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To keep your company growing and adding value, focus on the core Organization not have the physical constraints of one person, but their investment capacity, you will usually find they are concentrated in a single growth engine. to look carefully at when general scale helps and where it hinders.
Table of contents
- The five steps to better decisions - Bain & Company
- 2. Find and fund the opportunities
- Building an engine for growth that funds itself
- Just how much do you grow and when does scale matter?
A good way to begin is to survey a cross-section of people throughout the organization. You can then add rigor with face-to-face interviews and focused data gathering, using the decision X-ray described in Step 2. The goal is to answer some key questions: What percentage of the time does the organization make the right decisions? Are decisions made faster or slower than competitors? Is there too much or too little effort involved? What you find may surprise you. That was far from the top-quartile performance that Hospira's CEO at the time was seeking. So Hospira's executive team took the next step: Here, too, you can use surveys and interviews, this time focused on the elements that can help or hinder good decision making and execution.
Sample questions might include:. Hospira's research turned up important strengths, such as strong leadership and a healthy pipeline of management talent.go
The five steps to better decisions - Bain & Company
But executives and employees alike felt that some decisions weren't made at the right level of the organization. They believed that meetings didn't always work well, and that the company's culture didn't encourage people to make decisions with the customer in mind. Insights like these allow you to understand not just where your decision abilities are weak but why, and then create an effective plan of attack.
At Hospira, the research conclusions helped managers redesign a wide variety of key decisions. The company also began a series of organizational initiatives, such as training workshops, to support good decision making and execution. Better decision abilities contributed to the company's improved financial performance in recent years.
Total shareholder return was in the upper quartile—right where Hospira's executive team believed it should be. Test your decision effectiveness. Learn more about your company's decision effectiveness and overall organizational health through these two short quizzes. Focus on key decisions. Large organizations make and execute thousands, perhaps millions of decisions every day. No leadership team can work on every decision at once. So Step 2 in our process is to identify the decisions that matter most—your critical decisions. We'll outline how to go about it and how to analyze those specific decisions to determine what's working well and what isn't.
Two categories of critical decisions. Some decisions clearly stand out as important. They're the big, high-value, strategic choices made in every part of the organization. Senior leaders decide whether to make a big acquisition. IT decides whether to invest in a major systems upgrade. But many organizations overlook a second category that can be equally significant: A key reason for Amazon. Most companies have a similar set of decisions made day in and day out by people close to the front lines of the business. To identify the key decisions in these two categories, you can use a tool we call decision architecture see Figure 2.
You begin with a long list of decisions for every major business process of a company or unit and then narrow it down using two different screens:. The result from applying these two screens is a list of your critical decisions—the top 20 or 30 decisions that absolutely must work well for the business to succeed. Using the decision X-ray.
When one of these critical decisions runs into trouble, the first impulse is usually to jump in and fix it. Understandable, but a long-term fix requires analyzing the decision in greater depth. Where is the decision breaking down—in quality, speed, execution, or effort?
What elements of the organization are holding things back? Teams can use a decision X-ray to pinpoint these issues. With interviews and other analyses, team members probe each factor to determine the trouble spots. When Nike was changing its management structure, for instance, team members identified 33 critical decisions, such as determining retail strategy for a particular country. The team then gathered detailed input on how each decision had worked in the past and how it should work in the future.
Thanks to the data, the company was able to resolve—and help everyone understand—how the key decisions would be made and executed under the new approach. Step 3 in our process helps you reset a specific decision. It's like a surgical intervention: We think of the four parts of this operation as fixing the What, Who, How, and When of the decision.
The group involved in the decision first needs to know exactly what the decision is. It has to be spelled out clearly and framed correctly. When Ford Motor Co. Rather, he asked his team to decide what strategy would best maximize the long-term value of the company. That forced people to consider alternatives such as fixing the operations, merging with a competitor, seeking Chapter 11 bankruptcy protection, and others, in addition to the bailout.
The roles involved in the decision need to be equally clear. One person or group makes the Recommendation. Still others must Agree, or sign off on the recommendation. One person or group then has the D—they make the final Decision. Others are assigned to Perform or execute it. If you spell out these roles clearly, everyone will know who's accountable for what. Will the decision be made by consensus, by vote, or by one person?
How will the necessary information be provided? Can the group agree on criteria for the decision in advance?
2. Find and fund the opportunities
Will there be more than one real alternative presented? Answering questions like these beforehand enables a decision to proceed much more smoothly than it otherwise would. Make the When explicit. Every major decision needs timetables and deadlines. A schedule ensures that decisions are quickly followed by action, so that things happen rapidly and the hurdle to reopen the decision is high.
Intel's Embedded and Communications Group ECG put many of these tools to work in deciding which products to add to its "roadmap" for development. ECG's process specifies how people will play their roles, at what stage they will provide input, when a recommendation will be developed, how approval will be sought when necessary, and how the final decision will be reached.
