsersMarket for Goods and Services
Research CapacityUniversities; Government LaboratoriesBasic Scientific Research
Technology and Innovation Performance
Creative FirmsApplied RTD and Product /Process Development
A Simple Innovation System
Characteristics ofinnovation-led companies:• a world wide focus, often requiring early expansion overseas;
• a balanced growth strategy, based on organic growth and targeted acquisitions
to enter new markets or acquire critical expertise;• a balanced investment strategy;• above average investment in market led research and development (R&D);• a focus on what really matters to the customer; and• an innovation culture with corporate leadership that expects growth through development of new products and services.
Products(WHAT)
Customers(WHO)
Processes(HOW)
Channels(WHERE)
A 360 Degree View Of Business Innovation
PlatformsR&D
NetworkingSolutions
Value Chain
Logistics/Supply Chain
CustomerExperience
Revenue Model
INCREMENTAL
SUBSTANTIAL
RADICAL
Create new products or new services
Create new products or new services
Create modular platforms and strategic Control points
Create modular platforms and strategic Control points
Solve “end-to-end” problems for customers
Solve “end-to-end” problems for customers
Find new customer segments or unmet customer needs
Find new customer segments or unmet customer needs
Change how customers interact with you
Change how customers interact with you
Change how you get paid Change how you get paid
Innovate on operating processesInnovate on operating processesChange position or scope of value chain participation
Change position or scope of value chain participation
Change the way you source and ship products
Change the way you source and ship products
Change how you go to market with your products
Change how you go to market with your products
Change how you connect with customers or products
Change how you connect with customers or products
Create new technologies, materials, products, or processes
Create new technologies, materials, products, or processes
Products(WHAT)
Customers(WHO)
Platforms
Processes(HOW)
Channels(WHERE)
R&D
NetworkingSolutions
CustomerExperience
Revenue ModelValue Chain
Logistics/Supply Chain
Dell Computers
INCREMENTAL
SUBSTANTIAL
RADICAL
Products(WHAT)
Customers(WHO)
Platforms
Processes(HOW)
Channels(WHERE)
R&D
NetworkingSolutions
CustomerExperience
Revenue ModelValue Chain
Logistics/Supply Chain
Starbucks
INCREMENTAL
SUBSTANTIAL
RADICAL
Products(WHAT)
Customers(WHO)
Platforms
Processes(HOW)
Channels(WHERE)
R&D
NetworkingSolutions
CustomerExperience
Revenue ModelValue Chain
Logistics/Supply Chain
Innovation Pathologies
INCREMENTAL
SUBSTANTIAL
RADICAL
ScopeMyopia
Products(WHAT)
Customers(WHO)
Platforms
Processes(HOW)
Channels(WHERE)
R&D
NetworkingSolutions
CustomerExperience
Revenue ModelValue Chain
Logistics/Supply Chain
Innovation Pathologies
INCREMENTAL
SUBSTANTIAL
RADICAL
DirectionalMyopia
Products(WHAT)
Customers(WHO)
Platforms
Processes(HOW)
Channels(WHERE)
R&D
NetworkingSolutions
CustomerExperience
Revenue ModelValue Chain
Logistics/Supply Chain
Innovation Pathologies
INCREMENTAL
SUBSTANTIAL
RADICAL
Horizon Disconnect
How firms organize for innovation: Five Dimensions
Where do firms focus their
search for innovation?
How do innovative ideas flow in the firm?
How are innovative ideas developed?
Where is the innovation organization located?How is the innovation
process managed?
Inside vs Outside
Top Down vs Grass RootsBuild
internally Buy
Separate from core
Integrated with core
Centralised DecentralisedFormal vs Informal
These can condensed into 2 underlying factors…
Orientation
GovernanceOrganicOrganicStructuredStructured
Inward OutInward Out
Outward InOutward In
–Focus (internal versus external) –Flows (top-down versus bottom up) –Development (build versus buy)
- Location (centralized versus decentralized) - Management processes (formal versus informal)
•Informal, loose structure •Decentralized–SBU-level •Embedded within SBUs •Multiple, informal linkages
• Formal, tight structure•Centralized–Corporate-level •Separated from SBUs•Few, formal linkages
• Locus of innovation and ideas is external to the firm • Sources of ideas are customers or other firms• Mechanisms focus on “importing” innovation (M&A, venturing) • Innovation flows tend to be top-down and outside-in
• Locus of innovation and ideas is internal to the firm
• Sources of ideas are technologies, knowledge and capabilities
• Mechanisms focus on “exporting” or “leveraging” capabilities and technologies
• Innovation flows tend to be lateral and bottom-up
EXPLORERS ARCHITECTS
MOONLIGHTERS MINERS
These can condensed into 2 underlying factors…
Orientation
OrganicOrganicStructuredStructured
Inward OutInward Out
Outward InOutward In
EXPLORERS ARCHITECTS
MINERSMOONLIGHTERS
3MShell
E-Bay
Siemens
Motorola
Cisco
Characteristics…
Orientation
OrganicOrganicStructuredStructured
Inward OutInward Out
Outward InOutward In
EXPLORERS ARCHITECTS
MINERSMOONLIGHTERS
•Explorers tend to be in emerging, rapidly expanding markets (e.g., eBay, Amazon), or they seek to redefine their markets
•They tend to be in markets where speed and agility are key factors for success
•Explorers believe that, in ill-defined and rapidly evolving markets, the external environment (customers and partners) is the key source of insights and opportunities.
•Their basic strategy is to search for customer insights through deep dialogue and collaboration with customers and partners.
•They rely on rapid prototyping and inexpensive testing of large numbers of small ideas, generated through customer insights•
The innovation process is diffuse and embedded in the customer-facing organization.
•Architects tend to be established firms in relatively mature markets, where capital and resource requirements for innovation are intensive.
•The capital intensity and maturity of their markets demands a more structured approach to organizing innovation, and a more centralized approach to funding innovation
•Architects also look externally at customers or other innovative firms for growth and innovation opportunities. However, prototyping and development tends to happen outside the core businesses in a separate innovation organization, or outside the firm through M&A activity.
•Architects tend to have a formal CBD or M&A function if they “buy and assimilate” innovation, or a formal central innovation organization if they prefer to “build and integrate” innovation.
•Driving innovations into the core businesses tends to be a top-down and formal process.
•Moonlighters tend to be large firms in diverse businesses that demand deep technology and process expertise.
•They believe that the best place to look for business innovation is inside the firm, by tapping into tacit knowledge that exists within the firm.
•To be successful, moonlighters need to have a strong innovation culture in the core business, and relatively autonomous business units.
•Moonlighters create “organizational slack” for intrapreneurs to moonlight on innovation projects.
•They create a free market for ideas and talent within the firm, where employees can get funding and resources at the grassroots level to drive innovation.
•Innovation tends to be a bottom-up activity.
•When ineffective, these firms lack a coordinated, strategic view of innovation
•Miners tend to be large firms with deep technology and process expertise, with relatively large monolithic business units.
•Miners tend to have business units with deep silos, and tend not to do well at horizontal collaboration between business units.
•Miners tend to lack innovation DNA within the core businesses, so they require a separate innovation organization to catalyze innovation.
•They believe that the best place to look for business innovation is inside the firm and laterally across the firm.
•Innovation tends to be a top-down activity.
•The innovation organization tends to be centralized and formal, with clearly defined processes and linkages to the core business. •When effective, the innovation organization serves as an innovation clearinghouse, coach, and catalyst. •When ineffective, the innovation organization fails to drive innovation back into the core businesses.
Making business innovation work requires taking a systemic view
Business InnovationFunding
Culture Strategy
Structure
PeopleProcesses
– What does management say and do to create a conducive environment for business innovation?
– What does management say and do to create a conducive environment for business innovation?
– How well does the firm articulate strategic principles that should guide business innovation?
– How well does the firm articulate strategic principles that should guide business innovation?
– Where is innovation activity located and how is it organized?
– Where is innovation activity located and how is it organized?
– How is the innovation organization staffed, how are incentives created, and how are innovation contributions recognized?
– How is the innovation organization staffed, how are incentives created, and how are innovation contributions recognized?
– How are innovative opportunities generated, developed, and evaluated? How are innovative initiatives driven into core businesses, and how is the innovation organization linked to the core business?
– How are innovative opportunities generated, developed, and evaluated? How are innovative initiatives driven into core businesses, and how is the innovation organization linked to the core business?
– How are innovation initiatives funded? Where are the pools of money located? Where do people go for funding?
– How are innovation initiatives funded? Where are the pools of money located? Where do people go for funding?
Making business innovation work requires taking a systemic view
Business InnovationFunding
Culture Strategy
Structure
PeopleProcesses
Provide prototyping funding at many levels… and protect it during downturns Siemens Business Systems KM
• KM provides “venture support” funds for developing ideas •A process for idea input, development and diffusion throughout SBS.
Whirlpool • Pools of funding at the SBU level, at Corporate level, and in the Discovery Center –“many ways to say yes”
Prototype… but “rejoice in cancellation”–No firm is exemplar in this!–Incentives must ensure the best projects are selected, not pet projects
Some portion of incentives clearly tied to innovative activityWhirlpool Corporation•30% of Unit General Managers’ evaluation & compensation based on innovation outputHerman Miller•Ideas from idea stage to market = increasing financial bonus
Approach business innovation as designing a new business system, not just new products:
–Herman Miller engages in “business system” innovation, alongside “product innovation” –includes redesign of manufacturing, supply chain, and distribution channels to support new workspace concepts.
