The Power to Convene - Bonchek (c) 2006

8/3/2019 The Power to Convene - Bonchek (c) 2006

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The Firm as a Collaborative

Community

Reconstructing Trust in the

Knowledge Economy

CHARLES HECKSCHER AND PAUL S. ADLER

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The Power to Convene:

Creating Collaborative Community with StrategicCustomers

Mark Bonchek and Robert Howard

One of the most powerful forces pushing large business organizations to

experiment with new forms of collaborative community is the desireand

the needto develop closer relations with their customers. This trend is

present across the global economy, but it is especially prominent for a

particular segment of the economy: industries such as information tech-

nology, telecommunications, and business services where companies areproviding technologically complex products and knowledge-intensive

services to other large corporate customers.1

These sectors share some common characteristics. New technologies

and the increasingly rapid diffusion of knowledge are producing a

major business discontinuity, disrupting traditional ways of doing busi-

ness. In particular, companies find themselves called upon to provide

not stand-alone products but complex and often highly customized

end-to-end business solutions. Many of these solutions require a sig-

nificant up-front investment of time and capital, and feature a high

degree of ongoing interdependence between the customer and solution

provider. In such businesses, establishing deep customer relationships is

increasingly critical to success in the marketplace. And this impera-

tive is forcing companies to explore more collaborative kinds of rela-

tionships with key customers than they have typically pursued in the

past.

A case in point, and the focus of this chapter, is the recent effort of

Avaya Inc. to create an Executive Advisory Council consisting of senior


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executives from its most important customers. Avaya is a $4 billion For-

tune 500 company that designs, builds, deploys, and manages business

communications, particularly voice applications such as telephony andcall centers, doing much of its business with other Fortune 500 corpor-

ations. Created in 2000 in a spin-off from Lucent Corporation, Avaya

traces its origins all the way to Western Electric, the equipment arm of

the Bell System. Avaya is a major player in its industry. For example, it is

the leading provider of call-center systems in both Europe and the United

States, with more than 30 per cent of the market, and the worldwide leader

in both automated interactive voice response and voice-messaging sys-

tems. Avaya has been number one in the US private-branch exchange

(PBX) market, and is also taking the lead in the rapidly growing market

for internet protocol (IP) telephony.At the same time, Avaya is experiencing a major transformation in its

traditional business model. Due to its spin-off from Lucent, the company

has gone from being a division of a larger corporation to being a major

company in its own right. This shift has forced it to build an independent

infrastructure in key areas such as sales, marketing, information technol-

ogy, and distribution. Even more important, the technological shift from

PBX to IP telephony is causing customers to demand more integrated

solutions and forcing Avaya to become more agile and more integrated

in how it serves customers. The Executive Advisory Council is an attempt

on the part of the companys senior management both to respond to therapid transformation of its industry and to accelerate its own organiza-

tional transformation.

Our perspective on the Avaya experience, and the broader trend

of which it is a part, comes from our involvement with Tapestry

Networks, a specialized professional services firm that helps organiza-

tions design, orchestrate, and manage senior-executive relationship

networks.2 These networks allow a companys top executives to engage

in trusted dialogues with their peers on issues of mutual interest or prob-

lems of mutual concern. In some cases, the networks that Tapestry helps

create are designed to allow companies to realize the full value of existingrelationships with strategic customers, partners, and suppliers. In other

cases, the goal is to create new networks where they have not existed in the

past. And in still others, the purpose is to bring together diverse players

in an industry in order to address challenges that none can address on

its own.

Although the networks created by Tapestry come from diverse sectors of

the economy and have different purposes, they all have two things in

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common. First, like Avaya, the sponsors are market leaders. They possess

what Tapestry calls the power to convenei.e. the ability to bring to-

gether the key players in an industry and define shared interests and goalsin a way that can have a decisive impact on the performance of the

member companies and on the market as a whole. Second, like the

Avaya Executive Advisory Council, the relationship networks are leader-

to-leader networks, consisting of individuals at the senior-most levels of

their respective organizations. In both respects, Tapestrys relationship

networks represent an interesting laboratory for collaborative, trust-

based modes of leadership and models of business community.

Avayas experience is only one example. Still, we think it is illustrative of

a far broader trend. A key theme of the recent literature on industrial

organization has been the growing centrality of so-called inter-firm net-works.3 Such networks raise important questions for scholars and senior

executives alike. What is the role of the senior executive in a more fluid

and more networked economy? How do the leaders of major business

organizations exercise their leadership in an environment where, argu-

ably, many of the most important business relationships exist outside the

organization he or she leads? What kinds of behavior are most appropriate

in organizational settings where traditional models of command and

control, on the one hand, and market-oriented transactional relation-

ships, on the other, are either irrelevant or incomplete?

The rich literature on inter-firm networks is not much help in answer-ing these questions. Most descriptions of interfirm networks tend to

focus on the interactions on the front line of organizations.4 To the

degree that much of the most recent literature on networks is influenced

by complexity theory and focuses on phenomena of emergence and

self-organization, there is a tendency to underestimate, and sometimes

even dismiss, the role of senior executives.5 Although there is an emer-

ging theoretical literature (of which this volume is an important part) on

the complex organizational dynamics of interfirm networks, for the most

part this work still awaits its concrete application in management

practice.6

In the pages that follow, we will use Avayas experience as a case study to

explore the emerging managerial disciplines of the networked economy.

