Posts Tagged ‘Strategy’

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What makes collaboration work?

Friday, February 25th, 2011

The reality of corporate collaboration is that almost every second alliance fails. Yet some organisations are spectacularly successful at developing alliance cultures. Dr Jochen Schweitzer explains how leadership and governance are key to successful collaboration.

Collaboration is important for many organisations because it gives them access to resources that they would otherwise not have. While executives like the idea of minimising risks through collaboration, they are also attracted to the advantages that they can gain by having access to their partners’ knowledge and experience. With the learning that comes through combining and developing capabilities with external partners, alliances now contribute significantly to developing competitive advantages and achieving strategic objectives for all involved.

Alliancing has many obvious strategic and operational advantages, but the unpleasant reality of corporate collaboration in the last 25 years has been that almost every second alliance fails to achieve the anticipated outcomes. Although the wide spectrum of alliances has been intensively researched, it is not yet clear what really makes collaboration work and what doesn’t.

In my research I’ve been focussing on the issues of alliance governance, the role of alliance leadership and how innovation capabilities develop within alliance teams. In general, success often depends on to what extent the leadership team is able to agree and implement suitable governance structures and engage with the team to foster desired behaviours and work cultures.

Governance mechanisms like organisational structures, roles and responsibilities, decision-making processes or reward systems create work culture. Too often alliances fail because partners are unable to agree on governance to match their individual and joint work cultures. What’s more, organisations often have only limited ways of capturing the knowledge that is created and developing it into competitive advantages for the organisation.

I surveyed more than 400 alliances around the world, asking particularly about how they structure and govern their alliances, and how they perceive the leadership within their alliances. The focus in that study was on finding those factors that would make alliances achieve innovation and allow them to create capabilities that enable them to compete better in their markets. I looked at characteristics like innovativeness and proactiveness of people within the alliances, their ability to work with each other, the extent to which they learned from the alliance, and the extent to which they captured and advanced knowledge.

I also looked at the governance, the actual management structure and the mechanisms that were used to organise the partnership, as well as the leadership behaviour within the alliance.

In alliances as much as in any other type of organisation, leadership behaviour occurs on a continuum: At one end of the continuum we observe transformational (charismatic and inspirational) leaders, who motivate teams often based on their strong vision and outstanding personality. At the other end of the spectrum we have transactional leaders, who base their relationship with the team on the fact that they give people a reward for a certain type of work.

One might assume that a more charismatic leader would help an alliance create more entrepreneurial or innovative abilities, while on the other hand, the transactional leader would be less likely to create innovation. But in fact both types of behaviour are very important to create innovation-type capabilities. The more the leadership team in the alliance is able to show both of these types of behaviour, the more the alliance will innovate.

Alliances fail when they do not achieve the objectives that the partnering organisations agreed upon. Sometimes organisations agree to part ways when they realise this, and other times they stick to it, even though they realise it’s not going to go anywhere. Unsurprisingly it’s difficult to find data about alliances that have failed – it’s a lot easier to find examples of organisations that do really well: Organisations like IBM, Cisco or Hewlett Packard are known for their ability to collaborate at multiple levels with multiple organisations.

The key aspect for an organisation that is looking for innovation through alliances is to gain access to resources within another organisation that it wouldn’t have otherwise. From there on it is all about aligning governance mechanisms for the partnership, work culture and leadership styles with the strategic intention for the alliance.

If a firm is after innovation, there are certain mechanisms and leadership behaviours that work towards innovation. It really is about finding the right combination. Take decision-making. The partnering organisations could agree upon leaving all decisions with the alliance team (a decentralised approach). If the alliance team is flexible and open, there is a greater chance for them to be innovative and come up with solutions. On the other hand, if you leave all decision-making with the partnering organisations and force this mechanism upon the alliance, there is less flexibility, which leads to less innovation within the alliance.

If you then combine that with the type of leadership that you implement, by choosing a predominantly transformational or transactional type of leader for the organisation or the alliance, that again would influence the extent to which innovation takes place or not.

