How to reduce risk and boost innova2on What organisa2ons should do to cope in this unprecedented 2me of change HR Factory Conference Davide Sola, Ph.D. Professor of Strategy and Management This material is solely for the internal use of ESCP EUROPE. No part of it may be circulated, quoted, or reproduced for distribution outside the school without prior written approval from ESCP EUROPE . Copyright © ESCP EUROPE 2010 In the last 10 years Global developments have impacted our lives in many ways … Things that have worked ! Improved Life Expectancy More of us can eat Facebook and Twitter have re-defined social media interactions Apple & Samsung have made smartphones a feature of our lives Things that have failed ! MySpace and Orkut lost the plot ! Economies have been going down Nokia lost its dominant market position in no time CDs (Compact Discs) are now all but obsolete Innovations like mobile apps have changed the way we live 2 … And going forward many more changes will come about: Vision 2020 The New Global Economic Order The New Labour Market The Changing World From To From • Steadily shortening working life • Retirement disappears • 1997 crash puts Asia on back burner • Baby Boomers dominate workforce • New generation of old Workers • Emergence of lowcost economies • Three generations in the workforce To • China and India emerge as massive economies • Offshoring takes off, whole economy affected People, Flexibility Creativity The Changing Workplace From To • Focus on asset utilisation and balance sheet management • Workplace flexibility driven by structural reform • Industrial, rule-driven logic dominates • Focus on human optimisation • Workplace flexibility becomes key to attracting and retaining staff • People and creativity logic emerges The Expert Steward The Changing Mindset From To • Obsession with shareholder value • Serving all stakeholders • 'Cult' of the CEO • 'Cult' of the top team • Generalists dominate • Experts dominate • Dramatic remuneration increases • Managing substantial personal wealth 3 In such a context, ﬁrm are s2ll bound by the necessity of achieving Compe22ve Advantage and maintaining it for as long as possible … * CA = Compe,,ve Advantage ** CAP = Compe,,ve Advantage Period 4 There are two fundamental ways of renewing Compe22ve Advantage … 1. Con2nuos Improvement Renew Compe22ve Advantage Making improvements wherever possible such as opening up new distribu,on channels, launching new products or ﬁnding more eﬃcient ways of working Eg: Toyota How transforma2on impacts CAP 2. Transforma2on An innova,ve product / service that transforms the en,re organiza,on Eg : Apple with iPhone How con2nuous improvement impacts CAP 5 HR is a key enhancer in terms of ability to achieve CA, although oNen it is NOT seen as key strategic lever (1/3) Example 1 : Launch of a new product/service Key Strategic Levers Background •  The company has developed a new product / service •  It wants to launch it in the market and get trac,on ASAP Train Sales People What does it need to do ? Create right incen,ve for the sales people Who does it ? Recruit new resources People development 6 HR is a key enhancer in terms of ability to achieve CA, although oNen it is NOT seen as key strategic lever (2/3) Example 2 : Introducing a new IT applica2on Key Strategic Levers Background •  •  The company has just acquired a new IT applica,on form a major vendor The applica,on is ready to be rolled out Re-‐organize processes What does it need to do ? Who does it ? Training People to use it Provide ongoing support Introduce feedback loop for improvements 7 HR is a key enhancer in terms of ability to achieve CA, although oNen it is NOT seen as key strategic lever (3/3) Example 3 : Entering a new market/geography Key Strategic Levers Background •  The company has decided to enter a new market asap Recruit local resources What does it need to do ? Training new resource and align to culture Who does it ? Create right incen,ves 8 Strategic ini2a2ves being internal or external have to deal with an unprecedented level of uncertainty, which is oNen overlooked or worse misunderstood … •  One big bias is that we believe that Uncertainty is a linear func,on ! •  Instead Uncertainty is an exponen,al curve •  The ﬂex diﬀers according to the context 9 Rejuvena2ng Compe22ve Advantage follows a process full of “loops” and “uncertain2es” … The Strategy Roundabouts Framework Iden2fying the core challenge & se^ng goals 2 Working out the core challenge 3 4 Understanding & managing Organiza2onal Culture Reducing Uncertainty 5 Uncovering the situa2on Managing Execu2on 10 Therefore reducing uncertainty is one of the key