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Archive for December, 2015

Business as unusual – innovating professional services – 7

Monday, December 21st, 2015

Professional Service innovation blackboard

by Alastair Ross, Director, Codexx Associates Ltd

Part 7. Key challenges and sustaining innovation

Introduction

This is the last in a series of seven articles on professional service innovation. The objective of the series is to provide a basic introduction to innovation management for managers, partners and change agents working in professional service firms. This final article reviews the key challenges that professional service firms will face in establishing, accelerating and sustaining an innovation programme and some of the approaches that can be used to address them. To read the first article in the series go here.

Key innovation challenges

In establishing and operating a programme for innovation within a professional services firm, many challenges will be faced, for example:

“Carving out real time for innovation instead of chargeable work is a major challenge…we don’t do enough of it.” Partner, Management Consultancy

Motivation challenge for employees is that chargeable hours win.” Partner, Accountancy

“Innovation does not come naturally to most risk-averse lawyers.” Partner, Law Firm 

“People don’t want to take risky ideas to the boss.” Partner, Management Consultancy

“We’ve been in our functional silos too long and they’re too deep.” Manager, Business Services

“There is lip service to innovation at senior levels due to the difficulty of making the required cultural change.” Partner, Law Firm

These quotes are from clients and a Codexx study in 2012-13 investigating the key challenges encountered by professional service firms in innovation. The study examined 15 predominantly large professional service firms in law, consulting & business services, accounting and insurance. The participating firms were asked to identify their top 5 innovation challenges. The results are shown in Figure 1. A copy of the study report can be found here.

Innovation challenges figure

Fig 1: Innovation challenges in professional service firms (Source: Codexx)

Two of the top three challenges are culture-related issues, each identified by 9 or more of the respondents. The highest challenge was ‘the motivation for employees to innovate’. Firms see that in most cases there is not enough encouragement for employees to innovate. The second highest challenge identified was ‘no/poor innovation process’ – the lack of an effective structured approach for gathering, exploring, selecting and implementing ideas. The third highest challenges was ‘a hostile culture to innovation’ which has some similarity to the highest challenge, the difference being that the first challenge covers a lack of incentive for employees to innovate which covers things like management encouragement and support and reward. This third-ranked challenge identifies an active discouragement for employees and managers to spend time on innovation.

The ‘Other’ category covers a number of other challenges that were identified by respondents. Some of these do overlap with the existing categories, but others capture additional challenges such as the difficulty of managing multiple stakeholders and the issue of functional and departmental silos which can limit the sharing and development of new ideas across the firm.

Innovation system diagram

Figure 2: The innovation system (Source: Codexx)

Addressing key challenges

Establishing and operating an innovation system, covering the 7 practice areas, as outlined in Part 3 of this series and shown in Figure 2, is the most robust approach for dealing with the common challenges faced:

  • Employees will be motivated to participate in innovation activities if there is supportive leadership within the firm and a performance management system that measures and rewards innovation participation. Champions need to be found, to lead projects and help execute required changes.
  • An ideas management process will address the frustrations and inefficiencies that occur when ideas cannot easily be explored, evaluated and selected for implementation in an effective way.
  • A hostile culture for innovation occurs when partners and employees are exclusively focused on today’s business and are effectively penalised when working on innovation (i.e. tomorrow’s business). This can only be addressed by moving the culture to innovation-positive through communication, espoused values in the firm and recognition and reward systems that support it.
  • Innovation needs to be resourced – in a professional service firm this particularly means partner and employee time made available for innovation, some common tools and methods (process mapping, analysis and Lean-enabled improvement for example).
  • Firms need to engage clients in their innovation activities, to gain insight and identify opportunities for enhancing value and to look externally for new ideas and resources.
  • Learning needs to be enhanced in firms, especially to support process-based innovation, with the use of process management and measurement and continuous improvement. Additionally a culture of capturing, sharing and reusing improvements is needed to get innovation beyond the silos of teams and departments and applied across the firm.

