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Archive for the ‘Strategy & Studies’ Category

Disruption in your hand

Wednesday, June 13th, 2018

You are carrying a device that has been responsible for the decimation of industries, the loss of millions of jobs and has subjected billions of people to an increased risk of fraud and bullying. This same device is also responsible for enriching our lives, bringing information and money to the billions of people living in remote and less developed regions of the world and enabling thousands of new businesses. This device is of course your Smartphone. It is a prime example of disruptive innovation.

What is disruptive innovation?

The term ‘disruptive innovation’ was coined by the academic, Clayton Christensen in 1997 to describe innovations that, at their inception, pose no threat to established businesses, due to their limited functionality. But over time, as they develop their functionality/price, they begin to nibble away at the established market, taking customers who are looking for ‘good enough’ solutions. The loss of these customers may not necessarily be seen as negative by established businesses who may well regard them as less attractive lower margin customers. But as time goes on, the disruptor takes more and more market share as its proposition grows in capability and acceptance. The result is that the incumbent, and once dominant, providers are squeezed ever more upmarket and ultimately into niche markets (see Figure 1).

Figure 1: Disruptive innovation (based on work by Clayton Christensen)

Christensen argues that disruptive innovations can hurt all companies – especially the successful, well managed companies that are responsive to their customers and open to new technologies and methods (see his book ‘The innovator’s dilemma’). For these companies tend to focus on meeting the needs of their existing customers. They ignore the market segments most susceptible to disruptive innovations, because these segments often have very tight profit margins and are too small to provide a good enough growth rate to attract established firms. The result is that these ‘less attractive’ market segments become the ‘beach heads’ for new value propositions that grow and develop in these segments before invading the ‘more attractive’ more profitable segments in the market – the ones that are the preserve of the established and dominant competitors.

The Smartphone as a disruptor

The smartphone is one of the most disruptive products to have appeared in the last two decades. It has disrupted a number of markets, including digital cameras, music and video players, portable satellite navigation, e-book readers, voice recorders, paper diaries and personal organizers and even the humble wristwatch. The subsequent growth in phone screen size is creating further disruption in the tablet and laptop markets.

The smartphone is a good illustration of the process of disruption. Consider but one of its functions, its ability to take digital photographs. The first mobile phone with a built-in camera was manufactured by Samsung and released in South Korea in June 2000. It had a 1.5-inch LCD screen, and the built-in digital camera was capable of taking only 20 photos each at 0.35-megapixels in size, but the user had to connect it to a computer to share their photos. Sharp launched an improvement on this concept in November 2000 – the J-SH04 could take photos at 0.11-megapixels, a lower resolution than the Samsung, but importantly photos could be shared using mobile data transmission. This phone therefore combined the key elements of today’s smartphone cameras – picture capture and immediate distribution.

By the end of 2004 the camera phone was riding high. It was reported that over half of the phones sold worldwide in the first 9 months of 2004 had cameras in them, and two-thirds of all the phones shipped in the third quarter were camera phones. Leading the way was Finnish manufacturer, Nokia.

The arrival of mobile phone cameras at the functional level of ‘good enough’ was illustrated in 2013 when the Chicago Sun-Times sacked its entire staff of 28 full-time photographers and replaced them with reporters using smartphones. As well as significantly reducing the newspaper’s costs, the paper was able to increase its video content. The paper released a statement saying: “The Sun-Times business is changing rapidly and our audiences are consistently seeking more video content with their news. We have made great progress in meeting this demand and are focused on bolstering our reporting capabilities with video and other multimedia elements. The Chicago Sun-Times continues to evolve with our digitally savvy customers, and as a result, we have had to restructure the way we manage multimedia, including photography, across the network.” It was reported that reporters were to be trained in ‘iPhone photography basics’.

Figure 2: Digital camera sales volumes  (Source: IC Insights)

The impact of the disruption caused by camera phones on traditional cameras was clear to see with the market leaders being squeezed into the smaller more specialist and profitable, niches such as digital SLRs.

Other victims of smartphone disruption were closer to home

Apple has benefitted from the disruptive impact of its iPhone smartphone product on the mobile phone market since it was launched in 2007. The immediate loser was Nokia which was the market leader at the time, with handsets that focused primarily on mobile telephony and secondarily on mobile computing and entertainment. But another major player, BlackBerry (originally called Research in Motion) was also hit by the move away from the traditional keyboard to touchscreens.

It is also interesting to consider why it was Apple that was the disruptor of the mobile-phone market and not IBM, whose Simon Personal Communicator introduced in 1994, was effectively the first Smartphone or Nokia, the market leader, whose Communicator series of Smartphones were successfully sold into business markets for several years before the iPhone was launched.

One key factor in Apple’s successful disruption of the mobile phone and smartphone sectors was that the company primarily targeted consumers and not businesses with its smartphone offering, unlike both IBM and Nokia. This enabled it to quickly build volume and sizeable market share. It cemented this success with its complementary ecosystem built around the iTunes App store and its partners’ offerings. This enabled it to then enter the business market taking advantage of the BYOD (‘bring your own device’) movement with its customers using their phones at work and helping to convince purchasing decision-makers of their benefits.

Dealing with disruption?

Disruptive Innovation can threaten any business. It also offers the opportunity for innovative businesses to enter new markets with the strategic potential for overcoming the existing dominant competitors. So any forward-looking organization today should have approaches and mechanisms that try and spot such potential disruptive innovations when they are still ‘over the horizon’. Indeed such disruptive innovation, used proactively, can form the core element of a powerful business transformation strategy.

Unfortunately there is no one approach that can be used to identify potential disruptions early. Businesses need to select a range of complementary approaches for ‘scanning’ the business environment for potential disruptions. They also need to develop and assess scenarios of technology, competition and market changes to determine when and how they should best respond to potential disruption. Whatever approaches they choose to adopt, it is important that they are proactive, rather than planning to react when disruptions become visible – for by then it is likely to be too late.

