Strategic Innovation - trends, challenges and best practices


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Strategic Innovation - trends, challenges and best practices

  1. 1. Organisation Innovation Start Ups Incubators Clusters Innovation Networks Spin-outs Alliances Outsourcing And Off-shoring Pushing The Boundaries Of The Firm Small & Medium Sized Enterprises
  2. 2. Innovative Business Organisation Organisation Design Mega Trends ? Outsourcing And Offshoring Understanding Innovation And Organisations Setting the Climate And Conditions For Sustainable, Innovative Organisations Time Management Clusters And Innovation Networks Our World In The Next 10-20 years Influencing Others Building And Managing Alliances
  3. 3. Our World In The Next 10-20 Years
  4. 4. Everything Around Us Is Changing…. People Trends Generational Organisation Technology The Future Context Service $
  5. 5. I thought … • I had a job for life • my skills would last a life-time • my food was safe • my government would care for me in old age • my savings policies were guaranteed • politicians could be trusted • information was held in libraries • institutions were ‘secure’ • the enemy was in ‘the east’ • the EEC was a trading group • it was good to have less children • and they would leave home before 25 • we would always be manufacturers • a telephone had to be plugged in • that loyalty counted for something • that the trains and planes were safe • I’d die around 70 So what hasn’t changed?
  6. 6. Personal information will become a saleable commodity Work life balance replaced by work life divide/bend Employee retention a key measure of corporate performance Privacy, spirituality, and an aversion to being seen as a cog in the marketing gears of thousands of companies will stir new approaches. Inter generational politics and wealth sharing becomes a major issue Lingering age prejudice drives out of the market precisely those older workers whom the young will then resent having to support. Society divides on generational lines - each one espousing different value sets Attitudes towards working mothers and children in general become more friendly as the demographic problem becomes better known. Women will become more important in business organisations. There will be a feminisation of the society as a whole People
  7. 9. • Customers are becoming more cynical and therefore demanding. • Shift from choice (already too much) to fitness for purpose / needs • Consumer tolerance for "either / or" choices will decline significantly. They will want it all when they make significant buying decisions. • Consumers will increasingly grow to need assistance in making choices from the great amount of information that will be available • In the short term, the customer service will continue to move offshore. There will be a public backlash against companies that rely extensively on outsourced service • People will depend on fewer providers to be their source of goods and services. • People equate service with relationships which means other people. They may use technology to communicate; but, a "real person" is still the goal. Customer Reduction of complexity Matching expectations Understanding Relevance Short cuts Advice Time Guide/coach
  8. 10. Organisation • There will be major power struggles between governments and multinationals and other corporations • More Outsourcing, BPO and offshoring • Partnerships, Joint Ventures and Alliances will become more important than mergers & acquisitions. • The growth of international networks and temporary relationships within these networks and are smaller, nimbler, quicker. • Organisations which are not quick to anticipate and change will not survive • Wal-Marti-zation: "Wal-Mart is the logical end point and the future of the economy in a society whose pre-eminent value is getting the best deal.“ • Managing the corporate brand is going to become more important and any corporate 'irresponsibility' could result in a brand dying overnight. • Evidence of trustworthiness will be more important.
  9. 17. Technology • A huge growth in "designer" drugs aimed at areas such as hair growth, fat reduction, child sex selection etc • Next generation communications leading to very cheap and fast video conferencing coupled with an energy crisis -> reduced travel, home working etc. • Intelligent / functional clothing • Bio / life technologies will have an overwhelming impact • Insurance companies will use bio-information analysis to predict behaviour and set costs. There will be major issues over privacy raised from this. • Green energy becomes popular and is forced on industrial west. • In 10 years: Artificial intelligence will automate quite a lot of present work done by humans.
  10. 20. So what will it all look like ?... Privacy Personal information will be guarded by consumers . Market Of One . Personalisation and dynamic pricing become the norm Networked Organisations Partnerships and alliances beat the diy enthusiasts Leveraging The Brand Trusted brands will become even more important than today . Cyber Wars Criminals will exploit electronic business Technology Overload We’ll struggle to implement the technology we need to be winners . Flexibility Flexibility overtakes efficiency as a critical success factor
  11. 21. Globalisation Rising Costs Demographic Changes Growing Importance Of Knowledge Access To Finance Environmental Issues Shift To Services $
  12. 22. Organisation Design Mega Trends
  13. 23. Stability Stability Change Change (No Periods Of Stability) Major Discontinuity Major Discontinuity Industrial Age Information Age
  14. 24. Markets are becoming much more open Technology is enabling global trading and new business models Dynamic Competition Growth And Earnings Pressures Deregulation Knowledge Based Competition Demand For Solutions
  15. 25. Supplier Distributor Manufacturer Reseller Consumer Existing Industry Value Chain Direct Sales Direct Sales Value chains are increasingly disaggregated with activities distributed to their most economic or strategic locations. Companies need to identify the precise areas where they have, or can build, distinctive strengths that will enable them to compete effectively
  16. 26. Value creation no longer cordoned within bounds of corporation… Integrated Value Chain Unbundled Value Chain High transaction costs advantage vertical integration, primary value creation activities within firm Falling transaction costs permit vertical disintegration of primary value creation activities and advantage outsourcing, with contractual relationships substituting for boundaries of firm Contingent Value Alliances Previous unbundling of value-added activities creates opportunities to gain competitive edge through multiple sourcing on contingent basis Standardized systems enable corporations to assemble alliance partners on as needed basis, thereby enhancing flexibility necessary to exploit brief windows of opportunity Value Webs Alliance Partners Date Product Cisco, EDS October 1997 Mainframe for Internet/intranet integration services Cisco, Hewlett-Packard October 1998 Internet Platform for combined data, voice, video Cisco, Telcordia October 1998 Open telephony architecture for packet-based networks Cisco, HP, EDS November 1998 Turnkey Web site for business-to-business e-commerce Cisco, KPMG January 1999 National Solution Centers to showcase networked solutions Cisco, Microsoft January 1999 Network security solutions for enterprise computing Cisco, HP, EDS April 1999 Internet protocol usage management and billing system for ISPs Cisco, PeopleSoft April 1999 Quality of Service solutions for end-to-end policy networking
  17. 27. Substitution of Information for Hierarchy Falling cost of delivering information throughout the organization resulting in formal organizational hierarchies giving way to more nimble, network-based structures. Early experience in a number of industries suggests that organizational structures will evolve to take advantage of an increasingly “connected” workforce. That said, the vast majority of firms are not yet radically changing their corporate structure to facilitate new decision making behaviors. Still playing out is the degree to which firms will utilize richer information flows to optimize current decision-making practices without fundamentally altering corporate structures. Sales & Marketing Management Product Develpt & Marketing IT Development & Management Network Development & Management Order Fulfillment & Service Activation Service Assurance Billing & Collections HR Management Financial & Asset Management Supplier & Partner Management Customer Care
  18. 28. Interactive Customer Relationships Falling cost of interaction and connectivity enabling companies to capture unprecedented amounts of data about their customers and to deliver increasingly individualized value propositions. Customer Benefits • Products/services better match individual needs • Less time wasted by irrelevant marketing • Fair compensation for true value of personal information • Supplier anticipates needs and proposes solutions without prompting Supplier Benefits • Lower marketing costs from targeting most responsive customers • Lower inventory costs from build-to-order automation and improved demand projections • Enhanced loyalty from relationship building, lock-in • Higher margins from targeting most valuable customers Product/service preferences (configuration, performance, bundling,price sensitivity) Behavioral data (purchase history, channel shopping) Customer Supplier Demographic data (age, gender, family, home/work locations) Financial data (income, assets, credit history) Filtered marketing (appropriate in format, relevant to needs) Customized products, services (configuration, performance, bundling) Anticipation of needs (event-triggered contact) Direct compensation (with products, services or cash)
  19. 29. From Mass Market to Mass Customization Transparent Customization Cosmetic Customization Adaptive Customization Collaborative Customization Provides individually customized goods or services without explicitly involving customers in customization process Presents standard product differently to different customers through packaging or display Offers standard but customizable product designed to allow users to alter its performance themselves or to respond automatically to user needs Conducts “dialogue” with individual customers to help articulate needs, identify and create precise offering to fill those needs Customers who would appreciate customized products but for whom direct collaboration requires excessive effort or intrusion Customers who are satisfied with standard products but desire customized presentation or packaging Customers whose needs vary greatly from use to use or from person to person One-time design decisions involving trade-offs (e.g., length for width, comfort for fit, complexity for functionality) Supplier-Led Customization Customer-Led Customization
  20. 30. Network Effects and Serial Monopoly Network effects are being used to explain the explosive growth patterns that are often seen in the information economy. A network effect is where dominance is rapidly achieved by firms that capture a critical share of the market. Most researchers are pointing out that dominance is unlikely to be sustained for long periods of time as innovation allows competitors to initiate a race to a new tipping point. 1965 1970 1975 1980 1985 1990 1995 Emergence in 1983 of the first fax machines based on the G3 standard, which enabled fax machines from different manufacturers to communicate… … increasing the value of the fax network to all existing and future users, and leading to explosive industry growth rates
  21. 31. Corporate Leadership Business Unit leaders Departments, functions, teams and employees Decentralisation offers close proximity between business lines and markets and thus fosters cultures of agility, speed and empowerment. As such, businesses for which intimate customer knowledge and rapid response to changing conditions are critical benefit from decentralised structures. The Argument For De-centralisation The Argument For Centralisation Even in customer-centric businesses, centralised controls may be necessary to engender common culture and values and maintain accountability for standards such as risk management and ethical behaviour. Centralised structures also provide links between otherwise insular groups when cross-functional coordination is required.
  22. 32. Considering Competencies To restructure effectively, organisations must consider the competencies that, when maintained at the corporate level or pushed to the line, exploit competitive advantage , and achieve balance among the inevitable tradeoffs between cost, control and access to markets. Focus on innovation will lead to decentralised structures… Business Unit 1 Business Unit 2 Business Unit 3 Business Unit 4 … while focus on product quality will lead to centralised structures
  23. 33. Traditional firm activity boundaries with suppliers and customers are breaking down as information technologies make enriched and more continuous information flows with parties traditionally “outside” the firm much more economic. You Your Customers Your Suppliers
  24. 34. <ul><li>The Internet as interaction revolution </li></ul><ul><ul><li>“ The Information Revolution is allowing us to radically change the cost of interaction just as the machine changed the cost of making things. For example, today, at Boeing, we can design an airplane in St. Louis, Seattle, and Farnborough, England, and have the pieces fit together and assembled in Palmdale, California. Glass fiber carries the billions of bytes of data from one site to another and allows us to work in many different places.” </li></ul></ul><ul><ul><ul><li>- Phil Condit, CEO, Boeing Corporation </li></ul></ul></ul>
  25. 35. Geographical boundary decision Locating in physical space Competitive advantage of locations Challenge – coordinating activities across geographies Two key organizational questions Where to locate activities? Firm scope decision Locating in capability space Core competencies of the firm Challenge -Coordinating activities of partners and suppliers How to compete in the value chain?