Sustaining innovation

Leading a programme to establish sustainable innovation within a professional services firm requires a long term outlook and effective change management. In making change within a partnership it is key to get the support of the majority of partners (unlike a corporate where a board-driven ‘It’s my way or the highway’ approach can be effective). Partners need to recognise that the benefits of the change will outweigh the pain and cost of the journey required. This individual assessment of the pros and cons of change are captured in the ‘change equation’ developed by Beckhard and Harris. This is a simple equation but is powerful in recognising that the viewpoint of change must be both at the personal as well as the organisational level. That is, answering the question from the viewpoint of those key individuals who hold power within the organisation, rather than simply from the viewpoint of the organisation as a whole. This is because it is the perspective of the key decision-makers in an organisation that is critical. The ‘change equation’ states that for successful change:

 

DVP > C

where

D= Dissatisfaction with the status quo

V = Vision of desired future state

P=  Practical Plan to realise the future vision

C = total perceived Cost of change (covering energy, emotional, financial)

(Source: Richard Beckhard and Rubin Harris).

So for someone to be supportive of a proposed change the combination of their dissatisfaction with today’s situation, the attractiveness of the future vision and the proposed plan to realise it must be more compelling than their perception of the cost of making the change. Change leaders need to be able to effectively ‘sell’ the proposed innovation programme at the outset and then continue to sell it during the years it takes to fully establish it within the organisation. This is why measurement and communication of benefits, visible recognition and reward of those effectively leading and participating in innovation activities and establishing innovation behaviours as key to progression in the firm are all key to successfully sustaining the innovation programme.

Summary of the series

The objective of this series was to introduce the key elements of an effective approach for driving and managing innovation in a professional services firm. This is based on my experience of working in Codexx on innovation and re-engineering with major professional service firms over the last decade.

In this series I defined a framework for considering and identifying innovation opportunities, using the ‘innovation dimensions’ model and then gave examples of the four key innovation categories. I then outlined a system to support innovation within a firm, based on 7 key practice areas. In the final two articles I discussed approaches for starting and accelerating innovation within a firm and identified the typical challenges that will be encountered in this journey and key approaches for addressing them.

I won’t pretend that this series will make its readers experts in innovation – that was never the intention! Instead, I hope that readers will have a better appreciation of the opportunities and challenges for applying innovation in professional service firms and to recognise that there are proven approaches to effectively manage innovation so that it can ultimately deliver improved competitiveness for their firms. And from my experience, there is major opportunity for professional service firms to utilise innovation to drive significant improvements in the value provided to clients and the efficiency in which it is delivered.

References and further reading

This article and the others in the series are based on the approaches, references and case studies detailed in my book ‘Innovating professional services – transforming value and efficiency’ published by Gower in May 2015. This is based on the author’s ten years of experience working with professional service firms on innovation projects. It provides in-depth coverage and case studies of the topics featured in this series. For more information go to: http://www.codexx.com/2015/innovating-professional-services-new-book/

Cover-Image

Business transformation – think like a farmer, not a scientist

Monday, December 7th, 2015

by Alastair Ross, Director

Business Transformation sign with lots of comments

Business Transformation.  What is it?

Does it even exist in the real world outside the rarefied environment of the CEO’s vision, the consultant’s presentation or the academic treatise?

If it does exist, how can it be achieved?

These are important questions at a time when the need for major change in businesses is ever more pressing, faced with an environment that is full of new challenges and opportunities.

In my career I have worked both inside large businesses and outside them as an external consultant. During this time I have experienced the wide continuum that is ‘business transformation’:  from the all-too-common hype to the reality of major change projects that drive step-change performance improvements through the application of new business practices.

What I have learned is that ‘business transformation’ is not achieved by one mythical ‘big bang’ programme, despite the (over) promises of advisors, consultants and CEOs. Business Transformation is not like a chemical reaction where you bring together key business elements and catalyse them with a strategy to create – in a flash of light and a cloud of smoke – a new business model. Instead it is something apparently more mundane. It’s like farming.

For transformation is achieved by the hacking-away of the stifling undergrowth of conventional thinking, the planting of seeds of new paradigms and practices, and the hard graft of execution in the office, on the factory floor and out in the field. Transformation is realized across many harvests of change – not simply one ‘bumper harvest’. Sometimes the yield from a harvest is poor, the crops of change wither and die and new approaches are needed. Transformation requires the hardy farmers of change as well as its clear-eyed visionaries and sober-headed analysts.

