Building Outperformer Commercial Thinking Feb 09

Building ‘Outperformer’ Commercial Thinking & Behaviour

VBMC White Paper – January 2006

Contents

313-5 January 2006 © 2005/6 VBM Consulting Limited All Rights Reserved

PAGE

1. ‘Outperformer’ Commercial Thinking and Behaviour Comes of Age

1

2. Foundations of Commercial Thinking and Behaviour

1

3. Framework for Enhancing Commercial Thinking and Behaviour

4

4. Raising the Bar: Towards ‘Outperformer’ Commercial Behaviour

6

5. Moving Forward

7

6. Concluding Remarks

9

APPENDIX: Case Example: Outperformer Commercial Thinking at GE Capital Services

313-5 January 2006 - 1 - © 2005/6 VBM Consulting Limited All Rights Reserved

“The global economy is to the modern corporation what the African savanna was to early man: an environment which requires the utmost in adaptive skills to survive and ultimately prosper.”

Bill Stavropoulos, President and CEO, Dow Chemical 1. ‘Outperformer’ Commercial Thinking and Behaviour Comes of Age No business can afford to ignore the challenge of developing and deploying superior commercial thinking relative to competitors. The need to be ‘commercially focused/driven’ has become even more fundamental in recent years, in the face of the challenges and opportunities arising from trends such as globalisation, rapid technological advance, and the growing sophistication of consumers of products and services. Few managers would deny that a company should be commercially driven, or that they should be commercially focused. Indeed few, if any, would admit to not being ‘commercial’. But in reality, only a minority understand what this actually means or how to achieve it in practice. A basic premise of this paper is that companies can act to enhance commercial thinking and behaviour throughout the organisation. It is possible for people to learn how to think and act more commercially. It is also possible and indeed essential for top management to create a culture and environment and to put the necessary enabling conditions in place to encourage managers and staff to think and act more commercially and to enhance their propensity to do so i.e. to engage commercially focused employees. A key theme is the need to ‘outperform’ the competition in terms of the quality of commercial thinking and behaviour at all levels in the organisation. Our objective is to stimulate thinking and debate/discussion about the issue of commercial thinking and to support managers who are committed to outperforming the competition through strengthening commercial behaviour within their organisations. The document is structured as follows:

- Foundations of Commercial Thinking and Behaviour: What it means to be ‘commercially focused and driven’ and the characteristics and determinants of ‘outperformer’ competitive thinking and decision making.

- Framework for Enhancing Commercial Thinking and Behaviour: Identification of key areas in which action is required to enhance commercial behaviour.

- Raising the Bar: Towards ‘Outperformer’ Commercial Behaviour: Moving beyond conventional wisdom on commercial thinking, towards superior perspectives and approaches for achieving it.

- Moving Forward: A systematic approach/process which companies can apply to achieve and sustain ‘outperformer’ commercial thinking/behaviour.

2. Foundations of Commercial Thinking and Behaviour Ask twelve senior managers what they mean by the phrase ‘commercial thinking’, and it would not be surprising to receive a dozen different responses. One financial services executive might interpret the phrase as a call to evaluate company activities and decisions solely on the basis of expected marketplace impact. Yet another manager, from manufacturing, may interpret it as minimising or removing internal obstacles e.g. beliefs and procedures, which reduce competitiveness and productivity. Yet another may feel that ‘commercial thinking’ involves focusing on the extent to which key decisions are made, based on a set of objective well thought through business criteria instead of notorious erratic ‘gut-feel.’ Which interpretation about commercial thinking is correct? More importantly, which perspective is best positioned to create a significant and enduring competitive advantage for the company i.e. to give it ‘the edge’ over rivals?


Whilst such subjective perspectives might represent a small piece of the puzzle, fragmented understanding of commercial thinking often does more harm than good. Companies may at times pursue stylish but limited themes or inflexible methodologies, only to be disappointed several quarters later as uninspiring performance persists. Outperforming competitors in commercial thinking and behaviour does not mean issuing slick sound bytes and implementing tortuously slow internal processes. It requires a clear understanding of the characteristics of good commercial thinking/ behaviour and of the key factors which drive such behaviour and embed these into the organisation. In the commercially-driven company, the outperforming manager:

- Seeks to understand the most important drivers of company success, and continuously strives to adjust and align priorities and activities in order to better optimise those drivers.