–Thomson Financial looks at ways to “embed itself deeper into customer workflows”, and is organized around Strategic Customer Units (SCUs).
Create an “innovation vision” at the top, and make top management the lead evangelists:
–GM’s changed focus –don’t compete with other firms’ cars, compete for customer relationships. Promote “enterprise value” of customer relationships with GM. –Siemens CEO “proselytizes” about the Siemens Global Innovation Network
–Cemex CEO personally evangelizes the innovation effort
Innovate the way you innovate before you have to:
–Tribune Company perceived an impending crisis in print publishing that did not materialize, but preemptively created Tribune Ventures to capitalize on new media –Thomson Financial stopped acquiring and started experimenting before the downturn
Centralize your innovation expertise
Whirlpool –Whirlpool Discovery Center -Centralized place with permanent staff (I-mentors), innovation resources, and funding
–E-Discovery zone-centralized idea submission, access to resources, tools
Baxter –Non-Traditional Innovation (NTRI) –full-time team and funding to incubate opportunities that cut across business units
Dow Chemical –Growth Center to develop and incubate ideas
Siemens Business Systems –Knowledge management function serves as clearinghouse for innovation
Innovation organizations must be recognized as paths to success!
General Motors • New Business Development Network is recognized for “stars.” • Much of top management has gone through the program… the operation’s “alumni” have developed a strong affinity. • A recruiting tool for top talent.
Motorola •Leadership Sourcing Initiative •Nurtures leaders… and tracks performance over time •A clear signal to the firm about what is important… •...unfortunately, it is not focused on innovation
Bring together people with different eyes, different lenses, and different voices
Cemex believes that “innovation occurs at the junction between different attitudes, outlooks, and life experiences”. Its “Innovation Board” consists of five insiders (three Cemex VPs and two young managers) and two outsiders (a supplier and a consultant).
Staff innovation teams with credible, senior people Whirlpool’s I-mentors are “innovation black belts” like Six Sigma coaches
Create multiple and diverse processes for promoting collaboration and prototyping ideas –“many tools, many homes”
Siemens Business Systems •KM officers have resources & processes for prototyping and diffusion •This can occur in the 50 units worldwide, in communities of practice, at the SBS level, or at the Siemens Corporate level
Cemex •New business incubator (Cx Networks) •Shared performance scorecard •Cross-company e-groups •Innovation Board •Innovation staff group •Platform teams •Idea Bank
Build formal and informal horizontal linkages between business units
Siemens Business Systems •KM leaders from all 15 units and Corporate meet on a regular basis •They drive cross-fertilization and best practices between Business Units
Dow Chemical •The Growth Network, an informal group •The Business Growth Network, the top executive, a structured group
Build formal and informal linkages outside the firm
Alcoa •“Alcoa Business Systems” is innovating the firm’s entire production, supply chain, development and fulfillment systems (Alcoa’s adaptation of the Toyota Production System) •Arose from a long-term, deep relationship with Toyota Corporation
Siemens •The Global Innovation Network •Defines GIN as inside and across all units, partners, researchers, governments -anyone who can contribute to Siemens’ reach and growth.
Set time aside every year for an annual planning review toassess the current growth stage of the company and plan for the next growth stage.
SME Leaders need to…
Set time aside every year for an annual planning review to assess the current growth stage of the company and plan for the next growth stage.
Anticipate and be prepared for the growth challenges that all companies experience rather than allowing crises to dictate events.
Change the company’s course and direction if that is what is required to meet these challenges.
Groom leadership at all levels of the company. Ensure that professional development and upgrading occurs for all managers at least once a year.
Encourage managers to step back from day-to-day operations to assess the company from a broader perspective.
Set aside resources for professional advice at critical transitions between growth stages.
Learn about best practices in organizational developmentthrough case studies and advisory groups.
Promote, communicate and manage change throughout the organization.
Open communication lines with all levels of staff to promote discussion about the evolution and growth of the company.
Setting the Climate And ConditionsFor Sustainable, Innovative
Organisations
Setting the Climate And ConditionsFor Sustainable, Innovative
Organisations
Making It Happen…
Cost Competitiveness
Physical & Communications
Infrastructure
Innovation &Entrepreneurship
ManagementCapability
Technology, Product &Service
DevelopmentExpertise Expertise
In Markets
World Class Skills,Education &
Training
Effective, Agile
Government
Sustainable Enterprises
AttractiveTaxationRegime
Essential Conditions
CompetitiveAdvantages
Cost Competitiveness
A lack of effective competition policies
Excessive or inappropriate regulatory policies
An inability to promote and reward workplace productivity
Higher living costs
Direct and indirect barriers to entry to markets (for example, through restrictive state licensing schemes, or through the customs and practices engaged in by some of the self-regulated professions)
The absence of competition in the provision of economic infrastructure via statutory and other monopolies
The sheltered status enjoyed by many areas of business activity through legal protections of one kind or another
Better regulation is increasingly being used across the developed world to createcompetitive advantage in the race for investment, jobs and innovation.
While regulation is necessary and often valuable, it must be balanced against the costs to enterprise.
Regulatory compliance has a price – not only in financial terms, but also in terms of time and management attention. This can have a significant impact on small businesses.
Firms have to continually increase their productivity either by reducing input costsor by increasing output value in order to remain competitive and profitable and to pay employees real wage increases.
Productivity is in everyones interest. Increases in productivity are best realised in a work environment that is flexible, and in which the creativity, knowledge, skills and experience of the workforce are channelled and rewarded. The majority of firms lack the structures for this to happen.
Innovation and entrepreneurship
Workplace Innovation
Innovation In The Public Sector
Innovation &Entrepreneurship
Innovation requires a particular mindset that involves curiosity, creativity and problem-solving, the ability to continually question established ways of doing things and the ability to apply knowledge, insights and intuition to change them.
It also requires a range of skills that is neither easy to teach nor learn, including people management skills, negotiation skills, problem-solving and communication skills.
Provide positive role models and promote self employment as a long-term career goal and focusing on this area in the curriculum, in transition year and in career guidance advice, with a particular emphasis on potential early school leavers
Foster positive attitudes to personal responsibility, independence, self directedlearning, initiative and risk-taking
Teach the basics of business, finance and communication at primary, secondary and higher levels of education
Give greater recognition to non-academic achievementEnsure access to entrepreneurial award schemesProvide relevant entrepreneurial training at third level, including a focus on commercialisation of academic innovations.
A number of trends are converging to change the ways in which businesses are organised, in which management and control are exercised and in which responsibilities are distributed.
Information technology: Information can be made available where and when it is needed. As a result, front-line workers are more equipped to make decisions and work independently of traditional management hierarchies
Human resources: Workers are not only skilled at a specific task, but because of education and information technology, they are versatile and creative
Changes in employee preferences: Workers now seek more variety and challenge at work than before. They also seek more flexible working arrangements, such as part-time work and tele-working
Industrial technology: Large single-purpose machines are being replaced by more flexible, multi-purpose machines. These demand a more versatile, educated and creative workforce.
Public service modernisation and efficiency remains a critical challenge for manyGovernments
To create an environment conducive to innovation within the public sector, certaininterdependent conditions need to be in place for each department and agency -
Specific and prioritised goals: Ensuring that goals are clearly defined, prioritised, communicated and understood is a basic precondition to making real progress. Without this, the ability to focus resources to best effect to achieve objectives and to respond to the needs of the organisation and its clients is substantially weakened
Empowerment of senior public servants: Public sector managers face particularchallenges in creating an innovative, efficient and responsive public service.Leaders assume a high level of personal accountability and exposure, while simultaneously resolving competing servicedemands within a resource-constrained environment. Senior managers within thepublic sector should be encouraged to achieve high levels of delivery by ensuring that they have appropriately skilled staff
Need to invest in infrastructure ahead of demand in key centres
Need to prioritise infrastructure investment decisions based on the current and future
needs of enterprise
The management of infrastructure projects
The need to develop e-Infrastructure
Physical & Communications
Infrastructure
Weak infrastructure in regions presents a barrier to their economic development.The key mechanism for enabling regional development is to enhance theirinfrastructure. Regions will attract enterprise only if they have the infrastructure andfacilities that allow them to compete with cities and large towns and international regions for trade and investment.
Invest in infrastructure ahead of demand in key locations. Investment should beprioritised in designated gateways and hubs to enable them to achieve their regional potential. As a country moves towards a knowledge-based
economy, the relative importance of different types of infrastructure changes.
Infrastructure that supports the mobility of people ( air services, national roads) and ideas(broadband networks) increases in importance, while the relative demand for other types of infrastructure may diminish. It is important that such changing needsare reflected in investment decisions.
Many major infrastructure projects can be subject to delays and overruns in time and cost. While the development planning process is the cause of some delays, project planning, budgeting and project management appear are often inadequate In some projects, too many state bodies are involved without the required level of co-ordination.