Business transformation requires a bold and unique vision of how the organisation can generate value in a significantly new way – effectively a new business model – and this vision needs to be bought into by leaders and champions in the business. Communicating this new vision across the organisation – repeatedly – serves to catalyze improvement activities and provide a focus for innovation programmes. Then comes the hard grind of execution.

The reality is that most business transformation programmes fail to realize the initial vision. Most commonly the business fails to sustain the transformation programme long enough to yield the planned results. Management is typically impatient for results and performance metrics in most businesses do not encourage the long-term outlook required for successful transformation.

Finally it is worth remembering that businesses that are successful in the long term continually transform themselves – developing new business models – just as a farmer will continually develop their land, introduce new methods and plant new crops. Business Transformation requires long term thinking, it is an ongoing journey of innovation,  not a single destination.

Continuous Improvement – the quiet giant of innovation

Wednesday, December 2nd, 2015

Continuous Improvement image

A BBC article (here) recently gave media prominence to a well-established business approach, namely incremental or Continuous Improvement. It cited the example of how Sir Dave Brailsford applied Continuous Improvement approaches in his role as performance director of British Cycling to benefit from ‘marginal gains’:

Brailsford believed that if it was possible to make a 1% improvement in a whole host of areas, the cumulative gains would end up being hugely significant. He was on the look-out for all the weaknesses in the team’s assumptions, all the latent problems, so he could improve on each of them. (Source: ‘Should we all be looking for marginal gains?’, BBC)

Brailsford made small improvements in cycling aerodynamics, in maintenance methods, in rider health and other areas identified by analysis as being small areas of weakness. These small improvements aggregated together transformed the competitiveness of the British Cycling team and subsequently Brailsford used a similar approach in the Team Sky cycling team. The result?

Team GB used to be also-rans in world cycling. Indeed, one pundit described the operation as “a laughing stock”. But in the last two Olympics, Team GB has captured 16 gold medals and British riders have won the Tour de France three times in the last four years. (Source: ‘Should we all be looking for marginal gains?’, BBC)

A short history of Continuous Improvement

Continuous Improvement (CI) is a type of innovation (defined as creating value from ideas) that sits at the unsexy end of the spectrum of business innovation. It receives few column inches in innovation blogs, individual projects do not result in earth-shattering changes and few of the project instigators will receive individual rewards. It is noteworthy only for its aggregated impact – of using new ideas to increase customer value or internal efficiency (by a little at a time). Toyota is often considered, incorrectly, as the parent of CI as part of its Toyota Production System (TPS), which later became known as Lean. But its conception was much earlier, primarily in the work study movement of the early twentieth century, fathered by Frederick Taylor and resulting in Taylorism. Toyota wrapped the resulting hard mechanics of time & motion study with its own philosophy of waste elimination and high workforce engagement.

Toyota sets the performance bar

Toyota’s ability to generate an average of 10 implemented improvement ideas per employee per year places it in the premier league for continuous improvement; most western firms struggle to get into the lowest league with typically 0.1 implemented ideas per employee per year. Toyota’s approach to CI lies in its combination of a specific methodology and a work philosophy that defines a unique organisational culture: ‘Toyota views employees not just as pairs of hands but as knowledge workers who accumulate the wisdom of experience on the company’s front lines.’ (Source: ‘The contradictions that drive Toyota’s success’, Harvard Business Review, June 2008) This is a powerful view and one that is all too often missing from business organisations.

Whilst industrial firms will have established CI programmes, focusing on shop floor teams, they vary significantly in their effectiveness. In my work with Codexx I have assessed a number of industrial CI programmes and typical weaknesses that occur include: Limited training in the use of CI methods, lack of defined goals and focus areas for CI, weak processes for reviewing and selecting ideas and limited workforce engagement (i.e. most ideas come from a few people). However for businesses that get it right, CI programmes can deliver significant financial benefits year on year and create a working culture that energizes and engages the workforce.

What about services?

