Leadership Development is an Oxymoron

/0 Comments/in , /by

Short term performance vs. long term power

As I’ve written in earlier blogs, the single biggest challenge facing CEOs and other C-Suite leaders in well-established companies is how to find the right balance between funding the businesses they have versus making significant enough investments in next generation businesses so they can deliver material revenues and profits to the company. Said another way, this challenge pits the demand to deliver short term quarterly earnings against the desire to create long term market power. This framework and concept has been one that my brother, Geoffrey, and I have been developing together and sharing with senior leadership teams for the past several years. Even after numerous discussions and use case examples, it still tops the list as the toughest set of decisions they confront year in and year out.

Power generates performance but performance consumes power

The big aha moment for senior leadership occurs when they realize that while power generates performance, performance consumes power. This means that if the company continues to overweight investments in current businesses so as to deliver short term performance, it will eventually liquidate the company’s long term power to grow.

blog 8 image 3

Then how should senior leaders make those internal investment decisions to enhance competitive performance on both fronts?

First, by understanding that decision making that optimizes short term performance and quarterly earnings is about management, while decision making that increases the company’s future power to grow is about leadership.

And second, by understanding the different skills and capabilities necessary to move from a management mindset to a leadership mindset.

Deciding between knowns and unknowns

In most cases, all the necessary data for a manager to make a performance-based decision is available and it’s a matter of assessing and comparing “known options” and selecting the one that has the best potential to deliver the desired short term results. By contrast, in many cases all the necessary data is not available to a leader who is trying to decide what new business opportunity has the greatest potential to improve the company’s long term growth prospects.

Leadership development is really management development in disguise

Most well-established companies have put together elaborate leadership development programs designed to identify their high potential managers and develop them into future company leaders. These programs include everything from:

  • The Company’s Values and Code of Conduct
  • Leadership skills and capabilities assessments  eg: Myers Briggs
  • University based development programs
  • Offsite leadership team building exercises
  • Job rotations

While a number of these programs help aspiring managers acquire broad skills and knowledge, in most cases all the practical examples and exercises are designed to help them make better management decisions not leadership decisions. Some of you reading this may be thinking – “so what’s wrong with that?”

What’s wrong with that is that the emphasis on management training, under the guise of leadership development training, only reinforces a silo based organizational structure. And silo-based decisions are primarily made within SBU’s and major support functions rather than across the enterprise. This results in management decisions that favor short term results trumping leadership decisions that favor long term growth.

I’ll give you an example of that in one word: Microsoft. For thirteen years they’ve been making these silo-based decision tradeoffs, and for thirteen years they’ve failed to launch a material next generation business and the market has kept the company’s stock flat during that time period.

How does a company break out of this management decision-making stranglehold?

The easy answer would be to say that the CEO is ultimately responsible for all major leadership decisions. In some cases, such as Apple’s extraordinary performance in the last decade (they successfully launched 3 next generation businesses that all delivered material new revenue and profits to the company), the primary driver of that performance was the company’s CEO, Steve Jobs. But in most organizations, the CEO needs to rely on input from a number of senior leaders who bring industry, market and customer experience and expertise to the table.

The hard answer then is to improve the quality of the decision-making process and not rely on the illusory promises of leadership development programs.

Based on our work with clients, here are four suggestions for how companies can change their leadership decision making processes:

1.  Review and evaluate all next generation business opportunities the quarter before the company begins its annual planning and budgeting process. The reason for this is that if you allow next generation business opportunities to compete directly for resources with established businesses, the former always loses out to the latter.

2.  Launch only one new business at a time. The biggest mistake well-established companies make in this arena is they spread their resources over multiple opportunities ensuring that no one will have sufficient support and funding to produce material returns.

blog 8 image 13.  Run each next generation business like a startup with a dedicated business development SWAT team who are compensated solely for getting the business to scale. The reason for this approach is that most well-established companies’ ability to support a new business opportunity that hasn’t produced material revenues and profits will stop after 24 to 36 months.

4.  Allocate a significant portion of all the discretionary bonus of each member of the senior leadership team to the success of the new business. If not, they will have no incentive to provide resources and support for the new effort.

