First Friday Book Synopsis

"…like CliffNotes on steroids…"

Dick and Emily Axelrod : Part 2 of an interview by Bob Morris

Axelrods

Dick and Emily Axelrod come from a long line of entrepreneurs. So it was no surprise when in 1981 Dick left General Foods to form The Axelrod Group. At the time Emily was studying to get her second masters degree, in Social Work.

At the same time as Dick was leaving General Foods, his friend and colleague Jim Shonk landed a huge contract with Ford and needed help. This kickstart from Jim was just what the fledgling Axelrod Group needed to get started. Emily in the meantime was honing her skills as a family therapist. Periodically, Emily would work with Dick to conduct communication skills training programs.

During the early 1990’s, Dick was becoming increasingly dissatisfied with the approach most consulting firms were using to bring about organizational change. You know the process: it consists of sponsor groups, steering teams, and project groups, all organized to create the change. When these groups finished their work, they then faced the arduous task of “selling” their solution to the organization. This need to sell the solution brought many a change process to its knees.

Out of this dissatisfaction, Dick and Emily developed the Conference Model®–a process for involving the “whole system” in creating organizational change. Every new idea needs someone who is willing to try something that is unproven, and Ken Goldstien, who at the time was Director of Organization Development at R.R. Donnelley and Sons, was willing to give this untested idea a chance when no one else would. Because of the early success at R.R. Donnelley, companies like Boeing, British Airways, Hewlett-Packard, Intel, INOVA Health System, Weyerhauser, and the Canadian and UK health systems were able to benefit.

At the height of this innovation, Dick had triple bypass surgery, and that is when Emily jumped into The Axelrod Group with both feet. Along the way, colleagues have joined the Axelrod team, and this worldwide network provides a range of skills that enrich The Axelrod Group’s offerings.

Dick wrote Terms of Engagement: New Ways of Leading and Changing Organizations, published by Berrett-Koehler (May 2000) with a paperbound edition published in 2010. He and Emily then co-authored Let’s Stop Meeting Like This: Tools to Save Time and Get More Done, also published by Berrett-Koehler (August 2014).

Here is an excerpt from Part 2.

* * *

When and why did you decide to write Terms of Engagement?

Dick: It was in 1998 when we were working with Peter Block in what he called the School for Managing and Leading Change. The school brought together teams from the for-profit and not-for-profit world in a series of workshops to learn about organizational change. Each team came with a change project in mind that they worked on during the school. If a team from a for-profit organization wanted to come to the school, they had to fund a not-for-profit team’s tuition. It was in the school where Emily and I learned that our ideas had currency in a larger context than our own consulting clients. People were always asking, “When are you going to write your book?” Finally, I got the courage to do so.

Were there any head-snapping revelations while writing it? Please explain.

The first was that I was a terrible writer and needed help. Our son, who is a very good writer, read the first chapter and said it was awful, he was bored to death, and many other not so positive compliments which I probably have repressed. I had a conversation with Richard Heckler one day about my frustration with writing and he said, “You are not a professional writer; what you need is a writing coach.” So I went out and found one and have continued to use a writing coach for every book I have written.

To what extent (if any) does the book in final form differ significantly from what you originally envisioned?

I think it shifted from a tool book to a book of core principles because core principles are the most powerful tool anyone can have. Every organization is different and there is not a one-size-fits-all change process. But if you have a set of core principles to follow, you can approach any situation with confidence. This was driven home to me when we worked with Boeing Engineering following the strike in 2000. The goal was to increase what we now would call employee engagement following the strike. Actually it was to renew the culture and heal the wounds following the strike. I had a great client in Hank Queen, to whom I could say, “I don’t know how to do this, but here are some principles I think we should follow.” Hank got it and his story is in the second edition of Terms of Engagement.

You assert that this “is the first book to challenge the widely accepted change management paradigm.” What are that paradigm’s core principles and values?

Here’s a graphic:

DadChart400px

Most of the companies annually ranked among the most highly admired and best to work for are also annually ranked among those that are most profitable and have the great cap value in their industry. Presumably you agree with me that that is not a coincidence.

How right you are. What these companies are doing is unleashing the power of their intellectual capital. This occurs when people experience meaning, challenge, learning, autonomy, and feedback in their work. When they know their voice counts and they are proud of what the company stands for and its place in the community.