challenges … A two-‐step approach towards reducing uncertainty Key Hypothesis to be tested Experiementa2on through lean tes2ng Tracking & Monitoring To capture real-‐world performance results and enhance our strategic ini,a,ves through experimenta,ons Experimenta,on signifcantly reduces the amount of risk associated with uncertainty before launching an ini,a,ve This can be achieved through the crea2on of MVP/ MVS iden,fy if the strategic ac,ons will deliver beneﬁts that outweigh the eﬀort involved if the strategic ini,a,ves have the poten,al to be scaled up If strategic ini,a,ve is not easily replicable by compe,tors and fully integrated into the organiza,on 11 Experimenta1on through Lean Tes1ng is a prac2cal & itera2ve approach to test your ini2a2ves •  •  •  Lean Tes2ng allows to test the hypotheses behind a poten2al strategic ini2a2ve It is a prac2cal and itera2ve approach involving very lifle 2me and resources It requires a disciplined well mannered process and a good knowledge of tools & techniques Pilo2ng •  •  •  Lean Tes2ng is NOT the same as Pilo2ng •  Pilots are usually pre-‐launch ini,a,ves Objec,ve is to prepare for full implementa,on During pilo,ng, the en,re ini,a,ve is implemented (though on a small scale) making it diﬃcult to pinpoint the exact areas of improvement Pilo,ng is typically a top-‐down process implemented to ease out the change within the organiza,on Lean Tes2ng •  •  •  •  Lean Tes,ng is a process to develop an ini,a,ve Objec,ve is to ensure that an ini,a,ve meets the criteria for value, growth and sustainability Lean-‐tes,ng is an itera,ve process that scru,nizes diﬀerent aspects of an ini,a,ve and increases the probability to iden,fy exact issues/improvement areas Lean tes,ng is an par,cipa,ve process that lets staﬀ to contribute and understand the development of new products 12 Lean Tes2ng sequencing Ac2vi2es Objec2ves I/E* I. Sta1ng your assump1ons 1.1. Sta,ng your hypotheses (must be feasible) 1.2. Tes,ng the problem hypothesis 1.3. Tes,ng the product concept I/E* II. Tes6ng the value hypothesis 2.1. Gebng ready to test (build MVP) 2.2. Selling to early adopters 2.3. Developing posi,oning I/E* III. Tes6ng the growth hypothesis 3.1. Gebng ready to test (build MVP) 3.2. Pilo,ng sales to the main stream 3.3. Selling to the main stream *I/E: Iterate the process un,l sa,sfactory results are reached, then Exit to the next phase IV. Tes6ng the Sustainability hypothesis 4.1. Maintaining the compe,,ve edge 4.2. Engaging the team 4.3. Aligning the company strategy The ﬁrst phase of Lean Tes2ng validates the assump2ons and iden2ﬁes any serious ﬂaws Ques2ons to be addressed •  What kind of problem does the ini,a,ve solve? •  Who are the people facing this problem? How aware are they of the problem? •  Are they prepared to pay for someone to solve it? •  Will the price they are prepared to pay for the solu,on be suﬃcient to cover the cost of its produc,on? Pre-‐requisites •  Explicitly state the problem that the ini,a,ve will solve •  Explicitly state all the underlying assump,ons for the ini,a,ve •  Does the solu,on address the needs of a large enough group of people? 2 key •  Will the ini,a,ve need to be changed or adapted for this enlarged outcomes group? •  How diﬃcult and how costly would it be to scale-‐up to meet increased demand? 1.  If the ini2a2ve •  What is needed for the ini,a,ve to appeal to this larger group? merits to be •  Will the price need to be changed? progressed to the •  How could we reach and engage a growing group of users? How much next phase would this cost? •  Will the increase in users be reﬂected in increasing value crea,on i.e. 2.  Iden2ﬁca2on of will the increase in outcomes outstrip the increase of the cost of poten2al ﬂaws that achieving such growth? need to be ﬁxed before progressing •  How easily can the compe,,on imitate the ini,a,ve or subs,tute it further with another product? How long would it take? •  What kind of barriers are there which will preserve the advantage? •  Are there other barriers we could create? How much would they cost? •  How will the organisa,on need to change to enable the ini,a,ve to be implemented? •  Will the organisa,on be able to cope with such changes? •  Is there something about the ini,a,ve that we can adapt in order to make it more acceptable to the people and culture of the organisa,on? What impact would this adapta,on have in terms of value crea,on? 14 Lean Tes2ng sequencing Ac2vi2es Objec2ves I/E* I. Sta6ng your assump6ons 1.1. Sta,ng your hypotheses (must be feasible) 1.2. Tes,ng the problem hypothesis 1.3. Tes,ng the product concept I/E* II. Tes1ng the value hypothesis 2.1. Gebng ready to