Organisations increasingly seek alliances to achieve innovation objectives and in doing so, they need ways to do it better than they did in the past. That’s why it is important to do the research to find the mechanisms that really make them work.

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Top five risks for business in 2011

Sunday, January 30th, 2011

Our risk management systems constantly scan the immediate course ahead to detect those hazards that could put a hole in the ship of commerce, and potentially sink the business. Ongoing dialogue with leaders around the world, combined with environmental scanning and deep reflection, indicate that a number of significant issues will confront business this year. Here is what we believe are the top five risks:

1. One complaint becoming an epidemic

In the latter half of 2010 the power of a mass consumer complaint leveraged by connectivity became evident. Angry customers were able to register online to join a class action over bank fees. Vodafail.com, born out of the frustration of one customer, provided a flashpoint for disgruntled Vodafone customers.

The focus is shifting to insurance companies whose customers, having been adversely affected by floods, feel quite poorly treated. Retailers who have sent Australian jobs offshore by their purchasing policies, and now complain about Australian consumers purchasing products offshore, also risk a disgruntled customer creating a viral campaign.

The lesson is to take each customer complaint extremely seriously, and treat each person as you would want to be treated.

2. Social enterprise overtaking commercial enterprise

We are now witnessing the rise of social enterprises – profit making organisations which emerge in direct response to a particular social need – such as Fair Trade coffee and the Green Pages directory. They keep costs low in order that maximum profit can be directed at the immediate social need and fostering systemic change to eradicate the causes of the problem.

This contrasts with existing business models which have a primary focus on shareholder return. Social enterprises experience explosive growth as customers engage specifically to support the cause – and then tell all their friends.

Twenty first century organisations must look to harmonise social and commercial objectives as new entrants launch to fill a social need and scale too fast for traditional slow moving businesses to respond. They must review their original purpose, recast this in the context of 21st century needs, and align every aspect of the business with this renewed purpose, eliminating the fundamental dichotomy between market acceptance and customer fulfilment.

3. Failure to recognise the normalisation of complexity

During the last decade we have witnessed a never-ending series of natural and man made crises: 911, SARS, bird flu, GFC, devastating fires, hurricanes, cyclones and now floods. Crises are nothing new, but in a less complex and interconnected world we were largely quarantined from their effects by time and geography.

The deep global linkages between people and organisations now mean that our world can change overnight because of the ripple effect of a single major event. Last year’s eruption of a volcano in Iceland brought air transport to and from Western Europe to a complete standstill, impacting industry around the world. Economic shocks will become more frequent because of the complexity and connectivity of the system of which we are a part.

Our fundamental challenge is to work effectively and efficiently in this new normal and deliver results that move us towards our purpose, understanding that doing so will contribute to a sustainable business. Organisations need to develop people at every level of the organisation who are systems thinkers, who are comfortable with complexity, and who can function well in chaos.

4. Increasing self-interest

The crises identified above have deprived many people, organisations and nations of expected income, profits and living standards, creating a sense of scarcity and an inclination to guard what we have. This can drive a protectionist response, whether at a political or commercial level, which easily translates into inadvertently putting profits before people, control before collaboration, and politics before principles.

Self interest reveals itself in the person who takes advantage of a crisis to advance their own cause and further their own career, and in the firm which extracts an unreasonable discount from a supplier. It is not hard to spot in the increasing xenophobia dominating the agenda in many countries.

The solution to self interest is a combination of increased self awareness and social responsibility; appreciating that what is good for the other is ultimately good for me.

5. Wilful ignorance

One effect of living with a tidal wave of information is the capability to be selective about where we source our news. This allows us – both intentionally and unintentionally – to feed our biases and prejudices. Wilful ignorance occurs when we make an active choice to ignore what challenges our thinking, and consume what supports our thinking. One can readily observe increasing divergence between what many people choose to believe and what is actually the case.

Leaders need to carefully and consistently explain their rationale and message, educating and informing people, who may have built up resistance to new data, that will challenge their assumptions.