I’m currently working with an American manufacturing company in Turkey to improve employee engagement. One of the things the company has going for it is people are proud to work for an American company. When they need a loan at the bank, they get a better rate because they are seen as being less likely to default on the loan, and their neighbors and family think more highly of them because they are working for an American company. Additionally, because the company’s product is used in pharmaceuticals and making baby formula, they feel proud to be helping improve people’s health.

As you already know, major research conducted by reputable firms such as Gallup and Towers Watson indicate that, on average, less than 30% of the workforce in a U.S. company are actively and productively engaged; the others are either passively engaged (“mailing it in”) or actively disengaged, undermining the company’s success. In your opinion, what’s the problem?

I think there are several reasons:

First, I would go back to meaning, challenge, autonomy, learning, and feedback. The extent to which these are missing in a job or the work environment, the more disengaged people become. Many people feel under-utilized at work. They feel confined, with little opportunity to use their full talents, and that in many ways they have to leave the best part of themselves at home.

Second is the breakdown of the old contract between the employee and the employer. When people experience that the company owes them no allegiance, they put less energy into the work. There are also employees who fell entitled and that they don’t owe the company anything for their paycheck. They act as independent contractors where their first allegiance is to themselves and they owe little or nothing to their employer.

Third is the “engagement industry” of which I guess I am a part. Many organizations are touting the benefits of employee engagement, increased productivity, customer satisfaction, safety, and even health. However, they approach employee engagement as something to be done to people.

I believe engagement is a choice that both leaders and employees make. Leaders choose to create the kind of work environment where people may choose a higher level of engagement. Employees choose the level at which they engage in their work. Once leaders recognize that authentic engagement is a choice everyone makes, that leaders can create conditions where engagement can flourish, but in the end people will choose to engage or not, that changes everything. It’s the difference between ordering people to join you and inviting people to join you, knowing that some will not accept your invitation.

Finally, what I learned in working with Hank Queen at Boeing was that when you ask people what they care about at work and why, and then help them find ways to have more of what they care about show up at work on a regular basis, both the organization and people benefit. In his case, there were productivity improvements of more than 25%.

To what extent are supervisors responsible for the problem?

What the research says is that leaders have a great deal of influence, but I think it is easy to blame supervisors for the lack of engagement. The way a supervisor treats the people who work for him or her does influence their engagement, but its more complex than that.
Supervisors work within a system and culture where they may or may not feel engaged. They may feel constrained by the culture and system in the way they would like to operate.

Which strategies and tactics do you recommend to improve the percentages?

These seem to be especially effective:

1. Involve people in change that impacts them.

2. Design jobs and teams where there is meaning, autonomy, challenge, learning. and feedback.

3. Go beyond the numbers. The goal should not be to improve the numbers. Rather the goal is to create an engaging work environment and the numbers are measures of how well you are doing. Be careful with surveys and look for other results and unintended consequences. As a PhD scientist once told me, when you decide the measures ahead of time, that is all you will see, and significant findings and learning’s may go unnoticed.

4. If you are a leader at any level, engage people in a mutual conversation about what you care about at work and why. Also ask this question in a team environment. Then ask what people can do to bring more of what people care about at work into work on a daily basis. You will be glad you did.

* * *

Here is a link to all of Part 2.

To read Part 1, please click here.

Dick and Emily cordially invite you to check out the resources at this website.

Wednesday, February 25, 2015 Posted by | Bob's blog entries | , , , , , , , , , , , , , , , , | Leave a comment

Dick and Emily Axelrod: Part 1 of an interview by Bob Morris

AxelrodsDick and Emily Axelrod come from a long line of entrepreneurs. So it was no surprise when in 1981 Dick left General Foods to form The Axelrod Group. At the time Emily was studying to get her second masters degree, in Social Work.

At the same time as Dick was leaving General Foods, his friend and colleague Jim Shonk landed a huge contract with Ford and needed help. This kickstart from Jim was just what the fledgling Axelrod Group needed to get started. Emily in the meantime was honing her skills as a family therapist. Periodically, Emily would work with Dick to conduct communication skills training programs.

During the early 1990’s, Dick was becoming increasingly dissatisfied with the approach most consulting firms were using to bring about organizational change. You know the process: it consists of sponsor groups, steering teams, and project groups, all organized to create the change. When these groups finished their work, they then faced the arduous task of “selling” their solution to the organization. This need to sell the solution brought many a change process to its knees.