The one approach that business leaders should most definitely not adopt – is unfortunately the most common: to take a dominant market position for granted or to consider it has some degree of permanence. The business history books are full of companies that have made that mistake.

This article is an extract from ‘Sowing the seeds of business transformation’ by Alastair Ross,available as paperback or e-book on Amazon. It was originally published on LinkedIn on 13-6-18.

 

Why great products are not enough – the story of Nokia

Thursday, January 4th, 2018

The second video in our series ‘Why great products are not enough’ covers Nokia and its fall from market dominance in mobile phones in 2005 to market exit less than 10 years later. There are key lessons to be learned from Nokia’s experience. In this video Alastair Ross reviews Nokia’s fall and analyses why and how it happened and the key weaknesses in Nokia’s business model and capabilities.

 

The new professional will be doing less content but delivering more value

Thursday, August 24th, 2017

How will the form of the professional services firm and the role of professionals change in the next decade?

This is an important question given the importance of professional knowledge workers such as IT specialists, designers, architects, lawyers, management consultants and accountants to the modern economy.

There is a major discontinuity emerging between the established paradigms of professional services and the emerging new paradigms that will be needed in response to key market and technology-driven transformation forces. Understanding these changes and how they will impact existing firms, professionals and those aspiring to a professional services job is important to the future of firms and professionals.

“The lawyer of the future will be doing less law.”

Those were the words spoken by the managing partner of a progressive UK law firm. They were said in one of a number of interviews I recently conducted with knowledge-intensive service firms including lawyers, management consultants and IT services businesses. Whilst these words specifically refer to the legal sector, there was a common theme in these interviews – and in my project work with professional service firms – that knowledge workers – whether they are lawyers, accountants, doctors, management consultants or other specialists – will, in the future, be focusing less on ‘technical content’ (i.e. their specialism) and much more on innovating new services, leading teams, collaborating with partners and building deeper client relationships.

Why will this happen and what does it mean for the future of knowledge workers and their firms?

 

What is driving these changes are major external trends:

  • Global competition – forcing firms to review and enhance their business models.
  • Client demands – driving firms to do ‘more for less’.
  • Global clients requiring consistency in service delivery across their locations.
  • Increasing IT value – enabling automation of repetitive knowledge work.
  • The ‘gig economy’ – offering firms a variable cost resource option.

In response to these trends, progressive knowledge-intensive service firms are taking the following actions in their business:

  • Streamlining and codifying repetitive work to enable lower cost service delivery.
  • Moving lower value work to less experienced and expensive personnel.
  • Applying IT solutions to automate repetitive work elements.
  • Experimenting/piloting AI solutions to automate more complex work.
  • Planning for reduction of core employees through contracting and outsourcing.
  • Broadening the capabilities of their senior professionals in non-technical areas.
  • Establishing more robust approaches for developing and managing services.

Many firms are using mergers to increase their scale which will help with funding major investment in IT and other improvements. However mergers in professional services are often problematic due to cultural misalignment and poor post-merger integration. They also dilute management focus. So the merger response to these challenges is by no means a ‘silver bullet’ – indeed it often results in major collateral damage….

The paradigm of the knowledge professional – be they a lawyer, accountant , consultant or other specialist – focused on performing fee earning work will change.

It will change to one where their time spent delivering expert content will reduce and be replaced by time spent in the following areas:

  • Developing new higher value services and partnerships.
  • Developing methods for delivery using automation or lower-skilled personnel.
  • Building a deeper understanding of client challenges.
  • Managing the delivery of new services and client relationships.
  • Leading and coaching junior personnel.

So how should firms and individuals prepare for these changes?

Firms need to develop new operating models that embrace these trends with strategies to achieve them. These strategies need to cover their organisation and skills development, their services design and delivery and their IT infrastructure. These strategies will deliver new business models that enable them to succeed in this new business landscape.

Individual professionals need to develop their skills portfolio to prepare them for this new world. They need to complement their deep content specialisms with broader capabilities in areas such as consultative selling, team leadership, project management and innovation. A useful model for this new world is as the ‘T-shaped’ specialist. In addition to these skills-based changes they need to take ownership of their individual skills development and branding. For they will increasingly be ‘going to market’ as an individual resource – as a subcontractor for a specific project – rather than as an anonymous professional ‘foot soldier’ working for a firm*.

*Tom Peters was certainly prescient when he wrote his book ‘The brand you 50’ in 1999, with his message to white-collar workers about the need to create their own personal brand.


This article was first published by the author on LinkedIn on 24th August 2017.

Cyber security – a scenario of the 2030s

Tuesday, July 11th, 2017

‘Knowledge is power’ is an old maxim attributed to Sir Francis Bacon, the Elizabethan scientist and philosopher and ‘father’ of the scientific method, writing in 1597. In today’s global interconnected world, knowledge – specifically digitally represented knowledge – truly powers our lives and our businesses. Within the last twenty years digital information has replaced many once-familiar physical assets, such as notes & coins (‘cash’), CDs, DVDs, photographs, books, the need to travel (other than for pleasure), the need to visit physical shops or offices – the list goes on.

Our digital world – the good and the bad

Our digital connectivity enables almost instant response to events through access to information transferred between computing devices and thus people and organisations. This increasingly frictionless information access powers our economy, linking businesses, suppliers and customers and people with their families, friends and social networks. However this powerful and easy exchange of information can be a double-edged sword – for information can move in any direction and sometimes when and where we don’t want it to. The increasing impact of information theft, hacking, infection and related disruption is becoming clearer with recent events showing that damage is not limited to the virtual, but can also impact physical infrastructure and thus degrade social, governmental and business processes and services.