  26. 36. How the network impacts the structure of the corporation Aggregated, Vertically Integrated Disaggregated, Virtually Integrated Back End Operations Front End Operations Coupled, Co-located Location Scope Front End Operations Back End Operations Decoupled, Flexibly Located • Centralized • Robust • Scalable • Standardized <ul><li>Decentralized </li></ul><ul><li>Flexible </li></ul><ul><li>Personalized </li></ul><ul><li>Contextualized </li></ul>
  27. 37. Internal decoupling (of the firm’s activities) Firms can decouple back-end infrastructure and shared services from front-end customer facing functions. By centralizing and relocating shared services, firms can maximize comparative advantage across geographical boundaries. External disaggregation (of the value chain) As business interactions move to electronic networks, interactions costs are reduced. Activities that companies have always believed to be central to their businesses can be offered by specialized entities that offer economies of scale and skill. Firms can disaggregate activities to maximize comparative advantage across firm boundaries. The future shape of the corporation: Decoupling and Disaggregation
  28. 38. The decoupled organization
  29. 39. Front-back decoupling at Citibank
  30. 40. Geographical decoupling at GECIS (India) GE Capital International Services employs 10,000 people in India and delivers over 450 processes to thirty different businesses in US, Europe, Japan and Australia. GECIS services 15 of the 20 top businesses in GE. It is the largest private user of international bandwidth (76Mb/sec by Dec 2002). In 2002, GECIS created 5 “capability clusters” called Centers of Excellence (CoEs): • Finance and Accounting CoE • Collections CoE • Customer fulfillmentCoE • Insurance CoE • Industrial & Equipment Business CoE
  31. 41. Shared Values Structure Systems Strategy Skills Style Staff A set of actions aimed at gaining a competitive advantage How the business or organisation is organised Core capabilities The formal processes and procedures for doing things Basic ideas about what is right and desirable The way executives collectively behave, focus, use time, communicate Corporate demographics Taking A “Systems” View Of Organisation Design
  32. 42. Shared Values Structure Systems Strategy Skills Style Staff “ There is no universal, ‘one best’ way to organize,” because organisational structure is only “the mechanism that takes strategy, in the context of environment, resources, and history, and transforms it into output.” Nadler and Tushman Organizational Architecture: Designs for Changing Organizations
  33. 43. Understanding Innovation And Organisations
  34. 44. A Simple Innovation System <ul><li>Characteristics of </li></ul><ul><li>innovation-led companies: </li></ul><ul><li>a world wide focus, often requiring </li></ul><ul><li>early expansion overseas; </li></ul><ul><li>a balanced growth strategy, based on </li></ul><ul><li>organic growth and targeted acquisitions to enter new markets or acquire critical expertise; </li></ul><ul><li>a balanced investment strategy; </li></ul><ul><li>above average investment in market </li></ul><ul><li>led research and development (R&D); </li></ul><ul><li>a focus on what really matters to the </li></ul><ul><li>customer; and </li></ul><ul><li>an innovation culture with corporate </li></ul><ul><li>leadership that expects growth through </li></ul><ul><li>development of new products and services. </li></ul>Knowledge Creators Public Sector Private Sector Knowledge Users <ul><li>Social and Human Capital </li></ul><ul><ul><li> Universities </li></ul></ul><ul><ul><li> S&T Training and Education </li></ul></ul><ul><li>Absorptive Capacity </li></ul><ul><ul><li> Follower firms; Intermediate and End Users </li></ul></ul><ul><ul><li> Market for Goods and Services </li></ul></ul><ul><li>Research Capacity </li></ul><ul><ul><li> Universities; Government Laboratories </li></ul></ul><ul><ul><li> Basic Scientific Research </li></ul></ul><ul><li>Technology and Innovation Performance </li></ul><ul><ul><li> Creative Firms </li></ul></ul><ul><ul><li> Applied RTD and Product /Process Development </li></ul></ul>
  35. 45. Products (WHAT) Customers (WHO) Processes (HOW) Channels (WHERE) A 360 Degree View Of Business Innovation Platforms R&D Networking Solutions Value Chain Logistics/ Supply Chain Customer Experience Revenue Model INCREMENTAL SUBSTANTIAL RADICAL Create new products or new services Create modular platforms and strategic Control points Solve “end-to-end” problems for customers Find new customer segments or unmet customer needs Change how customers interact with you Change how you get paid Innovate on operating processes Change position or scope of value chain participation Change the way you source and ship products Change how you go to market with your products Change how you connect with customers or products Create new technologies, materials, products, or processes
  36. 46. Products (WHAT) Customers (WHO) Platforms Processes (HOW) Channels (WHERE) R&D Networking Solutions Customer Experience Revenue Model Value Chain Logistics/ Supply Chain Dell Computers INCREMENTAL SUBSTANTIAL RADICAL
  37. 47. Products (WHAT) Customers (WHO) Platforms Processes (HOW) Channels (WHERE) R&D Networking Solutions Customer Experience Revenue Model Value Chain Logistics/ Supply Chain Starbucks INCREMENTAL SUBSTANTIAL RADICAL
  38. 48. Products (WHAT) Customers (WHO) Platforms Processes (HOW) Channels (WHERE) R&D Networking Solutions Customer Experience Revenue Model Value Chain Logistics/ Supply Chain Innovation Pathologies INCREMENTAL SUBSTANTIAL RADICAL Scope Myopia
  39. 49. Products (WHAT) Customers (WHO) Platforms Processes (HOW) Channels (WHERE) R&D Networking Solutions Customer Experience Revenue Model Value Chain Logistics/ Supply Chain Innovation Pathologies INCREMENTAL SUBSTANTIAL RADICAL Directional Myopia
  40. 50. Products (WHAT) Customers (WHO) Platforms Processes (HOW) Channels (WHERE) R&D Networking Solutions Customer Experience Revenue Model Value Chain Logistics/ Supply Chain Innovation Pathologies INCREMENTAL SUBSTANTIAL RADICAL Horizon Disconnect
  41. 51. How firms organize for innovation: Five Dimensions Where do firms focus their search for innovation? How do innovative ideas flow in the firm? How are innovative ideas developed ? Where is the innovation organization located ? How is the innovation process managed ? Inside vs Outside Top Down vs Grass Roots Build internally Buy Separate from core Integrated with core Centralised Decentralised Formal vs Informal
  42. 52. These can condensed into 2 underlying factors… Orientation Governance Organic Structured Inward Out Outward In – Focus (internal versus external) – Flows (top-down versus bottom up) – Development (build versus buy) - Location (centralized versus decentralized) - Management processes (formal versus informal) • Informal , loose structure • Decentralized –SBU-level • Embedded within SBUs • Multiple, informal linkages • Formal , tight structure • Centralized –Corporate-level • Separated from SBUs •Few, formal linkages • Locus of innovation and ideas is external to the firm • Sources of ideas are customers or other firms • Mechanisms focus on “ importing ” innovation (M&A, venturing) • Innovation flows tend to be top-down and outside-in <ul><li>Locus of innovation and ideas is internal to the firm </li></ul><ul><li>Sources of ideas are technologies, knowledge and capabilities </li></ul><ul><li>Mechanisms focus on “ exporting ” or “ leveraging ” capabilities and technologies </li></ul><ul><li>Innovation flows tend to be lateral and bottom-up </li></ul>EXPLORERS ARCHITECTS MOONLIGHTERS MINERS
  43. 53. These can condensed into 2 underlying factors… Orientation Organic Structured Inward Out Outward In EXPLORERS ARCHITECTS MINERS MOONLIGHTERS 3M Shell E-Bay Siemens Motorola Cisco
  44. 54. Characteristics… Orientation Organic Structured Inward Out Outward In EXPLORERS ARCHITECTS MINERS MOONLIGHTERS • Explorers tend to be in emerging, rapidly expanding markets (e.g., eBay, Amazon), or they seek to redefine their markets • They tend to be in markets where speed and agility are key factors for success • Explorers believe that, in ill-defined and rapidly evolving markets, the external environment (customers and partners) is the key source of insights and opportunities. • Their basic strategy is to search for customer insights through deep dialogue and collaboration with customers and partners. • They rely on rapid prototyping and inexpensive testing of large numbers of small ideas, generated through customer insights• The innovation process is diffuse and embedded in the customer-facing organization. • Architects tend to be established firms in relatively mature markets, where capital and resource requirements for innovation are intensive. • The capital intensity and maturity of their markets demands a more structured approach to organizing innovation, and a more centralized approach to funding innovation • Architects also look externally at customers or other innovative firms for growth and innovation opportunities. However, prototyping and development tends to happen outside the core businesses in a separate innovation organization, or outside the firm through M&A activity. • Architects tend to have a formal CBD or M&A function if they “buy and assimilate” innovation, or a formal central innovation organization if they prefer to “build and integrate” innovation. • Driving innovations into the core businesses tends to be a top-down and formal process. • Moonlighters tend to be large firms in diverse businesses that demand deep technology and process expertise. • They believe that the best place to look for business innovation is inside the firm , by tapping into tacit knowledge that exists within the firm. • To be successful, moonlighters need to have a strong innovation culture in the core business, and relatively autonomous business units. • Moonlighters create “ organizational slack ” for intrapreneurs to moonlight on innovation projects. • They create a free market for ideas and talent within the firm, where employees can get funding and resources at the grassroots level to drive innovation. • Innovation tends to be a bottom-up activity. • When ineffective, these firms lack a coordinated, strategic view of innovation • Miners tend to be large firms with deep technology and process expertise, with relatively large monolithic business units. • Miners tend to have business units with deep silos, and tend not to do well at horizontal collaboration between business units. • Miners tend to lack innovation DNA within the core businesses, so they require a separate innovation organization to catalyze innovation. • They believe that the best place to look for business innovation is inside the firm and laterally across the firm. • Innovation tends to be a top-down activity. • The innovation organization tends to be centralized and formal, with clearly defined processes and linkages to the core business. •When effective, the innovation organization serves as an innovation clearinghouse, coach, and catalyst. •When ineffective, the innovation organization fails to drive innovation back into the core businesses.
