Big corporations, by nature, maneuver like battleships. Held back by their own inertia and current business strategies, turning quickly can be difficult when the competitive environment changes. Likewise, high performance as measured by shareholder returns is impossible to sustain over a long period of time. No company consistently beats the market.
A recent in-depth study of long-term performance, however, suggests an alternative point of view about business strategy. A few large companies outperform peers when the measure of performance is profitability. They maintain this performance edge even during a significant business change in their competitive environments. Agility is one factor that differentiates them from others.
Agile companies adapt business change more quickly and reliably than competitors. Even as battleships, they have learned to turn quickly as speedboats. Learning the routines of agility makes them be at the forefront of competition.
The Link Between Agility and Performance
A survey was conducted to determine the link between agility and performance. The survey was focused on determining the way organizations formulated strategy, designed their structures and processes, led their people, and made changes and innovation.
More than 4,700 Directors and Executives from 56 companies were surveyed, of which 34 companies were Fortune 500 firms.
The survey was able to find out that when markets and technologies changed rapidly and unpredictably, the outperformers had the capability to anticipate and respond to events, solve problems, and implement change. As such, this enables Agile companies to easily adapt. Agility is not just the ability to change – it is a cultivated capability that enables organizations to respond in a timely, effective, and sustainable way when changing circumstances require it.
Many an Agile organization involves 4 complementary sets of activities, what we will call Agile Activity Groups.
The 4 Agile Activity Groups to Managing an Agile Company
- Dynamic Strategy Development. This is having a clear, relevant, and shared strategy that is undertaken with 3 key activities integrated within the strategy.
- Market Environment Response. This ensures an effective response to the implications of outside signals. Market Environment Response provides an accurate sense of what is going on in the environment.
- Response Refinement. This encourages innovation and tolerates failures. These are insights refined from the perceiving routing with a relatively high number of low-cost experiments.
- Change Management. Change Management is the mastery of internal program management capabilities needed to convert successful test and innovations into widespread practice. It builds the company’s capability to adopt unambiguous commitment with speed, certainty, and precision.
With the 4 Agile Activity Groups, Competitive Advantage is gained through an ongoing series of advantages that exploit current business conditions.
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In today’s business environment, learning and knowledge have become key success factors internationally and intangible resources are of vital importance. The struggle between competing firms has moved from tangible resources to intangible resources where knowledge and the ability to use knowledge have crucial roles.
Organizations are becoming more global, multilingual, and multicultural with people being required to work smarter and faster. People have become more connected with them being expected to be “on” all the time and the response time measured in minutes instead of weeks.
Indeed, today’s work environment has become more complex with businesses being threatened by the vulnerability, uncertainty, and crisis that could have been prevented if Knowledge was better managed. Better KM can help companies anticipate uncertainties and design strategies to lessen their impact.
While managers would like to take a strategic approach to avoid an impending crisis, often they find themselves fire-fighting. With a Knowledge Management Strategy, corporate executives can better manage the complex, chaotic, and non-predictable environment, in which companies must achieve performance.
Putting Strategy on Knowledge Management
Knowledge is important to efficiency and productivity. Hence it is critical that organizations manage their Knowledge effectively and strategically. Having a strategy for Knowledge Management will provide companies a plan to better manage information and knowledge for the benefit of the organization.
Effectively, a good KM Strategy can gain senior management commitment to KM initiatives and attract resources for implementation. In the end, it can provide the basis against which the organization can measure its progress.
Taking the 3 Knowledge Management Strategies to Fore
Companies are now feeling the pressure of the need to be more competitive. Taking on a Knowledge Management Strategy can lead competing firms to take the high road to success.
KM Strategy 1: Reckless Negligence
Reckless Negligence is doing little or nothing to improve capabilities in information, data, and KM. This is one strategy that has ceased to be viable in today’s business environment.
KM Strategy 2: Knowledge Competence
The goal of Knowledge Competence is to be an efficient and effective company with sufficient emphasis on responsible management of Knowledge. To date, at least 50% of the companies in the world are in this category.
KM Strategy 3: Knowledge as a Competitive Advantage
The goal of Knowledge as a Competitive Advantage is to up the ante in the spirit of continuous improvement. Undertaking the third strategy involves making KM a critical capability of the organization. At least 20% of the companies in this world are in this category. This is often adopted by Knowledge-Intensive Industries.
Essentially, our company must create a robust Knowledge environment. However, this can only be achieved when 8 KM critical success factors are put in place.
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Most Product Managers have relatively narrow roles and decision rights on product portfolios are fragmented on various functions. This creates incoherence between a company’s product and its overall Corporate Strategy.