Following these four suggested process steps for leadership decision making is no guarantee of success, but it sure increases the odds of success over trying to develop leadership decision making skills and capabilities in a classroom or an executive retreat.

As always, I am interested in your comments, feedback and perspective on the ideas put forth in this blog. Please e-mail them to me at pdmoore@woellc.com.

How Systems of Engagement Will Change the Role of Big Data From a Validation Tool to a Discovery Tool

/1 Comment/in , /by

Many companies today have already jumped on the “Big Data Bandwagon” and have allocated substantial budgets and multiple teams to figure out how they can better utilize the data they have to improve their customer relationships and increase their competitive advantage in the markets they serve. At the heart of these efforts, is the utilization of data analytics to lower the costs, improve the efficiency and gain increased value from the company’s existing systems of record.

Systems of Record: The center point for an SOR is a data base that supports a core asset of the company such as a Supply Chain, HR, Financial or CRM system. It must be accurate, up to date and secure. As such, from a corporate governance point of view, both ingress and egress must be tightly controlled by the company.

Most companies have assigned their IT group to lead this effort and have funded new investments in IT tools and hired an army of “data scientists” to search for and document critical and relevant customer insights. The problem is that all major IT projects have historically taken a very conventional approach to data analysis that utilizes large installed systems eg: CRM to mine these mountains of data and more often than not validate pre-existing assumptions or beliefs about customer needs and behaviors. This inside out use of data analytics re-enforces a culture of validation rather than a culture of discovery.

By contrast, if a company starts with an outside in approach to data analytics then it opens up a vast new potential to use Big Data as a discovery tool that facilitates the creation and implementation of new systems of engagement. Rather than starting with the data they have, it enables employees to re-think how they use data analytics to identify and address the emerging needs and issues their customers are trying to resolve at their key moments of engagement with the company.

Systems of Engagement: The center point for an SOE is a moment of engagement with an end user or a customer where the goal is to enable and enhance a value adding experience. Such systems must be friction free, immediately accessible and emotionally as well as intellectually dimensional. Ingress and egress are basically unrestricted and controlled by the end user.

Part of what is driving the Big Data Bandwagon is that organizations have come to the realization that learning faster than their competition is the only sustainable competitive advantage they have left. As such, this now puts a premium on how they use data analytics to get that learning advantage. To date, most of the evidence suggests that companies are utilizing their current systems of record to more cost efficiently mine their existing storehouses of data to gain validation of the changing needs of their customers and the marketplace.

IBM’s Institute for Business Value Study – IBM recently conducted a study that looked at the potential for collaborative relationships between CIOs and CMOs and presented the following key finding from its research:

“While Marketing has always been responsible for knowing the customer, now they are required to understand and respond to customers as individuals. Marketing can only do this if they can manage vast amounts of unstructured data, make sense of it with analytics, and generate insights that are predictive, not just historical – all on a massive scale.

To connect with individual customers at every touch point effectively, they need a system of engagement that maximizes value with each interaction. And they need each touch point to marry the culture of the organization with the brand to create authentic experiences that consistently deliver the brand promise. The way to achieve this unprecedented transformation is through technology.”

This key finding from their study not only validates the core tenets of the evolution of enterprise IT from systems of record to systems of engagement framework but it also highlights the need for Big Data to move from a validation tool to a discovery tool.

There is some early evidence of forward thinking companies that are starting to use data analytics to create new hypotheses and discover new ways of engaging their customers.

Ford Focus Electric Car

Ford Focus Electric Car

The Ford Focus Electric Car – Their new electric car produces large quantities of data while it’s being driven and also when it’s parked. When it’s being driven, it provides the driver with information on the car’s acceleration, braking, battery charge and current location. While this is useful to the driver, the data is also sent back to Ford engineers who can learn about the owner’s driving and re-charging habits. This real time information enables Ford engineers to better understand what their electric car customers need and want so they can develop and deliver product improvements based on analyzing this real time data. Additionally, third-party vendors can use this cumulative driver data to figure out where to put additional charging stations.