We begin by exploring some of the trends in the business world that are

making customer collaboration not just desirable but absolutely critical

for companies like Avaya. We then turn to a detailed description of the

Avaya Executive Advisory Council, which we analyze in terms of some of

the theoretical concepts introduced in other chapters in this volume:

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specifically, Adler and Heckschers three-part model of collaborative com-

munity and Sabels concept of the pragmatic organization. Next, we

consider some of the limits of the advisory council model at Avaya andhow the company is trying to manage the tensions inherent to it. Finally,

we conclude by discussing the potential generalizability of the model to

other key stakeholders both within organizations and across inter-firm

networks.

To anticipate our conclusion here at the beginning: we believe that

even as inter-firm networks become an increasingly important part of

the economy, the organizations participating in these networks remain,

in important respects, traditional hierarchies. And, in an economy that is

becoming a network of hierarchies, there is unique leverage in bringing

together the senior-most people from organizations across the network.But the way executives function and behave in such networks is funda-

mentally different from the way they behave in traditional hierarchies

less transactional, and more collaborative. In helping to lay the foun-

dations of collaborative community at the senior-most levels of its cus-

tomer networks, Avaya is laying the groundwork of an institutional and

managerial infrastructure for the networked economy. And its advisory

council model is an important new mechanism of strategy formulation,

through which business organizations are, as Sabel explains, applying

the core principle of iterated co-design to the choice of strategy or goals

itself.7

The strategic logic of customer collaboration

Of course, efforts on the part of corporations to get closer to the customer

are anything but new. From the quality movements early focus on the

voice of the customer in the 1980s, to the more recent emphasis on

programs and systems for customer relationship management, the

importance of developing closer relationships with customers has been a

persistent theme of the strategy literature for nearly thirty years. In thepast decade, however, three trends in particular have highlighted the

critical importance of building trust and fostering collaboration with

strategic customers in complex knowledge-intensive businesses.

The new economics of relationships. Since the early 1990s, a growing

literature has demonstrated that building stronger and deeper customer

relationships has powerful economic benefits. The early work of Earl Sasser

and Frederick Reicheld of the Harvard Business School argued that profit-

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ability isnt driven by market share (the prevailing assumption of much of

the early strategy literature) but by customer loyalty.8 In his subsequent

work on loyalty at Bain & Company, Reicheld observed that across a widerange of industries, a 5 per cent improvement in customer retention rates

will yield anywhere from 25 to 100 per cent increase in profits.9 He argued

that increased customer retention led to a variety of beneficial effects,

including a customer volume effect in which increased loyalty leads to

the growth of the firms customer inventory, and a profit-per-customer

effect in which the profit earned from each individual customer grows as

the customer stays with the company.10

This and other research gave birth to a cluster of new business concepts,

variously described as customer life-cycle economics, lifetime value of

the customer, customer equity, loyalty economics, etc.11 It has alsocontributed to a shift in mindset on the part of at least some execu-

tivesfrom a situation where, as Reicheld described it in his book, firms

overvalue transactions and undervalue relationships to a new awareness

of customer relationships as an important financial asset to be managed.12

And yet, the evidence seems to suggest that for all the focus on customer

loyalty, many companies have yet to achieve it. In a 2002 survey of more

than 2,200 information-technology buyers at major corporations, for ex-

ample, more than 80 per cent said they were satisfied with their technol-

ogy vendorsbut less than half described themselves as truly loyal, i.e.

predisposed to place their next order with the same company.13

The shift from products to solutions. A second important trend under-

lying the growing economic importance of deep customer relationships is

the shift in many industries from products to solutions. In a wide

variety of businesses, the product is increasingly something that is

co-created with customers.14 This trend takes many different forms.

One example is the increasing service component in even the most trad-

itional manufacturing products.15 And in complex technology-driven in-

dustries such as information technology and telecommunications,

customers are demanding that companies provide not stand-alone prod-

ucts but integrated business solutions.16

Increasingly, most of the value isin the solution, not in the (increasingly commoditized) product.

When companies provide solutions, the quality of their relationships

with leading customers becomes central to competitive success. In the

new world of manufacturing, write Richard Wise and Peter Baumgartner

of Mercer Management Consulting, the sturdiest barrier to competition

is customer allegiance. The goal is not necessarily to gain the largest

share of customers but to gain the strongest relationships with the most

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profitable customers.17 What Arnoldo Hax and Dean Wilde have termed

customer bonding allows companies to better anticipate customer

needs and work jointly to develop new products.18

To succeed at customer bonding, however, presents new organizational

challenges. Sales personnel on the front line of the customer relationship

need to learn how to operate, in effect, more like consultants.19 They must

coordinate the many aspects of the customer offering, providing a cus-

tomized bundle of not only technical but also business services. In the

process, they are called upon to exhibit what, in a different context,

Michael Useem and Joseph Harder have termed lateral leadership20in

particular, orchestrating a broader array of more complicated relation-

ships, with their customers certainly (in order to understand their business

needs) but also with suppliers (who are often the most knowledgeableabout the latest technology solutions) and even with their colleagues

around the world (who may have already encountered a particular busi-

ness problem and devised an effective solution for it that the salesperson

can borrow).

Customer bonding also poses major challenges for senior executives.

