The journal of high-performance business 2011, Number 1 How to harness the power of social media PLUS Cloud on the horizon: Is outsourcing obsolete? Jumping the S-curve: How to sustain long-term performance Does your company have the talent to grow? Outlook Outlook Vol. XXIII 2011, No. 1 Outlook is published by Accenture. В© 2011 Accenture. All rights reserved. Editor-in-Chief David Cudaback Chairman William D. Green Managing Editor Letitia B. Burton Chief Executive Officer Pierre Nanterme Senior Editor Jacqueline H. Kessler Chief Marketing & Communications Officer Roxanne Taylor Senior Contributing Editor Paul F. Nunes Contributing Editors John Kerr Craig Mindrum Industry Editor Wendy Cooper Contributing Writers Lance Ealey David Light Assistant Editor Carolyn Shea Design & Production IridiumGroup Inc. www.accenture.com/Outlook This publication is printed on 10 percent post-consumer fiber. For more information about Accenture, please visit www.accenture.com. The views and opinions expressed in these articles are meant to stimulate thought and discussion. As each business has unique requirements and objectives, these ideas should not be viewed as professional advice with respect to your business. Accenture, its logo and High PerВformance Delivered are trademarks of Accenture. This document makes reference to trademarks that may be owned by others. The use of such trademarks herein is not an assertion of ownership of such trademarks by Accenture and is not intended to represent or imply the existence of an association between Accenture and the lawful owners of such trademarks. The Long View Pierre Nanterme Chief Executive Officer Accenture New ideas, new opportunities During my 28 years at Accenture, I have always been passionate about helping our clients use innovation to drive growth and achieve high performance. So it is both a privilege and pleasure to be CEO at a time when so many exciting new things are happening around the world. I believe that innovation transforms companies, and this has never been truer than it is today. Another article explores new ways to attract and retain the best talent—an essential source of innovation for every company—while a third piece looks at how the cloud has fundamentally redefined outsourcing relationships. Innovation is not limited to the private sector, of course; readers will also learn how it can dramatically transform the delivery of government services. Part of my job is to introduce each issue of Outlook, our journal of high-performance business. This is something I look forward to, because Outlook helps shape Accenture’s innovation agenda by showcasing our best thought leadership and chronicling how the world’s top companies are leveraging new technologies. Just as innovation informs the rich content of Outlook, it also defines who we are and what we do at Accenture. Today’s world is one of new opportunities, driven by new ideas. I look forward to sharing them with you in future issues. Drawing on our latest research and client experience, this issue of Outlook is a source of fresh ideas for leaders to consider as they seek to differentiate themselves in a highly competitive marketplace. The cover story focuses on a particularly critical innovation in customer relationship management—the use of social media and digital marketing to become more relevant to customers. 1 From the Editor’s Desk Growth through collaboration It’s one of the most important facts of economic life in a multi-polar world: The complexity and volatility that are permanent features of global markets mean that no organization can succeed on its own. Collaboration, in other words, is essential to high performance. It is also a theme that runs throughout this issue. Take the electronics business. Few industries are more competitive or change more quickly. As our industry professionals demonstrate in one article, the best electronics and high-tech companies stay ahead of the competition by skillfully leveraging alliances with partners across this industry to drive growth, access specialist talent and encourage innovation (the article starts on page 70). Collaboration is very much an internal phenomenon as well, playing a more and more important role within companies at the operational level. For example, harnessing the power of social media—for superior marketing, sales, customer service, innovation and HR, among other business functions—demands high-level cooperation, starting with an unprecedented degree of collaboration between the chief marketing officer and the chief technology officer. A pair of articles beginning on page 22 explores how social media is fundamentally transforming the way business is done. Meanwhile, outsourcing is becoming a more collaborative endeavor as well. Despite predictions of its imminent demise, outsourcing has, in fact, become 2 Outlook 2011, Number 1 more important with the advent of the cloud model for delivering business services. An article starting on page 42 looks at how outsourcing is playing a key new role as a value-added services aggregator and integrator in the new cloud environment. Collaboration is often the handmaiden of innovation. In a multi-polar world, Western managers can learn from their colleagues in emerging economies who develop new and innovative solutions through a process one article describes as “workaround innovation” (page 62). Collaboration has also become essential to success in the public sector. Another article explores a series of innovative collaborations—from interagency programs to public–private partnerships—through which governments at all levels are providing better services at lower cost (page 78). As the authors of the article on the electronics industry note, “Collaborations of all kinds are helping leading companies adapt their global operating models to the uncertainties of the upturn. Alliance partners have brought them closer to consumers . . . [and] have also contributed key capabilities that they would otherwise have to build themselves, from scratch.” It’s a valuable lesson for organizations everywhere. David Cudaback Editor-in-Chief, Outlook On the Edge What the C-suite should know about analytics basis for answering such questions about the physical world. Much the same way that an empirically based scientific method became the basis of our understanding of the world around us, analytics will eventually bring empiricism into business discourse and dethrone many of today’s business practices. Mundane decisions Kishore S. Swaminathan Chief Scientist Accenture Case study after case study has confirmed the value proposition for analytics across a wide range of business functions, including pricing, demand prediction, targeted marketing, supply chain optimization, CRM and HR. In my view, analytics is something much more than a technology with an ROI; it’s a transformational phenomenon that will fundamentally change how business discourse will be conducted and decisions made. An analogy may help in understanding why. If you drop a feather and a rock at the same time from the same height, which will hit the ground first? At one point in history, this was a question for philosophers to resolve. Aristotle opined that the rock, because it was heavier, would fall faster and hit the ground first. Aristotle’s armchair wisdom was not questioned until the 16th century, when Galileo, through cleverly designed experiments, proved him wrong and established an empirical Recently, I received a memo saying that all employees at my location would be required to keep their offices clean, subject to inspection every other Friday. I wanted an explanation, so I asked if there was any data to show that clean offices lead to higher productivity. My question, of course, was sidestepped, and I was told that clean offices would make a better impression on clients. Undeterred, I asked if there was any data to show that clients walking through our offices buy more of our services or express their “better impression” in any other way. Not unexpectedly, I was asked by the powers that be if this really was a battle that I wanted to fight. I chose this example to illustrate how average, mundane decisions are made in organizations daily based on wellintentioned, plausible yet armchair theories—those that, like Aristotle’s, lack any empirical evidence. While highly specialized functions such as pricing or customer segmentation may be based on sophisticated models and empirical data, my contention is that the long-term impact of analytics will be in instilling a culture of data-driven decision making at all levels of an enterprise. Or, put more bluntly, business proposals and decisions—big or small—will have to provide satisfactory answers to this question: “Do we think this is true or do we know?” (This particular formulation is attributed to Gary Loveman, CEO of Harrah’s Entertainment.) A sophisticated and analytically oriented enterprise of the future will behave and operate differently from today’s enterprise along five major dimensions. High analytical literacy Data is a double-edged sword. When properly used, it can lead to sound and well-informed decisions. When improperly used, the same data can lead not only to poor decisions but to poor decisions made with high confidence that, in turn, could lead to actions that could be erroneous and expensive. Let’s consider some specific examples. When one has access to real-time data, it’s tempting to make real-time decisions. For instance, if you are a retailer and you have real-time access to sales data from cash registers from all your stores and real-time access to your inventory in your warehouse, you could be tempted to run sales promotions on the fly and manage your supply chain in tandem to support your real-time promotions. However, this is unlikely to work because three types of events—your decisions, the ensuing customer behavior and supply chain events— operate in different timeframes, so making decisions any faster than the slowest-moving event could be useless at best and dangerous at worst. 3 On the Edge Another problem with data and analytics is that they give you very finegrained visibility into your business processes, and you could be tempted to overoptimize the processes. Highly optimized processes—just-in-time inventory being an example—are very fragile because circumstances beyond your control could arise, and there is little room for error. An analytically literate organization will have a firm grasp of its risk tolerance and guidelines and models for action under uncertainty. A third problem is what’s known as “oversteering,” or making decisions when none is needed. So, for example, your data could tell you that a project is behind schedule, which, in turn, may lead you to berate the project manager or tell your stakeholders that the project will be delayed. Yet neither of these actions may be necessary if the project has contingency built in, if the status update has a different frequency than your sampling frequency or if perhaps the employees who are aware of the project delay will put in more work time to get the project back on schedule. Volatility Businesses thrive on stability and repeatability. Stable and repeatable processes justify large-scale capital expenses; they justify large-scale employee training; and they reduce cognitive overhead because processes and decisions do not change and hence their rationale does not have to be explained repeatedly. By contrast, an analytically based enterprise of the future will have to be designed around volatility rather than repeatability. When you have fine-grained visibility into your processes, customers, suppliers and competitors, you have the ability to make very fine-grained decisions. In fact, your decision rules can capture subtleties such as “stock more beer on Sunday nights in locations where the home football team is 4 Outlook 2011, Number 1 on a winning streak.” Such decisions are highly context-sensitive and can change as rapidly as the fortunes of the football team. Volatility—or rapidly changing decisions that are context- and time-sensitive—will be a big challenge for enterprises. Decisions are no longer easily explainable; capital investments cannot be based on mass repeatability but must cater to endemic volatility. Integrated awareness Today’s enterprises have more information than they can act upon because the information is siloed in so many ways: technologically (data in different systems that cannot be brought together), organizationally (data in different governance units that cannot be brought together) or by ownership (inside versus outside the enterprise). The enterprise of the future will be (or will be forced to be) “conscious” in the sense that it will know that it must integrate everything it has access to. As an extreme example of “integrated awareness,” let’s consider pharmaceuticals, an industry that has traditionally relied on clinical trials data as a means of establishing the efficacy and the side effects of a drug. A pharmaceuticals company today can legally and morally claim immunity from any adverse effect of a drug that was not revealed during clinical trials—in other words, any information that it did not explicitly collect as part of a clinical trial protocol. But in a world of blogs and social networks, where people share this information unprompted and in public, it will become both a responsibility and an obligation of pharmaceuticals companies to monitor public sources and integrate the public www.accenture.com/Outlook information with their own clinical data. (For more on the business impact of social media, see page 22.) “I should have known” (either for regulatory or competitive reasons) will be the new normal, replacing the “I did not know” or “I could not have known” approach to awareness and information integration. The end of analysis-paralysis In the future, businesses will likely be run by managers and leaders who are no-nonsense empiricists; they won’t move a finger until after all the relevant data has been gathered and analyzed. A recipe for organizational “analysis-paralysis”? This is not an unreasonable fear. But though it may seem counterintuitive, an empirical enterprise with high analytical literacy is less likely to fall prey to this malady than today’s enterprises. There are three very distinct ways that organizations can fall into the analysis-paralysis trap. One is a managerial tendency to “over-fit the curve”—a statistical term that refers to the diminishing value of additional data once a pattern (or curve, in the graphic sense) has been found. Data collection has a price, inaction has a price and an analytically literate organization will clearly understand the cost of over-fitting. The second cause of analysis-paralysis is waiting for data that simply does not exist, which reflects an inability to design experiments to generate the needed data. As mentioned above, experimentation has a price and inaction has a price, so an analytically literate organization will be characterized by a clear understanding of data gaps and the value of experimentation to break the logjam. The third cause of analysis-paralysis is the fact that most companies do not know or articulate their risk tolerance clearly and are much more likely to penalize failed action than inaction. As a result, many managers do not act unless there is enough data to assure them of successful outcomes. An analytically literate organization will have a firm grasp of its risk tolerance. With guidelines and models for action under uncertainty, it will restore the symmetry between how it treats failed action and inaction. Intuition’s new pulpit Empiricism and analytics sound a death knell for such vaunted business traits as intuition, gut feel, killer instinct and so forth, right? Wrong. Science is purely empirical and dispassionate, but scientists are not. Science is objective and mechanical, but it also values scientists who are creative, intuitive and can take a leap of faith. Data, by itself, can be interpreted in many ways. Imagine a physical or business phenomenon that produces the following sequence of data: 1, 2, 6, 24, 33. Perhaps it’s a factorial sequence with 33 as noise, or a sequence where every fourth term is twice the multiple of the previous three. Or perhaps every fifth terms if the sum of the previous four. All are indeed correct. To prove or disprove any theory, you need the next several terms of the sequence. A good scientist knows when there is enough data to warrant a theory, when there isn’t, what new data to gather and how to design an experiment to gather the right data. Apple’s Steve Jobs is known to explicitly discount the value of surveys and focus groups for designing new products. How do you explain this apparent anti-empiricism? One explanation is that, much like a creative scientist, people like Jobs recognize when there is not enough data or the right kind of data to form a theory. They recognize that, for completely new lines of products that will change a user’s experience or behavior, the only useful data is experiential data, not commentary and reactions from those who have never used the product. Jobs and people like him are akin to scientists who recognize what type of data is needed to support a theory (in this case, whether a product will succeed), recognize that such data cannot be gathered through focus groups (one type of experiment) and boldly design new types of experiments (release the product and gather experiential data). It should be noted that some products—in Apple’s case, it was the Newton—do not succeed and are terminated. Intuition, creative leaps and clever experimentation are not incompatible with empiricism; in fact, the value of these traits will be even better understood in the future enterprise by analogy to theoretical and experimental scientists. The enterprise of the future, based on empiricism and analytical decision making, will indeed be considerably different from today’s enterprise. You may well ask: “Do you think this is true or do you know?” TouchГ©. Kishore S. Swaminathan is based in Beijing. [email protected] 5 Contents Features Perspective The Long View 1New ideas, new opportunities By Pierre Nanterme From the Editor’s Desk 2Growth through collaboration By David Cudaback On the Edge 3What the C-suite should know about analytics High-Performance Business 8Jumping the S-curve: 32Melding marketing and How to sustain long-term IT: Are you ready for performance the digital revolution? By Paul F. Nunes and Tim Breene By Tim Breene and Brian Whipple T o make the jump from one market-leading business to the next, successful companies manage growth across multiple fronts. B efore the ultimate promise of digital and interactive channels can be fulfilled, leaders must make sure that marketing professionals work actively with the IT department—and vice versa. High-Performance Business II 14A team you can count on By Kishore S. Swaminathan By Paul F. Nunes, Tim Breene and David Smith A nalytics is a transformational phenomenon that will fundamentally change how business discourse will be conducted and decisions will be made. T he best companies surpass competitors in part by attracting and retaining serious talent— people at the top of their professions. Outlook 2011, Number 1 By Caroline Firstbrook and Robert Wollan Outsourcing 42Has the cloud made outsourcing obsolete? Marketing 22Harnessing the power of social media 6 Marketing II By Jimmy Harris and Gavin Michael T he shakeup within the business services industry means more complexity, not less, resulting in a critical new role for value-added outsourcing. Talent & Organization Performance 52The talent to grow C ompanies that actively experiment with social media in their business processes will transform their relationships with customers and create value in unforeseen ways. By David Smith, Catherine S. Farley, Diego SГЎnchez de LeГіn and Stephanie Gault T o drive growth, companies need to embrace a human capital strategy that more closely links workforce planning to business objectives and the organizational culture. F or additional thought leadership from Accenture, including the Accenture Institute for High Performance and Accenture Technology Labs, please visit www.accenture.com/ideas. For a personalized electronic newsletter tailored to highlight specific industries and issues, subscribe to My Outlook at www.accenture.com/myoutlook. Emerging Markets 62Why the West needs to learn about workaround innovation Government 78Joining forces By David A. Wilson, Michael Henry, Daniel J. McClure and Jason B. Wolenik By Karen Crennan and Carola Cruz A different approach to innovation pervades emerging economies, expressed in levels of ingenuity, resourcefulness and drive that are harder and harder to find at Western companies. C ollaboration is the key to effective government in an era of fiscal austerity—and not just because it cuts costs. Electronics & High Tech 70Connecting for competitive advantage By Hans Von Lewinski, Armen Ovanessoff and Joshua B. Bellin S mart electronics and hightech companies are forging and strengthening alliances and partnerships to capture new growth opportunities, fill capability gaps and get closer to customers. The ongoing uncertainties of the current economic situation underscore a critical fact about today’s business strategies: Growing effectively, at the right pace and in the right ways, takes talent. “The talent to grow” (page 52) 7 High-Performance Business Jumping the S-curve How to sustain long-term performance By Paul F. Nunes and Tim Breene Successful companies often manage growth to the curve of their financial performance. But that isn’t enough. High performers also manage the maturing of three other equally important elements of their enterprise to make the jump from one market-leading business to the next. 8 Outlook 2011, Number 1 High-Performance Business Back in 2003, when Accenture began its program of High Performance Business research, there was a lot of talk about good companies becoming great. A generation earlier, a similar conversation had focused on the meaning of “excellence” in business. Yet our ongoing research, bolstered by lessons from global client work across dozens of industries, has taught us that high performance isn’t just about achieving “greatness” or “excellence,” concepts that are far too static. Nor is it just about ensuring long-term survival by building a company that will last. High performance is about outperforming rivals again and again, even as the basis of competition in an industry or market changes. Truly great companies show the world that their first arrival at the top was not an accident. To do this, they accomplished a difficult feat: They jumped what Accenture calls the S-curve of business performance. When we say S-curve, we mean the pattern of revenue growth in which a successful business starts small with a few eager customers, grows rapidly as demand for the new offering swells, and eventually peaks and levels off as the market matures. High performers not only manage to successfully climb S-curves; as each business performance curve begins to flatten, they jump to the start of the next curve. String of successes The ability to both climb and jump S-curves is what separates high performers from those that never manage to translate a brief period of accomplishment with a single winning offering into a string of business successes. Making the jump again and again is crucial to sustained business success and outperformance of industry competitors. Consider that once a company hits a major stall in its revenue growth—as Matthew Olson and Derek Van Bever note in their book, Stall Points—it has less than a 10 percent chance of ever fully recovering. Those aren’t good odds, and they do much to explain why twothirds of stalled companies are later acquired, taken private or forced into bankruptcy. There are many reasons offered for why businesses fail to avoid a stall. Some companies simply don’t see the end coming, preferring to view slowing revenue growth as the result of a bad economy or an industry slowdown, not as a referendum on their own products or services. Others don’t recognize how slim their chances for late-stage recovery and change really are and thus fail to muster the urgency needed to jump to a new S-curve. As we discovered when we wrote in these pages about the role of the chief strategy officer, many companies hope they can pull off a reinvention The hidden S-curves of high performance Three key aspects of business mature and start to decline much faster than the financial performance of a company. Maturity Financial performance S-curve Hidden S-curves Market relevance Ebbs as the basis of competition in the industry shifts away from the dominant model Distinctiveness of capabilities Lessens as competition intensifies and imitation occurs Talent development Slows as companies learn to do more with less and competition forces the lowering of costs Time Source: Accenture analysis 10 Outlook 2011, Number 1 www.accenture.com/Outlook late in the game by appointing a CSO or a chief innovation officer. But no matter how good the executives put into such positions are, they usually aren’t miracle workers. Still, companies see the problem primarily as one of execution. Observers after the fact often accuse companies of sticking too close to their core—or of moving too far from it. They fault a failure to commit to a new business model, introducing the wrong products and relying on the achievement of massive scale as a strategy (or in place of a strategy). The focus of such criticisms has typically been on fixing what is clearly broken with a company. But at that point, it’s almost always too late. As a result of our research, we came to a very different conclusion about why companies fail to jump their S-curves. The secret, we found, lies in understanding the hidden S-curves of performance. We observed that too many companies invest most or all of their energies managing to the growth curve of their revenues. In the process, they fail to manage to three much shorter but equally important hidden S-curves (see chart, opposite). The hidden competition curve Long before a successful business hits its revenue peak, the basis of competition on which it was founded expires. Consider cell phones. Competition in that industry, for both manufacturers and service providers, has shifted several times, from price to network coverage to the value of services to design, branding and applications. High performers see the shift and create the next basis of competition in their industry even as they exploit an existing business that has not yet peaked. the capabilities curve may not be apparent to executives until time to develop new ones has run out. Take Polaroid and Xerox, two iconic companies whose names were once synonymous with their offerings and the distinctive capabilities they possessed. For Xerox, the renewal of capabilities, including new skills in office services and software, came in time. But for Polaroid, the next round of distinctive capabilities failed to materialize before the company was forced to file for bankruptcy protection in 2001. margins. They will then reduce both headcount and investments in talent, and will increasingly focus on talent that can best execute the existing business model. This has the perverse effect of driving away the very people—the entrepreneurial risk takers and business builder types— best able to help them reinvent the business. focused on the revenue growth S-curve—the high performers in our study had typically started the reinvention process well before their current businesses had even begun to slow. In essence, they had the foresight and wherewithal to begin to fix what didn’t yet appear to be broken. The hidden capabilities curve In creating the offerings that will enable them to climb the financial S-curve, high performers invariably create new capabilities. If they are successful, these capabilities become distinctive. But distinctiveness is fleeting. As with the basis of competition, the end of The hidden talent curve While companies are in some senses always on the lookout for the best talent, they often lose focus on retaining in quantity what we call serious talent—people with both the capability and the will to drive business growth. When the business is successfully chugging along but has not yet peaked, executives feel that operations can be leaner—they’ve moved far down the learning curve by then—and meaner, since they are under pressure to boost As a result of managing to these hidden curves—and, it must be emphasized, in addition to keeping If, in fact, this should be management’s real agenda, how do high performers create an organization that manages to all four curves simultaneously? 