Pharmaceutical companies – Many pharmaceutical companies are in the early stages of using patient information monitoring techniques to lower the cost and improve the quality of their drug trials. In the past, doctors monitored trial participants by seeing them periodically in their offices. Today, a patient can have a sensor placed on their body which captures round-the-clock real time data about their adherence to the treatment regime and the positive or negative effects of the drug. With the advent of “outcome based medicine” where insurance companies only want to pay for drugs that deliver the results they are supposed to, it is critical that drug companies have a more timely way to assess the actual impact of the drug versus its desired impact.

While the overall debate on the value and contribution Big Data can make to organizations continues to escalate, I think there is a different and more powerful discussion to be had. How can companies use data analytics as a discovery tool that will allow them to learn faster than their competition? For IT leaders to put this question on the table, they have to change their mindset away from using data analytics to improve the efficiency of their systems of record and transform it into helping them create and deliver new systems of engagement.

Leveraging Offer Power: Who Says You Can’t Differentiate and Neutralize at the Same Time?

/0 Comments/in , /by

In my brother Geoffrey Moore’s new book, Escape Velocity – Free Your Company’s Future From The Pull Of The Past, he lays out a very compelling framework on how companies can significantly increase the ROI on their innovation investments. This framework presents three different ways a company can generate meaningful returns as illustrated in the diagram below.

OfferPower_1_Resized

The first way is to create an “unmatchable offer” that  your key reference competitors can’t or won’t replicate and that your customers will pay you a premium for because there is nothing comparable on the market. The secret here is to make sure you go far enough so that the market clearly sees the differentiation. Many companies stop to soon believing that “best in class” is the goal. What they ultimately find out is that best in class is a “sucker’s bet” because the market won’t pay up for it.

The second way is to neutralize offers from your reference competitors that have features your product doesn’t have. The secret here is to get a comparable offer from your company to market as quickly as possible. The two mistakes companies make here is first they move too slowly and second they spend too much money trying to outdo the competitive offer. In this case, the goal is to get to good enough fast enough so you don’t lose any competitive ground.

The third way is to task a project team to go identify and reclaim resources that have been dedicated to efforts that are not yielding good returns. The challenge here is to make sure that you don’t let any “sacred cows” off the hook in this cost optimization exercise. In this case, best in class is a good target to shoot for.

The other major mistake companies often make is to tie differentiation and neutralization initiatives together in one work stream which guarantees that they won’t maximize the potential value and returns from either one. Each one should have its own work stream as illustrated by the diagram below.

OfferPower_2_resized

Having said all this, I want to raise another opportunity and that is the potential to conduct both differentiation and neutralization initiatives at the same time while keeping them in separate dedicated work streams. Apple’s recent actions once again provide a good template for how to do this well.

It has been well documented that Apple successfully launched 3 next generation products in the last decade. It should be noted that the iPhone was not released to the market until the iPod had successfully generated material new revenue and profits for the company and similarly the iPad was not released until the iPhone was producing material new revenue and profits.

What has been overlooked by many observers of this decade long unprecedented set of accomplishments is that while the new products were coming to market Apple was also developing lower cost models of each to neutralize competitive offers at much lower price points. The iPod Shuffle and iPod Nano along with the iPad Mini are examples along with the recently rumored launch of a lower cost iPhone.

While there is always a danger of these new lower cost offers eroding the industry high margin rates Apple enjoys, the greater risk is to do nothing and see their market position evaporate like what has happened to Palm, Nokia and RIM.

As I said earlier, it is important to remember that you need good organizational and operational processes in order to drive parallel differentiation and neutralization work streams at the same time. Each one will have its own separate cadence, timetable and set of deliverables. Each will also require different leadership skills to get the desired outcomes. As such, HR should play a strong role in helping to identify the strongest candidates to lead each one.

In the end, in order to maximize the ROI on your innovation investments, I think the message is clear. First, you need to separate your innovation initiatives into three separate work streams with three clearly defined deliverables. Second, even after you’ve successfully launched a truly differentiated offer, you need to immediately  begin thinking about how you can protect that offer from lower cost alternatives.