  45. 55. Making business innovation work requires taking a systemic view Funding Culture Strategy Structure People Processes – What does management say and do to create a conducive environment for business innovation? – How well does the firm articulate strategic principles that should guide business innovation? – Where is innovation activity located and how is it organized? – How is the innovation organization staffed, how are incentives created, and how are innovation contributions recognized? – How are innovative opportunities generated, developed, and evaluated? How are innovative initiatives driven into core businesses, and how is the innovation organization linked to the core business? – How are innovation initiatives funded? Where are the pools of money located? Where do people go for funding? Business Innovation
  46. 56. Making business innovation work requires taking a systemic view Funding Culture Strategy Structure People Processes <ul><li>Provide prototyping funding at many levels… and protect it during downturns </li></ul><ul><li>Siemens Business Systems KM </li></ul><ul><ul><li>• KM provides “venture support” funds for developing ideas </li></ul></ul><ul><ul><li>• A process for idea input, development and diffusion throughout SBS. </li></ul></ul><ul><li>Whirlpool </li></ul><ul><ul><li>• Pools of funding at the SBU level, at Corporate level, and in the Discovery Center –“many ways to say yes” </li></ul></ul><ul><ul><li>Prototype… but “rejoice in cancellation” – No firm is exemplar in this! –Incentives must ensure the best projects are selected, not pet projects </li></ul></ul><ul><ul><li>Some portion of incentives clearly tied to innovative activity Whirlpool Corporation </li></ul></ul><ul><ul><li>• 30% of Unit General Managers’ evaluation & compensation based on innovation output Herman Miller </li></ul></ul><ul><ul><li>• Ideas from idea stage to market = increasing financial bonus </li></ul></ul><ul><li>Approach business innovation as designing a new business system , not just new products: </li></ul><ul><ul><li>– Herman Miller engages in “business system” innovation, alongside “product innovation” –includes redesign of manufacturing, supply chain, and distribution channels to support new workspace concepts. </li></ul></ul><ul><ul><li>– Thomson Financial looks at ways to “embed itself deeper into customer workflows”, and is organized around Strategic Customer Units (SCUs). </li></ul></ul><ul><li>Create an “innovation vision” at the top, and make top management the lead evangelists: </li></ul><ul><ul><li>– GM’s changed focus –don’t compete with other firms’ cars, compete for customer relationships. Promote “enterprise value” of customer relationships with GM. </li></ul></ul><ul><ul><li>– Siemens CEO “proselytizes” about the Siemens Global Innovation Network </li></ul></ul><ul><ul><li>– Cemex CEO personally evangelizes the innovation effort </li></ul></ul><ul><li>Innovate the way you innovate before you have to: </li></ul><ul><ul><li>– Tribune Company perceived an impending crisis in print publishing that did not materialize, but preemptively created Tribune Ventures to capitalize on new media </li></ul></ul><ul><ul><li>– Thomson Financial stopped acquiring and started experimenting before the downturn </li></ul></ul><ul><li>Centralize your innovation expertise </li></ul><ul><li>Whirlpool </li></ul><ul><ul><ul><li>– Whirlpool Discovery Center -Centralized place with permanent staff (I-mentors), innovation resources, and funding </li></ul></ul></ul><ul><ul><ul><li>– E-Discovery zone-centralized idea submission, access to resources, tools </li></ul></ul></ul><ul><li>Baxter </li></ul><ul><ul><ul><li>– Non-Traditional Innovation (NTRI) –full-time team and funding to incubate opportunities that cut across business units </li></ul></ul></ul><ul><li>Dow Chemical </li></ul><ul><ul><ul><li>– Growth Center to develop and incubate ideas </li></ul></ul></ul><ul><li>Siemens Business Systems </li></ul><ul><ul><ul><li>– Knowledge management function serves as clearinghouse for innovation </li></ul></ul></ul><ul><li>Innovation organizations must be recognized as paths to success! </li></ul><ul><ul><li>General Motors </li></ul></ul><ul><ul><ul><li>• New Business Development Network is recognized for “stars.” </li></ul></ul></ul><ul><ul><ul><li>• Much of top management has gone through the program… the operation’s “alumni” have developed a strong affinity. </li></ul></ul></ul><ul><ul><ul><li>• A recruiting tool for top talent. </li></ul></ul></ul><ul><ul><li>Motorola </li></ul></ul><ul><ul><ul><li>• Leadership Sourcing Initiative </li></ul></ul></ul><ul><ul><ul><li>• Nurtures leaders… and tracks performance over time </li></ul></ul></ul><ul><ul><ul><li>• A clear signal to the firm about what is important… </li></ul></ul></ul><ul><ul><ul><li>• ...unfortunately, it is not focused on innovation </li></ul></ul></ul><ul><li>Bring together people with different eyes, different lenses, and different voices </li></ul><ul><ul><li>Cemex believes that “innovation occurs at the junction between different attitudes, outlooks, and life experiences”. Its “Innovation Board” consists of five insiders (three Cemex VPs and two young managers) and two outsiders (a supplier and a consultant). </li></ul></ul><ul><ul><li>Staff innovation teams with credible, senior people </li></ul></ul><ul><ul><li>Whirlpool’s I-mentors are “innovation black belts” like Six Sigma coaches </li></ul></ul><ul><li>Create multiple and diverse processes for promoting collaboration and prototyping ideas –“many tools, many homes” </li></ul><ul><ul><li>Siemens Business Systems </li></ul></ul><ul><ul><ul><li>• KM officers have resources & processes for prototyping and diffusion </li></ul></ul></ul><ul><ul><ul><li>• This can occur in the 50 units worldwide, in communities of practice, at the SBS level, or at the Siemens Corporate level </li></ul></ul></ul><ul><ul><li>Cemex </li></ul></ul><ul><ul><ul><li>• New business incubator (Cx Networks) </li></ul></ul></ul><ul><ul><ul><li>• Shared performance scorecard </li></ul></ul></ul><ul><ul><ul><li>• Cross-company e-groups </li></ul></ul></ul><ul><ul><ul><li>• Innovation Board </li></ul></ul></ul><ul><ul><ul><li>• Innovation staff group </li></ul></ul></ul><ul><ul><ul><li>• Platform teams </li></ul></ul></ul><ul><ul><ul><li>• Idea Bank </li></ul></ul></ul><ul><li>Build formal and informal horizontal linkages between business units </li></ul><ul><ul><li>Siemens Business Systems </li></ul></ul><ul><ul><ul><li>• KM leaders from all 15 units and Corporate meet on a regular basis </li></ul></ul></ul><ul><ul><ul><li>• They drive cross-fertilization and best practices between Business Units </li></ul></ul></ul><ul><ul><li>Dow Chemical </li></ul></ul><ul><ul><ul><li>• The Growth Network, an informal group </li></ul></ul></ul><ul><ul><ul><li>• The Business Growth Network, the top executive, a structured group </li></ul></ul></ul><ul><li>Build formal and informal linkages outside the firm </li></ul><ul><ul><li>Alcoa </li></ul></ul><ul><ul><ul><li>•“ Alcoa Business Systems” is innovating the firm’s entire production, supply chain, development and fulfillment systems (Alcoa’s adaptation of the Toyota Production System) </li></ul></ul></ul><ul><ul><ul><li>• Arose from a long-term, deep relationship with Toyota Corporation </li></ul></ul></ul><ul><ul><li>Siemens </li></ul></ul><ul><ul><ul><li>• The Global Innovation Network </li></ul></ul></ul><ul><ul><ul><li>• Defines GIN as inside and across all units, partners, researchers, governments -anyone who can contribute to Siemens’ reach and growth. </li></ul></ul></ul>Business Innovation
  47. 57. Set time aside every year for an annual planning review to assess the current growth stage of the company and plan for the next growth stage.
  48. 58. SME Leaders need to… Set time aside every year for an annual planning review to assess the current growth stage of the company and plan for the next growth stage. Anticipate and be prepared for the growth challenges that all companies experience rather than allowing crises to dictate events. Change the company’s course and direction if that is what is required to meet these challenges. Groom leadership at all levels of the company. Ensure that professional development and upgrading occurs for all managers at least once a year. Encourage managers to step back from day-to-day operations to assess the company from a broader perspective. Set aside resources for professional advice at critical transitions between growth stages. Learn about best practices in organizational development through case studies and advisory groups. Promote, communicate and manage change throughout the organization. Open communication lines with all levels of staff to promote discussion about the evolution and growth of the company.
  49. 59. Setting the Climate And Conditions For Sustainable, Innovative Organisations
  50. 60. Making It Happen… Essential Conditions Competitive Advantages Cost Competitiveness Physical & Communications Infrastructure Innovation & Entrepreneurship Management Capability Technology, Product & Service Development Expertise Expertise In Markets World Class Skills, Education & Training Effective, Agile Government Sustainable Enterprises Attractive Taxation Regime
  51. 61. A lack of effective competition policies Excessive or inappropriate regulatory policies An inability to promote and reward workplace productivity Higher living costs Firms have to continually increase their productivity either by reducing input costs or by increasing output value in order to remain competitive and profitable and to pay employees real wage increases. Productivity is in everyones interest . Increases in productivity are best realised in a work environment that is flexible, and in which the creativity, knowledge, skills and experience of the workforce are channelled and rewarded. The majority of firms lack the structures for this to happen. Cost Competitiveness Direct and indirect barriers to entry to markets (for example, through restrictive state licensing schemes, or through the customs and practices engaged in by some of the self-regulated professions) The absence of competition in the provision of economic infrastructure via statutory and other monopolies The sheltered status enjoyed by many areas of business activity through legal protections of one kind or another Better regulation is increasingly being used across the developed world to create competitive advantage in the race for investment, jobs and innovation. While regulation is necessary and often valuable, it must be balanced against the costs to enterprise. Regulatory compliance has a price – not only in financial terms, but also in terms of time and management attention. This can have a significant impact on small businesses.