Service businesses often lack robust capabilities for CI, although this is changing as Lean thinking continuous to permeate this sector. Allianz Insurance plc launched a major and ongoing innovation programme in 2006. At its core is a Continuous Improvement system.This uses departmental teams meeting regularly to identify and implement improvement opportunities. Each department team defines three key goals for their team and then, using a short weekly or bi-weekly meeting, they seek to solve problems that have been identified during the previous week and put on a departmental whiteboard by team members. Idea exploration and selection is performed by the team through a discussion. Implemented solutions are then recorded in the firm’s ideas management system. In total there are about 400 teams working in this way with the support of 100 trained innovation champions. Since its start the programme has yielded 38,000 implemented ideas with benefits measured at £19m (1).

Making difficulties visible

A challenge for service firms in Continuous Improvement is the difficulty of ‘seeing’ problems. In industry, a production process is physical, parts and products move through process steps involving people and machines. In a service business, the ‘product’ is information or an experience and is not always physical. This is especially so in Knowledge Intensive Services such as design, accountancy, law and management consulting where the ‘product’ is information-based. Why does this matter? It matters because ‘making difficulties visible‘ is key to Continuous Improvement. This is why a key mantra in Toyota is Genchi genbutsu or ‘Go See’. In other words: Don’t rely on reports or information from others, go and see the situation for yourself. In a services environment, walking into the location where work is performed provides limited value, particularly in information-based work, for there is little to see: what does a law firm’s office filled with people, desks, computer screens and paper (oh yes) tell you about the services performed there? Very little. This is why process mapping and visual management methods are key to making processes and their performance visible in a services environment. In my re-engineering work with professional service firms, the power of collaborative process mapping cannot be underestimated.

Continuous Improvement needs ‘Know Why’ not ‘Know How’

‘Know How’ is a common term used to describe expertise and is thus considered a ‘good thing’. However it is a bad thing when it becomes a barrier to innovation, which is not uncommon. Let me explain further. Much of work is repetitive to a degree with work comprising common activities and sequences of tasks. ‘Know How’ is sufficient to perform such work, as the procedures to be performed and the steps to be followed can be learned and represent the required ‘Know How’. The underlying reasons for why the work is designed in this way are not necessarily understood or indeed do not need to be to perform the work. But ‘Know Why’ is key to making significant improvements in how this work is performed as there needs to be understanding as to why the work is designed in its current form. Indeed much waste exists in working methods because steps and procedures in place were relevant to a situation that does not apply any more. For example, in a major insurance client, some activities in an internal process related to an IT-workaround which had not been required for many years….the people performing the work simply had not been told. The disciplines of questioning, investigation and analysis to enable ‘Know Why’ – a deep understanding – of the work area under focus provide a strong foundation for Continuous Improvement.

Marginal gains x high participation = something big

One of the biggest challenges in driving innovation in an organisation is how to fit it in around the daily business. Innovation is about creating ‘tomorrow’s business’ – a organisation’s focus is on delivering ‘today’s business’ and employees are measured and rewarded on this. So finding time for innovation is always challenging. A related challenge is that the term ‘innovation’ can be intimidating to employees. Many people (incorrectly) associate innovation with the need for creativity and radical ideas and thus feel that they can’t contribute. AXA Insurance Ireland ran an innovation programme in the early 2000s (2). AXA’s analysis of those improvement ideas implemented in the first few years of the programme showed that 80% of them related to small process or service improvements or waste elimination. This helped employees realise that indeed they could participate effectively in the programme by seeking improvements in how they performed their daily work. This helps engage employees in innovation as a regular part of their work – as demonstrated at Allianz Insurance. CI thus provides a good foundation for commencing a programme of innovation in an organisation. So whilst Continuous Improvement might not make as much noise as other forms of innovation, don’t underestimate the power of marginal gains multiplied by high participation in your organisation.

Notes:

1. Source:‘High engagement innovation at Allianz Insurance plc’.  2. Source:‘Experiments in innovation at AXA Insurance Ireland’

both case studies in ‘Innovating professional services – transforming value and efficiency, Alastair Ross, 2015, published by Gower.

Energizing Change

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