11 High-Performance Business They do so by engaging in three distinct management practices: creating strategy in a way that is “edge-centric;” changing the top team well before it appears necessary; and ensuring that they have more talent than seems required by becoming hothouses of talent. These and other important insights gave rise to Accenture’s new book, Jumping the S-Curve: How to Beat the Growth Cycle, Get on Top and Stay There (Harvard Business Review Press, 2011), which presents the latest findings from our ongoing High Performance Business research. We will return to these and other topics in future issues of Outlook as we continue to report on new insights drawn from our ongoing research. In this issue, we introduce one of three essential business practices a company must employ to successfully climb the S-curve of business performance. In the following article, we examine the practice of being “worthy of serious talent.” It is critical to attract and retain the right talent for the right reasons, something that is at the core of the performance anatomy we have previously described as necessary for high performance. The article makes clear how high performers turn the war for talent on its head. Rather than battle for high-priced stars, they focus on creating a corporate environment and culture that attracts and retains employees who have both superior skills and a strong desire to thrive in a demanding environment with equally skilled colleagues. Jumping in a downturn It may be argued that the recent severe downturn has made it impossible to think about reinventing the business—that mere survival was an accomplishment during the past two or three years, and may even continue to be so in the near future. But such reasoning is flawed. Many managers believe that a recession is primarily a time for retrenchment, belt-tightening and a redoubled focus on selling. But economic slowdowns also call for greater attention to innovation and increased preparation to jump an S-curve. One reason for this urgency: Reduced sales and increased discounting tend to flatten the revenue growth S-curve, which can limit available funding for new initiatives over time. Another reason: As a downturn bottoms out, the S-curve does not regain its original shape; thus companies do not regain time to recoup their losses. Here are four why this is so. Intellectual property continues to lose protection as patents expire The patent office doesn’t put years back on the clock just because a company’s sales have tapered off in a bad economy. Such an unfortunate fact of corporate life can have a devastating effect on some businesses. In pharmaceuticals, for example, patented drugs are under continual assault from the relentless tide of approved generics. In 2009, the FDA approved 112 new generic drugs aimed at exploiting the recent rash of blockbuster patent expirations known in the industry as the “patent cliff.” With the patent clock ticking, companies must be prepared for the ill effects of a downturn at some point during their period of protected rights. Technologies continue to evolve rapidly Economic downturns can slow the introduction of new technologies. But they don’t hold them back for long. Disruptive technologies continue to advance even as companies struggle in lean times to recoup their investments in older technologies. Witness the fate of plasma television. 12 Outlook 2011, Number 1 The recent downturn has pushed consumers to seek smaller televisions at lower price points. Expensive large-screen plasma TVs have a hard time competing with the improving quality of LCD and LED televisions. The intense price competition at the lower end and reduced potential for sales at the high end, along with other factors like LCDs showing better in a store setting, have caused Vizio, once a leading maker, to exit the plasma sector, and the former top plasma maker, Pioneer, to exit the television market altogether. www.accenture.com/Outlook Competitors continue to enter industries and press advantages During a downturn, the competition can become even fiercer. Companies may be able to grow sales only by seizing market share from competitors, and already weakened businesses face possible extinction with further slips. In 2010, both Hollywood Video and Blockbuster filed for bankruptcy, while Netflix and Redbox (which offers DVD rentals through kiosks for $1 to $2 per night) gained market share and enjoyed surging revenues. A variety of new channels for obtaining movies drove the final nails into the coffin of brick-and-mortar outlets constructed by the titans of the VHS rental. Consumer tastes and preferences continue to change Novelty wears off with time, regardless of the strength of the economy. Therefore, products introduced in a downturn often fail to capture their full potential. Consumer tastes advance, and lost sales can never be reclaimed. Even during the current downturn, for example, consumers accustomed to the idea of “fast fashion” will not be interested in last year’s styles. And innovators have to prepare for sudden changes beyond their control. Witness the automakers that introduced new pickup trucks targeted at American construction workers . . . just as the housing market crashed. Bottom line: A strategy focused mainly on retrenchment during tough economic times is a strategy for continued trouble during the recovery. The logic of the S-curve demands early innovation and preparation for the jump, regardless of GDP growth. About the authors Paul F. Nunes is the executive director of research at the Accenture Institute for High Performance. His work has appeared regularly in Harvard Business Review and in numerous other publications, including the Wall Street Journal. He is also the coauthor of Mass Affluence: 7 New Rules of Marketing to Today’s Consumers (Harvard Business School Press, 2004). In addition, Mr. Nunes is the senior contributing editor for Outlook. He is based in Boston. [email protected] Tim Breene is the senior managing director of Accenture Strategic Initiatives and the CEO of Accenture Interactive. Since joining the company in 1995, Mr. Breene has held a number of senior positions, including Accenture’s chief strategy and corporate development officer, group chief executive of Accenture Business Consulting and managing partner of Accenture Strategic Services. Mr. Breene is based in Boston. [email protected] For companies that want to be high performers, the lessons that result from these insights may sound counterintuitive. But what matters most to longterm performance is not so much what you do to reach the top—though that is certainly important—but what you do to cross over to the bottom of the next S-curve and begin the climb again. Similarly, the secret to successfully jumping the S-curve is not about what you do at or near the top of the curve, but what you do to prepare for the next jump on the way up. For further reading “A team you can count on,” this issue, page 14 “The talent to grow,” this issue, page 52 “Rise of the chief strategy officer,” Outlook, January 2008 “Marks of distinction,” Outlook, June 2005 “In search of performance anatomy,” Outlook, October 2004 For these and other articles, please visit accenture.com/Outlook 13 High-Performance Business II A team you can count on By Paul F. Nunes, Tim Breene and David Smith The best companies surpass competitors in part by attracting serious talent—people at the top of their professions. And they keep them on board by ensuring they are part of an enterprise staffed with extraordinary individuals all striving toward the same ambitious goals. 15 High-Performance Business II Remember Shockley Semiconductor Laboratory? If you don’t, you’re not alone. Truth be told, the lab is much more famous for what it could have been than for what it was. That’s because, back in the mid-1950s, Mountain View, California–based SSL could boast some of the best minds in the electronics industry. The lab was hardly the ideal workplace, however, and in 1957, a group of SSL’s top scientists (later dubbed the “Traitorous Eight”) would leave to form Fairchild Semiconductor. But Fairchild itself would suffer its own share of defections, losing supremely talented individuals whose names read like a Silicon Valley hall of fame roster: Bob Noyce and Gordon Moore, cofounders of Intel; Jerry Sanders, cofounder and former CEO of Advanced Micro Devices; Charlie Sporck, former head of National Semiconductor Corp.; and Eugene Kleiner, cofounder of the venture capital firm that would later become Kleiner Perkins Caufield & Byers. What happened to SSL and Fairchild? Why do some companies lose world-class talent? And perhaps more important, why are high-performance businesses able to retain such individuals? Through seven years of ongoing research into what separates high-performance businesses from the rest, we have come to understand that the most successful companies surpass competitors in part by developing a superior culture of talent. They attract what we call serious talent—and then keep top performers on board by making it clear that they are part of a serious enterprise, one that is stocked with committed, talented individuals all striving toward the same ambitious goals. In other words, high-performance businesses make themselves worthy of such serious talent.* * This article is based on material drawn from the authors’ recently published book, Jumping the S-Curve: How to Beat the Growth Cycle, Get on Top and Stay There (Harvard Business Review Press, 2011), which presents the latest findings in Accenture’s ongoing program of High Performance Business research. 16 Outlook 2011, Number 1 www.accenture.com/Outlook By serious, we are not talking about stars with big egos. We are talking about people who are at the top of their professions (the best researchers in the pharmaceuticals industry, for example) as well as those who are very good at what they do (such as salespeople who consistently land big new accounts). We are also referring to the individuals for whom work is not just a job but rather a source of personal pride. must establish a kind of perpetual chain reaction in which top-notch workers attract other highly capable people. Those workers must place expectations of merit on themselves that are every bit as high as those they place on recruits. This turns the focus of the “war for talent” on its head; it shifts the emphasis from enticing “star” performers to creating a company any employee serious about his or her work would want to be a part of. Put another way, employees who are considered serious talent have both superior capability and the right attitude. High performers establish an environment in which three fundamental and equally important qualities desired by serious talent flourish. The first is capability. Serious talent want to know that the team they join has what it takes to succeed in difficult situ- We have found that if organizations are to turn themselves into magnets for serious talent, they ations. Employees observe this through the pervasive competence of those around them. The second quality is predictability. To measure its own likelihood of success, serious talent demand to know what they can expect from others. High performers generate this through a widespread commitment to mutual accountability. The third is reliability. Serious talent believe they must be able to count on their colleagues to do the right thing. This trust arises in high performers when an implicit culture of honor is present. In addition, serious talent need to be working with others who share a mindset that won’t settle for harmful compromises and who strive for continual improvement. Capability through pervasive competence Incompetence corrodes an organization’s ability to be worthy of serious talent. Ineffectual employees who are allowed to keep their jobs are like broken windows in rundown urban neighborhoods, which, according to theory, signal an absence of concern and control that encourages further decline. The presence of inept employees sends a signal to coworkers, customers, partners and others that no one cares how they perform and that, in any event, no one has the power to change things. High performers know that tolerating work that doesn’t meet high standards destroys the trust and confidence of the best employees. That’s one reason companies need pervasive competence—employees with the right knowledge, skills, abilities and other characteristics at every level. Another reason: When an organization is pushing itself to the limit of what can be done, seemingly minor lapses can have large repercussions. That is, in top-performing businesses, the fault tolerance before failure occurs is usually much smaller. To achieve pervasive competence, companies need to know what kinds of skills and capabilities are required at each level of the organization, and they need to enforce those standards across the board. Defining competence High-performance businesses have their own definition of what competence is and rigorously adhere to that standard. They define not only what constitutes general competence but also the specific elements that are known to drive business success. Requirements for roles are clear and consistent, and people throughout the organization are aware of what they need to do to perform their jobs well. At UPS, for example, truck drivers need to know the “340 methods,” which set out everything from the most efficient way to carry keys (to avoid fumbling for them) to the number of steps per second that would be considered walking at a “brisk pace.” When corporate goals change, definitions of competence must change too. In the early 2000s, Procter & Gamble set out to encourage more innovation. It began by conducting a survey of 2,000 former and current employees to identify the leadership behaviors that would best foster innovation. Using the results, it implemented a new performance evaluation system that emphasized key attributes, including the ability to generate innovations by building collaborative relationships. Those criteria were then used to assess 17 High-Performance Business II managers regularly, and those who failed to show a consistent record of business-building innovation weren’t allowed to become line-group presidents, even if they had demonstrated outstanding qualities in other areas. Enforcing standards Pullquote goes here and here and here and here and here and here and here and here and here and here and here and here and here. At low- and average-performing companies, the so-called Peter Principle—in which employees are promoted to their level of incompetence—often seems to be in effect. Not so at high-performance businesses, which don’t fall into the trap of trying to keep people happy with inflated titles when the company can’t up their pay. With that approach, too many vice presidents and associate directors fill small niches, and many of those promoted are in over their heads. High performers actually prefer to go in the other direction, paying an employee well into the next title range as the person develops but holding back on the promotion itself until there’s no question that the role requirements have been fully met. Within a role, stretch projects are assigned to build and assess competence for future roles; they are not assigned as an early test for a newly promoted employee. If anything, employees at high-performance companies are typically overqualified for their positions by industry standards. What do minimum high standards look like at a high performer? Consider the approach Best Buy took with its salespeople when it launched an initiative to shift from a product-centered strategy to a customer-centric one. All new hires, after an initial four-hour classroom session, had to undergo online training and then take an exam after each course segment. After that initiation, they shadowed a more experienced salesperson until they were ready to fly solo. Even then, they continued to receive monthly training to stay abreast of new technologies, and they were responsible for learning about products outside their department so that they would be better able to cross-sell them to customers. The salespeople who showed leadership promise weren’t then promoted automatically into managerial roles. Instead, they had to take a four-week training program with a coach, undergo more job shadowing, and work on small teams to solve real business problems. That type of employee development doesn’t come cheap—Best Buy was spending the equivalent of about 5 percent of its payroll on training at the time, reportedly more than any other retailer. Predictability through mutual accountability High performers are known to operate like well-oiled machines, and doing so requires more than rules, regulations and standards. It requires employees who deliver on their promises, on time, day in and day out. What high performers’ employees share is a sense of mutual account18 Outlook 2011, Number 1 ability. The purpose is less about holding employees’ feet to the fire than it is about getting to a place where employees know that a coworker’s word is his or her bond, making future actions and results highly predictable. This increased ability to count on coworkers to deliver gives employees and teams www.accenture.com/Outlook the confidence they need to take on the more challenging tasks high performers tend to engage in. Two principles are critical to making this work. The company must constantly measure its progress against its own stated goals, as well as those of individuals. And accountability must be a two-way street, working not just from employee to supervisor but in the other direction as well. A system of mutual accountability is only as good as its weakest link. No employee can be exempt from this obligation, and nobody—not even a top executive with numerous past successes to his or her credit—should be allowed to “retire in place.” Accountability means making good on promises, or paying a price. That kind of philosophy is a hallmark of high performers like UPS, a company committed to measuring everything to ensure that management and employees remain accountable to each other as well as to customers. UPS relies on a variety of metrics, such as a customer satisfaction index that takes into account how the company is doing with respect to package handling, claims processing, billing and pricing. And customers are just one of four major areas of emphasis; the other three are financial, people and internal processes. At high performers, mutual accountability is both lateral (between coworkers) and vertical (between supervisor and employee). As a result, these organizations make the development of people an obligation of company leaders—and they measure these leaders on their skill at this task. In contrast, many low- and average-performance businesses make the mistake of focusing only on upward obligations—what employees must do for their bosses. At top performers, mentoring, counseling and leadership development programs are not just paid lip service; they are taken seriously. Novo Nordisk, for example, assesses its managers partly by how well they develop and retain talented employees. Thanks to that approach, the company boasts, it loses no more than 4 percent of its top talent every year. At UPS, hiring outsiders for anything other than entry-level positions is generally frowned upon. Specifically, it raises questions about the managers involved—why couldn’t they develop someone internally for that position? UPS expects its managers at the district, regional and senior levels to have in place succession plans that they must keep updated so that the company always has an accurate view of its leadership pipeline. Reliability through a culture of honor To maintain order and punish misconduct, societies typically rely on a culture of law, in which the group enacts and enforces a body of rules and regulations. But a culture of law by itself is not sufficient in society or in business. The primary reason is that not even myriad rules can cover every conceivable infraction, and enforcement can be costly and impractical. For companies in particular, a second reason is that serious talent want to know that their colleagues’ actions are not governed by rules alone, so when an urgent situation arises, those colleagues will act out of duty, conviction and courage, not mere compliance. In that sense, serious talent look for companies that are not only reliable followers of the rules but also reliable in a crisis. And that’s why high-performance businesses also tend to rely on another system—a culture of honor. In a culture of honor, when a person violates some generally accepted norm, others in the group ostracize or otherwise punish that individual swiftly to set an example. Because people are concerned with maintaining their reputations (and, ultimately, their honor) within the culture, they are less prone to become transgressors and more likely to punish those who transgress. People can find loopholes in laws or otherwise discover ways to sidestep a rule or regulation, but they can never truly outsmart a code of honor, because it’s self-policing. That’s why cultures of honor can be particularly effective for maintaining order in an organization stocked with serious talent, because those types of individuals tend to be especially concerned about their professional reputations (as well as the reputations of the groups they associate with). It is important to note that the objective here is not to create vigilante justice and boardroom intrigue. Rather, cultures of honor bring about confidence in distributive justice, with profits going fairly to those most responsible for creating them; procedural justice, ensuring that a system of patronage and 19 High-Performance Business II favors doesn’t overwhelm effective processes; and interactional justice, which requires certain measures of respect be shown to all members of the organization in their dayto-day dealings. Going above and beyond The best way to establish a culture of honor is to have zero tolerance for violators, no matter how far up the corporate ladder they may be. One of the best ways to establish a culture of honor is to hire people with the right values in the first place and then reinforce those qualities regularly, a process that takes a concerted corporate commitment. Novo Nordisk is a case in point. “Every ad, site and selection tool has a strong component of individual value and alignment with our culture,” Jeff Frazier, Novo’s vice president of human resources told Medical Marketing & Media. “Culture and values are a significant component of management training.” To continually reinforce a culture of honor, many high-performance businesses rely on judicious storytelling—the stuff of corporate lore. At UPS, managers frequently tell anecdotes about employees who have gone above and beyond the call of duty, like the driver who was delivering a package on Christmas Eve to a military base in Aberdeen, Maryland. The address wasn’t properly filled out, but instead of leaving the package at the base to be routed later, the driver made the extra effort to locate the soldier, who was grateful because it contained a surprise gift— airline tickets for a flight later that day that would allow him to be home for Christmas. Such stories regularly make the rounds at UPS, reinforcing the core values of the company. Typically, cultures of honor require a rigorous initiation for new members. At the multibillion-dollar oilfield services provider Schlumberger, engineers hired out of college must 20 Outlook 2011, Number 1 go through years of rigorous training before they become field engineers in North and South America. They first need to complete an intensive three-year program that includes classroom work at training centers as well as on-the-job experience at various sites. After that, they have to complete a project that addresses a real business need, and only those who pass that test are eligible for promotions. According to the company, 40 percent of the newly hired engineers don’t make it through their third year. Staying true to the code Perhaps the best way to establish a culture of honor is to lead by example and to have a zero tolerance for violators, no matter how high up the corporate ladder they might be. This is one of the most controversial aspects of a culture of honor, but it’s crucial that people believe the punishment for violating an honor code will be swift and harsh, even for senior executives. Otherwise, they will quickly lose faith in the system. If after reading about cultures of honor you begin to wonder why your own organization’s commitment to honor seems to have slipped, that’s a good sign. Writes James Bowman in his book Honor: A History: “Honor cultures always tend to be nostalgic about the past . . . since honor’s tendency to venerate the authoritative and traditional naturally creates a built-in dissatisfaction with the present.” In other words, people in honor cultures often worry that their best days are behind them. That’s a good starting point for working to improve the culture in the present. Shared success When companies provide a working environment with those three www.accenture.com/Outlook essential qualities—capability, predictability and reliability—they set the stage for serious talent to shine and for the organization as a whole to thrive. corporations include Jeff Immelt (General Electric Co.), Jim McNerney, (3M, Boeing Co.), Meg Whitman (eBay) and Steve Ballmer (Microsoft Corp.). Perhaps the best way to assess whether your business is worthy of serious talent is to ask yourself this: Are your employees so good that they are being recruited heavily by competitors? And when they choose to leave, is it because they are the most talented in the industry and have been persuaded by generous enticements? Most important, have you