Conclusions

Although any of these risks taken alone could do serious damage, the combined effect of two or more operating together could be disastrous. For example, wilful ignorance and an epidemic of complaint in a complex world requires attention at the most senior level and a well crafted response to avoid customer backlash, staff disengagement and subsequent loss of value. Smart organisations however, will alter their trajectory ever so slightly to chart a course around and between these obstacles, ensuring they don’t fall foul of them in the first place.

Have you experienced these risk factors (or others) at work? Join the conversation and share your thoughts below.

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Looking for weak signals

Friday, December 10th, 2010

All successful business leaders pay close attention to strong signals. But truly visionary leaders scan for ‘weak signals’ that can indicate irreparable damage – or unseen opportunity. Anthony Howard explains.

I started my career as a navigator in the merchant navy, and spent many hours at sea gazing at the radar – particularly during storms, in congested waterways, and when close to shore. As well as plotting a course and planning a journey, navigators are trained to find those things that don’t belong, that aren’t on the map, and that are hidden in the clutter.

Strong radar signals reflect from the land and other large vessels, confirming the course one is on and providing clear indication of obstacles to avoid. But the radar also detects ‘weak signals’ that rebound from small boats and hidden dangers. It’s not always easy to distinguish these weak signals from the background noise, and it takes a skilled operator to recognise the small signs that indicate a potential risk.

In business, all successful leaders pay close attention to the strong signals – revenues, profitability, market trends, competitive offerings, and so on. But familiarity with the terrain can breed a false sense of security, as new signals emerge that were not shown on the map, and were not there last time we were in a similar situation.

Truly visionary leaders also constantly scan for ‘weak signals’ that indicate possible hazards ahead. Let’s take the example of the banking industry.

In recent years, a convergence of forces such as shareholder activism, disquiet about executive remuneration, and cost-of-living pressures, has led to widespread consumer dissatisfaction with banks. One group feels they are bearing a cost burden while another is accused of enriching themselves at the former’s expense. None of this comes as a surprise to those who have observed the signals.

Combine this with rising interest rates, increased cost of funding, media outrage and a government that cannot risk losing votes, and the trap is loaded.

In recent months, the government, facing declining GST revenue and spiralling welfare costs, has indicated its willingness to impose a new resource tax on mining – an industry that enjoys considerable public support. Is it too much of a leap to imagine a similar ‘super profits’ tax on banking?

Although the banking industry failed to grasp the earlier weak signals, it would be wise to read the tea leaves and win the hearts of their constituents with a fresh strategy, innovative marketing and deep customer care. Failure to do so risks the industry being rendered uncompetitive by swiftly enacted and poorly thought out regulation that inadvertently favors big banks over small, and limits profit available for dividends, ongoing investment, and lending.

Creating less competition and reducing the amount of money in the system by diverting it to the government would unintentionally hurt the very people who are hurting the most – small and medium-sized businesses that rely on bank funding.  To show surprise at such an outcome would demonstrate short sightedness and failure to read the signs.

A weak signal can be something as small as one person asking a penetrating question. Some years ago I saw a newspaper article about escalating health costs, and a few days later read an opinion piece where the author queried why she, as a taxpayer, should foot the bill for people who had failed to take responsibility for their drinking, smoking, diet and exercise. Will this become a groundswell? Will the provision of taxpayer-funded healthcare be linked to lifestyle choices? What implications would there be?

Observing weak signals can allow a business to take small steps early, rather than evasive action in a crisis, like the captain who makes a minor course alteration early in response to potential danger. There is no news in the journey safely travelled, but rather in the ships sunk and lives ruined. So too do we rarely observe business leaders fine-tuning their strategy in response to weak signals.

But we certainly note those who have failed to see the risks.

Business leaders need to develop the skill of observing weak signals, wherever they may arise. They can be found in conversation, discerned in the words of a newspaper article, observed in foreign cultures, detected in intuition. Get outside your industry, visit different cities and cultures, and read for insight, not for information. Acquire the habit of constantly asking questions like:

  • What would our business be like if this were to happen in our industry?
  • What am I actively choosing to ignore?
  • Who is asking good questions that challenge our assumptions or cause us to reframe our thinking?
  • What do we do that outsiders consider absurd?
  • What do I observe that seems absurd to me?
  • What will change your world?