What is needed is more accountable decision rights that align responsibility for results to one person who also has cross-functional decision-making authority. This realignment is at the core of Strong-form Product Management.
What is Product Management
Product Management is an organizational lifecycle function within a company. Product Management deals with the planning, forecasting, production, and marketing of the product or products at all stages of the product lifecycle.
The Product Life Cycle (PLM) Management integrates people, data, processes, and business systems. It provides product information for companies and their extended supply chain enterprise. One of the ultimate goals of Product Management is to optimize the business at the product, product line or product portfolio level over the lifecycle of the products.
Taking a Cautionary Case in Point: Understanding What Happened to Research in Motion (RIM)
In April 2007, Research in Motion (RIM) was flying high. The Blackberry creator was coming off its best year ever. RIM was experiencing record revenues, record earnings per share, and record shipments. And there was a new reason to be optimistic: Apple had just introduced the iPhone and RIM executives took it for granted that their product—a runaway hit in the business world—would grab a huge share of the burgeoning consumer market as well.
However, the confidence proved to be ill-founded. The iPhone reversed the historical pattern of computer technologies flowing from the enterprise to the consumer market.
RIM is compelling as a cautionary tale but it is not unique. Many companies falter in the face of discontinuous change. Their failure usually stems from their inability to keep up with technological shifts or the complexity of their product lines. Though often seen as a breakdown at the enterprise level, this starts at a much more granular level, with ineffective Product Management.
A Strong-form Model could have kept RIM stay ahead of change and remain competitive.
The Strong-form Product Management Model
The 5 steps to Strong-form Product Management will keep competition at bay.
- Hire Product Managers with Proper Skills
We need to understand that intrinsic abilities are required by Product Managers. These are the abilities to make a judgment to understand trade-offs, anticipate market changes, and make savvy business decisions.
- Create Financial Transparency to the Product Level
Companies must realize that a given product may be siphoning revenue from more profitable products. Increase in costs from suppliers that are managed by another function may cause hidden opportunity costs or out-and-out profit surprises. The creation of Financial Transparency down to the product level can address these concerns.
- Implement Product-first Decision-making Processes
There is a need to broaden decision rights and increasing accountability of Product Managers for performance and results. Product Managers have a “first among equals” status.
- Develop Strong Customer Relations
Product Manager must translate customer insights into product improvement and new products.
- Encourage Cross-functional Collaboration
Strong-form Product Management is inherently cross-functional. Communication is essential in developing the relationships between marketing and product management.
In all these steps, the Strong-form Product Manager must be the center of knowledge. However, Product Managers must also realize that the adoption of a Strong-form Product Management Approach requires taking Change Management initiatives.
Undertaking a Change Management initiative can take years to implement. Success can be achieved when anchored on basic principles of Change Management. However, once this is put in place, significant opportunities arise as companies move from strategy to execution.
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Family businesses did especially well in riding the rising tide. Family businesses were the particular beneficiaries of three decades of favorable global economics. Propelled by fast growth in the emerging world, the share of family businesses in the global Fortune 500 grew from 15% in 2005 to 19% in 2013. Five years ago, founders or their families owned 60% of emerging-market companies with sales of $1 billion or more. By 2025, an additional 4,000 companies may join the list. Family-owned businesses would represent 40% of the world’s large enterprise.
However, despite the growing power and influence of family businesses, executives and investors have a poor understanding of the unique attributes providing the edge. It is difficult to parse the DNA of family businesses. It is a complex mix of family, management, and wealth creation, all overlaid with a rolling ownership dynamic that claims all but 30% of them. This 30% is claimed by the 3rd generation.
The number one worry of family owners is the challenge of developing the next generation as motivated and responsible shareholders. Addressing this concern is critical to the long-term sustainability of family businesses. It calls for both technical and interpersonal focus.
First Things First
Maintaining an entrepreneurial edge is becoming evidently critical for long-term survival. Creative destruction constantly churns the rankings of companies in the S&P 500 index of the largest US companies.
However, as family businesses grow through the generation, barriers to entrepreneurship and innovation creep in. Maintaining the entrepreneurial spirit of the next generation of family leaders is essential. But developing, engaging and motivating them is the biggest challenge.
Family owners want to keep the next generation involved. This is to maintain the business as a source of family pride and to preserve the founder’s legacy to keep it within the family.
Successful generational succession can be achieved. Family Businesses just need to take on 3 important principles.
Preparing the Next Generation: The 3 Important Principles for Succession
- Build emotional connections. A common problem in a family business is fostering communication across generations and borders. It can be difficult but essential when building emotional connections.
- Develop responsible stakeholders. Based on the McKinsey Family Business Practice survey, the next generation family members are willing to take more responsibility in running the family business. Yet, only 30% feel that they are confident about making decisions involving Family Businesses.
- Establish clear rules and career paths. A leadership position is not the only role for members of the next generation. There are several important roles to be played above and beyond full-time employment. A critical need is to develop a path and make family members understand how they can embark on those paths.
Having a good grasp of the 3 important principles will pave the way for effective Succession Planning in family businesses. When these are in place, the very fundamental foundation of the family business is established and ready for the 21st-century challenges.
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Governance of Family Businesses must include the concerns of the numerous and diverse third generation. Establishing a set of Councils and Boards is essential in addressing critical transition issues. With a Governance Model, Family Businesses can address acute short-term challenges and prepare the business for subsequent generations.
Starting the change process can be difficult. Ideally, aunts and uncles will call the cousins together and say,
“What has worked so well for us and makes us proud of what we have achieved will not work for you. You must go out and find your own model.”
When siblings are wise enough to give such a mandate, the cousin generation has a greater chance of enlisting support from the earlier generation and being successful. However, many sibling groups avoid or delay dealing with the issue, leaving it up to the cousins to organize themselves. In most cases, highly educated and qualified cousins leave the business once they find the barriers to establishing Governance Structures so high.
Given the way that Family Businesses tend to become more complex over time, it is often up to the third-generation owners to redefine the role of the family and set the direction of the business. Setting up an effective Governance Model puts the Family Business on a new trajectory for success.
- Shareholders’ Assembly – The Shareholders’ Assembly is primarily responsible for dealing with classical legal functions.
- Family Assembly – The Family Assembly instills family values in the next generation and make sure that responsible shareholders are raised.
- Shareholders’ Council – The Shareholders’ Council is the most important link to the company. It is responsible for regulating relationships among family shareholders and between shareholders and the business.
- Holding Board – The Holding Board is the link between Management and the Shareholders’ Council. It is responsible for the overall performance of the group and its CEO.
- Family Council – It is the Family Council’s mission to transfer values and traditions across generations. It serves as an important communications bridge between the business and the individual family members.
- Investment Office – The Investment Office is responsible for managing the family assets other than the core business. It provides a sense of security to those distant from the business and that their interests are being considered.
- Foundation - The Foundation is the one responsible for the family’s social and charitable investments. It nurtures consensus from generation to generation on the direction of their philanthropic activities.
Taking that Giant Step to Governance
Kickstarting the change process can be a challenging part of the sibling-to-cousins transition. There are cases that exist where highly educated and qualified cousins find the barriers to establishing Governance structures so high that they leave the business.
In making sure that the Family Business can keep the Governance up and running, it must be able to master two critical steps to Governance.
One of the two steps is developing a clear idea both of the status quo and of the desired destination. What are our goals? Are there existing gaps in the structure? What are our priorities? These must be clear before we can ever start the Family Business Governance running.
Missing on this step (and the second step as well) will lead Family Business to a difficult turn and very bumpy road to success.
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Big cross-organizational change can be difficult and not all organizational transformation is the same.
Rapid advances in technology, a growing global creative workforce, and market with fewer and fewer barriers to entry are driving a hyper-creative volatile marketplace. New ideas are making established business positions obsolete at an increasing rate. Products and services that survive are exposed to commodifying price pressure.
The world has started to repeatedly demand operational excellence not only in innovation but in the delivery of customer service. Continuous improvement has been deeply emphasized with the increasing demand in the marketplace. Companies must recognize the fundamental market shifts that are occurring and must learn to respond effectively. This can be done by building an organization that discovers, shapes, and brings Lean-led Business Transformation to scale as part of its core business direction and purpose.
Lean-led Business Transformation provides the business the institutional capability and framework to adapt to rapidly changing opportunities
Understanding the Lean-led Approach
An approach based on Lean Thinking provides business tangible results that are evident in financial performance, customer and employee satisfaction, and risk mitigation.
From Lean-led Approach to Lean-led Transformation
Companies are increasingly under pressure to cut costs and grow. Applying the Principles of Lean Management allow companies to fundamentally transform their operating models.
Using a Lean-led Business Approach, the company can effectively undertake a Lean-led Business Transformation. An effectively undertaken Lean-led Business Transformation can help the company build a robust, factual understanding of its current state, exposing improvement opportunities to design an end-state operating model with enabling capabilities.
