Level III perception

A defining characteristic of great leaders is how they approach every task with a tremendous amount of energy and enthusiasm. There are three levels of perceptions:

1) level I. A manager perceives an event as is. He simply describes it in accurate details. Example: the market is crowded with competitors. Manager realizes that the firm has to provide very good customer service to differentiate itself.

2) level II. The manager gets excited about an event and thinks that they are good opportunities that the firm should leverage. Example: manager thinks that it should position itself differently in the marketplace. Not only would it provide very good customer service but it will also change its advertising message.

3) level III. The manager gets excited about an event and absolutely thinks that this is an awesome opportunity to outcompete all the other firms.  Example: the manager realizes that the firm has to innovate in terms of customer service and create a major leap ahead of competitors. It has to get into the skin of every employee in the company to deliver better service. Not only will the firm differentiating itself that it will also create the standard for excellent customer service in its industry but also globally in other industries as well.

Expanding your firm’s products portfolio to meet customer needs

Back in 2000, the online shoe retailer zappos.com sold to customers through dropship relationships with shoe manufacturers. This strategy allowed the firm to avoid expensive stocking costs. They signed up many manufacturers and offered a large choice of shoes online. However, when the firm wanted to increase sales and meet customer expectations, they realized that they had to stock shoes to provide better choice. In 2000 they did $1.6 million in sales. In 2001, they ended up doing $8.6 million. Expanding the product mix turned out to quintuple sales. 75% of sales came from inventories.

A Framework to Diagnose a Company

This framework is taken from David Ohrvall’s book on strategic consulting with some minor adaptations.

STRATEGY
1. Scope evaluation: does it make sense to expand into new products/categories, or divest existing activities?
2. Direction: should you enter new markets or exit an existing market to re-focus? Should you develop new products and services, or reposition your existing brand image?

MARKETING
1. Price optimization. Most businesses spend a lot of time on driving unit volume or reducing costs, more than on price optimization. Yet, a 1% increase in price (holding volume fixed) has a much greater impact on operating profit than a 1% increase in volume or a 1% decrease in cost.
2. CRM. Increase retention, increase share of wallet (buy more of the same product, buy new products from us), or change the mix of volume sold (promote products with higher margins).
3. Acquire new customers. Change sales tacticts to reach a broader set of the market or invest more in advertising/marketing.

OPERATIONS
1. Cost reduction. Evaluate cutbacks against service level or quality measurements. Minimum KPI need to be achieved or cost savings will be offset by revenue losses. Evaluate internal / external costs (outsourcing): where is it cheaper to perform the activities?
2. Processes. Quality measurements, internal efficiency, capabilities.

ORGANIZATION
1. People. Skills, compensation schemes, organization architecture.
2. Information systems. Quality of reporting, data. Automation of non-value added activities to focus your people on what is truly important to the business.
3. Measurements. Track the most important activities (15-20 max), consistently throughout the company, and gather/review them often. Despite all the talk about measuring results, most companies are very weak in this area. Compare metrics YOY.

FINANCE
1. Reduce inventory
2. Reduce receivables
3. Increase payables
4. Balance debt and equity

EXTERNAL FORCES: Porter’s 5 forces analysis.

How to manage crisis situations

Crisis management can be broken down into four parts.

First, what is the right thing to do?

Second, mathematical calculations. What is the size of our business to protect? (sales volume, value of brand). To which extend will the crisis impact us? (potential sales lost, damage to the brand). How much would it cost us to fix the problem, from your point of view but most importantly from the customers’ point of view?

Third, communications. What would be the impact of our response? Effective crisis communications would comprise off the following:
1. How the message is delivered: where, how
2. Who delivers the message: your CEO or your PR person?
3. The content of the message: is your message credible and trustworthy? Trust depends on four key factors : empathy (50%), honesty (17%), expertise (17%), dedication (17%). Do your messages demonstrate these four key factors?
4. Who is targeted by the message: shareholders, consumers, etc

Fourth, turning a crisis into an opportunity. A crisis is a great opportunity to demonstrate your company values and show the world what you are about. It can be a great communications platform.

