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ARTICLES AND PUBLICATIONS |
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| A brief overview on how to gain advantage through strategic outsourcing, and make it work by Leonard Hook, President of Kairos Group International. |
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Strategic Outsourcing for Competitive Advantage Outsourcing, once used mainly for downsizing and cost reductions at major corporations, should be used as a strategic tool to deliver a forceful impact on corporate growth and financial stability. By outsourcing non-essential work, the corporation can free valuable resources and focus on its areas of competitive advantage. To achieve that result, the corporation must know its core competencies, the type of work within the organization, and manage the outsourcing process. For the United States, the use of outsourcing has spread from national to global. For instance, in 1993, an estimated 85% of all business outsourcing was conducted in the United States for U.S. based companies. Much of the remaining outsourcing activity was provided in Canada. But that situation has changed. Today, nearly half of all outsourcing is conducted beyond U.S. borders; however, much of the outsourcing is for North American companies with outsourcing experience on this continent. In 1996 it was estimated that American companies spent roughly $100 billion on outsourcing; the projected growth rate will take that spending to $300 billion by 2001. The statistics for corporate use of outsourcing implies substantial opportunities for future growth. A survey previously done by a recognized financial institution found that while nearly 32% of the companies studied were involved in outsourcing, 68% were not. So this suggests there is substantial opportunity for changing the state of competitiveness of these remaining companies as well as improving the competitive state of those already undertaking outsourcing by examining the future potential of the outsourcing process. Businesses that have used outsourcing
effectively have created positive results, but others who have failed can
usually portray horror stories. What are the keys to success? First, innate knowledge of the business and its types of work are essential. Before making any decisions on outsourcing it is important that the CEO and the key executives understand the business’s core competencies and what gives it the competitive differentiation. Kairos Group International has found that identifying the corporate core competencies and mapping out the work of the business are the first two essential steps in strategic outsourcing. We define core competency as the integration of technologies, constituent skills, and the collective learning that sustains the health of the enterprise and serves as a base for the creation of new businesses in the future. These competencies form units of competitive advantage. The identified competencies (usually between five to eight) create distinctiveness for the enterprise in the products and services as seen by the end-users, and provide differentiation from competition. It is a must that senior management fully understands the enterprises’ competencies before undertaking strategic outsourcing for competitive advantage. As a third step, the types of work performed in the enterprise need to be mapped out in the total process. A simplified model to identify this work may be seen as follows:
The unit
of competitive advantage work is work that should be retained within
total corporate control and often described as “in-house” work.
This is associated with the defined areas of core competency.
Usually, non-essential work and much of the necessary cost type work are
subject to outsourcing. The value-added support work often has a mix of
potential outsourced activities as well as work “chosen to be done
internally”. For outsourcing to make sense, the enterprise should be
able to get the product or service done better, faster, and less
expensive. If a vendor or partner in this endeavor cannot do it to defined
standards as well as the enterprise, the arrangement will likely fail. So, when the core
competencies have been defined and the work “mapped-out”, what is
needed to raise the probability of success? If appropriate, the
responsibilities and obligations that are expected by each the enterprise
should be listed. Also, there
should be agreement of each party’s ownership rights upon termination of
the contract. These could include intellectual property rights, patents,
software developed, or other important matters. © 1998-2003 Kairos Group International. All rights Reserved |
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| Excerpt from a presentation given by Leonard Hook, President of Kairos Group International, at an European paperboard conference in Fall 1999. | ||
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Needs and Trends in the United States, the End-User's Perspective of Paperboard Packaging The entire paperboard packaging sector is in evolution, which is destined to effect the future of paperboard manufacturing, and its use worldwide. Market forces and external trends will continuously influence decisions by end-users for packaging and packaging materials. By understanding needs and trends, businesses in the value chain can better focus on the technologies needed, and develop distinctive products, and services for the future. The end-user's perspectives were shared from a recent study to conference participants from twenty-six countries for the intent of challenging the thinking of those in the value chain to identify opportunities and threats, and take action to be successful. A full version of the manuscript is available at a modest fee by contacting Kairos Group International. © 1998-2003 Kairos Group International. All rights Reserved |
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| Article written by Leonard Hook, President of Kairos Group International, Published in inKNOWvations, by Sopheon/Teltech, September 2001 | ||