Increasing the ROI on Innovation Investments: Sustainability-Driven Innovation

/0 Comments/in , /by

Are you looking to maximize the ROI on your innovation investments?  SingingDog co-founder and Top Dog, Phil Metz, has teamed with Peter Moore, President of Wild Oak Enterprises, to deliver this.  How?  By integrating Metz’s Sustainability-Driven Innovation techniques with Moore’s powerful and proven Offer Power framework for delivering innovation results.

Metz’s research has shown that sustainability – far from being a “cost” and barrier to innovation – can be a powerful lever for revenue growth and profit.  A few examples:

  • Interface’s biomimicry-based “Entropy” carpet tile product line has grown to represent over 40% of sales, and is widely emulated by competitors.  In Operations, Interface’s Mission Zero® recycling program targeting zero environmental impact by 2020 has been a major force in increasing sustainability – and reducing operational cost.
  • Method Products views sustainability as a business opportunity.  The company’s products, such as its 8X concentrated laundry detergent and phosphate-free automatic dishwasher detergent, have enabled Method to achieve high visibility and revenue growth – while competitors scramble to catch up.  And Method has done this in the slow-growth home cleaning products market dominated by global giants such as Procter & Gamble and Unilever
  • MBA Polymers recycles plastics from complex waste streams to deliver, “drop-in replacement” polymer feedstocks that require less than 20% of the energy needed to produce virgin feedstocks from petrochemicals.  As reported in a recent SingingDog blog post, MBA feedstocks have garnered major contracts with Electrolux and other global leaders.

Why does this work?  Not by accident!  Each of these companies has attained its business success by embracing sustainability as a “core operating principle” and “business mindset” to drive innovation.  This conceptual shift alters every innovation action across each enterprise:

  • What products should we develop?  What technical competencies do we need?
  • How can we improve the customer experience with these products to maximize ROI on our innovation investments?
  • What techniques should we use to develop these products and roll them out?
  • How should we operate to reduce cost and increase efficiency?

But how can you roll this out in practice to maximize ROI on the innovation investments at your company?  Enter Moore’s powerful Offer Power framework comprising three “playbooks” for delivering results.

  1. Differentiation:  Have we created a truly unmatchable offer?
  2. Neutralization:  Have we gotten to good enough fast enough?
  3. Optimization:  Have we reclaimed unproductive resources and deployed them against differentiation or neutralization opportunities?

Understanding how to maximize the ROI on a portfolio of innovation investments is an exercise in staking out the three distinct offer power positions above that can help fuel your company’s future performance, specifically above-market growth rates with above-market risk-adjusted returns.  What makes this decision-making process challenging is that it is essential to develop three separate and distinct innovation work streams and project teams in order to maximize the benefits of each one. By using the Offer Power framework and tools, we are able to help our clients overcome these challenges and deliver the full ROI potential from all three.

Want to try it out?  Contact us to learn more or to schedule a half-day Chalk Talk or one-day Facilitated Custom Workshop.

I’m back…

/0 Comments/in , /by

It’s been 6 months since my last blog post and while I don’t like that it’s been that long, I can tell you the time has been well spent developing our new Chalk Talks and Workshops on the Evolution of Enterprise IT from Systems of Record to Systems of Engagement. This change will not only reorder the competitive landscape in most industries but it will also fundamentally change to role IT will play within most organizations.

The Consumerization of Enterprise IT and A New Playbook for IT workshops are designed to provide you and your organization with an overview of this transformative change and how companies can create and sustain competitive advantage by getting out in front of it.

We are in the early stages of this emerging business model and in 2013 you will start to see more posts on a variety of the aspects and implications of this transformative shift.  In the meantime, we are committed to helping you and your organizations achieve optimal success, so please don’t hesitate to reach out and connect with us.

What if You Could be as Good at Engaging Your Employees as you are at Engaging Your Customers?

/0 Comments/in , /by

Most companies today can tell you the approximate lifetime value of their core customers and what they are doing to realize the full potential of that value. How many companies can tell you the lifetime value of their most valued employees and what they are doing get that contribution from them?

Many companies have now adopted the Net Promoter Score metric created and introduced by Frederick Reichheld in 2006 which asks customers “How likely is it that you would recommend this company ( and its products and services ) to a friend or colleague?” How many companies ask their employees “how likely is that you would recommend to a friend or colleague that they come to work at your company?”