Our values lag the new information paradigm

Our values and our business models have been slow to keep up with these changes. Illegal downloads of music and video and ‘copy and paste’ of copyrighted information from the internet is commonplace and not considered as ‘theft’ by all-too-many people – unlike the taking without paying of a physical good from a shop or a home. We still instinctively assess the value of an asset with its ease of replication. So we can relate the price of a physical product – like clothing, a mobile phone or a car – with its cost of creation or duplication. But many find this difficult to do with a digital product – since it can be copied in an instant effectively at ‘zero’ cost – surely that makes it ‘cheap’ or ‘free’? goes the justification. Our values and indeed our ways of living and working need to adapt to these relatively sudden changes in the paradigm of value.

So how do business models need to change?

It is increasingly clear that businesses will need to transform their strategies, processes and organisations to survive and prosper in this new information paradigm. To explore the potential impact of these changes, it is useful to construct and analyse plausible scenarios and use the learning to develop appropriate strategies. To construct a useful scenario, I have taken a relevant extract from my recent fiction book ‘A joy to serve the company’.
Let me set the scene: It’s the late 2030s and we’re in a car factory in the North of England run by a major Japanese automotive company. Alex Hunter is an experienced factory engineer called to a meeting with Yasuhisa Akiba, a senior leader in Corporate Excellence – known as ‘CEX’. Read the excerpt and reflect on its likelihood and what it might mean for today’s business models…….

Akiba had been standing, leaning against the wall, as he spoke to Alex Hunter who sat on the other side of the table in the large stark white-walled conference room on the top floor of the Eden Bridge administration building.

“Anyone with money can make cars, if they have the knowledge,” he’d said. “Differentiation of products and competitive advantage is founded solely on the intellectual assets owned by a company. Information is not only important; it is the key to our success. There is no way we can compete with the Chinese majors on the basis of costs – they will always have the economies of scale. PAG’s new megafactory at Dalian will have almost one hundred and fifty thousand employees and two hundred and fifty thousand robots when it is fully operational next spring. Even their European factories in Tatabanya, Prague and Koln are five times the size of Eden Bridge. We can’t compete with their scale! We must compete on the basis of innovation. And innovation is founded on our dynamic open culture and our leverage of our information assets. Far from information being a support to our business, as you claim Alex Hunter, it is the core of our business. It is for that reason that company information protection and offensive competitive analysis are so fundamental to our success.” He stared at her. She met his gaze.

“Do you understand?”

She nodded. “Yes.”

“Look at your left wrist.”

“What?”

“Tell me what you see.”

She frowned and looked down at the thin rounded metallic black rectangle strapped to her left wrist with a dark red band. “It’s just my iband,” she said with a shrug.

“’Just my iband’. You speak as if it is nothing special.”

“Well it isn’t really is it? Everyone has one these days.”

“You talk as if it is simply a common mobile communications device. Does everyone have a subcutaneous high bandwidth network implanted under their skin and linked to an implanted telecommunications module with an interface security unit?”

“Well no. Only other professionals have that sort of tech. Most people just have a basic comms module on their wrist.”

“That is right. You loosely call this device an ‘iband’, but that is simply lazy western slang for all body-mounted or implanted data processing and communication devices. Your iband is actually a company AMU7, the product of two decades of development of mobile communications and decision support technologies in the company laboratories. It was a massively expensive undertaking. Do you understand?”

Alex nodded.

“So tell me this: Why did we simply not buy it from Samsung or Huawei? Get them to develop it for us? It would have been a lot cheaper.”

“Er, I’m not sure.” She shrugged. “Maybe we should have. That sort of stuff is their core competency. Ours is making cars.”

Akiba appraised her for several seconds. “So you would have been comfortable with Huawei, a major Chinese-owned electronics company developing the technology that all our associates use to develop and share our most sensitive company information across our entire global operations. Or for Samsung, which is partly owned by Leno Investments, a major Chinese investment house, to have done the same?”
Alex Hunter felt her cheeks redden. She avoided his eyes. “Oh, I see.”

Akiba walked across to the window and stood in silence looking out. For a long time. It felt like minutes to Alex who began to feel even more unnerved. Then suddenly he turned back and faced her.

“As I explained. It is not good enough to be able to just make cars. Information is critical and it must be kept secure. The AMU7 is a key tool for empowering our associates with the knowledge assets within the company – linking them with other associates, with our AIs and with our knowledge management databases. And it does so in a way that protects our information assets from external intrusion. With built-in industry-leading firewall and anti-virus capabilities. With the ability to sense other intelligent devices and autonomously launch intrusion attacks to gather information. To link you automatically to the company for vmail, voice or data sharing. To work seamlessly with personal surgical enhancements such as optical or neural implants. With encrypted signatures on external devices such as your wrist unit, so that they will only work when connected to your subcutaneous network. Indeed if the AMU7 senses an attempted connection to another network or tampering of its external seals it will auto wipe its data and destroy its key bioengineered chips.” He snorted loudly. “Your so-called ‘iband’ is a key company asset. It easily triples the productivity of an associate in their work. It also turns each associate into an active information gathering asset. Do you understand?”

“Yes,” Alex nodded.

“Let me give you an example of this. Last year the AMU7 of one of our Chinese marketing associates was able to extract a design data file on the transmission system of a new PAG coupe under development, from a PAG associate, whilst boarding a flight at Beijing airport. The latest AMU7 software AI sensed the PAG associate’s device within its monitoring range and was able to overcome its firewall and remain undetected whilst it found and extracted that file and a number of others that were of interest. Neither the PAG associate nor indeed our associate was aware of this action taking place. Our associate’s AMU7 encrypted and sent the files to our Competitive Analysis AI once it was within range of a company-approved network. The information contained within them proved to be extremely valuable as the PAG associate turned out to be a senior team leader on the new car project. It allowed us to adjust the design parameters in the development programme for our new competitive vehicle to enhance the vehicle’s performance.”

