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Transformation in a mid-sized law firm – Whitepaper

September 11th, 2017

Major law firms are operating in a time of great change with significant pressures on their core business model, driven by a ‘perfect storm’ of factors:

  • Digitisation of legal service delivery, using the internet & mobile
  • More sophisticated and price-focused clients demanding ‘more for less’
  • Continuing austerity – impacting public and private sector legal budgets
  • Deregulation to enable new entrants and new business models

The UK legal press primarily gives coverage to the large law firms – particularly the so-called ‘magic’ and ‘silver circle’ firms licensed in England and Wales – and how they are responding to market, regulatory and technology challenges.

But how are mid-sized regional firms dealing with these challenges? These firms are typically competing for work where rates and indeed margins are significantly lower than for the large firms competing for M&A and complex litigation work – and these are being further squeezed in this challenging environment.

To better understand the challenges and effective approaches for making major transformation in such a mid-sized law firm we returned to one of our legal clients with whom we worked in 2011-12 on a Lean programme. At that stage, ASB Law, a progressive south coast firm, was just starting out on a programme of major transformation. We interviewed Andrew Clinton, who has been the Managing Partner of the firm since 2006. He has been championing and leading the firm’s programme of transformation.

Andrew was open and frank about the firm’s approach to transformation, its challenges on this journey and its achievements so far. He agreed to the documentation of this interview in a Codexx whitepaper and sharing it in the public domain. We have done so and also added a commentary based on our re-engineering and innovation experience with multiple firms in the legal sector since 2005.

This paper provides a practical and detailed review on the approaches, challenges and lessons learned in making and sustaining major transformation in a mid-sized law firm. We have also included a framework for the effective design and management of transformation programmes. To read the paper click on the link below.

Driving transformation in a mid-sized law firm – ASB Law Case Study – September 2017

International SAP Conference for Professional Services – October 2017

September 11th, 2017

How can Enterprise Systems like SAP enhance the performance of professional service firms? To help answer this question, SAP will be hosting their first international conference for Professional Services in Amsterdam on the 10-1th October 2017.

Alastair Ross, Director of Codexx, will be presenting on the 11th October in a special forum on ‘Driving Successful Innovation in Professional Service Firms’. His presentation will address key aspects such as:

  • Forces for and against change within professional services
  • The need for an holistic approach – People, process and IT
  • Establishing an environment for innovation
  • Re-engineering & automating services delivery – Key success factors.

Further information on the conference and presenters.

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

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

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. 

Innovating value for global markets – Institute of Export event

June 7th, 2017

Institute of Export logo

Alastair Ross, Director of Codexx, is presenting at the Institute of Export and International Trade event on Thursday 6th July 2017 – ‘Blueprint for Global Britain’ which is being held at the University of Plymouth.

The event is aimed at businesses in the South West of the UK that are working in international trade. The event will examine the issues and opportunities in accessing new markets and the debate will help to shape the future of international trade.

Alastair Ross will present on ‘Innovating product and service value for global markets‘. His presentation will show how businesses can optimise their product or service proposition for different international markets by assessing the value requirements of users and how they vary by market and geography and then tuning their offering – or providing suitable support services – accordingly. The presentation shares learning based on Codexx innovation projects and makes use of the Value Table model.

For more information on the event: Blueprint for a global Britain.

Why great products are not enough – the story of Psion

May 8th, 2017

Psion logo full

Businesses with great products have enthusiastic and loyal users who value the functionality and other benefits provided by these products. But for a product to be great – there needs to be something more: an ’emotional connection’ made with users. This so-called ‘joy of use’ moves a product from being merely ‘good’ to ‘great’.

In the 1980s to 1990s Psion was  such a company, providing great products in the PDA (Personal Digital Assistant) market with an enthusiastic user base. For many years it was the market leader with products such as the Series 3 and Series 5 PDAs were best sellers. So why did it exit the PDA market in 2001 – to the disappointment of its customers? And what can businesses learn from their experience?

A new Codexx video tells the story.

 

 

New videos – value-based innovation & behavioural change

April 25th, 2017

Front page 5
New videos have been added to the our YouTube channel ‘Business Innovator’. The Business Innovator channel is our channel for sharing innovation approaches and our professional experience with a wide community of businesses, change agents and students.

Videos are intentionally short – to provide interest and insights within ‘bite-sized’ chunks.

Latest videos include:

Thinking about value and how to innovate it

The importance of behavioural change in business transformation

Why not take a look –  we hope you find them useful – and we welcome any comments!

 

The Brexit cost challenge – an effective services response

March 22nd, 2017

 Stock trading monitor (black and white)

Brexit challenges both UK and non-UK businesses

Over the next decade, with economic challenges and potential tariff barriers post Brexit, both UK-based businesses and also those businesses exporting into the UK, will be facing uncertainty, pricing challenges and competitive pressures.