managed to attract and retain sufficient talent that you can sustain the losses? Here we need to make a crucial distinction: The nature of your business is not nearly as important as the nature of your organization. By that, we mean that any company can become a magnet for serious talent, regardless of the products it sells. Yes, Apple attracts some of the best minds in its industry, but that’s not necessarily because it makes snazzy, buzz-worthy products like the iPhone and iPad. Companies that sell more mundane items, such as laundry detergent and disposable diapers, can also become powerful magnets for serious talent. P&G is one example. At Shockley Semiconductor, the loss of superior talent was enough to doom the company. In contrast, high-performance businesses like PepsiCo, P&G and Danaher Corp. have become veritable breeding grounds for the future executives of other corporations while maintaining their own extraordinary level of success. Former Danaher managers, for instance, are now the CEOs of several other industrial companies, including Belden, IDEX Corp. and Polaris Industries. And erstwhile P&G employees who have gone on to run major What do Apple, P&G and other high performers have in common? A keen sense of purpose and constant striving to be the best at what they do, as well as an organizational environment with demonstrated capability, predictability and reliability. These characteristics make them worthy, in the eyes of highly skilled and dedicated individuals, of serious talent. For further reading “Jumping the S-curve: How to sustain long-term performance,” this issue, page 8 “The talent to grow,” this issue, page 52 For these and other articles, please visit accenture.com/Outlook About the authors Paul F. Nunes is the executive director of research at the Accenture Institute for High Performance. His work has appeared regularly in Harvard Business Review and in numerous other publications, including the Wall Street Journal. He is also the coauthor of Mass Affluence: 7 New Rules of Marketing to Today’s Consumers (Harvard Business School Press, 2004). In addition, Mr. Nunes is the senior contributing editor for Outlook. He is based in Boston. [email protected] Tim Breene is the senior managing director of Accenture Strategic Initiatives and the CEO of Accenture Interactive. Since joining the company in 1995, Mr. Breene has held a number of senior positions, including Accenture’s chief strategy and corporate development officer, group chief executive of Accenture Business Consulting and managing partner of Accenture Strategic Services. Mr. Breene is based in Boston. [email protected] David Smith is the managing director of the Accenture Talent & Organization Performance service line. He has been a guest lecturer at Wharton Business School and Babson College and is a frequent speaker at industry conferences and events. Mr. Smith, who is based in Hartford, Connecticut, has published numerous articles and papers, has contributed his viewpoints on the business impact of human capital strategies to various media and industry publications, and is the coauthor of Workforce of One: Revolutionizing Talent Management Through Customization (Harvard Business Press, 2010). [email protected] 21 Marketing Harnessing the power of social media By Caroline Firstbrook and Robert Wollan 22 Outlook 2011, Number 1 The impact of social media is embryonic today but could ultimately surpass the predictions of the industry’s most daring visionaries. Companies that actively experiment with embedding a social media mindset and capabilities in their business processes will transform their relationships with customers and create value in unforeseen ways. Marketing Facebook, Twitter, YouTube: To some executives, these and other user-generated-content sites resemble little more than social networking soufflГ©s—fluffy, youth-focused concoctions with more empty calories than real content. Known collectively as social media, you may not associate it with sweeping business change. Think again. Social media is a genuine game changer for business. Companies that invested early to harness the power of social media claim returns as high as 20 to 1, with even greater gains predicted to be on the way. Meanwhile, those on the wrong side of this customer-driven uprising have already learned the hard way how quickly brands and reputations can be built—or destroyed—by this phenomenon. Many companies have recognized the potential of social media as a new communications channel. But the reality is that its impact will be felt along the entire length of the value chain. Companies will be forced to reexamine outdated business practices and create opportunities to leverage these new capabilities in powerful ways. The repercussions will be felt throughout the organization. Marketing The business function most commonly charged with engaging customers through social media has been the marketing department. However, the growing prevalence of online communities that allow consumers to exchange information about products or services, and to compare prices among competitors, has also meant that marketers have lost control over how and where their products are presented to potential customers. 24 Outlook 2011, Number 1 Some of the more sophisticated online retailers have used this trend to their advantage, employing recommendation algorithms, user reviews and unique customer-generated content to build trust and increase a consumer’s propensity to purchase. A variety of online players, including Amazon.com, Netflix and Internet radio site Pandora, are recognized for having state-of-the-art recommendation systems that effectively match customers with the products, movies and music they love. Social networking also provides an effective channel for introducing new products and services to customers while gathering real-time feedback. Ford Motor Co. broke with tradition by launching its 2011 Explorer crossover vehicle on Facebook, achieving higher levels of customer interest than an ultra-expensive Super Bowl commercial (which ran to nearly $3 million for a 30-second spot in 2010) for significantly less money. Even minor brands can benefit from viral marketing campaigns that capitalize on user willingness to pass on relevant or entertaining content. One example from Europe: Tipp-Ex, a brand of correction fluid. In “A hunter shoots a bear,” the company’s interactive “tippexperience” video, the hunter in the clip applies Tipp-Ex to the word shoots in the title and then asks viewers to type in a happier alternative, such as hugs or dances with. Each change generates a dif- www.accenture.com/Outlook ferent ending to the video, giving it an appeal that resulted in more than 10 million hits in the first six weeks after being posted on YouTube. Other campaigns take advantage of the immediacy of social media to create a sense of urgency regarding limited-time offers. Airlines including JetBlue and United have begun using Twitter to promote fixed availability or last-minute flight deals— tasks ideally suited to the dynamic environment of social media. Online store and community Woot, which focuses on selling “cool stuff cheap,” has built a strong following on the basis of selling one and only one item per day at a discount. Customer insight Social media creates opportunities for companies to supplement traditional sources of customer insight with a wealth of information gathered by listening in to community sites such as Facebook, LinkedIn and Twitter, as well as customer forums and product review services. Social media monitoring gives companies unique access to unfiltered feedback from customers—and at a scale unavailable via other means such as focus groups and surveys. Technical challenges abound, however, such as the need to understand the context in which comments are being made and to distill key themes and sentiments from unstructured text. To help companies take advantage of this growing data source, new players have emerged, offering technologies and services such as web crawling, web scraping (or extracting data from websites), text mining and sentiment analysis. Companies that want to experiment with monitoring the Web can outsource the entire process to third parties, or build the capabilities internally. However, the technologies are evolving rapidly, The rising tide The traffic to social networking sites and the time spent on these sites have grown steadily since 2007. Time per person, per month (HH:MM:SS) 7:00 350 6:00 5:35:05 5:00 4:00 3:00 Unique visitors (millions) 307 300 250 3:03:54 2:10:27 211 2:00 242 200 1:00 150 December 2007 December 2008 December 2009 December 2007 December 2008 December 2009 Source: The Nielson Company 25 Marketing so firms need to choose carefully and avoid locking themselves into a solution that constrains their future capabilities. Social media has an increasingly important role to play in helping companies identify and address unmet customer needs. Social media also opens ways to conduct market research more quickly and cheaply than ever before, and to engage in a realtime dialogue with a wide range of customers, replicating the insights traditionally provided from direct customer feedback or expensive and time-consuming focus groups. Electronics retailer Best Buy, for instance, engages in about 5,000 customer dialogues per week through online forums, and has more than 1.3 million followers on Facebook, with whom it interacts regularly. This direct interaction can also help companies benchmark themselves against the competition and gather valuable input on what shoppers like about them—and what they don’t. Sales The once clear-cut boundary between marketing and sales continues to blur as online advertising and links to third-party comparison sites allow companies to drive traffic to their retail websites. As a result, firms can rapidly convert shoppers into buyers, and those buyers into salespeople. Computer maker Dell has experimented with Dell Swarm, an application that invited customers in Singapore and Canada to enjoy volume discounts by joining group purchases. The results of these pilots have led to plans to roll out similar apps on the company’s website in 2011. Mobile apps such as Find Starbucks also allow customers to locate physical outlets quickly, while others such as Dunkin’ Donuts’ Dunkin’ Run make it possible to compile 26 Outlook 2011, Number 1 orders from friends or colleagues that can be picked up by one person in the group. Customer expectations regarding the online purchase experience continue to climb, as leading retailers such as Amazon.com continue to raise the bar by customizing recommendations, providing intuitive, straightforward online navigation and minimizing the number of clicks needed to complete a purchase. Innovation Social media has an increasingly important role to play in helping companies identify and address unmet customer needs. Firms can engage employees, customers, suppliers and other third parties as active participants in the innovation process, expanding the range of ideas and gathering realtime feedback on their potential take-up. For example, Nokia operates an online lab that allows users around the world to download beta applications and provide feedback to its product development teams. This provides an early opportunity to identify potential problems and alerts the developers to customer differences across geographic markets that need to be addressed. Companies can also tap customers directly for new product and service ideas. Austrian crystal and jewelry firm Swarovski has developed a software tool that customers can use to design and then create their own jewelry by stringing together crystal beads, pearls, stones or pendants ordered from Swarovski Elements. Energy Brands (also known as GlacГЁau), a US enhanced water manufacturer, introduced a new black-cherryand-lime-flavored drink developed and named (“Connect”) by Facebook www.accenture.com/Outlook users—and awarded $5,000 to the grand prize winner and each of the four finalists for playing key roles in the process. are using social media to be more proactive in seeking customer feedback and engaging customers to diagnose and resolve problems. Customer service and problem resolution From Microsoft to Dell and from Best Buy to Comcast, companies are using social media to enable customers to get answers directly from other customers or specially trained employees—empowering their most knowledgeable customers to serve as an informal ecosystem of answer centers. Other innovations include cloud monitoring services such as those offered by RightNow and Salesforce.com, which provide the ability to track and respond to Twitter-borne and other online complaints customers make. Social media isn’t all upside, however, and its potential to dramatically publicize poor performance has been well documented. Blog posts and YouTube rants can attract wide readership and cause significant damage to brand reputations. Musician Dave Carroll’s YouTube video “United Breaks Guitars” received more than 9.4 million views and secured what nine months’ fruitless correspondence via phone, email and fax with customer service could not—an offer from the airline to repair damages to his guitar, as well as flight vouchers worth $1,200. At the same time, one of the largest opportunities to tap the potential of social media is in customer service. Innovative companies Information technology The need to integrate information from a wide range of immature and rapidly evolving sources creates new challenges for often poorly prepared IT departments. For example, combining unstructured customer data from social media sites with the structured information gathered through billing and CRM systems can be a daunting challenge, one that requires IT managers to become expert in the use of rapidly evolving technology. That’s a very different task from installing and supporting mature, stable systems. As a result, IT must learn to cope with an unstable and complex environment, one in which new technologies and applications sometimes emerge and then disappear within a few months as strategies change, and where data volumes continue to grow exponentially. Human resources In the rapid-fire, real-time world of social media, company representatives and other employees need concrete guidance regarding how and when to react—and when not to. At the extreme, companies could discover overzealous employees revealing the organization’s most Overnight sensation The rate of adoption of social media has been breathtaking. It took 38 years for radio to have 50 million users, but it took Facebook less than four years. Time to achieve 50 million users Facebook Television Radio 0 5 10 15 20 25 30 35 40 Years Source: Accenture analysis 27 Marketing closely held secrets in online forums. Concern about the potential for industrial espionage is one reason that one European carmaker is blocking employee access to social media like Facebook and Xing. Organizations thus need new policies to govern the use of social media that outline what employees can and can’t say on public websites, and their authority to respond to customer comments and queries, all the while ensuring that data privacy laws are upheld. Employers likewise will be compelled to recalibrate their own responses to the online musings of employees. In the United States, for example, the National Labor Relations Board has accused an emergency medical response company of illegally terminating a medical technician for critical comments she made on Facebook concerning a supervisor. Social media also offers new avenues for recruiting, allowing companies to spread a much wider net and to differentiate themselves to younger generations. One company seeking a marketing director with a strong background in social media used Twitter to identify and ultimately hire the ideal candidate. Driving cultural change Integrating social media will compel companies to make dramatic cultural changes, shifts that will ultimately become essential for any organization hoping to thrive in this new interactive environment. Companies need to adopt new attitudes and behaviors, and to unlearn many of the lessons of the past 20 years. Take customer service interactions. In pursuit of efficiency, companies have made 28 Outlook 2011, Number 1 them increasingly structured and scripted, allowing relatively low-skilled, low-cost personnel to perform these roles. Agents follow strict escalation rules, and the resolution of problems can take days, weeks or even months. While this was perhaps acceptable in a world where customer support was the first, last and only place to get help, today’s customers will instead bypass the official systems, connect with one another and take their problems public in a flash. This highspeed environment clearly requires a much faster, more flexible response from companies that want to avoid disaster. Southwest Airlines Co., hoping to ground any social media problems before they gain altitude, rigorously monitors its Twitter and Facebook pages, enabling the company to respond promptly to customer complaints. With more than a million Twitter fans and close to the same number of Facebook followers, the company actively uses social media to interact with customers, drive sales and build brand loyalty. Furthermore, companies no longer have a monopoly on information. Customers are much better informed than in the past—and in many cases, better informed than even companies and their agents. Conversations and situations that once took place in private, with the company in full control of information, can now take place in the public eye, with highly damaging consequences if the company gets it wrong. One passenger, trapped aboard a grounded airliner at John F. Kennedy International Airport, decided to record the saga of his flight from London to New York, which took 16 hours rather than eight, and post it on YouTube. After viewing the excruciating documentary, the company’s CEO personally called the passenger to apologize, and then refunded every passenger’s money for the flight and gave each $100 off their next one. Social media provides the information companies can use to segment customer groups more finely than in the past, along with the tools to tailor products, services and communication campaigns to suit the needs and expectations of individual segments. This spells the end for standard responses and one-size-fits-all offerings. Customers increasingly demand to be treated as individuals—and will give their business to suppliers that provide either unique experiences or superior value. To leverage social media to its fullest, organizations need to become more nimble and entrepreneurial. Social media creates the opportunity for much greater collaboration between departments, engendering more experimentation, faster decision making and more precisely tuned responses. Some years ago, telecom giant BT asked employees to begin using a variety of social media applications such as social networks, blogs, project-focused wikis and podcasts to collaborate better across different time zones and locations. Today, the organization routinely shares knowledge via BT’s Blog Central, for example, and provides tools that enable employees to search all of the intranet’s content from one place. As a result, its people have boosted their innovation productivity, developing products and getting them to market faster. The company (Continued on page 30) Pipeline to collaboration: An energy industry perspective By James Arnott, Craig Heiser and Brian A. Miller Most of the news about business uses for online collaboration has been about consumer products and services companies (see story). But can wikis, blogs and social networks play a significant role in a heavy industry like oil and gas? The potential at first glance seems enormous. Like any global industry, oil and gas is driven by the need to unite far-flung workforces, attract the best talent, create partnerships across organizations and seek resolutions to problems in real time. To better understand this issue, Accenture and Microsoft jointly undertook a two-part study on the use of collaboration tools in the oil and gas industry. The global study, which covers the views of engineers, geoscientists, executives and project managers from a range of companies, attempts to quantify the industry’s perceptions regarding the business value of social media and the readiness of oil and gas professionals to use it—both overall and geographically. The research reveals an industry that broadly recognizes the business value of collaboration technologies but is split along regional lines regarding their use. Nearly three-quarters of respondents see the business value of collaborating via social media, and almost 40 percent say its use has improved productivity by 10 percent to 25 percent. Just about half indicate that social media tools have enabled them to reduce travel expenses by anywhere from 10 percent to 50 percent, while fully 95 percent assert the technology drives greater work flexibility. Respondents from the Asia Pacific region lead the others by a wide margin in using social media to do business. When it comes to instant messaging, videoconferencing, social networking sites, mobile phone text messaging, video sharing and blogging, Asia Pacific professionals sometimes surpassed other regions by 10 to 1. In fact, 37 percent of Asia Pacific respondents say social media is “very valuable” for work collaboration. Nearly 70 percent of respondents, including many frontline work groups and oil and gas asset management teams, view the use of these tools as an effective way to boost work performance. In fact, almost 80 percent of respondents spend up to four hours of their workday collaborating, while more than 30 percent indicate they collaborated more this year than last. The study shows that collaboration is already an integral part of an oil and gas professional’s daily work environment and will only grow in importance going forward. The survey shows that social media tools enable oil and gas players to work smarter and more effectively across companies and continents alike. Survey respondents value them because of their ability to improve productivity and work performance compared with more traditional collaboration methods. In other words, social media gives workers the flexibility to work the way they want to work. While collaboration plays an integral part in the daily work lives of many oil and gas industry professionals, corporate endorsement of collaborative technologies is less than enthusiastic, with just over 10 percent of social media adoption being driven by the executive suite. The main concern behind this hesitancy is security—nearly 40 percent of those surveyed were apprehensive about the ability to control or secure collaborative environments, even though nearly 75 percent already had security policies in place. 29 Marketing (Continued from page 28) claims that every ВЈ1 it spends on its intranet provides a ВЈ20 return. Players in a number of information-sensitive industries may decide that that they need to restrict their participation in social media. While opportunities for experimentation and collaboration abound, risk-averse cultures will benefit far less, as will firms that engage in lengthy and bureaucratic decision making or that have overly siloed organization structures. The newness of many of the social media technologies and the speed with which fresh ones are emerging will require a highly agile response from companies that interact with them. The IT function in particular must alter how it interacts with other parts of the organization, and adapt its working style to incorporate a higher degree of experimentation and iteration instead of rigidly adhering to tightly controlled build and release processes. Ultimately, players in a number of information-sensitive industries may decide that they need to restrict their participation in social media. Already, a majority of the blue chip firms on Germany’s DAX financial index have banned the workplace use of Facebook and Twitter, with many companies from other regions undoubtedly ready to follow suit. Broader reach, greater connectivity and the emergence of special interest communities with ever more powerful online viral word of mouth will allow customers to quickly and easily find products that meet their needs. As a result, genuinely successful innovations will rapidly find the customers who value them the most. Companies can use social media to tap into the power and wisdom of virtual crowds, enlisting them in support of other users and empowering employees to act as agents for the company. Doing so can generate a huge customer service multiplier effect, allowing organizations to more rapidly identify, diagnose and resolve problems while simultaneously delivering exceptional value. Netflix, the online movie purveyor, literally took concerns about improving its film recommendation algorithm to the online “street,” offering a prize of $1 million to anyone who could boost the system’s effectiveness by at least 10 percent. In true social media fashion, the winning entry (announced in 2009) cracked the problem through crowdsourcing—the unorganized, informal joining together of a variety of different teams, none of which had the whole answer alone but came up with it by working together. The impact of social media on business remains embryonic today, but it could ultimately surpass the musings of the industry’s most daring visionaries. Despite such uncertainty, companies can safely make several informed bets. First, the impact will be bigger, not smaller, than that currently anticipated. Second, companies that actively experiment with embedding a social media mindset and capabilities in their business processes will transform their relationships with customers and create value in unforeseen ways. And third, organizations stuck in wait-and-see mode will face bruising competitive challenges when they do finally attempt to catch up. 30 Outlook 2011, Number 1 www.accenture.com/Outlook About the authors For further reading Caroline Firstbrook is the managing director of Accenture Strategy in Europe, the Middle East, Africa and Latin America. Ms. Firstbrook has extensive experience in M&A strategy and target evaluation, merger negotiation, positioning for privatization and new market entry strategies across a wide range of industries. In addition to her consulting experience, she spent five years as an entrepreneur, setting up and later selling Easychem, an Internet retailer of crop inputs to farmers, and partnering with life sciences company Syngenta to explore biotech venturing opportunities. Ms. Firstbrook is based in London. The Social Media Management Handbook: Everything You Need to Know to Get Social Media Working in Your Business, by Robert Wollan and Nick Smith (Wiley 2011) [email protected] “Oil & Gas Collaboration Survey 2010,” Microsoft and Accenture 2010 Robert Wollan is the global managing director of the Accenture Customer Relationship Management service line. With more than 20 years of experience, he leads a global team of specialists in customer-centric marketing; sales, service and customer operations; advanced segmentation; digital transformation/social CRM; multichannel customer contact; and enterprise service delivery across the 19 industries Accenture serves globally. He is based in Minneapolis, Minnesota. “Melding marketing and IT: Are you ready for the digital revolution?” this issue, page 32 [email protected] James Arnott is the global lead for the Accenture Talent & Organization Performance/ Resources group. Now based in Perth, Australia, Mr. Arnott previously headed Accenture Energy in Spain, Portugal and South Africa. [email protected] Based in Houston, Texas, Craig Heiser is the North America lead for the Accenture Talent & Organization Performance/Energy group. He has more than 20 years’ experience working with oil and gas clients on change programs. [email protected] Brian A. Miller is a senior executive in Accenture Energy in North America, responsible for the group’s technology growth platform and its Avanade alliance. Mr. Miller is based in Houston, Texas. [email protected] 31 Marketing II Melding marketing and IT Are you ready for the digital revolution? By Tim Breene and Brian Whipple The ultimate promise of digital and interactive channels is personalization: bringing timely and relevant offerings to customers wherever they are, at that moment when opportunity and interest translate into a sale. But before this can happen, leaders must make sure that marketing professionals work actively with the IT department—and vice versa. 