’Advanced broadband services are an absolute necessity for the development ofknowledge-based enterprises in existing and emerging sectors, for the creation of anIT-literate society, for achieving more effective government services in areas such asHealthcare, education and R&D
Training
Resources
ManagementCapability
Tactical Focus
’Todays business environment is becoming more challenging from a management perspective: on the one hand, the complexity of the management task is increasing, with the emergence of more sophisticated business models, greater competitive pressures and the relentless advance of technology; on the other hand, the timeframe in which managers must act and make decisions is decreasing.
Many local firms require external assistance in order to develop their management expertise particularly at the start-up and early stages of internationalisation.
SMEs generally have an overstretched management structure that is occupied with immediate, operational issues rather than more strategic ones
Clear articulation of needs: A clear prioritisation should be made identifying the most pressing needs in relation to management capability building. This should then influence the formulation and delivery of appropriate training programmes
Industry-centric: Enterprise should play a prominent role in promoting, developing, and delivering training, and disseminating best practice
Focused: The appeal and value of training to firms can be greatly enhanced if it can be set in their immediate context; the context has a sectoral aspect as well as stage of business maturity
Action-oriented: Training should emphasise practical skills that can be readilyapplied in the SME
Flexible Delivery: Courses must be available at times and locations convenient to firms
Evaluation: An on-going assessment of the benefits to individuals and firms should be an integral part of all training.
Cost Competitiveness
Physical & Communications
Infrastructure
Innovation &Entrepreneurship
ManagementCapability
Technology, Product &Service
DevelopmentExpertise Expertise
In Markets
World Class Skills,Education &
Training
Effective, Agile
Government
Sustainable Enterprises
AttractiveTaxationRegime
Clusters And Innovation NetworksClusters And Innovation Networks
What’s The Difference Between A Network And A Cluster?..
Networks:• Usually have a somewhat restricted membership and a specific set of objectives
• Can often involve formal contractual arrangements
Clusters:• Have a geographic, and usually a sectoral focus
• Are open in terms of both membership and goals
– Cluster definitions need to be broad enough to include all relevant industries and institutions that have material linkages with the core activities of the cluster
– Cluster definitions need to be narrow enough to cover companies that face a common set of barriers to upgrade productivity and performance
Achieving Competitiveness The Role of Clusters
Clusters provide the opportunity to move to a new level of private-public partnership. They can also be a test-ground for developing solutions to economy wide problems
However
Cluster initiatives alone are less effective, if they are not part of a overarching approach to improve competitiveness on the national and/or regional level
Opportunities - Public procurement - Regulations
Enablers - Intellectual property framework- Measurement system- Standards
Advice and supportfor business - Best practice programs - Support for developing new technology - Help accessing finance - R&D tax credits - Support for inward investment - Access to global knowledge
Business Innovation
Building blocks of innovation: a supportive climateMacroeconomic stability Education and training policy Trade policyCompetition policy Physical and IT infrastructure Science policy
Ability to execute strategy Agility Products
Culture
Competence
ResourcesKnowledgeTools
Capital
Structures
People
Inside The Organisation
GovernmentRole
• A successful cluster policy builds on sound overall economic policies
• Government should support the development of all clusters, not choose among them
• Government policy should reinforce established and emerging clusters rather than attempt to create entirely new ones
• Government’s role in cluster initiatives is as facilitator and participant. The most successful cluster initiatives are a public- private partnership
Growers/Vineyards
Wineries/ Processing Facilities
Winemaking Equipment
Barrels
CorksBottlesLabels
Food ClusterTourism Cluster
GrapestockFertilizer, Pesticides, Herbicides Irrigation TechnologyAgriculture Cluster
State Government Agencies( e.g., Select Committee on Wine Production and Economy)
Educational, Research, & Trade organizations (e.g. Wine Institute, UC Davis, Culinary Institutes)
Clusters Increase Productivity / Efficiency – Efficient access to specialized inputs, services,
employees, information, institutions, and “public goods” (e.g. training programs)
– Ease of coordinationand transactions across firms–Rapid diffusionof best practices
– Ongoing, visible performance comparisonsand strong incentives to improve vs. local rivals
Clusters Stimulate and Enable Innovations
–Enhanced ability to perceive innovation opportunities
–Presence of multiple suppliers and institutions to assist in knowledge creation
–Ease of experimentation given locally available resources
Clusters Facilitate Commercialization – Opportunities for new companies and new lines of
established business are more apparent
– Commercializing new products and starting new companies is easier because of available skills, suppliers, etc.
• There is often an array of clusters in
a given field in different locations, each with different levels of specialization and sophistication
• Other clusters focus on manufacturing, outsourced service functions,or play the
role of regional assembly or service centers
Firms based in the most advanced clusters often seed or enhance clusters in other locations in order to reduce the risk of a single site,access lower cost inputs, or better serve particular regional markets
The challenge for an economy is to move from isolated firms to an array of clusters, and then to upgrade the breadth and sophistication of clusters to more advanced activities
1955 Salk Institute Founded
1960 Scripps Research Institute founded
1964 UCSD founded
1976 Burnham Institute founded
1978 Hybritech founded
1985 UCSD Connect founded
1986 Hybritech
sold to Eli Lilly
1991 Biomedical Industry Council founded
1991 Biocom founded
1992 Nanogen founded
1998 Novartis Agricultural Discovery Institute founded
The Process of Cluster Development
History of the San Diego Biotech / Pharma Cluster
1930First oenology course at Roseworthy Agricultural College
1955Australian Wine Research Institute founded
1965Australian Wine Bureau established
1980 Australian Wine and Brandy Corporation
established
1990Winemaker’s Federation Australia established
New organizations created for education, research, market information, and export promotion
1970Winemaking school at Charles Sturt University founded
1950s Import of European winery technology
1960s Recruiting of
experienced foreign investors, e.g. Wolf Bass
1970s Continued inflow of foreign capital and
management
1980s Creation of large number of new
wineries
1990s Surge in exports and
international acquisitions
The Australian Wine Cluster History
InternalCompetitive advantage resides solely inside a company or in its industry
Competitive success depends primarily on company choices
External
Competitive advantage resides partly in the locations at which a company’s business units are based
Cluster participation is an important contributor to company success
Sources of Firm Success
Innovation
Productivity
Prosperity
•Innovation is vital for long-term increases in productivity •Innovation is more than just scientific discovery•There are no low-tech industries, only low-tech firms
Productivity, Innovation, and the Business Environment
Productivity, Innovation, and the Business Environment
Sophisticated and demanding local customer(s)
Local customer needs that anticipate those elsewhere
Unusual local demand in specialized segmentsthat can be served nationally and globally
Access to capable, locally based suppliers and firms in related fields
Presence of clusters instead of isolated industries
A local context and rules that encourage investment and sustained upgrading–e.g., Intellectual property protection
Open and vigorous competition among locally based rivals
Meritocratic incentive systemsacross institutions
Presence of high quality, specialized inputs available to firms:– Human resources– Capital resources– Physical infrastructure– Administrative infrastructure– Information infrastructure– Scientific and technological infrastructure– Natural resources
Successful economic development is a process of successive economic upgrading, in which the business environment in a nation evolves to support and encourage increasingly sophisticated ways of competing
Clusters and Competitiveness
Clusters Increase Productivity / Efficiency
Efficient access to specialized inputs, services, employees, information, institutions, and “public goods” (e.g. training programs)
Ease of coordination and transactions across firms
Rapid diffusion of best practices
Ongoing, visible performance comparisons and strong incentives to improve vs. local rivals
Clusters Stimulate and Enable Innovations–Enhanced ability to perceive innovation opportunities
–Presence of multiple suppliers and institutions to assist in knowledge creation
–Ease of experimentation given locally available resources
Clusters Facilitate Commercialization
–Opportunities for new companies and new lines of established business are more apparent
–Commercializing new products and starting new companies is easier because of available skills, suppliers, etc.