  52. 62. Innovation and entrepreneurship Workplace Innovation Innovation In The Public Sector Provide positive role models and promote self employment as a long-term career goal and focusing on this area in the curriculum, in transition year and in career guidance advice, with a particular emphasis on potential early school leavers Foster positive attitudes to personal responsibility , independence, self directed learning, initiative and risk-taking Teach the basics of business, finance and communication at primary, secondary and higher levels of education Give greater recognition to non-academic achievement Ensure access to entrepreneurial award schemes Provide relevant entrepreneurial training at third level, including a focus on commercialisation of academic innovations. Public service modernisation and efficiency remains a critical challenge for many Governments To create an environment conducive to innovation within the public sector, certain interdependent conditions need to be in place for each department and agency - Specific and prioritised goals : Ensuring that goals are clearly defined, prioritised, communicated and understood is a basic precondition to making real progress. Without this, the ability to focus resources to best effect to achieve objectives and to respond to the needs of the organisation and its clients is substantially weakened Empowerment of senior public servants: Public sector managers face particular challenges in creating an innovative, efficient and responsive public service. Leaders assume a high level of personal accountability and exposure, while simultaneously resolving competing service demands within a resource-constrained environment. Senior managers within the public sector should be encouraged to achieve high levels of delivery by ensuring that they have appropriately skilled staff Innovation & Entrepreneurship Innovation requires a particular mindset that involves curiosity, creativity and problem-solving, the ability to continually question established ways of doing things and the ability to apply knowledge, insights and intuition to change them. It also requires a range of skills that is neither easy to teach nor learn, including people management skills, negotiation skills, problem-solving and communication skills. A number of trends are converging to change the ways in which businesses are organised , in which management and control are exercised and in which responsibilities are distributed. Information technology: Information can be made available where and when it is needed. As a result, front-line workers are more equipped to make decisions and work independently of traditional management hierarchies Human resources: Workers are not only skilled at a specific task, but because of education and information technology, they are versatile and creative Changes in employee preferences: Workers now seek more variety and challenge at work than before. They also seek more flexible working arrangements, such as part-time work and tele-working Industrial technology: Large single-purpose machines are being replaced by more flexible, multi-purpose machines. These demand a more versatile, educated and creative workforce.
  53. 63. Need to invest in infrastructure ahead of demand in key centres Need to prioritise infrastructure investment decisions based on the current and future needs of enterprise The management of infrastructure projects The need to develop e-Infrastructure As a country moves towards a knowledge-based economy, the relative importance of different types of infrastructure changes. Infrastructure that supports the mobility of people ( air services, national roads) and ideas (broadband networks) increases in importance, while the relative demand for other types of infrastructure may diminish. It is important that such changing needs are reflected in investment decisions. Many major infrastructure projects can be subject to delays and overruns in time and cost. While the development planning process is the cause of some delays, project planning, budgeting and project management appear are often inadequate In some projects, too many state bodies are involved without the required level of co-ordination. ’ Advanced broadband services are an absolute necessity for the development of knowledge-based enterprises in existing and emerging sectors, for the creation of an IT-literate society, for achieving more effective government services in areas such as Healthcare, education and R&D Physical & Communications Infrastructure Weak infrastructure in regions presents a barrier to their economic development. The key mechanism for enabling regional development is to enhance their infrastructure. Regions will attract enterprise only if they have the infrastructure and facilities that allow them to compete with cities and large towns and international regions for trade and investment. Invest in infrastructure ahead of demand in key locations. Investment should be prioritised in designated gateways and hubs to enable them to achieve their regional potential.
  54. 64. Training Resources Tactical Focus ’ Todays business environment is becoming more challenging from a management perspective: on the one hand, the complexity of the management task is increasing, with the emergence of more sophisticated business models, greater competitive pressures and the relentless advance of technology; on the other hand, the timeframe in which managers must act and make decisions is decreasing. Clear articulation of needs: A clear prioritisation should be made identifying the most pressing needs in relation to management capability building. This should then influence the formulation and delivery of appropriate training programmes Industry-centric: Enterprise should play a prominent role in promoting, developing, and delivering training, and disseminating best practice Focused: The appeal and value of training to firms can be greatly enhanced if it can be set in their immediate context; the context has a sectoral aspect as well as stage of business maturity Action-oriented: Training should emphasise practical skills that can be readily applied in the SME Flexible Delivery: Courses must be available at times and locations convenient to firms Evaluation: An on-going assessment of the benefits to individuals and firms should be an integral part of all training. Management Capability Many local firms require external assistance in order to develop their management expertise particularly at the start-up and early stages of internationalisation. SMEs generally have an overstretched management structure that is occupied with immediate, operational issues rather than more strategic ones
  55. 65. Cost Competitiveness Physical & Communications Infrastructure Innovation & Entrepreneurship Management Capability Technology, Product & Service Development Expertise Expertise In Markets World Class Skills, Education & Training Effective, Agile Government Sustainable Enterprises Attractive Taxation Regime
  56. 66. Clusters And Innovation Networks
  57. 67. What’s The Difference Between A Network And A Cluster?.. <ul><li>Networks: </li></ul><ul><li>Usually have a somewhat restricted membership and a specific set of objectives </li></ul><ul><li>Can often involve formal contractual arrangements </li></ul><ul><li>Clusters: </li></ul><ul><li>Have a geographic, and usually a sectoral focus </li></ul><ul><li>Are open in terms of both membership and goals </li></ul><ul><li>– Cluster definitions need to be broad enough to include all relevant industries and institutions that have material linkages with the core activities of the cluster </li></ul><ul><ul><li>– Cluster definitions need to be narrow enough to cover companies that face a common set of barriers to upgrade productivity and performance </li></ul></ul>
  58. 68. Achieving Competitiveness The Role of Clusters <ul><li>Clusters provide the opportunity to move to a new level of private-public partnership . They can also be a test-ground for developing solutions to economy wide problems </li></ul><ul><ul><li>However </li></ul></ul><ul><li>Cluster initiatives alone are less effective, if they are not part of a overarching approach to improve competitiveness on the national and/or regional level </li></ul>
  59. 69. Government Role • A successful cluster policy builds on sound overall economic policies • Government should support the development of all clusters , not choose among them • Government policy should reinforce established and emerging clusters rather than attempt to create entirely new ones • Government’s role in cluster initiatives is as facilitator and participant. The most successful cluster initiatives are a public- private partnership Opportunities - Public procurement - Regulations Enablers - Intellectual property framework - Measurement system - Standards Advice and support for business - Best practice programs - Support for developing new technology - Help accessing finance - R&D tax credits - Support for inward investment - Access to global knowledge Business Innovation Building blocks of innovation: a supportive climate Macroeconomic stability Education and training policy Trade policy Competition policy Physical and IT infrastructure Science policy Ability to execute strategy Agility Products Culture Competence Resources Knowledge Tools Capital Structures People Inside The Organisation
  60. 70. Growers/Vineyards Wineries/ Processing Facilities Winemaking Equipment Barrels Corks Bottles Labels Food Cluster Tourism Cluster Grapestock Fertilizer, Pesticides, Herbicides Irrigation Technology Agriculture Cluster State Government Agencies( e.g., Select Committee on Wine Production and Economy) Educational, Research, & Trade organizations (e.g. Wine Institute, UC Davis, Culinary Institutes)
  61. 71. Clusters Increase Productivity / Efficiency – Efficient access to specialized inputs, services, employees, information, institutions, and “public goods” (e.g. training programs) – Ease of coordination and transactions across firms–Rapid diffusion of best practices – Ongoing, visible performance comparisons and strong incentives to improve vs. local rivals Clusters Stimulate and Enable Innovations – Enhanced ability to perceive innovation opportunities – Presence of multiple suppliers and institutions to assist in knowledge creation – Ease of experimentation given locally available resources Clusters Facilitate Commercialization – Opportunities for new companies and new lines of established business are more apparent – Commercializing new products and starting new companies is easier because of available skills, suppliers, etc.
  62. 72. • There is often an array of clusters in a given field in different locations, each with different levels of specialization and sophistication <ul><li>Other clusters focus on manufacturing, outsourced service functions, or play the role of regional assembly or service centers </li></ul>Firms based in the most advanced clusters often seed or enhance clusters in other locations in order to reduce the risk of a single site,access lower cost inputs, or better serve particular regional markets The challenge for an economy is to move from isolated firms to an array of clusters , and then to upgrade the breadth and sophistication of clusters to more advanced activities
  63. 73. The Process of Cluster Development History of the San Diego Biotech / Pharma Cluster 1955 Salk Institute Founded 1960 Scripps Research Institute founded 1964 UCSD founded 1976 Burnham Institute founded 1978 Hybritech founded 1985 UCSD Connect founded 1986 Hybritech sold to Eli Lilly 1991 Biomedical Industry Council founded 1991 Biocom founded 1992 Nanogen founded 1998 Novartis Agricultural Discovery Institute founded
  64. 74. 1950s Import of European winery technology 1960s Recruiting of experienced foreign investors, e.g. Wolf Bass 1970s Continued inflow of foreign capital and management 1980s Creation of large number of new wineries 1990s Surge in exports and international acquisitions The Australian Wine Cluster History 1930 First oenology course at Roseworthy Agricultural College 1955 Australian Wine Research Institute founded 1965 Australian Wine Bureau established 1980 Australian Wine and Brandy Corporation established 1990 Winemaker’s Federation Australia established New organizations created for education, research, market information, and export promotion 1970 Winemaking school at Charles Sturt University founded
  65. 78. Internal Competitive advantage resides solely inside a company or in its industry Competitive success depends primarily on company choices <ul><li>External </li></ul><ul><ul><li>Competitive advantage resides partly in the locations at which a company’s business units are based </li></ul></ul><ul><ul><li>Cluster participation is an important contributor to company success </li></ul></ul>Sources of Firm Success
  66. 79. Innovation Productivity Prosperity • Innovation is vital for long-term increases in productivity • Innovation is more than just scientific discovery • There are no low-tech industries , only low-tech firms
  67. 80. Productivity, Innovation, and the Business Environment Sophisticated and demanding local customer(s) Local customer needs that anticipate those elsewhere Unusual local demand in specialized segments that can be served nationally and globally A local context and rules that encourage investment and sustained upgrading –e.g., Intellectual property protection Open and vigorous competition among locally based rivals Meritocratic incentive systems across institutions Presence of high quality, specialized inputs available to firms: – Human resources – Capital resources – Physical infrastructure – Administrative infrastructure – Information infrastructure – Scientific and technological infrastructure – Natural resources Successful economic development is a process of successive economic upgrading , in which the business environment in a nation evolves to support and encourage increasingly sophisticated ways of competing Access to capable, locally based suppliers and firms in related fields Presence of clusters instead of isolated industries
  68. 81. Clusters and Competitiveness Clusters Increase Productivity / Efficiency Efficient access to specialized inputs, services, employees, information, institutions, and “public goods” (e.g. training programs) Ease of coordination and transactions across firms Rapid diffusion of best practices Ongoing, visible performance comparisons and strong incentives to improve vs. local rivals Clusters Stimulate and Enable Innovations – Enhanced ability to perceive innovation opportunities – Presence of multiple suppliers and institutions to assist in knowledge creation – Ease of experimentation given locally available resources Clusters Facilitate Commercialization –Opportunities for new companies and new lines of established business are more apparent – Commercializing new products and starting new companies is easier because of available skills, suppliers, etc.