A Case for Action:  As I mentioned in my previous blog, companies are doing everything they can to squeeze more revenue out of fewer employees as they seek to bolster their bottom lines. In fact, since 2007 revenue per employee for those companies in the S&P 500 has increased 11.4%. The irony is that better overall productivity for the company has resulted in an ever growing population of over extended, multi-tasking individual employees who are delivering sub-optimal performance at work.

Recent studies have documented that the average employee:

…switches tasks every three minutes

…is interrupted every two minutes, and has a

…maximum focus stretch of 12 minutes.

Rather than making things better, this multi-tasking behavior actually makes things worse. Another study showed that when a person switches away from their primary task to do something else, they increase the time it takes to do the original task by 25%.

The biggest challenge for companies today is to think about their employees the same way they think about their customers. What do you need to do to engage them? What do they need so they can get better faster?  What is the lifetime value of an employee who is fully engaged and able to deliver optimal performance every day.

Re-engaging With Your Employees:  Rather than treating employees as costs, why not treat them assets who when fully developed and equipped can deliver ever increasing value to the company and its key customers and constituents? In today’s post-digital enterprise, the old vertically integrated, hierarchical organizational structures have given way to horizontally structured business networks. These new networks require increased demand for communication, coordination and collaboration among peers both internally across the enterprise and externally with customers, supply chain partners and other key constituents. To carry out these new roles employees need new tools and metrics to:

  • Better equip them with the latest cloud, mobile and social media tools at work
  • Better access to real time data analytics to help them learn faster than the competition
  • Training and development programs that are focused on creating sustainable customer relationships not just efficiently handling customer transactions
  • Measured by new metrics that more accurately reflect the increasing value they bring to the organization
  • Compensated for delivering both short term results and increasing the company’s long term power to grow

Take Action: In order to re-engage with your employees and enable them to deliver optimal performance at work every day, the following action steps should be taken:

1.     Validate and document the increased demand for communication, coordination and collaboration among peers both internally across the enterprise and externally with customers, supply chain partners and other key constituents.

2.     Identify the company’s key moments of customer engagement and who represents the company at that engagement.

3.     Determine what training and development investments should be made to fully prepare the employee for those key moments of engagement.

4.     Determine what social media and technology tools an employee needs to be equipped with in order to create a successful moment of engagement.

5.     Develop a set of metrics that measure the lifetime value of an employee who is fully engaged and able to deliver optimal performance every day.

6.     Develop an employee net promoter score that lets you know how many of your employees would be likely to recommend to their friends and peers that that come to work at your company.

All things being equal, there is a much better chance for your company to realize the lifetime value of a core customer if your employees are recognized as critical assets to delivering that value and equipped with the necessary tools and resources to do so. If you can do that, then you will be as good at engaging your employees as you are at engaging your customers.

What Would Enable You to Deliver Optimal Performance at Work?

/1 Comment/in , /by

Talk to anyone working today, be it in a startup or a well-established Fortune 500 company, and they will tell you the same thing – “I’m working so hard but there aren’t enough hours in the day for me to do my job.” It’s not just that they are spending more hours working, but it’s also that they are trying to do two, three or four things at once. Simply put, American workers have lost all control over setting reasonable boundaries for how they spend their time and energy. Most agree that they are not delivering optimal performance at work, nor do they take the time to stop and rethink their priorities and work structure.

Recent studies have documented that the average employee switches tasks every three minutes, is interrupted every two minutes and has a maximum focus stretch of 12 minutes. Rather than making things better, this multi-tasking behavior actually makes things worse. Another study showed that when a person switches away from their primary task to do something else, they increase the time it takes to do the original task by 25%.

So why are so many people engaged in such unproductive behavior? Because they think it’s expected of them even though they know this behavior results in sub-optimal performance. Here are some recent quotes from employees interviewed by The New York Times:

  •  “I have new responsibilities that demand creative and strategic thought, but I’m not getting to them.”
  • “I have too many meetings to attend and I can’t get any real work done.”
  • “I have too many e-mails, and given day-to-day urgencies, the backlog keeps growing.”
  • “I feel like I’m not giving the right amount of attention to what’s most important.”