Out of this dissatisfaction, Dick and Emily developed the Conference Model®–a process for involving the “whole system” in creating organizational change. Every new idea needs someone who is willing to try something that is unproven, and Ken Goldstien, who at the time was Director of Organization Development at R.R. Donnelley and Sons, was willing to give this untested idea a chance when no one else would. Because of the early success at R.R. Donnelley, companies like Boeing, British Airways, Hewlett-Packard, Intel, INOVA Health System, Weyerhauser, and the Canadian and UK health systems were able to benefit.

At the height of this innovation, Dick had triple bypass surgery, and that is when Emily jumped into The Axelrod Group with both feet. Along the way, colleagues have joined the Axelrod team, and this worldwide network provides a range of skills that enrich The Axelrod Group’s offerings.

Dick wrote Terms of Engagement: New Ways of Leading and Changing Organizations, published by Berrett-Koehler (May 2000) with a paperbound edition published in 2010. He and Emily then co-authored Let’s Stop Meeting Like This: Tools to Save Time and Get More Done, also published by Berrett-Koehler (August 2014).

Here is an excerpt from my interview of the Axelsons.

* * *

Before discussing Terms of Engagement and then Let’s Stop Meeting Like This, a few general questions. First, who has had the greatest influence on your personal growth? How so?

Dick: This is a hard question. I’ve had many professional teachers from whom I’ve learned a lot about people and change, but as I reflect on this I believe the roots of who I am took place with my father.

Here are some of the lessons I learned from my dad that I carry with me today.

o Do what you love: My father manufactured model airplanes. He took his hobby and made it into a successful business. His work was an extension of who he was.

o Work is dignified: No matter what anyone does, their work should be treated with respect.

o Treat everyone with respect: This is a companion to work is dignified. Both the work and the person doing the work deserve respect.

o Stand up for what you believe: My father single-handedly stopped a race riot by saying no to a group of organizers who came to our house to enlist his support for creating the riot.

o Take care of your family: My father’s will had provisions for the care of his mother-in-law, something he didn’t have to do.

o It’s possible to be a friendly competitor—this is an abundant world where everyone can make a living: My dad had personal relationships with his biggest competitors. In fact his biggest competitor came to Emily’s and my wedding.

o Honesty: Be ethical and honest in all your personal and business relationships.

o It pays to be ignorant: Today it might be stated as, “Have an inquiring mindset.” What he meant was you don’t have to have all the answers, and you can learn a lot by listening to others.

o Personal responsibility: When I was a teenager, my dad told me that if I got a girl pregnant he would not support my family. That was his way of saying that you have to take personal responsibility for what you do.

o Support your friends: If you were my dad’s friend, he would be there for you no matter what. If a widow in Toledo, Ohio needed help, our whole family took a trip to Toledo. If a friend was sick or dying, Dad would drop what he was doing to be with them. If a friend were out of work, he would find a job for him in his company or help that person make connections so they could find work.

o Stick-to-it-iveness: My father spent ten years developing a product called monokote that revolutionized how people covered and painted airplanes. Instead of covering your airplane with paper and then applying many coats of “dope” to get a shiny finish, with monokote (a mylar material) and a heat gun you could put a finish on your plane in a matter of minutes instead of hours. You also didn’t smell up the house, which my mother hated. Dad also invented a heat gun to apply the product because none existed in the market place. There is another lesson here, which is to find out the problems customers have when they use your products and then invent new ways to help them resolve those problems. In this case, time and disgruntled family members who didn’t like the house smelling like a paint factory.

Emily: Besides my parents, one of the first teachers to mention human relations to me was a ninth-grade English teacher: Ms. Fanny Burnett. Every week we had a human relations lesson. This stuck with me through the years and was reinforced through the youth group advisors at church, volunteers in the girl scouts, and other teachers along the way. Another important teacher was Sandra Hammond who is a therapist and Buddhist teacher with whom I studied for 10 years learning her Character Work method and being in a study group with her. She combined the study of Buddhism and family therapy. Also, Dick Axelrod probably has been the greatest influence. We have worked and grown together for 35 years. He is completely honest with me and I trust his feedback.

The greatest impact on your professional development? How so?