Alex frowned. “Wasn’t that illegal?”

Akiba appraised her. “Illegal? In what way?”

She swallowed. “Well, theft of information.”

“Was there theft?”

“You just said…”

“All that happened was two associates from competing automotive companies boarded the same flight. There’s nothing illegal in that, is there?”

“Well no. But that’s not the point. What about the data theft.”

“What data theft?”

Alex frowned again, with growing irritation. Akiba continued before she could speak. “No-one was aware that this data exchange had happened. Certainly no bystanders and not even the associates themselves. This was not a pre-meditated action by our associate. As I said, he was not even aware it had occurred. His only involvement was that he happened to be wearing the AMU7. So no crime occurred. It was simply the operating software on the AMU7 acting on the basis of its own capabilities. You might say that the software AI had committed a theft of data, but does the concept of ‘theft’ apply to a piece of software? I think not.”

“Surely the responsibility lies with those that designed the AMU7 software in the first place? They were the ones who programmed in this functionality.”

“But they did not programme it to take such an action. They merely gave the embedded AI certain capabilities and set its overall objectives as a company asset. The AI decided to take this action. It saw the benefits to the company in doing so.”

“But still, it stole information –“

“Did it really steal information? If you were standing at an airport and overheard someone talking about some aspect of their business that interested you and so you continued to listen and absorb what you heard, would you be stealing that information?”

“No of course not, that’s completely different.”

“Is it really? The AMU7 continually ‘listens’ for information across its bandwidth of sensors and if another device is not secured against it, then the AMU7 will capture whatever information interests it. You call it ‘eavesdropping’ in the English do you not? That is what we humans do. We listen to the conversations around us and absorb any information that we happen to find interesting. And that is simply what the AMU7 does.”

“It is a good argument, but whatever you say about its legality it doesn’t sound ethical.”

“Ethical? Now that’s a word I haven’t heard for a while.” A thin smile momentarily cut its way across Akiba’s face as stared at her, his eyes empty and cold. He was a man of middle-height, dressed in company-approved black. His appearance was nondescript. Until you saw his eyes. They were large and dark and they bored into her. She averted her gaze and begun to feel even more uncomfortable. She was sweating. The warm sun on her back, pouring through the large window in the conference room was only one reason.

Why was she here? What did he want? Was he trying to intimidate her? Was this some sort of test? She’d been summoned from the factory floor by an iband call half an hour before and told to report here. To meet a man who had flown in from Japan to meet her. With little introduction, Akiba had lectured her since then on the company and the competitors. Now he walked over to the table and sat down opposite her.

“Ethics are a luxury to be enjoyed once survival is certain. And in this global war of business, even the survival of a company as mighty as ours is not certain.” He nodded. “But Alex Hunter, I have talked enough. It is your turn now. Give me your assessment on the impact of the theft of a data file containing key information on the LC3 engine management system.”

She was taken aback by his sudden question but managed to think quickly and luckily this was an area she was familiar with. But of course Akiba would have known that.

“The LC3 management system is one of our latest control platforms for our mid-range models. And as engine management is one of our core competencies, the LC3 control architecture would be dynamite in the hands of a competitor. They could directly copy the design, with some trivial design re-engineering to mask the fact that it was a copy, and use it. In consequence, we’d suffer a significant loss of competitive advantage, as we’ve always been strong on engine performance and refinement. This would allow a competitor at one stroke to capture the results of a decade of research and development. It would cost us tens of billions of rimbies, er Renminbi, if we were to attempt to regain that lead through further R and D or a long term loss in market share if we did nothing.”

Akiba shrugged. “A satisfactory assessment. So given the serious impact of such information loss, how would you prevent it from happening?”

Alex pursed her lips. “Well, I can’t see any significant deficiencies in the way the company guards its information today; the information fortress approach with entry and exit screening of all personnel, no communications linkage with non-company systems, except for unclassified v-mail running on an isolated system; AI-based firewall and anti-virus protection around all key systems. Er, regular auditing of associate practices, massive key-based encryption protection systems on all our information systems, heavy security presence on all company sites, an endemic need-to-know culture….” She tailed off. “I’m sure there’s more, but then I’m not a security expert, that’s the job of CEX.”

“And what do you know of Corporate Excellence?”

She shrugged. “CEX is just there, in the background. I use its systems, its processes, as just another part of my company life. I pass through the body scanning machine every day, I complete my monthly information audit, I input anything I hear about competitors into the Competitive Analysis database and I keep my mouth shut about the company when I’m outside of work.”

“Well I’m going to talk to you about what happens ‘in the background’ as you call it, Alex Hunter. About some of the messy work – things that some might call unethical,” he gave a tight smile, “– that go on to ensure that people like you can simply do your job. I’m going to tell you about what lengths the company is prepared to go to, and indeed has gone to, many times in the past, to protect its knowledge and assets from outside, and inside, interference and to seize information and assets from our competitors. And in doing so I’m going to destroy a lot of beliefs you may have held about the company; in fact it will never look or be the same to you again after this meeting.”

She suddenly felt light-headed. “Just a moment, Akiba-san, before you start,” she cleared her dry throat. “I may not need to hear this at all. What obligation will hearing this information place on me?” She swallowed. “What I’m asking, is do I really need to know?”

“It’s really very simple Alex Hunter. You do need to know, because you’re going to work for us.”

——————————————————————————————————–

Excerpt taken from ‘A joy to serve the company’ by Alastair Ross.

Available in paperback and Kindle here.

Image sources: Alastair Ross and Pixabay.com. 