• A new way of thinking about an economy and organizing economic development efforts
Better aligned with the nature of competition and sources of competitive advantage. Clusters capture important linkagesin terms of technology, skills, information, marketing and customer needs that cut across firms and industries. Such linkages are fundamental to competition and, especially, to the direction and pace of innovation
Recast the role of the private sector, government, trade associations and educational or research institutions
Brings together firms of all sizes
Creates a forum for constructive business-government dialogue
A means to identify common opportunities, not just common problems
Goal
Goal
Goal
Goal
Objectives – Cluster initiatives need to have a defined hierarchy of measurable goals, from activities to intermediate goals to ultimate goals –The focus of the initiative should be on increasing productivity, not on increasing the size of the cluster
Activities –All activities need to be considered that can increase the potential for productivity and productivity growth, not only financial incentives –Data-driven analysis should be used extensively to allow a more rational discussion about threats and opportunities for the cluster –The analysis should be used to identify priorities for action, not to rank the cluster for marketing purposes
Only sustained, private sector-led cluster initiatives can be sufficiently specific and persistent in their activities to achieve real improvements in cluster performance
Leadership by a committed individual is need to keep momentum and integrate individual constituencies into a common upgrading process
Independent institutional structures are often helpful to sustain momentum over time; universities and cluster organizations can be useful to play this role
The integration of a cluster effort in a broader regional competitiveness initiative increases its impact
All relevant parts of public administration and the legislature need to be involved to insure broad backing and quick implementation of recommendations
$
$
Different Approaches to Cluster Development -Cluster Creation
• Targets areas of perceived market demand
• Is driven by public sector intervention
• Requires sustained financial commitment by the public sector
•High failure rate
Cluster Activation
Leverages existing assets, history, and geographic location Builds on coalition of private and public sector actors
Requires sustained participation by all actors
Level of success is increasing over time; quick returns are possible
Institutions for Collaboration
ChambersOf
Commerce
UniversityPartnerGroups
Professional Associations
School Networks
Advisory Councils
Competitiveness Councils General
Industry associations
Specialized professional associations and societies
Alumni groups of core cluster companies
Incubators
Institutions for collaboration (IFC) are formal and informal organizations that:
-facilitate the exchange of information and technology -conduct joint activities -foster coordination among firms
•IFCs can improve the business environment by:
- creating relationships and level of trust that make them more effective - defining of common standards - conducting or facilitating the organization of collective action in areas such as procurement, information gathering, or international marketing - defining and communicating common beliefs and attitudes - providing mechanisms to develop a common economic or cluster agenda
FinancialInstitutions Companies
ResearchInstitutions
Government
Institutions forcollaboration
Eliminate barriers to local competition
Focus efforts to attract foreign investment around clusters
Focus export promotion around clusters
Organize relevant government departments around clusters
Create streamlined, pro-innovation regulatory standards affecting the cluster to-reduce regulatory uncertainty-stimulate early adoption-encourage innovation or new products and processes
Sponsor independent testing, product certification, and rating services for cluster products/services
Act as sophisticated buyer of the cluster’s products / services
Create specialized education and training programs
Establish local university research efforts in cluster-related technologies
Support cluster-specific information gathering and compilation
Improve specialized transportation, communications, and other infrastructure required by cluster
Companies need to…Take an active role in upgrading the local infrastructure
Nurture local suppliers and attract new supplier investments
Work closely with local educational and research institutions to upgrade quality and create specialized programs addressing cluster needs
Provide government with information and substantive input on regulatory issues and constraints bearing on cluster development Focus corporate philanthropy on enhancing the local business environment
Private Sector Influences on Cluster UpgradingFirm Strategy And Rivalry
Market jointly through trade fairs and delegations
Collaborate with government export promotion efforts
Create directories of cluster participants
Demand Conditions
Work with government to streamline regulations and modify them to encourage innovation
Establish local testing and standards organizationsRelated and Supporting Industries
Establish a cluster-based trade association
Encourage local supplier formation and attract local investments by suppliers based elsewhere through individual and collective efforts
Input Conditions
Jointly develop specialized vocational, technical, college and university curricula
Sponsor specialized university research centers
Collect cluster information through trade associations
Maintain close liaison with infrastructure providers to address specialized cluster needs (e.g., data communications, logistics)
Develop courses for managers on regulatory, quality, and managerial issues
Building And Managing Alliances Building And Managing Alliances
Partner
Partner
Partner
Partner
Partner
Extended Enterprise
• We have to do it ourselves• Product driven capabilities• Investment in production assets• Competing for end customer
• “We have to be in the centre of a winning network”• Solutions driven capabilities• Investment in knowledge networks• Solution and relationship excellence mindset• Competing for relationships
Industrial Enterprise
Towards The Extended Enterprise…
The time has come for a redefinition of an organisation around its core competencies and strategic, long-term, results-oriented relationships with specialised service providers
The time has come for a redefinition of an organisation around its core competencies and strategic, long-term, results-oriented relationships with specialised service providers
FlexibilityFlexibility
Improved communication
and people mgmt
Improved communication
and people mgmt
Skill sharing and
maximisation
Skill sharing and
maximisation
Innovation facilitation
Innovation facilitation
Shared risks and rewards
Shared risks and rewards
Reduces servant/master
relationship
Reduces servant/master
relationship
Ties into a shared
vision
Ties into a shared
vision
Collaboration on strategic asset mgmt
planning
Collaboration on strategic asset mgmt
planning
Close Relationship
Close RelationshipPartnerPartner
Alliance
Trust and flexibility leads to better quality and better value for money
Trust and flexibility leads to better quality and better value for money
Reasons Quoted For Pursuing Close Outsourcing Relationships
Reasons Quoted For Pursuing Close Outsourcing Relationships
Business Life Cycle Phases Influence Alliance Imperatives
RAPID GROWTH
• Develop Standards• External Value Proposition• Market/Customer Reach• Branding
STABILITY
• Co-operation• Stabilize Competition• Reduce Cost
EARLY GROWTH
• R&D• Gain Credibility• Access Capital
ProductInnovation
• External Value Proposition• Market/Customer Reach
CONSOLIDATION
Process Innovation
INNOVATE/ SUSTAIN/ DECLINE
• R&D
PotentialProductInnovation
ALLIANCEIMPERATIVES?
Need for AdditionalCapabilities
Need toInvolvePeersSTRUCTURE OF LEADERSHIP
PORTFOLIO(e.g., Time Warner, AT&T)
CONSTELLATION(e.g., Mondex, Excite@Home)
FRANCHISEe.g., McDonald's, Nintendo)
COOPERATIVE(e.g., VISA, TriStar)
SINGLE ENTITY COALITION
SEVERAL(Multiple
Gaps)
ONE(Single Gap)
NUMBER OFALLIANCEROLES
Alliance Architecture ModelsMultiple interdependentalliances led by two or morecomparably sized peers
Multiple class alliances managed as portfolio by one firm
Alliances between manycomparably sized peers
Alliance between firm and one discrete class of partners
Acclaim Entertainment Inc./LJNToys Ltd.Accolade, Inc.Activision, Inc.Advanced GravisAdvanced Productions, Inc.American Sammy Corp.American Softworks Corp.American Technos, Inc.Ascii Entertainment Inc./NexoftAtlus Software, Inc.Bandai America, Inc./ShinseiBMG EntertainmentCapcomDisney InteractiveEidos IneractiveElectro Brain Corp.Electronic Arts/EA SportsFox InteractiveGametek, Inc./Cybersoft, Inc.GT Interactive SoftwareGTE Interactive MediaHot-B USA Inc.
I MotionIMNInteract Accessories Inc.Interplay ProductionsJaleco USA, Inc.JVC Musical Industries, Inc.Kemco of America, Inc.Koei CorporationKonami Inc./Ultra SoftLaral GroupLeft Field EntertainmentLife FitnessLight Wave TechnologiesMajesco Sales, Inc.Microprose Software, Inc.Midway Home EntertainmentMilton BradleyMindscape/Software ToolworksNamco Hometek, Inc.Natsume Inc.Nuby/CurtisOcean of America, Inc.Parker BrothersPhilips Media
Playmates Interactive Ent.Psygnosis, LimitedRare Ltd.Raya Systems, Inc.Seta USA, Inc.Sharp Electronics Corp.Sports Sciences, Inc.Sun Corporation of America(Sunsoft)Take-Two InteractiveSoftware, Inc.TecMagik, Inc.Tecmo Inc.T*HQ/Malibu Games/BlackPearl SoftwareTitus Software Corp.Toho Co., Ltd.TycoUbi Soft Inc.Viacom New MediaVic Tokai Inc.Video SystemVirgin InteractiveEntertainment, Inc.
Franchise Model: Deep Bench Strength—
This model is used by companies to fill a single critical gap in its value chain.
The Franchise Model develops a single alliance role that can be refined and quickly replicated to create scale, thereby producing an alliance growth corridor forthe alliance initiator.
END USER DEVICES AND APPLICATIONS
Silicon GraphicsIBM
Apple
Atari CorpElectronic Arts
Matsushita 3OOIllachu
ToshibaAT&T
CONTENT
TCITurner Broadcasting
Atari Games
CrystalDynamics
Time Warner
SOFTWARE DEVELOPERS
Microsoft Accolade
Digital Solutions
Hyperbole
Compuserv
LOCAL SWITCHING AND TRANSPORT
TCG
Cox
TCI
Comcast
Cont Cablevision US West
Newhouse
GE
Cont Cablevision
Primestar
TCI
Cox
Qualcomm
SERVICE CREATION
TCI
Spiegel
Sega
Philips
WhittleComm
QVC
Comcast
Catalog 1
Sega Channel
TCI/Liberty
Hardware
Central
Software
Distribution
JointVenture
Portfolio Model: Hub and Spoke —
The portfolio model is a major step up from the franchiseapproach. Companies that adopt this approach are findingthat the value-added chain contains far too many elements for it to command all the capabilitiesnecessary to compete.
However, instead of forming a number of single discretearrangements to fill each gap (thus making itself vulnerable should a partner experience difficultyor if the market changes rapidly), the company decidesto create multiple class alliances managed as a portfolio.
