Canadian firms are profoundly influenced by the Canadian capital markets' narrow definition of what constitutes 'risky behavior,' and the unfortunate result, says the author, is a dearth of globally-competitive Canadian companies. It is exceedingly unhelpful to Canadian firms for the capital markets to fixate on the risks of globalizing while largely ignoring the risks of staying at home, he says. In doing so, they avoid the consequences of failed efforts to globalize, while at the same time eliminating much of the upside that they could also enjoy through the successful globalization of Canadian firms. In discouraging such globalization, the capital markets are inadvertently threatening Canada's long-term prosperity in an increasingly-interconnected world.
In this interview, the director of Wharton's Center for Risk and Decision Sciences explains why the private sector must take a leadership role in assuring a safer environment, and how our increasing interconnectedness breeds risk. The interview touches on 'extreme-event preparedness' and how security will soon become a marketing argument. The time has come to get creative, says Kerjan, and a first step is to acknowledge that the challenges of large-scale risks have become vital strategy and policy issues for major stakeholders - firms, governments, non-governmental organizations and the media. The key, he says, might lie in the ability to imagine and act more collaboratively, as the 9/11 Commission report made very clear.
When it comes time to generating business growth by bringing new products and services into the world, the stakes are high, and risk is everywhere. Risk, in the traditional business sense, is an assessment of the downside that might result from taking a particular action. If the perceived level of risk is too high, people working within a business-as-usual paradigm look for a less-risky alternative, or even forego action altogether. This negative definition of risk simply doesn't exist in the lexicon of most designers. The authors, from leading design firm IDEO, show that for designers, risk isn't a measure of 'the downside', but instead, it is a measure of upside and opportunity. If the risk isn't great enough, they might well ask themselves, "why bother?" The authors provide seven initial steps that managers can take to embrace the designer's approach to risk.
Nobel Laureate Herbert Simon introduced the concept of 'bounded rationality' as "a behavioral model in which human rationality is very much bounded by the situation and by human computational powers. In this article, the authors propose that awareness can also be bounded, and that this occurs when people fail to see, seek, use or share highly relevant and readily-perceivable information during the decision-making process. They describe three types of bounded awareness: inattentional blindness, change blindness and focalism. As the authors show, the failure to recognize these psychological limitations poses an even greater danger than the limitations themselves.
The vast majority of today's business decisions are made with incomplete information and in the face of an uncertain future. While risk can never be completely avoided, there are ways for managers to take uncertainty into account in their strategic planning. Indeed, effective decision making depends on managers clearly understanding what their firm can control and what factors are beyond its control. The systematic identification and assessment of risk, a frank discussion of risk tolerance, and the use of a variety of the techniques described here can go a long way to achieving effective strategic planning in the face of risk. The author outlines seven techniques that can be used to mitigate risk and uncertainty, including risk assessment, risk transfer and scenario analysis.
Focusing on promoting success rather than preventing failure can be a powerful tool for achieving one's goals at the bargaining table. Across two studies, the authors find that 'promotion-focused' negotiators pay greater attention to their goals than do 'prevention-focused' negotiators. Attending to goals not only leads negotiators to strive for and achieve them, and thereby accrue more advantageous distributive outcomes, but it also prevents them from simply settling for minimally-acceptable outcomes and compromises. A 'promotion regulatory focus', defined in the article, leads negotiators to discover mutually beneficial trade-offs and achieve solutions optimal for both parties.
Health insurer IFA and grocery chain ShopSense have formed an intriguing partnership, but it threatens to test customers' tolerance for sharing personal information. For years, IFA's regional manager for West Coast operations, Laura Brickman, had been championing the use of customer analytics--drawing conclusions about consumer behaviors based on patterns found in collected data. She came away from a meeting with the grocer's analytics chief, Steve Worthington, convinced that ShopSense's customer loyalty card data could be meaningful. In a pilot test, Laura bought ten years' worth of data from the grocer and found some compelling correlations between purchases of unhealthy products and medical claims. Now she has to sell her company's senior team on buying more information. Her bosses have some concerns, however. If IFA came up with proprietary health findings, would the company have to share what it learned? Meanwhile, Steve is busy trying to work out details of the sale with executives at ShopSense. Many have expressed support, but COO Alan Atkins isn't so sure: If customers found out that the store was selling their data, they might stop using their cards, and the company would lose access to vital information. Though CEO Donna Greer agrees, she knows that if things go well, it could mean easy money. How can the two companies use the customer data responsibly? Commenting on this fictional case study in R0705A and R0705Z are George L. Jones, the CEO of Borders Group; Katherine N. Lemon, an associate professor of marketing at Boston College; David Norton, the senior vice president of relationship marketing for Harrah's Entertainment; and Michael B. McCallister, the president and CEO of Humana.
