Successfully implementing change – Part 2

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It was Christine’s dream job: project manager for a large digitization project at an established, economically strong medium-sized company. She had the opportunity to fully contribute her experience, the pay and working conditions were attractive, the company offered perspectives beyond the project, and the position itself was a significant career advancement for her.

The first few months were unexpectedly tough. Even though the entire management officially supported the project and its goals, no one wanted to engage in the associated changes. But with her persistent nature and her skills as a change manager, she was eventually able to anchor the necessity of change and form a leadership team that truly supported the project. Christine’s second challenge now was to successfully implement the project.

The power of status quo

The first part of this mini-series showed what obstacles make the preparation of change processes difficult and how important decisions are made in the planning of changes that significantly influence later success. But even if “planning is half the battle,” implementation remains the second half that contributes just as much to the success – or failure – of a project.

When implementing changes, it is also about overcoming the power of the status quo and the inhibiting forces described in the first part of this series. Four elements can help you successfully master this challenge.

Preconditions for successful change

If you want to reap the fruits of success after a good preparation of your change project, you should show your stakeholders that your initiative is successful. At first glance, this may sound like a catch-22 situation, but it can be achieved through four simple elements.

Enable employees

First and foremost, you need to ensure that your employees can act in line with your change project. In established companies, there are a multitude of defined processes and (partially unwritten) rules. These more or less fixed guidelines significantly determine how the company operates and functions.

Changes always mean that certain areas should be handled differently than before. This means that some of the existing guidelines need to be disregarded. However, this only works if you enable and encourage your employees to override existing norms and standards where necessary.

Generate quick wins

In most cases, a change project will not consist of a single measure, but rather a multitude of smaller steps. It is important to take the first relevant steps as quickly as possible.

This can demonstrate, on the one hand, that you are proactive and driving your initiative forward, and on the other hand, that you are heading in the right direction and your project is successful (despite any naysayers). If you can communicate early successes quickly, you solidify your position in the company and gain additional supporters who were initially skeptical of your project. This gives your project new momentum, which is essential for its further implementation.

Consolidate success and initiate further change

In addition to achieving early successes, it is critical to anchor the changes achieved sustainably in the organization. As just shown, achieving milestones leads to even hesitant employees supporting the project. However, if your organization quickly falls back into old habits, this is grist to the mill for those who would like to see the project fail.

At the same time, it is important not to rest on what has already been achieved, but to continue at the same pace and take further steps towards the stated goal.

Anchoring new behaviour

While at the beginning of a change project existing processes and rules need to be broken in order to enable change in the first place, at the end of the initiative it is necessary to establish and anchor new behaviors. Only in this way will the participants in the company also adhere to the new ways of working in the long term, and not fall back into previous patterns out of old habits.

If a company fulfills all four points in the implementation of change measures, it has a good chance of successfully completing the change project.

If you want to be successful in your next change project, contact us.

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Tool Box Talks: Portfolio Matrix

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Management tools are a dime a dozen. And yet, contrary to popular belief, most of them are good and helpful if used correctly and in an adequately defined context.

In “Tool Box Talks” we introduce you to common and less well-known tools and show you how you can exploit their potential for your enterprise, with today’s focus on a portfolio matrix.

What is a portfolio matrix and when should it be used?

A portfolio matrix is a portfolio management tool that assists its user in keeping track of several projects within the project portfolio. By visualizing process adherence it enables the portfolio manager to identify critical projects at a glance.

This tool is particularly useful when it comes to coordinating a greater set of projects, where the portfolio manager is not identical with the project manager. It helps to gain an overarching view of the project portfolio and to focus resources on those projects whose success is currently under threat.

How is a portfolio matrix used?

A portfolio matrix shows all portfolio projects’ target performances on process adherence, considering two dimensions for each project:

1.) How much does work progress deviate from original time schedules? (x-axis)

2.) How well is current spending within the frame of the pre-arranged budget? (y-axis)

If project portfolios are relatively small, these two dimensions can be visualised by means of a three-step scale (below plan – on plan – ahead of plan), if a portfolio comprises a greater number of projects, it makes sense to use a five-step scale (far below / well ahead of plan – slightly below / ahead of plan – on plan). Here standardized project reports should be used to update regularly the data input.

After each data update the respective project’s process adherence is plotted on the matrix. A project which is located in the middle of the matrix is exactly on schedule in terms of time and costs. The more a project diverges from the middle axis, the greater are the deviations from plan.

If this is the case, the responsible portfolio manager should take necessary measures to ensure process success.

Beware of pitfall!