The practice of watching for weak signals will elevate one’s leadership to an entirely new level of performance. By taking time to look intelligently at the radar and reflect on what you see, you’ll be better able to take charge of the future, gain competitive advantage, and be a source of insight to others.

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Edition 17: Talking sales

Sunday, August 29th, 2010

Business21C Weekly is now available through the iTunes Podcast directory. To subscribe directly via iTunes, go to the Advanced menu in iTunes and select Subscribe to Podcast. Then paste in the following URL: http://www.business21c.com.au/podcasts/feed

Business21C Weekly is broadcast on Sydney’s 2SER 107.3 fm radio station at 9:00 am each Monday morning.

A sales team sits at the pointy end of any business strategy. They bring in the cash that pays the wages, and they’re the connection between you and your customers.

Two sales experts join us in the Business21c Weekly studio to consider how to get the best out of your sales talent: Ciaran McGuigan, Founder of Strike Force Sales and Simon Harrop, Principal Consultant at Straight Ahead Sales. We explore the three p’s of sales: personality, persistence and planning, and the power of a big mortgage as motivator when you’re closing a deal.

In a business environment where we are all sales people at some stage, selling our organisations or ourselves, we look at some basic sales skills. And the cold call: why is it so tough to pick up the phone and pitch to a stranger? Because selling is an emotional roller coaster, and sales staff are people too.

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Edition 3: The Future

Friday, May 28th, 2010

Business21C Weekly is now available through the iTunes Podcast directory,
Alternatively, to subscribe directly via iTunes on your computer, go to the Advanced menu in iTunes and select Subscribe to Podcast. Then paste the following URL: http://www.business21c.com.au/podcasts/feed

I never was, am always to be,
no-one has ever, or will yet meet me,
but I am the confidence of all
who live and breathe on this spinning ball.

This week’s edition starts with a riddle, and continues with an enigma: the future. We talk with professional futurists Craig Rispin and Glenys McLaughlin about looking into the crystal ball for a living. Later in the conversation we are joined by digital artist and designer Ian Gwilt who is working on a project for the UTS campus using Augmented Reality – a future mobile technology-enabled experience.

Novelist William Gibson said: “The future is already here, it’s just unevenly distributed.” Futurists help organisations draw together the threads of today that will be woven to make the fabric of the future. They have a swag of techniques, from scenario planning to environmental scanning. These techniques help companies shape strategy by managing the risk of disruptive change.

“The primary technique of being a futurist is seeing the world with naive eyes,” says Rispin. Together we canvas the issues that are affecting companies and people as technology, globalisation and convergence accelerate.

Ian Gwilt is a digital artist and academic working on a project to create an augmented reality campus for UTS. By developing a database of what’s happening at the university, from lectures and library usage through to carbon emissions and events, and integrating it with geo-spatial technology and the capabilities of the smart phone, Ian’s project will create a multi-dimensional and rich experience of the campus.

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Advantage online

Sunday, March 14th, 2010

brandsExclusive, an invitation-only online shopping boutique, demonstrates how important strategic planning and careful thinking is for e-commerce success, reports Dr Lars Groeger.

Niche Australian boutique brandsExclusive sells fashion clothing, accessories and shoes from major fashion labels direct to the public via exclusive online sales events. Running for a limited period with limited stock availability, these sales events allow invitation-only members to save up to 70 percent off recommended retail prices. Members do not pay fees, while non-members are unable to access or buy from the website.

This highly successful website is the brainchild of founders Daniel Jarosch and Rolf Weber, who anticipated consumers’ need to buy genuine brands from trusted online sources affordably. Both foresaw the development of a revolutionary new distribution channel that would intermediate between brands and consumers. In doing so, they would guarantee intrinsic value for both.

The concept

In 2008, Jarosch and Weber decided to create a website that sold quality products direct from brands at a reduced cost to customers. The pair began to observe the development of highly successful exclusive online shopping clubs in Europe, the first of which was vente-privee.com. The French website subsequently expanded its foothold to Spain, Germany, Italy and the UK by the end of 2008. Its registered European membership grew to 6.5 million, with 2009 revenues soaring to an estimated €510 million [$1 billion].