In effect, the company can achieve insurmountable results that competitors will find difficult to follow.
- The company will achieve best-in-class efficiency.
- It will reduce client, financial, and regulatory risk.
- It will create measurable client impact.
- It will lead the company to scale-up with growth.
A Lean-led Business Transformation embeds continuous improvement in the organization. It engages employees to help business leaders successfully govern and execute change.
What Companies are Facing Today
Changing market trends have pushed companies towards Lean-led Transformation. These market trends are adding pressure on companies to simultaneously cut costs and grow.
- Commoditization of Basic Services. The value of basic stand-alone services is declining leading to the increase in integrated services. As a result of the trend, there is a decreased unit margin per transaction
- Increased Complexity and Globalization of Investments. There is growth in cross-border activity, alternative investments, and alternative exchanges. As a result, technology and compliance investment requirements are changing. Likewise, it has opened an opportunity for growth and revenue diversification.
- Stricter Regulation. There is increased regulatory oversight such as consumer protection. As a result, new processes and technologies need to comply with regulations. There has also been an increased client need for advisory services.
- Increasing Focus on Risk Management. There has been an increase in risk aversion and a demand for risk management. In effect, new risk assessment capabilities and oversight practices have been developed.
- Change in Consumer Behavior. There has been reduced willingness to incur debt as well as deterioration of trust and customer loyalty. Because of this trend, businesses have been experiencing declining profitability and increased competition for creditworthy consumers.
These changing market trends are here to stay and more trends will soon evolve and affect business. Failure to heed these market trends can lead to decreased margins and profitability that can be highly detrimental to business.
Undertaking this form of Business Transformation can drive businesses to undertake executable Lean Programs that will strengthen their capability to meet these challenges.
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“Knowledge has power because it controls access to opportunity and advancement.”(Peter Drucker)
The 21st century is undoubtedly the century of knowledge. The everyday usage of available advanced information and business technologies, and internet in business activities just show how rampant corporations are engaged in information exchange and Knowledge Management.
In the light of globalization, companies are now exposed to an unpredictable and complex competitive environment. Pressures are put on companies to adapt quickly to survive in the competitive market. The vital strategic resource is Knowledge. Companies have started to realize the major value of an intellectual resource. The central role of Knowledge Management in making a quality decision has never been emphasized as much as today.
Intellectual resources and Knowledge are now contributing to revenue generation and increasing reputation. It has contributed to creating barriers to entry of potential competitors, increase customer loyalty, and create innovation. In today’s world, the success of the organization now depends largely on continual investment in learning and acquiring new Knowledge that creates new business and improves current performance.
Understanding Knowledge Management
Knowledge Management (KM) is a multidisciplinary approach to achieving organizational objectives
It is an integrated approach to gathering, analyzing, storing, and sharing knowledge and information within an organization. It ensures that the right information is delivered to the appropriate place or person at the right time to enable informed decision making.
An enterprise-wide ability must be created to transition data and information into critical knowledge. This is to ensure service stability, maintainability, and performance leading to organization wisdom.
Knowledge Management evolves around 3 primary spheres which are closely integrated with each other.
- Provides a secure central space where employees, customers, partners, and suppliers exchange information, share knowledge and guide each other and the organization to better decisions.
- A knowledge- portal which allows team members to use and share information.
- Standard processes for knowledge contribution, content management, retrieval
- Participation of team members in knowledge sharing, collaboration, and reuse to achieve business results.
AT Flevy, we’ve developed a The Knowledge Management Primer that examines and discussed the purpose and nature of the key components of Knowledge Management. It demystifies the KM field by explaining in a precise manner the key concepts of KM tools, strategies, and techniques, and their benefits to organizations.
The quest to set up a Knowledge Management system requires an understanding of the essential elements integrated within the Knowledge Management Approach. This includes an understanding of the DIKW Model or Pyramid, the importance of Knowledge Assets, and the structure and priority of information based on its Knowledge Hierarchy.
What is Knowledge Hierarchy
- Operational Knowledge. The focus of Operational Knowledge is to gain operational effectiveness. It helps organizations understand how service performance, compliance, and overall IT operational effectiveness is managed.
- Tactical Knowledge. Tactical Knowledge is focused on service value. It helps organizations understand how to manage and ensure service value.
- Strategic Knowledge. Strategic Knowledge is focused on benchmarking and advanced analytics. It helps organizations understand the effects of operational decisions.
In the Knowledge Hierarchy, it must ensure that resulting knowledge is well defined, specific, comprehensive, and with high average quality information.
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