- IndustryWeek, 3 December 2013
Although there’s growing interest in the reshoring of business services and jobs, seven key factors continue to drive the offshoring of services.More
Fully benefiting from Connectional Intelligence requires creating and using networks to generate value.More
A Fit Transformation translates a company's strategy into the right combination of organizational strength, agility, and cost.More
It's time for pharmaceutical firms to start from scratch, with a focus on customer value.
Pharmaceutical companies in Europe have had a grim time over the past few years. Declining revenue, traumatic cost reductions, and a nagging recognition that further action will be necessary before long have demoralized staff and thinned its ranks.
The industry is finally facing up to the fact that its traditional go-to-market models in Europe are too expensive and, in any case, no longer capable of driving significant revenue growth. Since no one is really sure what should take their place, most companies have been "salami-slicing" their sales models to lower costs and play for time. But the fact is, the pharmaceutical world and its environment have changed so dramatically that the industry needs to take a step back to reexamine the fundamentals of what it is doing and why. It must go back to basics and reconstruct its go-to-market model from the bottom up, with a singular focus on creating value for its customers.
A transformation on this scale will be huge; it is a challenge that the industry has been avoiding for at least the last decade. In this paper, we discuss how pharmaceutical companies can start again and what this new world will look like. Moreover, we analyze the uncomfortable lessons to be learned and the yawning capabilities gaps that must be bridged.Close
When trust is lost, the repercussions can be catastrophic. When restored, it is a transformative means of creating competitive advantage.
Trust is becoming an endangered species in more organizations than we care to admit—companies seeking help to solve strategic and operational challenges are often unaware that they have trust issues. Yet nine times out of ten, lack of trust emerges as a driving factor of the issues in question. The reasons are obvious: business volatility and layoffs, too few workers doing too much work, failure to master technology, insufficient training, and unclear career paths, to name a few.
Once trust is lost, the repercussions can be catastrophic, and rebuilding that trust is no simple task. It means actively attempting to reengage and reinvigorate employees—recreating the magic of a startup by restoring a culture of confidence. But it is worthwhile, because better employers produce higher returns.
The paper outlines the three "diseases of trust," and discusses how rebuilding internal trust-based relationships can be accomplished by going back to basics and re-emphasizing the four principles upon which a company is founded: accountability, entrepreneurship, expertise, and cooperation.
By making employees accountable, encouraging entrepreneurship, fostering and rewarding expertise, and creating an environment where success is built upon cooperation, a company sets the foundation for high performance.Close
Shared services will play a major role in the next chapter of India's growth story.
India has become a global hub for shared services, serving many global companies in search of lower costs, more efficient processes, and business transformation. Indian companies, however, have not emphasized shared services, preferring to focus primarily on top-line growth. This is changing, however, as Indian companies see shared services as an important step in enabling growth and innovation and driving efficiency.
The classic scope of services delivered by shared services will need to change as organizations increasingly demand a shared services model, even for core activities. This trend will require new business models, stronger provider-user relationships, and transformational contracts.
There will be a number of challenges in achieving this transformation in the role of shared services in India. This will require a greater collaborative effort by customers, service providers, and the government.
Within this context, the Confederation of Indian Industry (CII) and A.T. Kearney worked together to provide a perspective on the current state of shared services in India. This paper highlights the benefits, identifies drivers for growth, and pinpoints the imperatives for key stakeholders, including shared services users, providers, and government. We hope this paper encourages a deeper discussion about the role that shared services can play in the next chapter of India's growth story.Close
Talk all you want about strategy and operational efficiency—the truth is, firms succeed because they offer something irresistible.
Companies devote a great deal of time, effort, and resources to achieve success, but the bottom line is this: The product or service offered needs to be one that people want above all others. It can be dangerous to assume you know what the customer wants. That is where capturing the voice of the customer (VOC) comes in.
Traditional VOC methods have shortcomings. For example, the information captured often includes several needs, or types of needs, which makes it difficult to compare and prioritize their importance or translate them into product specifications.