Increasingly, a companys most important strategic relationships are out-

side the firm. It is people outside the company who have the knowledge or

experience a company needs to understand where the market is going and

whom a company has to influence in order to shape the evolution of the

market. As strategy consultant James Moore put it in his 1996 book TheDeath of Competition: Leadership and Strategy in the Age of Business Ecosys-

tems, in the new networked environment, the job of . . . top management

is to seek out potential centers of innovation where, by orchestrating the

contributions of a network of players, they can bring powerful benefits to

bear for customers and producers alike.21

The transformation of strategy in an era of discontinuity. These changes put

the development of close customer relationships at the center of sales and

marketing for many companies. A final meta-change puts it at the center

of business strategy as well. As companies struggle with major discontinu-

ities due to technological change, deregulation, globalization, and otherfactors, what were once relatively stable businesses have become more

fluid. Traditional strategic contexts are disrupted. There is a sharp increase

in uncertaintyand, therefore, the need for timely and accurate know-

ledge about customers, competitors, new technologies, market trends, etc.

In this respect, a companys external relationships are becoming a key

knowledge assetbut involving a fundamentally different type of know-

ledge than in the past. In a less complex and more certain business

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One legacy of its origin in the quasi-monopolistic Bell System was an

uncompetitive cost structure. Since its founding, Avaya has had to reduce

its workforce by some 7,000 employees to bring its costs into line withrivals in what has become a more competitive business environment. And

the majority of its revenues come from traditional product lines such as

PBX maintenance and voice messaging, where growth has flattened and

where commoditization has put margins under pressure.

At the same time, Avayas business is confronting a major technological

discontinuity. With the growing convergence of communications with

computing, new technologies like internet protocol (IP) telephony are

providing Avayas customers with new options for organizing their in-

ternal communications networks. On the one hand, these technological

changes provide Avaya with an opportunity to participate in promisingnew high-growth markets. Over the next decade, more than a hundred

million phone lines are likely to move to IP telephony.

On the other hand, the convergence of telecommunications and com-

puting has exposed the company to new competitors. In addition to

traditional telecom rivals such as Nortel Networks, for example, Avaya

now competes regularly with Cisco Systems and other companies that

are trying to leverage their expertise in data networks to get into commu-

nications through the provision of so-called voice over internet protocol

(VoIP) networks. Perhaps most important, to succeed in these new mar-

kets, Avaya must migrate from being primarily a product and technologycompany to become a solutions company that provides customers with an

integrated communications capability encompassing hardware, software,

and services.

Parallel to the technological transformation in Avayas business is a

transformation in the relationships that matter with Avayas customers.

Traditionally, the companys account teams have developed good relation-

ships with the telephony organizations at Avayas customers. But with

convergence, selling to the telephony organization is no longer good

enough. Avaya has had to develop a whole new set of relationships inside

its customers IT organizations.Even more important, the buying decision for complex communications

networks has steadily migrated to more senior levels in the customer organ-

ization. Because telephony was neverconsidereda strategiccapability (with

the possible exception of call centers), Avayas relationships were not very

senior, usually at the director level. But as intelligent communications

networks become a critical component of a companys key business

processes and as the decisions about what kind of networks to buy

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and how to configure them become more complex and require increas-

ingly bigger bets, buying decisions are being made by more senior man-

agement.In one of the paradoxes of the networked economy, decision making is

becoming increasingly centralized even as organizations are becoming

increasingly distributed. Companies are focusing on a few critical stra-

tegic suppliers. Suddenly, Avaya finds itself having to influence decisions

at the very top of its customers IT organizations. And yet, until recently,

the company has had few strong relationships with its customers chief

information officers (CIOs).

All these changesfrom a regulated business environment to a highly

competitive environment, from products to solutions, from the voice

organization to the IT organization, from mid-level relationships tosenior-management relationshipstake Avaya out of its traditional com-

fort zone. To begin to address those challenges, in 2002 Avaya CEO Donald

K. Peterson proposed the creation of an Executive Advisory Council con-

sisting of CIOs from some of the companys most important customers.

Petersons vision for the council was simple: to develop more personal and

more strategic relationships with leading executives at its top customers in

order to inform them of Avayas innovation and thought leadership and to

bring the voice of the customer inside Avaya.

In the fall of 2002, Avaya hired Tapestry Networks to help shape the

agenda and orchestrate the meetings of the council. As of October 2004,the advisory council has met for three major one-to-two-day meetings,

with occasional teleconferences on specific issues conducted in between.

In the little more than a year that the council has been in existence, it has

had a major impact on the evolution of Avayas strategy, been a catalyst for

the creation of two additional executive relationship networks at the com-

pany (one focused on customer contact centers and the other focused

on communications security in government agencies), and led Avaya to

establish a full-fledged executive relationship management program to

extend the reach of the councils by building relationships with a broader

range of customers and disseminating Avayas ideas and innovations to awide audience.

But for the purposes of this chapter, Avayas Executive Advisory Council

may be most interesting as an illustration of how new forms of collabora-

tive community are taking shape at the senior-most levels of business

organizations. It is to that story that we now turn.

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Defining the shared journey: design rules forcollaborative community

In Chapter 1 of this book, Adler and Heckscher propose a three-part model

to characterize the new form of community that they see emerging in

modern business organizations: a shared ethic of contribution to ensure

reciprocity and shared value in the relationship; formalized norms of

interdependent process management to coordinate activities in the ab-

sence of hierarchy; and an interactive social character that encourages

individuals to look for opportunities to collaborate.28

The first part of the model concerns how these new collaborative com-

munities conceive of value. Unlike traditional loyalty-based organiza-

tions, Adler and Heckscher argue, the new form of community is foundedon an ethic of value contribution or a commitment on the part of all its

members to contribute to the collective value of the group and to the

mutual success of all its members. But unlike the stability of the traditional

loyalty model, this commitment is highly provisional, informed by a

continuous calculation as to whether the community is providing enough

value to make it worthwhile to keep participating. Maintaining this deli-

cate balance requires the capacity to understand the concrete interests and

identities of others in a collaborative relationship.29

The designers of Avayas Executive Advisory Council faced this chal-

lenge from the outset. Company executives were convinced that it wasimperative for Avaya to forge closer bonds with senior customer execu-

tives. But it was not self-evident that the executives themselves would

participate. Many of the target CIOs they hoped to attract had only a

cursory understanding of Avaya and its strategy. They were not aware of

how Avaya had overcome the financial challenges created by the spin-out

or that it possessed differentiation and capability that would distinguish it

in the fast-evolving world of enterprise communications. How to persuade

busy executives that participating in the council would be worth their

effort and their time?