32 Outlook 2011, Number 1 Marketing II The ancient Greeks had a word for it: kairos—the supreme moment, the right time. Right now, for many chief marketing officers, that moment— keyed to digitally bred real-time customer expectations—is slipping through their fingers. Marketing’s former lock on branding, messaging and positioning has been weakened by the increasing influence of peer-to-peer, crowdsourced and affinity-based interactions. Tech-savvy and endowed with a kind of digital omnipotence regarding product and brand comparisons and deals, today’s customers have vastly different expectations than they did just a decade ago. Yet many marketers fail to grasp that they need to respond to the profound changes ubiquitous connectivity has triggered among consumers. The emergence of massive online communities, social media, mobile marketing and interactive advertising has changed the ways customers want to deal with companies and, in turn, how firms can respond to customer needs. These digital channels and capabilities mean organizations can reach customers now—in real time, all the time, anytime. Just as the inventions of the telegraph and telephone effectively shrank distance, the digital revolution is compressing reaction time itself, forcing companies to step outside long-established comfort zones. 34 Outlook 2011, Number 1 www.accenture.com/Outlook The ultimate promise of digital and interactive channels is personalization: bringing timely and relevant offerings and experiences to customers wherever they are, at that moment—kairos, if you will— when interest and opportunity translate into a sale. This article will examine the challenges “real-time marketing” presents and explore ways companies can leap ahead of their competitors in the use of digital, interactive customer channels that can create deeper and more profitable longterm relationships. But many companies lack the technologies, analytics capabilities, leadership and organization structures to capitalize on this seismic shift. A recent global research study, conducted by the CMO Council and Accenture Interactive, of more than 600 senior marketing and information technology executives found that just 11 percent felt ver y prepared to exploit digital marketing channels. The right data, the right time It sounds fairly straightforward: deliver personalized, relevant and timely offers and information to customers to influence their loyalty and buying patterns. But without the right data at the right time, this kind of real-time marketing remains a pipe dream. Data in this case includes contextual information about the customer— background, location, interests, Talking past each other? In a recent Accenture Interactive global research study, CMOs said the chief obstacle to implementing digital solutions is that IT departments don’t see marketing as a priority. According to CIOs, however, the biggest obstacle is that digital solutions are complex and difficult to integrate. CIO respondents Solution complexity and integration difficulties 46% Marketing bypassing IT and working directly with the vendor 39 Insufficient budget and funding for the project 38 CMO respondents Marketing function not a priority for the IT department 46% Insufficient budget and funding for the project Time and technical resources not available to help 44 41 Source: CMO Council; Accenture analysis 35 Marketing II relevant communities and so forth— that enables companies to adjust the customer experience in real time. Companies need to collect data, integrate that information using real-time analytics to synthesize findings, and then use the knowledge generated to support ongoing relationships and more personalized products and services. In short, the company with immediate access to the most relevant customer data wins. Becoming a diligent data miner is one thing; making sure company representatives have immediate access to insightful customer information is quite another. Information can’t remain packed away in different organizational and functional silos anymore. Companies need a unified IT backbone and infrastructure that link data housed in the far reaches of the organization, often in different forms, as well as information held outside the company. Furthermore, leaders need to pursue technology-based solutions— sometimes across partnering companies—that enable them to crunch data better and faster, as well as predictive analytics that make it possible to personalize the customer experience in as close to real time as possible. One online powerhouse that already plays a leading role when it comes to identifying customer interests and actively generating product Slow to commit CIOs and CMOs indicate that companies have been relatively slow to adopt interactive digital marketing strategies. CIO respondents CMO respondents 3 14 8 1 Heavily committed and invested in this area 20 Growing proportion of marketing spend 35% 21 Testing and evaluating different directions Still committed to more traditional approaches Not embracing digital strategies 25 38% 35 Source: CMO Council; Accenture analysis 36 Outlook 2011, Number 1 www.accenture.com/Outlook recommendations recently raised its game noticeably. The company’s technological partnership with a social media player makes it possible for customers to link their accounts at both portals. As a result, the online retailer has improved its ability to suggest products by also taking into account the interests and activities customers list publicly on their social media pages. Focused leadership At first glance, the biggest challenge in meeting the needs of real-time customers appears to be technological. But strong, purposeful leadership also plays a critical role. In fact, the Accenture Interactive-CMO Council research suggests that in the crucial area of integrating marketing and IT efforts, much remains to be done (see chart, page 35). Unfortunately, many companies fall short in their attempts to meld marketing and technology in this manner, because leaders fail to ensure that marketing professionals work actively with the IT department (and vice versa) to make the needed changes happen. The global study found that while some marketing organizations and IT departments are moving in the right direction, most are falling behind (see chart, opposite). The problem? Digital marketing practices and technology-based customer analytics solutions are simply changing too rapidly for companies to keep up. Lacking the required vision and leadership, the majority ends up taking baby steps toward creating an integrated and truly digital marketing function; by the time each step has been completed, it’s too late. These organizations risk losing out to more nimble and digitally confident online competitors that are led by savvy executives who, much like the Native American horseman an envious American general once observed, seem born to ride this bucking bronco. To catch up, leaders have to make new investments in the talent, technology and processes needed to forge a new era of cooperation between marketing and IT—and make this transformation an organizational mandate. This new, aligned strategy must identify the investments needed for businesswide growth and optimized customer experience. Filling the gaps Our research also uncovered several additional obstacles companies face when attempting to use digital channels, social media and other interactive capabilities effectively (see chart, page 39). For example, spending often fails to keep up with needs or, worse, goes to the wrong areas. As a result, while executives may loudly proclaim the benefits of leveraging digital channels, they often make little in the way of coordinated investments. While executives may loudly proclaim the benefits of leveraging digital channels, they often make little in the way of coordinated investments. One company’s experience perhaps sums up the issue for most industries. It proceeded reactively, financing one-off technology projects and implementing programs incrementally. But these moves actually made the problem worse by creating more complexity without a corresponding increase in transparency. Such uncoordinated efforts make it harder to put together an integrated, holistic solution to drive relevant and real-time consumer experiences. Companies also face an expertise gap. Most don’t have the talent and leadership they need to solve the problem. Bluntly, they need fewer people with isolated IT and marketing skills, and more general business managers who really 37 Marketing II understand business recommendations and the optimization of customer relationships. Leaders need to create new organizational structures that are nimble and responsive to an environment packed with uncertainty. Companies that succeed at real-time, digitally empowered marketing are instantly recognizable. They deliver personalized and relevant experiences to customers through the channels and in formats that consumers demand. They work hard to achieve consistent communications and brand experiences across both digital and offline channels, and have the capacity to track and respond quickly to customer behavior across every point of contact. Real-time marketers focus on becoming more data-driven, and on creating a more measurable and transparent marketing department, one where managers base strategies, campaigns and budgets on verifiable insights into markets and customers. Such firms also develop systems and processes imbued with the agility and flexibility to respond to changing customer preferences, business conditions and market opportunities. Pushing the envelope One consumer electronics retailer is pushing the real-time marketing envelope with a Twitter-based service that allows it to quickly tap into the expertise of its employees. As a result, the organization’s own techies and product experts can answer customer questions rapidly, resolve service issues and troubleshoot problems, all in real time, whenever customer concerns arise. The service provides a significant competitive advantage, one that effectively positions customer service as an important element of marketing strategy. One clear difference between successful real timers and other players can be seen in the manage38 Outlook 2011, Number 1 ment team’s knowledge and understanding of online technologies. A generation gap of sorts separates those companies that get the promise of digital, interactive channels in transforming how they conduct business with customers and those that don’t. As a result, even though increasing numbers of people now live and work in an alwaysconnected way, many companies continue to treat the phenomenon as a fad or minor issue. First steps, lessons learned As a critical first step, companies need to acknowledge and get a feel for the size and heft of this transformation. It’s big, comparable in potential scale and scope to other major market disruptions, like television or the automobile. Companies also need to map out a detailed change path—one that includes some immediate, short-term paybacks but also plots a course several years into the future. And they should factor some experimentation into this mix—pursuing small, manageable chunks of digital capabilities, which can enable them to measure business returns before making larger investments. While no hard-and-fast rules exist for successfully navigating the digital world, six experience-based suggestions can provide insights. Nurture an appreciation for ambiguity Digital developments rarely proceed in a straight line. Instead, winning products and applications emerge from a combination of vision, luck, serendipity and sweat-drenched effort. In such an environment, doggedly adhering to a traditional business strategy will virtually ensure that a company gets continually blindsided. www.accenture.com/Outlook Instead, leaders need to create new organizational structures that are nimble and responsive to an environment packed with uncertainty. One leading consumer products company is moving toward an “open marketing” model by shrinking its core marketing team, whose members then lead a network of specialized external partners. This way, the company always has immediate access to the latest thinking and newest approaches regarding real-time digital marketing. For instance, one prominent company simply outsourced the issue to a couple of vendor employees, with predictably disastrous results. In fact, the change required represents a fundamental transformation in the way business is done, mandating nothing less than a CEO-level endorsement of, and engagement in, both the strategy guiding the change ahead and its robust execution. Anything less will likely spur a series of one-off efforts that simply increase organizational complexity and inefficiency. Put digital decisions on the board’s agenda Rethink investment approaches As the Accenture Interactive-CMO Council study shows, many companies continue to fall short when it comes to capturing digital’s promise. Moving toward now marketing requires companies to maintain a delicate balance of risk, innovation and learning. Although going Underfunded When CIOs and CMOs were asked why their organizations were not prepared to take advantage of the opportunities provided by digital marketing, both groups listed “insufficient funding” as the most important factor. CIO respondents Insufficient funding for digital marketing channels 62% Lack of understanding of opportunity from senior management 46 Solution complexity and integration difficulties 39 CMO respondents Insufficient funding for digital marketing channels 59% Lack of understanding of opportunity from senior management 46 Insufficient support from internal IT 46 Source: CMO Council; Accenture analysis 39 Marketing II digital will involve significant technology investments, the return-on-investment cycle will probably not follow that of a standard technology rollout. If a “typical” payback curve is gauged annually, a digital ROI could take five years or longer, and may not produce returns at all. Given the parlous state of the economy, this ambiguous, long-terminvestment approach will likely cause considerable organizational pain. But setting the wrong expectations will be even more detrimental to moving forward as the plug is pulled on early “failures.” Given the potentially protracted return timeline, companies should choose projects that promise to deliver the greatest returns and take them on in bite-size pieces. One high-tech firm has earned a reputation for identifying and capitalizing on innovative business ideas from everywhere, and one way the company stays on innovation’s cutting edge involves its wiki-based collaborative platform. A dedicated team assesses ideas submitted by employees to find the killer concepts the company needs, and then it helps involved employees develop the business plans in support of each idea’s feasibility. Ideas generated by the process have already led to the startup of multiple new company business units. Abandon best-of-breed systems and focus on flexible platforms The digital revolution could ultimately deliver true “segment of one” personalization. To make good on that promise, however, companies need a unified data backbone, one capable of delivering the highly relevant data that generates valuable customer insights. 40 Outlook 2011, Number 1 In turn, this information enables marketers to tailor content to individual customers. However, because many companies operate on a hodgepodge of bestof-breed systems, most lack an integrated technical infrastructure. Today, marketing and IT can no longer implement solutions that address only the needs of their respective functions. Moving forward boldly requires leaders to develop a unified, companywide vision of the end state required to make now marketing a reality. Don’t just mine customer data—engineer it Data mining digs up lots of facts but few real insights. Teams instead need to “engineer” information, drawing insights and understanding from a variety of internal and external sources to create and deliver the most relevant customer experience in real time. For instance, an auto insurance company offers a free iPhone GPSbased app that enables customers to record information such as an accident’s location and time; lets them take and send damage photos; and makes it possible to submit the necessary insurance forms from the scene. The app also offers ways to locate collision repair shops as well as contacts for local authorities. It saves time and money, and it increases customer satisfaction by reducing uncertainty and making a difficult situation more manageable. To continue providing customers with the best digital experience, companies must constantly anticipate and respond to evolving consumer needs across an expanding array of media and digitally enabled touchpoints. But getting there www.accenture.com/Outlook requires developing capabilities that provide an end-to-end customer view. One effective way to engineer data focuses on understanding actual consumer intent by evaluating search queries and scanning for potential customer-triggered “events” on websites and elsewhere. By puzzling out the meaning behind search query data from onsite search engines, teams can gain invaluable insights into what consumers actually seek. A number of technology platforms make this type of analysis possible at scale, enabling companies to provide the best customer experience possible. As a result, firms can readily serve “long tail” consumers in ways that address their individual needs instead of simply recommending mass-market offerings. Rethink your talent management models Much the way the transistor’s invention eclipsed vacuum tube expertise, companies today face a digital talent divide. Finding, attracting and retaining tomorrow’s digitally savvy leaders will force organizations to step outside of their current comfort zones as they search for people capable of dealing with the high uncertainty levels this new digital marketplace creates, and who understand and can act to capture the enormous value at stake. The digital revolution is taking place now, in real time, irrevocably changing the rules that define company–customer relationships. To win in this intense new competitive arena, firms need to break down the internal barriers that prevent the free flow of customer-relevant information, and instead cultivate a new breed of leaders capable of accelerating company performance to life speed. About the authors Tim Breene is the senior managing director of Accenture Strategic Initiatives and the CEO of Accenture Interactive. Since joining the company in 1995, Mr. Breene has held a number of senior positions, including Accenture’s chief strategy and corporate development officer, group chief executive of Accenture Business Consulting and managing partner of Accenture Strategic Services. Mr. Breene is based in Boston. [email protected] Brian Whipple has been with Accenture for more than 10 years, serving in a variety of strategic and consulting roles. Mr. Whipple was also the chief operating officer of an advertising and marketing services firm; the managing director of the northeast region for a Fortune 500 global technology services company; and a senior vice president and managing director of one of the world’s largest direct marketing agencies. Since 2010, he has been managing director of Accenture Interactive. Mr. Whipple is based in Boston. [email protected] 41 Outsourcing Has the cloud made outsourcing obsolete? By Jimmy Harris and Gavin Michael Many cloud enthusiasts—proponents of a simple utility model for providing business services—have written off outsourcing companies for dead. But the shakeup within the services industry has meant more complexity, not less, resulting in a critical new role for value-added outsourcing. 42 Outlook 2011, Number 1 Outsourcing What if you could access information technology and business services as easily as a homeowner accesses electricity? That’s the promise of the “cloud,” as it’s now called: a utility model for computing capacity, software and business functionality that is redefining how organizations operate and how they serve their customers and constituents. It’s also redefining the role of service providers and outsourcing companies. The big question: Is the cloud making outsourcing obsolete— or more important? The utility metaphor is inevitable. It also explains why some might think that cloud technologies enable a kind of do-it-yourself approach to business services, eliminating the need for value-added outsourcing. After all, homeowners don’t need a personal contractor to integrate the coal companies, turbine manufacturers and engineers behind electricity delivery. They pay their bills and turn on a switch. So is a similar kind of easy access to business power the inevitable evolution of the services marketplace? It might seem so. Companies already can simply provide a credit card number to a cloud IT provider and get computing capacity within minutes. They can contact a software-as-a-service provider and get ready access to robust cloud-based capabilities in areas such as sales, CRM and finance. With that kind of responsiveness and ready capability, will a CEO or CIO need a service integrator—a traditional outsourcing partner—anymore? The answer is: Yes and no. 44 Outlook 2011, Number 1 www.accenture.com/Outlook The cloud is indeed simplifying some aspects of the IT and business services world. But it’s also making many others more complex. Some kinds of services might actually become almost as easy as turning on the lights. On the other hand, customers often need more than just raw power. The electric company isn’t in the business of providing advice about what appliances your home needs, for example, or about how all your fancy new electronic equipment works together. Different folks need different strokes. So the various levels of service needed in the new cloud environment will inevitably result in a kind of shakeout within the outsourcing industry itself, resulting in a range of providers offering alternative value propositions at a variety of price points. The danger for corporate customers at this point in the evolution of cloud services and outsourcing is in overemphasizing the easy parts while paying insufficient attention to the hard parts. Complex IT environments From an IT perspective, the introduction of the cloud model actually means that CIOs now have to manage an even more complex, hybrid environment: externally provided cloud services along with their own internal systems managed in a cloud-like manner, as well as older legacy applications. From a business process perspective, integration points between different functions and processes need to be carefully (and commercially) managed, since a utility cloud provider most likely will not have a perfectly clear sense of its client’s overall business goals—to say nothing of the needs of the client’s customers. Given the host of other challenges companies face with cloud services— security, data integrity and service availability chief among them— the important integration role played by some outsourcing providers isn’t going away anytime soon. Indeed, the ability to advise companies on the proper design of their business models based on multiple service providers, and to help them harness the potential innovations arising from the interaction of these providers, will in all likelihood usher in a totally new era of outsourcing—for providers ready to meet the challenge. Beyond the hype One thing that obscures a true and serious read on cloud computing’s impact on the outsourcing industry is the inevitable hype that accompanies the introduction of any new information technology. Dr. Leslie Willcocks of The London School of Economics and Political Science—with whom Accenture is currently conducting research into the impact of cloud computing— calls this a “misleading narrative of transformation.” The important integration role played by some outsourcing providers isn’t going away anytime soon. According to Willcocks, “IT industry hype about technology as the primary driver of sustainable change has been associated with virtually every new generation of technology. On the one hand, you can see the almost religious overtones in some of this—the need to be вЂ�born again’ and leave the old world behind.” On the other hand, he continues, “there is also some sense in which converts speak of the inevitability of it all—that these are predestined forces at work and that the effects of this technology will be linear and predictable.” 