They tracked other emerging companies including GILT.com, BuyVIP.com, hautelook.com and ruelala.com, which had adopted similar business models to that used by Vente Privee. As their ingenuity increased, some sites were able to match their French rival’s revenues in an even shorter period of time. Colossally successful German-based Brands4friends.de, for example, broke even in just six months and generated revenues of €30 million [$50 million] in its first year.

All the sites had an identical guiding principle: to fulfil apparel brands’ desire to sell excess stock quickly – without harming their image or forcing the website to compete against rival distribution channels.

Despite opportunities for success, as many online shopping clubs have failed as have succeeded. The online apparel market did not develop as successfully as expected and many players vanished as quickly as they appeared. The Financial Times referred to boo.com as ‘the highest-profile casualty among European e-tailing start-ups’ after the brand spent $135 million of venture capitalists’ money in 18 months but attracted dismal customer numbers.

The appeal for fashion manufacturers

Sustaining exclusivity is of utmost importance to fashion manufacturers. So much so that they often destroy their own goods if faced with the threat of jeopardising their premium image by having them relegated to bargain bins.

To sidestep this dilemma, a number of manufacturers had tried to bypass retailers by selling products directly to customers over the internet. Issues arose, however, as new online channels competed with traditional channels by selling to the same markets. A case in point is Levi Strauss & Co, a highly successful US apparel business that audaciously began selling its Levi and Dockers brands online in 1999. Retailers were flummoxed by the assault of competition, advising that Levi’s account could be cancelled if the company continued to sell its products direct to consumers online. Within a few months, Levi Strauss & Co had discontinued all online advertising efforts.

The Australian climate

Coco Chanel coined the phrase ‘fashion is made to become unfashionable’, underlining the unnerving unpredictability of the apparel industry. Yet despite its apparent volatility, the Australian retail apparel industry has moved from strength to strength, boasting a weighty turnover of $12.8 billion in 2008. A substantial share of this is assigned to overstock or season stock, providing an outstanding business opportunity for brandsExclusive to sell this inventory online as opposed to selling through classic channels such as DFO and warehouse sales.

Jarosch and Weber defined their customer base as those seeking genuine branded goods at a high discount from a trusted online source. Weber felt the business model didn’t necessarily need to be limited to overstock products in apparel – or to the apparel category itself. ‘It will eventually evolve as we see what’s happening overseas. This means the opportunity increases accordingly, with more available stock and categories added depending on the preferences and needs of the consumers.’

Despite Jarosch and Weber’s high hopes for success in the Australian market, the fact remained that only one Australian online retailer (ozsale.com.au) was taking a similar approach to Europe’s online clubs at the time of brandsExclusive’s inception. OzSale had launched in 2007, focusing on children’s wear and offering a self-registration membership strategy. In contrast to brandsExclusive, OzSale did not work with local brands but focused on bulk buying of liquidation stock overseas and importing it to Australia.

In contrast to those in the US and UK, the online market in Australia is still in its infancy, and this relates to two critical factors. Firstly, a large proportion of Australian consumers are wary of online shopping. Online transactions have attracted a moderate-to-high number of complaints, which has undermined consumer confidence and fostered e-consumers’ fears of falling prey to credit-card fraud. Secondly, experts cite the lack of a ‘catalogue-shopping culture’ as further cause for consumer hesitancy.

Jarosch and Weber’s venture would play directly into the hands of either the prosperity or the demise of the Australian online shopping market. The pair was plagued by a pressing question: that of whether or not a successful overseas business model could be transferred and adapted to the Australian continent, given the relative online inexperience of the country’s consumers.

The inherent challenges

Pure retailers face relatively few barriers to establishing online outfits; however, the combination of low capital requirements and the broad and large market opportunity outlined above increases the threat of potentially more popular new entrants. Compounding this threat is the fact that new competitors are a click away for consumers, making loyalty and trust far more difficult to obtain and maintain within the web environment.