To address this question, council organizers developed a three-part valueproposition that they described as the shared journey. First, the council

would be about learning, not selling. Although the CIOs that Avaya was

hoping to attract were key influencers in the buying process, they were

often not direct buyers themselves. Whats more, they tended to be less

interested in product-focused marketing pitches than in a strategic dia-

logue about market trends and the ways the technology could be used

to create business value. Organizers understood that before they could

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credibly sell to the CIOs, they needed to establish share of mind first. So,

they made clear that the council would be an opportunity for the CIOs to

gain insight into where the market was going at a time of major uncer-tainty and change for everyone, and also a chance to get to know Avayas

senior management team (and, implicitly, assess for themselves whether

they were a real player in the emerging new business of converged com-

munications).

A key part of this mutual learning was what organizers called reciprocal

valuethe idea that there would be as much, if not more, value for

participants in learning from each other as in learning from Avaya. The

council would be an occasion for participants to share best practices,

problems, and issues. And participants from the customer organizations

would play a lead role in shaping the agenda and determining what thecouncil would address. The commitment to reciprocal value was embed-

ded in the design of council meetings. For example, all participants were

interviewed before each meeting to understand what they hoped to get

out of it and to gather input on the agenda. No more than one half of

participants at any meeting would be from Avaya. Participants would be

encouraged to present on their own experiences, initiatives, and business

problems.

Finally, and most important, the council would be an occasion for the

customer executives to participate in a real-time strategic dialogue that

would help shape Avayas emerging strategy. Avayas leaders wanted thecouncil to be a basic input into their strategy-making process. And they

were determined to make the meetings action orientedto listen and

then change direction based on the input they received. Finally, from

the beginning, they recognized that they would need to hold themselves

accountable to the council. As a sign of its commitment to the strategic

dialogue, the companys entire senior-management team, including Peter-

son, two group vice presidents, the CIO, the head of strategy and technol-

ogy, and the head of sales and marketing, committed to attending every

council meeting.

This delicate balance between Avayas goals and those of its targetparticipants raises the question, Who owns the network? Who decides

what it will address at any particular moment in time? The answer is clear:

Avaya as the sponsor of the network and the institution that pays the bills

is the owner and, in the end, decides what it will and will not support. This

has the advantage of avoiding the typical dynamics one often sees in inter-

firm networks which can disintegrate into factionalism, coalition build-

ing, and politicization. By the same token, participants in the council can

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always vote with their feet by not attending a meeting or leaving the

council, so it is incumbent on Avaya to make sure that the networks focus

remains of direct interest to a broad enough subset of its members. Thisserves to keep the network squarely focused on value.

The second dimension of Adler and Heckschers model of collaborative

community is interactive process management or norms and rules gov-

erning relations among peers. These norms are ways of structuring how

people relate to each other, and how sanctions are applied when they

deviate. Creating such norms requires, on the one hand, understand-

ingi.e. helping participants to grasp the logic and sympathize with

the feelings of other actors by putting them in their shoes. On the

other hand, it requires commitment, or the ability of members to count

on future acts in a situation where such commitment does not followautomatically from the formal structure of the status order.30

In the Avaya Executive Council, perhaps the most important structural

norm concerns the strict definition of who doesand does notconsti-

tute a peer. The organizers were convinced that, in order for the council

to work, the participating companies needed to be comparable in terms of

their scale and scope and strategic importance to Avaya. Even more im-

portant, the individuals involved had to be at the same executive level in

their organizationsi.e. CIOs or their equivalent in seniority, responsibil-

ity, and scope of managerial challenges.

This peers-only rule was not so much an issue of status, as one mightexpect in a more traditional hierarchical organization. Rather, it was more

a matter of context. In order to stimulate the kind of discussions Avaya

wanted, it was essential that participants be working on the same kind of

problems and face the same day-to-day issues and challenges. They also

needed to share a strategic perspectiveto be passionate not so much

about the technology itself but about its potential to create business

value. Only if participants shared a similar mindset and the same level of

risk would they be likely to speak freely and engage in the kind of frank

exchange of views that was a prerequisite to delivering on the councils

potential value.Another structural norm that council organizers emphasized was profes-

sional intimacy. In effect, they wanted to give the council the look and feel

of a membership club, a club in which Avayas target audience would feel

comfortable and privileged. Membership would be kept small: only fifteen

to twenty customer executives. The venues for council meetings would be

selected to reinforce this sense of membership and professional intimacy.

Working sessions would be designed to maximize discussion over presen-

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tation, with expert facilitation and the latest technologies for real-time

anonymous polling. Time would be set aside for informal social inter-

action in the evenings. Finally, all communications about council pro-ceedings would be governed by the Chatham House rule, which specifies

that the membership of the council is kept private and, although lessons

and insights may be freely shared, no comments can be attributed to

specific individuals or company identities be disclosed.