Emily: At first, my family, then the girl scouts as they taught me I could do anything I worked hard to do and really wanted. A chemistry teacher in high school turned me on to science. The women’s college I attended in NC added to that with leadership training and confidence building. Dick Axelrod, Peter Block, Marv Weisbord, Kathy Dannemiller, Peter Koestenbaum, Barbara Bunker, Billie Alban, and my own curiosity built on this foundation.

Dick: Richard Heckler. Years ago Emily and I studied body therapy for two years in a group of people with Richard. This group was so strong that it stayed together for many years following the completion of our formal studies. In this group I learned the connection between mind and body, and how what is happening with the body is as important as what is happening with the mind and emotions. While we were there to learn the mechanics of doing body therapy—how to help people access different thoughts and emotions through touch—I also learned a more important lesson: the power of presence. By this I mean what it means to be with another person so they know they have your undivided attention. Can you see the world through their eyes? Can you experience what they might be experience? Can you attend to their breathing out and breathing in, the rush of color to their face, the nervous movement of their feet? Can you absorb this information in a non-judgmental way and just be with the person? This ability to be with another person in a non-judgmental way, recognizing they are doing the very best they can is something I use everyday whether I’m consulting to individuals, teams, or organizations.

I learned that paying attention is an act of leadership. What and how you pay attention matters.

The other big lesson was that you access different information through the body. One time we were working with a group of about 100 people using our Conference Model® process to redesign the organization. There were three different alternatives that people were trying to evaluate. We had the participants create living organization charts. What we did was outline the organization charts on the floor and then had people stand in the various configurations to look at who they were working with and who they needed to work with. We did this for each configuration and then asked folks to identify the chart where they felt most comfortable. I remember one person who was in a matrix standing there with her arms outstretched caught between two organizations, talking about how painful it was to be in this place in the organization. In actuality the group developed a fourth option as a result of their discussion. Identifying the pain and actually trying out what it might be like to be in the various organizational structures could not occur through talking; people had to experience it. I doubt if the group would have ever come up with the fourth option had they not experienced it.

Years ago, was there a turning point (if not an epiphany) that set you on the career course you continue to follow? Please explain.

Dick: I was a line manager for Illinois Bell, in a fast-track management development program, responsible for repair service for one part of Chicago. My group was the pilot organization development group for the company. The consultants did basic team-building with us and as a result, our group rose to be 1st or 2nd in every measurable category. The thing I felt proudest about was that every day we put 85 trucks on the street and we went a year without a vehicle accident. We didn’t do any special safety training. All we did was change the relationship between the telephone workers and their supervisors.

Shortly afterwards, the company started an internal organization development consulting group and I volunteered to be part of that group. I was also getting my MBA at the University of Chicago and decided to take up Organization Behavior as my area of concentration. From Illinois Bell I went to General Foods and became the OD manager for Chicago where I worked on implementing self-directed work teams. In 1981 I left General Foods to start the Axelrod Group.

Had my group at Illinois Bell not been chosen as the pilot group, my career as it is today may not have happened.

Parallel to this story is the decision not to join my father’s business. All my life I was groomed as the heir apparent. In fact, working at Illinois Bell was part of my father’s management training program for me. He wanted me to go out and work for big companies and learn how they did things so that when I took over his company, I could bring that learning to the world of model airplane manufacturing.

I took seriously my father’s admonition to do what I loved, and when I found out that organization development consulting is what I love, he never had a problem with that. Even though it meant I would not take over the business he built.

Emily: I don’t recall an epiphany as I have always looked for better ways of doing things no matter what we were doing, from parenting to ways of working. If there was a turning point, it was Dick’s heart surgery. I then had to take over the business side of our company as I was in charge. That a commitment to learning and working more much more determination.

To what extent has your formal education been invaluable to what you have accomplished in life thus far?

Emily: My formal education gave me a wonderful foundation. My social work and family systems work certainly helped in understanding systems and the communication needed to have a successfully functioning system. The concept of emotional safety in order for people to be honest and learning how to language things positively all help. The two things I believe in strongly are learning and choice. This work is about both of these.

Dick: I was lucky enough to go to the University of Chicago on the GI bill. Much of what I learned at the UofC is now obsolete. But what is not obsolete is that at the University of Chicago I learned how to learn. I learned how to think critically about ideas and not to accept that just because someone wrote a book it was true. What was great about a UofC education was that in every course you didn’t just have one text, you had several, and most of the time the authors espoused different theories. It is this learning how to learn that I think has allowed me to continue to stay relevant in our fast-changing world.