Companies, for their part, are doing everything they can to squeeze more revenue out of fewer employees as they seek to bolster their bottom lines. In fact, since 2007 revenue per employee for those companies in the S&P 500 has increased 11.4%. The irony is that better overall productivity for the company may not translate to increased productivity for the individual worker.

“Think Weeks” a la Gates

So what can be done to help individuals from CEO’s to mid-level managers to front line workers regain some measure of control over what they do and how they do it? For CEO’s and other C-Level executives, they may want to try a steal a page from Bill Gates old playbook. When Bill was CEO of Microsoft, he would schedule periodic “think weeks” where he would literally go off to his cabin in the woods for a week and do nothing but read and think about the big changes that could impact Microsoft’s future success. It was on one of these think weeks that he finally came to the conclusion that Microsoft’s closed architecture business model was no match for the emerging open architecture model of the Internet. As such, he helped engineer a major corporate pivot for the company.

Try “Block Days”

I have worked with C-Level executives and other senior leaders to create “block days” which are full calendar days where the individual comes into the office but has nothing scheduled on their calendar for that day. How they have used these days has varied, but for the most part it gave them large chunks of uninterrupted time to think about major issues and events that had the potential to fundamentally change the desired outcomes for their organization or business unit.

Core & Context Assessment

Another tool I have found to be very effective is to ask the individual to go through his or her calendar for the preceding month and put everything they did into one of two columns. Column one was Core Activities that is any activity that directly contributes to improving the business growth and financial performance of the company. Column two is Context Activities which are all the other things that have to get done that do not directly contribute to improving the revenue and profits of the company. We then added up the time in each respective column that gave the individual their core & context ratio. Much to their chagrin, most individuals saw first-hand that 75% – 80% of their time was spent on context activities that had no direct impact on the performance of their company. The next step was to make significant changes in how they allocated their time in order to drive that ratio toward over 50% on core activities.

Lastly, I just recently came across a very interesting article in The Wall Street Journal entitled “Employees, Measure Yourselves”. It identified six different tools that individuals can use to track and measure how they spend their time and energy and what they can do to improve their performance at work and find a better balance on a personal level. Here is the list of six:

  • RescueTime.com: This tool automatically measures how long users spend on various websites and applications, and allows them to keep track of how they spend their time away from the computer.
  • TallyZoo.com: Users can track any type of data they choose to input, personal or work-related, and view interactive graphs to spot trends and patterns.
  • iDoneThis.com: Users track their productivity by responding to a daily e-mail that asks “what’d you get done today?”
  • Simpleology.com: This tool helps users organize, prioritize and track their activities, and offers help in dealing with distractions and information overload.
  • GravityEight.com: This tool aims to give users a comprehensive view of their lives by guiding them through the tracking of eight different variables in their life – health, finance, relationships, career, spirituality, community, learning and leisure.
  • HeartMath.com: It provides tools for monitoring heart-rate variability as part of a stress-reduction program.

So while there are lots of tools and processes an individual can access and use, at the end of the day, I think it comes down to each person finally saying “Enough is Enough — today is the day I start to set reasonable boundaries on how I am going to spend my time and energy.” Resetting those boundaries should go a long way to regaining control over how you deliver optimal performance at work and still have a life outside of work that is worth living.

~ Peter

Aligning Compensation Incentives with Next Generation Business Growth Initiatives

/0 Comments/in , /by

The old adage that people do what they get paid to do is never more true than in today’s business world. Most incentive compensation programs at major corporations are designed to support the current year’s performance objectives from the company’s established lines of business, which makes perfect sense over all, but which creates problems for leaders of next generation business growth initiatives that are not designed to pay off in the current year.

When the new business growth initiative is still in its R&D stage, most companies believe that MBOs are an acceptable set of metrics, but when the initiative gets into a go-to-market stage even though its revenues are still not able to deliver any material impact on the company’s top line, the current year’s performance metrics get applied.  The problem with this approach is that these metrics incent the wrong behaviors and, in fact, they undermine the potential of the next generation business ever making a material contribution to the company’s revenues and profits.