Its easy to characterizeand perhaps dismisssuch details as mere

event planning. And yet, in many respects, they are essential to creating

the necessary context of confidentiality and trust so that the right inter-

actions emerge. Think of them as elements of an interaction infrastruc-

ture designed to encourage real conversation and a frank exchange of

views.The third and final element of Adler and Heckschers model is the

emergence of what Maccoby calls a new interactive social character, or

a personality structure that values more collaborative forms of interaction

over more traditional interaction styles elicited by bureaucratic or hier-

archical organizations.31 At Avaya, there was a strong focus on the type of

behaviors that would make the council successful and how they differed

from the default behaviors that managers typically bring to exchanges

with customers. For example, in order to create a true strategic dialogue,

Avaya executives understood that they would have to behave differently

than most executives do in their interactions with customers. Instead ofmaking decisions about strategy and then announcing them, they wanted

to bring these strategic partners into the dialogue on certain decisions and

solicit their input and counsel. Executives talked about developing an

open mindset about the meetings and putting their strategic assump-

tions on the table for real-time reactions and review from their chief

customers.

To promote interactive dialogue, the company has provided consider-

able preparation for those Avaya executives who participate in council

events. One member of the design team describes the message to execu-

tives this way: In general, you will learn more by asking questions andlistening to what customers have to say than by explaining or defending

your own point of view. Before you say something, first ask yourself: Is

what I have to say more important than what I can learn from the cus-

tomers here? If so, then by all means say it. But choose your shots

carefully. Based on our experience to date, we would say that while

some individuals do take to the collaborative style of council interactions

more readily than others (and a few have never really been comfortable

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with it at all), the right context and coaching can go a long way toward

eliciting collaborative interactions.

Strategy as iterative co-design

The evolution of the dialogue in the Executive Advisory Council is

a striking example in the domain of strategy of the kind of iterative

co-design that Sabel describes as characteristic of pragmatic organiza-

tions. Indeed, during council meetings participants engage in something

akin to what Sabel describes as metaphoric benchmarkingin which

deliberation about a given problem or challenge produces something

like a provisional taxonomy or map of accessible solution strategies inrelation to each other. In such a process, he goes on to explain, the

revision of categories is a desirable and expected outcome, not a failure

of intelligence.32

At the first meeting of the council in June 2003, Avaya executives

described their high-level vision of the technological shift transforming

enterprise communications. They emphasized the many opportunities

made possible by what they called converged communications and put

a critical question on the table. Would companies first build the techno-

logical infrastructure to enable converged communications, and then

find specific applications to take advantage of it? Or would theyfocus first on new applications in order to justify the investment in the

infrastructure?

The CIOs were clear. Given the downturn in the world economy and the

cost pressures that many companies were facing, the days when com-

panies would invest in new technological infrastructure because of its

long-term potential were over. As one participant explained, technology

providers like Avaya needed to understand that IT itself was in the cross-

hairs. The only investments that were being approved were those associ-

ated with specific business applications that had a near-term return on

investment. What really mattered was not infrastructure push butapplications pull. Avayas proposals to its customers would need to dem-

onstrate a business case with immediate financial payoff. Promises of new

capabilities and long-term revenue growth, long the cornerstone of

typical infrastructure proposals, had become less important, merely nice

to have.

On some level, Avayas executives already knew that applications and

near-term returns were importantbut they had not realized how import-

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ant. The frank feedback from senior executives at major customers had a

way of concentrating the mind and producing a new degree of alignment

around tangible action. Avayas senior team came away from the firstmeeting realizing that they had to tackle the business case and applica-

tions issues directly. They also now had critical ammunition, in the form

of direct testimony from leading customers, to drive the internal changes

necessary in order to make these adjustments.

By the time of the second meeting of the Executive Advisory Council

in December 2003, Avayas senior team had some concrete changes to

announce. The company had added an applications group to start focus-

ing on critical business applications, and had identified three key areas of

focus: branch offices, customer contact centers, and mobile workers. The

sales and service organizations had also redoubled their efforts to demon-strate near-term cost savings, in addition to long-term revenue growth.

Whats more, the company had purchased a professional services com-

pany to improve its capabilities in providing business solutions.

The new plans were a major step forward, but in the discussion at the

December 2003 meeting, council members identified additional weak-

nesses in Avayas strategy. The new applications group was an improve-

ment, they said, but the company in general was still too focused on

technology and not enough on business value. Even the domains chosen

for applications development were fundamentally based on technologies,

rather than starting from a clear understanding of business needs. Yourestill selling us technical solutions and not asking us about our business

problems, said one participant.

Whats more, although the company had begun to talk about integrated

solutions, its own organizational structure was not integrated. There was a

separate products group and services group, each with its own sales,

marketing, and product development (the new applications unit was

located in the product group). Avaya was still organized in product silos

with no single face to the customer. As one participant put it, I want one

global throat to choke.