Creative Art
Production
Theater Distribution
Consumer Promotion
Cable Marketing/Access
Video Distribution
Broadcasting
Consumer Access
HBO Columbia CBS AllianceCooperation Model - Tristar
+ + =
+ + =
+ + =
+ + =
+ + =
+ + =
+ + =
+ + =
OBSERVATIONS• All capabilities already existed within the individual partners—sharing alone created value• Improved production asset effectiveness of Columbia• Realized maximum value for entertainment /movie archive for all parties• Improved audience and reach, driving advertising revenues
OBSERVATIONS• All capabilities already existed within the individual partners—sharing alone created value• Improved production asset effectiveness of Columbia• Realized maximum value for entertainment /movie archive for all parties• Improved audience and reach, driving advertising revenues
Cooperative Model: MutualBenefit — With the cooperative model, one moves from a centralposition to more of a cooperative role. The alliance is at the center,rather than one of the partners, and the customer relationshipoften shifts from the company to the alliance. Typically, we findthat companies that have adopted the cooperative model do so tooutflank the competition and substantially raise the competitive bar
Harbinger
BAAN
NetscapeCommerce 1
AT&TSAPGEIS
Ariba
Clarus
PeopleSoft; Oracle
PeopleSoft; Oracle
PeopleSoft; Oracle
MS
MS; Market FirstCommerce 1
MS
TopTier; Extricity
OracleBAANSAP
OracleBAANSAP
OracleBAANSAP
SAPDGUnisysPeachtreeOracle
SAPDGUnisysOracleMS
Unisys
Deloitte ArisArthur AndersenEggrockPRT Grp
Deloitte
AMEX VelforeOpen MarketSterling VISAFedEx
PwCHP IntelStaples
HP
HP
HP; OpenMarket iCat
E-Procurement Alliance Portfolios—Ripe for Evolution to Constellations
SAPMCI/WMSSabreBrit Telecom
SAPMCI/WMSSabre
CompetitorLearning &Innovation
Core Component Supplier
ImplementationServices
Resellers
Industry Influencers
Companies that utilize constellations develop breakout strategies that leapfrog the competition and put industry competitors on the defensive.
STRUCTURE OF LEADERSHIP
PORTFOLIO CONSTELLATION
FRANCHISE COOPERATIVE
SINGLE ENTITY COALITION
SEVERAL(Multiple
Gaps)
ONE(Single Gap)
NUMBER OFALLIANCEROLES
Alliance Architecture ModelsThe biggest advantage tothe franchise and portfolio modelsis that the forming companysits in the control position directingand managing the interconnectednessof the arrangements
The cooperative model requires a different business model. While the relative size ofthe partners may differ, they are equals at the point of intersection (the specific product or service provided to the marketplace). All companies are working toward the same goal; however the dayto-day running is not under direct control of any one partner.
Each Alliance Class Has a Unique Set of Characteristics….
PORTFOLIO CONSTELLATION FRANCHISE COOPERATIVE
Easiest(Operationally Managed)
Little(Fill Single Gap)
Single(Concentrate on Current Customer /Market Segments)
Governance
Integrated Offerings
Industry Focus
Easier – Internal(Oversight CommitteeCrosses Various Areas)
Little(Multiple Gap Focus)
Single(Concentrate on CurrentCustomer /Market Segments)
Intricate – External(Shared LeadershipShared Governance)
High(Create New ValuePropositionWithin Industry)
Multiple(Concentrate on Creating New Value Position to Extend Reach into Customer /Market Segments)
Difficult – External(Shared GovernanceCrossesIndustry Boundaries)
High(Leapfrogs CurrentCompetitiveStructure)
Multiple(Rapid Expansioninto New High Growthand High Value Market Areas Unobtainable Before)
Successful companies in the next decade will be the ones that harness the full potential of the alliance models and tailor their organizational structures totake full advantage of the alliance situation which most appropriately fits theirstrategic needs
The world will be difficult to navigate and competitors too ingenious ascompanies are shaken loose from traditional ways of doing business.
Companies must develop “coherence” among the many seemingly disparate and far-flung pieces of the business, establish a potent binding force and sense of direction where all the pieces mutually reinforce each other, as well as provide a platform for growth.
One of the staggering failures of the old and dysfunctional “command and control” business model is that it “chokes” the potential of the company.
The successful company of tomorrow will develop coherence between the control model and the cooperative model of alliances
CEOCEO
LegalAudit
FinanceGovernance
Operations
BU
O
ptim
isat
ion
Portfolio M
aximisation
Strategy
Mergers & Acquisitions
Integration &Implementations
StrategicSourcing
EnhancingOperational Capabilities
SharedResources
SharedFunding
JointEquity
Constellations
Paradigm Shift
Maj
or In
crea
se
In V
alue
Pilots & R&DProjects
Extending
Asset Reach
Joint Partnership
Boards
Board OfDirectors
Cooperative ModelControl Model
Franchise alliances are operational in nature, an extension of a specific part of a company and that’s where and how it should be managed.
The portfolio model is, de facto, a new business model.Since it usually involves more than one primary part of the dominantpartner, it is managed not by an operations group but by a businesscenter. That center acts as the “corporate center” for thealliances. It must treat its partners as a business unit within aCenterless Corporation
The cooperative model is a shared business model that needsits own leadership, but with few “owners,” they need to workthrough some cooperative governance structure. The challengewith these models is to establish a set of operating/performanceparameters. This model is very similar to what firms do whenthey establish a shared services organization within the corporation,or rely on an outsourcing agreement.
StrategicConsistency Staff Resource
Management
Governance/ Decision Making
Functional Capability
LegalAgreement
Roles, Organisation,
Teamwork
SupportiveInfrastructure
BusinessProcesses
Communication& Info Sharing
ConflictResolution
Equity
CulturalCompatibility
Trust
Attitudes &Commitment
Culture
Management
WorkProcesses
But There Are Important Alliance Building And Alliance Management Competencies That Need To Be Developed….
Operations Related
• Does it have a direct impact on our license to operate or on our production, yield or reliability?
• Does it require specific understanding of operational processes?
• Does the activity have a direct impact on products, quality, yield or safety?
• Will we have the ongoing capital to maintain the required knowledge and skills?
• Is the activity critical to achieving our business plan?
Knowledge Related
• Does the task require industry or process knowledge specific to our
products?
• Is the knowledge readily available
within the manufacturing community?
• Is the knowledge readily gained?
• Does the activity require or generate specific intellectual property?
• Can we maintain the required skills and knowledge?
• Does the activity require product specific equipment knowledge?
Skills Related
• If we do not own the skills and knowledge to carry out the activity, could we manage the risk
of outsourcing it?
• Does the task require continual review to stay abreast of technology and methods that could improve outputs of the process?
• Do we have the skills to manage the suppliers or alliance partner?
Decisions On What is Core And Non-Core?....The Key Questions
Strategic Priority And Risk
Strategic Priority And Risk
Internal versus External
Capabilities
Internal versus External
Capabilities
Economic Valuation
Economic Valuation
Ability To Manage Supplier
Ability To Manage Supplier
Cheaper to keep in house
Lack skills tomanage risks
In-house capabilities are superior
No existing options for external provision
Suitable providers exist
Providers have equal/superior skills
Most cost effective to outsource
Keep Activity In House And Develop Capabilities
Outsource
Joint Business Planning
2004 2005 2006
2004 2005 2006
Turnaround Strategies
Equipment Strategies
Detailed discussions about productplanning, projects, technology change
Collaborative Innovation
Process and equipment best practicejoint client/alliance teams work closelytogether on continuous improvement programs
Open Book Accounting
Profit
Partners clearly communicate profit margins and financial breakdown
Right Of First Refusal
Client Partner
Other Suppliers
Strategic suppliers receive right of first refusal to respond to specific projects before clientapproaches other suppliers.
Sustaining Strategic Relationships by Sponsoring a Wide Range of Collaborative Initiatives
• Reinvent each time• No knowledge capture• No best practices
• In-house “guru” – best practices individually based• Little knowledge-sharing• Limited resources
• Formalization of procedures• Dedicated staff – high degree of sharing• Establishment of knowledge repository for future use
LONE RANGER
AD HOC
Alliancing - Pyramid Of Capability
INSTITUTIONAL
Anatomy Of World Class Alliance Management…..
So, What Does It Take?
Enterprise Alignment
Strategy Alignment
Financial Impact
Execution Effectiveness
Speed
Efficiency
Cost
Employee Development
Skills
Retention
Training Asset Management
Capacity Utilisation
Outsourcing Cost ofComplexity
ProductivityImprovement
Continuous Improvement
BestPractices
CompetitiveBenchmarking
Performance Measurement
Internal Benchmarkng
CascadingMetrics
Incentives
Customer Responsiveness
Voice Of Customer
CustomerTouch
Demand Planning
Supply/DemandAlignment
ResourceAccount-ability
LONE RANGER
AD HOC
INSTITUTIONAL
As companies increase alliance activity, partnership responsibility spreads toemployees throughout the organisation, challenging corporations to developorganization-wide alliance capabilities. Companies that successfully build suchcapabilities enjoy a favorable impact on market capitalisation and benefit from the“virtuous cycle” of being able to attract (and learn from) quality alliance partners.
To help employees throughout the organisation build partnering capabilities, many alliance-active companies have created dedicated alliance groups with a mandate to institutionalise alliance skills. The focus of such efforts is to leverage existing pockets of expertise and standardise approaches to partnering activities.
From First Base To True Alliance Synergy…The Journey
TIME
1
Costs savings of at least 10%
2
The creation of trust and flexibility
5
Sharing of strategic mgmt and creation of extra- preneurship
3
Creating a culture of joint partnership through alliancing
4
Joint development of strong data mgmt and best in class visions
The most successful alliancecompanies have learned that disciplined approaches and channels are needed todisseminate best-practice knowledgeand experience
A “one-stop shop” of alliance resources integrates the alliance toolkit’s contents into one interface.