  69. 82. • A new way of thinking about an economy and organizing economic development efforts Better aligned with the nature of competition and sources of competitive advantage . Clusters capture important linkages in terms of technology, skills, information, marketing and customer needs that cut across firms and industries. Such linkages are fundamental to competition and, especially, to the direction and pace of innovation Recast the role of the private sector, government, trade associations and educational or research institutions Brings together firms of all sizes Creates a forum for constructive business-government dialogue A means to identify common opportunities, not just common problems <ul><li>Objectives </li></ul><ul><ul><li>– Cluster initiatives need to have a defined hierarchy of measurable goals , from activities to intermediate goals to ultimate goals </li></ul></ul><ul><ul><li>– The focus of the initiative should be on increasing productivity , not on increasing the size of the cluster </li></ul></ul><ul><li>Activities </li></ul><ul><ul><li>– All activities need to be considered that can increase the potential for productivity and productivity growth, not only financial incentives </li></ul></ul><ul><ul><li>– Data-driven analysis should be used extensively to allow a more rational discussion about threats and opportunities for the cluster </li></ul></ul><ul><ul><li>– The analysis should be used to identify priorities for action , not to rank the cluster for marketing purposes </li></ul></ul>Goal Goal Goal Goal
  70. 83. <ul><ul><li>Only sustained, private sector-led cluster initiatives can be sufficiently specific and persistent in their activities to achieve real improvements in cluster performance </li></ul></ul>Leadership by a committed individual is need to keep momentum and integrate individual constituencies into a common upgrading process Independent institutional structures are often helpful to sustain momentum over time; universities and cluster organizations can be useful to play this role The integration of a cluster effort in a broader regional competitiveness initiative increases its impact All relevant parts of public administration and the legislature need to be involved to insure broad backing and quick implementation of recommendations
  71. 84. Different Approaches to Cluster Development - Cluster Creation • Targets areas of perceived market demand • Is driven by public sector intervention • Requires sustained financial commitment by the public sector • High failure rate $ $
  72. 85. Cluster Activation Leverages existing assets , history, and geographic location Builds on coalition of private and public sector actors Requires sustained participation by all actors Level of success is increasing over time ; quick returns are possible
  73. 86. Institutions for Collaboration <ul><li>Institutions for collaboration (IFC) are formal and informal organizations that: </li></ul><ul><ul><li>-facilitate the exchange of information and technology </li></ul></ul><ul><ul><li>-conduct joint activities </li></ul></ul><ul><ul><li>-foster coordination among firms </li></ul></ul><ul><li>• IFCs can improve the business environment by: </li></ul><ul><ul><li>- creating relationships and level of trust that make them more effective </li></ul></ul><ul><ul><li>- defining of common standards </li></ul></ul><ul><ul><li>- conducting or facilitating the organization of collective action in areas such as procurement, information gathering, or international marketing </li></ul></ul><ul><ul><li>- defining and communicating common beliefs and attitudes </li></ul></ul><ul><ul><li>- providing mechanisms to develop a common economic or cluster agenda </li></ul></ul>Chambers Of Commerce University Partner Groups Professional Associations School Networks Advisory Councils Competitiveness Councils General Industry associations Specialized professional associations and societies Alumni groups of core cluster companies Incubators
  74. 87. Financial Institutions Companies Research Institutions Government Institutions for collaboration Eliminate barriers to local competition Focus efforts to attract foreign investment around clusters Focus export promotion around clusters Organize relevant government departments around clusters Create streamlined, pro-innovation regulatory standards affecting the cluster to-reduce regulatory uncertainty -stimulate early adoption -encourage innovation or new products and processes Sponsor independent testing, product certification, and rating services for cluster products/services Act as sophisticated buyer of the cluster’s products / services Create specialized education and training programs Establish local university research efforts in cluster-related technologies Support cluster-specific information gathering and compilation Improve specialized transportation, communications, and other infrastructure required by cluster Companies need to… Take an active role in upgrading the local infrastructure Nurture local suppliers and attract new supplier investments Work closely with local educational and research institutions to upgrade quality and create specialized programs addressing cluster needs Provide government with information and substantive input on regulatory issues and constraints bearing on cluster development Focus corporate philanthropy on enhancing the local business environment
  75. 88. Private Sector Influences on Cluster Upgrading Firm Strategy And Rivalry Market jointly through trade fairs and delegations Collaborate with government export promotion efforts Create directories of cluster participants Demand Conditions Work with government to streamline regulations and modify them to encourage innovation Establish local testing and standards organizations Related and Supporting Industries Establish a cluster-based trade association Encourage local supplier formation and attract local investments by suppliers based elsewhere through individual and collective efforts Input Conditions Jointly develop specialized vocational, technical, college and university curricula Sponsor specialized university research centers Collect cluster information through trade associations Maintain close liaison with infrastructure providers to address specialized cluster needs (e.g., data communications, logistics) Develop courses for managers on regulatory, quality, and managerial issues
  76. 89. Building And Managing Alliances
  77. 90. <ul><li>We have to do it ourselves </li></ul><ul><li>Product driven capabilities </li></ul><ul><li>Investment in production assets </li></ul><ul><li>Competing for end customer </li></ul><ul><li>“ We have to be in the centre of a winning network” </li></ul><ul><li>Solutions driven capabilities </li></ul><ul><li>Investment in knowledge networks </li></ul><ul><li>Solution and relationship excellence mindset </li></ul><ul><li>Competing for relationships </li></ul>Towards The Extended Enterprise… The time has come for a redefinition of an organisation around its core competencies and strategic, long-term, results-oriented relationships with specialised service providers Partner Partner Partner Partner Partner Extended Enterprise Industrial Enterprise
  78. 91. Flexibility Improved communication and people mgmt Skill sharing and maximisation Innovation facilitation Shared risks and rewards Reduces servant/master relationship Ties into a shared vision Collaboration on strategic asset mgmt planning Close Relationship Partner Alliance Trust and flexibility leads to better quality and better value for money Reasons Quoted For Pursuing Close Outsourcing Relationships
  79. 92. Business Life Cycle Phases Influence Alliance Imperatives RAPID GROWTH <ul><li>Develop Standards </li></ul><ul><li>External Value Proposition </li></ul><ul><li>Market/Customer Reach </li></ul><ul><li>Branding </li></ul>STABILITY <ul><li>Co-operation </li></ul><ul><li>Stabilize Competition </li></ul><ul><li>Reduce Cost </li></ul>EARLY GROWTH <ul><li>R&D </li></ul><ul><li>Gain Credibility </li></ul><ul><li>Access Capital </li></ul>Product Innovation <ul><li>External Value </li></ul><ul><li>Proposition </li></ul><ul><li>Market/Customer </li></ul><ul><li>Reach </li></ul>CONSOLIDATION Process Innovation INNOVATE/ SUSTAIN/ DECLINE <ul><li>R&D </li></ul>Potential Product Innovation ALLIANCE IMPERATIVES?
  80. 93. Need for Additional Capabilities Need to Involve Peers STRUCTURE OF LEADERSHIP PORTFOLIO (e.g., Time Warner, AT&T) CONSTELLATION (e.g., Mondex, Excite@Home) FRANCHISE e.g., McDonald's, Nintendo) COOPERATIVE (e.g., VISA, TriStar) SINGLE ENTITY COALITION SEVERAL (Multiple Gaps) ONE (Single Gap) NUMBER OF ALLIANCE ROLES Alliance Architecture Models Multiple interdependent alliances led by two or more comparably sized peers Multiple class alliances managed as portfolio by one firm Alliances between many comparably sized peers Alliance between firm and one discrete class of partners
  81. 94. Acclaim Entertainment Inc./LJN Toys Ltd. Accolade, Inc. Activision, Inc. Advanced Gravis Advanced Productions, Inc. American Sammy Corp. American Softworks Corp. American Technos, Inc. Ascii Entertainment Inc./Nexoft Atlus Software, Inc. Bandai America, Inc./Shinsei BMG Entertainment Capcom Disney Interactive Eidos Ineractive Electro Brain Corp. Electronic Arts/EA Sports Fox Interactive Gametek, Inc./Cybersoft, Inc. GT Interactive Software GTE Interactive Media Hot-B USA Inc. I Motion IMN Interact Accessories Inc. Interplay Productions Jaleco USA, Inc. JVC Musical Industries, Inc. Kemco of America, Inc. Koei Corporation Konami Inc./Ultra Soft Laral Group Left Field Entertainment Life Fitness Light Wave Technologies Majesco Sales, Inc. Microprose Software, Inc. Midway Home Entertainment Milton Bradley Mindscape/Software Toolworks Namco Hometek, Inc. Natsume Inc. Nuby/Curtis Ocean of America, Inc. Parker Brothers Philips Media Playmates Interactive Ent. Psygnosis, Limited Rare Ltd. Raya Systems, Inc. Seta USA, Inc. Sharp Electronics Corp. Sports Sciences, Inc. Sun Corporation of America (Sunsoft) Take-Two Interactive Software, Inc. TecMagik, Inc. Tecmo Inc. T*HQ/Malibu Games/Black Pearl Software Titus Software Corp. Toho Co., Ltd. Tyco Ubi Soft Inc. Viacom New Media Vic Tokai Inc. Video System Virgin Interactive Entertainment, Inc. Franchise Model: Deep Bench Strength— This model is used by companies to fill a single critical gap in its value chain. The Franchise Model develops a single alliance role that can be refined and quickly replicated to create scale, thereby producing an alliance growth corridor for the alliance initiator.
