Written about how to treat customers in the connected age, and how to treat employees so they treat customers well.
What I have come to realize is that without organizational and management innovation, business model innovation and adaptation to today’s fast-changing world rarely happens. To make it happen, we need to build new spaces for experimentation and learning.Read more at location 305
If you make customers unhappy in the physical world, they might each tell six friends. If you make customers unhappy on the Internet, they can each tell 6,000 friends.Read more at location 327
Customers trust each other more than they trust companies, who have a vested interest in making themselves look good. A 2009 Nielsen study found that 90% of customers trusted recommendations from other customers more than any other form of advertising. And customers have begun to recognize, and exercise, their power.Read more at location 486
The problem is that the organizations that generated all this wealth were not designed to listen, adapt, and respond. They were designed to create a ceaseless, one-way flow of material goods and information. Everything about them has been optimized for this one-directional arrow, and product-oriented habits are so deeply embedded in our organizational systems that it will be difficult to root them out.Read more at location 587
A recent study found that Great Britain, where the industrial revolution began, reached “peak stuff” levels between 2001 and 2003 — long before the 2008 recession — and material consumption has been declining ever since (it’s now down to the 1989 level).Read more at location 624
Fifty percent of the world’s population today lives on 2 percent of the earth’s crust. In 1950, that number was 30%. By 2050, it is expected to be 70%.Read more at location 643
Furthermore, products are anchors. Investments in manufacturing take time to provide returns, and during this time period, customer needs are likely to change. Investing in physical products “hardens” the offering and reduces the company’s ability to respond and adapt to changing customer preferences. Investing in services “softens” the offering and increases the company’s flexibility. Since costs aren’t sunk into a single product, it’s easier to shift the offering and keep pace with customer demands.Read more at location 761
The first step to a service orientation is to change the way we think about products. Instead of thinking about products as ends in themselves, we need to think of them as just one component in an overall service, the point of which is to deliver a stellar customer experience.Read more at location 782
A service is different. While processes are designed to be consistent and uniform, services are co-created with customers each and every time a service is rendered. This difference is not superficial but fundamental. A process has only one customer: the person who receives the final result. A process is rule-bound and tightly regulated. The quality of a process’s output can be judged by the customer at the end of the line. A service, on the other hand, is at its core a relationship between server and served. Service is work performed in support of another person. At every point of interaction, the measure of success is not a product but the satisfaction, delight, or disappointment of the customer.Read more at location 847
Many companies focus on those costs that are easily identified on the financial statements. But by cutting those costs, they are playing a shell game. In actuality, they are just moving those costs around. They are eating their own future: reducing today’s costs at the expense of long-term customer relationships and customer loyalty. Pissed-off customers won’t stay any longer than they have to.Read more at location 1021
Of course, the more idiot-proof the system, the more behavior is constrained, forcing people to act like idiots even when it’s against their better judgment. Even when your employees know there’s a better way to do something, they will often be constrained by policies and procedures that were designed to reduce variety in the system. If your system needs to solve problems that you can’t anticipate, then it’s going to fail, because automated systems and employees who are treated like idiots can’t solve problems.Read more at location 1367
Attempts to standardize the work will make costs go up, not down. This is because standardizing the work reduces the ability of your system to absorb variety. We try to cage variety into nice neat swim lanes — for example, voice menus in an automated voice system. But when there is a lot of variety in your environment, these kinds of control systems are exactly the way to make things not work.Read more at location 1411
This fast-follower strategy is common both in nature and in business. McDonald’s uses sophisticated market research when deciding to open a new store. But competitor Burger King simply watches McDonalds’ moves and opens new locations nearby. Adaptive moves can also change the environment in which firms operate.Read more at location 1608
Darwin said, “It is not the strongest of the species that survives, nor the most intelligent, but the one most responsive to change.” When the world is constantly changing, the speed at which you can learn is the only thing that can give you a long-term, sustainable advantage. The problem is that while today’s companies are very good at processing information and producing outputs, they don’t know how to learn.Read more at location 1683
Companies are made up of people, who have wills of their own. People can be guided and governed, but they don’t like to be controlled. They prefer to have control over their work, and if you push them too hard, they push back.Read more at location 1841