test (build MVP) 2.2. Selling to early adopters 2.3. Developing posi,oning I/E* III. Tes6ng the growth hypothesis 3.1. Gebng ready to test (build MVP) 3.2. Pilo,ng sales to the main stream 3.3. Selling to the main stream *I/E: Iterate the process un,l sa,sfactory results are reached, then Exit to the next phase IV. Tes6ng the Sustainability hypothesis 4.1. Maintaining the compe,,ve edge 4.2. Engaging the team 4.3. Aligning the company strategy The second phase is about valida2ng the customer problem hypothesis Ques2ons to be addressed •  Is the problem worth solving ? •  Will someone be prepared to pay for the solu,on ? •  ….. Techniques to perform this phase How it applies to your MVP/MVS ? Smoke screen Test Fishbone analysis The smoke screen test is the simplest type of MVP/MVS. It is a descrip,on of the product or service you want to test, perhaps backed up with some marke,ng material such as a brochure or basic website. It is an ideal way of ﬁnding out if there are people with a problem or a need which your product will address and whether they are prepared to pay for the solu,on you oﬀer Fishbone analysis is a tried and tested way of iden,fying the poten,al causes of a problem. It is all the more eﬀec,ve because it is a highly visual method and can be used as the focus of a group discussion. The problem to be addressed is the “head” of the ﬁsh and the main bones radia,ng out from the spine are the categories or types of causes that could be considered in the search for what is causing the problem. It is a good way to visualise ways of checking if a problem is worth solving Smoke screen is presented to poten2al customers to test : 1.  If customers are willing to pay for the solu2on 2.  Which is the group of customers who are most keen to have access to the product/service It is a good way to visualise ways of checking if a problem is worth solving 16 Lean Tes2ng sequencing Ac2vi2es Objec2ves I/E* I. Sta6ng your assump6ons 1.1. Sta,ng your hypotheses (must be feasible) 1.2. Tes,ng the problem hypothesis 1.3. Tes,ng the product concept I/E* II. Tes6ng the value hypothesis 2.1. Gebng ready to test (build MVP) 2.2. Selling to early adopters 2.3. Developing posi,oning I/E* III. Tes1ng the growth hypothesis 3.1. Gebng ready to test (build MVP) 3.2. Pilo,ng sales to the main stream 3.3. Selling to the main stream *I/E: Iterate the process un,l sa,sfactory results are reached, then Exit to the next phase IV. Tes6ng the Sustainability hypothesis 4.1. Maintaining the compe,,ve edge 4.2. Engaging the team 4.3. Aligning the company strategy In this phase, we validate if the product / service has the poten2al to reach and add more customers Diﬀerent Engines of Growth Paid Engine Growth Growth hypothesis Based on the business model, product / service type its crucial to ensure there is a demand from a large enough customer base and that we are able to reach them with the right engine of growth. $$$ This involves paying for the acquisi,on of new customers. This can take many diﬀerent forms such as inves,ng in communica,on (e.g. adver,sing), in incen,ves (e.g. discounts or bonuses) or in new product features (e.g. diﬀerent formats, styles or colours). It is worth pursuing this strategy of growth only when the cost of growth is less than the increase in revenue Key metrics: Customer Life6me value, Cost of acquisi6on Viral Engine Growth Here the engine of growth is the customers who ﬁnd the product or service so valuable that they become ambassadors, promo,ng it to other poten,al customers. This growth engine is normally very cost eﬀec,ve, although it would be wrong to believe that it comes completely free. Olen organiza,ons need to put in place resources, tools and processes to allow such engine to operate at maximum speed Key metrics: ra6o number of new customers/number of customers S2cky Engine Growth This engine operates in parallel to, and in support of the previous ones. It works by retaining as many customers as possible and ensuring that they do not stop using the product or switch to an alterna,ve. Customer loyalty is the key, so that they “s,ck” with your product. This can be achieved through viral techniques or through investment Key metrics: Churn rate, customer Life6me value * MVP = Minimal Viable Product 18 Techniques used to select the right engine of growth A / B Tes2ng Cohort Analysis What is it ? How it applies to your MVP/MVS ? A/B Tes,ng (olen referred to as split tes,ng) is a simple experimental methodology to test which of two alterna,ve features is the more produc,ve. An example of this might be an adver,sing campaign which puts a percentage discount (e.g. 20%) in front of