A portfolio matrix is designed to show deviations from a project’s targets. However, a deviation is not necessarily to be seen as negative. For while it may sound so when a project exceeds the current target budget, there will probably be no reason for the portfolio manager to intervene if the project is ahead of schedule and the costs are in line with the reached project status. So before measures are taken, the deviations in the portfolio matrix should always be discussed in detail with the project manager.

 

Another trap is lacking awareness of priorities of projects. While the portfolio matrix informs about deviations from set targets, it does not make any statement about how relevant projects are within the portfolio. If you wish to make prioritization visible, a weighting factor can be introduced, which is reprresented by a colour code or the physical size of the projects within the matrix.

What are the benefits of using a portfolio matrix?

A portfolio matrix shows portfolio mangers at once what projects within the portfolio work out according to plan and where there are deviations from schedule. This will enable them to focus their attention on projects about to fail.

 

In this way, a portfolio matrix helps companies to use management resources effectively and to direct their focus on activities requiring extra attention.

Follow us on LinkedIn to learn on a regular basis how you can make the most of management tools, so that you will stay one step ahead of your competitors.

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Successfully implementing change – Part 1

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It was Christine’s dream job: project manager for a big digitalization project in an established, thriving medium-sized company. She had the opportunity to make full use of her experience, the job was well-paid while she had attractive working conditions, the company offered career advancement opportunities beyond this project and by accepting the position she had made a great career move.

But after only a few weeks she became disillusioned with her new job. No matter who Christine talked to within the executive or management board, everybody supported the digitalization project – but as soon as there was talk about necessary changes to be made, she met with resistance from all sides. “This won’t work”, „It’s too risky“, „Let’s wait and see …“, “Yes, but …” – those were the usual reactions.

The power of the status quo

Cases like Christine’s, in which she met resistance to change is nothing new. As long as you only talk about goals to be achieved, it will be relatively easy to find approval. However, once you start listing the changes required to reach these goals, you’ll suddenly be confronted with a wave of doubts and rejection.

By the way, what is it that makes the status quo so much more attractive compared to change? One reason is sheer force of habit. Humankind gets used to things and processes in less than no time. Once committed to memory, operations are carried out automatically, hence requiring less attention and concentration. To change a routine habit, you need a great deal of energy as you have to focus on the new way of handling things plus put a lot of energy into resisting well-established processes.

Another obstructive force against change is fear. With the status quo, people have the feeling that they know the processes, the way things are connected and their consequences and they tend to think they can control all these things. When you tread new paths, this alleged security is gone because the take-off into the unknown undoubtedly has its risks.

There are many more factors, such as “one’s personal experience” or “personal pride”. The list could be endless; but it all boils down to one truth: To bring about real change, you need to overcome the attraction of established customs.

How change can be successfully put into practice

Seeing this, it is hardly surprising that about three quarters of all change initiatives in companies are doomed to failure. At the same time, at least every fourth initiative is successful. The good news is that chances of success are significantly higher if several aspects are taken into account when it comes to preparing the implementation of change. In the first part of our mini series “Successfully implementing change” we start with taking a closer look at the preparation process necessary for a change initiative to go as planned.

Creating awareness

“We’ve always done it like that.” is often seen as one of the most dangerous statements – and at least in terms of change this is only too true. If efforts to bring about change are to be successful, the mindset behind this declaration has to be overcome.

To do so, all involved persons have to made aware that the changes in question are not only important but absolutely necessary to ensure the success or even the survival of the respective company. Unless it is clear to everybody that carrying on is no alternative; no-one will accept the necessity for change.

Forming a coalition of leadership

While this is being done, you should draw up a competent leadership team. When assembling these change agents you should consider the following aspects:

  1. The team should have sufficient power and authority to put the intended changes into practice.
  2. The change agents should play a key role within the existing organization and ideally be representative of it.
  3. Each change agent should be completely committed to the cause.

It is especially the last point that is vital for successfully implementing change: Those who doubt that change makes sense or will prove advantageous, have no business to be part of the change agent team.

A useful tool to identify suitables candidates for this squad is the stakeholder matrix. A good point of departure is the dimension “interest” as it shows how strongly a person supports the change about to be reached. The dimension “power” must in no way be reduced to questions of rank and hierarchy but should describe how well someone is capable of encouraging others to participate in the process and of winning them over.

Developing a vision and a strategy

The first and foremost job of the change agents is to develop a vision for the change initiative. This vision depicts how the company will look like after the project has been completed: What will have changed, what will remain the same and why will this future situation be better than the present state of affairs? The vision serves as a compass for all activities connected with the project.

Once the goal has been defined, the team can begin to design a strategy that spells out how the organization can develop from the current situation to the company described in the vision. In a way, this guiding vision is like the book of rules for the change process and defines the most important steps on the way to realizing the vision.