The problem comes with scale. As the number of employees grows, the profit per employee shrinks. It’s a game of diminishing returns. Efficiencies of scale are balanced by the burdens of bureaucracy. Divisions become silos, disconnected from each other. Overhead costs increase with size. Eventually, the company reaches a point where the costs of control exceed the benefits of further growth, or the company becomes too internally focused and loses touch with the market.Read more at location 1917
intent is a style of management used by the US Military when a situation is too complex or uncertain to give detailed orders. Command intent is a set of goals and a vision for possible methods of achieving those goals. It’s sufficiently high-level that it can be broadcast widely to everyone in the system, and front-line troops can then interpret how those goals apply to their front-line situation.Read more at location 1974
The causes of success are never revenue, cost, profit, or other financial measures; these are lagging indicators or effects. A profit number by itself tells you nothing about the long-term value of a company. What matters are the activities that generate the profits: are they activities that create long-term value? Or are they activities that destroy value?Read more at location 2048
Marketing’s job is to make realistic promises that help set customer expectations. It’s the job of the rest of the organization to deliver on that promise. It’s all about the match. A company that promises more than it can deliver will disappoint customers, and that’s very dangerous, because today’s customers have the tools to tell the world about their poor service experiencesRead more at location 2172
Promoters are less price sensitive, they increase their spending faster, they accelerate your growth, and they have a positive lifetime value to your business. Detractors defect at higher rates, complain more, and cost more to serve. They are a drag on growth and have a negative lifetime value to your business. New customers referred by promoters are more likely to become promoters themselves. Another study found that improving your client retention rate by 5% boosts profits from 25 to 100%.Read more at location 2223
The Net Promoter Score The Net Promoter Score (NPS), developed by Fred Reichheld of Bain & Company, measures the customer perception of quality with a single question: “On a 0 to 10 scale, how likely are you to recommend us to a friend or colleague?” The Net Promoter Score gives you an unambiguous number that can be used to quantify the value you are delivering to customers. Customers fall into three well-defined categories, each of which exhibits a distinct kind of behavior. Promoters, who respond with a nine or a ten, are your most loyal customers and your biggest fans. They make repeat purchases and spend more than other customers. They recommend you to others. They also contribute more, by taking the time to give constructive feedback and suggestions. Passives, who respond with a seven or eight, are not loyal to you. They are likely to defect if another company comes up with a better offer. They rarely recommend you to others, and if they do, the recommendation is likely to be qualified or unenthusiastic. Detractors are customers who give you a score of six or lower. They feel that their lives have been diminished by interactions with you. They are likely to badmouth you to anyone who will listen. They complain and they drive up your costs. Reichheld also recommends a follow-up question: “What is the primary reason for your score?” This question serves as a diagnostic, to help you determine which of your practices have the most impact on customers, for good or ill. It’s a request for feedback about how you can do better. The Net Promoter Score is calculated by subtracting the percentage of customer detractors from the percentage of promoters (you throw out the passives). In 10 years of research, Reichheld and his colleagues have found that companies with high Net Promoter Scores gain more market share, spend less on marketing, and make more in profits than their peers. No other question correlated more strongly with sales and profits.Read more at location 2266
Logitech tracks NPS alongside revenue in each product category. Every product has a Net Promoter Score and products can be rank-ordered by score. And NPS translates directly into business results: products that are number one in the company’s NPS rankings are consistently number one in revenue.Read more at location 2384
In many companies today, the people at the top try to design processes with rules and procedures that will predictably and reliably solve any problem that should arise. But processes are brittle. A new process breaks a lot. And when a process breaks, we usually fix it by changing it, or adding a few more rules to handle exceptions. Over time, most processes become rigid, bureaucratic, and bloated with rules, regulations, and procedures for handling this or that.Read more at location 2425
People at the edge, therefore, have a lot of autonomy, and they tend to make more accurate decisions and take them more seriously as a result. When people who are accountable for decisions encounter uncertainty, they will rely on the more experienced members of the crew, regardless of rank.Read more at location 2558
Agile development is about small teams that deliver real, working software at all times, get meaningful feedback from users as early as possible, and improve the product over time in iterative development cycles. Developing software in an agile way allows developers to respond rapidly to changing requirements. Agile developers believe that where uncertainty is high, there is no such thing as a perfect plan, and the farther ahead you plan, the more likely you are to be wrong.Read more at location 2636
Teams are limited in size to about 8–10 people. At Amazon, they call them two-pizza teams: if you can’t feed a team with two pizzas, it’s too large.Read more at location 3225