Value myopia – a business killer

Wednesday, March 15th, 2017

glasses for myopia

It all seems pretty straight forward. A business provides a product or a service that a customer values and in return receives payment for it. Those businesses that provide a higher level of perceived value to customers will gain over those that provide less. This is the foundation of our market-based economy. Businesses use Marketing to understand what customers want, R&D to develop it, Manufacturing to build it and Sales to sell it. Basic stuff taught on any elementary business course.

So why do so many businesses get it wrong? How do they lose sight of the value needs of their customers? In effect they have got lost, guided by ‘value maps’ that no longer match the reality of their customers’ environment. Even large, sophisticated businesses are not immune from this disease. Just think about Nokia, Blackberry and IBM.

 

Lessons from the past – Nokia and Blackberry

Nokia started life in 1865 as a forestry business. Over the next one hundred years its business moved from wellington boots to electronics and military equipment and then in 1982 to mobile phones. By 2005 Nokia dominated the global market for mobile phone handsets with more than one third of the market. Yet only nine years later, in 2014, Nokia exited the mobile phone handset business after losses nearly bankrupted the company.

How did this happen? A key reason was that Nokia failed to successfully respond to a new paradigm in mobile phone handsets created by Apple when it launched its iPhone in 2007. Underlying this was that Nokia’s customer value map no longer matched the reality in the market. Nokia’s mobile phones were effectively based on a ‘radio paradigm’, where signal strength, call quality and battery life were key. However customers increasingly valued internet-based services, multiple applications, a fun and slick user experience wrapped in a slim and well designed package and were prepared to trade battery life and call qualities for these value elements. The iPhone was built on a ‘computer paradigm’ that better matched customers’ new value requirements. Nokia could not adjust its mobile phone business model to meet these new requirements fast enough and ended up leaving the market.

Backberry’s fall from market dominance was as calamitous as Nokia’s – with 41% share of the US market in early 2010 dropping to 1% by mid-2015. Whilst Blackberry was successful in selling to corporate customers, consumers became increasingly frustrated at the devices’ limitations in internet access, lack of Apps and usability compared to the more user-focused smartphones provided by Apple, Samsung and HTC. Trends such as BYOD (Bring Your Own Device) and the success of Apple and Google in providing ‘business-level’ applications on their phones meant that it was the users that drove the move away from Blackberry phones. Despite the new Blackberry 10 operating system introduced in 2013 – arguably a superior operating system to IOS and Android – its lack of application support effectively killed it. Blackberry was unable to establish an App ecosystem with sufficient critical mass to provide the required functional value demanded by customers.

 

IBM’s transformation – realising a new map of customer value

IBM successfully managed to realign its value proposition and business model to the needs of its customers – after a serious misalignment became apparent in the early 1990s. Customers were abandoning it for faster, more nimble competitors. Between 1991 and 1993, IBM lost a massive $16 billion. The core reason for IBM’s difficulties was that the IT market was changing and IBM’s value proposition had not. New developments such as personal computing, mobile telephony, integrated software solutions and the internet were moving IT beyond its traditional focus of the IT Data Centre to a strategic business issue.

As a result decision-making for selection and investment in IT was evolving from IT Management to business functions such as Marketing and Operations. IBM’s sales force did not have relationships with these decision makers, Management Consulting firms did and provided strategic guidance on IT issues. Some of these consultants, such as CSC and Accenture were also IT outsourcing companies. Outsourcing of IT meant that other IT providers, such as IBM, would become commoditised as hardware and software suppliers to the outsourcer and their influence and profit margins significantly reduced.

Through a major transformation programme IBM was able to realign its business model to match the new value requirements of its customers. Those value requirements were for an integrated service-based offering that reduced the risks and cost of ownership of IT for customers through consulting and outsourcing offerings. Building the new business model to deliver this was a ten year journey and IBM’s business changed from one where services accounted for 9% of revenue in 1991 to one where services accounted for 40% of revenue in 2001.

So how can businesses avoid the onset of ‘value myopia’ and ensure that their ‘customer value map’ matches what is happening in reality in their customers’ environment?

 

An accurate map of customer value

Here are three key guidelines to help ensure an accurate map of customer value:

1.     Always consider value from the customer’s perspective. Particularly the relative weighting of value elements such as functionality, experience, cost and quality, which vary by customer and the situation that prevails at the point of purchase or use.

2.     Customer and User insight is critical in developing the customer value map.This requires deep understanding of customers and users, their wants and needs. Approaches such as Anthropology, Lead Users and Co-Development are powerful in enabling this insight.

3.     Use structured and responsive methods for developing new and enhanced value propositions to ensure that value innovation improves the fit with how customer and user needs are changing. Techniques such as QFD, Value Analysis and Conjoint Analysis allow a detailed and holistic map of customer value needs to be created. Approaches such as Lean Start-up allow new propositions to be quickly developed and tested – reducing the risk of value misalignment with customer needs. By identifying trends in how customer value requirements are changing, businesses can get early notice of required changes in their value proposition and business model

Businesses need to recognise the ease and danger of a disconnect developing between their value propositions and user wants and needs which are by nature dynamic. They need to continually review and update their ‘value maps’ to ensure they match customer reality.

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Front cover with border for LinkedIn - SMALLFurther information on value mapping can be found in Alastair Ross’s new book ‘Sowing the seeds of business transformation’ and available in paperback on Amazon.

(A version of this article was published on LinkedIn Pulse on February 21, 2017).

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New book – ‘Sowing the seeds of business transformation’

Tuesday, February 21st, 2017

Alastair Ross’s new book Sowing the seeds of business transformation was published on the 18th February and is available in paperback on Amazon. The book is aimed at change leaders who are seeking inspiration and guidance for transformation in their own businesses – in both industrial and knowledge intensive service sectors.