  82. 95. Time Warner Portfolio Model: Hub and Spoke — The portfolio model is a major step up from the franchise approach. Companies that adopt this approach are finding that the value-added chain contains far too many elements for it to command all the capabilities necessary to compete. However, instead of forming a number of single discrete arrangements to fill each gap (thus making itself vulnerable should a partner experience difficulty or if the market changes rapidly), the company decides to create multiple class alliances managed as a portfolio. END USER DEVICES AND APPLICATIONS Silicon Graphics IBM Apple Atari Corp Electronic Arts Matsushita 3OO Illachu Toshiba AT&T CONTENT TCI Turner Broadcasting Atari Games Crystal Dynamics SOFTWARE DEVELOPERS Microsoft Accolade Digital Solutions Hyperbole Compuserv LOCAL SWITCHING AND TRANSPORT TCG Cox TCI Comcast Cont Cablevision US West Newhouse GE Cont Cablevision Primestar TCI Cox Qualcomm SERVICE CREATION TCI Spiegel Sega Philips Whittle Comm QVC Comcast Catalog 1 Sega Channel TCI/Liberty Hardware Central Software Distribution Joint Venture
  83. 96. Creative Art Production Theater Distribution Consumer Promotion Cable Marketing/ Access Video Distribution Broadcasting Consumer Access HBO Columbia CBS Alliance Cooperation Model - Tristar OBSERVATIONS • All capabilities already existed within the individual partners—sharing alone created value • Improved production asset effectiveness of Columbia • Realized maximum value for entertainment /movie archive for all parties • Improved audience and reach, driving advertising revenues Cooperative Model: Mutual Benefit — With the cooperative model, one moves from a central position to more of a cooperative role. The alliance is at the center, rather than one of the partners, and the customer relationship often shifts from the company to the alliance. Typically, we find that companies that have adopted the cooperative model do so to outflank the competition and substantially raise the competitive bar + + = + + = + + = + + = + + = + + = + + = + + =
  84. 97. Harbinger BAAN Netscape Commerce 1 AT&T SAP GEIS Ariba Clarus TopTier; Extricity E-Procurement Alliance Portfolios—Ripe for Evolution to Constellations Competitor Learning & Innovation Core Component Supplier Implementation Services Resellers Industry Influencers Companies that utilize constellations develop breakout strategies that leapfrog the competition and put industry competitors on the defensive. PeopleSoft; Oracle PeopleSoft; Oracle PeopleSoft; Oracle MS MS; Market First Commerce 1 MS Oracle BAAN SAP Oracle BAAN SAP Oracle BAAN SAP SAP DG Unisys Peachtree Oracle SAP DG Unisys Oracle MS Unisys Deloitte Aris Arthur Andersen Eggrock PRT Grp Deloitte AMEX Velfore Open Market Sterling VISA FedEx PwC HP Intel Staples HP HP HP; OpenMarket iCat SAP MCI/W MS Sabre Brit Telecom SAP MCI/W MS Sabre
  85. 98. STRUCTURE OF LEADERSHIP PORTFOLIO CONSTELLATION FRANCHISE COOPERATIVE SINGLE ENTITY COALITION SEVERAL (Multiple Gaps) ONE (Single Gap) NUMBER OF ALLIANCE ROLES Alliance Architecture Models The biggest advantage to the franchise and portfolio models is that the forming company sits in the control position directing and managing the interconnectedness of the arrangements The cooperative model requires a different business model. While the relative size of the partners may differ, they are equals at the point of intersection (the specific product or service provided to the marketplace). All companies are working toward the same goal; however the dayto- day running is not under direct control of any one partner.
  86. 99. Each Alliance Class Has a Unique Set of Characteristics…. Easiest (Operationally Managed) Little (Fill Single Gap) Single (Concentrate on Current Customer /Market Segments) Easier – Internal (Oversight Committee Crosses Various Areas) Little (Multiple Gap Focus) Single (Concentrate on CurrentCustomer / Market Segments) Intricate – External (Shared Leadership Shared Governance) High (Create New Value Proposition Within Industry) Multiple (Concentrate on Creating New Value Position to Extend Reach into Customer /Market Segments) Difficult – External (Shared Governance Crosses Industry Boundaries) High (Leapfrogs Current Competitive Structure) Multiple (Rapid Expansion into New High Growth and High Value Market Areas Unobtainable Before) Successful companies in the next decade will be the ones that harness the full potential of the alliance models and tailor their organizational structures to take full advantage of the alliance situation which most appropriately fits their strategic needs The world will be difficult to navigate and competitors too ingenious as companies are shaken loose from traditional ways of doing business. Companies must develop “coherence ” among the many seemingly disparate and far-flung pieces of the business, establish a potent binding force and sense of direction where all the pieces mutually reinforce each other, as well as provide a platform for growth. One of the staggering failures of the old and dysfunctional “command and control” business model is that it “chokes” the potential of the company. The successful company of tomorrow will develop coherence between the control model and the cooperative model of alliances PORTFOLIO CONSTELLATION FRANCHISE COOPERATIVE Governance Integrated Offerings Industry Focus
  87. 100. CEO Legal Audit Finance Governance Operations BU Optimisation Portfolio Maximisation Strategy Mergers & Acquisitions Integration & Implementations Strategic Sourcing Enhancing Operational Capabilities Shared Resources Shared Funding Joint Equity Constellations Paradigm Shift Major Increase In Value Pilots & R&D Projects Extending Asset Reach Joint Partnership Boards Board Of Directors Cooperative Model Control Model Franchise alliances are operational in nature, an extension of a specific part of a company and that’s where and how it should be managed. The portfolio model is, de facto, a new business model. Since it usually involves more than one primary part of the dominant partner, it is managed not by an operations group but by a business center. That center acts as the “corporate center” for the alliances. It must treat its partners as a business unit within a Centerless Corporation The cooperative model is a shared business model that needs its own leadership, but with few “owners,” they need to work through some cooperative governance structure. The challenge with these models is to establish a set of operating/performance parameters. This model is very similar to what firms do when they establish a shared services organization within the corporation, or rely on an outsourcing agreement.
  88. 101. But There Are Important Alliance Building And Alliance Management Competencies That Need To Be Developed…. Strategic Consistency Staff Resource Management Governance/ Decision Making Functional Capability Legal Agreement Roles, Organisation, Teamwork Supportive Infrastructure Business Processes Communication & Info Sharing Conflict Resolution Equity Cultural Compatibility Trust Attitudes & Commitment Culture Management Work Processes
  89. 102. Decisions On What is Core And Non-Core?....The Key Questions Strategic Priority And Risk Internal versus External Capabilities Economic Valuation Ability To Manage Supplier Cheaper to keep in house Lack skills to manage risks In-house capabilities are superior No existing options for external provision Suitable providers exist Providers have equal/superior skills Most cost effective to outsource Outsource Operations Related <ul><li>Does it have a direct impact on our license to operate or on our production, yield or reliability? </li></ul><ul><li>Does it require specific understanding of operational processes? </li></ul><ul><li>Does the activity have a direct impact on products, quality, yield or safety? </li></ul><ul><li>Will we have the ongoing capital to maintain the required knowledge and skills? </li></ul><ul><li>Is the activity critical to achieving our business plan? </li></ul>Knowledge Related <ul><li>Does the task require industry or process knowledge specific to our products? </li></ul><ul><li>Is the knowledge readily available within the manufacturing community? </li></ul><ul><li>Is the knowledge readily gained? </li></ul><ul><li>Does the activity require or generate specific intellectual property? </li></ul><ul><li>Can we maintain the required skills and knowledge? </li></ul><ul><li>Does the activity require product specific equipment knowledge? </li></ul>Skills Related <ul><li>If we do not own the skills and knowledge to carry out the activity, could we manage the risk of outsourcing it? </li></ul><ul><li>Does the task require continual review to stay abreast of technology and methods that could improve outputs of the process? </li></ul><ul><li>Do we have the skills to manage the suppliers or alliance partner? </li></ul>Keep Activity In House And Develop Capabilities
  90. 103. Sustaining Strategic Relationships by Sponsoring a Wide Range of Collaborative Initiatives Joint Business Planning 2004 2005 2006 2004 2005 2006 Turnaround Strategies Equipment Strategies Detailed discussions about product planning, projects, technology change Collaborative Innovation Process and equipment best practice joint client/alliance teams work closely together on continuous improvement programs Open Book Accounting Profit Partners clearly communicate profit margins and financial breakdown Right Of First Refusal Client Partner Other Suppliers Strategic suppliers receive right of first refusal to respond to specific projects before client approaches other suppliers.
  91. 104. LONE RANGER AD HOC Alliancing - Pyramid Of Capability INSTITUTIONAL • Reinvent each time • No knowledge capture • No best practices <ul><li>• In-house “guru” – best practices </li></ul><ul><li>individually based </li></ul><ul><li>• Little knowledge-sharing </li></ul><ul><li>Limited resources </li></ul>• Formalization of procedures • Dedicated staff – high degree of sharing • Establishment of knowledge repository for future use
  92. 105. Anatomy Of World Class Alliance Management….. So, What Does It Take? Enterprise Alignment Strategy Alignment Financial Impact Execution Effectiveness Speed Efficiency Cost Employee Development Skills Retention Training Asset Management Capacity Utilisation Outsourcing Cost of Complexity Productivity Improvement Continuous Improvement Best Practices Competitive Benchmarking Performance Measurement Internal Benchmarkng Cascading Metrics Incentives Customer Responsiveness Voice Of Customer Customer Touch Demand Planning Supply/ Demand Alignment Resource Account- ability LONE RANGER AD HOC INSTITUTIONAL
  93. 106. As companies increase alliance activity, partnership responsibility spreads to employees throughout the organisation, challenging corporations to develop organization-wide alliance capabilities. Companies that successfully build such capabilities enjoy a favorable impact on market capitalisation and benefit from the “ virtuous cycle” of being able to attract (and learn from) quality alliance partners. To help employees throughout the organisation build partnering capabilities, many alliance-active companies have created dedicated alliance groups with a mandate to institutionalise alliance skills. The focus of such efforts is to leverage existing pockets of expertise and standardise approaches to partnering activities.