The December meeting was a tough one for the Avaya participants. Thereactions of the customer members served to blow up some key strategic

assumptions about how well Avaya was articulating a compelling value

proposition to CIOs and how well Avaya was organized to bring solutions

to the marketplace. But to their credit, the Avaya executives were able to

listen and to engage with the criticisms. This openness made an impres-

sion. The way in which Avaya listens to customers says a lot about Avaya

as a company, said one participant. I had some concerns about a product

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company trying to become a services company, said another, but Im

impressed with the degree to which Avaya listens and have seen evidence

of movement since last time. Celebrate this progress.Coming out of the second meeting, Avaya took two major steps. First, it

reorganized all its go-to-market activities under a single leader. In effect, the

company created a customer-facing sales, channels, and marketing organ-

ization to bring products and services to market. To head this new organiza-

tion, the company called on its former head of services, who had been hired

from IBM and had helped lead that companys transition from a product

organization to a more solutions-oriented company. One of his first actions

was to thoroughly re-examine Avayas global value proposition. With the

assistance of a leading consulting company, Avaya conducted over one

hundred interviews in a thorough re-examination of its go-to-market strat-egy. The result was a more compelling set of messages and value proposi-

tions, a more streamlined model for channel distribution, and a more

strategic sales organization focused on targeted segments and verticals.

The third of the Executive Advisory Councils meetings took place in

May 2004. Avaya presented its new go-to-market strategy and new organ-

ization, and elaborated on its evolving vision. What converged commu-

nications was really all about, from a business perspective, company

executives now explained, was the ability to draw people more seamlessly

into a companys business processes, through the automatic provision of

information at just the right moment.The company called this development communications-enabled busi-

ness processes. In manufacturing, for example, exceptions in the manu-

facturing process could automatically trigger notifications to those with

the authority and expertise to remedy the situation. In financial services, a

major change in a companys stock price could automatically trigger the

communications system at a brokerage firm to locate and notify investors

whose portfolios had been affected. The systems would contact investors

through their medium of choice, ask if they would like to speak to their

broker, and immediately arrange a conference callall without any

human intervention. In general, such communications-enabled processesremove the delays that result from people trying to connect with each

other or gather required information.

On the one hand, participants strongly confirmed that Avayas customer

strategy was on the right track. On the other, they became engaged in an

animated discussion about what communications-enabled business pro-

cesses would mean for them. Two critical insights, one for Avaya, one for

its customers, emerged from this discussion.

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First, despite all the talk about the convergence of voice and data net-

works, some of the companies present, among them some of Avayas most

technologically sophisticated customers, were not really running theirvoice communications over their data networks. Rather, they were creating

separate IP voice and IP data networks. This contradicted the conventional

wisdom that the value of IP telephony was in the ability of companies to

create low-cost multifunctional networks. These companies were willing to

incur the extra cost of multiple networks because of the value they could

derive from more applications-specific network designs. Dont talk about

converged networks, said one participant. Talk about converged communi-

cations. Such comments, coming from leading-edge customers, suggested

an emerging market trend that had the potential of playing directly to

Avayas strength in the market, i.e. its deep expertise in voice-specific appli-cations and networks (and of differentiating Avaya from its primary com-

petitor, Cisco, whose strength is in the world of hardware and data).

At the same time, Avayas vision of communications-enabled business

processes got the CIOs thinking of all the ways they could use the technolo-

gies to, as one participant put it, take human latency out of our business

processes. In effect, the new systems had the potential to radically reduce

the transaction costs of collaboration. This changes everything, said one

participant. The group began to explore the implications of this change for

their current business models. A focus of the next council meeting will be to

explore these implications across a variety of core business processes.As the evolution of the advisory council dialogue suggests, the councils

deliberations have helped bring Avaya and its customers closer to each

other and to the marketplace. Council proceedings have, in effect, become

an arbiter for prioritizing issues inside the company and making decisions

about strategy and positioning. Internal discussions are informed in a

direct way by the viewpoints and reactions of some of the companys

leading customers. At the same time, the council has allowed Avaya to

educate its customers and influence the way they think about their busi-

ness, their use of technology, and the value of Avaya not only as a solution

provider but also as a trusted adviser.

Tensions in the model

Like any emerging institutional form, the advisory-council model has

some inherent tensions and limitations. There are three, in particular,

that Avaya has had to manage carefully.

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Balancing learning and selling.For all the focus on mutual learning in

the advisory council, Avaya remains, of course, a commercial organiza-

tion. How to maintain the integrity of the council process while stillleveraging the new relationships being developed for commercial ends?

The organizers of the council program have found that they have to

actively manage the boundary between learning and selling. As soon as

the Executive Advisory Council became active, for example, organizers

received numerous requests from account teams for access to the partici-

pating customer executives and for information from council proceedings

about their accounts. It was only natural that Avaya account teams sought

greater access to the senior-level individuals that were joining the council.

But council planners had to carefully protect the companys budding new

CIO relationships. For example, while each individual account teamknows that its customer CIO is participating, the complete list of partici-

pating individuals and companies remains confidential.

The irony, of course, is that the more the deliberations of the council

have focused on mutual learning, the more Avaya has created the condi-

tions of trust that ultimately allow it to sell in the new telecom environ-

ment. Heres how one Avaya executive involved in the council describes

this evolution:

After the first meeting of the council, a participant told me, the worst

thing you could have done was to sell to us. You didnt. I knew we were on

the right track. Then, after the second meeting, someone said, you know,you could sell to us more. At first, I was confused. But then I realized that

they were really starting to trust us enough to give us permission to sell.

At the limit, genuine learning turns out to be the best way to sell.

Another Avaya executive described an event at the first meeting of the

Customer Contact Council, a spin-off of the initial Executive Advisory

Council that focuses on the specific issues facing call centers (the Cus-

tomer Contact Council is described in more detail on p. 532 below). A

participant said, this is the first time Ive sat in an Avaya meeting where

you didnt talk about your products. You talked about my business. Then,

after a presentation on IP telephony, the executive made a call to hismanagement team to ask them to develop a comprehensive plan for

implementing IP telephony in their business. Our account team had

been urging them to do that for eight months, the Avaya executive

reflected. He made it happen after one day.

