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Posts Tagged ‘Strategy’

Using Customer Insights to Drive Ethical, Profitable Growth

By Sean Williams

The recent Wells Fargo settlement—to the tune of $185 million—has given business leaders pause to examine the contributing dynamics. A combination of aggressive cross-selling strategy, insufficient employee monitoring, and incentives misaligned with the best interests of customers set the stage for a massive employee fraud in the creation of unauthorized accounts driven by the desire to earn bonus compensation.

Hardly unique, Wells Fargo is one of many companies placing aggressive goals on customer-facing employees, most in a direct position to inadvertently do harm, and they must carefully evaluate the strategic, legal, and reputational risks.
Clearly, substantial changes are often necessary to remain competitive as employees adjust to new ways of interacting with customers to deliver profitable growth. While post-Wells Fargo activities may include new value statements and requisite hours of training, actual employee behaviors are much more difficult to monitor, and frequently fraught with blind spots.

But how is a leader to know if employees are upholding and reinforcing company policies and standards rather than potentially destroying value by pursuing individual goals at the expense of customers? 

One source of safeguarding against these risks is to employ something many companies already have: a voice of customer program. 

How could a voice of customer program help a bank address its blind spots in employee behavior?  Obviously, customers will not know—at least not immediately—if a bank employee opened an account for them without their permission. But a voice of customer program employing outreach to recently-opened account holders asking for customer feedback on the sales process—a common activity—can illuminate such a disconnect.
But such an approach is not foolproof in that this type of feedback is solicited only from the small number of customers who have opened accounts, and many will routinely decline the interview for reasons that have little to do with unethical bank behaviors (e.g., customers commonly believe there was a mistake). Beyond customer declinations however, it may be likely that either the email address or phone number designated to the new account is bogus.

However, if the question was asked of any customer conducting any transaction on an active account, it would provide a broad data sample that could easily be used to monitor and evaluate employee behavior, notably illuminating any discrepancies between the customer’s assertion that they have not opened an account and bank records indicating otherwise. More importantly, these disconnects will reveal potential problems in branch locations where new goals have been rolled out, strategies implemented, etc. 

Such dynamics transcend the financial services industry, certainly, and an effective voice of customer program can be useful for managing risk from employee behaviors in any company. For example, many automobile manufacturers reimburse dealer service departments for the parts sold for repairs, but not for actual car repair. This creates a subtle mismatch between the ideal activities of the service personnel (repairing cars) and the service for which the manufacturer is paying (installation). Such a disconnect creates easy opportunities to “game the system,” which in turn creates clear risk for the manufacturer.  

When a customer returns for the same service on the same vehicle, the manufacturer can safely assume that the repair was not correctly performed on the first attempt. But the manufacturer may be unaware if service personnel created duplicate entries for the same repair, if repairs sold were not required, or if the customer had repairs performed elsewhere.
These blind spots can be easily addressed by asking the right questions of customers. For example, inquiring with a customer as to when the last time a specific repair was performed may indicate if service personnel unnecessarily replaced parts not yet past their lifetime expectancy.

In the insurance sector, companies that are increasing pressure on claims can install new processes and due diligence, but the clear potential to harm claimants means that insurance companies should be auditing customers to ensure such processes are being followed. Manufacturers changing warranties and retailers modifying return policies could also better manage risks by more frequently surveying the customer experience.
Of course, collected customer data may never be perfect—and will be effective only insomuch as the customer remembers interactions. For example, in the earlier banking illustration, the customer could incorrectly remember opening an account, when such a transaction in fact occurred, or inaccurately recall the bank, if they do business with more than one. 

But this random noise will not change significantly over time or vary much by location, which are exactly the indicators a bank should be seeking. And the voice of customer data can provide vital information exactly where there are few other options for examining employee behavior. To realize monitoring value of voice of client programs, the programs should be integrated into the strategy implementation and risk management processes.  Consider the following five steps:
1) Examine the new strategy with the appropriate cross-functional team of leaders from strategy, sales, marketing or human resources. Identify where the new strategy unintentionally incentivizes employee misbehavior toward customers. Eliminate as many of these incentives as possible.

2) Explicitly list any remaining potential avenues for employee misbehavior. The more specific about the different ways this misbehavior could manifest, the better. 

3) Work with the data and analytics function to map out which of these manifestations can be identified today, and which could be monitored through existing infrastructure with some additional work. Think through the analytics and reporting that would be necessary to ensure that what can be seen, will be seen. The remaining manifestations of employee misbehavior are the blind spots.

4) Work with the voice of customer program to shed light on the blind spots, by asking the right questions of the right customers at the right time. Make sure that the voice of customer program and the data and analytics functions work together to produce integrated reporting for the leadership on the manifestations of misbehavior, including rates, trends, and locations.  Establish baseline values of customer responses before rolling out the new strategy, goals or incentives.

