How business owners really see their business

“Big businesses are totally, hopelessly clueless about small businesses” says Robert Craven author of Kick Start Your Business.

It’s a startling claim and also one that most CEOs of private business would recognise and agree with

[pullquote]In a recent survey 74% of private business CEOs believed their corporate suppliers neither understood nor cared about their business[/pullquote]

How can this situation be allowed to persist? It’s not as if the Big Five banks are secure in the small business market. Whilst they still control 90% of the SME loan book this is starting to change. And change fast. In the past year or so five challenger banks have listed on the London Stock Exchange alone raising over £350m of new capital.

Small potatoes perhaps but their growth in a market the dominant players really should have sewed up is remarkable – and accelerating. According to KPMG the challenger banks have grown their loan books annually 8.2% between 2012 and 2014. This compares to an annual negative 2.9% for the Big Five. Aldermore, for example, has seen a compound annual growth rate in net loans of 61%.

How far are these facts connected? Is the growth of the challenger bank in owner-managed businesses really because they are seen to understand the sector better? The challengers seem to believe so.[pullquote]The Head of one challenger bank reports their 700% growth wholly down to their ‘relationship approach’ and not product or price.[/pullquote]

So why are the Big Five seen to be ‘hopelessly clueless’ about their key customers? Big banks have focused too much on training their teams on technical, ‘product’ skills and too little on understanding the emotional and commercial realities of running a small business. The reason 74% of CEOs think their bank doesn’t understand them is that their relationship manager has never been trained to understand small business; and the reason the CEOS think they don’t care is because they have never been trained in empathetic skills. It’s telling that one Challenger Banks exclusively recruits ‘good listeners who are patient’ rather than ‘good bankers’.

So, what do relationship managers need to understand about their customers to transform this dire situation?

Firstly, they need to reprogramme how they think. The old ‘it’s my baby’ adage is a cliché. But it’s also true; and grounded in solid neuroscience. Banking attracts and rewards people who are comfortable in the logical certainties of data and empirical thought; they operate most comfortably in their ‘thinking’ cerebral cortex. Most entrepreneurs function best in their ‘feeling’ limbic brain relying more on intuition than logic. That’s one reason that most business owners have a far more profound emotional connection with their business than a corporate manager can easily fathom. And yet understanding that limbic, emotional connection with the business is key to forming a trusted relationship. And that understanding can be taught.

Secondly, they need to understand that not all businesses are the same and that the turnover of a business is a very poor indicator of its commercial needs. All businesses are an emotional journey and the feelings and energy of the owners at each stage are a far better indicator of what the business needs than the business size. Understanding lifecycle stage and thereby predicting accurately what the business needs now and in the near future is a skill that can be taught.

Finally, they need to understand that, whilst, the bank may see the business as a bundle of financial KPIs (and most of these sit in the P&L), the entrepreneur at his or best is instinctively focused on a set of intangible assets that drive these financial numbers. CEOs that obsess with P&L outcomes get far less growth and value than those who focus on source ‘assets’. Relationship managers who have the commercial acumen and confidence to engage CEOs at this profoundly strategic level and challenge their assumptions about what their business could achieve will offer transformative value. This commercial acumen can be taught.

[pullquote]600 banking managers who had learnt these three skills, 94% reported winning immediate new business from existing customers[/pullquote]

This is not a theoretical idea. In research of 600 banking managers who had learnt these three skills, 94% reported winning immediate new business from existing customers  business that their previous lack of understanding of the customer had not allowed them to even be aware of.

If it is true that the Big Five are seen as ‘totally, hopelessly clueless about small businesses’ and this is even partly responsible for leaving the door open for challenger banks, there is an urgent imperative to address the problem. And it has been demonstrably proven that this can be achieved through some simple business training of relationship teams in just three core skills.


Why purpose matters to marketers

Purpose is everywhere at the moment.  Is this just faddishness, a fashionable re-branding of CSR and Mission statements? Or does Purpose embody a vital need for businesses to deliver more than just profit? Does Purpose deliver an exciting opportunity for companies to act, as their Victorian forebears did, as “societies within Society itself”?