As the council evolves, Avaya has also taken steps internally to make sure

there is a constructive relationship between learning and selling and to

creatively leverage its new senior-level relationships in its day-to-day busi-

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ness interactions with its customers. For example, the company has created

an executive sponsor program which matches each of the Avaya senior

executives participating in the Executive Advisory Council with an Avayaaccount team responsible for the customer organization participating in

the council. These executive sponsors serve as a source of strategic advice to

the account teams and also function as an escalation path to help resolve

any problems that emerge in the customer relationship. In this way, Avaya

is trying to leverage the relationships that executives have developed in the

council in their day-to-day business interactions outside the council.

Managing the trade-off between intimacy and reach. The Executive Ad-

visory Council is designed to maximize the intimacy of exchanges

among members. But this intimacy comes at the cost of limited reach.

As important as it has become for Avaya to have an advisory council inwhich senior executives from some of its key customers weigh in on the

future strategic direction of the company, there are still many other cus-

tomers that, by definition, the council cannot reach.

To reach that broader audience, Avaya is working with Tapestry to

develop a far broader and more systematic program for executive rela-

tionship management that reaches far beyond the initial participants in

the Executive Advisory Council. The company has appointed a dedicated

staff to lead the program and is looking to institutionalize connections

between the new program and other business functions, including sales,

marketing, R&D, and corporate strategy.For example, Avaya has recently explored ways to allow a broader num-

ber of CIOs at customer organizations to benefit from the networked

interactions of the council. The company is currently considering creating

a program for CIOs who would not have the hands-on advisory role that

the council has but would nevertheless have access to the learning coming

out of the councils interactions. Of course, the more executives the Avaya

program reaches, the more likely that its initiatives will resemble trad-

itional broadcast marketing, rather than the participatory co-design and

dialogue that defines the advisory council itself. This suggests an interest-

ing new segmentation of the companys customer base, based in part onthe capacity of a customer to contribute to Avayas own learning and

strategic development.

A nested hierarchy of networks. A potential limitation of Avayas strict

focus on peer networks is to exclude those critical issues that emerge in

interactions up and down the hierarchy in the participating business

organizations. After all, one of the major lessons of the new industrial

organization has been the value of working collaboratively across levels

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and creating new kinds of collaboration up and down the traditional

hierarchy.33 Doesnt the decision to limit participation in the advisory

council to peers automatically limit the potential reach of the councilmodel and undermine its effectiveness as a model for collaboration and

community? Put another way, is Avayas success at inter-firm collabor-

ation with customers at the senior-most level inadvertently creating a

collaboration gap inside the firm itself?

So far, the company has created two mechanisms to ensure that the

strategic shift defined in the Executive Advisory Council is translated into

action on the front lines of the companys business. The mechanism inside

Avaya is the executive sponsorship program described above. By placing a

senior Avaya executive into the communications flow of a major customer

account team, the program creates a new opportunity for customer-focused interaction between account teams and the companys senior

leadership.

The mechanism for Avayas customers is the creation of similar peer

networks at different levels of the organizational hierarchy. For example,

early in the deliberations of the Executive Advisory Council, a number of

participants spoke about the value of getting their direct reports involved

in the conversation. In the words of one, dont assume that my direct

reports get this. After considerable discussion and a careful search for a

focus that would attract broad interest and justify the investment, Avaya

created a Customer Contact Council to focus on the challenges of design-ing and managing customer contact centers.

Like the Executive Advisory Council, the Customer Contact Council is a

peers-only network. But unlike the advisory council, the peers in question

are one step down in their respective organizations: vice presidents or

senior vice presidents, about half from customer IT organizations with

responsibility for contact center technology, the other half from customer

business units and responsible for actually running centers. Companies

participating in the Executive Advisory Council make up about a quarter

of the companies participating in the Customer Contact Council. And in

some cases, the CIOs at these companies have selected the actual individ-uals who participate.

The creation of the Customer Contact Council, as well as the recent

creation of yet another network focused on Avayas business in the public

sector, suggests an intriguing model. It may well be that in an economy

that is increasingly a network of hierarchies, a key design element of

the pragmatic organization will be a hierarchy of networksi.e. a port-

folio of loosely coupled networks at various organizational levels with

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different but related areas of focus. Of course, precisely how these net-

works interact with each other and what characterizes the flow of infor-

mation among them is a critical question for the future.It is too early to tell what impact either of these innovations will have on

Avayas own organization. It is possible that the success of external net-

works with customers will generate new best practices for more participa-

tory forms of collaboration inside the company as well.

Generalizing from the Avaya model

How generalizable is the Avaya model of collaborative leader-to-leader

executive networks? The experience of Tapestry Networks to date suggeststhat the basic approach can be adapted to a relatively wide variety of

business issues, organizational settings, and stakeholder groups.

As we have already discussed, at Avaya itself the model has spread from

the Executive Advisory Council and the Customer Contact Council to a

new initiative known as the Federal Government Leadership Forum. The

forum, whose members include the CIOs of federal government agencies

and the leaders of the public-sector practices at the largest IT solution

providers, seeks to improve publicprivate partnership in the area of

assured communications for homeland security.