- Develops a keen understanding of the critical differences between merely adequate ‘performance as usual’ and outperformance (competitive breakthroughs)

- Invests time and effort on a priority basis to: - monitor and understand emerging key trends with competitors and

external customers, - understand the company’s key advantages and disadvantages relative

to today’s and tomorrow’s toughest competitors, - interpret the implications of the above for his/her role in the ongoing

success of the business. - Continually seeks opportunities to add value and/or enhance the competitive position of the

business as manifested by early identification of major emergent business opportunities and threats.

- Mobilises the organisation’s resources to help achieve opportunities or to mitigate threats. - Applies a highly insightful business perspective (“commercial lens”) to major business decisions

to aid in prioritisation of resources, time and manpower.

Factors Influencing Commercial Behaviour Figure 1 depicts the fundamental drivers of manager/staff behaviour across the organisation. It is instructive to examine each driver in order to identify possible ways the company can enhance the propensity of all within the enterprise to think and act commercially.

Skills & Capabilities

Manager/StaffBehaviour Skills

Aptitude

Knowledge

Enabling Conditions


Company/Organisation Leadership & Culture

Current Business Model /Strategy



Figure 1. Factors Influencing Commercial Behaviour

© 2005/6,VBM Consulting Limited, All Rights Reserved

Key Business Processes/Systems

Capability

Individual’s Personality

Values & Attitudes


Manager/StaffBehaviour Skills

Aptitude

Knowledge

Enabling Conditions



Current Business Model /Strategy



Figure 1. Factors Influencing Commercial Behaviour


Key Business Processes/Systems

Capability

Individual’s Personality

Values & Attitudes


Values & Attitudes The importance of a manager or a staff member’s ‘values’ and ‘attitudes’ in determining whether or not they think or act commercially, should not be underestimated. The table below highlights some characteristic attitudes of those managers and staff who are highly driven in commercial thinking terms: (an underlying assumption here is that the prevailing company culture supports and encourages commercial thinking i.e. engages commercially focused employees) Table 1: Values & Attitudes of Commercially Focused/Driven Managers/Staff How do I perceive my job/role?

As an opportunity to influence and share in the success of the company and to add value.

How do I view my path to career success?

Establishing, delivering (or supporting the delivery of) challenging business objectives.

What motivates me?

- Identifying/ spotting business opportunities &

threats - Grappling with and meeting business challenges

Whom do I admire?

People who exhibit entrepreneurial attitudes and behaviour in their corporate roles and those who have the ability to work simultaneously within the system and, if necessary, to change themselves and the organisations they influence in ways that increase corporate value. (e.g. the description of institutionalized entrepreneurialism at GE Capital (see Appendix)

Employees’ personal values and attitudes are shaped by the organisation’s culture as well as by their perceptions of functional and company leadership. For example, values and attitudes of employees of leading international companies such as Mars, Cadbury-Schweppes, Home Depot, and many major financial services firms are deeply influenced by the organisational culture established over many years. Hollow posturing or vapid slogans about the need to become more commercial which are rooted in the latest management initiative or fad, tend to do far more harm than good. Capabilities Whilst values and attitudes have a fundamental impact on behaviour, the capability of managers and staff to think and act commercially is also critical. Key determinants include:

- aptitude - skills - knowledge


Aptitude It is pointless investing in expensive training programmes and initiatives to encourage people to think and act more commercially if they simply do not have the basic ability to do so. Clearly any organisation needs people with a range of different aptitudes and abilities, but for roles in which people are expected to think and act commercially, it is unfair to expect those without either the interest or the ability, to do so. Skills There is a range of skills which people can acquire to facilitate effective commercial behaviour. These include for example:

- the ability to articulate the commercial rationale for specific business priorities, decisions and actions.

- the ability to think about and analyse business issues/problems in a highly systematic manner.