5) Make sure there are no remaining blind spots. If blind spots remain, or new blind spots are identified later, consider adding a customer survey or other data collection mechanism as necessary to address the new blind spots.

This approach helps ensure that problems are identified before they become widespread, which will help put both executives and regulators at ease while minimizing situations where employees may feel encouraged to act against the best interests of the customer, mapping and monitoring such behaviors to course correct when required.

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Customer-Centric Strategy at First Interstate Bank

Customer-Centric Strategy: How Axiom Helped First Interstate Bank Transform From Customer Friendly to Customer Intimate

Axiom’s work in supporting the strategic planning process at First Interstate Bank is featured in the Bank Administration Institute’s Banking Strategies. Patricia Smith, Senior Vice President of Segment Management at Billings, Montana-based First Interstate BancSystem, Inc., writes:

“Our strategic planning process explored new terrain and definitely shook things up. At first, senior members of the management team were reluctant to admit the need for improving customer relationships. After all, we enjoyed dominant market share in our territories and our lenders, tellers and service representatives knew many customers personally as neighbors and friends. However, a fuller analysis of existing relationships and market penetration revealed vulnerabilities and opportunities, which led us to initiate the strategic planning process.”

customer centric strategyAs the Strategy Design Team and the rest of senior management became comfortable with the idea that improvements were needed, Axiom’s Susanna Mlot introduced a framework to help guide the execution of a more customer-intimate strategy. The “Customer Centricity Spectrum” (above) shows the range of ways that a company can be oriented to its customers, as well as how business strategy, organizational design, and go-to-market approach reflect that orientation.

  • Customer friendly. Companies in this category emphasize personal customer connections. They rely on after-the-fact evaluations of their efforts to meet customer needs, principally by gathering informal customer satisfaction data. Marketing is not segmented; products and services are presented as a broad array of offerings.
  • Customer focused. Business strategy hinges on proactively meeting customer requirements, relative to the competition. To maintain that focus, these companies gather formal and informal customer satisfaction data. Customer intelligence is leveraged primarily to inform one-off tactical decisions.
  • Customer Centric. At the customer-centric company, customer requirements are at the core of the business model. Aligning products and services with those requirements is of paramount strategic importance. Capturing customer intelligence about current customers (as opposed to the broader market) is a formal, ongoing process and the customer insights gleaned from that research help drive the work processes and how the company is organized. Customer segmentation is an important factor in the go-to-market approach of customer centric companies, but the foundation of segmentation is basic demographic data.
  • Customer Intimate. This fourth stage represents the deliberate alignment of strategies and objectives with customer requirements. Customer-intimate companies capture a host of intelligence about current customers, but also seek to understand the needs of potential and defector customers, as well. That intelligence enables greater market segmentation. Information about profitability, loyalty, demographics, and other factors help customer-intimate companies market with greater precision, resulting in higher profitability.

The Strategy Design Team used the Customer Centricity Spectrum and its dimensions as criteria to assess the extent to which First Interstate was customer intimate. The Spectrum brought to life the differences among the levels. The team discovered the bank was somewhere between the first two stages on the Spectrum, and a far cry from the desired end state of “customer intimate” that would truly differentiate First Interstate from other financial service providers.

First Interstate Bank’s Smith reports:

“Now, five years later, implementation of the strategic plan is driving major progress along the Customer Centricity Spectrum. Delivery on service commitments across the bank is now regularly and carefully scrutinized through third-party assessments at the branch level. Net Promoter Score research is constantly uncovering opportunities to improve customer loyalty. The one-size-fits-all market mentality has given way to a strategy of serving distinct customer segments in ways that fit those customers’ needs and process efficiencies have been found along the way.

  • Loan processing for small business customers, for example, is more streamlined.
  • The timeframe to establish new wealth management accounts has been halved.
  • There is now a greater focus on understanding the needs of realtors and accelerating the mortgage loan fulfillment process.
  • Our digital initiative aims to satisfy the requirements of current customers as well as anticipate needs of the next generation.

Furthermore, the bank has implemented a customer engagement process that spans the first 15 months of a new customer’s relationship with the bank. The focus is on building more consultative, long-term relationships, not pushing products. In short, First Interstate is creating profitable customer relationships by going beyond “customer friendly” and progressing well toward “customer intimate.” By improving each customer’s experience, we are in turn able to measurably improve the company’s financial results by increasing the lifetime value of customers, reducing customer attrition and improving efficiencies, thereby increasing the value of the brand and enhancing customer acquisition in terms of volume and cost.”