A single point of entry to all alliance resources eliminates the administrative burden of searching multiple venues for diagnostic tools, training information, off-the-shelf presentations and key contacts.
Rapidly Emerging, Powerful Alliance Knowledge Management Tools
Are You Capturing And Using Alliance Best Practices?..
IMPACT AND RATIONALE INCLUDES:
• Improves communication across all business & functional units
• Deepens alliance knowledge within company & accelerates learning curve
• Accelerated pace of innovation & response time
Alliance Knowledge Management
Alliance Best Practices
Contact Database
Process Support Tools
DecisionSupportTools
Alliance Scorecard Click here
Alliance Databases
Networks
Financials
Links
Alliance Health Check
Org ChartsRelationship MapsRoles/Accountabilities
Equipment StrategiesProject ManagementWork ManagementWork FlowProject Budgeting
Training & Performance
Business Planning
Principles & Leadership
Management Of Change
Continuous Improvement
Turnaround Planning
Projects
Equipment
Root Cause Analysis Tool Set Process Maps & Drawings Active Improvement Teams
Project Reports & Documents Prototyping Technology Enablers
Importance
Performance
Hi
Low
HiLow
Relationship Health Audit
12
3
45
Relationship Issues Log Relationship GovernanceOrganisation Charts Network & Influence Maps
FunctionalClick here
Site/LocationClick here
DivisionalClick here
Key Influencer
Budget Gatekeeper
Projects High Flyer
Roles & Accountabilities
R A C I
Alliance Scorecard
Financial Measures Operations Measures
Relationship Measures
Score Target Variance Score Target Variance
Score Target Variance Score Target Variance
Satisfaction Index
Alliance StaffTurnover
Best PracticeSharing effectiveness
Innovation Measures
# process improvements
Knowledge transfer frequency
Mechanical Availability
MTBR
Scheduled WorkCompleted
MaintenanceCosts Trend
Maintenance Spend
Cost Of Unreliability
Outsourcing And OffshoringOutsourcing And Offshoring
• Global competition suggests a drastically shortened life cycle for most products, and it no longer permits companies a polycentric, country-by-country approach to international business.
• An increasing number of countries are competing head-on for global leadership.
• In today’s competitive world, technology diffuses quickly.
• BPO (Business Process Outsourcing) is the delegation of one or more IT-intensive business processes to an external provider who, in turn, owns, administrates and manages the selected process(es), based upon defined and measurable performance metrics
• Business Process Offshoring: Business process offshoring is the transfer of business tasks (medical transcription) or business processes (call centers) to a low-cost country like India
• ITES - Information Technology Enabled Services which encompasses both BPO and Call Centers
• BPM - Business Process Management - is the practice of improving the efficiency and effectiveness by automating the business process
• BPR - Business Process Reengineering - Critical reexamination, rethinking, redesigning and implementing the redesigned process of organization
• Business Transformation Outsourcing: Business transformation outsourcing (BTO) is a natural extension of the more tactical BPO model and involves the transfer of responsibility for all back-office functions, as well as a comprehensive business change management process to an external vendor. The objective is to maximize the long-term benefits of the BPO operations, resulting in a comprehensive business transformation (or overhaul).
BPO: Terminology
What? Where? How?
Areoperations
best in class?
What categories
to evaluate?
StrategyStrategy
Maintain/ leverage
Yes
Is this a core
competency?
NoCaptive
Joint venture
Third party
Wherecan you get
best in-class?
Re-engineer process
Yes
No
Onshore
Offshore
Saving on cost alone or making it best in class?
7%
25%
13%
55%
6%
22%
12%
60%
4%
22%
11%
63%
0%
20%
40%
60%
80%
100%
1980 1990 1999
Services
Other industry
Manufacturing
Agriculture
Global GDP continues to shift from manufacturing and industry to services
Source: Gartner
Worldwide BPO spend
ROW*
Europe
North
America
2002
100% = $108bn
56.4%
22.6%
21%
$25 bn
$23 bn
$62 bn
100% = $173bn
2007
56%
23%
21%
$39 bn
$37 bn
$97 bn
ROW*
Europe
North
America
CAGR – 9.5%
CAGR – 9.6%
CAGR – 9.3%
The 100+bn global outsourcing market will grow at CAGR of > 9%
Source: Gartner
2007
100% = $173bn
$62 bn
$39 bn
$37 bn
$97 bn
Europe
North
America
ROW*
Global needs for competencies and domain knowledge
Opportunity for leveraging capabilities from remote location
Customer InteractionServices ($15B)
HR ($23B)
All vertical(only Txn.
Processing)
($24B)
Finance & accounting($8B)
Payment Services
($11B)
Supply management
(Procurement, warehouse,
inv. mgmt., etc.)
($10b)
Administrative processes(Asset mgmt., document mgmt.,
real estate. mgmt., etc.)
($6B)
15.4
23.2
8.56.4
11.5
10.5
24.2
Customer InteractionServices ($2.35B)
HR ($7.47B)
All vertical(only Txn.
processing)
($7.45B)
Finance & accounting
($4.33B)
Payment Services($2.37B)
Supply management(Procurement, warehouse,
inv. mgmt., etc.)
($13.33b)
Administrative processes(Asset mgmt., document mgmt.,
real estate. mgmt., etc.)
($1.9B)
15.4
23.2
8.5
6.4
11.5
10.5
24.2
The Fortune 1,000s’ offshore evolution, 2003-2008
What elements should not be outsourced?- Core competencies- functions that cannot be performed by a third party with equivalent performance
What elements cannot be outsourced?- untouchables- physical infrastructure- regulations compliance
What elements have significant roadblocks?- work in progress (active projects, upgrades, conversions)- Lifecycle management- High firm risk- Specialised technical or business knowledge- contractual obligations
Outsourcing Opportunities
Opportunity Filter
Opportunity Filter
Cost reduction
Make fixed cost variable
Liberate Capital
Integrate parts from M&A
Improved competitiveness
Focus on core competency
Create new process
Access to skills and technology
Outsourcing Drivers
Getting It RightGetting It Wrong
Opportunity FilterOutsourcing ProcessConsiderations
• Delegate outsourcing decision
• Lengthen the decision process
• Fail to communicate regularly with affected employees
• Limit vendor access to technical and financial data
• Expect unrealistic savings
• Fail to share outsourcing decision criteria
• Get senior management involvement and sponsorship
• State clear objectives for the outsourcing value proposition
• Jointly develop the outsourcing solution
• Consider culture match of
companies
• Develop a well conceived HR plan
• Strive for a "Win / Win" business alliance
Opportunity FilterPossible Hidden Costs
• Searching and Vetting Vendors
• Due Diligence• Documenting requirements, • Sending out RFP’s • Evaluating the responses• Travel for site visit(s)
• Work Transition• Training period - TTT
• Human Capital - Severance and retention bonuses
•Cultural Issues / - Communication issues• Process Maturity / Standardization• Project and Contract Management
• Anticipate resources needed to oversee provider
Potential Benefits
Implement common
systems
Automate manual
processes
5-10%
5-10%
Achieve economies
of scale
Assign work to right level
Reorganize
the work
Streamline remaining
work
Eliminate work steps
5-10%
0 - 5%
0 - 5%
0 - 5%
5%
TechnologyTechnology
Organisation
ProcessOptimize labor rates or location
25 – 30%
Implement common
systems
Automate manual
processes
5-10%
5-10%
Achieve economies
of scale
Assign work to right level
Reorganize
the work
Streamline remaining
work
Eliminate work steps
5-10%
0 - 5%
0 - 5%
0 - 5%
5%
TechnologyTechnology
Organisation
ProcessOptimize labor rates or location
25 – 30% Implement
common
systems
Automate manual
processes
5-10%
5-10%
Achieve economies
of scale
Assign work to right level
Reorganize
the work
Streamline remaining
work
Eliminate work steps
5-10%
0 - 5%
0 - 5%
0 - 5%
5%
TechnologyTechnology
Organisation
ProcessOptimize labor rates or location
25 – 30%
Although outsourcing can improve the cost effectiveness, quality, and timeliness of many HR activities…
…ineffective relationship management can reduce returns by as much as 75 percent
Total Potential
Value Gained
fromthe
OutsourcingRelationship
Total Potential
Value Gained
fromthe
OutsourcingRelationship
100%
EffortsDuplicated Resources
Wasted ProblemsNot
Managed
PerformanceNot at
ExpectedLevels
VendorsDeployedAgainst
Conflictingor Wrong
Goals OpportunitiesUntapped
OperationalChallenges
PerformanceChallenges
Portfolio MgtChallenges
“Net” ValueGained
“Net” ValueGained
Opportunity FilterPossible CausesOf Failure
Poor orDamaged
Relationship
Poor Strategyand Business
Planning
Bad Legaland Financial
TermsSource – Vantage Partners
30%
64%
6%
“We are still waiting for the transformation to occur”
“We are spending all of our time dealing with disputes”
“Our service levels are being met, but we don’t like the service”
“Our integration responsibilities are more than we bargained for”
“We have a poor relationship with the supplier”
Value Chain
Five steps are involved in developing a global sourcing strategy
1. Identify the separable links in the company’s value chain
2. In the context of those links, determine the location of the company’s competitive advantages (considering both economies of scale and scope).