Paul Twivy’s recent article is a long read but you can see the whole thing here if you’ve got 15-20 minutes spare.  Otherwise, the key points are summarised below:

  • Purpose is the ultimate end-benefit, and best long-term selling-point, of the products and services marketers sell.  ICI’s “responsible application of chemistry” produced Perspex, Dulux paints, Terylene, Crimplene and Tamoxifen.
  • Marketers that harness Purpose can grab consumers’ attention against the odds – many products and services are of low-interest, even dull. Yet, their end purpose rarely will be.
  • Purpose can differentiate you more effectively and less expensively than expensive, time-consuming and open to quick copying innovation. [pullquote]Google’s purpose “to organise the world’s information and make it universally accessible and useful” is the generic benefit of a good search engine writ large. Google’s constant purpose is made eye-catching and agile by their marketing and their marketing is given a spine by their purpose.[/pullquote]
  • Boards and CEO’s are increasingly turning their attention to Purpose. Currently only a quarter of Marketing Directors sit on the board, so a  focus on the shaping and expressing Purpose will move them closer to the Board.
  • Marketing your higher-order purpose will give you a deposit account of brand trust for the times when the current account of product delivery fails or to preserve your brand distinctiveness after a change of ownership. How else has Innocent preserved its particular brand of innocence post the Coca-Cola sale? Ditto Ben and Jerry’s eccentricity and Unilever.
  • Core Purposes need Good Marketers, as much as vice versa, because Good Marketers possess and/or co-ordinate the best communication skills. Purpose should provide the active framework for product innovation, HR policies, choice of business partners, conditions in the supply chain, use of raw materials and much else besides. Yet all these elements of Purpose will only become apparent and inspire people if they are brought alive by the best marketing, internally and externally.

Why purpose-led transformation trumps a drive for performance

Valerie Keller, Executive Director, Strategy, and Global Leader of the EY Beacon Institute looks at the history of business transformation and argues that purpose-led transformation is unique and therefore more effective than the pursuit of profit, given that it establishes a clear reason for firms to exist.

Profit-centric business models are primarily concerned with what companies do and how they do it. Contrast this with purpose-centric business models which start by defining why the company exists. They address the ‘why’ first – and the ‘what’ and ‘how’ afterwards.

Unilever is a great example of a large corporate that has maintained its focus on purpose-led growth over the past 125 years. Today it has literally millions of people keen to join the organisation. These people want to improve others’ lives as opposed to simply adding to Unilever’s bottom line.


When success can lead to failure

Here’s how it worked: One – Find a market space; Two – Stretch the elastic of the status quo to dominate the space for as long as possible. Sometimes, of course, the elastic snapped. Call it a Kodak moment.

Now, because connectivity and choice have transformed Customer-Supplier relationships, making Customer Value the key success driver, and Marketing & Innovation a corporation’s key functions, stretching the status quo no longer works. So what are corporations founded in the “stretch the elastic” era to do? Well, obviously, the answer is “Change!” But are they able? Some are, obviously, but many seem unable to change enough, even when they recognise the need.

The problem is greatest for the most successful of the long-established corporations. As Peter Drucker wrote, in 1985, in Innovation and Entrepreneurship: “It is not size that is an impediment to entrepreneurship and innovation: it is the existing operation itself, and especially the existing successful operation.”

This point really crystallized for me after I attended a recent round table (organised by experts in entrepreneurology, Contexis) devoted to the question, “Why can’t corporations think more like entrepreneurs?” Many of the corporations now most at risk of “Kodak moments” are those that were most successful in the past.

Survival of the most responsive

If a corporation has been hugely successful for a long period, it will likely find it especially hard to change. Why? Because it is faced not just with working out how to modify or replace its offerings, but also to change the culture and structure of the organisation, and the mind set of everyone involved. Building a responsive, innovation culture is particularly hard when it hits the brick wall of a long-term success story.

So who is facing a brick wall?

Keeping in mind that, right now, we are at the start of the digital era (a.k.a. the Third Industrial Revolution), here’s one way to answer that question.