  94. 107. From First Base To True Alliance Synergy…The Journey TIME The most successful alliance companies have learned that disciplined approaches and channels are needed to disseminate best-practice knowledge and experience 1 Costs savings of at least 10% 2 The creation of trust and flexibility 5 Sharing of strategic mgmt and creation of extra- preneurship 3 Creating a culture of joint partnership through alliancing 4 Joint development of strong data mgmt and best in class visions
  95. 108. A “one-stop shop” of alliance resources integrates the alliance toolkit’s contents into one interface. A single point of entry to all alliance resources eliminates the administrative burden of searching multiple venues for diagnostic tools, training information, off-the-shelf presentations and key contacts. Rapidly Emerging, Powerful Alliance Knowledge Management Tools
  96. 109. Are You Capturing And Using Alliance Best Practices?.. IMPACT AND RATIONALE INCLUDES: • Improves communication across all business & functional units • Deepens alliance knowledge within company & accelerates learning curve • Accelerated pace of innovation & response time Alliance Knowledge Management Alliance Best Practices Contact Database Process Support Tools Decision Support Tools Alliance Scorecard Click here Alliance Databases Networks Financials Links Alliance Health Check Org Charts Relationship Maps Roles/Accountabilities Equipment Strategies Project Management Work Management Work Flow Project Budgeting Training & Performance Business Planning Principles & Leadership Management Of Change Continuous Improvement Turnaround Planning Projects Equipment Root Cause Analysis Tool Set Process Maps & Drawings Active Improvement Teams  Project Reports & Documents Prototyping Technology Enablers Importance Performance Hi Low Hi Low Relationship Health Audit 1 2 3 4 5   Relationship Issues Log Relationship Governance Organisation Charts Network & Influence Maps Functional Click here Site/Location Click here Divisional Click here Key Influencer Budget Gatekeeper Projects High Flyer Roles & Accountabilities R A C I Alliance Scorecard Financial Measures Operations Measures Relationship Measures Score Target Variance Score Target Variance Score Target Variance Score Target Variance Satisfaction Index Alliance Staff Turnover Best Practice Sharing effectiveness Innovation Measures # process improvements Knowledge transfer frequency Mechanical Availability MTBR Scheduled Work Completed Maintenance Costs Trend Maintenance Spend Cost Of Unreliability
  97. 110. <ul><li>Global competition suggests a drastically shortened life cycle for most products, and it no longer permits companies a polycentric, country-by-country approach to international business. </li></ul><ul><li>An increasing number of countries are competing head-on for global leadership. </li></ul><ul><li>In today’s competitive world, technology diffuses quickly. </li></ul>Outsourcing And Offshoring
  98. 111. • BPO (Business Process Outsourcing) is the delegation of one or more IT-intensive business processes to an external provider who, in turn, owns, administrates and manages the selected process(es), based upon defined and measurable performance metrics • Business Process Offshoring: Business process offshoring is the transfer of business tasks (medical transcription) or business processes (call centers) to a low-cost country like India • ITES - Information Technology Enabled Services which encompasses both BPO and Call Centers • BPM - Business Process Management - is the practice of improving the efficiency and effectiveness by automating the business process • BPR - Business Process Reengineering - Critical reexamination, rethinking, redesigning and implementing the redesigned process of organization • Business Transformation Outsourcing: Business transformation outsourcing (BTO) is a natural extension of the more tactical BPO model and involves the transfer of responsibility for all back-office functions, as well as a comprehensive business change management process to an external vendor. The objective is to maximize the long-term benefits of the BPO operations, resulting in a comprehensive business transformation (or overhaul). BPO: Terminology
  99. 112. Saving on cost alone or making it best in class? What? Where? How? Are operations best in class? What categories to evaluate? Strategy Maintain/ leverage Yes Is this a core competency? No Captive Joint venture Third party Where can you get best in-class? Re-engineer process Yes No Onshore Offshore
  100. 113. 0% 20% 40% 60% 80% 100% 1980 1990 1999 Services Other industry Manufacturing Agriculture Global GDP continues to shift from manufacturing and industry to services 7% 25% 13% 55% 6% 22% 12% 60% 4% 22% 11% 63%
  101. 114. Source: Gartner Worldwide BPO spend ROW* Europe North America 2002 The 100+bn global outsourcing market will grow at CAGR of > 9% 100% = $108bn 56.4% 22.6% 21% $25 bn $23 bn $62 bn 100% = $173bn 2007 56% 23% 21% $39 bn $37 bn $97 bn ROW* Europe North America CAGR – 9.5% CAGR – 9.6% CAGR – 9.3%
  102. 115. Source: Gartner Global needs for competencies and domain knowledge Opportunity for leveraging capabilities from remote location 2007 100% = $173bn $62 bn $39 bn $37 bn $97 bn Europe North America ROW* Customer Interaction Services ($15B) HR ($23B) All vertical (only Txn. Processing) ($24B) Finance & accounting ($8B) Payment Services ($11B) Supply management (Procurement, warehouse, inv. mgmt., etc.) ($10b) Administrative processes (Asset mgmt., document mgmt., real estate. mgmt., etc.) ($6B) 15.4 23.2 8.5 6.4 11.5 10.5 24.2 Customer Interaction Services ($2.35B) HR ($7.47B) All vertical (only Txn. processing) ($7.45B) Finance & accounting ($4.33B) Payment Services ($2.37B) Supply management (Procurement, warehouse, inv. mgmt., etc.) ($13.33b) Administrative processes (Asset mgmt., document mgmt., real estate. mgmt., etc.) ($1.9B) 15.4 23.2 8.5 6.4 11.5 10.5 24.2
  103. 116. The Fortune 1,000s’ offshore evolution, 2003-2008
  104. 117. <ul><li>What elements should not be outsourced? </li></ul><ul><li>Core competencies </li></ul><ul><li>functions that cannot be performed by a third party with equivalent performance </li></ul>What elements cannot be outsourced? - untouchables - physical infrastructure - regulations compliance What elements have significant roadblocks? - work in progress (active projects, upgrades, conversions) - Lifecycle management - High firm risk - Specialised technical or business knowledge - contractual obligations Outsourcing Opportunities Opportunity Filter
  105. 118. <ul><li>Cost reduction </li></ul><ul><li>Make fixed cost variable </li></ul><ul><li>Liberate Capital </li></ul><ul><li>Integrate parts from M&A </li></ul><ul><li>Improved competitiveness </li></ul><ul><li>Focus on core competency </li></ul><ul><li>Create new process </li></ul><ul><li>Access to skills and technology </li></ul>Outsourcing Drivers Opportunity Filter
  106. 119. Outsourcing Process Considerations <ul><li>Delegate outsourcing decision </li></ul><ul><li>Lengthen the decision process </li></ul><ul><li>Fail to communicate regularly with affected employees </li></ul><ul><li>Limit vendor access to technical and financial data </li></ul><ul><li>Expect unrealistic savings </li></ul><ul><li>Fail to share outsourcing decision criteria </li></ul><ul><li>Get senior management involvement and sponsorship </li></ul><ul><li>State clear objectives for the outsourcing value proposition </li></ul><ul><li>Jointly develop the outsourcing solution </li></ul><ul><li>Consider culture match of companies </li></ul><ul><li>Develop a well conceived HR plan </li></ul><ul><li>Strive for a &quot;Win / Win&quot; business alliance </li></ul>Getting It Right Getting It Wrong Opportunity Filter
  107. 120. Possible Hidden Costs <ul><li>Searching and Vetting Vendors </li></ul><ul><ul><li>Due Diligence </li></ul></ul><ul><ul><li>Documenting requirements, </li></ul></ul><ul><ul><li>Sending out RFP’s </li></ul></ul><ul><ul><li>Evaluating the responses </li></ul></ul><ul><ul><li>Travel for site visit(s) </li></ul></ul><ul><li>Work Transition </li></ul><ul><ul><li>Training period - TTT </li></ul></ul><ul><li>Human Capital </li></ul><ul><ul><li>- Severance and retention bonuses </li></ul></ul><ul><li>Cultural Issues / - Communication issues </li></ul><ul><li>Process Maturity / Standardization </li></ul><ul><li>Project and Contract Management </li></ul><ul><ul><li>Anticipate resources needed to oversee provider </li></ul></ul>Opportunity Filter
  108. 121. Potential Benefits Technology Organisation Process Implement common systems Automate manual processes 5-10% 5-10% Achieve economies of scale Assign work to right level Reorganize the work Streamline remaining work Eliminate work steps 5-10% 0 - 5% 0 - 5% 0 - 5% 5% Optimize labor rates or location 25 – 30%
  109. 122. Although outsourcing can improve the cost effectiveness, quality, and timeliness of many HR activities… … ineffective relationship management can reduce returns by as much as 75 percent Total Potential Value Gained from the Outsourcing Relationship 100% “ Net” Value Gained Implement common systems Automate manual processes 5-10% 5-10% Achieve economies of scale Assign work to right level Reorganize the work Streamline remaining work Eliminate work steps 5-10% 0 - 5% 0 - 5% 0 - 5% 5% Technology Organisation Process Optimize labor rates or location 25 – 30% Implement common systems Automate manual processes 5-10% 5-10% Achieve economies of scale Assign work to right level Reorganize the work Streamline remaining work Eliminate work steps 5-10% 0 - 5% 0 - 5% 0 - 5% 5% Technology Organisation Process Optimize labor rates or location 25 – 30% Efforts Duplicated Resources Wasted Problems Not Managed Performance Not at Expected Levels Vendors Deployed Against Conflicting or Wrong Goals Opportunities Untapped Operational Challenges Performance Challenges Portfolio Mgt Challenges
  110. 123. Possible Causes Of Failure Opportunity Filter Poor or Damaged Relationship Poor Strategy and Business Planning Bad Legal and Financial Terms Source – Vantage Partners 30% 64% 6% <ul><li>“ We are still waiting for the transformation to occur ” </li></ul><ul><li>“ We are spending all of our time dealing with disputes ” </li></ul><ul><li>“ Our service levels are being met, but we don’t like the service ” </li></ul><ul><li>“ Our integration responsibilities are more than we bargained for ” </li></ul><ul><li>“ We have a poor relationship with the supplier ” </li></ul>
  111. 124. Value Chain Five steps are involved in developing a global sourcing strategy 1. Identify the separable links in the company’s value chain <ul><ul><li>2. In the context of those links, determine the location of the company’s competitive advantages (considering both economies of scale and scope). </li></ul></ul>3. Ascertain the level of transaction costs between the links in the value chain and select the lowest cost mode. $ $ $ 4. Determine the comparative advantage of countries relative to each link in the value chain and to the relevant transaction costs. <ul><ul><li>5. Develop adequate flexibility in corporate decision making and organizational design so as to permit the company to respond to changes in both its comparative advantages and the comparative advantages of other countries. </li></ul></ul>
  112. 125. A vendor management framework that includes the following processes Value Drivers and Performance Metrics Analyses Proposal Solicitation RFP Development (including contract language) Establishment of a Vendor Selection Team Service Delivery Specification Development Contract Administration Problem Resolution Integration Customer Satisfaction Contract Negotiation Vendor Assessment and Selection Proposal Evaluation Implementation and Transition Performance Monitoring Service Delivery Requirements Definition Outsourcing Candidate Identification Outsourcing Applicability Analysis Vendor Due Diligence and Qualification Outsourcing Candidate Screening