Expanding into new markets and products

Amazon.com is a very interesting company to study growth strategies. First, the company specialized in online book selling. When it started to expand into new categories such as electronics or home improvements, many questioned the strategy because it was going against some basic principles of marketing. Branding is about focusing your products and owning keywords in the mind of the customer. Products expansions under the same brand name (Amazon) actually hurts a company's ability to stay top of mind with customers for specific categories. The more specialized you are the more likely you are to be number one in people's minds. However, Amazon successfully expanded into a lot of different product categories with the same name. Not only did they expanded into new consumer product categories, but also expanded into business to business applications such as web hosting and e-commerce technology turnkey solutions - all under the same brand name.

There are three specific factors to consider when looking at growth opportunities beyond your core. First, is the growth opportunity building on your core? This seems to be obvious but research shows that managers make a lot of wrong assumptions about the true relationship between the new growth opportunity and the initial core business. They think that there is a match when there is not. According to Chris Zook in his book “beyond the core”, to assess the distance from the core, look at:

• Customers (are customers the same?)
• Competitors (or competitors the same?)
• Cost structure (is the infrastructure the same?)
• Channels of distribution
• Singular Ability: is there a singular asset, technology or brand that gives the core business its uniqueness that is relevant to the new opportunity?

Research shows that the odds of success declined very quickly as a business opportunity moved away from the core business,  based on these five dimensions above.

When evaluating these five dimensions, managers can realize that growth opportunities are typically not as close to the core as they thought. In the case of Amazon category expansions, customers and competitors were often different. One could have very reasonably argued that these growth opportunities were too far away from the core for Amazon.

However, the cost structure and the singular capability where the same. Amazon had very specific assets and technologies that gave the core business its uniqueness and were very relevant to the new growth opportunity.

A second very important factor to consider is the size of the profit pool. The profit pool evaluation represents an industry potential profit dollars. Some industries, like the airline industry, have decades long histories of not earning their cost of capital. Some industries simply go down or do not deliver the profits that people hoped for. Amazon.com expanded into growing, profitable markets: e-commerce and web technologies.

The third factor to consider is the company's potential for leadership. If you do not have the potential to achieve economics equivalent to the leader, you may be constantly out invested and out competed. According to Bain, a consulting firm, “the difference in a relative market share of 1.0 to 1.6 is worth 3 to 6 percent additional return on investment a huge difference in a competitive battle”. Yet, the consulting firm found that many weak performing company allowed themselves to be lured to investments in clear follower positions without leadership economics. It is likely that Amazon.com has succeeded into new markets because it was the undisputed leader in E-commerce, was focused on long-term vs short-term, and was able to invest significantly into these new markets to achieve leadership economics.

The first 90 days

I am currently reading a book called “the first 90 days". I did not expect much initially because these types of books typically yield very few powerful insights. However, I was pleasantly surprised.

First, the author argues that leaders that have been assigned to new positions often fail because they have not reassessed exactly what are the skills and learning experiences required for the new job. Perhaps the biggest pitfall that people make is assuming that's what has made them successful to this point in their career will continue to make them successful in the future, but the new job require a different approach, different skills and a different learning experience. What skills will you now need to be excellent at and where do you need to focus your learning in the next 6 months?

Second, in light of the new job, you should assess your new key responsibilities and understand how they will differ from your previous job. How is the situation different? If you fail to self reflect on the new job and fail to understand how the new organization differs from the previous companies you worked in, you will become vulnerable. Engage in a systematic learning process: write down a list of questions about the organization (including questions about past performance, goals, organizational design, benchmarking, marketing campaigns, strategy, technical capabilities, culture, politics, etc). Customers, distributors, suppliers, employees, company reports and outside analysts can help you understand the company situation – and ultimately how you fit in.