Desired outcome–based VOC adopts a different approach. It uses a framework of customer “jobs-to-be-done” and the “desired outcomes” for these jobs. Proposed by Clayton Christensen in his work on innovation at Harvard University and Anthony Ulwick in his book, "What Customers Want," on outcome-driven innovation, the method is based on the assumption that customers buy a product or service to help them accomplish a specific task. Associated with each job-to-be-done is a desired outcome, which is the customer’s ideal result of the job getting done.
The structure and consistency of the outcome-driven customer-needs framework offers four advantages over traditional VOC approaches:
- Directly identifies underlying customer-value drivers
- Ensures innovation efforts that are more focused with clear articulation of required improvements
- Makes it easier to translate customer language to engineering language
- Provides a clear, supportable connection between future marketing messages and customer-value propositions
- The right way to think about network optimization
Networks are complicated, and managing them requires an expansive strategic imagination.
The conventional way of looking at a network is through the direct-value lens: How much does it cost to run the network? Networks are a great deal more complicated than that, and managing them—or, more fittingly, optimizing them—requires an expansive strategic imagination.
No matter what kind of network one manages—hospitality, retailing, banking, leisure, telecommunications whatever it might be—once the network is built, it immediately begins its evolution. Even within a single local market, the network is evolving all the time. As the network goes through its life cycle, perspectives on sustaining it must change as well. The means for doing this are distilled in A.T. Kearney’s Network Optimization Tools, or KNOTs, comprised of eight elements, each focused on a strategic element of the network.
The English word knots translates as les nœuds in French, or nodes. This is an apt image for thinking about the symbiosis of the local and the networked—the balance of savoir-faire métier and savoir-faire local, of the collective intelligence of the network and the specific intelligence of the individual.
Think of KNOTs not as a laundry list of best practices used to build an optimal network but as electrons—each one discrete and at the same time interacting around the nucleus. A national bank develops financial products centrally, but the local branch manager manages the relationship with customers. The national bank maintains good relations with the regulators while the branch manager cultivates the good will of the town mayor. A manufacturer’s leverage with suppliers may be directly proportionate to its number of plants, yet procurement is not only about concentrated volume. It is also about expertise the manufacturer owns in a multitude of categories and brings to bear in the local nodes of its network.
A sobering counterexample is the flameout of video retailer Blockbuster, which channeled its energies into adding thousands of stores and tens of thousands of employees in North America and Western Europe only to be caught off guard by competitors such as Netflix and the rapid adoption of streaming video. In hindsight, Blockbuster’s history suggests an unbalanced emphasis on its real estate network and not enough on the customer experience. The result was catastrophic.
We organize our network nomenclature into three types: production networks, service networks, and distribution networks. La Poste, for example, is a production network in that it operates like a factory producing a product: collecting and distributing mail. Taxi companies, railroads, and airlines are other good examples of production networks. The nodes in these networks are more than just infrastructure. One must own the nodes or there is no business to manage. Closely related to the production network is the service network, typified by telecommunications and hospitality. A hotel network, for instance, cannot deliver a night’s sleep over the Internet. The consumption of its product is done at the local level even though each node in the network is supported by the expertise of the whole. The service is the network.
A distribution network is retail in all senses of the word, especially in its tailoring of products to meet the needs of local customers. Distribution networks are high touch and in certain ways are the easiest networks to think about in terms of nodes. The most familiar example, literally the most concrete, is a brick-and-mortar retail chain. Find a Wal-Mart, and its distribution center will not be very far away.Close
The secret to being the sharpest pencil in the innovation drawer is an R&D organization that thinks fast and plans ahead—from start to finish.
Today, CPG companies in particular are faced with tough competition, flat R&D budgets, and fickle consumers who crave the latest and greatest products. In this challenging market, how do leading companies stay on top?