Knowledge It is important that people have a basic understanding of how the business works as well as a working knowledge of the fundamentals of corporate value creation (and destruction). Also, without a deep understanding of the specific circumstances of the business/sector in which they are working, e.g. key issues, developments, trends, and of the political dynamics of the organisation etc., it is difficult for people to think and act commercially.

Enabling Conditions The extent to which managers think and behave commercially is also highly dependent on enabling circumstances, that is, how easy the organisation makes it for managers and staff to behave in a commercially-orientated manner. The outperforming company’s business model, strategy and prevailing culture, as well as its key processes and systems, need to facilitate rather than hinder effective commercial behaviour. For example in many organisations, the budgeting process acts as a key obstacle to commercial thinking: ‘beating the metric’ becomes a primary focus, with ‘creating unassailable advantage in the marketplace’ relegated to afterthought if considered at all. In some instances, a time consuming, unnecessarily complex process obstructs commercial behaviour, as managers’ and staff’s primary focus is misdirected at minor activities and irrelevant detail, assessed in commercial terms. Unchecked and uncorrected, such obstacles can reduce the quality of commercial thinking and decision making across the company. 3. Framework for Enhancing Commercial Thinking and Behaviour Observation of commercially driven organisations suggests that systematic action to manage the ‘drivers’ of management and staff behaviour and engagement is the most effective way to embed superior commercial thinking and behaviour in the organisation. Figure 2, below, depicts a framework for moving towards a more commercially focused and driven organisation. It highlights four major areas which need to be systematically addressed in order to encourage outperformer commercial thinking and behaviour across the company;

- Organisational leadership and culture - Values and attitudes - Capabilities - Enabling conditions


Figure 2. Framework for Creating a Commercially Driven

Organisation Leadership & Culture

Values & Attitudes

Capabilities

Manager/ Staff Behaviour

Enabling Conditions


Enhanced Value Creation

Superior Commercial Thinking & Decision Making

Desired Driver

Organisational Leadership & Culture The leadership within the organisation represents a primary driver of company culture and exerts a strong influence on employee core beliefs and behaviour. Top management who promote and support an organisational culture which rewards high quality commercial thinking (and, on occasion, penalises the opposite) is key. The phrase “leading by example” applies here. Experience suggests that poor quality commercial thinking in a business can often be traced to incomplete and/or unclear understanding of the company’s key drivers of value at top management levels, as communicated by those companies’ leaders. Corporate campaigns and slick slogans imploring managers and staff across the firm to ‘think commercially’ are never enough by themselves - not even close. Unless managers and staff perceive the same type of relentless commercial focus in their leaders that they themselves are being asked to adopt, ‘thinking commercially’ will not take hold. Thinking commercially requires that senior management must help create and sustain a culture in which a commercial lens is constantly applied to material business issues and decisions. In order to do this most effectively, there must be absolute clarity and consensus within the top management group about where attention must be focused. Developing a workable understanding of the company’s unique Key Drivers of Value (KVDs) helps facilitate creation of this consensus. Secondly, every senior manager ought to have a clear understanding of how to think and act commercially in their particular role. An understanding of the organisation’s overall KVDs is critical, along with a deep understanding of the ‘levers’ that they can directly or indirectly influence within their own groups.


Values & Attitudes A key challenge for a company seeking to become more commercially driven is to promote an outperformer commercial thinking mindset throughout the organisation, for example, the adoption of the values and attitudes described in Table 1. Establishing a culture in which commercial behaviour is perceived to be a requirement for effectiveness today and career advancement tomorrow emerges as one of most powerful ways to influence the deeply-held values and attitudes of managers and staff across the company. Capabilities Achieving better quality commercial thinking requires that the organisation be staffed by people possessing both the ability and inclination to think and act commercially. There are important implications for recruitment strategy and other key HR aspects such as management training and development, promotion policies and compensation structures and criteria etc. Top management is responsible for articulating the type and calibre of individuals who should be recruited into the organisation and for articulating the kinds of behaviour which will be recognised and rewarded. Companies need to identify and cultivate the key skills required to enhance the quality of commercial behaviour amongst managers and staff. These skills include:

- the ability to understand what drives value within the organisation overall and within key parts of the company,

- the ability to monitor and effectively interpret trends and developments amongst customers and competitors,

- the ability to rapidly pre-empt or respond to opportunities and threats in a way which creates or enhances competitive advantage for a company.