Cover with text for Codexx blog

It is a practical guide, based on project work and detailed case studies and is suitable for transformation projects in a single service or process, a function or department, business unit or firm wide.

Sowing the seeds of business transformation examines key transformation-enabling tools and methods such as Value Analysis, Systematic Innovation, Lean, User-Experience, Re-engineering, Continuous Improvement, Business Model Innovation and Digitisation.

Multiple case studies are used to illustrate the use of these methods including businesses such as Nokia, IBM, Blackberry, Apple, Allianz, British Airways, Amazon, Nintendo, AXA and Ryanair. The book also provides proven frameworks and effective approaches to enable a programme of business transformation.

For more information on the book, to read sample pages or order copies, go to Amazon.

 

What does Brexit mean for UK business innovation?

Tuesday, July 12th, 2016

London in fog picture

Alastair Ross, Director, Codexx Associates Ltd
Professor Jeremy Howells, Kellogg College, University of Oxford

 

Peering through thick clouds

The initial impact of the Brexit referendum result has been the start of a period of volatility in the UK exchange rate, stock market and political governance. It has also created uncertainty for business as the eventual relationship with the EU and the nature of access to the single market is not known and will not be known for several years. Business does not like uncertainty for it makes it hard to predict future conditions and thus difficult to plan with any certainty.

What does this mean for a UK-based business in the medium to longer term and specifically where and how it should refocus its innovation efforts? The short answer is no-one knows for certain. The more useful answer is it depends on a number of factors, specifically on how they develop over time and the conditions which they eventually stabilise at. Considering a number of potential scenarios based around the development of these key factors is a useful way to consider and develop business plans.

So what are those factors and how should an organisation’s innovation agenda be modified based on their development? In this short paper we are considering innovation at the individual business level and in its broadest sense – the improvement in customer value and internal efficiency resulting from the systematic capture, development and implementation of new ideas. The results could be new or modified products and services, new ways of working, new market positioning or indeed a new business model.

 

 Uncertain conditions favour agility

The current situation takes us back to the situation of late 2008 and early 2009 after the financial crash. Codexx worked with a large progressive engineering company which had been hit hard by the resulting recession and recognised the need to fundamentally change their cost structure to better align to market conditions. Thus the company sought to exchange fixed costs for variable costs, in their workforce and through the use of suppliers. Essentially they were seeking to improve their agility – their ability to respond quickly to a market or customers – to grow capacity in required areas when there was an increase in demand and to be able to trim it easily – and without touching their core employees or facilities – when demand dropped off.

The Brexit situation has some similarities in that both situations resulted in uncertainty. However the impact of Brexit will be particularly felt by UK-based companies due to the major changes that lie ahead in key areas such as:

  • The UK pound exchange rate
  • UK stock market level
  • The nature and degree of access to the single EU market
  • People movement between the UK and EU

Since these are the key drivers to the future form and nature of the UK business model and competitiveness – and their end points will not be known for between 2-5 years, what can businesses do now? Businesses need to establish the capability to respond quickly to whatever economic and market scenarios eventually become reality – and in the meantime continue to operate effectively.

 

A new innovation agenda

Innovation is effectively about building tomorrow’s business – through the development of new products and services, new ways of working and new business models. An organisation has a constant challenge in focusing time, energy and resources on innovation – as the daily business needs this attention now and management priorities and rewards favour this. With Brexit, management has to dedicate increased focus on innovation as it is highly unlikely that the business environment for UK firms in 5 years’ time will be the same as today.

In many ways Brexit is an opportunity for businesses – as it provides a clear ‘burning platform’ for change and innovation. ‘The world is changing’ – well at least the market and supply-side conditions certainly will – and this provides a clear spur for innovation. So what sort of items need to be considered for the innovation agenda for UK-based businesses?

  • In the short term, trim waste to free up resources and reduce costs to offset increases in costs of imported parts and services due to the fall in the UK pound. This calls for a refocus on Lean thinking and process innovation. In the medium term, there may be opportunities for switching to UK suppliers.
  • Seize short term market opportunities in the single market that currently prevail with a cheaper pound making exports cheaper. This calls for a specific focus over the next 2+ years whilst the current single market access remains. There is a strong relationship between innovativeness and export performance and growth so there are opportunities here in the longer term for businesses that are seeking to sell innovative products and services.
  • Improve the codification of expert knowledge so that services and processes can be effectively delivered with less-skilled personnel. This is to recognise, in the short to medium term, that some of the skilled personnel available from EU countries outside the UK may not be available after the UK formally exits the EU. In the longer term, with, for example, an Australian based points immigration system, it may call for wider global search and recruitment practices. Even if the skills loss scenario is not realised, such codification will improve business efficiency and better leverage higher skilled personnel for higher value work.
  • Investigate the potential for new international markets that you have no presence in, looking at how you can reduce your costs and risks of entry by using partnership. This is in preparation for taking opportunities with the UK having the ability to negotiate new international trade deals but also potentially to offset any reduced access to the EU single market.
  • Prepare for a potential  restricted single market where the UK is faced with tariff barriers and thus products and services will be more expensive to EU buyers. This means an increased focus on value – developing new innovative offerings which can command a higher price – and preparing for increased price pressure by reducing non value-adding costs. In certain instances, certain products and materials, such as food products, may become cheaper in the medium term outside the EU. In the longer term accepting trading terms to, the European Economic Area (EEA), would mean continued access and compliance to EU trade rules. Outside the EEA, would mean trading on WTO general tariff rules and what access could be gained to individual countries or trading blocs, such as the Trans Pacific Partnership.
  • Don’t lose sight of the home market, where post EU exit there will likely be price advantages for UK-based businesses and also a likely period of goodwill to ‘home’ producers with a focus on ‘Buy British’, particularly if there is restricted access to the EU single market.
  • Review your requirements and sources of research funding. In the medium term if the UK remains in the wider EEA it can access current EU Horizon 2020 funds and other research and innovation funding. However, this will depend on the UK agreeing to continue to allow free immigration access to EU passport holders.  If this is not accepted by the UK government, then much will depend on how the UK shapes its own UK innovation policy and at what funding levels. Alternative sources of research funding may well be needed.