At our graduation, in Rockefeller Chapel at the University of Chicago, our commencement speaker said, “You think you are getting your business degree today that will allow you to become leaders in the world of business and that you will do. But UofC graduates do more than that, they teach.” He went on to say, “I predict that most of you will at some point in your career teach either informally in your work setting or formally at schools and universities.”

One of the biggest thrills of my life has been to teach Crisis Leadership at the University of Chicago.

* * *

To read all of Part 1, please click here.

Dick and Emily cordially invite you to check out the resources at this website.

 

 

 

 

 

Wednesday, February 18, 2015 Posted by | Bob's blog entries | , , , , , , , , , , , , , , , , , , , , , , , , , , , , , | Leave a comment

Kevin Murray: An interview by Bob Morris

Kevin Murray is Chairman of the Public Relations Division of Chime Communications, a London-based international marketing services company. Chime’s PR Division is ranked number one in both the PR Week and Marketing magazine public relations league tables for the UK. He started his career as a Crime Reporter on The Star Newspaper in Johannesburg, South Africa. He later moved in to public relations in the UK and was Director of Corporate Affairs for the UK Atomic Energy Authority before becoming Director of Communications at British Airways.

He moved to Bell Pottinger in 1998 and has considerable experience in managing complex and global communications projects and departments. He has led significant issues and crisis communications campaigns amidst the heat of international controversies in the chemicals, nuclear, aviation, and banking sectors, to name but a few. He also has years of experience coaching chairmen and chief executives on communication, and has drawn on that experience to add to the content derived from his interviews with the leaders in this book, The Language of Leaders: How Top CEO’s Communicate to Inspire, Influence and Achieve Results, published by Kogan Page (2012).

Here is a brief excerpt from my interview of him. To read the complete interview, please click here.

*     *     *

Before discussing The Language of Leaders, a few general questions. First, who has had the greatest influence on your personal growth? How so?

There is no doubt my wife of 35 years has been the most influential on my development.  She has always shown me where I need to be a better man, a better friend, a better father or a better husband.  She’s also been a great counsellor to me in my career and a huge support.

The greatest impact on your professional development? How so?

I have been hugely privileged to advise leaders in all sorts of companies for the past three decades and to work closely with them in periods of incredible change and stress.  Watching them perform, observing how they behave and how they lead, all of this has been very impactful on my development.

Years ago, was there a turning point (if not an epiphany) that set you on the career course you continue to follow? Please explain.

A big turning point in my career was when I was fired from my job as Director of Communications for British Airways.  I had spent two years there being required to be a messenger of often bad news, with no ability to influence change in the organisation.  Prior to that, at the Atomic Energy Authority, I had been in charge of all change programmes and had become very used to being a change agent.  The huge contrast between the two jobs was very influential in the way I have thought for the past 15 years.

To what extent has your formal education been invaluable to what you have accomplished in life thus far?

When I was at school I intended to go to university and study to become a veterinary surgeon.  All my subjects were science-based.  However, while serving in the army during my national service, I engineered a weekend aptitude test at a university in Johannesburg.  The results were very clear.  A career in journalism or public relations was required.  This changed the way I saw the world, and I went into journalism at the age of 19.  Ever since that day I have been having so much fun that I keep thinking somebody is going to find me out because it never feels like working.

Here’s a hypothetical question about interviewing. For present purposes, let’s say you are writing a book about history’s greatest leaders. If it were possible, which five (5) do you wish you could meet with and interview? Why? What specifically would you be most interested in learning from each?

If I were able to I would love to interview Julius Caesar, Winston Churchill, Abraham Lincoln, Genghis Khan and Ronald Reagan.  Each would have the most amazing stories to tell and I would want to explore with them issues like the power of a grand vision, the art of delegating in huge organisations, the ways they thought about communicating in order to win support, and how much they thought charm and humour was necessary in leadership.

Long ago, one of the founders of Hill & Knowlton, John Hill, observed that public relations is (or should be)  “truth well-told.”  Do you agree?