3. Ascertain the level of transaction costs between the links in the value chain and select the lowest cost mode.
$ $ $
4. Determine the comparative advantage of countries relative to each link in the value chain and to the relevant transaction costs.
5. Develop adequate flexibility in corporate decision making and organizational design so as to permit the company to respond to changes in both its comparative advantages and the comparative advantages of other countries.
Value Drivers and Performance Metrics Analyses
Value Drivers and Performance Metrics Analyses
ProposalSolicitation
ProposalSolicitation
RFP Development
(including contract language)
RFP Development
(including contract language)
Establishment of a Vendor
Selection Team
Establishment of a Vendor
Selection Team
Service Delivery Specification Development
Service Delivery Specification Development
Contract Administration
Contract Administration
Problem Resolution
Problem ResolutionIntegrationIntegrationCustomer
Satisfaction
CustomerSatisfaction
ContractNegotiation
ContractNegotiation
Vendor Assessment and
Selection
Vendor Assessment and
Selection
ProposalEvaluation
ProposalEvaluation
Implementationand Transition
Implementationand Transition
Performance Monitoring
Performance Monitoring
Service Delivery Requirements
Definition
Service Delivery Requirements
Definition
Outsourcing Candidate
Identification
Outsourcing Candidate
Identification
Outsourcing Applicability
Analysis
Outsourcing Applicability
Analysis
Vendor Due Diligence and Qualification
Vendor Due Diligence and Qualification
Outsourcing Candidate Screening
Outsourcing Candidate Screening
A vendor management framework that includes the following processes
Service GapService Gap Strategic ReasonsStrategic Reasons Economic ReasonsEconomic Reasons
Business focus
Core competency
Competitive advantage
Business focus
Core competency
Competitive advantage
Changing economics or cost structure of the business or industry
Benchmarking
Unsolicited bid
Asset reduction
Changing economics or cost structure of the business or industry
Benchmarking
Unsolicited bid
Asset reduction
Triggers
IdentifyInternalCapabilitiesAnd Services
AnalyzeCustomerNeeds
IdentifyOutsourcingCandidates
IdentifyOutsourcingCandidates
Phase I:CandidateIdentification
Phase II:Outsourcing Analysis
Phase III:Implementation
YesScreenOutsourcingCandidates
ScreenOutsourcingCandidates
ConductOutsourcingAnalysis
ConductOutsourcingAnalysis
ManageOutsourcingArrangements
ManageOutsourcingArrangements
MakeOutsourcing
Decision
MakeOutsourcing
Decision
StrategicVulnerability
CustomerImpact
EconomicImpact
Would outsourcing burden us with unmanageable business risks?
Would outsourcing have an unacceptable impact on our customers?
ConductOutsourcingArrangements
Are the benefits of outsourcing likely to be attractive?
Retain Work In-House
No No
Yes Yes
Yes
No
RiskAssessment
RiskAssessment
ReversibilityAnalysis
ReversibilityAnalysis
Service LevelAssessment
Service LevelAssessment
VendorAnalysisVendor
Analysis
EconomicAssessmentEconomic
AssessmentOutsourcingDecision
And VendorSelection
OutsourcingDecision
And VendorSelection
No
Retain In-HouseAnd ContinueOptimising
Retain In-HouseAnd ContinueOptimising
TransitionConversion Plan
TransitionConversion Plan
Change Management
Change Management
Ongoing Management
Ongoing Management
Communication Strategy
Communication Strategy
Obtain customer buy-in
Solicit customer involvement
Define clear requirements for vendors
Transfer equipment, processes, and people
Obtain customer buy-in
Solicit customer involvement
Define clear requirements for vendors
Transfer equipment, processes, and people
Address organization impact on:
People Process Structure Rewards Strategy
Devise a change management plan
Address organization impact on:
People Process Structure Rewards Strategy
Devise a change management plan
Customer interface with vendor personnel and management
Customer’s management of vendor/contract
Partnering Post review of
process
Customer interface with vendor personnel and management
Customer’s management of vendor/contract
Partnering Post review of
process
Communicate, communicate
Management Customers Vendor Employees Joint venture
partners Regulatory
bodies and governments, as necessary
Communicate, communicate
Management Customers Vendor Employees Joint venture
partners Regulatory
bodies and governments, as necessary
Failure to have a strategically-driven process for consideringoutsourcing can result in organisational conflict, inefficient use of resources,or increased risk of poor service delivery
Parties(Examples)
Parties(Examples)
Phase I: Candidate Identification
Phase I: Candidate Identification
Phase II: Outsourcing
Analysis
Phase II: Outsourcing
Analysis
DecisionDecisionOutsourc
eOutsourc
eWhich
vendor?Which
vendor?
Phase III: Implementation
Phase III: Implementation
Internal Service Provider
Customer(s)
Management Body
Ad Hoc Team
Vendor
Others as Appropriate
Internal Service Provider
Customer(s)
Management Body
Ad Hoc Team
Vendor
Others as Appropriate
Clearly defining the roles and responsibilities of eachparticipant in the process (including the vendor) is critical
IssuesIssues
Identification of services to include
The treatment of “corporate roles” versus “services”
Managing the interface between Service Providers and BU customers
Choice of transfer pricing mechanisms
Identification of services to include
The treatment of “corporate roles” versus “services”
Managing the interface between Service Providers and BU customers
Choice of transfer pricing mechanisms
DescriptionDescription
Need to objectively determine which services would be most efficiently and effectively delivered via the outsourcing model
Some enterprise-wide or non-discretionary activities (e.g., workforce planning, activities performed for legal or statutory reasons, etc.) may need to be handled differently
Need to determine key management processes to plan for and deliver services to business unit customers
Need to determine how outsourcing costs will be tracked and charged to business unit customers
Need to objectively determine which services would be most efficiently and effectively delivered via the outsourcing model
Some enterprise-wide or non-discretionary activities (e.g., workforce planning, activities performed for legal or statutory reasons, etc.) may need to be handled differently
Need to determine key management processes to plan for and deliver services to business unit customers
Need to determine how outsourcing costs will be tracked and charged to business unit customers
Actions To AddressActions To Address
Develop a structural decision model incorporating considerations such as availability of scale economies, strategic contribution of support services and segmentation of internal customers
Identify and categorise activities as “roles” or “services,” using defined criteria. Clarify how each will be provided and charged to the business units
Develop “partnering” processes to negotiate and articulate service requirements and costs, facilitate dispute resolution, provide monitoring mechanisms, etc.
Clarify basics for determining transfer prices (e.g., allocation rules, market-based pricing, benchmarking, etc.) and develop mechanisms to track, update and communicate as required
Develop a structural decision model incorporating considerations such as availability of scale economies, strategic contribution of support services and segmentation of internal customers
Identify and categorise activities as “roles” or “services,” using defined criteria. Clarify how each will be provided and charged to the business units
Develop “partnering” processes to negotiate and articulate service requirements and costs, facilitate dispute resolution, provide monitoring mechanisms, etc.