Tapestry has also advised the Society of Thoracic Surgeons on the cre-ation of multi-stakeholder forums to address the future of cardiac sur-

gery.34 It has helped the accounting firm Ernst & Young create a network

consisting of the chairs of audit committees from the board of directors of

leading corporations, in order to identify best practices for improving

corporate governance. And it has created a network in the private-equity

sector to address operational issues having to do with growth and succes-

sion planning.

Although these networks have different structures and different goals,

we can recognize an emerging pattern of critical success factors that

applies to all of them, specifically:

. A set ofstakeholder relationships vital to the sponsoring company;

. A sponsor important enough to possess the power to convene this

stakeholder group;

. Shared strategic issues that confront, with some degree of urgency, both

the sponsor and the stakeholderstypically relating to market disrup-

tion, regulatory change, or new competitive forces;

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. The potential for the network to produce tangible benefits to the spon-

sor and to individual stakeholders;

. The potential for the network to produce clear public benefits beyondthe specific interests of individual members; and finally

. A group of committed senior executives and leaders who, as peers, can

make change happen.

Of course, leader-to-leader networks are not the only form of collaborative

community in the modern business organization. But as the Avaya case

suggests, it is likely to become an especially useful, and therefore popular,

organizational alternativeespecially for companies whose technologic-

ally complex products and knowledge-intensive services require investing

in collaborative relationships with customers. For such companies, the

power to convene is fast becoming an essential aspect of the power to

compete.

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Notes

1. According to one estimate, knowledge-intensive business services contributeroughly 30% of the total value-added from services in the United States and

United Kingdom. See Bettercourt et al. (2002: 100).

2. Bonchek is managing director of Tapestry and chief consultant to the Avaya

executive relationship management program described in this chapter.

Howard is an independent consultant and has conducted interviews with

Tapestry personnel, Avaya executives, and Advisory Council members for this

chapter.

3. The literature on inter-firm networks is extensive. Four lines of research are

worth noting here: Charles Sabels early work has emphasized the surprising

persistence (at least, from the perspective of the traditional paradigm of the

vertically integrated corporation) and ongoing strategic relevance of decentral-ized networks of firms in industrial districts. (See Sabel (1982); Piore and Sabel

(1984).) Subsequent work has highlighted the importance of the network

model in cutting-edge new industries such as computing and biotechnology.

See for example Saxenian (1994); Powell et al. (1999). Other researchers have

pointed out the increasing centrality of the network model even in traditional

vertically integrated industries such as the auto industry. For example, a recent

article argues that Toyotas network-based model of supplier relations has been

central to the firms success in the global auto industry; see Dyer and Hatch

(2004). Finally, some prominent business academics have argued that regional

networks of firms can be a distinctive source of competitive advantage. In

particular, see Porter (1998a, 1998b).4. See for example the interesting description of the interactions between sales-

people and customers in the fledgling PBX market in Lane and Maxfield (1997:

16998).

5. For a review of this tendency and an interesting contrary view, see Hout (1999).

6. See, in particular, Sabel (1993, 1995); and Chapter 2 in this volume.

7. Sabel, Chapter 2, p.134 et passim.

8. See Reicheld and Sasser (1990).

9. See Reicheld (1996).

10. Reicheld (1996). Some researchers have challenged the universality of this

relationship. See Reinartz and Kumar (2000).

11. More recently, researchers have extended the concept of customer lifetimevalue to the arena of financial valuation. For example, one recent working

paper argues that customer value is a useful metric to assess the overall value of

a firm. The authors found that improving customer retention by 1% is likely to

improve customer and firm value by 3 to 7% and has almost five times greater

impact than a 1% improvement in the discount rate of capital. See Gupta et al.

(2003).

12. Reicheld (1993: 50).

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13. See Robert Weisman, Quality products alone wont retain customers, Boston

Globe, (8 Aug. 2004), E2.

14. See Bettencourt et al. (2002).15. According to one estimate, in many manufacturing sectors, revenues from

downstream activities now represent ten to thirty times the annual dollar

volume of the underlying product sales. See Wise and Baumgartner (1999:

134).

16. On the competitive dynamics of providing customer solutions, see Halbherr

and Howard (1999); Hax and Wilde (1999); Foote et al. (2001).

17. Wise and Baumgartner (1999: 136).

18. Hax and Wilde (1999: 13).

19. For an interesting analysis of this broad trend, see Sandberg and Werr (2003).

20. See Useem and Harder (2000).

21. Moore (1996: 12). For another interesting take on these challenges, see alsoStabell and Fjeldstad (1998).

22. The strategy literature is beginning to recognize the central role of a companys

external relationships to meeting the new strategic challenges found in more

complex business environments. Indeed, one can see a trend from the classical

era with its primary focus on market position (roughly from Bruce Henderson

through Michael Porter) to the focus of the late 1980s and 1990s on (mainly

internal) capabilities and competencies (Hamel and Prahalad; re-engineering;

and, in the academic world, the resource-based view of the firm) to recent

attempts to devise a network-based view of strategy.

23. Lane and Maxfield (1997: 170).

24. Lane and Maxfield (1997: 171).25. Lane and Maxfield (1997: 190).

26. Lane and Maxfield (1997: 189).

27. Hax and Wilde (1999: 13).

28. Adler and Heckscher, Chapter 1, this volume.

29. Ibid., p. 40.

30. Ibid., pp. 534.

31. Ibid., pp. 549. See also Maccoby, Chapter 3 in this volume.

32. Sabel, Chapter 2 in this volume, pp. 1256.

33. For an example, see Heckscher and Foote, Chapter 12 in this volume.

34. See Bonchek et al. (2003).

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