In the US, the average Internet user spends more time on Facebook than on any other site. And Facebook provides zero content. Zero. All of Facebook’s content is provided by users. Facebook concentrates on providing a platform for all of its users to interact, start businesses, advertise, and exchange information. Facebook is a city, more than 20 times the size of Tokyo.Read more at location 3328
The logic of innovation is simple: work with what you have, seek commitments from others, evolve goals from individual to mutual, grow, and gain momentum. If you fail, move on.Read more at location 3629
Exercise of power in networks requires high awareness of the network’s state, risks, and potential; an ability to influence other nodes; and a high degree of compatibility with existing standards. The greatest power in a network is the degree to which a node can influence or control the platforms and standards that set the rules for connection.Read more at location 4032
To build momentum for a network, it is often very advantageous to give a lot away to early adopters. The lower the uncertainty and the easier it is for people to join, the faster the network will grow.Read more at location 4057
The more people and organizations that depend on a platform, the greater its power; but any platform is only as powerful as the people and companies that depend on it. If members decide to abandon a platform, it can become a ghost town. Consider AOL and MySpace. Facebook developers are dependent on Facebook for the platform they use to build, sell, distribute and manage their services. Thus, Facebook has a great degree of power over the network. But even Facebook, as powerful as it is, depends on developers as much as the developers depend on it. If developers abandon Facebook’s platform, Facebook will be in trouble. The best platform approach is to extract enough value from the network members to cover your costs, and then share the benefits with members.Read more at location 4091
Part Four. How do you lead a connected company? Connected companies are living, learning networks that live within larger networks. Power in networks comes from awareness and influence, not control. Leaders must create an environment of clarity, trust, and shared purpose, while management focuses on designing and tuning the system that supports learning and performance.Read more at location 4118
Strategy is usually considered the province of senior executives. But senior executives are in some ways the least qualified to envision the future, because they are the most invested in the past and the least likely to be around in the long term. In a connected company, strategy happens at all levels, across diverse groups and different time scales, generating a rich pool of experiments for senior leaders to draw from.Read more at location 4131
Diversity breeds creativity — ecosystems are richest where habitats and species overlap. With more connections and diversity comes more creativity: diverse communities are more interesting, more provocative, and more stimulating.Read more at location 4181
Without a lot of exciting new options, managers will inevitably opt for more of the same. That’s why renewal depends on a company’s ability to generate and test hundreds of new strategic options. There’s a power law here: Out of 1,000 crazy ideas, only 100 will merit a small-scale experiment. Of those, only 10 will be worth serious investment, and out of that bundle, only 1 or 2 will have the power to transform a business or spawn a new one. Google gets this. Within its core search business, the company tests more than 5,000 software changes a year and implements around 500.Read more at location 4191
Many companies solicit innovation ideas from employees and customers, but few are successful in generating a large and diverse enough set of ideas to generate valuable insights. This is partly because in many companies, new ideas must run through a harrowing gauntlet of filters before anyone is allowed to make a move. Companies can increase the number of experiments by lowering the bar. In order to “let a thousand flowers bloom,” you need to make it as easy as possible for people to try things. Diversity requires tolerance for some degree of redundancy and slack in the system. People who are 100% utilized don’t have time to generate new ideas. Google and 3M allow employees to spend 20% of their time — that’s equivalent to one day a week — exploring ideas for new projects, products, and initiatives. W.L. Gore does the same thing. They call it “dabble time.”Read more at location 4208
For medium bets, you want to think like a venture capitalist, spreading risk around by making a number of medium-sized bets, with the expectation that only one or two of them will really take off. The idea is to create a market for good ideas, so that a person or team with an innovative idea can shop it around. For example, give managers throughout the company discretionary budgets that can only be used for innovation projects. Let them fund ideas across the organization, not just in their own team.Read more at location 4230
From this, we derive leadership rule number one: attract good people. Good people have more choices about where they go to work. Good people don’t tolerate bad bosses. Good people commit themselves to the work because they enjoy the work, they enjoy the challenge, and they enjoy making things happen. And good people manage themselves, for the most part. The better your people, the better your performance will be. As a leader, if you attract and hire good people in the first place, half of your leadership problems are solved right out of the gate. Your job is to set an example, articulate the strategy, appreciate people, and for the most part, get out of the way. The role of leader is not given or appointed, it is earned. There are leaders in every organization, and they are not always at the top. You are a leader not because you say you are, but because people listen to you and because people follow you. Do people like their bosses and get along with them? Do people feel appreciated?Read more at location 4447