Read the full article: From Customer Friendly to Customer Intimate.

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How to Develop an HR Strategic Plan

HR strategic plan

Axiom’s Juan Pablo Gonzalez and Dane Tyson challenge HR leaders to replace disconnected initiatives with an integrated and compelling HR strategic plan that drives business results. Read the full article here.

An HR strategic plan is the best way of identifying and leveraging opportunities for the HR function to deliver real and tangible business value, according to Axiom Consulting Partners’ Juan Pablo Gonzalez and Dane Tyson in the May 2016 Workspan cover story.

The schematic below  illustrates a planning approach Axiom has used successfully in helping many HR organizations to build effective HR Strategic Plans.

HR Strategic PlanningThe left side of the schematic articulates a set of Enterprise Strategic Imperatives identified by management as critical to the long-term success of the organization. It also spells out the HR Value Proposition—the specific ways in which HR will support the enterprise in addressing those strategic imperatives. The value proposition clarifies how HR will allocate its resources, where it will focus its time, effort, and investment, and how this focus will create value for the enterprise. The keys to a compelling HR value proposition are to maintain a focus on the strategic imperatives for the business, to explicitly craft the value proposition around those imperatives, and to resist the temptation to introduce extraneous elements into the mix.

The right side of the schematic focuses on HR’s Value Building Blocks—bundles of organizational capability that HR must marshal in order to deliver on its value proposition. The four building blocks illustrated in the schematic are common to most HR organizations:

  1. Domain Expertise: Maintaining, building, and delivering subject matter knowledge and competence in all core areas of the HR discipline;
  2. Strategic Partnering: Utilizing a deep understanding of the enterprise’s objectives, needs, challenges and opportunities to serve as trusted advisor and deliver effective HR solutions;
  3. Process Delivery: Continuously improving the efficiency and effectiveness of HR programs and processes; and
  4. Insight: Combining analytical capabilities and talent-related data to develop fresh insights and identify potential opportunities for building strategic advantage.

While these core building blocks will be common to most HR organizations, the balance of emphasis among them, as well as among the underlying Strategic Capabilities, will differ based on:

  • The relative importance of capabilities required to effectively deliver on the HR Value Proposition and address the enterprise’s Strategic Imperatives, and
  • The current effectiveness of the HR organization with respect to those capabilities.

Ultimately, the HR Strategic Plan needs to spell out both how the function will deploy current resources as well as how it will build and/or supplement those resources for the future. It must put forward a balanced set of initiatives—some designed to meet current recognized requirements of the enterprise, others that address new needs likely to emerge in the future, and still others intended to build strategic HR capabilities that will allow the function to continuously deliver more and higher-value services over time.

In conclusion, most enterprises today agree that talent is among their most important assets, and they are prepared to invest significantly in acquiring, deploying, developing, engaging and retaining that talent. CHROs should respond accordingly by developing an HR Strategic Plan that sets priorities aligned with the broader enterprise imperatives and establishes the foundation for focused and successful execution—replacing vague and disconnected HR initiatives with an integrated and compelling HR Strategic Plan that drives results.

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How Innovative Organizations Apply the Lessons of Successful Learning

Innovative Organizations Create a Mindset for Learning, Engage in Deliberate Practice and Incorporate Outside Perspectives

By Lei Tong, Principal

Some argue that human intelligence and creativity are strongly tied to a person’s ability to connect ideas and experiences. The concept that intellectual capacity is not fixed at birth provides the argument that individuals can increase their cognitive abilities and personal performance by improving their aptitude to learn, thus enabling more creativity through a greater number of connections between ideas and experiences.
Our perspective is that innovation and learning are two sides of the same coin. In our experience, a company’s capacity for innovation is not fixed based on its legacy, industry, or size. Here, we relate some of the best practices for improving personal learning success to how organizations can create the right disciplines and organizational habits for innovation. As more companies have come to recognize the limits of acquisitions, leaders are now focusing more on value creation through innovation for sustained organic growth.

innovation organization

1. Promote a Mindset for Learning
In research on students conducted by Carol Dweck from Stanford University, she saw that some students aim at performance goals while others strive toward learning goals. Students with performance goals are working to validate your own abilities, while students with learning goals work to acquire new knowledge or skills.
People with performance goals can unconsciously limit their potential. If the focus is on validating or showing off ability, people tend to pick challenges that they are confident they can meet. People want to look smart, so they do the same stunt over and over again. But if the goal is to increase ability, it is better to pick ever-increasing challenges and interpret setbacks as useful information that helps one to sharpen their focus, get more creative and work harder.
In an Harvard Business Review paper by Clayton Christensen, Stephen Kaufman, and Wily Shih, titled “Innovation Killers”, the authors argue that the paradigm of maximizing earnings per share (EPS) to drive shareholder value is an important reason why companies under-invest in innovation. Companies that tend to focus more on performance goals want to look competent and pick challenges they are confident they can meet.
The value of early stage innovation business initiatives is often difficult to measure; they seldom provide positive impact to EPS. For innovation projects, managers need to avoid focusing on short term or quarterly performance goals such as sales improvements, cost savings, and immediate impact to earnings, but rather, focus on learning goals that can motivate talent and increase organizational capabilities needed to drive future successes.

