Internet Home Alliance
The airline industry is expected to lose more than US$ 5 billion this year, on top of losing US$ 7.7 billion in 2001. United Airlines has filed for chapter 11 bankruptcy protection and some of its major competitors are also teetering on the brink of ruin. Unless the situation improves, the industry is likely in for a round of sweeping consolidation. Most airlines are simply sweating it out, hoping a strong upturn in the economy will bring back their most profitable customers-business travelers. Others, however, are looking for new, value-added services to draw the shrinking pool of business travelers who provide about 40% of their revenue.
Early this year, Lufthansa will become the first airline to offer inflight email and Internet access from Boeing. Scandanavian Airlines System (SAS), British Airways and Japan Airlines will adopt the real-time, broadband service, dubbed Connexion, in short order. While most airlines are investing in basic business processes or simply trimming costs, these airlines are forging ahead with this innovative service to generate incremental revenue and to improve customer loyalty. They recognize that continuous innovation is the primary engine for long-term success. Even in the face of a grim industry outlook, perhaps especially in such times, innovating is better than waiting.
Why more enterprises don't choose to innovate is explained, in part, by their tripartite identity as described by business guru Peter F. Drucker in The Practice of Management (1954). According to Drucker, every enterprise has three essential dimensions: the traditional business, the transitional business and the transformational business. These dimensions roughly correspond to the past, present and future of the enterprise and as such, are in constant state of tension (see Figure 1). The term, 'traditional business,' refers to what the enterprise currently delivers. The managerial focus in this business is on improving current operations. The transitional business revolves around what the enterprise will soon deliver; in this context, the focus is on adapting to new opportunities. Lastly, the thrust of the transformational business is on innovation, or purposeful planned change, to ensure the enterprise's long-term success.
What strategies can managers within transitional and transformational businesses use to garner sufficient resources to capture new opportunities and, accordingly, sustain the enterprise long-term? That was the central question discussed at Internet Home Alliance's first Chairman's Roundtable, an event designed to surface, discuss and debate issues critical to advancing the home technology market.
As a cross-industry consortium dedicated to advancing the home technology market, the Alliance is largely an enabler of transitional and transformational businesses in the 'connected home' market. The role of the Alliance is to supercharge or otherwise accelerate transitional or transformational change efforts. The roundtable was organized so Alliance leaders could share strategies for sustaining the various connected home initiatives within their respective enterprises in the face of challenging market conditions.
As Bill Kenney, vice president, Emerging Home Solutions, Sears, Roebuck and Co., characterized the dilemma: "You're trying to win favors from people who only know their own peculiar business model. That's what they understand. We're talking about introducing a new business model. It's like trying to unseat a popular, longtime politician. It's hard to unseat the incumbent-even with good reasons."
By the end of the two-hour discussion, the roundtable produced a list of the top-five most effective strategies for securing support for transitional and transformational businesses. These strategies can help managers across industries survive and even thrive in today's demanding business environment.
1. Sell continuously to the group of decision-makers that matters most.
The first rule is to identify the key decision-makers-the senior executives who can make or break your budding transitional or transformational idea. Bill Kenney of Sears, Roebuck and Co., and former chairman of Internet Home Alliance, said he knew his ideas about how Sears could play in the connected home market would resonate with senior executives as soon as they better understood the opportunities. "We figured we'd have to sell our ideas to 23 people in the organization and we've pretty much spent all of our time on those people," he said. "They're the folks who are going to make it happen." Others at the table suggested expanding the scope of any internal communication effort to other stakeholders in nascent initiatives, such as key customers and partners.
2. Associate the change effort with a currently successful product or service.
The intent of this strategy, of course, is to present the risks associated with the change effort as negligible. Kristine Stewart, a director of market development in the Worldwide Commercial Marketing division of Cisco Systems, Inc. said her firm is cautious about initiatives in the connected home space due to the slow development of the market. She noted, "You may find more success by offering ideas that slightly branch from, but remain tied to projects closer to your company's core competencies. Once these projects are achieved, you can leverage them to branch out even farther."