We recently profiled 10 of the world’s largest CPG companies to evaluate their innovation mettle and determine how their R&D organizations have adapted to today’s market pressures. Our goal was simple: find out how leaders are reinventing innovation. And our focus was not on one-hit wonders but on companies that are likely to sustain innovation over time.
Our findings suggest that these companies—we call them “sustainable innovators”—apply foresight to the R&D function and avoid the pitfalls that take down even the most potent competitors. Essentially, they think of innovation as an end-to-end value chain that is focused on the future—from idea management, product development, and launch to managing the entire life cycle of every product.
Sustainable innovators share three important characteristics:
- Pursuit of breakthrough, consumer-driven innovation. A substantial boost in sales comes from breakthrough innovations that tap into unmet consumer needs and lead to either new products or significantly expanded product categories.
- An invent-and-reinvent mindset. Reviews are vital, to continually reinvent even bestselling products to insulate them from ruthless competitors and private label upstarts.
- Productivity linked to innovation. Today’s volatile world requires more innovative thinking to protect and grow market share—a “no sacred costs” approach to product evaluation to reveal changing consumer preferences, new supply sources, and formulations can improve margin performance.
- HR Executive Online, 4 June 2012 — 30 June 2012
How to ensure that the right data is being selected, tracked, reported, compared, and used to improve talent management.
Nearshore Americas, 9 April 2012
Rodrigo Slelatt of A.T. Kearney gives comprehensive update on current market drivers.More
We all know that a strong organizational culture provides a business advantage. Yet, while many try to create a high-performing culture, few succeed.
Getting corporate culture right is important, which is why organizations invest heavily in shaping their cultures and influencing the behaviors of their workforces. Determining how much value is derived from the investment is another matter. Does the money spent on developing and communicating mission statements and corporate values really change employee behavior, or are there hidden, more powerful forces at work that make this investment ineffective? And if the investment in shaping culture does bring about change, is it promoting behaviors that support performance, or inadvertently encouraging poor behaviors?
The key to developing corporate culture, particularly one that becomes a source of competitive advantage, requires gaining insight into how culture is formed; this includes the important role that employees' attitudes and perceptions play in the process. Organizations that take time to understand the process and develop a highly engaged workforce can expect to see significant performance improvements. For those that create a culture aligned with their business strategy, the rewards are greater still: a workforce acting in unison as a dedicated powerhouse, moving the organization toward meeting its strategic goals.
Insurers that best manage complexity provide products with essentially the same market value at substantially lower costs.
When the financial crisis hit three years ago, its impact on banks received the most attention as maintaining short-term liquidity required substantial government intervention. The insurance industry, by contrast, appeared to be far less affected, aside from the toxic assets on balance sheets. It is clear now, however, that the crisis has had a far greater impact on the insurance business—especially life and pension insurance—than first thought. Indeed, the unstable global economy spurred a cascade of effects that are now reshaping the industry in a number of negative ways. New capital requirements and risk management constraints are reducing financial returns; costs are rising as consumer groups demand more transparency; government austerity programs are reducing fiscal advantages; and new regulations are changing traditional distribution channels.
As these trends change the industry, insurance companies must change to address these trends. First on the agenda: Managing complexity. The insurance industry is awash in complexity, both external toward customers (above the skin) and internal in processes (below the skin).
Insurers that manage this complexity—and do it soon—will have a strategic advantage. There will be more time to focus on growth areas, build sustainable market positions, react to marketplace developments and improve the customer experience. A streamlined back office will result in sharper, more transparent products and services. Less ambiguity in organizational structure and processes means more effective risk management and less effort in complying with ever-increasing regulatory demands. And the cost savings—as much as 40 percent—will serve as a strong foundation for future growth of the business.Close
With human resources outsourcing (HRO) contracts set to expire, finding less expensive, more skilled providers could cut costs by 35 percent or more.