Prefer richer communication whenever possible. You can reach out via email, but you can only hug someone or put a hand on the shoulder in real life. As a leader, you embody the purpose, and the purpose needs to be not only seen and heard, but also felt.Read more at location 4536
Principles are liberating, whereas policies are constraining. Principles are rules of thumb that can help people make decisions in all kinds of situations. Principles make use of human judgment. Policies, on the other hand, restrict and constrain and reduce the human element. You know you have a good principle when you can write a simple yes-or-no question that will enable anyone in your company to make strategy decisions at both macro and micro scales. For example, “Will this decision put the customer first?” Nordstrom employees know that they will never be punished or reprimanded for making a decision that puts a customer first.Read more at location 4617
When principles are at the core of your competitive strategy, you must hire for attitude first. You can train people on skills, but you can’t train them on attitude. Employees must be a good fit. Hire for attitude, orient for values, and train for skills. Rackspace CEO Lanham Napier says, “It really comes down to core values, and we don’t train our employees in core values. Their parents did that a long time ago.”Read more at location 4654
Waiting time increases gradually until utilization reaches a critical tipping point (around 70%), after which response times start to shoot up exponentially. So incremental increases in efficiency are good up to a point, after which they become a very bad thing indeed. In other words, an ambulance that arrives after the patient has died is of no use at all.Read more at location 4789
Gore CEO Terri Kelly on how Gore manages incentives: An associate will be evaluated by 20 or 30 peers and will, in turn, evaluate 20–30 colleagues. You rank your peers from top to bottom. It’s a forced ranking. You’re asked to rank only people you know. What we find is that there’s typically a lot of consistency in who people view as the top contributors, and who they put at the bottom of the list…We have a cross-functional committee of individuals with leadership roles who look at all this input, debate it, and then put together an overall ranking, from first to last, of those particular associates. Then, in setting compensation, they ensure there’s a nice slope to the pay curve so that the folks who are making the biggest contributions are also making the most money.Read more at location 4808
The pace of information flow at 7-Eleven Japan allows it to run circles around competitors. The approach has been so successful that sales at 7-Eleven Japan exceeded sales of the parent 7-Eleven company, and in 1991, 7-Eleven Japan bought the debt-burdened American parent. In 2007 7-Eleven became the largest chain store in the world, bigger even than McDonald’s, with over 40,000 locations.Read more at location 5028
“When you do innovation in a large company, the immune system will come and attack you. A large company is basically an organism, and it has antibodies and an immune system, and those things will come and attack.”Read more at location 5193
Do You Work at a Place that Ignites Your Passion? The first step on the journey is to ask yourself what you want. Do you identify with the purpose of your company? Is it a place you want to be? Companies run on passion, and if you can’t find the passion in the work you’re doing today, then you’re in the wrong place. The core of a connected company is a shared purpose that everyone in the company can get excited about. That’s the starting point. Companies are in many ways just like people. They all have their lovable qualities and they all have flaws. If you can’t find something to love about your company, then you are not doing yourself or the company a favor by staying. Even if it is deeply flawed in many ways, you need to be able to believe in a future that’s worth pursuing, or there’s no point. I’m not suggesting you need to quit today, but the world is too exciting and there are too many opportunities out there to stay in a job you don’t enjoy. Start looking for something you can get excited about.Read more at location 5318
What customers want is not just connectedness. They want people who can serve their needs and solve their problems. If employees have access to social technologies but are still bound by scripts and procedures, if workers can connect with customers but don’t have the power to act, then you haven’t got a connected company. You’ve got a connected prison, and your employees will be worse than demoralized when they find they are connected to customers but unable to do anything for them.Read more at location 5667
In the future, every company will be a connected company. Although they may be able to survive for some time, eventually every company must give customers what they want — or they will die. And connected customers are already demanding more than divided, industrial-age companies can deliver. This future is inevitable and it’s only a matter of time. Some leaders are rising to the challenge. They are organizing for adaptiveness by distributing control and building platforms to support autonomous teams. They are creating open environments of trust and connection with employees, partners, and customers. They are managing their companies as complex adaptive systems where continual learning and experimentation are part of the game. The challenges are substantial, but there is no choice. As connected company pioneer Jack Welch said, “Change before you have to.”Read more at location 5680
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