2. Engage in Deliberate Practice and Experimentation
Expert performance in medicine, science, music, chess, or sports is the product not just of innate talents, but of skills laid down layer by layer, through thousands of hours of dedicated practice, feedback, and learning.
Swedish psychologist Dr. Anders Ericsson’s research on expertise, popularized by Malcolm Gladwell’s book Outliers, argues that a person of natural ability can achieve extraordinary performance through extensive and deliberate practice, defined as a regime of purposeful activities. These activities include practicing the skill, monitoring performance, evaluating success, and working to improve the aspects that are lagging.
Opportunities for deliberate practice and postmortem analysis of innovation failures help organizations diagnose areas where breakdowns occur, so leaders can learn to engage with the right audience to solve problems and develop the organizational skills for navigating through the internal and market constraints that prevent success. One approach for how some organizations create and engage in opportunities for deliberate innovation practice is to crowdsource the exploration of ideas and solutions from employees, vendors, and customers.  Then leadership can engage employees in the practice of refining, advancing, and building support for these ideas.

Take IBM for example. In 2006, IBM engaged 150,000 employees, family members, business partners and universities from 104 countries over a three-day online networked idea generation event called “Innovation Jam” to screen, combine, and find novel ways to get IBM products to market more quickly. The Innovation Jam provided opportunities for IBM leaders to engage in a type of deliberate practice for managing innovation. It enabled them to prioritize ideas, combine them, and then focus on the best ways for bringing high potential solutions to market quickly.
After years of running and learning from the Innovation Jam, IBM launched it as a service for other organizations, allowing companies to create their own opportunities to practice, learn, and grow through innovation.

3. Incorporate Outside Perspectives and Collaborate
Collaborative learning is an educational approach to teaching and learning that involves a group working together to solve a problem, complete a task, or create a conceptual framework.  The concept is based on the idea that learning is naturally an active and social act, where students engaged in collaborative learning are able to capitalize on each other’s resources, perspectives, and skills.  Over the years, some companies have transitioned away from traditional training programs and towards more collaborative training, leveraging employees’ past experiences, skills, interests, and concerns.
What about collaborative innovation? Innovation models within larger organizations typically take the closed and vertical integration approach, where internal R&D activities lead to internally developed intellectual property and new products.
However, the downside of innovating with a closed model is that companies are prone to miss opportunities because many can fall outside the scope of current businesses or will need to be combined with external knowledge, resources, or technologies to be successful. This is especially painful for organizations that have made substantial investments in R&D, only to discover that some of the abandoned projects had tremendous commercial value. Sometimes, to unlock the full potential of underutilized ideas, resources, or technologies, leaders need to seek and screen for opportunities by taking external perspectives:

  • “Outside In” perspective, where external ideas and technologies are brought into the organization’s own innovation process. 
  • “Inside Out” perspective, where ideas and technologies are shared outside the organization so that they can be incorporated into others’ innovation processes.

Henry Chesbrough, professor at the Haas Business School, UC Berkeley, coined this concept as Open Innovation.  He defines it as “the use of purposive inflows and outflows of knowledge to accelerate internal innovation, and expand the markets for external use of innovation, respectively.”
Booz Allen Hamilton’s support of the Data Science Bowl is a powerful example of open innovation. The 2015 challenge called on the international data science community to create an algorithm to help transform the diagnosis of heart disease. Through a partnership with the National Institutes of Health (NIH), participants in the 90-day competition are given MRI images from more than 1,000 patients, a data set that is an order of magnitude larger than any cardiac MRI data set released previously.
In conclusion, as more organizations look to their employees to drive sustainable organic growth, a well-executed innovation strategy for creating a learning mindset, providing opportunities for deliberate practice, and incorporating external perspectives will help inspire creativity, focus and success.

What best practices have worked well for you in driving innovation in your organization?

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Business as the Value Created for the Customer

Since there is a strong tendency for men and women to prefer designs created by those of their own gender, how can a largely female customer demographic be addressed when senior management teams are largely comprised of men? The authors explain how an “outside in” perspective can be applied to ensure that products and services are fashioned around customer preferences. Download the whitepaper: Business as the Value Created for the Customer A4

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