First, identify the last mega change in corporate history. For example, the second half of the 19th century when oil power (trigger for the Second Industrial Revolution) replaced steam power (trigger for the First Industrial Revolution).
Second, identify industry sectors where digitization has a particularly acute effect. (I know, I know, everything is affected, but some activities, like photography, have been particularly directly impacted.)

Printing is a major candidate. In the mid-19th century circumstances combined to create huge new opportunities for printers in the United States. In 1856, Rand McNally was formed; in 1861, M.A. Donohue; and, in 1864, R.R. Donnelley. These enterprising Irish-Americans, all operating out of Chicago, were able to capitalize upon technological developments (for example, Richard Hoe’s 1847 invention of the rotary press), social changes (caused by the U.S.-wide expansion of the railroad) and political factors (particularly after the end of the American Civil War in 1865).

Of the three great printing companies, M.A. Donohue went out of business in the 1960s. Rand McNally, specializing in cartography and travel support, recognized the power of GPS when it emerged and got into digital. But it is R.R. Donnelley who probably faces the greatest challenge, competing in a dramatically different corporate print world. Ironically, the biggest inhibitors to its ability to adjust to the new world are likely to be the very structure and culture that have enabled it to enjoy 150 years of success.


The Innovation Game

This article is a summary of the e-book “The Innovation Game” from Cap Gemini Consulting. Download the full ebook.

Evolution doesn’t wait. 52% of the Fortune 500 have merged, been acquired or have gone bankrupt since 2000. There are myriad examples of established corporates that have fallen on difficult times. Nokia, Blackberry and Kodak are just some of the many companies that have been disrupted, decimated or reduced to a shadow of their former selves, after having once dominated their industries.

How can companies avoid this fate? The answer is innovation. A recent survey of large corporations found that 65% of senior executives face increased pressure to innovate.

[pullquote]

52% of the Fortune 500 have merged, been acquired or have gone bankrupt since 2000.

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However, the challenges of innovation continue to defeat many. In consumer goods, for example, research shows that more than 85% of new products fail. The reality is that traditional innovation approaches are broken. A recent study revealed that only 5% of R&D staff feel highly motivated to innovate. In certain sectors, more than 85% of new products fail and an overwhelming 90% of companies consider they are too slow in launching new products and services.

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Large organisations are simply not structurally or culturally equipped to innovate fast enough.

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The weaknesses of traditional innovation approaches have led some organisations to explore different avenues and seek new inspiration. These organisations have launched innovation centres in major technology hubs with the explicit mandate to accelerate digital innovations. These innovation centres, comprising teams of people and often physical sites, are established in a global tech hub. The goal is to leverage the ecosystem of startups, venture capitalists, accelerators, vendors, and academic institutions that these hubs provide. 

[pullquote]“An innovation centre is a team, a space and a mindset.”[/pullquote]

Major global technology hubs are the preferred destinations for setting up innovation centers. 60% of companies that have set up these centres have a presence in the Silicon Valley but many more hubs are emerging across Europe and Asia.

The primary objective of an innovation centre is to accelerate innovation by rethinking the customer experience, improving operational efficiency and testing new business models through the use of digital technologies such as Big Data, the Internet of Things, Social Media, Mobile, Robotics, Augmented Reality and 3D Printing.

Penetration varies significantly between sectors; manufacturing is a clear leader at 58%, but despite facing increasing pressures from digital disruptions, remarkably, Financial Services lags with only 28% of firms adopting the innovation centre approach.

Where innovation centres succeed, companies find they deliver an accelerating the speed of innovation and a fresh source of ideas. However, less obviously they can also start to change the culture of the broader organisation, enhancing risk-taking ability, attract talent, driving employee engagement and building a culture of innovation.

However, it is extremely challenging to make a success of innovation centres.

[pullquote]“80 to 90 percent of innovation centres fail, and end up being a massive waste of resources.”[/pullquote]

Success factors include having a clear vision for the innovation centre, having committed and senior sponsorship in the organisation, hiring and retaining the right people, building internal and external partnerships and ensuring a strong connection with the rest of the business.

“You need to avoid becoming an innovation theatre where all you are doing is interacting with a bunch of start-ups that don’t really care about your company”.