Third, build a productive working relationship with your boss, with your direct reports. Define expectations and agree on a diagnosis of the situation with your boss and direct reports. Take 100% responsibility for developing the relationship. Understand that you may know about 20% of the solution and you will need to talk to a lot of different people to be where you should be - understand about 70% of the solution. Work on coalitions and networks within the firm. Relationships are critical to get things done.

Managing people from different countries

Should a manager interact differently with direct reports if they are foreign? Leadership is about building a rapport with people from different backgrounds, whether they are engineers, salespeople, introvert, extrovert, Indian, Japanese or French. New theories of leadership talk about “situational leadership” to highlight the need of a manager to adapt to different situations and different people to get things done. Ultimately, it is about building rapport, communicating and motivating people based on their background. Building rapport is typically more difficult if the person is from a different country. For instance, Americans are typically very friendly, outgoing and loud. On the contrary, Indians are typically quieter and more reserved. The leader should know how to adapt to the different culture and identify how they can build rapport. They should reflect the other persons behavior. Motivating people from different backgrounds can also prove to be challenging. Some cultures value team spirit and community, while other cultures value individualism and personal rewards. You should be mindful of your direct reports preferences when it comes to giving credit and handing out rewards.

Great leaders and interactive management style

Many people think that a good manager is a manager that will make the right decisions and call the shots. This is true to some extent but the process of leading to that decision distinguishes great leaders from average ones. Faced with an issue, great leaders are the one that initiate conversations with the right people, pick their brains and eventually manage to “spot” the right solution based on all the feedback. They don't assume that they know the right solution from the get-go. They don’t simply manage based on gut feelings. Indeed, they recognize that they may know only about 30% of the solution. They know that by interacting with five or 10 other people in the company they will get to 70% of the solution. They are information gatherers, or, as described in an article in the Harvard Business Review, they are "sensors".

Exceptional People Skills Matter (Leadership and emotional intelligence)

Researchers have long been puzzled by the fact that while IQ could predict to a significant degree academic performance, a lot of people with fabulous IQ scores were doing poorly in their careers. It turns out that IQ, by itself, is not a very good predictor of job performance. Research performed by Hunter and Hunter (1984) and Sternberg (1996) estimated that IQ accounts for only about 10 to 25 percent of career success.

In his ground breaking book, “Emotional Intelligence”, Daniel Goleman makes the case for emotional intelligence being the strongest indicator of career success. Emotional Intelligence is the ability to manage one’s emotions and impulses, but also the ability to inhabit someone’s psychological frame of mind, recognize subtle social signals that indicate what others need or want, and adjust your actions accordingly.

Emotional intelligence came naturally to David Novak, former CEO of Pepsico/KFC. While relating his experiences on the way to the top, Novak says he learned early in his career the importance of being passionate about the people in the company. Novak’s leadership philosophy is about people: pro-actively asking for feedback, sensing their emotions and needs, and developing an in-depth understanding of their perspectives. Novak was able to connect emotionally with employees, and get in their skins to motivate them like no one else could.

David Novak wrote in his book "“Getting people excited about what they’re doing, making them feel part of the team and taking them along for the ride of their lives are the things I do best”

Novak's "Education of an Accidental CEO" is an excellent book I recommend if you want to learn more about emotionally intelligent leaders:
http://www.amazon.com/Education-Accidental-CEO-Lessons-Learned/dp/0307393690

Although Novak doesn't address the topic of emotional intelligence explicitely, he clearly demonstrated the key values of an emotionally intelligent leader.

When "Ready, Fire, Aim" works better

A key managerial responsibility is to set a proper pace for the department/organization. In doing so, managing communication of a sense of urgency is important.

De Sole, COO of Gucci, described this need for a "sense of urgency" when talking about his successfull effort with Tom Ford to turn the company around in the 90s:

"We were able to turn the company around because we were driven by an incredible sense of urgency. Tom and I share the same management philosophy: making immediate decisions and doing everything 3 days ago (...) We make quick decisions, with discipline and focus. It fels as though we were operating at the speed of light".

As Jack Welch once said "successful leaders move at 90mph in a 55mph world".

The end question being "how much can you really get done?". In particular in a turnaround situation with a company in distress, the "Ready, Fire, Aim" approach sometimes works best.

Naturally, the leader also needs to maintain strategic focus and discipline at the same time.

Ultimately, a manager can only move as fast as his team and the biggest challenge may be to keep everyone on board and happily moving forward. In these days of recession and economic crisis, that task is now made easier than ever. The need for urgency is evident to all.

Great Leaders & The Power of Self-Reflection

A few weeks ago, I had the honor of having diner with Harry Kraemer, a former CEO for Baxter international, a 40,000-employee company and currently professor of management at the Kellogg business school. Harry Kraemer shared a little secret: his annual 3-day "retreat" that helps him free his mind and take time off to think about his career or life in general.

Interestingly enough, a few weeks earlier, I had come across a study showing that great leaders share a common pattern that help them be more successful; they set a daily-ritual that helps them step back from the daily frenzy and reflect on how they can be more effective.

Howard Gardner, a professor at Harvard University, and one of the most quoted leadership experts, wrote in his book “Leading minds: an anatomy of leadership” that one of the factors crucial to the practice of effective leadership is the control of a certain rhythm of life: “it is important that the leader find the time and the means for reflecting, for assuming distance from the battle or the mission. I term this tendency “going to the mountaintop”, with the understanding that such a retreat can occur literally or metaphorically, as in the case of De Gaulle and his daily walks.”

Relaxing, taking vacations and making time for fun actually makes you more successful. Mireille Guiliano, the former CEO of Veuve Clicquot Champagne, said it well: “We have to take ‘beach time,’ a space for ourselves every day, because we live in a world of burnout. Even if you take 20 or 30 minutes for yourself, you’ll be a better worker, a better colleague, a better person. It benefits the people around you as much as it benefits you.”


Copyright Nicolas Mottet.

A secret from great leaders: learn fast, and plan for excellence

Jamie Dimon, chairman and CEO of JPMorgan Chase, stresses that "whether you are a CEO or just starting out--each and every day provides the opportunity to learn and get better at what you do”. Jeff Immelt, CEO of General Electric, adds “You've got to keep learning, keep changing … and reinvent yourself”. Stressing the importance of education on your career, he added “you know where you want to go, and you know that you can learn to get there. That’s power, absolute power”.

All top executives like Jamie Dimon or Jeff Immelt will agree on the power of learning, but how to maximize learning takes a dedicated effort. Executive education, books and magazines are a start, but is education enough to achieve excellence? Education yields the best results only when coupled with a deliberate will and a competitive desire to get better and increase your performance at work. As a matter of facts, great leaders often have an insatiable appetite for feedback and a strong desire to get better. At the core of performance is indeed the desire to improve everyday and deliver results measurably better today than yesterday. Education is merely a weapon to achieve excellence, and not the end-all, be-all of great performance. Think about the leader as an athlete running a 100-meter: he works with a personal coach to get better, he is focused on the task at hand, fast, and obsessed by improving his time to get to the finish line.

How you are going to build your career is also a critical determinant of how much you will learn. Most employees eye with envy the next job up in the career ladder, and their only goal is to eventually take their boss’ job, but horizontal career progression will help maximize your learning experiences. Moving sideways, from one function to another or one company to another, will help you broaden your perspective and maximize your learning experience, ultimately giving you the right tools for career progression.

What Neuroscience can teach us about business excellence

The Monday Effect.

In her fascinating book "How the Brain Changes Itself", Norman Doidge talks about a study from Harvard's Neurological department. In an experiment with blind subjects learning braille, Pascual-Leon studied their neurological activities over the course of a 10-month training. He monitored their brain activities each Monday and Friday and noticed that on Fridays, subjects' neurological motor maps increased in size and showed very rapid and dramatic expansion, but by monday the maps had returned to their baseline sizes. Monday maps showed an opposite pattern. They didn't begin to change until six months into the training: they increased very gradually and plateaued at ten months. The speed at which subjects could read braille correlated much better with the Monday maps.

At the end of the ten months, the braille students took two months off. When they returned, they were remapped and researchers noticed that their maps were unchanged from the last Monday mapping two months before. The daily training led to dramatic short-term changes during the week, with peaks on Fridays. But over the months, more permanent changes were seen on Mondays. Fast Friday changes strengthen EXISTING neuronal connectionals. The slower, more permanent Monday changes suggest the formation of BRAND-NEW structures, probably the sprouting of new neuronal connections and synapses.

Understanding this effect can help us understand what we must do to truly master new skills. As Doidge writes "after a brief period of practise, as when we cram for a test, it is relatively easy to improve because we are likely strenghtening existing synaptic connections. But we quickly forget what we've crammed - because these are easy-come, easy-go neuronal connections and are rapidly reversed. Maintaining improvement and MAKING A SKILL PERMANENT require the slow steady work that probably forms new connections."

Most business training are short: typically 1-5 days. It is important to keep in mind that significant permanent improvements in performance are only the result of dedicated, long-term commitments.

Working as A Team

This statement below best summarizes the essence of team work. Ebele Okobi-Harris described for BusinessWeek the race she participated in a few years ago in Marocco, with a few friends.

"I felt such pride in myself when I finished, but even more pride in all my friends, some older and some in not as good shape as I am, who finished. I don't remember ever thinking "I did it." I breathed a sigh of relief when the last friend came across the line, and I then yelled with such overwhelming joy and tears, "We did it!"

The essence of charisma

Know yourself.
One reason we are drawn to leaders is that they radiate confidence. That confidence emerges from a sense of self. They know they are up to the job and hunger for it.

Be humble.
So often in the tales of great men and more especially great women, we hear their followers say,“She made me feel as if I were the most important person in the room.” That’s charisma in reverse; make the other person feel special. That may be the ultimate gift of charisma, the one-to-one connection with individuals.

Focusing on What Matters

A company can slowly but surely start to build-up excessive overall company costs and overheads without realizing it.

When looking at P&L, consider the following:
1) revenue growth.
2) ratio between investments in marketing/R&D or customer-focused activities versus overhead costs.

There's no exact rule what that ratio should be, but it is safe to say that the lower the ratio, the more likely your company will get into trouble and stagnate or even loose market share.

Reduce company costs as much as you can, and invest the savings into opportunities that will directly generate revenue growth or increased customer satisfaction. Eventually, your bottom line will improve quickly.

The "War Room"

Studies point out that teams working in a "War Room" (closed environment) are two times more productive than others teams thanks to increased communication and focus.

Consulting companies often use this model on project assignements.

The Importance of Body Language

Dr Alrbert Moravian at UCLA did research to determine why people trust. He found out that:

• 7% of trust is established through the words that we say.
• 38% comes from the way we say those words, the tone of voice or inflections we use

BUT:

• 55% is established through the body language we observe.

Creating the Customer-Focused Organization

Most people know how critical it is to understand the customer and be customer-centric, yet genuine customer focus is rare. Profit and business growth is not in the "knowing" but in the "doing" and focus on customers definitely needs processes and structure to become reality.

Below are a few key steps for organizations to become truly customer-centric:

Establish a Formal Process to Create a Dialogue With Your Customers

• Your managers or executives should spend time with customers on a weekly or monthly basis and create casual interactions/discussions. Many top CEOs in Fortune 500 firms report that they spend upwards of 40-50% of their time with customers.
• Spend time at your customer's home (if you sell to homeowners) or workplace (if you sell to businesses): simply observe your customers when they are buying, installing, or using your products. What are their reactions and how do they feel? You will only really find out if you're right there with them - watching as they experience your product. This is how Procter and Gamble found out that customers in Mexico valued "water preservation" to a great extent. Based on this customer insight, Procter and Gamble developed a new detergent product and gained market leadership.
• Organize formal interviews with your customers where you can grill them for 1-2 hours. Use the "why" technique to dig deep and get valuable consumers insights about why they use your category, how they perceive the world around your products, and what their buying habits are (where they shop, who they consult, how they price-shop, etc). Young children are naturally good at using the "why" technique. Here's how it works.
  
  You say "it's getting late, and it's time to go to bed"
  The 2-year old asks "why?"
  "Tomorrow's a school day, and you need your sleep"
  "why?"
  "because you need to be rested to do well in school"
  "why?"
  "because you need to get good grade so that someday you can go to college"
  "why?"
  "because if you go to college, you can get a good job and take care of yourself"
  "why?"
  "because if you can take care of yourself, then you can take care of ME when I get old!"
  
  While this conversation is taken to the extreme, it shows how the "why" technique can yield deep consumer insights and help you understand your customer's feelings and aspirations.
  
• Develop a structure for everyone to report and share their new customer insights with your other employees - for instance, make it mandatory to report findings on a quarterly basis.
• Involve customer service in pro-actively providing feedback from customers. Ask your reps questions about your customers: for instance, what they like or don't like about your brand, or problems they experience and how they seem to feel about it.
• Invite customers to speak about their business and about your products with your customer service, marketing, sales and R&D groups.

Develop your Products or Programs Hand-in-Hand with Your Customers

• Involve customers EARLY in the process of a new program development – and keep them involved along the way. In a business-to-business situation, the success of your new products often depends on how many of your customers you have talked to. Target a minimum of 10-15 customer feedback sessions.
• Make sure you pick the right target: who are the people making the purchasing decision and who are the influencers?

Align The Organization Around the Customer

• Inventory your ongoing projects. Are they are focused on the customer or are they only mostly focused on getting more sales and running business operations?
• Look at your R&D investments: are they high enough to generate product differentiation and improved customer experience?

Understand Customer Choices

• Create an e-commerce or CRM architecture to effectively analyze customer choices.
• Connect with your customers at every point in the sales process: meet with them and ask open questions to evaluate how they perceive their customer experience.

Take It a Step Further: Build Your Organization Around The Customer, For The Customer

• As the company grows, develop your organization in customer groups (or create ad-hoc cross-functional teams designed around customer groups).
• ACFC: At the Customer, For the Customer. General Electric took it a step further and developed ACFC programs where GE employees work at the customers' worksite.

As with everything, reward appropriate behavior - make "customer-focus" part of your performance reviews and let your managers know they will be evaluated on their customer-centric initiatives. Overcommunicate with your staff: publicize great, customer-focused heroes, and make sure you constantly talk about customers in your meetings. Don't be afraid to bore your staff with repetition, or you will never really get the message across.

Creating company alignement

One of the most important lessons about strategy from Michael Porter, professor at the Harvard Business School, is that a company's activities should fit and contribute to the building of a competitive advantage or unique positioning in the marketplace.

The selection of a CRM software, the hire of extra sales staff, or the development of a public relations campaigns are all major company activities that should fit the strategy and reinforce one another.

The trouble is that most companies don't have a "razor-like" strategic focus and it is questionable that each of their individual investments really clearly contribute to buidling a powerful, distinctive competitive advantage.

Below is a reminder of Porter's 5 tests of a good strategy:

1. A unique value proposition compared to competitors
2. A different, tailored value chain
3. Clear tradeoffs, and choosing what not to do
4. Activities that fit together and reinforce each other
5. Continuity of strategy with continual improvement in realization