ECG also makes sure to communicate these decisions and the process that led to them to all concerned. The ultimate goal is an organization in which people make good decisions, make them quickly, and execute them effectively, all as a matter of course. But some of the most important decisions are the seemingly small operating choices made every day by people throughout the business. Getting those decisions right requires an environment that equips people at every level to decide and deliver. All the elements of the broader organizational system have to support good decision making and execution.
That's why Step 4 of our process involves scrutinizing, and improving where necessary, every one of these elements—both the "hard" elements of the organization, such as structure and processes, and the "soft" ones, such as people and culture. The power of this approach is the way it focuses the organizational investments that most large companies make every year. Instead of a series of disconnected initiatives, which often confuse people and dilute the investment, the single objective for any improvement is whether it will lead to better decision making and execution.
To take one example, consider the difference between the traditional view of talent development and deployment—which people to assign to which jobs—and a decision-centered approach see Figure 4. Most companies ask the traditional question: Are we winning the war for talent? Companies have invested massively to get the answer they are looking for. The decision-centered question , by contrast, is: We like to go out, to interact in person with other people, to touch and handle and make things.
Besides, any straight-line extrapolation assumes that changes in the business ecosystem will continue predictably in the direction of the current curve, when in fact rapid evolution creates unexpected opportunities and new competitive dynamics. Look at movie theaters: People have been predicting their demise for nearly 70 years. In principle, we could easily watch all of our movies at home, streamed digitally to a big-screen TV.
In practice, theater owners and others in the business have devised a variety of attractions—better seating, innovative projection and sound technologies, full-service theater-restaurants— to lure us off our couches. US theater attendance has declined a little over the last decade, but it is still nearly three times as large as attendance at all theme parks and major sporting events combined.
Profitable theaters will almost certainly coexist with more home viewing in the foreseeable future. The truth is that both the digital world and the physical one are indispensable parts of life and of business. As more consumers use mobile apps and websites to communicate with insurers, companies will need to find ways to meld physical and digital channels to adapt to customers' shifting needs, says Partner Gunther Schwarz. He explains what companies should consider as they plan a path forward.
Building an engine for growth that funds itself
Digital-physical innovations are already changing virtually every part of the business world. The effects are dramatic in some industries and modest in others, but they are hard to miss. Think for a moment about just a few of the combinations that are now reality:. This trend toward a Digical world will only intensify. Live entertainment from rock concerts to theme parks will incorporate more digital effects. Even companies built strictly on e-commerce are coming to see the value of the physical dimension. We recently reviewed the experience of some companies engaged in Digical initiatives.
We examined companies at every stage of evolution within these industries, and we carried out longitudinal studies of their transitions over time to understand the changes and conditions that led to positive and negative results. We also reviewed the relevant literature and conducted interviews with executives in leading organizations.
The findings point in one clear direction. Every industry will undergo some degree of Digical transformation. Virtually every company will have to respond. The threat is great, but so is the opportunity: A strategy that fuses the best of both digital and physical worlds is likely to generate the greatest value for the foreseeable future.
Yet creating Digical products and developing Digical capabilities requires sustained focus and the right investments. How much is it likely to do so in the next several years? You can see at a glance some of our key findings:. The aggregate numbers, while telling, are only a starting point. In construction, one such point may be site preparation. Caterpillar already produces earth-moving machinery equipped with GPS and laser technology, allowing operators to excavate to precise depths and slopes.
In healthcare, opportunities for innovation may lie in the delivery of chronic-care services. Remote sensors and monitors can help keep patients with chronic illnesses at home and out of the hospital. Look at the music business, which many people believe has somehow died. Recorded music is still a profitable business—but mostly for Apple, which transformed how music is sold. Licensing is still profitable. Live concerts, augmented by digital technologies, are more profitable than ever.
The vulnerable part of the value chain was the conventional method of producing and selling records. The retail industry illustrates the scale of change that lies ahead and the corresponding areas of opportunity. Virtually every retailer has faced severe disruption from pure-play online competitors, and many have already spent hundreds of millions on building up their digital marketing and e-commerce capabilities.
But a long list of other potential investments awaits: Most retailers have barely scratched the surface in these areas. Should the company figure out ways to reinvent the store along Digical lines, that would represent one of the biggest threats yet to traditional retailers. What matters most to every company, of course, is how fast it is moving relative to others in its industry. Some companies find that their scores actually drop over time, even though they are making big investments in innovations.