 

Contexis evaluation

There are compelling reasons for large organisations to urgently look for news ways to innovate. This highly readable Cap Gemini e-book makes clear that large companies are simply unable to innovate to keep pace with the speed of change and that inability to innovate is leading to mass corporate failure. And the pace can only increase.

Are innovation centres the answer? The authors make a strong case but also make clear that up to 90% of innovation fail. Not an enticing statistic given the scale of the investment.

Most centres fail for similar reasons that innovation fails within the organisation: a lack of a clear vision for the innovation centre, hiring and retaining the right entrepreneurial people, building partnerships with start up and entrepreneurial businesses and ensuring a strong connection with the rest of the business.

For this to work whole cultures need to change. Until large organisations learn how to think small innovation is liable to be stifled if it is kept within the organisation and misunderstood where it is externalised.

To succeed organisations need to choose. Either to learn to either think like entrepreneurs and innovate internally, or learn how to understand entrepreneurs to create effective and meaningful external partnerships.

 

 

 


Is being entrepreneurially minded the only survival strategy?

To find out we put twelve entrepreneurial and corporate leaders in a room and asked them to explore how large corporates can ensure their survival by thinking more like entrepreneurs. The corporate leaders represented 458,000 employees, £85bn in revenues and over 75 million customers. The entrepreneurs represented the very latest in agile and purpose led business on both sides of the Atlantic.

Both sides found much to agree upon.

They agreed that what drove entrepreneurship in organisations large and small was:

  • a profound sense of ownership

“We have 850 owners (Partners) and they are NOT entrepreneurial. It is an attitude of mind.”

  • A passion to improve things

“Entrepreneurs are the people in your organisation with a passion for something and a desire to create.”

  • an open mindset

“Kodak saw the need for change but were not sufficiently broad-minded to respond in the right direction”.

  • Nurturing entrepreneurship

“If you look at your business it’s the ‘entrepreneurs’ that are responsible for how the company really got here’ and yet they are not sufficiently nurtured and developed.”

  • Corporate courage

“It takes courage to persist with time frames any longer than a year or two even if it is the right thing to do. That courage is entrepreneurship.”

 

They agreed on what kills entrepreneurship dead in its tracks:

  • Any no-fail policy

“We’re not culturally prepared to fail. Entrepreneurial businesses are the opposite; they embrace failure, seek change, believe everyone can win”

  • Short time frames

“If there is no immediate return we fear shareholder value is not being maximised.”

  • Internal preoccupation

“If big companies spent as much time thinking about the customer as they do about their own internal processes that would be a big start.”

  • Personal risk

“If the risk is big enough to make a difference to the balance sheet, the risk is big enough to destroy a career. Getting egg on your face is major disincentive to innovate. Entrepreneurs have no such fear”

  • Rules

“People with an entrepreneurial mindset get bogged down by rules and layers.”

  • Velocity

“There is nothing more dangerous in a large organisation than pivoting too quickly without getting everyone on board.”

  • Fear

“Corporates fear change. The consistency of message is prized. Change of message is bad”

  • Legacy

“Entrepreneurship in large organisations is strangled by cumbersome legacy systems”

 

There was disagreement on whether it is even possible for Corporates to be entrepreneurial

“Scale leads to complexity and that takes the eye off the ball. The energy gets tied up in politics”.

 

And there was a clear innovation dilemma. Big companies have an imperative to innovate to survive. And yet structure and culture acts against innovation.

“Big companies fail because they fail to change. But change is not rewarded”.

 

The entrepreneurs saw the solution to this dilemma through:

  • Structure

“You need to create a separate entity so as not to strangle the entrepreneur or disrupt the core”.

  • Decision making

“It may scare the corporate but the velocity in today’s world doesn’t allow for central control. Decision making MUST move closer to the customer”

  • Leadership

“If big organisations had bigger visions they’d be given more space to innovate. It’s about courage and leadership. People should not fear to fail”

  • and Culture

“A lot of this can be overcome if you connect everyone to a sense of purpose and have the courage to allow talented people autonomy.”