Overcoming Current Compensation Constraints:

Basing the majority of business unit leaders’ comp on either the company’s overall revenues or its overall earnings per share (EPS) is normally great for uniting executive behaviors but in the case of driving a new business to scale, they are actually dividers.  In order to successfully launch a next generation business, companies have to make tradeoffs in go-to-market resource allocation to drive the new business, trade offs that, at the margin, can put the current performance metrics at risk which is not easy to do. But, that is the price a company must be willing to pay in order to get a new franchise successfully on-boarded so that it can deliver material new revenue and profits.

To overcome these compensation constraints on next generation business growth initiatives, a company must give top executives the leeway to override the standard comp program metrics, specifically at the division leader level, and to introduce performance metrics that correlate with birthing a new business and driving it to scale. Next generation business growth metrics do not correlate with traditional company performance metrics like earnings per share or short term margin growth.  Instead, they correlate with rapid revenue growth driven by expedited customer adoption, accelerated shortening of sales cycles, and at the appropriate time, rapid and effective integration of one or more acquisitions.  Since these types of metrics are not part of any standard EPS system, the company must use the MBO framework as a flexible vehicle for framing “proxy metrics” that incent the right behaviors and outcomes.

New Compensation Incentives:

In fact, a company with a total commitment to delivering a successful next generation business growth initiative must actually advocate and put in place compensation incentives that would comp all executives from the CEO on down on the success of any new business achieving its materiality metrics during the compensation period.  The reason is that it takes a bit of sacrifice from everyone to achieve “escape velocity” on these efforts.

A compelling example for new compensation incentives:

A very compelling example of the benefits of aligning your compensation incentives with your next generation business growth initiatives can be seen by comparing the actions of Apple and Microsoft over the last decade. From 2000 to 2004 both companies were primarily engaged in supporting their established businesses – for Apple it was the hardware and software to support the Macintosh Computer and for Microsoft it was the software to support Windows and Office.

In mid-decade, Apple broke ranks and launched a whole new next generation business in music with the release of the iPod. That was followed later in the decade by the launch of a second next generation business in mobile phones with the release of the iPhone. As the decade was coming to an end, Apple launched yet a third next generation business in tablets with the release of the iPad. While all this was going on, Microsoft continued to pour the majority of its resources into its existing Windows and Office businesses. During that time the primary compensation incentive for Microsoft business leaders was to keep delivering good quarterly earnings from their current businesses which they did very well. By contrast, the primary compensation incentive for Apple business unit leaders was to make whatever tradeoffs they needed to successfully launch three next generation businesses.

As the chart above illustrates, Apple’s approach was linear in that it launched each next generation business sequentially and not until the prior business had established materiality. It prioritized the new business ruthlessly over the incumbent businesses never allowing fears that the new business would cannibalize the established businesses. Microsoft by contrast was unable to escape the massive internal resistance to resourcing next generation businesses from its two established business franchises that were delivering the majority of the company’s short-term revenue and profits. The market has rewarded Apple’s approach by pushing its stock price up 1500% in the last 8 years while Microsoft’s stock has remained essentially flat over the same time period.

In order to escape the pull of the forces toward short-term performance, a company must free its senior leadership team to disengage next generation business growth initiatives from the current year’s performance and compensation metrics. It may not be easy to break these old habits but as the Apple versus Microsoft example shows if you can do it the rewards are extraordinary.

~ Peter

Power Generates Performance but Performance Consumes Power

/0 Comments/in , /by

In 1997, when Amazon went public, its CEO, Jeff Bezos issued a manifesto – “It’s all about the long term.” Over the ensuing 14 years, Mr. Bezos has not only honored that manifesto he has become a leading practitioner of making investments in long term growth over decisions that favor short term earnings performance. The results speak for themselves with the company’s stock soaring 12,200 percent since its IPO.

By contrast, look at Kodak who has acted like a financial contortionist trying to find and deploy multiple short term gimmicks to keep a failed business model alive quarter after quarter and has finally had to throw in the towel. During that period of time, they missed numerous opportunities to capitalize on business growth innovations including the social networking potential of online photos. By staying exclusively focused on the short term, Kodak is in the process of systematically liquidating its entire business franchise.