I couldn’t agree more.  I hate that public relations is often dismissed as “spin”.  Public relations activities are about persuasion, and there is absolutely nothing wrong with that.  In today’s transparent world not telling the truth is far too dangerous.  You will, ultimately, be found out and the damage will be great.  Public relations management is really what it says on the tin.  It is about trying to manage your relationships with your various publics.  Unless you have good relationships

All organizations need effective leaders at all levels and in all areas of operation. In your opinion, how best to develop them?

One of the things I kept hearing from all of the leaders I interviewed is that the only way you can build agile organisations today is to create more leaders everywhere.  The difference between leadership and management is that leadership is about engaging with people’s emotions to inspire them to the cause.  Management is about controlling behaviours to achieve results.  Great leadership appeals to both the heart and the mind.  In my opinion, the more leaders are taught these softer skills of relating to people, motivating them, recognising and uplifting them, the more successful they will be as leaders.

I am among those who think that crisis does not develop character in a leader, it reveals it. What do you think?

Having worked in the chemical industry, the nuclear industry, the airline industry, and many others I have had more than my fair share of crises, sometimes global in nature.  I have seen leaders implode during a crisis and I have seen leaders respond amazingly in these situations.  I do think those who are poor leaders are the ones who are most likely to fail in a crisis, because often the crisis has been caused by behaviours and decisions and poor leadership that preceded it.  But it also true you can see the real strength of a leader when he or she has to stand up and be counted.

Most of the companies annually ranked among the most highly admired and best to work for are also ranked among those most profitable and having the greatest cap value. In my opinion, that is not a coincidence. What do you think?

I agree.  All of my research has shown that happy and engaged employees usually deliver great results.  I sometimes believe that the customer should come second, because you can never put them first if you haven’t encouraged and inspired your employees.  Time and time again, I have seen examples of highly motivated employees giving effort that went beyond any contractual obligation, to achieve outstanding results for their companies.  I firmly believe that this issue of engagement and inspiration makes the difference between ordinary results and great results.

I think that films very effectively dramatize important business lessons. That is why, when conducting workshops and seminars on leadership, I use brief clips from films such as Paths of Glory, Twelve o’clock High, Lawrence of Arabia, To Kill a Mockingbird, and Tunes of Glory. Which films would you consider if teaching a workshop or seminar on teamwork?

What a good idea.  I think I would be looking at films like The Godfather, Groundhog Day, Seven Samurai (one of Ikira Kurasawa’s several masterpieces, on which The Magnificent Seven is based) and, yes, To Kill a Mockingbird.  Each of these will have powerful lessons about leadership and teamwork.  To be current I would throw in Avengers Assemble – a great story of a dysfunctional group learning to play to their strengths while working together.

In your opinion, what will be the single greatest challenge that business leaders will face during the next 3-5 years? Any advice?

I think one of the biggest challenges facing leaders in general today is that of sustainability.  Time after time I heard the leaders I was speaking to talk about the idea that you cannot have a thriving business in bankrupt society.  You have to have a healthy environment, a healthy society and only then can you have a healthy and thriving business.  I believe that businessmen are going to have to get a lot more long term in their thinking about business and try to find ways to get away from the tyranny of quarterly reporting.  This will take courage, it will take purposeful education of shareholders, but in truth there is no alternative.  Already consumers are demanding more of the brands they buy from, and more ethical, responsible behaviours.  This will be a movement that will gather pace and become unstoppable.  Leaders must get ahead of that curve or else risk being turned into dinosaurs.

*     *     *

To read the complete interview, please click here.

Kevin cordially invites you to check out the resources at these websites:

http://www.languageofleadersbook.com

http://www.koganpageusa.com/product/Language-of-Leaders,1929.aspx

Sunday, May 13, 2012 Posted by | Bob's blog entries | , , , , , , , , , | Leave a comment

What to Do Against Disruptive Business Models (When and How to Play Two Games at Once)

Here is an excerpt from article written by Constantinos C. Markides and Daniel Oyon for MIT Sloan Management Review. To read the complete article and check out other resources, please click here.

*     *     *

Fighting against a disruptive business model by rolling out a second business model is one option for companies to consider. But to make that work, you need to avoid the trap of getting stuck in the middle.

Constantinos C. Markides

INCREASINGLY, ESTABLISHED COMPANIES in industries as diverse as airlines, media and banking are seeing their markets invaded by new and disruptive business models. The success of invaders such as easyJet, Netflix and ING Direct in capturing market share has encouraged established corporations to respond by adopting the new business models alongside their established ones. Yet, despite the best of intentions and the investment of significant resources, most companies are unsuccessful in their efforts to compete with two business models at once.