45 Outsourcing What the hype ignores is the complexity of change and the considerable stake that the current players (both buyers and providers) have in what’s happening. Companies are not, in fact, powerless entities buffeted by uncontrollable forces; most are savvy enough to understand that technology evolution requires the evolution of business models too. A number of false assumptions lie at the heart of some claims made for cloud computing. It is highly unlikely that large, global enterprises will simply toss out those IT solutions that keep the lights on today in favor of the technology du jour. At the same time, IT and business process outsourcing providers are acutely aware of the implications of cloud services and are actively working to evolve and leverage their own capabilities in light of this change. Through their existing client relationships, moreover, they are in a strong position to shape how these new cloud technologies develop. Bells and whistles Looking beyond the hype, however, it is undoubtedly true that a number of the aspects of cloud technologies and business services do indeed qualify as revolutionary. First, the barriers to entry for new players in any industry, and the competitive constraints on the “little guys,” are dramatically reduced by the cloud model. A smaller company doesn’t need its own data centers now to handle mass applications like email, nor does it need a costly infrastructure for hiring, training and retaining a cyclical or variable workforce that may need to be scaled up only occasionally. This utility model extends the benefits of outsourcing—defined as the external provisioning of basic services—to a wider community of 46 Outlook 2011, Number 1 organizations. Essential services are now accessible, affordable and quicker to provision, and that, in turn, makes it easier to compete. Second, looking at the financial side of the equation, the cloud can deliver some astounding results. Software-as-a-service applications cost less to implement and maintain than a company’s own applications. And because providers offer software for multiple clients running on their cloud, marketplace competition creates stronger incentives to continuously improve the software, making sure all the new bells and whistles are there for clients as they are made available. That generally doesn’t happen as effectively for companies running their own shops, providing services only to internal customers and competing for scarce investment dollars with other functions and business needs. From an infrastructure cost perspective, the architecture that underpins a serious cloud provider’s products redefines presumptions about data storage costs and may make it a no-brainer to use a cloud provider rather than maintain a company’s own private data center. Some estimates place the cost for storage on the cloud at as little as 10 cents a month per gigabyte, compared with as much as 25 dollars a month for storage inside a company’s own firewall. For a large multinational, those savings can amount to millions of dollars per year. A number of false assumptions lie at the heart of some claims made for cloud computing, and companies that proceed based on those assumptions could find themselves in trouble. For example, some commentators who see the cloud as a kind of do-it- www.accenture.com/Outlook yourself model for business and IT services apparently presume that cloud-based offerings won’t require any modification or customization. For a large enterprise, that is seldom if ever the case—or will be for only small and discrete processes that do not require much coordination on a firmwide basis, and whose impact is thus less widely felt. prise perspective, that means that IT executives now must manage multiple external cloud providers and an internal IT environment that is in all likelihood a hybrid between traditionally run services and others run in a cloud-like manner, as well as various legacy systems that cannot readily be given up to the cloud. The idea that a cloud-based model will inherently simplify services is also a dubious proposition, even at the basic level of procuring raw computing power. Yes, an organization can easily acquire storage and run applications by renting server capacity. But from an enter- Finally, and most important, there’s the not inconsequential matter of service integration, which will become considerably more complex as the number of providers increases. At the moment, such integration is not part of the business model of most utility cloud providers. It is important to understand what integration is all about in the traditional outsourcing model, versus how it will look in a cloudbased environment. Today, integration is really about getting multiple vendors, across systems and functions, to work together to manage basic services in a common and consistent way. If an application goes down, the company providing the desktops needs to be able to work easily with applications providers to solve the customer’s problem. In an environment where companies are sourcing business and IT processes on the cloud, however, Cloud on the horizon Both business and IT executives see the value of cloud computing across many aspects of the enterprise. Almost half of the business executives surveyed believe that cloud technologies will enable them to focus on transforming their business, not just their IT function. IT executives, however, appear to be somewhat more skeptical. What aspects of the cloud value proposition especially appeal to you? (Survey of 628 enterprises) Cloud drives down the overall cost of running business applications We can implement business applications we need much quicker when they are provisioned in the cloud Cloud empowers us to access best-in-class applications quickly, which we could not have accessed readily before Cloud facilitates a virtual/distributed organization Cloud enables us to focus on transforming our business, and not only our IT function Business executives IT executives 0% 10 20 30 40 50 60 70 Source: HfS Research and The Outsourcing Unit at The London School of Economics, November 2010 47 Outsourcing the greater integration challenge will be integrating data consistently across multiple services and then understanding the end-to-end business process that’s being serviced so that a company can be confident that its employees and customers are being served properly. The cloud will hasten the emergence of multiple classes of outsourcing services and providers. Take a common financial process like order to cash. In a cloud or software-as-a-service environment, a company might use five different cloud-based services to run that end-to-end function. But from the company’s perspective, all executives really want to know is how quickly they can get from order to cash, and how the speed, efficiency and cost of doing so can be influenced in a positive way. At this point, monitoring and managing that integration—keeping in mind the ultimate business goal of the service— is a capability well outside the comfort zone of most cloud providers. Utility cloud providers are also becoming aware that clients expect them to assume liability for data security and integrity. These companies are, after all, product and software vendors at heart. Being able to do more than issue periodic software updates and attend to the hardware details—to tend to the data across services and ensure its safety and integrity—requires skills, mindsets and business models that most utility providers do not currently have. Class system The role of outsourcing is changing dramatically and will continue to do so as companies increasingly rely on the cloud for IT processing and business services. We are, in fact, entering a period when the cloud will hasten the emergence of multiple classes of outsourcing services and providers. At least three service categories are likely to emerge. And at this point in the evolution of the industry, it is possible to identify some of the key success factors that will be in place for each one. Category 1: Utility providers As suppliers of IT power or basic business process functionality, the value proposition for utility providers will focus primarily on efficiency and cost. For example, we worked with a large logistics company responsible for shipping hundreds of millions of items around the world every year, each with a unique barcode. Those barcodes represented hundreds of gigabytes of data that had to be managed each month. As part of its quality control processes, the company wanted to be able to readily identify errors such as different items accidentally being assigned an identical barcode. That 48 Outlook 2011, Number 1 meant a fairly massive undertaking in terms of the storage and computing power needed to perform that kind of analysis. When a cloud solution was implemented for the company, it involved 150 servers at a total annual cost of $131,000. By comparison, if the company had attempted to implement the same capability within its own IT department, it would have required the purchase of a $4 million high-end server. In addition, the processing power of the cloud solution was truly remarkable: The company was able to process an entire month’s worth of data in 4.3 minutes. www.accenture.com/Outlook Success factors: The essential capabilities of a utility cloud services provider will be driven by the obsessions of a typical CIO, whose primary concern is the availability of services: On a percentage basis, how often is an IT service up and running when I need it? For IT executives, the gold standard of availability and reliability has always been what they call “five nines”—that is, services available 99.999 percent of the time. Cloud providers are already coming close, by developing industrialized capabilities to deliver that level of assurance. For example, Amazon Elastic Compute Cloud (Amazon EC2) is a web service that provides resizable computing capacity in the cloud. Amazon’s service level agreements with clients already guarantee 99.95 percent availability. Small percentage points of performance make a huge difference over the course of a year. If your network availability is 99.999 percent (a figure often achieved in the telecommunications industry), the amount of downtime over the course of an entire year is only about five minutes. By contrast, 99.9 percent availability means that applications are down almost nine hours a year. That downtime translates into lost productivity, missed sales oppor- tunities, poor customer service and more. For highly transactionintensive applications in industries such as financial services, outages can cost millions of dollars per minute. Other considerations that will be critical to the success of utility providers: recoverability—that is, if there is a failure, how fast is the service back up, and is all my data safe?—and, of course, security. At the moment, there is no denying that data security and integrity are sticking points for the ascendancy of the cloud business model. Identifying who is responsible for risk management and mitigation among the new players in the cloud ecosystem will be essential. Category 2: Business function providers The second category of cloud or outsourcing companies will be niche providers with deep expertise in particular functions such as sales, HR and customer support, enabling them to command a premium for their services. To use the utility analogy, while the first category is made up of the electric companies, this category is the company that provides the refrigerators, dishwashers, and home theater and audio equipment you need for the home. For the business function provider, the value proposition will be to make sure your company gets a business function (the “appliance”) that is properly configured for your needs— in other words, not just any old refrigerator but the one that fits in your kitchen space and holds the amount of food that’s right for your family’s needs. For example, consider one multinational risk management and insurance brokerage company that was using a variety of sales management tools in different locations, making it difficult and time consuming to generate an accurate global pipeline and forecast. Without transparency into the pipeline, sales management did not have the information it needed to make effective decisions about which opportunities required dedicated resources. The company went with a softwareas-a-service supplier—in this case, Salesforce.com—to provide a common means of enabling an accurate global pipeline and forecast. Although the initial deployment was substantial, involving 1,200 users, it took only four months. The company now has a much clearer picture of the sales pipeline, which helps it align resources more effectively; this, in turn, has improved client acquisition and penetration. By reducing the number of different sales management applications, the company has also saved significantly on application maintenance costs. Success factors: The goal of the second grouping of providers— specialist groups with deep industry and functional knowledge— will be to design applications and services, at scale, that are readily and securely configurable to a client’s specific environment, needs and business goals. These providers will continue to offer important value to their clients, since engaging a software-asa-service provider is significantly less expensive than a company buying and maintaining its own functionality. One important advantage of these providers is their ability to offer access to the latest generation of software. Beyond that, however, successful companies in this category will need to be able to drive continuous improvement across their offerings, as well as to include their solution as a modular component in a more comprehensive business design. 49 Outsourcing For further reading “Cloud computing: Where is the rain?” Outlook, October 2010 “Agile IT: Reinventing the enterprise,” Outlook, June 2010 For these and other articles, please visit accenture.com/Outlook Category 3: Integrators and value-added business designers The third type of outsourcing provider will be one that recasts itself as a “business design” consultant in addition to serving as an aggregator and integrator of critical services. That is, such a company will help its clients become “cloud enterprises”—organizations that are more dexterous and agile because they can adapt their very business design on the fly. Offering this kind of business capability will require an outsourcing provider to develop a higher level of sophistication in integrating its own and other services and in managing them seamlessly. Consider the complexity involved even in a rather nascent form of this business design consulting that ensues from a cloud-based environment. One global financial services company initiated a new strategy to improve its client acquisition and penetration efforts, and to enable the better allocation of scarce resources to business opportunities. The solution was a hybrid between what we’ve termed the “utility model of raw computing power” and the sales functionality delivered through a software-as-a-service model. The implementation strategy was based on an extremely agile approach—starting with a common core solution and then radiating out to more configured solutions for units in different countries, all in an unusually fast, eight-week timeframe. Offshore resources were used for the raw utility needs, such as data conversion. The result was that the company met its goals for transformation at scale in a compressed, accelerated timeframe. Success factors: Far from putting outsourcers and integrators out of 50 Outlook 2011, Number 1 business, the new cloud environment is likely to make the services of an integrator even more critical to becoming a high-performance business. The specific role an integrator plays will change, however. Critically, it will involve managing a more complex, hybrid computing environment. For many companies, an integrator acting as a trusted broker will be needed to solve the interoperability and security challenges of cloud services. Such an integrator will be tasked with taking a holistic view of IT and business services across an entire enterprise, helping mitigate risk and improve quality by managing some or all of those services end to end. This means that a successful integrator will have to be more than a pure consultant, and will need to have deep operational experience across all major business processes and technology solutions. Because it is so early in the cloud computing maturity curve, consistent standards are not yet in place. If part of a process is run by one provider and another part by a different provider, the smooth and seamless integration of services is likely to be a challenge, especially as companies eventually seek to switch providers to improve performance or reduce costs. An integrator will be able to offer better governance to harmonize the pieces and also to ensure that a client is, in fact, making proper use of the computing and process resources for which it has contracted. The integrator should also be able to provide what we can call “frictionless business design.” www.accenture.com/Outlook Aided by the other two categories of outsourcers—utility services and business function providers— integrators will work with clients to combine, recombine, commission and decommission different components of a full IT and business solution. This can reduce the friction of functions operating in obsolete ways, or of newer functions that are not adequately integrated into the business. Companies should be able to acquire a service, use it where it makes sense and then say goodbye to it when it’s no longer needed. Finally, the ability to bring innovation to a client will be a distinctive feature of successful outsourcing providers in the cloud era. Our research and experience suggest that the next stage in outsourcing will be achieved when service providers and clients collaborate to innovate, and this is another key task of the new breed of integrator. This novel kind of relationship between provider and client will draw on distinctive leadership skills and pioneering contractual relationships where risks and benefits are shared more equally. Achieving such relationships takes time and commitment—a commitment that is unlikely to be achieved in a commoditized, cloud–based contract but that can leverage those commoditized value points integrated into an overall solution. New game, new rules Clearly, there are many unknowns in this new cloud-based outsourcing environment. Will utility providers be able to make the jump from what we might call “consumer grade” services to something that is truly robust enough to be enterprise grade? Will software companies be able to make the jump to being true service providers? Will integrators be able to manage the new complexity and encourage the kind of trusted relationships with clients necessary to act as their business designers or redesigners? What is clear is that this is a new game that cannot be played successfully under old rules. This is another evolutionary shift in the relentless way that value migrates in an industry. What was innovative becomes commoditized, leading—for those who intend to keep playing the game—to another era of innovations. Companies that intend to be effective in the new game need to start changing the way they manage their IT and business operations now. They need to plan for the environment of the future; they need to carefully assess the risks involved with deploying new technologies; and they need to understand at an even more detailed level the capabilities of their suppliers and providers so they can choose their integrator properly. About the authors Jimmy Harris is the Washington, D.C.-based managing director of cloud services for Accenture. In this role, he works with the company’s consulting, systems integration, outsourcing and integrated markets groups to identify, develop and implement cloud computing solutions for clients and enhance Accenture’s market position in cloud computing. Previously, Mr. Harris was managing director for Accenture’s Customer Contact Services and Infrastructure Outsourcing Services groups. [email protected] Gavin Michael is Accenture’s managing director for innovation and alliances, which includes responsibilities for alliances, technology-based innovation and Accenture Technology Labs. He has more than 20 years’ experience in technology leadership. Prior to joining Accenture, Dr. Michael held several executive positions with major financial services companies, including Lloyds Banking Group and National Australia Bank Group in Sydney, Australia. He is based in San Francisco. [email protected] Most important, perhaps, is to begin to understand what it means to operate in a multisourced environment, where the different components need integrating, not just once in a while but constantly. 51 Talent & Organization Performance The talent to grow By David Smith, Catherine S. Farley, Diego SГЎnchez de LeГіn and Stephanie Gault New research suggests that few executives believe their recession-battered workforces are prepared to fully exploit the global recovery. To drive growth, companies need to embrace a human capital strategy that more closely links workforce planning to business objectives and looks at the broader implications for leadership and the organizational culture. 52 Outlook 2011, Number 1 Talent & Organization Performance For most of the world’s companies, growth appears to have regained its place at the top of strategic agendas, displacing the cost-control mentality that has dominated boardrooms and executive suites for the past three years. That’s the good news. But by having eliminated tens of millions of jobs during the Great Recession, are these companies now unprepared for economic recovery? Do they, in fact, have the talent they need to grow? Almost half the companies that participated in Accenture’s 2010 High-Performance Workforce Study report having a smaller workforce than they did before the recession, and almost two-thirds of them say they do not intend to return workforce numbers to pre-recession levels within the next couple of years. Add to the mix the fact that more than a third of companies based their workforce cuts not on individual performance or careful workforce planning but rather on who responded to buyout and early retirement offers, and you have a situation less than ideally suited to assembling a team of stars capable of driving growth. It’s not a pretty picture. Basic talent management functions—employee sourcing and recruiting, for example— have been allowed to atrophy during the downturn. Reduced workforce numbers increase the importance of incumbent workers for driving better productivity, yet confidence in the skill levels of today’s critical workforces is not high. Companies are increasingly aware of how the ever-changing, multi-polar nature of the world’s economy places tough new demands on their global reach and capabilities, yet few of their executives feel their workforces are prepared to adapt. The broader implications Developing the talent to grow will require coordinated initiatives that include developing a human capital strategy that more closely links workforce planning to business 54 Outlook 2011, Number 1 objectives and looks at the broader implications for leadership and the organizational culture. New approaches to employee development will also be essential. The ongoing uncertainties of the current economic situation underscore a critical fact about today’s business strategies: Growing effectively, at the right pace and in the right ways, takes talent. Economists are uncertain about what will happen to the near-term economy, but most expect growth to be somewhat lackluster—between perhaps 4 percent and 5 percent GDP growth globally over the next year. But our research finds that companies across industries and geographies are, in fact, focusing less on cost control and more on growth. www.accenture.com/Outlook In mid-2009, during some of the worst months of the economic downturn, 41 percent of the companies in our study were dominated by strategies aimed at keeping costs under control. Today, that number is down to 27 percent, and executives show a degree of optimism about the coming year: Only 15 percent believe cost control will be their exclusive focus a year from now. But looking at the numbers of workers still in place today after months of economic turmoil, one might well have doubts about how realistic those growth plans are. Sixty-three percent of companies globally have reduced their fulltime employee workforce in the past year. Almost equal numbers do not expect to add jobs over the next year, or even in the next two years. Less than top-notch Companies that expect to execute growth strategies with fewer employees are placing an additional burden on the skills of existing workers to innovate and improve overall productivity. Yet few executives express confidence that their companies’ most critical workforces— frontline positions such as sales and service—are world-class. For example, a majority of executives who cited sales as their most important business function said their companies either lack the needed skills in the sales function (29 percent) or that a significant proportion of the skills they do have in sales are out of date (24 percent). Disturbingly low percentages of executives see some of their other important workforces as top-notch: engineering (30 percent), training (35 percent), customer service (30 percent), IT (22 percent) and strategic planning (23 percent). Overall, just 16 percent of respondents consider the current skill level of their entire workforce as industry leading. Worse, 30 percent said it will take a year or longer for their organization’s workforce skills to return to an effective level. The situation appears to be especially troubling among companies in the insurance, chemicals/natural resources and banking sectors, where only between 6 percent and 8 percent of executives said their overall workforce has industry-leading skills. Did companies at least make sure to keep their top performers during the workforce cutbacks of the past couple of years? The analysis is again troubling. Thirty-five percent of companies based decisions about severance in part on who accepted a buyout offer or early retirement. Just over half used performance criteria to make such decisions, a number that was even lower at government agencies (24 percent) and health organizations (21 percent). Companies report that substantial portions of their leadership and workforces lack resilience and the ability to manage through change. External marketplace and industry shifts also focus attention on changing skill needs. For example, as retailers expand their online and mobile presence, they need more people with digital skills and fewer for traditional in-store positions. Financial services companies are looking for more workers with knowledge of risk management. Many industries, from manufacturing to high tech, require more employees with science, technology, engineering and math skills than are readily available, especially in many industrialized nations. This skill gap explains the number of unfilled jobs—3 million in the United States and a similar number in Europe, according to the Bureau of Labor Statistics and the European Commission—in spite of high unemployment rates. 