The leadership of the company should perform the central role in shaping and defining the specific skills sets which the company needs to possess and enhance in order to successfully achieve its commercial objectives in its particular market. Enabling Conditions The leadership of a company seeking to build an outperformer culture has a responsibility to identify and overcome obstacles to commercial behaviour and to create an environment in which people will feel able and motivated to think and act commercially. In practice this involves eliminating or modifying processes, policies, practices or activities which are not conducive to commercial behaviour and ensuring that people are empowered to act. 4. Raising the Bar: Towards ‘Outperformer’ Commercial Behaviour As noted above, an essential part of effective commercial thinking is being continuously responsive to emerging key insights and developments that could potentially become major opportunities or challenges to the organisation, in whole or part. Arguably, there is no better place to apply such a perspective than to ‘commercial thinking’ itself. The phrase (as well as its multiple advocates, facilitators and practitioners) has by now been around for some time. One of the consequences is a clear difference between low value, symposium-style superficial approaches to commercial thinking as contrasted with pragmatic, highly effective methods which make a significant difference to companies, their managers and staff.


We refer to the former approach as commercial thinking in name only. The buzzwords are all present, and there might even be some proclamations from someone regarding the importance of the issue. However at the end of the day, when the symposium is over, everyone reverts back to their old, familiar and suboptimal ways of thinking and doing things. Nothing really changes. Core analysis and decision methods, the structure of departmental and individual rewards and penalties, and breadth of market investigation all remain largely unchanged from before. By contrast, the approach to commercial thinking and behaviour, which we denote here by the term outperformer commercial thinking, requires proactive, co-ordinated and systematic action which impacts on the key drivers of commercial behaviour. Two illustrative examples: Issue: Competitive Orientation

Perspective 1: Commercial Thinking in Name Only - It is enough for managers and staff to develop occasional backwards-facing (historical)

comparisons about company/unit performance relative to primary rivals in each customer/market category, then record the gap, followed by a few ideas about actions to try to narrow the disadvantage.

Perspective 2: ‘Outperformer’ Commercial Thinking and Behaviour - First, this involves a clear understanding that the limited approach such as described above

is chronically defensive in nature, and at best can accomplish little more than beginning to address yesterday’s performance shortfall. Instead, the outperformer commercial thinking approach looks ahead, anticipating emerging market areas for tomorrow’s key customer subgroups, with commercial thinking applied to the development and implementation of strategies to outflank rivals, before they can act.

Issue: Internal Support Group Operations

Perspective 1: Commercial Thinking in Name Only: - Departmental units attest to their progressive improvement in indicated efficiency and

effectiveness, citing periodic improvement in cost/transaction or similar service measure. Perspective 2: ‘Outperformer’ Commercial Thinking and Behaviour - All support activities and functions are assessed in terms of value contribution. This is

usually followed by some restructuring or even the discontinuation of some activities. In place of any assumption that the internal service provider has an ongoing ‘right’ to provide its service within the company, the working assumption should be that better/faster/cheaper external solutions exist, but simply have not yet been found.

5. Moving Forward The following diagram depicts a structured approach which can be applied in any company or department and to any significant business process to facilitate the goal of becoming more commercially driven.


Figure 3. Process for Creating a More Commercially Driven Organisation

Step 1 Step 2 Step 3 Step 4

Manager/ Employee Behaviour

Audit

Insight Generation

Creation ofAlignment

Step 1: Manager/Employee Behaviour Audit The objective of this initial phase of the process is to assess the current state of commercial thinking and behaviour within the company overall or within a specific unit/department and to highlight the key strengths and weaknesses. The information required can generally be deduced from existing manager/ employee surveys, although in some cases in may be necessary to carry out a specific survey focusing on commercial behaviour. A similar approach can also be applied to key business processes. For example, how well does the investment decision making process or the budgeting process support the commerciality goal? This would be carried out using a range of tools including tailored questionnaires, financial analysis, structured interviews with key staff etc. Step 2: Insight Generation The output of Step 1 represents an objective assessment/measurement of the extent to which the company/department is commercially driven, applying internal or external measures of outperformer commercial thinking as available. The next step is to interpret the findings of step 1 and to generate key insights into the current situation. The objective here is to identify key reasons for the observations in step 1 and to determine what action can be taken to build on strengths and overcome obstacles/weaknesses. The output of this phase is:

- a prioritised list of strengths and weaknesses in commercial behaviour within the company/, department or process

- identification of the factors driving the current situation - potential options for enhancing the level of commercial behaviour

Areas of Focus

Process Programme

Implementation

Organisational Leadership & Culture

Values & Attitudes

Capabilities

Enabling Conditions



Step 3: Creation of Alignment programme Applying the output/insights from Step 2, the next step is the creation of a series of actions designed to enhance the quality of commercial thinking and decision making within the company, organisational unit or business process. Examples include:

- workshops with senior management to consider and achieve consensus on key value drivers

- management development programmes to enhance manager’s commercial skills - process reviews designed to identify and remove obstacles to commercial

behaviour, - developing a performance management system which encourages greater

commercial behaviour e.g. the design and implementation of a new more commercially focused Key Performance Indicators (KPIs) etc.

As part of the work in this phase, it is necessary to consider:

- implications for other processes/departments - requirements for skill enhancement e.g. training or tools required - drivers of staff/employee motivation

Step 4: Implementation The key task in this phase is to secure buy-in/ engagement from all key stakeholders associated with each proposed change and to ensure that the initiatives identified in Step 3 are implemented effectively, in an appropriate timescale. 6. Concluding Remarks For many years now, the importance of enhancing productivity and cost efficiency within the organisation has been stressed. Whilst no one can deny that the pursuit of greater productivity and efficiency is a fundamental goal for any company striving for success, it is becoming increasingly apparent that this is simply not enough in the face of challenges such as globalisation and intensifying competition. The future success and indeed survival of many companies will be dependent on how effectively they can mobilise themselves to outperform the competition in terms of thinking and acting commercially. The need for action in this area has never been greater. It is also not sufficient for top management simply to stress the need for their managers and staff to think commercially, without taking any explicit steps to ensure that this actually happens. There is much evidence to show that companies can significantly enhance the quality of commercial thinking and behaviour within the organisation by adopting a systematic approach to understanding the drivers of commerciality, and then developing a structured programme of action to align the business to these drivers.


APPENDIX Case Example: Outperformer Commercial Thinking at GE Capital Services Institutionalized Entrepreneurialism “While superb execution makes it all work, GE Capital’s success is rooted in a mindset – an institutionalized entrepreneurial approach to business rare in big corporations. That mental architecture, present in leaders at all levels, largely reflects the leadership of Gary Wendt, Capital’s CEO…. It has three major components: 1. Capitals people are passionate about growth. Growth is woven into the very DNA of the

organization. At GE Capital, there’s no such a thing as an existing pond. There’s only, as Wendt puts it, “a continuous series of looking for the next generation of opportunity. And the job of a leader is to find the next activity that the company goes into.”

2. They thrive on change. It’s worth repeating Gary Wendt’s quote from Chapter 3; “You always look where there’s change. Change is what creates opportunity.” Opportunistic and entrepreneurial, Capital’s leaders at all levels excel at capitalizing on demographic, economic and regulatory changes, spotting emerging trends and buying into new segments cheaply when they are in upheaval and turmoil.

3. GE Capital is the king of adjacent segments. More than perhaps any other company, Capital has segmented and resegmented its marketplace, identifying new needs and developing each into a fast-growing business. Each of its 28 major businesses represents a segment, and within each of these, new segments are constantly being pinpointed. Its diversity is not only the source of its growth but also one reason why economic cycles don’t greatly threaten its profitability. “ Source: Every Business is a Growth Business, Ram Charan and Noel M. Tichy, 1999, John Wiley & Sons Ltd, p. 143

Building Outperformer Commercial Thinking Feb 09

Business

Transcript of Building Outperformer Commercial Thinking Feb 09