What Amazon understood and Kodak didn’t is that power generates performance but performance consumes power. As such, when any company makes decisions that favor short term earnings performance they eventually liquidate their long term power to grow. There are two extremely strong forces within well-established successful companies that tilt the decision making scales toward the short term. The first is the company’s annual planning process which favors resource allocations to legacy businesses over new businesses. The second is the company’s incentive compensation plan which holds senior leadership teams accountable for delivering short term performance but not for making long term investments that increase the company’s power to grow.

Another good example of contrasting approaches to investing in the long term versus the short term is to look at Apple and Microsoft. From 2000 to 2004 both companies were primarily engaged in supporting their core businesses – for Apple it was the hardware and software to support the Macintosh Computer and for Microsoft it was the software to support Windows and Office. In mid-decade, Apple broke ranks and launched a whole new next generation business in music with the release of the iPod. That was followed later in the decade by the launch of a second next generation business in mobile phones with the release of the iPhone. As the decade was coming to an end, Apple launched yet a third next generation business in tablets with the release of the iPad. While all this was going on, Microsoft continued to pour the majority of its resources into its existing Windows and Office businesses. As the chart below dramatically illustrates, the market rewarded investments in long term growth from next generation businesses over short term performance from established businesses.

Can You Curate Innovation in Large Well-Established Companies?

/0 Comments/in , /by

This guest blog is by Karen Lippe who is a consulting partner with Wild Oak Enterprises.  As a veteran marketing technologist, Karen shares her view of the challenges of innovation within the corporate structure. ~ Peter

Innovation.  For companies, especially those in tech, innovation defines a company.  Throughout my years working in Silicon Valley, large companies seeking to become more innovative typically approach innovation creation using two distinct paths:  innovation from inside (aka creating a skunk works-like division) and innovation outside (aka creating an autonomous subsidiary).  Even with the brightest visionary creators, the smartest engineers, the savviest marketers and deep purse strings to support the corporate endeavor, the commercial results are marginal at best or the product is killed off before it goes to market.  This begs the question:  why haven’t more companies (I mean a lot more) been more successful with their investment of innovative products?

The answer is two-fold:  first, they did not define what success was to begin with (if at all), and second, they used the wrong measurements to define the progress of the product or solution.

Defining success.  Even with the best intentions, companies view innovation as a means to create a viable product or solution that would [you pick one:  redirect … reinvent … boost … even save] the mother ship and create a more profitable path.  Innovation is not a savior.  Innovation is the opportunity to leverage the companies own DNA; assess its strengths and weaknesses; view innovative ideas with a new lens (preferably not rose colored); and if good timing is on your side, disrupt the entire market.

A former colleague, Geoffrey Moore, touches upon the idea of success and innovation in his new book, Escape Velocity.  He lays out a smart systematic approach called the “The Hierarchy of Powers” that challenges organizations to look at the whole company from a success vector.  As he drills down, he shares tools and models that set the stage for large companies to be innovation friendly and carve a path that will ultimately garner greater profits.

How do you measure the progress of an innovative product?  Unfortunately new innovation typically dies before it comes to market.  Whether using the inside or outside path mentioned earlier, companies with good intentions embrace an idea and run forward.  To curate innovation from within a corporate environment a tipping point approach is recommended.  Moore discusses tipping point execution as a means toward success.  Simply described, step one  establishes  a model with set project indicators and metrics to measure progress, and step two, creates a milestone-based plan that is formulated working backwards from the desired end result.   If a tipping point approach is not considered, innovators typically enter a vicious cycle of reselling the idea to senior management whereas the effort becomes defocused then dies.  In addition, the tipping point methodology is quite versatile and can be applied to products entering markets where social media increasingly plays an influential role — tapping into peer communities.  Peer group influence can push products in or out of favor and move the “why to buy” to the “I have to buy” tipping point.

To harvest ideas into successful and commercially viable products is always the challenge and undeniable hard work.  If innovation remains the brass ring (what you grab) in technology companies then attaining innovation success is the Holy Grail (the ultimate quest).