A silver lining?

Overall the next few years will be turbulent and challenging for UK-based businesses. However, there may well be a silver lining in this cloud – where the tough conditions drive businesses to increase their focus and level of innovation – to effectively improve their competitive health and thus better prepare them for market success – whatever challenges the future business environment will hold.

Study of innovation in 35 UK & German law firms – report published

Friday, October 3rd, 2014

 

Front page pictureToday Codexx published the final report on a study of innovation in 35 UK and German law firms, carried out in 2013 with the support of the University of Exeter Business School and the University of Leipzig Graduate School of Management. The objective of the study was to understand the current level of innovation, the methods being applied, the results achieved and the challenges faced by law firms in these two countries. Participating firms have already received a copy of the report, including their scoring in the study, to help in their innovation activities.

Alastair Ross, Codexx Director and author of the report said “Innovation is increasingly important for law firms, particularly those in the UK faced with new ABS entrants from deregulation, new internet-based business models and price-focused clients. It is very encouraging to see progressive firms seizing the opportunities for improved competitiveness through innovation. It is also useful to understand the typical difficulties that firms are facing in their innovation activities. This will help firms in developing their innovation capabilities and assist Codexx in providing best guidance to our legal clients.”

Report highlights:

  • 35 law firms in the UK and Germany were surveyed for their innovation methods and results during 2013.
  • Innovation was defined as anything new to the firm that generates value.
  • Overall UK and German firms,  scored similarly – at a middle to low level compared to best practices.
  • UK firms focused their innovation mainly on process improvement and German firms on services.
  • The study showed that improved innovation practices resulted in better business performance.
  • Firms’ key challenges in improving their innovation were in resourcing, culture and leadership.

 

Overall scatter picture

 

Executive summary:

  • A study of innovation practices and performance in law firms in the UK and Germany was performed during 2013, led by Codexx in partnership with the University of Exeter Business School and the University of Leipzig Graduate School of Management. The study involved a total of 35 firms, 14 in the UK and 21 in Germany. Firms participating from the UK were typically larger than those from Germany with a median yearly revenue of £70m compared to £17m.
  • We defined innovation as anything that was new to a firm and brought value – this broad definition covered incremental as well as ‘step-change’ innovation.
  • This study followed a previous one run by Codexx in 2006 with 16 UK law firms. The objective of the 2013 survey was to perform a more in-depth study of UK firms’ approach to innovation, particularly since the 2008 economic downturn and the legal services deregulation. The opportunity to perform a similar study with German firms and contrast approaches and outcomes brought additional value.
  • The study found an overall similar level of innovation practices and performance in the participating UK and German firms, which was typically at a middle to low level, compared to best practices. Whilst UK firms had their main focus on process innovation, German firms’ focus was on service innovation. The difference, we believe, results from the impact of the legal services deregulation and the post 2008 economic challenges in the UK, with firms giving increased focus to efficiency.
  • The study also found a good level of correlation between innovation practices and performance – showing that if these practices were put in place, it was likely that improved performance in key metrics such as revenue from new services and cost reduction from process innovation, would follow.
  • Analysis of those firms who were leading in innovation performance, showed that UK performance leaders had an average level of practices ahead of the study sample in every practice area, though this was not the case for German leaders (this might indicate some practice inconsistencies in the generally smaller German firms). This finding gives support to the recommended comprehensive approach to innovation, establishing a system to cover the the key practices.
  • Firms identified their key innovation challenges as in resourcing innovation, establishing a supportive culture and process and in leadership. Improving innovation resources and process were cited as common improvement priorities for firms.
  • The report defined five guiding principles for law firms seeking to improve their innovation capabilities, based on Codexx experience in working with law firms in innovation since 2005.

Practice leaders v sampleFor more information on the study or to request a copy of the report, contact Alastair Ross at Codexx.

The Innovation Journey for technology businesses – Phase 2 report

Monday, October 14th, 2013

 

Report on innovation programme 2009-2013

Today we are publishing the Phase 2 report of ‘The innovation journey for technology-rich product businesses’. This provides an updated report on our study of innovation practices and performance in technology-based product businesses. The study covers a total of 43 UK and Danish companies and was supported by our academic partners, The University of Exeter  in the UK and The University of Aalborg in Denmark. This study programme commenced in 2009, with a Phase 1 report in February 2011. We then extended the study with additional focus on ‘Disruptive Innovation’ adding 18 more UK and Danish companies. Our study took an ‘end-to-end’ view of product innovation as shown in Figure 1.Blog picture - 3 balls

Figure 1: Innovation Journey model

Practice – Performance correlation

Our study found significant correlation between the practices in place across the innovation journey processes and the resulting innovation performance (see Figure 2). Some stages of the innovation journey had more impact on innovation performance than others. In particular, innovation performance leaders were typically more user-focused across the innovation journey than other companies. Specifically the leaders (i.e those companies with the stronger innovation performance) were significantly ahead in the practices applied in the ‘Idea Exploration’ and the ‘Go/No Go to Market’ stages and ahead in ‘Development’ itself.  The differences between the innovation practices of leaders and others can be seen in Figure 3. We also examined how companies seek to manage the potential for ‘Disruptive Innovation’ in their market – we found that in general few companies have robust approaches in place.