Stewart cited Cisco's involvement in the Alliance's teleworking pilot, which is now in development, as an example of creating synergy with an existing business solution. As the leader in networking on the Internet, Cisco is a major IT player among large enterprises. Instituting a teleworking solution at that level appears to be a logical place for the company to establish possible partnerships for services into the home.
Jay Heuer, a director in Whirlpool Corporation's Connected Home division, highlighted this strategy, cautioning others against "attaching yourself to a new market that's completely isolated from your company's traditional business."
3. Detail how the change effort will deliver a compelling consumer benefit.
A powerful strategy for getting the necessary corporate buy-in for transitional or transformational ideas is to show strong consumer demand. The evidence can consist of traditional market research and/or a more intimate approach to proving consumer interest. Jay Heuer of Whirlpool Corporation talked about his company's now-scaled-down plans for a suite of Web-enabled appliances in the context of this principle. "We asked for a lot of money to launch this idea-millions in the double-digits-and faced a lot of doubt," he said. "We got approval for it by demonstrating consumer excitement. We showed a 30-second video of a mother and her son getting excited about a prototype of a Web-enabled refrigerator. And we got the money."
Citing his experience as co-founder and chief strategist at software-maker Motive Communications, Mike Maples provided a negative corollary to this rule. "We haven't had good luck with companies manufacturing connected appliances. They don't seem to focus on customer support issues because they rely on their channel partners to provide service. They treat their distributors - Best Buy, Circuit City - as their customers and focus on shipping zero-defect products. I don't know if they effectively show the value of embedding better service into their products to people internally."
Sometimes, the structure of the enterprise hinders decision makers' abilities to recognize the market opportunity inherent in a newly relevant or heightened consumer need. Nick Pudar, director of strategic initiatives at General Motors, pointed out that, according to management guru, Russel Ackoff, companies are typically organized by products, geography or customer segments. "If you're not organized by customers, then it's probably not going to work," he said. "That's the link between divisions or business groups - customers."
4. Sell the change effort, in part, on an attractive (and realistic) assessment of the revenue opportunity.
There was considerable discussion about the degree to which revenue opportunities should be quantified as part of a business plan in order to get buy-in from the relevant decision makers. Some argued for developing a plan that detailed the revenue opportunities, but stopped short of a full-fledged business plan. Others considered a business plan premature in an embryonic market like the connected home. Harold Potishman of IBM's Pervasive Computing Division noted that, in his case, many senior executives view IBM's efforts in the connected home space as "providing value to our customers, helping other companies solve problems and retain their customers. We're a software and service provider, an infrastructure partner. We're learning. It's not necessarily all about revenue."
Regardless of roundtable participants' preferences about the degree to which new initiatives should be wrapped up in revenue projections, at minimum, participants agreed, the proponents of change initiatives ought to have worked out at least one viable business model. As Mike Maples of Motive asserted, "Every company has a cost of capital. If you can't demonstrate a single business case where the business opportunity promises greater returns than the cost of capital, then you'll always be vulnerable to reorgs, elimination or just a change of mind."
Kristine Stewart, the newly-elected president of the Alliance, reinforced this point, saying, "You can't get funding any longer based on projected new market growth. You have to prove the worth of your ideas using market assessment data, identifying potential partners, manufacturing costs, value chain analysis. You have to come in with a strong well-supported business model." Even though all of the numbers typically associated with a business plan may not be in place, at least one viable model must be thoroughly worked out, with the tacit understanding that it will undergo changes in accordance with market developments.