  113. 126. Identify Outsourcing Candidates Phase I: Candidate Identification Phase II: Outsourcing Analysis Phase III: Implementation Yes Screen Outsourcing Candidates Conduct Outsourcing Analysis Manage Outsourcing Arrangements Make Outsourcing Decision No Retain In-House And Continue Optimising Failure to have a strategically-driven process for considering outsourcing can result in organisational conflict, inefficient use of resources, or increased risk of poor service delivery Service Gap Strategic Reasons Economic Reasons <ul><li>Business focus </li></ul><ul><li>Core competency </li></ul><ul><li>Competitive advantage </li></ul><ul><li>Changing economics or cost structure of the business or industry </li></ul><ul><li>Benchmarking </li></ul><ul><li>Unsolicited bid </li></ul><ul><li>Asset reduction </li></ul>Triggers Identify Internal Capabilities And Services Analyze Customer Needs Strategic Vulnerability Customer Impact Economic Impact Would outsourcing burden us with unmanageable business risks? Would outsourcing have an unacceptable impact on our customers? Conduct Outsourcing Arrangements Are the benefits of outsourcing likely to be attractive? Retain Work In-House No No Yes Yes Yes No Risk Assessment Reversibility Analysis Service Level Assessment Vendor Analysis Economic Assessment Outsourcing Decision And Vendor Selection Transition Conversion Plan Change Management Ongoing Management Communication Strategy <ul><li>Obtain customer buy-in </li></ul><ul><li>Solicit customer involvement </li></ul><ul><li>Define clear requirements for vendors </li></ul><ul><li>Transfer equipment, processes, and people </li></ul><ul><li>Address organization impact on: </li></ul><ul><ul><li>People </li></ul></ul><ul><ul><li>Process </li></ul></ul><ul><ul><li>Structure </li></ul></ul><ul><ul><li>Rewards </li></ul></ul><ul><ul><li>Strategy </li></ul></ul><ul><li>Devise a change management plan </li></ul><ul><li>Customer interface with vendor personnel and management </li></ul><ul><li>Customer’s management of vendor/contract </li></ul><ul><li>Partnering </li></ul><ul><li>Post review of process </li></ul><ul><li>Communicate, communicate </li></ul><ul><ul><li>Management </li></ul></ul><ul><ul><li>Customers </li></ul></ul><ul><ul><li>Vendor </li></ul></ul><ul><ul><li>Employees </li></ul></ul><ul><ul><li>Joint venture partners </li></ul></ul><ul><ul><li>Regulatory bodies and governments, as necessary </li></ul></ul>Parties (Examples) Phase I: Candidate Identification Phase II: Outsourcing Analysis Decision Outsource Which vendor? Phase III: Implementation Internal Service Provider Customer(s) Management Body Ad Hoc Team Vendor Others as Appropriate Clearly defining the roles and responsibilities of each participant in the process (including the vendor) is critical
  114. 127. Issues Identification of services to include The treatment of “corporate roles” versus “services” Managing the interface between Service Providers and BU customers Choice of transfer pricing mechanisms Description Need to objectively determine which services would be most efficiently and effectively delivered via the outsourcing model Some enterprise-wide or non-discretionary activities (e.g., workforce planning, activities performed for legal or statutory reasons, etc.) may need to be handled differently Need to determine key management processes to plan for and deliver services to business unit customers Need to determine how outsourcing costs will be tracked and charged to business unit customers Actions To Address Develop a structural decision model incorporating considerations such as availability of scale economies, strategic contribution of support services and segmentation of internal customers Identify and categorise activities as “roles” or “services,” using defined criteria. Clarify how each will be provided and charged to the business units Develop “partnering” processes to negotiate and articulate service requirements and costs, facilitate dispute resolution, provide monitoring mechanisms, etc. Clarify basics for determining transfer prices (e.g., allocation rules, market-based pricing, benchmarking, etc.) and develop mechanisms to track, update and communicate as required Design of outsourced services should clarify key service issues and should develop management processes for ongoing interactions
  115. 128. Issues Description Actions To Address Overcoming Resistance To Change Building Required Competencies Rationalising Multiple Concurrent Change Initiatives Managing The Implementation Establishing A Consensus Regarding Internal Versus External Service-Provider Relationships <ul><li>May arise from perceived loss of power/control (e.g., business units may resist having currently owned functions taken away from them because they don’t believe savings and service level goals will be achieved) </li></ul><ul><li>With the creation of an outsourcing organization, employees’ roles will change and different competencies will be required (e.g., staff function managers will need to act more like business managers with respect to pricing services, forecasting demand and being customer-service oriented) </li></ul><ul><li>It is important not to risk immobilising people or the operation of the business by changing too many factors at once </li></ul><ul><li>Often, companies do not fully recognize the magnitude of change/implementation (i.e., in terms of scope, time and resource requirements, etc.) and may assume that implementation can be a part-time effort conducted “in people’s spare time” </li></ul><ul><li>Occasionally, customers place less of a priority -- and hence expend less effort -- on developing/maintaining mutually beneficial internal partnerships than they do on external ones </li></ul><ul><li>May be addressed by clearly identifying and communicating the need for change, by involving business employees in the Shared Services change process, and by offering incentives to change </li></ul><ul><li>May be addressed by assessing the required versus existing competencies and building skills to fill “gaps” through training or hiring of outside employees </li></ul><ul><li>May be addressed by prioritising change actions and dedicating resources to the change initiative aside from resources required to run the business </li></ul><ul><li>May be addressed by having a well-defined implementation plan and a fully dedicated implementation team that is measured and rewarded based on the results of implementation </li></ul><ul><li>May be addressed by establishing a common set of measures to gauge the effectiveness of internal and external provider relationships and to guide fact-based decisions around maintenance of such relationships </li></ul>Implementation of outsourced services is complex, requiring patience and understanding…
  116. 129. Issues Description Actions To Address Shadow Organisations Develop Poor Service To Internal Customers Lack Of Continuous Improvement Poor Decision-Making At The Business Unit/Line Manager Level <ul><li>There may be a tendency for people to revert to the old way of doing things -- individuals may not feel comfortable in new roles; business units may not be willing to give up control of dedicated service providers; customers may not understand the new service model and find their own ways to get the job done </li></ul><ul><li>If people with the proper competencies are not put in place in the outsourced organisation, or if new service delivery processes are not developed, service quality may suffer </li></ul><ul><li>Even after outsourcing is implemented, ongoing refinements will need to be made to staffing or processes to capture the full potential of the efficiency gains </li></ul><ul><li>When business managers start “paying for services,” they may stop using some services that are critical to the business (e.g., training) </li></ul><ul><li>May be prevented by gaining employee buy-in through employee involvement in the change process, clearly communicating employee roles in attainment of group goals, and providing training (as appropriate) to allow employees to succeed in new roles </li></ul><ul><li>May be prevented by identifying required competencies and providing training to internal employees, or by acquiring competencies from outside of the company </li></ul><ul><li>May be prevented by instituting ongoing benchmarking, publication of performance milestones, and employee incentives </li></ul><ul><li>May be prevented by providing the managers with incentives to use the services or by finding a “sponsor” from within the organisation to promote use of service </li></ul>Commitment to change and leadership at all levels will help to ensure the ongoing success of outsourced services
  117. 130. Know what and why you are outsourcing… Standardise or eliminate Reengineer Outsource or automate Into the core Low High Impact on Core Processes Uniqueness Low High
  118. 131. Small And Medium Sized Organisations
  119. 132. Professionalizing the business infrastructure Growth and organizational change Managing succession and exits Strategy for growth Maintaining organizational culture and values Creating external networks and market connectivity Upgrading management skills and capabilities Challenging the leader's assumptions Eight Key Challenges In Growing & Developing A SME
  120. 133. Creating external networks and market connectivity Eight Key Challenges In Growing & Developing A SME Entrepreneurs need to be connected to suppliers, markets, financiers, competitors, advisors and colleagues to gain the momentum needed to propel a young company through the growth stages. Supplier Financier Competitors Advisors Clusters appear to be important factors for growth since they encourage innovation and collaboration, draw customers and create confidence. By collaborating with colleagues and competitors, small companies can overcome power asymmetries to compete with large, well-established companies for the same market.
  121. 134. Upgrading management skills and capabilities Eight Key Challenges In Growing & Developing A SME The turnover of some key personnel during a company's transition from one growth stage to another can be a sign of good management. In fact, it may be an indicator that real growth is occurring. Key personnel for one growth stage may not be suited to the working environment of the next stage. Key personnel retained from one growth stage to another - including the entrepreneur-owner - need to retrain to learn the management skills required for the next growth stage. Managers need to think ahead in order to draw the company forward. This means finding and hiring personnel with experience in the next growth stage and developing human resource practices and compensation packages to match. It also means upgrading their own aspirations to pursue new product development and global opportunities.
  122. 135. Challenging the leader's assumptions Eight Key Challenges In Growing & Developing A SME Entrepreneurs can become too focused on the needs of their present growth stage and be unable to step back to see where they are headed. The perspective of outside advisors, especially those with relevant experience, is critical for successful transitions from one growth stage to the next. Sources of advice include family, lawyers, accountants, boards, employees and professional consultants. SME managers need to consider the expertise and objectivity of advisors when choosing an advisory team.
  123. 136. Managing succession and exits Eight Key Challenges In Growing & Developing A SME Successful succession means passing the company to the next generation, selling it or delegating and letting go of responsibility and authority. Well-managed exits ensure that investors get their original money out and that the entrepreneur is adequately compensated for the years of time and effort spent building the company. Both succession and exits require considerable planning. Entrepreneurs who enjoy being the manager and cornerstone of the company during the excitement of the start-up stage need to envision what they expect their role to be once the company becomes sustainable. Moreover, leaders who don't think ahead may not be adequately prepared to avoid unpleasant takeovers.
  124. 137. Growth and organizational change Eight Key Challenges In Growing & Developing A SME Managers need to deal with organizational inertia in the face of a rapidly changing environment; yet many companies are unable to cope with change. Clear plans and expectations, ongoing consultation and communication across the organization, step-by-step implementation of the change process, and allocation of adequate time and resources to change plans are all needed in order to ensure efficient change without reducing productivity.
  125. 138. Strategy for growth Weak SME strategic planning practices occur when insufficient attention is paid to an action plan. Action plans need adequate resources to ensure effective follow-through and concrete results. Although some SMEs have strategic plans, they often fail to update them. Changes in key organizational variables, such as a company expansion, a new product line or a new marketing project, signal the need for a new plan. Well-developed strategic plans are useful for SMEs pursuing financing. But plans are not the same as action. Management teams that become preoccupied formulating and revising plans ignore the most important part of the plan ó the action that results from it. Strategic plans need to be flexible enough to leave room for innovation and new ideas. Managers who avoid innovation because of inherent planning challenges forego significant growth and profit opportunities. Two Jobs Away Business Plan Action Plan Goals Product development Revenues and profit People Development
  126. 139. Professionalizing the business infrastructure Eight Key Challenges In Growing & Developing A SME SMEs tend to operate with informal structures, an arrangement that places additional stress on managers who must control multiple aspects of the company. While suitable for a start-up, this in