Figure 2:  Practice v Performance for innovation

 

Blog picture - Scatter

Learning points

We have identified key learning points from this study and made recommendations for businesses who are seeking to improve their effectiveness in their own ‘innovation journeys’.  Our report is intended for a broad audience of business practitioners as well as academic researchers and we have especially sought to provide clarity and application for business readers. All participating companies were sent a copy of the report together with their unique code to enable them to review their performance on an anonymous basis.

Blog picture - snake

Figure 3: Differences between innovation leaders and others

 

Improvement recommendations

We made a number of recommendation based on the study findings:

  • Increase user focus throughout the innovation journey with the ‘voice of the user’ represented throughout the end-to-end innovation process.
  • Keep flexible to enable late changes from users – a key practice of innovation leaders.
  • Focus on users not customers.  When it comes to product innovation, it is the users who are key.
  • Examine your New Product Introduction/Development) process – to ensure it is covering the front end Idea Generation, Exploration and Selection steps and the back end steps. All too often these areas are not covered.
  • Give sufficient emphasis to the management of Intellectual Property in your innovation processes. IP can offer key strategic benefits if managed effectively.
  • Review your overall innovation system. Whilst the innovation processes as reviewed in this study are a key enabler to innovation success, there are other key factors such as Leadership, Culture and Strategy within the business that are major determining factors in innovation success. Businesses that wish to become successful at innovators need to improve their overall innovation practices.
  • Consider the opportunities and threats of Disruptive Innovation. With the rapid development of technology and the ability for new start-ups to quickly enter a market and receive venture capital funding to support rapid growth, established businesses need to actively look out for the opportunity/threat of disruption.

Overall we believe that companies would benefit in taking a broader ‘end-to-end’ view across their innovation journey to enable improved innovation performance.

If you would like further information about this study or would be interested comparing your company’s innovation practices against this model, then please contact Alastair Ross.

How to be a leader in the innovation journey

Friday, March 25th, 2011

There has rarely been a time when innovation has been more important for businesses. Today’s challenging economic conditions allied with global competition provide a business landscape that is hostile to companies that stand still. The dramatic and seemingly incessant development of technologies – particularly those allied to the internet – provide opportunities for new products, new services and indeed new ways of doing business. And lastly, today’s market is truly global, offering an unparalleled opportunity for businesses.

For businesses to survive, let alone grow, they must be effective at innovation – at converting ideas to products and services in the market that deliver value to users and income to their creators. The journey from ideas to value is not a simple one. There are many steps along the way and many opportunities for good ideas to be lost, poor ideas to reach the market or for the journey itself to take longer than it really should.

Working with our academic partners, Exeter University Business School in the UK and Aalborg University in Denmark and with Gill Jennings & Every during 2010 we examined the innovation journey for 25 technology-based businesses operating in the UK and Denmark. We sought to understand which aspects of the innovation journey were of most importance to eventual market success; and also to understand how well businesses typically make this journey today. We saw that whilst much research had been performed in various elements of the journey (in idea generation, in development, in selection for example) little research had been performed across the entire ‘end-to-end’ journey. We decided to study this journey for new products and in sectors where time to market is a critical requirement. We developed a model and questionnaire and used these to examine the innovation practices and performance of 25 product-based businesses across this innovation journey. The participating companies had revenues varying from around £10 million to more than £2 billion. We made the following key findings from the study which was published on the 28th February 2011:

1.Overall our study found significant correlation between innovation journey practices and ultimate innovation performance (see scatter chart below). This showed that improving practices across the nine steps of the innovation journey will result in improved innovation performance. To further enhance innovation performance, businesses need to address the other innovation practices in areas such as Leadership and Culture.

2.The biggest gaps between Innovation Leaders and the others, in innovation journey practices were in Idea Exploration, Market/Launch Preparation and in IP Strategy & Management (see chart above that maps innovation practice scoring across the 9 steps of the innovation journey). This suggests that these three areas are the most critical in determining innovation success. It is interesting to note that Idea Exploration and Market Preparation are at opposite ends of the innovation journey – one determining the quality of the new ideas that go into the ‘innovation pipe’ and the other preparing the market resources and partners for new product exiting the ‘innovation pipe’. This is an issue for many businesses whose existing New Product Development processes rarely cover these key front and back-end activities.

3.Leaders had a noticeably higher level of user focus across the innovation journey than did other companies and we would conclude that this is a key enabler to their higher innovation performance.

4.In contrast, practice areas that might have been expected to have high importance – such as Product Development – show little difference in practice between Innovation Leaders and the others.

5.When we examined the individual lower level practices that together comprised the nine individual steps through the innovation journey and their level of individual correlation with overall innovation performance, Intellectual Property (IP) management practices had the highest correlation with overall innovation performance. We believe that this is as much an outcome of being an effective innovator as an enabler to becoming an effective innovator.

6.Overall, there was generally little overall difference between the UK and Danish participants, (see chart above) other than in Idea Exploration and in IP Strategy and Management, where the UK companies were a little further ahead. There were more differences at the detail level with different priorities in areas such as Learning and IP Management.

7.The study also confirmed that those companies practicing significant Open Innovation today were more likely to have higher innovation performance than those who were not.

8.The study sample was too small to enable valid comparisons between individual business attributes such as sectors and size. We hope to address this by expanding the database with further participants.

In the detailed study report provided to participating companies, we identified key learning points from this study and made recommendations for businesses who are seeking to improve their effectiveness in their own ‘innovation journeys’. Participating companies were also provided with their performance score against the other participants – on an anonymous basis.

We propose to extend this work by growing the sample of companies assessed against this model, through use of the model in consulting work and in research to help businesses improve their innovation performance. For more information on the study, on how to have your company assessed against the innovation journey model or  to request a copy of the complete report, please contact us via www.codexx.com.

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