The impact on business services

The inevitable response of businesses tightening their budgets will impact the professional service firms which supply them with research, legal, accounting, consulting, design and other business services.

Professional service firms will need to respond in two ways: 1. Enhance their business value proposition – through innovation – so that customers are less price-sensitive and 2. Reduce costs where possible. This article focuses on how service firms can reduce costs through the intelligent targeting of waste.

Use a magnifying glass – not an axe – for cost reduction

Conventional approaches to cost reduction in professional service firms – sweeping the ‘axe’ of redundancies – risk cutting away core value-adding activities in the business along with any ‘fat’. A better approach is to apply the ‘magnifying glass’ to seek out wastes in service delivery and then eliminate them using Lean principles.

By reducing the costs associated with waste activities, cost reduction goals can be met without impacting the service and value delivered to clients. Indeed the opposite is typically the case – with a more streamlined and systematic way of working delivering a more responsive and consistent service to clients.

In our work with professional service firms over the last decade
we’ve found that service re-engineering typically reduces the cost
of service delivery by between 25-50% whilst maintaining service quality.

There are three key steps required in achieving waste elimination in service delivery:

  • Find wastes.
  • Remove wastes.
  • Stop wastes returning!

Find wastes

Wastes are activities that do not add value – and so professional time spent performing such work can be eliminated without impacting the service to the client – whilst reducing the cost of delivery. The key approaches that are effective in doing this are:

  • Find a Champion – a Partner or Manager to lead the work
  • Engage fee earners – who know how work is actually performed today
  • Understand the client requirements – what’s important to them, today’s service experience
  • Map the service – create a picture of the end-to-end service as it is today
  • Apply Lean techniques – to identify waste and inefficiency

Waste elimination means that service costs
can be reduced without lowering quality.

Remove wastes

The key steps to be followed in removing waste from a service are:

  • Re-engineer the service using a TO-BE design that provides a more efficient and controlled service – making use of procedures, templates and workflow.
  • This reduces service delivery costs in two ways: (1) Reducing the fee earner time required to perform the service and (2) Performing the work using a lower cost blend of personnel (i.e. work pushed down to more junior and less expensive personnel) or automating it. Our work on service re-engineering over the past decade has shown that typically 25-50% of this cost can be removed.
  • Maintain service quality by placing work elements at the skill level at which it can be performed at least to the same level of quality as before (through use of codification into procedures and templates and then personnel trained to these methods). In our experience service quality and responsiveness is actually improved post re-engineering.
  • Use the freed up personnel to perform other work (thus yielding cost avoidance) or made redundant (yielding cost reduction).
  • Generate new revenue using experienced personnel who have been freed up by re-engineering, to work on more complex and higher margin work – if the firm had opportunities which would have needed new hires to meet.

Stop wastes returning!

It is important in a people-based business to ensure that costs don’t ‘drift back’, especially into the delivery of fee earning work. This is why new working methods need to be supported by standardisation of repetitive work elements, making use of procedures and templates. Case Management and workflow systems can help ‘lock in’ new procedures. New metrics should be put in place to monitor time spent on matters by work element and fee earner type – to both ensure that target times are being met and also to support continuous improvement.

Conclusions

A waste-focused approach to reducing service costs in professional service firms is powerful in enabling services to be delivered at a lower cost and at least equal quality and service as before. This is not the case with the more typical people-focused redundancy approach – which can significantly impact clients through reduced service quality.

Lean-based cost reduction is a powerful approach
that is seldom used effectively in professional service firms.

One key reason for this is that few of these firms have ‘process-thinking’ in place to enable process-based improvement. This is changing with the increasingly competitive landscape for services and the accelerating use of IT and the internet for digital services delivery.

Firms should seize this approach and make it part
of their ‘transformation toolbox’ to enable a successful
response to the business challenges of Brexit.

Value myopia – a business killer

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 innovation videos

March 14th, 2017

Screen shot at beginningTwo new videos have been added to the our YouTube channel ‘Business Innovator’. The Business Innovator channel is our new channel for sharing innovation approaches and our professional experience with a wide community of businesses, change agents and students. Our videos will be intentionally short – to provide interest and insights within ‘bite-sized’ chunks.

The first new video introduces business innovation as a ‘journey to value’ and explains how innovation mastery comes from the application of an holistic and systematic approach to innovation within a business. Watch video here.

The second video looks at innovating service design and delivery in Professional Service firms and identifies 5 key success factors, based on Codexx project experience. Watch video here.

We hope you find them useful – and we look forward to your comments.

Let us know areas you would like us to cover in future videos.

Energizing Change

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