Back in 1998, Marks & Spencer (M&S) was the first British retailer to reach a profit of 1 billion pounds. Just a few years later, profits were down to 145 million pounds, and the company's share price stood at two-thirds of its previous high. The problem, says CEO Stuart Rose, was that M&S lost sight of what had made it great for more than a century. In this first-person account, Rose explains that he was hired in the spring of 2004 to turn the company around--just in time to stave off retail investor Philip Green's hostile takeover attempt. He spent his first six weeks convincing reporters, analysts, and investors that he was the one to lead Marks & Spencer back to prosperity. Then, after Green withdrew his bid, Rose put his plans for M&S to work. He knew that three things needed to be done right away: improve the product, improve the stores, and improve the service. One of his first and most important changes was to tighten the reins on inventory. When Rose arrived at M&S, assistant buyers were spending more than 300 million pounds of the company's money without oversight. Management now gets weekly inventory updates. With a keen eye on fundamentals like stock control, Rose has tried to return Marks & Spencer to the levels of profitability it achieved before its sharp decline. Although there is more to do, the company is back on track. In November 2006, M&S posted half-year profits of 405.1 million pounds--up 32.2% from the previous fiscal year. Rose attributes the turnaround almost entirely to a renewed focus on core values. Now, with signs of health in the business, he is thinking about where to take it over the next four or five years, so M&S doesn't get stuck as the largest of the small retailers and the smallest of the large retailers in the United Kingdom.
Almost 50% of the largest American firms will have a new CEO within the next four years; your company could very well be next. Senior executives know that a CEO transition means they're in for a round of firings, organizational reshuffles, and other unwelcome career changes. When your career suddenly depends on the views of a person you may not know, how worried should you be? According to the authors--very. They investigated the 2002-2004 CEO turnover rates of the top 1,000 U.S. companies and interviewed more than a dozen CEOs, each of whom had taken over at least one very large organization. Their study reveals that when a new CEO takes charge, remaining top managers are more likely than not to be shown the door. Those who leave often land in a lower position at a new company, work in a much smaller firm, or retire altogether. The news is not all grim, however. The interviewees offer some pointers on how to create a good impression and maximize your chances of survival and success under the new regime. Some of that advice may surprise you. One CEO pointed out, for instance, that "managers do not realize how much the CEO is looking for teammates on day one. I am amazed at how few people come through the door and say, 'I want to help. I may not be perfect, but I buy into your vision.'" Other recommendations are more intuitive, such as learning the new CEO's working style, understanding his or her agenda, and helping him or her look good in the new position by achieving positive operating results--and soon. Along with the inevitable stresses, the authors point out, CEO transitions can provide opportunities. Whether you reinvigorate your career within your company or find fulfillment elsewhere, the key lies in deciding what you want to do--and then doing it right.
Anyone in management knows that employees have their good days and their bad days--and that, for the most part, the reasons for their ups and downs are unknown. Most managers simply shrug their shoulders at this fact of work life. But does it matter, in terms of performance, if people have more good days than bad days? Teresa Amabile and Steven Kramer's new stream of research, based on more than 12,000 diary entries logged by knowledge workers over three years, reveals the dramatic impact of employees' inner work lives--their perceptions, emotions, and motivation levels--on several dimensions of performance. People perform better when their workday experiences include more positive emotions, stronger intrinsic motivation (passion for the work), and more favorable perceptions of their work, their team, their leaders, and their organization. What the authors also found was that managers' behavior dramatically affects the tenor of employees' inner work lives. So what makes a difference to inner work life? When the authors compared the study participants' best days to their worst days, they found that the single most important differentiator was their sense of being able to make progress in their work. The authors also observed interpersonal events working in tandem with progress events. Praise without real work progress, or at least solid efforts toward progress, had little positive impact on people's inner work lives and could even arouse cynicism. On the other hand, good work progress without any recognition--or, worse, with criticism about trivial issues--could engender anger and sadness. Far and away, the best boosts to inner work life were episodes in which people knew they had done good work and their managers appropriately recognized that work.