Another issue lies in the difficulty consumers have in accurately assessing products online. The characteristics pivotal to the consumer decision-making process – colour, touch, feel and fit – present particular communication challenges in this arena. Customers are also stripped of the instant gratification their purchases can provide, as a shopaholic’s joy must be postponed until the goods arrive in the mailbox. Product presentation and website atmosphere are therefore critical factors in evoking positive consumer emotions.

To get around this potentially problematic issue, brandsExclusive placed considerable importance on the presentation of its online products. It created a quasi-3D effect by using human models instead of laying out the goods in one-dimensional form and provided detailed descriptions of model height, weight and size to further illuminate the assets of its product. In addition, they provided pictures of the products, taken from several angles, along with a high-resolution zoom function.

The venture’s dominion

The success of brandsExclusive boils down to its ability to sidestep the hesitancy of Australian consumers to shop online by establishing strong transactional trust. To rid any lingering uncertainty from the minds of online customers who may be unfamiliar with unconventional shopping channels, brandsExclusive offers a full return policy.

In addition, the business sources its stock directly from fashion brands and their distributors in Australia instead of sourcing branded goods from China, the US or via receivership goods.

This sourcing strategy differentiates brandsExclusive from other players, who may pay less by purchasing goods in higher volumes from several sources.

By contrast, brandsExclusive only orders the aggregated consumer demand at the end of the sales event. While this ordering process means longer waiting periods for the consumer, it mitigates inventory and cash flow risks by disentangling cash flow from inventory. It also boosts consumer trust by guaranteeing quality.

brandsExclusive further builds consumer trust by consistently guaranteeing high price discounts. In contrast to rival online companies, the business holds no inventory and therefore avoids warehousing and personnel costs. Meanwhile, online marketing costs are kept to a minimum, thanks to its invitation-only membership approach and a concentration on email announcements to members and personalised customer relationship management. Satisfied members spread news about the shopping club on behalf of the firm and, in doing so, provide brandsExclusive with the most powerful marketing tool: word of mouth. To foster member referrals, brandsExclusive provides a range of invitation applications from which members can choose, such as address-book uploads, Facebook integration and MSN messenger invitations applications.

But brandsExclusive’s success also lies in its ability to build trust with fashion brands themselves. It gives brands access to a proven online retail channel without extra costs or risks. This enables the supplier to generate high sales volume through fast clearance of excess inventory. It also avoids channel conflict because goods are sold to a new, exclusive and closed customer base.

The website also protects the identity of fashion brands by removing former campaigns from the site, leaving no trace of their existence. Neither can its sales be sourced within Google searches. The brand thus retains tight control and benefits from cross-selling via other channels, given that the exclusivity and short length of brandsExclusive sales events mean that members may miss buying what they wanted.

Along with the development of trust in consumers and suppliers, the success of brandsExclusive lies in its ability to provide customers with access to a thrilling buying experience. Not only does buying through the site guarantee hefty discounts; it also ensures that each sales event is exclusive, running only for a limited time and providing a limited quantity of merchandise.

With a growing sense of haste in people’s lives, there’s an increasing desire to buy from retailers that capture – or capitalise on – fleeting experiences.

The indomitable outlook

Jarosch and Weber are focusing on two key areas: growing the site’s membership and supplying members with a wide and deep range of products. The pair’s current objective is to increase membership to more than 100,000 in the first year and be showcasing between 25 and 50 sales campaigns a month, while maintaining a high conversion rate.

As predicted by Jarosch, other private shopping club operations have emerged in Australia as a result of his business model’s success. This is no surprise, as venture capitalists are eager to invest in the latest trends, driving up valuations and encouraging a glut of copycats.

But while the onslaught of competitors could spoil the party, The Wall Street Journal had it right in July 2009 when it noted that the importance of strategic planning for e-commerce firms cannot be overstated – and will eventually guarantee a sustainable competitive advantage.

This case study is extracted from the forthcoming book, Strategy: Theory and Practice, by Stewart Clegg, Chris Carter, Martin Kornberger and Jochen Schweitzer.

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