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Achieving Increased Revenue from New Products - Part I Companies, driven by the need to increase long-term shareholder value, need to re-orient their strategic direction for achieving profitable growth and competitive advantage. Senior leaders must shift their strategic thrusts away from the cost-driven only activities of the 1990s, to revenue–driven change. Growth, through the introduction of distinctive new products irresistible to the end-user, should be prioritized as a top strategic initiative. Senior management must make the product strategy integral to the overall corporate strategy, and have the personal and organizational commitment to achieve the high standards required in new product introduction as well as product leadership. Many executives seem to include new targets for revenue from new products in their corporate communications but do not understand how best to achieve them. Given that innovation and new products are critical to a long-term business growth strategy, we are offering five steps to help executives identify some of the significant organizational needs in achieving innovation and new product development effectiveness. These steps include: 1. Commitment to Change 2. Develop a Roadmap for Change 3. Define the Product Realization Process 4. Attention at the Fuzzy Front End 5. Customer Understanding In part one of our two-part series, we'll take a look at the first two critical steps toward realigning product strategy to increase revenue from innovative new products. 1) Commitment to Change: Senior management must make innovation a strategic priority and be committed to change. The new product strategy and all innovation activities must be framed within the strategic context of the business. The organizational goals and plans must be in alignment with the NPD strategy and the performance standards. But just saying the company is going to achieve a higher standard will not make it happen. There must be a clear vision for the future and specific areas of change identified within the organization that will move it to the functioning state required for new product realization. This needs to be communicated through the organization in a way that gains everyone’s commitment. Through self-examination of the company’s new
product realization process, asking a few direct questions will test the
need for change: § Is there a clear articulated new product strategy linked to the corporate strategy? § Is there a defined, consistent new product development process that is understood and actionable? § Are customer needs understood, and linked to product definitions and attributes understanding? § What percent of revenue is derived from new products? Is the company performing among the top innovators like 3M, who has a standard of 30% from products less than four years old, and 10% from products less than one year old? § What is the funnel ratio of new ideas proposed, the number through development, the number introduced to market? § What is the market success rate from new products introduced? Are levels of 78% or greater achieved? Do you know what internal capability will improve the success rate? What percent of the new products introduced in the last 18 months are breakthrough or platform types versus derivative? Are you producing the margins needed through the right portfolio mix?If you cannot answer these questions, or if current performance is much under par, then it is likely the area of new product realization needs an overhaul! 2) Develop A Roadmap for Change: It is extremely important to understand the areas of improvement focus for achieving a higher level of effectiveness in new product success. All activities related to innovation and new products should be examined as to the organization’s current state and the desired future state. By understanding both of these states, a gap analysis can be undertaken to identify the top priority areas for improvement focus. Assessing needs includes examining the new product strategy fit with corporate strategy, how new products are linked with strategy, the effectiveness of the new product development process, customer needs understanding, organizational culture and performance, to name a few. But how does leadership identify these needs and develop an implementation plan to achieve them? First, analysis of the present organization to develop a baseline is a must. This is best done through a survey of a cross sectional slice of the organization, which includes senior management as well as those responsible for operationalizing innovation activities. By developing a questionnaire that includes areas of examination, a disciplined approach can be taken to ferreting out critical issues, and strengths and weaknesses. The bottom line is that the company needs to understand the barriers and drivers to new product realization at the higher performance levels. Most companies feel it is best to get an independent external opinion on where to focus energy. Usually, a consultant should be considered who specializes in the area of new product development improvement. It is helpful to have this specialist work with an internal cross sectional team in a way that state of the art methodologies are applied and transferred. Also, this specialist will likely have knowledge of the innovation activities and cultures of several other successful companies, which would be helpful in developing a holistic and efficient approach to this work. Secondly, by benchmarking the “best in class” companies, and understanding best practices and organizational cultures of those known for consistently being innovative are good steps in developing what may be required in the future state model. A checklist of areas to be examined needs to be developed prior to this work so that an organized approach can be taken in the study The next step is to develop areas of improvement. This assessment is best done by examining best practices of innovative companies against the strengths and weaknesses seen in your own organization. Not necessarily will your enterprise want to adopt “one for one” a practice or process that works for another company; however the practices should be examined as to fit with the corporate driving force, and the organization (systems, structures, and processes), including culture. From this assessment the team can develop a roadmap for change. This would include a model for the future state, which has explicit characteristics, identification of gaps, and the changes that must occur. From there, plans and accountabilities would be mapped out to ensure progress is achieved. This roadmap then becomes an excellent vehicle for communicating the overall change and gaining commitment within the organization. In part two of this article, Hook will
discuss the remaining steps to consider in re-orienting your strategy for
innovation and new products within an organization. Achieving Increased
Revenue from New Products - Part II
Despite the acknowledged importance of innovation and new products, surveys indicate that only a small percentage of companies feel their innovation performance is where it needs to be to succeed in a globally competitive marketplace. Leaders in many of these same companies have not taken the necessary steps to understand their current innovation activities or if the activities are aligned to best practices. Last month we discussed the first steps necessary to reprioritize innovation and new products within your long-term business growth strategy. Steps one and two covered the need for change and a roadmap to implement change. In the final part of this series we'll discuss the remaining steps 3. Define the Product Realization Process 4. Attention at the Fuzzy Front End 5. Customer Understanding 3) Define the Product Realization Process Many companies that complain of not being innovative enough operate with a process, which was never designed, or was designed by a functional group without organizational commitment. When asked to explain their new product development process, what is typically found is no documented form of a process available, or a total inconsistency of what people perceived the process to be. Newer employees often take months or years to learn how the quasi process works, and those longer-term employees practice what works for them. This generates inefficiency in how work is being done as well as lack of effectiveness on the ability to deliver the type/number of new products needed to achieve the revenue standards sought. The development process used in companies can and will vary dependent upon the nature of the organization and its driving force. It is key to establish only the essential rules in a standardized process while providing sufficient freedom for innovation. The fulcrum for this balance between standardization and freedom will change based on how well the vision and values of the organization are communicated and internalized which ultimately becomes the glue of the organization. This “glue” allows for team empowerment and realization of the full potential of the organization. Many successful innovative companies use stage-gates in their new product development process. The number of gates (phases) varies dependent on the degrees of freedom, standardization desired, and the driving force of the enterprise. For instance, based on the driving force, a competitor driven process may have as few as four phases while a market driven process may have eight or more and include more process steps. The rigor of examination of a new product idea in the defined steps may also be dependent on the nature of the intended new development (e.g. breakthrough or platform type product versus derivative). Usually, the design of the overall process is best developed through a governance council with a cross-sectional make-up of the organization who can interpret best practices and the organizational requirements. To further enhance the managing of the process, software applications are available which transforms the Stage-Gate process from a paper-based one to an electronic one, which is automated. The software is customizable, and can and should be matched to the company’s existing paper-based process, mapping exactly what the process does, the stages and gates and the employees involved. A key benefit of the web-based process is access to real-time information. The knowledge sharing is captured into an automated form and connects people to the expertise necessary to complete tasks more quickly, resulting in the speed of delivering of new products and services. A level of efficiency/effectiveness is gained by having systematic and orderly processes that guide the development of an idea into a commercialized product. By having this in place through time, it allows key decisions to be understandable and actionable. The process also works as a mechanism to encourage input from all relevant groups. 4) Attention at the “Fuzzy Front End” One critical issue in most companies is the exploration of needs and wants, and what gets sorted into product development from the generation of new ideas. Since it has been proven that it costs more to make changes late in the program then in the beginning, the index of management attention and influence needs to be high in knowledge acquisition and in the early phases of the new product development process. Past surveys have indicated the opposite is usually true for those companies that do not have a consistent record of innovation. Little attention is usually made in the forefront of the process when the idea is in the conception phase, which can dramatically influence outcome at minimum costs, versus at the stage near basic design and prototyping. In this later phase and beyond, it is typically seen that 60% or more of resources have been committed, but the ability to influence outcome is significantly reduced. What are the keys to increased clarity on the fuzzy front end? First, new product development must be a manifestation of the business’s strategy. The foundation is developed by the corporate vision, its strategic driving force, core competencies, and key technologies that are owned, acquired and nurtured. Senior leaders must set the direction as to the fields of new pursuits and be involved in the front end as to key screening criteria and the specific decision points (gates) of the product development process. The ability to make more effective decisions for new product and process development projects is enhanced by understanding certain key areas and the organization’s ableness (new, current, related) in those areas that include, customer needs understanding/relationships, market understanding/trends, technology/product attributes relationships, to name a few. Alone, each mechanism would accomplish little, but every piece has a role and at the same time reinforces each other. When taken together, versus independently (as many companies often do), the mechanisms give a linked decision process. This process shares information across projects and allows for achieving integration and balance across projects. Kairos Group has identified ten strong linkages that support more effective decision-making in choosing which ideas advance into the development process. The most successful innovative companies place special emphasis on screening ideas and the gates for tracking progress and commitment. It is important that good ideas with the highest potential advance steadily and get the needed resources to make them a reality. Organizations that are able to capture, organize and access experts, expertise and processes, can assemble the right people and resources to respond more quickly and reliably to this need. 5) Customer Understanding Understanding of customer needs is usually rated the number one factor important to product success. Companies known to be successful innovators concentrate their efforts to capture the voice of the customer early in the development cycle. A new product must provide increased value to the customer at a price it is willing to pay, which is envisioned better than current product value proposition, otherwise it not likely to meet its goal. Overall, the innovation is usually a success when it combines the right mix of performance, price, functionality, and timing. For some market leaders, certain methodologies will be deployed so that they can provide unique breakthrough products that anticipate a future end-user need. This usually requires building knowledge of “know whys” and “know hows” in certain attribute areas, which are current or have trends to a future state. Often these types of companies will use a methodology such as a technology/attributes roadmap where customer needs will be anticipated and the company’s ableness to deliver a new product is built through technology development/acquisition. Good examples of these are Motorola’s cellular phone and pager technologies. There are many customer-understanding tools being used by companies. The most commonly used are lead user interviews, customer work in defining needs/solutions, product advisory boards, cross-functional customer visits, customer/supplier value chain interaction, as well as customer surveys and virtual focus groups. Summary
Innovation and product development are strategically important in meeting the needs of customers while thwarting global competition in product leadership. To achieve profitable growth through product innovation, senior management must make the product strategy integral to the overall corporate strategy. They must have the personal and organizational commitment to achieve the high standards required in new product introduction as well as product leadership. Five steps have been offered to help executives identify some of the significant organizational needs in achieving innovation and new product development effectiveness: Commitment to Change, A Roadmap for Change, 3. A Product Realization Process, Attention at the Fuzzy Front End, and Customer Understanding These steps will help enable executives to understand the barriers and accelerators in product development/innovation in their business, and put in place the changes needed for the organization’s growth strategy from new products. © 1998-2003 Kairos Group International. All rights Reserved |
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| Article written by Leonard Hook and published in the CEO Executive Report, by The Consultants Bureau, Fourth Quarter 1997; reprinted and published in Chief Executive China, 2000. | ||
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INNOVATION AND NEW PRODUCT DEVELOPMENT: A CRITICAL STRATEGIC GROWTH INITIATIVE |
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Is your business a market leader with a continuous flow of innovative products that delight customers, or is your business shrinking, along with its profitability, because your competitors are more innovative and satisfy your customer’s changing needs better than you? Innovation can be defined as the creation and introduction of change, providing a new solution that creates value for customers or improves the viability of the business. For new products, a good rule of thumb for determining if the innovation provides value-added is whether or not the end customer is willing to pay for the product, service, or feature at a price that returns a reasonable profit to the business. But why are both innovation and the continuous flow of distinctive new products to the marketplace essential for today’s business, and how can they be significantly improved? In today’s ever-changing global environment, the business' need for innovation and distinctive new products is driven by both internal and external critical forces. One critical force is changing customer needs and fragmented markets. Customers increasingly expect new products to meet their needs, including ones not yet imagined - especially from companies who have the image of being the market leader. Market leaders are expected to identify unfulfilled needs and create the products or services to meet or exceed them. These new products, with distinctive attributes, increased functionality, and/or substantial lower costs, will typically reduce the life cycles of existing products or cause their obsolesce; hence, it is important to have a pipeline of new products to generate business growth and profitability. A second critical force is technological change. New technologies and scientific knowledge have the capacity to create new products and change the fundamentals of the market. The business may develop proprietary advanced technologies internally to create this competitive edge, or develop a similar edge through technology fusion by uniquely combining technologies from other targeted worldwide companies, including competitors. These competitive technologies may provide a totally new way to meet a customer need and render an existing product obsolete. The third critical force is competitive change. Competitors are becoming more global, leveraging their core competencies, and uniting through competitive networks, whether through alliances or with organizations in the supply chain, to become world class performers. These unique, flexible arrangements change the form of competition and often provide a means to deliver distinctive products, at lower costs, with lightning speed at any corner of the globe. Given the critical forces on the business, what determines innovation, successful development and execution speed? The findings from various benchmarking studies of successful companies show there tends to be common themes that differentiate those who are most innovative. Eight common themes or patterns emerge: • Senior management’s vision and commitment • Clear new product strategy and goals • Consistent new product development and execution process • Customer focus and customer needs understanding • Innovative culture • Competitively unique core competencies and technologies • Flexible and adaptive organization • Incentive and reward systems Senior management must shape the business’s overall capacity for innovation and its ability to successfully launch new products in the marketplace with speed. One of the first steps in the change process is to conduct a diagnostic audit of the current business and product development strategy and compare the plans and results to the strategic corporate needs. Another is to compare the internal practices, processes, and culture to those of the most highly successful companies. After an analysis, specific actions can be taken to close critical gaps for achieving the desired business state, growth, and profitability. By taking a holistic approach to this strategic growth initiative, the enterprise will derive significant benefits: • Superior business performance that translates to on-going bottom line results • Market position with customer retention and growth • Organizational renewal • Motivated workforce • Leverage of critical resources leading to higher productivity • Sustained competitive advantage The bottom line is that to be healthy and profitable in this ever-changing global marketplace, the business needs to innovate or evaporate! © 1998-2003 Kairos Group International. All rights Reserved |
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| Article written by Leonard Hook , President , Kairos Group International |
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SUCCESSFUL STRATEGIC ALLIANCES - WHAT MAKES THEM WORK? |
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As the pace of global business accelerates, and customers continually become more demanding and sophisticated, companies are finding the competitive landscape dramatically changing. Markets are moving so quickly that is very difficult for one company to stay current on all technologies, resources, competencies, and information needed to attack, and be successful in those markets. Strategic alliances offer a means for companies to access new markets, expand geographic reach, obtain cutting-edge technology, and complement skills and core competencies relatively fast. Given a good framework is followed, this can usually be done far less expensively than if the company tried to develop that capability internally. That is why executives consider strategic alliances a value driver and make them integral with their growth plans However, there are severe negative aspects of alliances when not properly managed. Many studies have indicated only one in three companies characterize their strategic alliances as highly successful. What causes the others to fall short of expectations or fail altogether? This
brief article explains some characteristics that successful alliances
have that increase success. A Corporate Process for Partnering For
alliances to be successful there needs to be an organized approach and
corporate discipline. Companies need to put in place a process to
identify and prioritize opportunities as to strategic fit, identify the
best potential partners, and to construct the partnerships. Top
executives must take an active role to ensure the ventures reflect the
goals and priorities of the organization and meet the performance
standards. Good processes, metrics, and corporate oversight are
essential to make alliances successful. As part of the strategic process, a portfolio approach for alliances enhances a business’s ability to manage its overall value creation process. By managing the alliance portfolio as part of the corporate strategy, the following needs to be understood:
A Framework for Success Once targeted areas are prioritized and the potential partners see value in the strategic relationship, what are the characteristics that drive the alliance to success? Kairos Group studies have indicated the following to be significant: Mutual Commitment of Partners to Success
Organizational Compatibility of the Partners
Development/Agreement of Mutual Objectives
Managing Structure
In summary, strategic alliances can provide a powerful competitive advantage in new markets, cost, speed, knowledge, and technology access. To achieve success, there must be ownership and commitment of top executives to the process and it must be managed with discipline. Following the above framework will provide an approach to developing successful strategic alliances. © 1998-2003 Kairos Group International. All rights Reserved |
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| ©1998 Kairos Group International. All rights reserved. |
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