Clarify basics for determining transfer prices (e.g., allocation rules, market-based pricing, benchmarking, etc.) and develop mechanisms to track, update and communicate as required
Design of outsourced services should clarify key service issues and should develop management processes for ongoing interactions
IssuesIssues DescriptionDescription Actions To AddressActions To Address
Overcoming Resistance To Change
Building Required Competencies
Rationalising Multiple Concurrent Change Initiatives
Managing The Implementation
Establishing A Consensus Regarding Internal Versus External Service-Provider Relationships
Overcoming Resistance To Change
Building Required Competencies
Rationalising Multiple Concurrent Change Initiatives
Managing The Implementation
Establishing A Consensus Regarding Internal Versus External Service-Provider Relationships
May arise from perceived loss of power/control (e.g., business units may resist having currently owned functions taken away from them because they don’t believe savings and service level goals will be achieved)
With the creation of an outsourcing organization, employees’ roles will change and different competencies will be required (e.g., staff function managers will need to act more like business managers with respect to pricing services, forecasting demand and being customer-service oriented)
It is important not to risk immobilising people or the operation of the business by changing too many factors at once
Often, companies do not fully recognize the magnitude of change/implementation (i.e., in terms of scope, time and resource requirements, etc.) and may assume that implementation can be a part-time effort conducted “in people’s spare time”
Occasionally, customers place less of a priority -- and hence expend less effort -- on developing/maintaining mutually beneficial internal partnerships than they do on external ones
May arise from perceived loss of power/control (e.g., business units may resist having currently owned functions taken away from them because they don’t believe savings and service level goals will be achieved)
With the creation of an outsourcing organization, employees’ roles will change and different competencies will be required (e.g., staff function managers will need to act more like business managers with respect to pricing services, forecasting demand and being customer-service oriented)
It is important not to risk immobilising people or the operation of the business by changing too many factors at once
Often, companies do not fully recognize the magnitude of change/implementation (i.e., in terms of scope, time and resource requirements, etc.) and may assume that implementation can be a part-time effort conducted “in people’s spare time”
Occasionally, customers place less of a priority -- and hence expend less effort -- on developing/maintaining mutually beneficial internal partnerships than they do on external ones
May be addressed by clearly identifying and communicating the need for change, by involving business employees in the Shared Services change process, and by offering incentives to change
May be addressed by assessing the required versus existing competencies and building skills to fill “gaps” through training or hiring of outside employees
May be addressed by prioritising change actions and dedicating resources to the change initiative aside from resources required to run the business
May be addressed by having a well-defined
implementation plan and a fully dedicated implementation team that is measured and rewarded based on the results of implementation
May be addressed by establishing a common set of measures to gauge the effectiveness of internal and external provider relationships and to guide fact-based decisions around maintenance of such relationships
May be addressed by clearly identifying and communicating the need for change, by involving business employees in the Shared Services change process, and by offering incentives to change
May be addressed by assessing the required versus existing competencies and building skills to fill “gaps” through training or hiring of outside employees
May be addressed by prioritising change actions and dedicating resources to the change initiative aside from resources required to run the business
May be addressed by having a well-defined
implementation plan and a fully dedicated implementation team that is measured and rewarded based on the results of implementation
May be addressed by establishing a common set of measures to gauge the effectiveness of internal and external provider relationships and to guide fact-based decisions around maintenance of such relationships
Implementation of outsourced services is complex, requiring patience and understanding…
IssuesIssues DescriptionDescription Actions To AddressActions To Address
Shadow Organisations Develop
Poor Service To Internal Customers
Lack Of Continuous Improvement
Poor Decision-Making At The Business Unit/Line Manager Level
Shadow Organisations Develop
Poor Service To Internal Customers
Lack Of Continuous Improvement
Poor Decision-Making At The Business Unit/Line Manager Level
There may be a tendency for people to revert to the old way of doing things -- individuals may not feel comfortable in new roles; business units may not be willing to give up control of dedicated service providers; customers may not understand the new service model and find their own ways to get the job done
If people with the proper competencies are not put in place in the outsourced organisation, or if new service delivery processes are not developed, service quality may suffer
Even after outsourcing is implemented, ongoing refinements will need to be made to staffing or processes to capture the full potential of the efficiency gains
When business managers start “paying for services,” they may stop using some services that are critical to the business (e.g., training)
There may be a tendency for people to revert to the old way of doing things -- individuals may not feel comfortable in new roles; business units may not be willing to give up control of dedicated service providers; customers may not understand the new service model and find their own ways to get the job done
If people with the proper competencies are not put in place in the outsourced organisation, or if new service delivery processes are not developed, service quality may suffer
Even after outsourcing is implemented, ongoing refinements will need to be made to staffing or processes to capture the full potential of the efficiency gains
When business managers start “paying for services,” they may stop using some services that are critical to the business (e.g., training)
May be prevented by gaining employee buy-in through employee involvement in the change process, clearly communicating employee roles in attainment of group goals, and providing training (as appropriate) to allow employees to succeed in new roles
May be prevented by identifying required competencies and providing training to internal employees, or by acquiring competencies from outside of the company
May be prevented by instituting ongoing benchmarking, publication of performance milestones, and employee incentives
May be prevented by providing the managers with incentives to use the services or by finding a “sponsor” from within the organisation to promote use of service
May be prevented by gaining employee buy-in through employee involvement in the change process, clearly communicating employee roles in attainment of group goals, and providing training (as appropriate) to allow employees to succeed in new roles
May be prevented by identifying required competencies and providing training to internal employees, or by acquiring competencies from outside of the company
May be prevented by instituting ongoing benchmarking, publication of performance milestones, and employee incentives
May be prevented by providing the managers with incentives to use the services or by finding a “sponsor” from within the organisation to promote use of service
Commitment to change and leadership at all levels will help to ensure the ongoing success of outsourced services
Standardiseor eliminateStandardiseor eliminate ReengineerReengineer
Outsourceor automateOutsource
or automateInto the
coreInto the
core
Low High
Impact on Core Processes
Uniqueness
Low
High
Know what and why you are outsourcing…
Small And Medium Sized Organisations Small And Medium Sized Organisations
Professionalizing the business infrastructure
Growth and organizational change
Managing succession and exitsStrategy for growth
Maintaining organizational
culture and values
Creating external networks and
market connectivity
Upgrading management skills
and capabilitiesChallenging the
leader's assumptions
Eight Key Challenges In Growing & Developing A SME
Creating external networks and
market connectivity
Eight Key Challenges In Growing & Developing A SME
Entrepreneurs need to be connected to suppliers, markets, financiers, competitors, advisors and colleagues to gain the momentum needed to propel a young company through the growth stages.
Supplier
Financier
Competitors
Advisors
Clusters appear to be important factors for growth since they encourage innovation and collaboration, draw customers and create confidence.
By collaborating with colleagues and competitors, small companies can overcome power asymmetries to compete with large, well-established companies for the same market.
Upgrading management skills
and capabilities
Eight Key Challenges In Growing & Developing A SME
The turnover of some key personnel during a company's transition from one growth stage to another can be a sign of good management. In fact, it may be an indicator that real growth is occurring. Key personnel for one growth stage may not be suited to the working environment of the next stage.
Key personnel retained from one growth stage to another - including the entrepreneur-owner - need to retrain to learn the management skills required for the next growth stage.
Managers need to think ahead in order to draw the company forward. This means finding and hiring personnel with experience in the next growth stage and developing human resource practices and compensation packages to match. It also means upgrading their own aspirations to pursue new product development and global opportunities.
Challenging the leader's assumptions
Eight Key Challenges In Growing & Developing A SME
Entrepreneurs can become too focused on the needs of their present growth stage and be unable to step back to see where they are headed. The perspective of outside advisors, especially those with relevant experience, is critical for successful transitions from one growth stage to the next.
Sources of advice include family, lawyers, accountants,boards, employees and professional consultants.
SME managers need to consider the expertise and objectivity of advisors when choosing an advisory team.
Managing succession and exits
Eight Key Challenges In Growing & Developing A SME
Successful succession means passing the company to the next generation, selling it or delegating and letting go of responsibility and authority. Well-managed exits ensure that investors get their original money out and that the entrepreneur is adequately compensated for the years of time and effort spent building the company.
Both succession and exits require considerable planning.Entrepreneurs who enjoy being the manager and cornerstone of the company during the excitement of the start-up stage need to envision what they expect their role to be once the company becomes sustainable. Moreover, leaders who don't think ahead may not be adequately prepared to avoid unpleasant takeovers.
Growth and organizational change
Eight Key Challenges In Growing & Developing A SME
Managers need to deal with organizational inertia in theface of a rapidly changing environment; yet many companies are unable to cope with change.
Clear plans and expectations, ongoing consultation and communication across the organization, step-by-step implementation of the change process, and allocation of adequate time and resources to change plans are all needed in order to ensure efficient change without reducing productivity.
Strategy for growth
Two Jobs AwayBusiness Plan
Action Plan
Goals
Product development
Revenues and profit
People Development
Weak SME strategic planning practices occur wheninsufficient attention is paid to an action plan. Action plansneed adequate resources to ensure effective follow-through andconcrete results.
Although some SMEs have strategic plans, they often failto update them. Changes in key organizational variables, suchas a company expansion, a new product line or a new marketingproject, signal the need for a new plan.
Well-developed strategic plans are useful for SMEspursuing financing. But plans are not the same as action.Management teams that become preoccupied formulating andrevising plans ignore the most important part of the plan ó theaction that results from it.
Strategic plans need to be flexible enough to leave roomfor innovation and new ideas. Managers who avoid innovationbecause of inherent planning challenges forego significantgrowth and profit opportunities.
Professionalizing the business infrastructure
Eight Key Challenges In Growing & Developing A SME
SMEs tend to operate with informal structures, an arrangement that places additional stress on managers who must control multiple aspects of the company. While suitable for a start-up, this informality becomes a drain on resources as the company moves into the fast growth and sustainability stages.
Once in the fast-growth stage, a company needs to formalize its operations, including human resource practices, accounting systems, inventory procedures, performance measures and formal boards of directors and/or advisors. This formalization is a structured and accountable way for the manager to delegateresponsibility.
Maintaining organizational
culture and values
Eight Key Challenges In Growing & Developing A SME
Original Dream
In the start-up stage, the values of a company are those of the leader. As the firm grows, the values become those of the entire staff, with each new recruit adding to the culture.
Companies with a positive organizational culture tend to have more loyal and dedicated employees, which contributes to productivity.
Successful managers create desirable organizationalculture by hiring based on company values, compensating and rewarding employees for behaviours consistent with these values
Managing the financing gap
Eight Key Challenges In Growing & Developing A SME
$
SME managers promote their companies to lending and investing institutions from their own perspective rather than from the financier’s perspective. Consequently, they often failto communicate the investment potential of their company.
Managers can improve their chances of obtaining financing by learning the language of finance, using advisors to help plan their presentations and writing business plans that targetthe financier’s interests.
SMEs need to consider a wider spectrum of financing options, from venture capital to angel and family investors.
When approaching investors, SMEs should consider compatibility of objectives, especially in arrangements in which the entrepreneur trades control of a company for capital tofinance survival or growth.
Intended Successor Identified
Owner(s) SeekingExit Route
Family Succession
Develop New InternalOwner
Sale DecisionIn Principle
Exit PreparationActivities
New OwnerSearch Activities
Closure AndAsset Sale
SuccessionFailure
SuccessfulSuccession
Ownership Transfer
New OwnerIn Place
Owner Motivation
Stakeholder Conflict
Family Successor Changes Mind
Search Fails
SaleFalls
Through
Management Team Unable To Raise Finance