Daniel Oyon

According to Michael Porter and other strategy theorists, managing two different business models in the same industry at the same time is challenging because the two models (and their underlying value chains) can conflict with each other. 1 For example, airlines selling tickets through the Internet to fight back against their low-cost competitors risk alienating existing distributors (the travel agents). Similarly, established newspaper companies that offer “free” newspapers to respond to new entrants risk cannibalizing their existing customer base. By attempting to compete with themselves, Porter argued, companies risk paying a significant straddling cost: damaging their existing brands and diluting their organizations’ cultures for innovation and differentiation.2

THE LEADING QUESTION
: Should companies adopt a second business model in their main market?

FINDINGS

1. Responding to a disruption by adopting a second business model in the same market can be an effective strategy.
2. Your second business model should be different from your existing one and different from that of the disrupter.
3. Keep the two separate enough to avoid conflicts, but leverage potential synergies.
4. His view was that a company could find itself “stuck in the middle” if it tried to compete with both low-cost and differentiation strategies.3

The Case for Separate Units

The primary solution proposed to solve this problem is to keep the two business models (and their underlying value chains) separate in two distinct organizations. That is the “innovator’s solution” that Clayton Christensen proposed and that has been supported by others.4 Even Porter has accepted this organizational solution.5 The rationale for this approach is straightforward: Managers at the established company who feel that the new business model is growing at their expense would want to constrain or even kill it. By keeping the two business models separate, you prevent the company’s existing processes and culture from suffocating the new business model. The new unit can develop its own strategy, culture and processes without interference from the parent company.

Sensible as this argument seems, the separation solution is not without problems and risks. Perhaps the biggest problem is that you can’t exploit the synergies between the established company and the separate unit.6 In recognition of the need to exploit the
synergies, some academics have suggested an alternative: the creation of separate business units that are linked by a number of integrating mechanisms. Several studies have now identified a number of integrating mechanisms that successful companies have put in place to exploit synergies (see “How to Integrate Separate Units”).7

Why Separation May Not Be Enough

Although the idea of creating separate business units has received a lot of attention, this approach by itself does not ensure success. In fact, there are many examples of companies that have pursued this strategy and failed (such as British Airways with its Go Fly subsidiary and KLM with its Buzz subsidiary) while other companies, such as Nintendo and Mercedes, have succeeded in playing two games without creating separate units.

We have also found that competing successfully with two different and conflicting business models involves more than creating a separate unit. Several years ago, we studied the experiences of 68 companies that faced the challenge of competing with dual business models. Our main finding was that only a handful of companies that created separate units were successful in playing two games. Many had created separate units and still failed, suggesting that separation in itself was not enough to ensure success.

If separation is not sufficient, what else should companies do? From 2007 to 2009, we studied 65 companies that attempted to compete with dual business models in their markets (see “About the Research”). By comparing the experiences of the businesses that did so successfully with those that failed, we have identified five key questions that companies need to consider if they are to improve the odds of success in competing with dual business models in the same industry.

[Here are the five questions.]

1. Should I enter the market space created by the new business model?

2. If I do enter the new market space, can I do it with my existing business model or will I need a new one?

3. If I need a new business model to exploit the new market, should I simply adopt the invading business model that’s disrupting my market?

4. If I develop a new business model, how separate should it be organizationally from the existing business model?

5. Once I create a separate unit, what are the unique challenges of pursuing two business models at once?

Markides and Oyon respond to each of these questions, offering both insights and suggestions that can help leaders make appropriate decisions. To read the complete article, check out the notes, and obtain information about a subscription, please click here.

*     *     *

Constantinos C. Markides
is the Robert P. Bauman Professor of Strategic Leadership at London Business School. He is the author or co-author of several books, notably Game-Changing Strategies, All the Right Moves, and The Future of the Multi-national Company.

Daniel Oyon is a professor of management at HEC, Université de Lausanne, in Switzerland.

Monday, September 20, 2010 Posted by | Bob's blog entries | , , , , , , , , , , , , , , , | Leave a comment

   

Follow

Get every new post delivered to your Inbox.

Join 401 other followers

%d bloggers like this: