Wednesday, February 25, 2015

The Status Quo = Steady as She Sinks

There are many metaphors describing the human tendency to avoid making hard decisions.  My favorite is “steady as she sinks.”
One of my earliest bosses taught me the meaning of that catchy phrase, and the importance of provoking decisiveness. Our business unit was trying to break into a new market. We had assembled a team of diverse people, each bringing strengths without much overlap. The theory of our leader was that we needed to cover a wide front with expertise in order to detect, assess, and react to opportunities.

Our modis was to collaborate as a team to pick our battles, and then to adjust the profile of our unit to respond accordingly. But, not knowing which battles would be presented to us, we needed a generalist orientation.

In many ways, we acted like a startup business, even though we were part of a much larger organization. The market we sought to penetrate was polluted with entrenched competition and a client base that tended to stay within a known community of service providers.

We had to work hard to gain recognition. Our targeted clients were comfortable with the familiar, and we were a new entrant. How could we challenge the status quo and the perceived lower-risk of doing business with the old guard?

We adopted "steady as she sinks" to provoke our clients into asking themselves whether the old guard were the right partners for the next era.

I liked the multiple interpretations the phrase conveys. To me, it challenged complacency and the tendency to take the easy or comfortable path. Like the boiling frog, just because everything around you feels familiar and stable doesn't mean that you're not losing.

We were quite successful with our strategy of provocation; our business unit grew with some impressive wins.

The adage holds true even better today.

I recently helped several companies think about new sources of growth for their very successful businesses. As leaders in defined markets, the executives couldn't help but constrain their thinking to the boundaries within which they'd always worked. They perceived that reaching beyond those limits would be too foreign, require new skills, and entail uncertain risks.

Most of these companies were faced with the fact the markets are changing at a pace that is unprecedented; the old boundaries are being blown away by new capabilities that are being conceived and implemented with great pace. They could fight to keep share in the markets that they knew well and were most comfortable, or look to redefine the boundaries and reset the game.

Making no decision is tantamount to refusing to change. Look at the increasing tendency of activist investors who are indicting the decision-making of incumbent management for inadequate aggressiveness around change.

On one recent occasion, as we weighed the merits of a bold move into an adjacent market, an executive asked, "If this is such a great idea, why hasn't anyone done this already?" 

The answer? Often times, fortune favors the bold.

Peter Allen has many years of operating experience as a top executive of rapidly-growing multi-billion dollar companies and in assessing sales and marketing effectiveness. He is now a Boston-based Managing Director at Alvarez & Marsal.

Image: born1945/Flickr

Monday, February 23, 2015

Perhaps You Haven’t Yet Escaped Y2K ...

Perhaps You Haven’t Yet Escaped Y2K...

When they were younger, my kids seemed fond of asking for a "do over" whenever they made a mistake or failed to achieve some goal. They cherished the ability to wipe the slate clear and start fresh.

You probably have the same desire in business.
Serving in various leadership roles, I commonly found myself wishing for the option to build new services from scratch, rather than wrestle with legacy encumbrances.

In 1999, I was appointed CEO of one of the world's foremost Y2K consultancies. The entire company was engineered around solving one particular problem, the millennial date change.
I leapt into the role with the belief that there were assets in that company - smart people, trusted client relationships, detailed knowledge of corporate applications and insight into complex operating environments - that would one day allow us to develop a new set of marketable services.

Sure, there might be a dip in the financial performance of the company as we re-tooled for the future ... that would be expected. Having come from a world of running complex global operations, I knew that there would be great demand for accomplished practitioners in combing the hairball of systems that most companies use to run their business.
Surely a Y2K consultancy could be relevant after the passing of that one event. Right? Those assets were to be leveraged, weren't they?

We didn’t count on the burst. Those weren't the best years to reinvent a small publicly-listed, one-trick pony. We ended up selling the firm.
Across many industries today, I sense a similar ambition for reinvention. They look to their current assets - organizations, talent, products, clients, etc. - with the hope that those can be refreshed for relevance in new economic conditions.

Almost every executive enjoys the intellectual exercise of a "greenfield" design. What would you do if you were starting your company today? Increasingly, this way of thinking is fueled by nimble competitors and even activist investors. If someone else can build a better mousetrap without the burden of existing people, processes, and business constraints, shouldn't you be able to take those same actions?
This notion reads much easier than it lives. It’s a tough ask to be able to see through the obstructions of present-day business burdens to reimagine a business that truly leverages assets in a new model. It takes hard scrutiny to recognize which of your current assets are truly valuable for the future versus being a drag on your ability to change. Blockbuster probably thought their retail footprint was an asset.

In 2000-2001, many industries rebooted. Companies failed. Others merged. Fortunes were lost. Unbridled optimism for bright and shiny new business models overtook common sense. Neither the hare nor the tortoise survived.
There's a real art in designing for the future when so much disruption and change is occurring all around us. Almost feels like a millennial date problem, doesn't it?

Peter Allen has many years of operating experience as a top executive of rapidly-growing multi-billion dollar companies and in assessing sales and marketing effectiveness. He is now a Boston-based Managing Director at Alvarez & Marsal.


Image: Mil/Flick

Tuesday, February 10, 2015

Manage Your Risks Like Uber Does


I love Uber.  The car-on-demand service has changed how I think about transportation. It’s allowed me much more flexibility in my plans, by giving me confidence that I can secure a car within minutes, from virtually any metropolitan location.

At the center of the Uber proposition is the question of risk.  I think of this in three forms:

1)    What is my risk, of NOT being able to secure transportation via Uber? So far, in my experience this risk is very low.

2)    What is Uber’s risk, of there not being enough customers using its service to cover its fixed costs? Based on their reported volumes, so far so good (with the notable blip around reputational risk from misuse of customer data!)

3)    What is the average Uber driver’s risk, of there not being enough demand for their services to pay for their cars and their time? I ask every Uber driver how the deal is working for them. Every one of them has been positive.

Do you want more risk in your life? Do you wake up each day and ask, “How can I increase my risk today?”  It’s natural for you to seek rewards in abundance, and minimize the your risks. 

Did Uber go buy a fleet of cars and hire a herd of drivers in the hope that the demand would follow? Nope. 

Uber’s business model spreads the risk. Uber doesn’t bear the burden alone. They achieve this lighter-risk mode of service in a way that makes it easy for their customers to do business with them.

Why are you bearing so much risk?

Most businesses grow slower than Uber, but take more risk. That is illogical.

For many years, common wisdom said that you must own and operate the assets that you use to serve customers. Look at the history of corporate acquisitions that were motivated by collecting scale in hopes of creating a dominant market capacity.

The world is shifting from a focus on economies of scale, to one that celebrates economies of skill.

Uber is skillful in making it easy for travelers to secure a car. They are similarly skillful in vetting their drivers as positive extensions of the Uber brand. They own the processes necessary to do this, but not many of the underlying assets.

Look at the increasing frequency of crowdsourcing for new ideas (paying for actionable outcomes, rather than for the effort to think), or the adoption of robotics/automation for business processes. These are examples of techniques that tap into intellectual assets without carrying much risk.

In the old world, R&D costs were substantial and focused on features; marketing was about promotion; sales was about closing deals; and service was about implementation and repair.

The shift of risk manifests across that lifecycle. Companies such as P&G spend considerably less today on product R&D than they did in the past, despite having a culture of product innovation. They’d rather pay for a good idea from an external source than carry the costs and risk of owning this responsibility themselves. P&G’s contribution to success comes through the brands that it manages and the promises those brands make to the consumer.

Ask yourself this: why does my business need to carry so many costs, and bear so much risk?  There must be a better way. 

Peter Allen has many years of operating experience as a top executive of rapidly-growing multi-billion dollar companies and in assessing sales and marketing effectiveness. He is now a Boston-based Managing Director at Alvarez & Marsal.


Image: afagen/Flick

Monday, December 15, 2014

Coverage Models for Marketing & Sales


“Make sales, not calls,” urged IBM’s Thomas Watson in 1933. “Calls which do not result in sales or in developing the prospect for future business are not productive and a waste of time.”
More than eighty years later, much of the effort invested today in sales and marketing remains of dubious quality. Companies tend to lack the discipline to allocate their precious resources properly. This impacts their ability to actually generate demand now and in the future.

When I look into the performance of a company, I always start with the effectiveness of the growth strategy and the associated alignment of marketing and sales resources to that strategy.
The two most common symptoms of stalled growth are:

1)    Misaligned marketing spend. The ratios of marketing people to marketing programs aren’t optimized around the ultimate goal of generating sales-ready leads. Resources are spread around with the hope that something sticks.

2)    Overly-complex coverage models. An effective coverage model needs to be deliberate about who should be hunting and where. Roles, compensation, and decision rights all need to be aligned to the overarching coverage strategy.

You would think that the allocation and measured returns on both marketing spend and sales coverage would garner some pretty significant focus and attention; in many cases, you’d be wrong.
It’s simply not sufficient to hire talented sales and marketing talent. Companies also must restructure their coverage model, which means defining and synchronizing sales roles differently. For example, you need to make explicit decisions around organizational roles, measures of performance, compensation structures, decision processes, and relative priorities.

Few metrics, few results
One of the more common situations I encounter is benign neglect of the measurement and refinement processes for these investments.  Account managers often get comfortable serving their customers. Hunters searching for new clients can tend to wander off the strategic roadmap and chase opportunities that are really not part of the plan.

Sadly, sometimes success can mask these problems.  A few years ago, a company was celebrating great sales performance, only to learn that the hunters were deviating from the prescribed playbook of offerings, and signing contracts for solutions that lacked conformance to the strategy. As a result, the quality of service delivered varied greatly and the profitability of the business suffered greatly.  Sales reps were paid for closing business that was, ultimately, deemed of bad quality.
At one firm, the preponderance of spend on account managers went to people who overtly denied that they were part of the sales community. In fact, these people tended to see themselves as protecting their clients from the sales activities of their own company.  Cross-selling services stalled because the gate-guards didn’t understand the nature of adjacent offerings. 

In the past, when companies had a series of individual product lines, their sales model could thrive as long as they had the right account coverage with a crisp pitch on features and functionality. Today, what’s required is assembling the right team of experts with relevant solution knowledge at the right time in the sales cycle. This means that coverage is a team sport, with great collaboration among the participants.
Remember that the marketing organization is part of the coverage team.  Resources spent on marketing programs need to be geared specifically around enabling sales. It is curious to me how often companies lack a closed-loop measurement process for marketing spend. In this age of measuring everything, you’d think that the marketing profession would embrace the opportunity to show return for their expertise.  Too often, I find that there is ignorance on the return for marketing expense.

Frame all of this by the fact that enterprise buyers are more sophisticated than ever before.  They are equipped with a plethora of new tools and resources to do their homework in advance of the first direct encounter with prospective providers. Services are bought these days more often than they are sold.  Most good sales people will tell you that they are dealing with prospects that have much greater awareness today than ever before. It’s rare that a sale is closed without the client conducting five or six separate tests of the merits of the purchase – all via social channels.
Complexity in today’s sales process is unavoidable.  Yet, poorly managed complexity can erode customer confidence. The key to success is to coordinate well your specialist roles.

When I get invited to look through the performance of a company, I always start with the coverage model for both marketing and sales investments.  At many large companies, these models have become more complex and less efficient, putting pressure on profit margins and placing drag on the growth engine.  Discipline and purposeful design are key to successful coverage models.

Peter Allen has many years of operating experience as a top executive of rapidly-growing multi-billion dollar companies and in assessing sales and marketing effectiveness. He is now a Boston-based Managing Director at Alvarez & Marsal.

Image: opensourceway/Flick

Monday, December 8, 2014

Jettison Your Legacy Investment ... or Not?

When should a legacy investment be written off in order to enable a new capability?

If you’re asking this question, you are motivated by threats and/or opportunities that cause you to suspect that new options will be better than the status quo. You may be exploring ways to fundamentally change how you organize, operate, and source a business service.

Perhaps your legacy is a service provider relationship.  Perhaps it takes the form of a technology platform.  Maybe it's an organization/operating facility.  Often, it's all of the above.

I had the personal experience recently to drive the retirement of a functional CRM platform in favor of a competing alternative that conformed more directly to the principles of an “As a Service” operating model.

The CEO expected material improvement in sales effectiveness; the CFO swallowed hard. We decided to spend more as a means of achieving a step change in business performance.

In today’s complex organizations, most decisions favor the status quo: do nothing or stay the course.

The Queen is the story of England's Queen Elizabeth II as she and her family dealt with the death of the former Princess Diana on August 31, 1997, and for the next several days thereafter. It also depicts how we all tend to cling to the past and resist change when new circumstances seem to dictate that a different direction is warranted.

It is easy to condemn the inactions of the monarch. As Tony Blair states in the movie, "How do we save her from herself?" But the Queen's actions are a microcosm of the reaction of many of us when faced with events that would seem to demand a change in the status quo.

I have used this sort of criteria to help companies think through the legacy-vs-new tradeoffs:

1)    Time: Have you allowed yourself enough runway to launch the new capability, or is it already too late to change your fate?  Not many of us are skilled enough reclaim time that is lost.  Non-linear thinking about how to effect change is often required.

2)    Competitive Upside: Is there a material advantage earned over your current market position as a result of this change? I point to the HR Outsourcing market and the litany of failed technology deployments that almost submarined this segment. Today, many of the HRO providers jettisoned their proprietary platforms in favor of viable commercial alternatives; these providers are tending to be the winners.  Corollary: are you certain that you know who you’re competing against?

3)    Financial Dustbin: Do you know where you can park the financial overhang of yesterday’s decisions, and is that container able to hold the residue long enough? It’s a tough decision to swallow, and one that needs to be shared among many, but it’s necessary. For example, can you use balance sheet actions or staff redundancies to cover the costs? 

4)    Fit for Purpose: The allure of a shiny new capability can sometimes obscure the tangential and related implications of factors such as trading partners, skilled staff, regulatory reporting, channels to market, and the like.  Have you worked through the details on all aspects of what the “new world” operations will entail?

5)    Transition to Win: At the risk of generalizing, I believe that such moves from “old” to “new” are best affected quickly. Tendencies to implement in phases, run operations in parallel, and minimize risk … often carry greater costs, stretch the skill base, and erode the perceived commitment.  Are you adequately loosening the constraints to innovation that often strangle such challenges to the status quo?

So, whether the desire is motivated by a fear of losing or the opportunity to dominate … making a decision to retire a legacy way of doing business in favor of a disruptive new approach is a big bet. These bets are being made more often now than at almost any time in our history. Executives are less interested in “how we got here” than they are in “how we will reinvent ourselves to win in the economy ahead.”

Peter Allen is a Boston-based Managing Director at Alvarez & Marsal.

Image: Bev Goodwin/Flickr

Wednesday, December 3, 2014

3 Dirty Words You Should No Longer Use About Outsourcing

Outsourcing and Shared Services operations are shifting towards “As-a-Service” models of delivery. As this happens, three words have become inappropriate, although they previously enjoyed proud status in the vernacular of the industry:

1)     Labor – the industry formerly prided itself on the ability to hire, train, deploy, and develop vast armies of practitioners, but the “human capital” component of the services proposition is fading fast.  Sure, there remains a need for smart and committed people behind the curtains of the industry, but the metrics of value no longer pivot around headcount, “fresher” hires, retention rates, and the like. 

2)     Transactional – this term commonly referred to the processing of standardized, volume-based units of work.  Today, it connotes lower-order, analytic-light, rote tasks. Industry players today focus on continuously learning from the processing of work, and improving as a result of self-monitored, self-measured analytics.

3)     Legacy – a particular favorite of mine, this term framed the scope of many outsourcing arrangements: the provider maintained the legacy environment in a more cost-effective manner.  Today, legacies are being retired in favor of more contemporary alternatives. Companies are expressing their spend in terms of “legacy maintenance” versus “operational transformation”… and holding themselves to challenges of rapid reduction in the legacy side of the ledger.

I believe it was Phil Fersht, President and CEO of HfS Research, who brought up these terms at a recent conference his firm organizes, HfS Blueprint Sessions. This is a fascinating event that brings together enterprise buy-side operations leaders with prominent thinkers and operators from the service provider and advisory world.

During the event, I tried to count the number of times the word “automation” was used, but quickly got overwhelmed. You would have thought this was a manufacturing robotics event, not a conference around the use of third-party service models for back-office support. 

The outsourcing industry and its cousin, the Shared Services industry, are embracing automation and robotics as an alternative to labor-based solutions. The service models of the future include a high degree of intelligence and embedded data-driven analytics.

Gone are the days of impressing the market on the basis of numbers of employees and the ability to mobilize those armies. Similarly, gone is the celebration of repetitive tasks defined through how things worked in yesteryear. More than ever, technology’s role in reinventing business processes, and continuous monitoring/improvement, is profound and this will become the standard by which the players will be measured. You aren’t a winner unless you are enabling the “new world” of business operations, and cleaning up your language.
Peter Allen is a Boston-based Managing Director at Alvarez & Marsal.

Wednesday, October 15, 2014

Stabilizing the Power Pendulum

I was privileged this week to spend a few days with several hundred practitioners in the art of commercial contracting.  The IACCM Annual Americas Forum held in Chicago drew participation from hundreds of companies around the world that are committed to innovation and improvement in contracting process, practices, and skills.

I’ve attended several of the IACCM events over the past 15 years – a testament to the commitment and persistence of the IACCM leadership, notably CEO Tim Cummins.  This year’s conference demonstrated the power of collaboration among the professionals who are committed to improving the quality of Buyer-Supplier relationships.
IACCM (International Association for Contract & Commercial Management) is a unique not-for-profit organization that is committed to improving the quality of commercial contracting.  In this day and age of changing forms of contracting, their mission is more important than ever.

I co-presented a session today focused on the techniques used buy procurement organizations and sales professionals to create new sources of value through collaboration.  Jim Bergman of IACCM joined me in this presentation.  We shared our experiences around techniques to move from transactional buying to shared risk, shared investment, and collaborative innovation. 
While collaborative buyer-supplier relationships are clearly not an everyday occurrence, we observed that certain conditions are essential if the parties share a desire to move beyond a commodity transaction.  These include:

·         Foundation of delivery on core commitments and trust
      ·         Transparency and candor
      ·         Shared risk, shared investment
      ·         Strong contractual documentation

Each of us drew upon our experiences on the buy-side and sell-side of commercial contracting.  In particular, I described the shift among enterprises from requirements-driven to offering-derived contracting.  In a world of “as a service” subscriptions, contracting strategies are increasingly informed by the availability of market-defined offerings. It was a fun session that we named “Stabilizing the Power Pendulum”.
We were followed by an enlightening example of the importance of the IACCM mission.  Dr. John Henke of Oakland University and Planning Perspectives shared the results of his research into the bottom-line contribution attributable to strong and positive supplier relationships, with emphasis on the automotive industry.  It was a compelling example of how strong supplier relationships convert to improved profitability.
It was invigorating to be among so many people who are committed to creating value for their firms through techniques of progressive contracting in a changing world.