Competitors are moving faster. Particularly in industries that are changing quickly, many companies run as fast as they think they can, only to find that they are falling further behind. Most companies find it hard to respond successfully to innovations of all sorts. Digital expertise is still scarce in the senior ranks of many traditional companies, so executives often fail to understand both the threats and the opportunities. Everything will be OK as long as they keep doing a good job in their traditional business. Others take the opposite tack, nervously overreacting to the hype that greets the innovation and then placing outsized bets on strategies based on hunches.
In both cases the companies involved are likely to wind up in trouble. They acquire and nurture the necessary expertise, often going where the talent is Silicon Valley, for example rather than expecting innovators to come to them. They keep innovation units separate from the core business for a while, so that those units can experiment and grow without the constraints of a large organization. But they also work at improving the core itself, understanding that the core holds potential competitive advantages. Eventually they bring the core and the innovators together, transforming the company and capitalizing on those competitive advantages to create Digical innovations of their own.
The timing and balance are delicate.
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Get the process right—as companies such as Disney, Audi and Commonwealth Bank of Australia seem to have done—and the revitalized core continues to generate growth and profits. Get it wrong and the organization stifles the innovations. Of course, some of the steps along the way will be way stations; history will view them as transition points, like the videocassette recorder. Even if a new product, organizational structure or mobile strategy turns out to be transitional, it helps the company extend its core business, generates cash to fund further transition and builds capabilities that will be essential for future success.
So the response typically plays out over a period of years. During that time, we have found, Digical innovators in virtually every industry pass through three quite different stages of development.
Just how much do you grow and when does scale matter?
Knowing which stage you are in today can help you figure out the best relationship between your traditional business and your new one. It can also help guide the right moves from your current stage to the next. Most companies are just getting started. They are still novices. But not all of these Beginners are the same. Others are laggards, late to the party and now well behind the competition.
Despite their different situations, the two groups often have a similar look and feel. Beginners are still figuring out how to experiment with new Digical fusions while maintaining their core business. They may be slow to innovate, and they are likely to have a lot of money invested in older technologies. Their organization is probably siloed and their culture conservative. Executives at Beginner companies, we have found, are often most concerned with developing new growth options even as they exude complete confidence in their traditional core businesses.
Danone is one company that may qualify as a pioneer Beginner. At this writing, Danone has made initial moves into digital marketing and social media, and it has announced but not yet released a Wi-Fi—equipped refrigerator magnet that lets users set their preferences for bottled-water delivery and then transmits the information wirelessly to the deliverer.
Danone has also created the position of vice president of connection, media and innovation, responsible for integrating its online and offline marketing efforts. Typically, companies in the Intermediate stage have already launched some Digical initiatives. Instead of merely responding to threats from rivals, they are out to beat the competition.
If that requires making big investments in new technologies or seeking out new customers, so be it. Though many Intermediates still have only average infrastructure capabilities, they are testing and learning aggressively.
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Organizationally and culturally, they view Digical goals with enthusiasm, though individual units may be protective of their unique skills in this area. Recently, it has been pursuing a host of Digical initiatives. It has integrated most of its online shopping with its physical facilities, turning virtually all of its stores into multichannel fulfillment centers; customers can order online and then pick up their items at a local store. Companies that have reached the Expert stage have usually been at it awhile. They perceive the possibilities of the Digical revolution, and they have moved from competitor benchmarking to customer pathbreaking.
They have the integrated systems and tools required to enable change, and they invent new capabilities as they go. Organizationally, they are one team, with a unified culture and few skill gaps. Digical is no longer an add-on; it is part of the way they do business. Consider Disney, whose Imagineering unit has been redefining theme-park entertainment for several decades. Imagineering began combining digital and physical experiences back when digital technology was clunky and expensive—a computer-controlled thrill ride Space Mountain, introduced in , Audio-Animatronics attractions talking robotic figures and so on.
Figure 2 offers some guidelines for each of the six elements that indicate whether a company is a Beginner, Intermediate or Expert. Reading through the elements labeled on the left-hand side can help you determine which of the three category descriptions across the top best fits your organization. Most companies naturally aim to move into a more advanced stage of Digical development see Figure 2.
They hope to outstrip competitors and eventually become Expert. But the right moves for one company may be wrong for another.
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Determining your Digical objectives and mapping out an appropriate pace of change depend greatly on your industry and situation see Figure 3. Sears jumped on the digital bandwagon early. In —well before the World Wide Web—the retailer and two partners created the online service provider that would come to be known as Prodigy. As a company with a once-thriving catalog business, Sears seemed well positioned to migrate catalog orders online.
But the next several years brought disappointment: Neither Prodigy nor a subsequent partnership with AOL lived up to expectations. As the e-commerce marketplace evolved, Sears began losing market share to online sellers such as Amazon. Sears tried again under the leadership of Edward S. Eddie Lampert, who bought a controlling interest in the company in Lampert divided the company into more than 30 independent business units, each with its own functional heads, board of directors, financial statements and strategy.