Resistance to change is understandable when it comes to outsourcing contracts. After spending years getting accustomed to processes, the costs of switching suppliers and the hassle of a comprehensive sourcing exercise can seem like needless trouble. So it's little surprise that in the market for HRO—in which more than $7 billion worth of contracts will expire in the next three years—most buyers are choosing to renew with existing vendors rather than go through the time and trouble to find new ones.
This could be a big mistake. For, in the current market, the upside benefits of a competitive sourcing exercise cannot be ignored. Vendors have spent the past decade improving their offshore delivery teams and bringing down their costs. Our research finds that engaging in a competitive process rather than renewing existing deals can bring up to 35 percent in savings from offshoring, strategic sourcing, continuous improvements, self-serve and automation. For companies that have not yet outsourced, the savings could reach 50 percent or more.
In short: The opportunity is too big to pass up.
The next generation of shared services organizations (SSOs) will have to be more flexible, collaborative, and technologically astute.
As shared services organizations lost much of their luster in recent years, the remedy, according to prevailing wisdom, requires incremental change to the SSO operating model. The evolving SSO will capture new labor pools, compel providers to do more with less and streamline processes. The SSO, some say, should be positioned as a standalone profit center where labor arbitrage and cost reductions are the primary products.What will tomorrow's shared services organization look like? Less business structure and more business system as collaborative coalitions join forces to focus on the same goal
We disagree. Chasing low-cost labor and outsourcing around the globe does little to contribute to new thinking or deliver long-term value. Instead, the SSO becomes a self-fulfilling structure with higher fixed costs and more overhead. It drives neither business objectives nor strategic alignment—which we believe are the primary roles of forward-thinking SSOs.
For those who argue that the SSO is well positioned to improve organizational efficiency, we agree. We simply suggest that the solutions—seeking new labor pools, reengineering end-to-end processes and eliminating non-value work—must be understood within the context of a larger business system; one that is dynamic, self-sustaining, flexible, and balances supply and demand. Each function within this adaptive business system, on its own and in concert with others, can adjust quickly to change in order to maintain competitive advantage and sustain the system's value.
In this paper, we outline three simple but powerful rules to achieve game-changing performance from your SSO:
- Rule 1: Focus on system, not structure
- Rule 2: Build collaborative coalitions of people, processes and perspectives
- Rule 3: Allow form to follow function
Procurement is not as easily outsourced as other functions. That’s because it ties directly into a company’s profit-and-loss statements.
Procurement is not as easily outsourced as other functions—that's because procurement results tie directly into the cost of goods sold (COGS) and the business's profit-and-loss statements. Companies are careful not to lose their grip on this important function. Despite a substantial growth in outsourcing in the past several years, procurement outsourcing is less than 2 percent of all outsourcing activities.
Only a handful of companies are considered experts at outsourcing procurement and, to date, most procurement outsourcing is limited to select portions of indirect spend. It is difficult to envision it expanding to all indirect spend areas across companies, let alone into direct spend. Expectations that procurement outsourcing will achieve high growth over the next several years may need to be tamped down. In fact, a few companies recently began the process of backing out of or renegotiating procurement outsourcing deals they signed just a few years ago. One large multinational retailer that considered all indirect sourcing categories to be "nonstrategic" undertook a sizeable outsourcing deal that did not result in ample benefits in several categories. Another global telecommunications company that "mixed" procurement into a broad outsourcing contract concluded that it was paying too much for average results. Both companies now recognize that their due diligence efforts during the vendor selection and contracting processes were less than adequate.
These experiences exemplify why companies planning to begin procurement outsourcing efforts, or intensify already started initiatives, should do so cautiously. There are certain characteristics that leaders in procurement outsourcing share. For example, the most successful companies in procurement outsourcing were not notably proficient in procurement before outsourcing it. Others are succeeding by starting with requests for proposals (RFPs) that are smaller in scope and more specific; encompassing a relative handful of procurement processes or sourcing categories and expanding only if these "pilot" efforts succeed. This latter approach reflects the type of caution that is warranted when outsourcing any key corporate function.Close
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