55 Talent & Organization Performance The global nature of competition also has executives looking at the effectiveness of their operating models. In the United States, for example, recent data shows that 46 percent of the profits at S&P 500 companies come from abroad. We spoke recently with an executive of a US-based aerospace and defense company looking to address a situation in which 70 percent of its employees are in the United States but 70 percent of its customers are not—a situation that can make it difficult for any company to respond adequately to local needs. Even when the capabilities to manage this kind of change exist, they often leave much to be desired. Companies report that substantial portions of their leadership and workforces lack resilience and the ability to manage through change. Just 8 percent of survey respondents said their workforce is extremely well prepared to adapt to and manage change through periods of economic uncertainty. Only 23 percent strongly agreed that their leadership was up to the task. Putting the right capabilities in place to drive expansion in the coming years will depend in part on HR capabilities in areas such as sourcing, employee development and performance management, yet cuts made during the recession have weakened that part of most organizations. Nearly 30 percent of companies said they have either reduced or entirely eliminated campus recruiting, talent sourcing or experienced hire/executive recruiting in the past 12 months. Four in 10 companies said it will take them at least a year, if not longer, to return their talent management capabilities to the appropriate level. Differentiated capabilities A critical aspect of the Accenture High-Performance Workforce Study 56 Outlook 2011, Number 1 is a comparison of leading companies and their lower-performing counterparts across all relevant talent and organization performance domains. Leaders were identified as those companies with the highest total scoring in the self-assessment of their capabilities across all 18 critical dimensions, including workforce planning, training, performance management, sourcing and leadership development. Overall, several characteristics separate leaders from laggards in terms of their readiness for growth. For example, leading companies in the talent arena are more likely than laggards (51 percent versus 43 percent) to be balancing cost control and growth strategies instead of focusing only on cost. Leaders were also more likely to have retained a more robust workforce planning capability (42 percent versus 36 percent) and employee development programs (47 percent versus 33 percent). If more organizations are to become leaders in the areas of talent and organization performance and support better execution of a growth strategy, we believe they need to focus especially on the following areas. Workforce planning in the context of a human capital strategy One of the critical dimensions of strategy execution today is taking a more holistic and proactive approach to workforce planning—that is, planning for the types of skills, where and in what numbers, an organization needs to ramp up to a new level of performance. Whether they call it HR, talent management, workforce planning or something else, industry leaders have always had some means of putting in place the people and skills needed to run the business effectively. Indeed, by 42 percent to 36 percent, leading companies in our workforce study were more likely than laggards to have increased their use of workforce planning over the past year. This finding supports the belief that business effectiveness depends significantly on better planning about the workforce capabilities needed to execute strategy. For several reasons, however, economic challenges and the speed of marketplace change have outstripped the ability of traditional workforce planning to meet today’s business needs. As a result, although executives may feel they already have a workforce plan in place, it is frequently nowhere near robust or comprehensive enough. It may address traditional matters such as sourcing, hiring, training and rewards. But these touch only some of the critical dimensions of human capital—a term that captures the idea of executives treating employees as an asset that the company can invest in and, based on how that capital is nurtured and treated, see a return on that investment. Executives must now pursue a more comprehensive human capital strategy across four interrelated dimensions—talent, leadership, culture and organization structures. A human capital strategy helps put in place the right leaders to source, develop and direct the right workforce talent, supported by the right culture, organization and operating model. As with a business strategy, an effective human capital strategy informs many of the company’s most important decisions about where and how to compete, and www.accenture.com/Outlook supports the enterprise as it balances short-term decisions with longer-term imperatives. In this way, it can meet today’s business needs and still be agile enough to reposition itself to support an enterprise’s ongoing market competitiveness and growth. Several examples of the multidimensional aspects of a human capital strategy highlight its importance to a company’s growth strategy. National Grid, one of the largest utilities in the world, faced a pressing need to rapidly develop new leaders throughout a business unit facing unprecedented competitive pressures. The company created a leadership development program, tied to a transformational business strategy, that connected managers’ personal leadership experiences to real business problems. According to John Pettigrew, the company’s former executive vice president for US electricity distribution and generation and current COO of the company’s UK Gas Distribution and Metering business, National Grid needed to extend its leadership development focus more broadly. “There had to be a new mindset about who our leaders are,” he notes. “We had to develop an extended leadership team that would become more accountable for our business results.” The new program combines individual coaching with a series of learning forums supported by action learning teams—groups Under pressure Nearly half of executives surveyed say their companies have smaller workforces now than before the recession—and almost two-thirds of those executives report they have no firm plans to increase headcount to previous levels. This puts pressure on organizations to execute a growth strategy while shorthanded. How does the size of your workforce compare to its pre-recession levels? Do you plan to eventually return your workforce to its pre-recession size? 7 Our workforce is now smaller than before Our workforce is the same size as before (or no changes made) Our workforce is now larger than before 2% Yes, within six months Yes, within 12 months 47% 26 Yes, between 12 months and two years 19 44 Probably not 21 Definitely not 34 Source: Accenture High-Performance Workforce Study 2010 57 Talent & Organization Performance banding together to work toward common goals and share leadership lessons from that work. grow in a challenging market and to expand into global markets for increased profitability. The company’s transformation program, enabled by the development of new leaders, has produced numerous business benefits. For example, the number of “lost time” injuries has been halved over the past two years. National Grid’s reliability metrics are also markedly better, resulting in a dramatic reduction in regulatory penalties for failing to comply with acceptable standards of electricity supply. Growing skills An interesting example of aligning culture and growth strategies comes from work that one large Asian manufacturer undertook following a European acquisition. The executive team defined the beliefs and values that were to guide the refashioned European unit and aligned these to a new global operating model. A mix of executive interviews, proprietary surveys and workshops drove clarity and alignment. The executives identified existing beliefs they felt would work in the new company, and the merger integration project team dug into details to make sure that mindsets about stretch targets and accountability were understood the same way in both companies. The team explored areas of disagreement, working these out and achieving consensus for moving forward. The top team attended daylong workshops each month (in addition to work between meetings) in different countries in which the company operated. One important result of this work was a strongly aligned leadership team with deeper relationships across silos and shared experiences of working together effectively. Three years later, the European business unit continues to 58 Outlook 2011, Number 1 Even if they’re aware of the skill challenges they’re facing across most corporate functions and industries, many companies will find it difficult to get back on the path to growth in an improved economy. This is especially true for organizations that practically shut down the talent pipeline during the recession and likely won’t be hiring in the near future. An “academy” approach to learning is one highly effective way to get extended workforces up to speed faster, and to ensure a more consistent skill level across a particular functional workforce, while providing the flexibility to accommodate the needs of other workforces and individuals. An academy’s curriculum generally is developed with the help of outside experts—leaders in the various fields covered by the academy’s courses—and is designed to build competencies critical to the effectiveness and productivity of specific employees and their jobs. International beverage and food company PepsiCo has used an academy approach to build consistent skills within its finance workforce in a more global operating environment. PepsiCo has been expanding into developing nations, including Russia, Brazil, China, Indonesia, Eastern Europe and the Middle East. Yet, as Richard Goodman— former chief financial officer, now executive vice president of global operations—looked across PepsiCo’s finance organization, he saw a need to provide advanced learning opportunities to his finance professionals—both to meet growing functional demands globally and to respond to accelerating business growth in the company’s developing markets. Goodman and his senior finance leadership team developed a comprehensive roadmap to address this need. The result was PepsiCo Finance University—a way to reinvent how the company’s finance talent around the world was trained, build a broader set of skills in its finance workforce and distribute those skills globally. In turn, this approach could improve retention and increase the impact of the finance function on business results. Using an academy-based learning model was important for several reasons. Historically, enterprise learning for the finance function had emphasized division-specific, on-the-job experience and individualized coaching. Only about 10 percent of learning occurred as part of a common, formal curriculum. Now, however, the finance organization needed to get consistent training and information to all finance associates. PepsiCo Finance University packages scalable, online offerings based on carefully defined curriculums and organized into “colleges” representing specific subject components of the overall finance curriculum. The university uses a blended learning model, employing innovative e-learning, self-paced courses and virtual learning experiences. The courses are enriched with PepsiCo business content, which is drawn from subject matter experts and thought leaders throughout the organization. One of the most distinguishing features of the university is its focus on applying course learning www.accenture.com/Outlook to real business issues. Groups come together, in person or virtually, to talk about problems facing the business and they work to solve local business challenges. Hands-on practice and virtual learning labs augment e-learning to reinforce knowledge and desired behaviors. PepsiCo Finance University has had both quantitative and qualitative effects on the performance of PepsiCo’s finance organization and the business as a whole. For example, in light of global economic conditions, the company recently increased its focus on overall cash flow across the company. So the university created a new course to disseminate more effective cash management practices throughout the company. Three months after completing the course, an analysis of skills development found that 60 percent of participants reported improved performance in cash flow management; Serious skill shortcomings Workforces critical to the success of companies may not have the skills needed to drive growth. Among executives identifying the following workforces as critical, significant percentages of respondents noted serious skill shortcomings. Workforce lacks needed skills Engineering 40% Strategic planning 32 Sales 29 Customer service 29 Research and development 29 Human resources 29 Distribution and logistics 28 Marketing 25 Finance Training and development IT 24 23 22 Source: Accenture analysis 59 Talent & Organization Performance 51 percent of participants’ managers reported seeing this change in behavior as well; and nearly 50 percent of participants reported improving cash flow accuracy. Creating a more strategic HR organization Managing talent across national borders is especially important, given the global nature of most large companies. One of the biggest disparities between leaders and laggards in our study was in the effectiveness of their HR organizations. Leaders’ HR and training organizations are much more prepared to adapt to and manage change through periods of economic uncertainty. Eighty-seven percent of leaders, versus just 28 percent of laggards, rated their HR and training organizations as either well prepared or extremely so. New success factors for HR have arisen in recent years. Managing talent across national borders is especially important, given the global nature of most large companies today; this includes enabling the businesses to operate consistently around the world, while also satisfying the legal requirements of individual nations. It’s also essential to have better metrics, which now means more than simply monitoring administrative costs. To be industry leaders, HR executives now must understand and measure the value of human capital itself—the total costs and investments in people. For example, one aerospace and defense company set out to design and staff a new business unit and wanted to ensure it could source the right kind of talent. Companies in this industry continue to struggle with finding adequate engineering talent, since the demand for engineering skills is growing even as the supply dwindles. The company adopted a multi-phase approach called “smart sourcing.” Workforce planning took place to create a competency framework—the 20 to 30 key skills that would be needed within the business unit’s workforce. Research was then used to map where the supply of talent was likely to be within the country. Finally, a sourcing strategy and recruitment campaign was designed to meet both short- and long-term talent demands. Through this work, the company was able to identify geographic pockets of talent and then drive targeted sourcing recommendations on a regional and national level. With a recruitment strategy closely tied to the talent sources, the company can increase its chances of drawing the skills it needs from the available talent pool. The common theme crossing all dimensions of our research findings into high-performance workforces is the need to think more strategically about the related dimensions of workforce, leadership, culture, organization, training and HR. In some areas of the world, a great deal of attention is being paid to whether we will be mired in a “jobless” recovery. But few executives actually think that way. Those companies that plan to grow know that to execute that strategy, their workforces will need to grow as well. The questions are: When, and at what pace? Among the most important characteristics of tomorrow’s high-performance businesses will be their ability to optimize the value of their human capital, in part by eliminating workforce strategies and efforts that are not aligned 60 Outlook 2011, Number 1 www.accenture.com/Outlook with business value. They will achieve better productivity and better retention of top performers, as well as improved business results that include faster product innovation, higher sales and better customer service leading to increased market share. However, as they also find untapped value with less redundancy and waste in workforce performance—and in managing that performance—organizations will be able to redirect those savings into new resources and capabilities focused explicitly on new business needs. That ability to reinvest will be one of the key ways that high performers will find the talent to grow. About the authors David Smith is the managing director of the Accenture Talent & Organization Performance service line. He has been a guest lecturer at Wharton Business School and Babson College and is a frequent speaker at industry conferences and events. Mr. Smith, who is based in Hartford, Connecticut, has published numerous articles and papers, has contributed his viewpoints on the business impact of human capital strategies to various media and industry publications, and is the coauthor of Workforce of One: Revolutionizing Talent Management Through Customization (Harvard Business Press, 2010). [email protected] Catherine S. Farley leads the Accenture Talent & Organization Performance service line in North America. Ms. Farley has more than 20 years’ experience with workforce restructurings and the implications of business change on multiple human capital dimensions, including executive leadership, talent management, organizational structure and design, learning, business readiness and change management. Ms. Farley has contributed to articles and papers published in major US publications. She is based in Seattle, Washington. [email protected] Diego SГЎnchez de LeГіn leads the Accenture Talent & Organization Performance service line in Europe, the Middle East, Africa and Latin America. He has extensive experience working with international companies, governments and non-profit organizations in the areas of talent management, global operating models, IT implementations, HR cost reduction and culture change. Mr. SГЎnchez de LeГіn, based in Madrid, is a frequent speaker at industry conferences and has contributed to articles published in major media outlets in Europe, Africa and Latin America. [email protected] Stephanie Gault leads the Accenture Talent & Organization Performance service line in Asia Pacific as well as Accenture’s Management Consulting business across Southeast Asia. Ms. Gault specializes in developing major change programs and designing human capital and HR strategies aimed at improving staff performance in larger organizations and governments. She is a frequent speaker at conferences and a member of Accenture’s Management Consulting Women Leaders’ Business Board. Ms. Gault is based in Singapore. [email protected] For further reading “A team you can count on,” this issue, page 14 “The change-capable organization,” Outlook, October 2010 “A workforce of one,” Outlook, June 2010 For these and other articles, please visit www.accenture.com/Outlook Emerging Markets Why the West needs to learn about workaround innovation By Karen Crennan and Carola Cruz Bold new ideas are not predestined to flow into emerging markets from the developed world. A different approach to innovation pervades the new economies, born of scarcity and expressed in levels of ingenuity, resourcefulness and drive that are harder and harder to find at Western companies. 62 Outlook 2011, Number 1 Emerging Markets Over the years, the typical narratives about innovation have had a distinctly Western bias: Edison and the filament bulb, Marconi and the wireless, Berners-Lee and the World Wide Web. But perhaps it’s time for a new icon—or several of them—to illuminate the fact that innovation today is very much a global phenomenon. It is relatively easy for business leaders in Chicago or Stuttgart or Osaka to overlook the richness and range of innovation in the developing world—innovation not only in products but in business processes and behaviors as well. But Vijay Govindarajan, professor of international business at the Tuck School of Business at Dartmouth College, believes that more and more innovation will take place in emerging economies because that is where the bulk of tomorrow’s customers are. And anyone who still believes that innovation is the exclusive province of developed markets has somehow missed the rise of nanotechnologies and biotech in Beijing, digital media and genomics in Seoul, biofuels in Brazil and automotive technologies in Poland. But there is another crucial aspect to this innovation story. It is not about where research and development funds are raised or spent, or even about the innovations themselves. It is about the innovation mindset that is pervasive throughout emerging markets—a mindset born of scarcity and expressed in levels of ingenuity and resourcefulness that are harder and harder to find in the West. We call the fruits of this mindset workaround innovation, the entrepreneurial and usually resource-strapped approach to innovating seen everywhere from Mexico to Nigeria and from Vietnam to Ukraine. It is a way of approaching innovation that businesses all over the developed world now need to rediscover in themselves—and not only because they are pursuing market opportunities across the globe. 64 Outlook 2011, Number 1 www.accenture.com/Outlook With the spotlight again on growth, business leaders in the developed world are placing their faith in innovation. Nearly 9 out of 10 US and UK executives surveyed in Accenture’s latest research say innovation is as important, if not more important, than cost reduction to their company’s ability to achieve future growth. And despite the anemic recovery, there is support for innovation funding: Almost half (48 percent) of the executives polled report that funding overall for innovation initiatives and activities increased in the six months prior to the survey. However, when it comes to putting innovation into practice, most are challenged to bridge the considerable gap between ideas and execution (see chart, page 66). Falling behind More troubling, those British and American executives and their Western peers are not keeping pace with their counterparts in the developing world in terms of their rates of investing in research and development. Research published last year by R&D Magazine and the Battelle Memorial Institute showed that while R&D funding has been largely flat in the West, it is set to show strong gains in emerging economies, both now and projected into the future. One snapshot: China and India were forecast to drive an aggregate 7.5 percent increase in R&D in Asia in 2010, whereas R&D spending in Europe was projected to grow only 0.5 percent. At the same time, the Accenture study found flaws in the way innovation is managed in the West, including process shortcomings and a lack of business discipline— both big internal barriers to successful innovation. In addition, among developed-world companies there is widespread aversion to risk and a failure to learn from past mistakes in innovating. There are bright spots, to be sure. In recent years, Western businesses have begun to uncouple their overall R&D efforts from the in-house resources available for those efforts. Companies as large as Procter & Gamble and Eli Lilly & Co. have moved assertively toward “open innovation” models. Those models transcend straightforward outsourcing of R&D activities; they use systematic Web–based “seekersolver” idea exchanges and “crowdsourcing” techniques to tap ideas from far beyond the company’s walls. They also actively involve diverse university faculty and fellows at research institutions around the globe. But as many corporations continue to struggle to reignite growth, the need for a reenergized approach to innovation couldn’t be more urgent. This is especially important as more organizations expand globally, increasingly working with customers, employees, financiers, suppliers, infrastructure, legal frameworks and competitors whose outlooks and experiences can be a world away from what their leaders are accustomed to. Indeed, many developed-world corporations, wedded to approaches and behaviors that have worked closer to home, appear not to have fully grasped the different approaches needed to properly address emerging markets. Out of touch? Ask any emerging-market business unit manager at a Western multinational, and there is a good chance she’ll tell you the global leaders in her organization have only limited understanding of, let alone direct experience with, the complex maneuvering and multitasking required of operators in Latin America, Asia or the Middle East as they seek to meet world-class business standards while operating with minimal human and financial resources. That is especially true when it comes to serving the “bottom of the pyramid” market segments that tend to be highly fragmented, hard to categorize and out of range of conventional services, both geographically and financially. Yet such challenges are taken in stride by businesses that grew up in those markets. Mexico’s Grupo Bimbo—the world’s largest bread-maker —provides a compelling example. Emphasizing the freshness of its products and serving a vast, complex and widely dispersed system of traditional grocery stores and changarros, or small shops, Bimbo has developed advanced systems for everything from sales and distribution to payments and inventory management. (The company’s first packages of bread were transported by public bus to Mexican grocery stores in 1947.) Bimbo invests heavily to control its delivery chain to the point of sale. Its capabilities in Mexico and Latin America, born of endless workarounds as it turned to unorthodox solutions to common problems, allowed it to rapidly develop an efficient distribution network when it expanded to China a few years ago. This kind of heterodoxy can be attributed in considerable measure to the entrepreneurship that is flourishing in many emerging economies. Entrepreneurs are risk takers, and risk taking is often the enabler of innovation. By contrast, there is at least 65 Emerging Markets anecdotal evidence to suggest that in recent years, multinationals from the developed world are more reliant, not less, on practices and protocols promulgated at “headquarters.” The facts of life In essence, a workaround is a temporary fix that requires minimal resources. It is an approach to innovation that relies heavily on judgment and experience at the point of the problem, and that puts a premium on speed. Workarounds are facts of life for many in emerging markets; they are necessary and usually rapid responses to everything from blackouts and phone outages to onerous bureaucracy and the daily grind of poverty. The scarcity and unpredictability now seen as the “new normal” in the West are quite normal—and hardly new—in emerging economies. As such, a workaround mentality is commonplace throughout the emerging world. In India, in fact, it is summed up in the Hindi word jugaad, which Harvard Business Review translates loosely as “overcoming harsh constraints by improvising an effective solution using limited resources.” Indeed, the street-level inventiveness and resourcefulness on display from Cairo to Kolkata is legendary among world travelers and expatriate workers from industrialized nations. However, it is essential to distinguish between precarious Committed to R&D The United States, Japan and the European Union are still spending more than China and India on R&D. However, US, Japanese and European research investments have been either flat or falling since 2008, while R&D investment is growing significantly in China and India. Global R&D spending ($ billions), PPP, 2008–2010 1% 2008 2009 2010 -4% 397.6 389.2 401.9 278.8 267.1 -19% 268.5 38% 147.8 139.6 142.0 102.3 123.7 141.4 26.7 United States Source: R&D Magazine; Battelle; Accenture analysis 66 Outlook 2011, Number 1 European Union Japan China 28.1 India 33.3 24% www.accenture.com/Outlook improvisation—think of homemade motor vehicles and jury-rigged household wiring—and the kind of genuine innovation, often characterized by out-of-the-box thinking, that can lead to lasting solutions. Properly harnessed, workaround innovation, like other forms of innovation, can generate a step-change in the performance of a system, product or process, or a material change in cost structure. It will usually lack conventional funding, however, and won’t fit within formal R&D activities. Of course, workaround innovation is by no means exclusive to emerging economies. But to a large extent, the Western world’s resource richness—ready access to technology, financial services and telecommunications infrastructure, for instance—has robbed it of its reliance on the native imagination, drive and perseverance that helped produce the unprecedented surge of prosperity seen in the global economy in the second half of the 20th century. Shining a brighter light on the capabilities innate to many in developing nations can also help undo the bias implicit in the term “reverse innovation”—an expression that effectively stigmatizes innovations that come from, say, India or China and that hints, uncomfortably and often unfairly, at patent or copyright infringement. Workaround enablers Before business leaders in developed markets can start to consider how they might foster workaround innovation in their own organizations, they need to get inside the heads of today’s practitioners. Here are the core attributes of emerging-market innovators. 