Some, particularly those managing initiatives at consumer goods companies, noted the difficulty of getting senior executives to think beyond "selling boxes" to make the current quarter's numbers. Jeff Cove, VP of strategic alliances and new business development at Panasonic Technologies, Inc., said the preponderance of product development roadmaps, all promising returns "in a year or two," made pitching long-term initiatives especially difficult. To compete for resources, he observed, requires having a firm idea of the "end-point" and enough data on consumer needs and technical trends to argue persuasively for a longer payback period. In all cases, however, the advice was to ensure any projected revenues were wholly attainable. No hype, no mess.
5. Attract decision-makers with the revenue opportunity, but also describe the opportunity cost of competitors capitalizing on it first.
This principle may be considered the converse of the second; instead of nurturing new initiatives under the guise of enhancing existing businesses, this principle stipulates appealing to decision makers' desire for new revenue streams and their fear of losing out on heretofore untapped opportunities. Peter Gaucher, a program director in IBM's Pervasive Computing Division, said it all comes down to "balancing opportunities and competitive threats." "You have to garner enough support to get things launched," he said. "That's usually done on the basis of the potential revenue you have to gain, balanced by what could happen if you don't get into the game - there are real opportunity costs of standing on the sidelines."
Jim Devlin, president of Invensys Home Control Systems, agreed, noting that organizations like the Alliance provide leverage for unleashing resources for new initiatives. The fact that other companies are facing the same issues and more importantly, conceptualizing them in the same ways, helps legitimize transitional or transformational ideas. "One of the things that's helping Invensys is working through the value chain. What resonates at my company is holding conversations with counterparts at other firms, with potential partners that complement our core strengths. If we find that others are dealing with the same vision of the problem, struggling with ways to capitalize on the same opportunities, we know we're onto something. And I typically appeal to greed rather than fear. They're scared enough already, what with everything becoming a commodity. We're just trying to get to the lowest prices faster than everybody else, while still preserving our margins."
Still, fear appeared to be an effective motivator for some. In describing the genesis of OnStar, a Global Positioning System technology developed by General Motors (GM), Nick Pudar of GM said, "Many times, the fear of your competitor taking action instead of you can lead to having the confidence to pursue some new areas."
The stimulating discussion ended with a collective note of caution. The consensus of the group was that the connected home market is likely to emerge as the precipitate of a steady accumulation of compatible products and services rather than as a result of a singular wave of innovation. The market will move forward incrementally as consumers find new uses for existing products and services as well as adopt new, discrete offerings. At some point, products and services that formerly served discrete functions will, combined in new ways, signify a major behavioral shift.
In the interim, roundtable leaders advised, it's important to help decision makers make choices about what role to play in a shared vision of the future rather than asking them to inspect individual 'sales pitches.' As Jim Devlin of Invensys put it, "It's as though we're a caravan in the desert. We know there's an oasis somewhere, we just don't know where, exactly. And we've got to keep building our case among people who think it may be a mirage. We just have to keep moving, keep working together so we don't run out of water before we get there."
About Internet Home Alliance's Chairman's Roundtable
Designed to surface, discuss and debate issues critical to advancing the home technology market, the Chairman's Roundtables take place on a quarterly basis. This event took place on November 20th, 2002 in Austin, Texas, was moderated by John Erik Garr, partner, DiamondCluster International, Inc., and was attended by the following participants:
About Internet Home Alliance
Internet Home Alliance is a cross-industry network of leading companies advancing the home technology market. A non-profit organization, the Alliance provides companies with the collaboration, research and real-world testing opportunities they need to launch their home technology products more quickly, successfully and cost-effectively. Members of the Alliance, which was founded in October 2000, come from a variety of industries and include such leading companies as Best Buy Co. Inc, Cisco Systems, Inc., General Motors, Hewlett-Packard Company, IBM, Invensys, Panasonic (Matsushita Electric Corporation of America), Sears, Roebuck and Co., Sun Microsystems and Whirlpool Corporation. For more information, visit www.internethomealliance.com .
Many more articles on Leading Change in The CEO Refresher Archives