How can companies break into attractive markets, where incumbents erect many barriers to entry? To answer this question, the authors studied organizations that successfully entered the most profitable industries in the United States between 1990 and 2000. When they dissected the strategies that worked best, one common theme stood out: indirect assault. Smart newcomers don't duplicate existing business models, compete for crowded distribution channels, or go after mainstream customers right away. Instead, they attack the enemy at its weakest points; then gain competitive advantage; and later, if doing so meets their objectives, go after its strongholds. Recent battles in the soft drink industry--where brands, bottling and distribution capabilities, and shelf space are incumbents' main advantages--are a case in point. When Virgin Drinks entered the U.S. cola market in 1998, it advertised heavily and immediately tried to get into the retail outlets that stock the leading brands. Virgin has never garnered more than a 1% share of the market. Red Bull, by contrast, came on the scene in 1997 with a niche product: a carbonated energy drink. The company started by selling the drink at bars and nightclubs. After gaining a loyal following through these outlets, Red Bull elbowed its way into the corner store. In 2005 it enjoyed a 65% share of the $650 million energy drink market. Successful entrants use three basic approaches in their indirect attacks. They leverage their existing assets and resources, reconfigure their value chains, and create niches. These approaches may appear to be simple, but their magic lies in their combination. By mixing and matching them, Bryce and Dyer say, enterprises can defy half a century of economic logic and make money entering highly profitable industries. The authors use Skype, Costco, Skechers, and many other companies to illustrate their argument.
For many senior executives, shifting from selling products to selling solutions--packages of products and services--is a priority in today's increasingly commoditized markets. Companies, however, aren't always structured to make that shift. Knowledge and expertise often reside in silos, and many companies have trouble harnessing their resources across those boundaries in a way that customers value and are willing to pay for. Some companies--like GE Healthcare, Best Buy, and commercial real estate provider Jones Lang LaSalle (JLL)--have restructured themselves around customer needs to deliver true solutions. They did so by engaging in four sets of activities: Coordination. To deliver customer-focused solutions, three things must occur easily across boundaries: information sharing, division of labor, and decision making. Sometimes this involves replacing traditional silos with customer-focused ones, but more often it entails transcending existing boundaries. JLL has experimented with both approaches. Cooperation. Customer-centric companies, such as Cisco Systems, develop metrics for customer satisfaction and incentives that reward customer-focused cooperation. Most also shake up the power structure so that people who are closest to customers have the authority to act on their behalf. Capability. Delivering customer-focused solutions requires some employees to be generalists instead of specialists. They need experience with more than one product or service, a deep knowledge of customer needs, and the ability to traverse internal boundaries. Connection. By combining their offerings with those of a partner, companies can cut costs even as they create higher-value solutions, as Starbucks has found through its diverse partnerships. To stand out in a commoditized market, companies must understand what customers value. Ultimately, some customers may be better off purchasing products and services piecemeal.
When Francois Jacques became head of marketing at Lafarge's cement division in late 2001, old-timers told him that there were only two types of customers: those who liked golf and those who liked fishing. Welcome to the front lines of your typical cement company, a hardscrabble world peopled by grizzled salesmen whose pitches are about making friends rather than demonstrating that their products are better than the competition's. It isn't easy to establish a marketing function in a company that doesn't think it needs one. From the start, Jacques tackled the challenge on a number of fronts. First, he formed a three-person steering committee with both his strongest ally and his most vociferous foe in the executive ranks. Then he set right to work applying marketing's most basic and powerful tools--segmentation and pricing strategy--to four carefully chosen pilot projects. To make the value of those efforts quickly apparent, he measured their effectiveness with readily understood metrics. He shared the ongoing results as widely as possible by establishing regional networks of marketing and sales executives. He wove marketing into Lafarge's mainstream management processes by becoming a fixture at the company's strategic-planning, performance, and budgeting discussions. Step by step, over the next four years, Jacques and his team of first temporary, and then permanent, marketers fundamentally transformed Lafarge's commodity mind-set. Segmenting customers allowed people to see that they were selling to different groups that required different products, which in many cases could be sold for higher-than-commodity prices. Customer satisfaction surveys led them to improve supply chain execution and, ultimately, to change what they sold, so that their offerings were suited to a range of customer requirements, increasing value both for them and for the division.