1. T hey encourage and support resilience It is important to ensure enough flexibility in policies and practices so that when staff members hit setbacks, they have the latitude and space to find innovative responses. It is also helpful to foster a culture that recognizes and celebrates resilience, so when employees proactively bounce back from setbacks, their recoveries are acknowledged. In the United States and Western Europe in particular, the average middle manager is not old enough to have experienced multiple economic slumps or infrastructure disruptions, so he has developed few proven responses to hardship. But his counterpart in Argentina or Russia has been through plenty of crises large and small, and knows there are more ahead. Having lived to tell the tale— and perhaps even thrived—the Argentine manager has the confidence of knowing he can almost certainly surmount the next crisis. 2. T hey have a strong stomach for managed risk On the whole, managers in emerging nations are much more likely to act without waiting for all the relevant data to confirm their decisions. This is not necessarily by choice: In most cases, emerging-market managers have little or no detailed historical data or statistical models on markets and competitors, and what they do have may be inaccurate or incomplete. What’s more, long lead times for testing, modeling and validation are incompatible with unpredictable financial and political climates. They are more likely than their Western counterparts to leverage past experiences to assume a “go for it” approach. So the Brazilian manager sees more risk in not trying, and believes there is much more to be learned from rapid realworld experiments. 3. T hey operate with a sense of ownership Facing a turbulent economy, Western managers often simply try to ride out the storm—slashing costs and waiting for the situation to return to normal. But the storm-toughened manager in Russia or Brazil plans and acts as if the downturn or disruption is permanent—as if it is the “new normal.” She knows from experience that she will still have to meet volume, market share and profit targets. She also realizes that no relevant outside help will arrive—at least, not in time to make a difference. So she takes charge of the situation, marshaling the necessary resources and committing herself and her team to resolving the issue and meeting her targets. So what can business leaders do to acquire and benefit from a workaround mindset? We suggest the following guidelines. Think “spoke to hub,” not just “hub to spoke” Most multinational companies have sizable footprints in the emerging world, so they have immediate access to employees who are used to dealing with scarcity and uncertainty. As a result, those organizations are well placed to implement “spoketo-hub” and even “spoke-to-spoke” 67 Emerging Markets For further reading “Brazil on the move,” Outlook, October 2010 “India: The innovation advantage,” Outlook, October 2009 “Open innovation: How to create the right new products, the right way,” Outlook, October 2009 For these and other articles, please visit accenture.com/Outlook frameworks where the brightest stars from emerging markets are able to coach managers in developed countries. These models are not to be confused with programs designed to foster diversity or inclusion; the objective of disseminating a workaround mindset is to improve the organization’s allround innovation capabilities. The emphasis is on the exchange of ideas on everything from formal advisory boards to training programs that involve case studies of best practices from throughout the worldwide organization. The objective is to enable Western managers to understand what their counterparts in developing nations must deal with, and to help them appreciate successes other than their own best-practices bubbles, which are often underwritten by an abundance of resources. Another tactic is to shape participation in leadership development programs and corporate strategy development programs with an overrepresentation of leaders and up-and-comers from the organization’s operations in the developing world. Such programs send a clear signal that it is essential to pay more attention to the voices from the new markets. Nor does a focus on the spokes diminish in any way the importance of best practices. Leading companies will understand how to find the balance between encouraging an entrepreneurial workaround mindset and a mav-erick stance that threatens to create further silos and lead to its own disruptions. Identify the workaround innovators you already have In practice, workaround innovation is happening all the time in almost all organizations, even if it is not 68 Outlook 2011, Number 1 recognized as such. In large multinationals, there will likely be a slew of small, daily examples in most functions, business units and regions. It will not take much effort by senior executives to shortlist the managers who are masters at delivering strong and growing profits on minimal budgets and with tiny staffs. The next step is to deconstruct the workaround innovator’s approaches and see what can be replicated. And then it is important to begin to create a workaround culture without diminishing the value of more traditional innovation channels. That effort starts by sharing and publicly celebrating the achievements of existing workaround managers. Shoot for the moon Workaround innovation can begin with what authors Jim Collins and Jerry Porras have labeled “Big Hairy Audacious Goals”—visionary goals that are strategically and emotionally compelling. Ideally, these goals should be voiced publicly and enthusiastically by senior leadership. That was the case at India’s Tata Motors in 2003 when Ratan Tata, chairman of parent Tata Group, challenged the company to develop a car that would compete with the country’s ubiquitous motor scooters— and sell for only $2,000. The result of this “put-a-man-on-the-moon” undertaking is the Nano, a lowweight, low-carbon vehicle with many innovations in production methods as well as features. Look for and utilize “leapfrog” tools and techniques Workaround innovation calls for less hesitation about using cutting-edge technology if that is what provides compelling business advantage more quickly. www.accenture.com/Outlook Banco Azteca is a case in point. The financial services provider caters to the 50 percent-plus of Mexico’s population who earn too little to be targets of traditional banks. Azteca opted for fingerprint-scan biometrics solutions to authenticate the identities of customers, many of whom lack driver’s licenses or other secure forms of identification. At launch, the scanning system, rolled out to more than 8 million customers, was the largest biometrics program in the banking sector. Today, Banco Azteca is also successfully rolling out a microfinance business model across Latin America. Share ideas at speed Workaround innovations that solve a specific problem at a point in time are valuable—but not as valuable as the same innovations shared quickly and widely around the organization so that others can benefit from them as a new best practice. Ideally, the idea will spread without the creation of bureaucracy in its wake; the idea network should be largely self-managing. That was the case at a large consumer goods retailer, which had technicians who were so passionate about the company’s products that they devised workarounds for installing particular systems in customers’ equipment. The idea was promulgated via social media—specifically, wikis—so that others had a chance to contribute to the evolving solutions. To some extent, executives in developed countries have forgotten how to innovate outside of their codified best-practice models. Weaned on the virtues of standardized approaches and tight process controls, they undervalue “folk medicine” like workaround innovation that can be found along rougher but readier growth paths. Given the proliferating uncertainties in business today, these leaders owe it to themselves and their shareholders to explore and establish such new paths to growth. Resources must not be viewed as entitlements, much less prerequisites for action; best practices should not be seen as the only route forward. And listening to the locals is mandatory. Managers in emerging economies know that instinctively. Managers in the developed world must get to know it soon. About the authors Karen Crennan is the managing director of Geographic Strategy for Accenture. She is responsible for identifying opportunities within Accenture’s geographic portfolio to accelerate growth, enhance competitive position and improve profitability. Ms. Crennan, who is based in Milan, also serves as chairman of the board of Accenture Global Services. [email protected] Carola Cruz is the marketing lead for Accenture in Mexico. For more than 20 years, she has worked in numerous leadership positions in packaged goods, media, advertising and public affairs in the United States, Canada and Mexico. In addition to her marketing responsibilities, Ms. Cruz is responsible for developing content on emerging market innovation, traditional commerce and emerging consumers. She is based in Mexico City. [email protected] The authors would like to thank the following contributors to this article: Luiz Ferezin, country managing director, Mexico; Roberto Alvarez Roldan, country managing director, Argentina; Harsh Manglik, country managing director, India; and Pedro Jose Garcia, director of financial services, Latin America. 69 Electronics & High Tech Connecting for competitive advantage By Hans Von Lewinski, Armen Ovanessoff and Joshua B. Bellin Working with others to secure skilled talent and innovative IT will be critical as electronics and high-tech companies emerge from the recession. That’s why smart organizations are preparing in advance—forging and strengthening alliances and partnerships to capture new growth opportunities, fill capability gaps and get closer to customers. It’s an example every industry should follow. 71 Electronics & High Tech Consider this: In developed countries, the average life expectancy of a computer fell from six years in 1997 to just two years in 2005. And cell phones in developed nations are tossed on average after less than two years’ use. Always a ferociously competitive and fast-moving industry, the stakes in electronics and high tech are getting even higher. Being lean and mean will only get you a seat at the table. To win in this challenging environment, companies also need exceptionally flexible operating models that combine global scale and efficiency with outstanding local execution. Few are in a position to achieve that difficult balance alone— and few would attempt to do so. Indeed, thanks no doubt to its multinational heritage—electronics and high-tech companies were among the first to globalize—the sector has long recognized that capitalizing on the strengths of outsiders can deliver significant benefits. For example, as a result of Toshiba Corp. outsourcing after-sales support for spare parts, including repairs and returns, for several countries, the company cut inventory levels by 10 percent and halved its scrap costs while increasing spare parts availability from 84 percent to 95 percent, thus boosting customer satisfaction. The industry’s recent past is filled with similar examples of partnerships and collaborations designed to secure and support competitive advantage. 72 Outlook 2011, Number 1 www.accenture.com/Outlook Small wonder, then, that as they brace for the challenges of the upturn, so many electronics and high-tech companies are looking to enhance existing business networks— or build new ones. Enhancing flexibility Leveraging the strengths of a variety of players—technology, content and service providers, channel partners, suppliers and even customers— can significantly enhance the flexibility companies need to compete effectively in volatile and uncer- tain markets. And connecting with a wider network of stakeholders in tough times has specific advantages too. Collaboration can strengthen a company’s chances of fighting off new, low-cost competitors, for example, as well as provide more options in the struggle to satisfy ever more demanding consumers. Moreover, companies that move forward together, rather than separately, will stand a much better chance of staying on top Operational imperatives When asked which operational imperatives became more important during the downturn, almost 90 percent of electronics and high-tech executives surveyed recently by Accenture said developing and enhancing alliances and partnerships. % of total who checked off each imperative Develop and enhance partnerships and networks with customers 87% Control operating costs 83 Develop and enhance partnerships and networks with suppliers 73 Improve the speed to market for new products and services 63 Build IT systems that enable efficient networks within and outside the firm 60 Develop and enhance partnerships and networks with channel partners 60 Find new sources of highly skilled talent 57 Manage and protect intellectual property 57 Improve efficiency of tax and legal structures 53 Find new locations to source talent for innovation 53 Develop and enhance partnerships and networks with service and content providers Find new sources of low-cost talent 47 37 Source: Accenture analysis 73 Electronics & High Tech of change, identifying new opportunities and managing risk. Alliances, after all, don’t just help deliver integrated services and solutions at lower price points. Partnering with others can open up new growth possibilities—a significant advantage in an industry that thrives on innovation and change. Witness, for example, how Cisco Systems has teamed with a private real estate developer and other technology providers to build a new smart city near Seoul (see sidebar, below). There is, to be sure, a considerable disconnect between the capabilities that electronics and high-tech companies identify as essential to building a successful collaborative operating model and how close most of them are to having those capabilities in place. Key differentiators Consider specialist skills and talent, and innovative IT. These two capabilities were deemed critical to efficient and effective networking by respondents to a recent Accenture survey of 30 industry executives from both developed and emerging nations—a broad sample of electronics and high-tech companies with annual revenues ranging from less than $4 billion to more than $10 billion. Moreover, these capabilities are also key competitive differentiators for electronics and high-tech companies. And alliances that provide Cisco Systems: Partnering for sustainable growth Making connections comes naturally to Cisco Systems. The electronics powerhouse was among the pioneers of the multi-protocol routers that first enabled computers to communicate across network boundaries. But Cisco’s commitment to connectivity transcends its role as a facilitator of the World Wide Web. The California-based company is also a leading example of how joining forces with other businesses can support future growth ambitions— a key goal for electronics and high-tech companies as they prepare for the economic upturn (see story). In Cisco’s case, those ambitions are bold indeed. The company aims to become a major player in what it calls “transformational solutions”—systems and services that address the growing global need for sustainable urbanization. And partnerships, along with acquisitions of innovative technologies and talent management initiatives, play a major role in the Smart+Connected Communities strategy that Cisco launched back in 2009. Cisco’s Smart Connected Buildings solution, for example, connects buildings over an IP network to enhance their energy efficiency by allowing building managers to remotely monitor energy consumption and adjust it by using automated demandresponse programs and tapping renewable technologies. The solution is being put to work in a number of “smart” cities 74 Outlook 2011, Number 1 that Cisco is building in partnership with governments, property developers and other technology providers across Asia and the Middle East. In South Korea, for instance, Cisco is collaborating with Gale International, a New York City–based real estate company, to build New Songdo on 1,500 acres of land close to Seoul’s Incheon International Airport. Hailed as a prototype for the city of tomorrow, Songdo is smart, green and sustainable. Its buildings have been designed to minimize greenhouse gas emissions—they have already earned Leadership in Energy and Environmental Design (LEED) certification from the US Green Building Council—and when finished in 2015, the city will boast a digital infrastructure, provided by Cisco. The system will integrate Songdo’s water, power, traffic and telephony in a single Internet-enabled utility, thereby facilitating operational efficiencies and enhancing environmental sustainability through better resource management. Building on its collaboration with Gale, Cisco plans to take the smart city concept into China. The two companies will be working together, for example, to develop a smart city project in Hunan Province. And in partnership with Saudi and Malaysian developers, Cisco is also providing networked information and communications technology solutions for Jazan Economic City, a 100-million-square-meter smart city project in Saudi Arabia. www.accenture.com/Outlook access to specialist skills, technologies and know-how—wherever they may reside or originate—position companies for competitive advantage. These capabilities in turn rely on human capital, which more than half of our survey respondents single out as having become more important during the downturn. Yet only 17 percent strongly believe that they are currently well positioned to attract and retain the best global talent. A third of them are still not going abroad for new sources of either innovation or highly skilled talent. In addition, only 15 percent of those that leverage outsourcing are finding access to specialized global talent a top benefit. The findings with regard to IT are equally concerning. Effective, interoperable IT infrastructures are essential to efficient flows of information, knowledge transfer and collaborative working both within and between organizations. Sixty percent of COOs said that building flexible and efficient IT systems to enable relationships, both internal and external, had grown in importance since the downturn—yet only 7 percent said it was a top focus driving operating model decisions. What’s more, the use of information and communications technologies that support more flexible operations, data mobility and global interconnectedness is remarkably limited. Only 24 percent of respondents use EMC: Collaborating in the cloud One of the hottest stocks in the 1990s—EMC Corp., the world’s largest provider of enterprise data storage platforms—fell from grace when the dot-com bubble burst. Today, however, EMC is back, reaching for the stars. Thanks to the company’s 2001 decision to abandon its go-italone approach in favor of collaboration and partnership, EMC has not only dramatically broadened its product portfolio. It has also become a leader in the provision of cloud computing technologies—what CEO Joe Tucci calls “the biggest wave in the history of information technology.” Since 2002, EMC has bought more than 40 software, hardware and IT services companies, at the same time expanding its business network of channel and technology partnerships—and leveraging synergies between the two. One of the company’s key acquisitions was an 80 percent stake in California-based VMware, which specializes in virtualization software that offers flexibility and cost savings by running multiple computer systems on one physical machine. Meanwhile, a joint venture with Cisco, dubbed VCE, bundles EMC storage gear, VMware management tools, and Cisco networking and computing products with dedicated Internet hosting services. Yet another partnership, this one with Dell, helps provide the data center servers to support EMC’s Atmos cloud platform. EMC has also developed its own cloud technology, VPLEX, which allows organizations to combine storage within their data centers into a single, virtualized storage pool. The company owes much of its success in cloud computing to work carried out by RSA Laboratories, which became part of the EMC Innovation Network when EMC acquired RSA Security in 2006. Since then, EMC Research China, which also works on cloud technologies, has been established. And in keeping with the Innovation Network’s motto—“Expand knowledge locally; transfer it globally”— the company ensures that the work of local researchers, who are often located near leading universities, is shared (via teleconferencing and social media) with colleagues globally, and especially with those responsible for product development. 75 Electronics & High Tech “crowdsourcing” or open-source innovation, for example; less than a quarter take advantage of virtual or mobile platforms; and a mere 14 percent use cloud technologies. Most striking of all, almost a third have failed to implement any of these critically important IT innovations. Boosting market position The exceptions, however, are showing a clear way forward. Leading companies know that the development of alliances, partnerships and networks is not just about strategic agreements and common objectives. Realizing the full value of such arrangements demands operational changes— changes in the way processes and structures, as well as people and technologies, are organized, worldwide. It’s crucially important to ensure that new organizational and governance structures are well designed, of course. But our survey reveals that the industry recognizes talent and technology as the truly critical components of an optimized global operating model. And leading companies have focused their network-building efforts on developing these key capabilities. When it comes to talent, they are reaching out globally. Nokia, for example, has been working on deepening potential global talent pools by running an annual competition, “Calling All Innovators,” which challenges young application Acer: Leveraging channel partnerships Already one of the world’s largest computer makers, Acer aims to overtake Hewlett-Packard Development Co. in 2011 as the leading global seller of portable computers. If it succeeds, the Taiwan-based company will owe much of its accomplishment to an innovative approach to collaboration that leverages channel partnerships to expand global reach. Over the past decade, Acer has reinvented—and reinvigorated— its business model by pioneering an indirect go-to-market approach in which it develops complementary strategic alliances with key resellers and distributors. In addition, having spun off manufacturing operations in 2000, it focuses instead on selling its own desktop and notebook systems as well as those of its acquisitions (Gateway, e-Machines and Packard Bell). Acer’s partnerships—such as the Acer Channel Excellence Program, which rewards resellers who do a minimum of $100,000 in calendar-year sales with enhanced sales support to them—helped sustain the company’s strongest profit growth in nearly three years in the first quarter of 2010: up 63 percent on the same period in 2009. And as Acer positions itself to sell more mobile devices in China and other emerging markets, its multi-brand, multi-partner approach promises to pay off yet again. 