one group of customers and a cash discount (e.g. £5) in front of another. This approach could be used to test and compare two poten,al alterna,ve features of a MVP / MVS, helping to iden,fy the target audience’s preference. Cohort Analysis involves the study of diﬀerent parameters and ac,vi,es of a cohort (a group of people who share a common characteris,c over a certain period of ,me). For example, we can form customer cohorts based on their same joining data and perform a cohort analysis on their purchasing paperns (e.g. frequency, value, etc.) over a period of ,me. When mul,ple cohorts are tested, comparisons between them can be used to iden,fy key business parameters such as ideal introductory oﬀer, customer journey, promo,on frequency, etc We would then use the results of the A/B test to decide which features to incorporate into the product for the next version of the MVP. Cohort analysis used in conjunc2on with A/B tes2ng could help assess the eﬀec2veness of diﬀerent combina2ons of product features, communica2on messages, pricing and distribu2on channels. 19 Lean Tes2ng sequencing Ac2vi2es Objec2ves I/E* I. Sta6ng your assump6ons 1.1. Sta,ng your hypotheses (must be feasible) 1.2. Tes,ng the problem hypothesis 1.3. Tes,ng the product concept I/E* II. Tes6ng the value hypothesis 2.1. Gebng ready to test (build MVP) 2.2. Selling to early adopters 2.3. Developing posi,oning I/E* III. Tes6ng the growth hypothesis 3.1. Gebng ready to test (build MVP) 3.2. Pilo,ng sales to the main stream 3.3. Selling to the main stream *I/E: Iterate the process un,l sa,sfactory results are reached, then Exit to the next phase IV. Tes1ng the Sustainability hypothesis 4.1. Maintaining the compe,,ve edge 4.2. Engaging the team 4.3. Aligning the company strategy Sustainability is anchored on managing the roll out in a way that is acceptable by the Invisible Hand The Roll out Learning Curve in four steps •  Applying the concept of Roll out Learning Curve allows companies to understand: −  Where in the learning process the launch is −  When can the HR, sales force, marke,ng, engineering eﬀorts can be deployed Understand new-‐ini2a2ve introduc2on challenges • Learn about the challenges in launching a new oﬀering Adjust your roll-‐out strategy as you learn Ini2a2on • Once an ini,a,ve is beta-‐tested, hire a few “sales” people Transi2on Execu2on • When roll out • Once the product accelerate, add is successfully “sales force” received, bring in who focus on the tradi,onal opera,ons “salespeople” By taking ,me to climb the Rollout learning curve, companies start to generate proﬁts sooner and secure their success in the marketplace. 21 Carrying forward the tes2ng mind-‐set in the implementa2on phase (1/2) The Programme Oﬃce, oNen referred to as the PMO or Project Management Oﬃce, is a team whose task is to monitor the progress of ini2a2ves and to intervene when the outcomes diﬀer from the objec2ves. •  Typically the core team is made up of dedicated full ,me staﬀ who bring diﬀerent skills and perspec,ves and who can bring access other skills as Program and when required. Management Oﬃce Key Beneﬁts •  Normally, the PMO reports directly to the board or CEO •  The PMO plays a cri,cal role in checking, if all the ini,a,ves are rolled out •  Validated the accuracy of the assump,ons about value, growth and sustainability •  It makes sense of the learning gained from real-‐ life experience and converts it, on-‐the-‐go, into con,nuous improvement •  A PMO also facilitates the right condi,ons for open and construc,ve dialogue in the organisa,on E.G : Rexam 22 Carrying forward the tes2ng mind-‐set in the implementa2on phase (2/2) The concept of Control Tower or War Room has its origin in the command centres used in military or government contexts to centralise the oversight of a campaign. War Room •  A war room enables all the main aspects of an opera,on to be monitored and managed in real ,me. •  Like an air traﬃc control centre which monitors and directs the movement of aircral, a war room allows organisa,ons to view the current status of important ini,a,ves. In this respect, war rooms could also be described as Control Towers. Key Beneﬁts •  Provides a real-‐,me status summary of all ini,a,ves •  Typically aggregates data from various sources •  Facilitates decision-‐ making by tracking carefully chosen indicators •  Helps iden,fy any devia,on of plan progress from what was expected •  Highlights issues olen overlooked during pre-‐ launch lean tes,ng Ac2vity master plan Major Milestones Risk management Iden,ﬁed problems; implemented ﬁxes A B C Time Key employees reten,on Key customers reten,on E.G : Cellﬁsh Media 23