 

Some corporates saw the solution differently:

“Shareholder value often comes from doing what we do well and doing it again and again. So, let someone else create something new. When 50,000 people want to buy it then we’ll acquire the innovation”

 

Both sides agreed that innovation needed to be done differently and probably outside the existing business. But there was a problem. And that is in language and communication.

“In that case we need to learn to UNDERSTAND the entrepreneur and help and nurture them outside the business. But we don’t speak ‘entrepreneur’. And they don’t speak ‘us’”

 

In the end, does it really matter?

“everything is about to change. This is not a tech bubble. This is an industrial revolution. The velocity is unstoppable”

“If for no other reason, large companies will die through bleeding talent. Good people are already dying to break out.”

“In the next 10 years 40% of FTSE companies will be gone. They will try to innovate and fail. They will pivot but not fast enough. The corporate model is not doomed – but its current expression is.

 

In summary, this group of global Leaders and entrepreneurs think..

  • Lead and inspire around vision and purpose.
  • Take the personal risk away. Celebrate failure.
  • Embrace entrepreneurship and skill Leaders to the task
  • Build a personality around the best person in the business, not the lowest common denominator.
  • Decouple Business as Usual from Entrepreneurship.
  • Become good at socialising and developing ideas, not just having them.
  • Make the reporting structure work FOR innovation, not against it.
  • Redefine recruitment to attract & retain entrepreneurs (who least want to work for you)
  • Move closer to your customer.

 

 

 


How to build teams that innovate under pressure

Based on real time neuroscience, the Agile Teams approach (developed in the US by Market Force) provides a new way to understand how your people behave under stress and in real world situations and why groups of very bright, innovative people in your organisation often fail to create value.

[pullquote]“This approach is extraordinarily effective. It converts techniques into action from day one.” University of Arizona[/pullquote]

The approach presents individuals with a new set of choices to navigate innovation under pressure – working with their brain, not against it and providing breakthrough for teams which have more usually experienced breakdown.

The impact can be extraordinary, creating teams that work faster, smarter and with a far greater level of engagement.

Colliers International, employing over 15,000 staff in 61 countries, has been using the Agile Teams approach as the basis of its global learning programmes for over a decade and has been amazed at the impact. At this point, close to 10,000 Colliers staff have been trained in the methodology and teams that have implemented the approach grow revenue at over twice the rate, and earn Net Promoter scores 43% higher, than teams that have not adopted the methodology.

Marty Pupil, Regional President of the Western US, says “of all the training I have done during my career, this approach has had the greatest impact on my success in both sales and management. It teaches you to build relationships and close transactions faster and with more predictability.”

The Agile Teams approach has received considerable academic interest. Martha Gilliland, former Senior Vice Provost of the University of Arizona, who used the approach to develop teams for over five years, believes “this is unique because it focuses on results, in contrast to many team building approaches in which the primary goal is to improve group dynamics. This approach is extraordinarily effective since it converts techniques into action from day one.”

The Agile Teams approach has now been brought to the UK by Contexis, the experts at creating entrepreneurial agility in large companies. The impact looks set to be just as great here as it has been internationally. The Director of a UK investment Bank commented, “appreciating how we have operated from a fearful perspective has allowed us to totally change the way we operate as a team”.

Head of People & Innovations at Contexis, Jane Nichols, comments “Working with some of the largest organisations in the world has led us to realise that most corporates are actually stuffed full of entrepreneurial brilliance. It’s just the way teams have been taught to work that is suppressing it. The Agile Teams approach is the most remarkable methodology we have come across anywhere in the world. We believe it has the power to transform how organisations think and act. We believe it is the key to unshackling their entrepreneurial spirit”.

 


How being fail-friendly helps Spotify innovate quicker than anyone

Great video from Spotify on how their culture and organisation help innovation.

Organised in squads devoted to fixing problems fast, some people even have Fail Walls where they show off failures that have helped them move forward.

Squads use a limited blast radius (small number of users affected by a small number of changes) to give developers the confidence to release new features very regularly.

This video uses the idea of a toddler: “Leave her in the crib and she’ll be safe, but she won’t learn much.”