76 Outlook 2011, Number 1 In May 2010, for example, Acer signed an agreement with Founder Technology Group Corp., the second-largest PC vendor in China, to jointly develop IT products for the world’s most populous nation. The agreement, which leaves Founder in charge of production and after-sales service but gives Acer control over the Chinese company’s planning, marketing and supply chain management, is expected to boost Acer’s business in China significantly. The company reckons that sales in China will account for 25 percent of total revenues in 2011—up from 5 percent in 2009. Thanks to its collaboration with Founder, Acer expects to become the second-biggest player in China’s PC market in the next few years, posing a challenge to Lenovo, the homegrown market leader. Acer also plans to partner with companies in the Malaysian market, where it already ranks No. 1 in notebook and PC sales. As in China, the plan is to strengthen its position by forming collaborations to sell new products like the LumiRead, an e-reader that can accommodate up to 1,500 books, as well as smart phones, mobile devices and a new line of servers targeted at small and medium-size businesses. Indeed, as Acer looks to widen its interest in software and content, still more localized collaborations across key emerging markets seem likely. www.accenture.com/Outlook developers for mobile use and the Web to submit entries for locally relevant content in four categories— eco/being green, entertainment, productivity and life improvement. Cash prizes range from $5,000 to $50,000. (Since the competition was launched, a fifth category was added: the Economy Venture Challenge. Developers compete for a $1 million prize for the best idea for a new mobile product or solution designed to improve the lives of people in the developing world.) Winners get the chance to promote their applications through Nokia outlets and other channels. And all winning entries are reviewed for possible preloading on future Nokia devices. It’s a similar story with the search for technological innovation. Net- working with technology partners to fill capability gaps has put EMC Corp. on the leading edge of new cloud computing technologies, for example (see sidebar, page 75). Leading companies have also boosted their market positioning by partnering with others to expand the range of their offerings. For example, Apple’s all-inclusive ecosystem of products and services owes its success in large part to a strategy of leveraging what the company calls “Apple Developer Connections” with both large and small-scale product developers. And Acer’s closely integrated relationships with channel partners support the Taiwan-headquartered company’s strategy as it competes globally on volume (see sidebar, opposite). By broadening their options and making them more flexible, collaborations of all kinds are helping these leading companies adapt their global operating models to the uncertainties of the upturn. Alliance partners have brought them closer to consumers, especially at the local level, sharpening their market intelligence and deepening their customer connections. Partnerships have also contributed key capabilities that they would otherwise have to build themselves, from scratch. As a result, they have the talent and technologies that empower them to exploit opportunities earlier and faster than their competitors. In tomorrow’s hyper-competitive and capricious markets, such assets are likely to prove valuable indeed. About the authors Hans Von Lewinski heads Accenture Electronics & High Tech in Asia Pacific. In addition, he is the global lead for Accenture’s Communications & High Tech/Supply Chain group. With more than 19 years’ experience with Accenture, he previously led the company’s supply chain value transformation group in Europe and oversaw Accenture’s supply chain work in the electronics and hightech industry in the United Kingdom and Ireland. Mr. Von Lewinski participates regularly in conferences and has published a number of articles on high-performance businesses. [email protected] Armen Ovanessoff is a senior research fellow and senior manager at the Accenture Institute for High Performance, where his focus is on macroeconomic, geopolitical and business trends in emerging markets. Mr. Ovanessoff launched the Institute’s bureau in India and is regularly involved with its research on region-specific trends, as well as India’s position in the global economy. Most recently, he has been overseeing Accenture’s research on the future operating models of multinational organizations. Mr. Ovanessoff, who manages Accenture’s strategic partnership with the World Economic Forum, is based in London. [email protected] For further reading “Open innovation: How to create the right new products, the right way,” Outlook, October 2009 For these and other articles, please visit accenture.com/Outlook Joshua B. Bellin is a Boston-based research fellow at the Accenture Institute for High Performance. He has researched international operating models in a diverse set of industries, including electronics and high tech, retail, oil and gas, and telecommunications. His insights have been published in the Wall Street Journal, MIT’s Sloan Management Review and Strategy and Leadership, among other publications. [email protected] 77 Government Joining By David A. Wilson, Michael Henry, Daniel J. McClure and Jason B. Wolenik 78 Outlook 2011, Number 1 forces Collaboration is the key to effective government in an era of fiscal austerity— and not just because it cuts costs. By reaching out across jurisdictions and involving all stakeholders, leading state, regional and local authorities are actually improving the way they deliver services. Government From parks and libraries to sewers and cemeteries, there are few aspects of civic life that local governments do not touch. People have been relying on them to provide these and many other services for hundreds of years. And until recently, local governments had been remarkably resilient, weathering economic cycles better, in most instances, than private-sector organizations. Today, however, the ravages of the Great Recession have left municipalities from Waco, Texas, to Wellington, New Zealand, awash in red ink—and struggling to stanch the flow. The dimensions of the current funding crisis are dramatic. In the United States, for example, declining property values and chronic joblessness shrank state government revenues by 18 percent between 2007 and 2008. Meanwhile, at a time when demand for public assistance programs is mounting, state funding for local government in the United States is predicted to fall by between 10 percent and 15 percent annually between 2010 and 2012; that’s significantly more than the 9 percent drop in the period from 2001 to 2003, following the collapse of the dot-com bubble. Expenses, meanwhile, are soaring, driven by underfunded pension entitlements as an aging public-sector workforce approaches retirement. Still, funding the pensions of publicsector workers may well be only the tip of the iceberg. For example, according to a report released in October 2010, the cities, counties and government authorities in the state of New York have set aside virtually nothing to pay for more than $200 billion worth of health benefits promised their retirees. The situation is not unique to the United States. Madrid will be carrying a debt burden equivalent to between 115 percent and 170 percent 80 Outlook 2011, Number 1 of expected revenues through 2012. In Venice, battered public finances have persuaded a reluctant city council to sell off several historic palazzi. Even North Rhine-Westphalia, one of Germany’s richest states, was forced to borrow record amounts in 2010. But selling assets and borrowing are only stopgap measures for a problem likely to endure for many years to come. In the United States, for instance, state revenues are expected to remain stagnant or sluggish through fiscal year 2012— just as demand for core government services accelerates. With cashstrapped national governments unlikely to come to the rescue and citizens’ resistance to tax increases intensifying, tough times for state, regional and local governments are the new normal. They have little choice but to find new ways of delivering essential services. Joining forces The good news is that they have begun to do so. Indeed, when Accenture recently investigated government responses to the crisis, we discovered that more and more jurisdictions worldwide are joining forces to tackle it. By merging, coordinating or consolidating services such as police, fire and www.accenture.com/Outlook transportation, for example, city councils in California have significantly reduced wasteful duplication. And some jurisdictions have reached outside the public realm, seeking efficiencies by partnering with private entities—or by outsourcing services to them. Cross-jurisdictional models come in all shapes and sizes. Some forms of collaboration are well established, originally as money-saving measures. Local governments in New Zealand, for instance, have been working successfully together for decades— spurred by successive pieces of legislation designed to create more efficient and cost-effective service provision (see sidebar, page 82). However, our research, which was conducted in the summer of 2010 and included in-depth interviews with more than 30 public-sector leaders in the United States and experts in government, and from which we developed more than 70 case studies, also revealed newer models of collaboration. Such collaboration is reinventing the provision of public services so radically that local government may well never look the same again. In Suffolk, England, for instance, the county council plans to act as a virtual authority, outsourcing all but a handful of services to private companies or to so-called social enterprises (businesses and nonprofits with primarily social or environmental objectives—environ- Building the right model To decide which implementation method is best for a cross-jurisdictional collaboration model, start with the desired outcome and work toward the beginning. Key questions to ask when designing the cross-jurisdictional collaboration model What are the desired outcomes and what is feasible? What services/ functions should be targeted? Who are the likely partners? What is the appropriate scope? • Assemble key • Determine which • Determine who • Assess where decision makers • Identify key areas of opportunity as well as obstacles • Determine potential outcome for each opportunity and obstacle • Prioritize based on feasibility services and/or functions can best address specific opportunities • Prioritize based on feasibility • Identify additional stakeholders • Determine available data offers services and/or functions • Create decision criteria for selecting partners • Perform analysis • Select partners to partner along the value chain • Identify which services and/or functions will be affected What is the best implementation method? • Create decision criteria for selecting • Evaluate all relevant models based on decision criteria • Select implementation method Source: Accenture analysis 81 Government mental protection, for instance, or support for specific minority interests). The idea could save substantial sums of money, shaving some 30 percent off Suffolk’s ВЈ1.1 billion budget. Transforming councils from direct providers into service enablers represents a philosophical paradigm change in the way public services are delivered. Such a dramatic shift would be politically unacceptable to many, of course. In fact, the plan has already run into opposition from UK labor unions and other critics who warn that at a time of rising unemployment, thousands of publicsector jobs could be at risk. Indeed, for all its success, the Suffolk model highlights the difficulties involved in implementing almost any kind of collaboration initiative— whether coordinating services across jurisdictions, merging or creating new entities to provide those services, or contracting them out to external providers. Labor union opposition can be particularly powerful. In the United States and many other developed countries, public-sector workers have negotiated contracts over the years that ensure them tenure and guarantee multiple benefits, from health insurance to pensions. If crossjurisdictional collaboration leads to the creation of shared services organizations at which benefits are reduced, organizations will have to work through necessary changes with their labor partners. New Zealand: A nationwide approach New Zealand first started reviewing the role of the state back in 1984. In subsequent decades, this small Pacific nation has introduced some of the world’s most radical and far-reaching government reforms. Successive legislation designed to improve the efficiency, effectiveness and accountability of government has not only dramatically shrunken the number and size of jurisdictions— it has also encouraged collaboration among city, district and regional councils across the country. In 2002, the Local Government Act required local authorities to collaborate with the community and outside agencies on strategic planning, contracting or tendering out services. It also called for the establishment of council-controlled organizations, or CCOs—companies or organizations in which one or more local authorities (or their appointees) control at least 50 percent of the votes. A CCO pays taxes and is accountable to its local authorities for its performance, and the local authorities, in turn, are accountable to the community for both their involvement with the CCO and the performance of the CCO itself—to deliver services from water and forestry to car parks and property management. 82 Outlook 2011, Number 1 The results have been encouraging indeed. One district council, for example, has achieved cost savings of 30 percent to 40 percent by contracting out the bulk of its work and services. And when New Zealand’s Department of Internal Affairs recently surveyed the country’s 86 councils—down from about 830 in 1989—7 out of 10 said that the benefits of collaboration, in terms of both better value for money and better outcomes, were so significant that they would be intensifying their efforts in the coming year. As a small, highly centralized, unitary state with a unicameral parliament and no single document for a constitution, New Zealand, to be sure, enjoys some unique advantages as a pioneer of radical government reform. But support for reform has been strong because citizens—including labor union members—have accepted the need for change. www.accenture.com/Outlook Organized labor isn’t the only stumbling block. Plans to consolidate jurisdictions in the United States, for instance, have often floundered because citizens accustomed to their own school districts and municipal boundaries have made it clear they would vote against attempts to change them. People may not be entirely delighted with the current quality of public services, but persuading them that radical new collaboration models will do a better job promises to be a struggle. A collaborative approach doesn’t have to alienate large sections of the electorate, however, or labor unions fearful for their jobs. On the contrary: Some leading organizations have managed to enlist the support of all stakeholders by creating innovative collaboration models that, besides cutting costs and boosting efficiencies, actually improve services, simplify interactions with citizens and even reduce inequities. Take Sacramento, the capital of California, which has contracted out the provision of health and human services information, planning and training to a specialized nonprofit organization, and coordinated with a local employment and training agency to jointly deliver child, family and job-seeker services. Consider, too, the 2009 merger of the cities of Preston and Weston with Webster County, Georgia, which has resulted in an entirely new (and leaner) local government entity, eliminated the duplication of services and A joint venture in Silicon Valley: A platform for post-recession imperatives The Great Recession has taken a heavy toll on California’s Silicon Valley—the 30-mile-long strip of real estate south of San Francisco that’s home to such iconic companies as Google, Apple, Facebook and Yahoo. Between 2008 and 2009, about 90,000 jobs were lost. Indeed, hovering around 11 percent, unemployment in the region is above the US national average. And a combination of California’s legislative gridlock and the rise of high-tech rivals from China and India casts a long shadow over the area’s legendary status as the world’s innovation hub. Sustaining that status has been the core mission of the eponymous nonprofit Joint Venture: Silicon Valley Network ever since its formation, back in 1993. A public–private partnership, its current co-chairs are the mayor of San Jose and Accenture’s managing director for California. And since the onset of the recession, the organization’s collaborative approach to local challenges has come into its own. Recently completed initiatives include the Alliance for Teaching, which set out to boost flagging educational achievement in the region’s schools by partnering with Stanford University and the Resource Area for Teachers to motivate and improve the training of teachers, especially in math. A related workforce development program brought together private businesses, local government, labor and community organizations in an effort to improve skills among job seekers. Most innovative of all, however, is a renewable energy procurement project, which claims to be the largest such multijurisdiction initiative in the United States—70 publicsector sites, from bus depots and health centers to prisons and police stations from nine local government jurisdictions under the umbrella of a single regional power purchase agreement. Local authorities are working to reduce the upfront costs of purchasing and installing renewable energy technologies. What’s more, thanks to an emphasis on local vendors and technologies, they are encouraging the creation of the carbonneutral jobs and businesses that could reignite Silicon Valley’s innovation engine. While overall patent registrations in the region have been in decline, those for green technologies surged between 2006 and 2008, and Silicon Valley now accounts for a growing proportion of green patents nationwide. 83 Government is expected to save more than $100,000 in property taxes. A new social contract These organizations are not only saving money for themselves and the electorate. Leading local authorities also recognize that times, and citizens, have changed. The traditional social contract, the administration of which has become sclerotic with bureaucracy, is evolving. Local voters, now accustomed to high levels of accessible, accountable and transparent service from the private sector, have started to demand the same of City Hall. By collaborating across internal jurisdictions to create efficiencies and by partnering with specialized providers outside the organization, governments stand a better chance of meeting those demands. What’s more, they will be much better positioned to respond to new and potentially costly longerterm imperatives, such as climate change, traffic congestion and air quality. In California, for example, one of the initiatives of the Joint Venture: Silicon Valley Network, a public–private partnership, is a renewable energy project funded Ohio Shared Services: A pioneering partnership With shrinking taxes, slumping revenues and soaring expenses— all at a time when a high proportion of its workforce approaches retirement—Ohio’s challenges are no different from those facing state governments across recession-mired America. Its response to these challenges, however, has been groundbreaking. In fact, Ohio Shared Services, which the Buckeye State set up in 2009 as the first statewide shared services center for back-office functions in the United States, could provide a model for more efficient and cost-effective government worldwide. By processing a number of key financial tasks—accounts payable, invoice processing, travel expense reimbursements, and vendor maintenance and management—that were previously siloed among individual state agencies, Ohio Shared Services is reducing duplication, freeing agencies to focus on their core functions and driving significant cost efficiencies. The state has already realized 15 percent to 20 percent improvements in productivity, while its costs for processing travel and expense reports have been cut by two-thirds, from $37 to $12 per transaction. In time, Ohio expects to achieve about $26 million in average annual savings, or about $500 million over 20 years. Perhaps most significant of all, in light of the labor union resistance that has proven to be one of the biggest stumbling blocks to cross-jurisdictional collaboration initiatives (see story), Ohio Shared Services enjoys the support of the state’s 84 Outlook 2011, Number 1 largest employee labor union, the Ohio Civil Service Employees Association. In fact, labor leadership was intimately involved in the design of its operations. And all employees working at the center transferred voluntarily from other state agencies—fully aware that work in their new environment would be metricsbased and that performance would be closely monitored. It plainly helps that the shared services center, which is housed in a former aircraft facility, was designed to encourage close, collaborative working practices and boasts state-of-the-art, virtualized IT that can be shifted seamlessly to different workplaces as needed. Moreover, employees are provided with incentives to be trained in four different functions, or “skill blocks”: accounts payable, travel and expense, vendor maintenance and contact center. The greater the number of skill blocks employees are certified for, the higher their compensation will be. The result? A more flexible and knowledgeable workforce that can move within the organization, depending on work volume, staff changes and other variables that can have an impact on productivity. Plans call for the center to expand. Human resources may soon be added. Thanks to a scalable IT platform, Ohio Shared Services could eventually double in size. With one exception— travel reimbursement and expense reporting—agency participation in the center remains voluntary. But as the benefits of its single, standardized approach to common transactions become increasingly apparent, more and more agencies are likely to take full advantage. www.accenture.com/Outlook with pooled resources (see sidebar, page 83). Avoiding the pitfalls There are, to be sure, plenty of pitfalls on the path to more collaborative government. It’s crucial, for example, to clearly define roles and responsibilities within the new power-sharing structure. And best practice requires strong leadership and a structured process to evaluate collaboration opportunities—especially as these may expand over time. The most successful efforts have achieved consolidation by following a systematic methodology, prioritizing desired outcomes and working backward from there (see chart, page 81). In Oregon, for example, Metro is a directly elected cross-jurisdictional regional government serving 25 cities in the Portland metropolitan area with a council president and an auditor elected regionwide, six councilors elected by district and a COO appointed by the council. The authority was originally responsible for managing urban growth, transportation, waste disposal and the Oregon Zoo in Portland, but it now has a much wider environmental and cultural mandate. As its portfolio has grown, Metro has been careful to ensure that it isn’t viewed as just another mushrooming layer of government. Its more than 1,600 employees include specialists across all its areas of responsibility, from park rangers to stagehands. What’s more, the regional authority’s financial strength—only 18 percent of its operating budget derives from property taxes; 54 percent comes from current revenues (with enterprise activities, such as solid waste disposal, providing the largest amount of fee-generated revenues, at 49 percent), and the rest comes from excise taxes paid by users of Metro services—has bolstered public perceptions that the authority is efficient as well as effective. One roadblock to consolidation is the fact that many governments simply don’t know what their business processes cost, or how their costs compare with those of similar organizations. That can be a significant handicap in developing a business case that justifies crossjurisdictional collaboration. Which is why, when Ohio moved to a statewide shared services model in 2008, it brought in outside help to conduct a thorough benchmarking analysis before moving forward. Ohio’s public-sector unions also participated in the operations design process (see sidebar, opposite)—a move that secured the support of this key group of stakeholders. About the authors David A. Wilson is the managing director for Accenture’s Canada and US State & Local Government group. In his 26 years with the company, he has worked with numerous governments and universities to help them operate more effectively and efficiently, with a focus on backoffice transformation and shared services. Mr. Wilson is the co-lead for Accenture’s Minneapolis, Minnesota, office. [email protected] Michael Henry is a New York-based senior executive in Accenture Strategy. Mr. Henry works with clients in North America, Europe and the Asia Pacific region, helping them develop innovative growth strategies, improve operational performance and redesign their organizations to better suit their business strategies. [email protected] Daniel J. McClure, a senior manager in Accenture’s Health & Public Service group, has extensive experience working with government agencies on organizational design, human capital development, strategic planning, performance management and project leadership. Based in San Francisco, Mr. McClure has authored several articles for leading military and defense journals. [email protected] Making the leap to cross-jurisdictional collaboration can be challenging, to be sure. But it is, increasingly, a necessity—and not just because governments urgently need to be able to do more with less as the global economic downturn moves into year four and high unemployment continues to weigh heavily on state and municipal services. A more sophisticated citizenry, advances in technology and transportation, and a growing awareness of environmental threats have rendered the old, bureaucratic government structures, with their multiple levels of service provision, obsolete. By embracing new, cooperative models of public-service provision, organizations can find new efficiencies, generate new sources of revenue and deliver better programs, products and services. Cross-jurisdictional government, in other words, is good government. Jason B. Wolenik is a San Franciscobased manager in Accenture Strategy. Mr. Wolenik, who develops innovative operating models for public-sector clients, led Accenture’s cross-jurisdiction collaboration research effort in partnership with Joint Venture Silicon Valley Network and designed cross-jurisdiction collaboration models for organizations across the United States. [email protected] 85 Company Index The following companies and organizations are referenced in this issue. 3M 21 Acer 76, 77 Advanced Micro Devices 16 Amazon.com 24, 26, 49 Apple 5, 21, 77, 83 Banco Azteca 69 Belden 21 Best Buy 18, 26, 27 Blockbuster 13 Boeing Co. 21 BT 28, 30 Cisco Systems 74, 75 Comcast 27 Danaher Corp. 21 Dell 26, 27, 75 Dunkin’ Donuts 26 e-Machines 76 eBay 21 Eli Lilly & Co. 65 EMC Corp. 75, 77 EMC Innovation Network 75 EMC Research China 75 Energy Brands (GlacГЁau) 26–27 Facebook 24, 25, 26, 28, 30, 83 Fairchild Semiconductor 16 Food and Drug Administration (US) 12 Ford Motor Co. 24 Founder Technology Group Corp. 76 86 Outlook 2011, Number 1 Gale International Gateway General Electric Co. Google Grupo Bimbo Harrah’s Entertainment Hewlett-Packard Development Co. Hollywood Video IDEX Corp. Intel JetBlue Joint Venture: Silicon Valley Network Kleiner Perkins Caufield & Byers LinkedIn The London School of Economics and Political Science Metro, Oregon (regional government of) Microsoft Corp. National Grid National Labor Relations Board (US) National Semiconductor Corp. Netflix New Zealand (government of) Nokia Novo Nordisk Ohio (state government of) Ohio Civil Service Employees Association Ohio Shared Services 74 76 21 83 65 3 76 13 21 16 25 83, 84–85 16 25 45 85 21, 27, 29 57–58 28 16 13, 24, 30 81, 82 26, 76–77 19, 20 84, 85 84 84, 85 Oregon Zoo 85 Packard Bell 76 Pandora 24 PepsiCo 21, 58–60 PepsiCo Finance University 58–60 Pioneer 12 Polaris Industries 21 Polaroid 11 Preston, Georgia (city government of) 83 Procter & Gamble (P&G) 16–17, 21, 65 Redbox 13 Resource Area for Teachers 83 RightNow 27 RSA Laboratories 75 RSA Security 75 Sacramento, California (city government of) 83 Salesforce.com 27, 49 Schlumberger 20 Shockley Semiconductor Laboratory 16, 21 Southwest Airlines Co. 28 Stanford University 83 Starbucks 26 Suffolk, England 81–82 Swarovski 26 Tata Group 68 Tata Motors 68 Tipp-Ex 24–25 Toshiba Corp. 72 64 Tuck School of Business, Dartmouth College Twitter 24, 25, 27, 28, 30, 37 United Airlines 25, 27 UPS 17, 19, 20 US Green Building Council 74 VCE 75 Vizio 12 VMware 75 Webster, Georgia (county government of) 83–84 Weston, Georgia (city government of) 83 Woot 25 Xerox 11 Xing 28 Yahoo 83 YouTube 24, 25, 27, 28 Outlook Vol. XXIII 2011, No. 1
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