Communicating the vision

Communicating this vision is the last key element in preparing change. Usually, staff members are keen on participating in improvement processes of their company. However, this can only be effective if you know where it is that your organization is going.

Here good timing is essential. Without a general awareness that change is strictly necessary, it will be difficult to earn wholehearted approval for the developed vision. Some people will utterly refuse the idea that things have to be changed at all.

If, on the other hand, those in charge one-sidedly emphasize that change is necessary without drawing a clear picture of where the relevant changes are leading, this will cause enormous internal upheaval and make it difficult for people to have trust in the management team, severely hampering the change initiative’s progress.

If a company follows all four pieces of advice when planning to introduce a change initiative, it will be ready for successful implementation. Those aspects and factors that need to be considered to finally reach the set targets, will be the subject of the second part of our blog series.

Should you wish to lead your next project of change to successful completion and are seeking support, do contact us – for free and without any further obligations.

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Tool Box Talks: Porter’s Five Forces

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Management tools are a dime a dozen. And yet, contrary to popular belief, most of them are good and helpful if used correctly and in an adequately defined context.

In “Tool Box Talks” we introduce you to common and less well-known tools and show you how you can exploit their potential for your enterprise, with today’s focus on Porter’s Five Forces.

What is the five forces analysis and when should it be used?

Porter’s Five Forces Framework is one of the best-known models of strategic analysis. It analyses the external environment of a company and provides valuable input for strategic planning.

This tool is used for various strategic questions, the answers helping companies to optimise their strategies for the portfolio business with a special focus on external conditions, forming a sound basis for decision-making when it comes to entering new markets, or becoming a focal point to systematic innovation processes.

How is the five forces analysis used?

The five forces model, just as its name suggests, investigates five aspects of a company’s environment that have different effects on businesses:

  1. the bargaining power of suppliers
  2. the bargaining power of customers
  3. the jockeying for position among current competitors
  4. the threat of new entrants
  5. the threat of substitute products or services.

For each aspect the current market situation is being assessed: what is the present state of affairs? What changes are to be expected within the next years? What opportunities or threats will follow, affecting one’s own business? The last two questions could be used as a direct input to a SWAT analysis.

Having evaluated the current situation, different measures of strategic action can be analysed and assessed. What is important here is that both all five aspects of the five forces framework and identified developments plus interrelations are taken into account.

Beware of pitfall!

A common pitfall is a biased analysis. Established companies in particular which have long been present in a market or market segment tend to look at their market environment from entrenched positions. This will result in a distorted image of the status quo and a misjudgement of current developments.

To avoid this, it makes sense to use diverse sources of data for the analysis or to have more or less independent external service providers, like a business consultant, make the analysis.

What is the benefit of using the five forces analysis?

The five forces analysis provides a detailed description of a company’s external environment, which is a valuable input to strategy development. It makes it possible to tackle the questions of

  • how a company can best take advantage of its strengths and weaknesses,
  • what is necessary to stay successful in the market,
  • if an existing or a new market share is attractive for the company,
  • if it makes sense to focus on cost reduction or value enhancement,
  • etc.

 

Further, linking the five forces analysis with a scenario-based approach can lay the foundation for a company to apply dynamic strategic planning, thus enabling the enterprise to react to market change while it is happening or even to anticipate it.

Follow us on LinkedIn to learn on a regular basis how you can make the most of management tools, so that you will stay one step ahead of your competitors.

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Why strategies don’t work – Part 2

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Some years agoTom’s startup really made it: the online platform devised by him and his friends revolutionised the market. The trio’s strategy had paid off and within only three years their firm, having set off as a small living-room startup, had developed into a booming business with 15 employees, a turnout of hundreds of millions and a market share of over 30 percent.

But despite the seemingly positive figures Tom feels the pressure imposed by investors constantly growing and his position is becoming shaky. While revenues and his market share have lived up to his expectations, his company has still not been able to generate profits even though initial development expenditures and marketing costs were not higher than expected.

 

Tom is not the only person who has to fight these difficulties. According to an up-to-date study carried out by David J. Collis from Harvard Business School business strategies misfire because they fail to consider their whole strategic landscape. Young businesses and startups in particular founder regularly as they do no sufficiently take into account value capture and value realisation.

A company’s strategic landscape

As was described in this mini series’ first part, a firm’s strategic landscape comprises business opportunities, the value potential of the respective business model, an enterprise’s value capture and value realisation and their final output.

For a business strategy to be successful, you need to look at all five of these areas, find a suitable answer that does justice to each of them and unhesitatingly translate them into consistent action. While, as was explained in my latest blog, established companies tend to lose track of changes in business opportunities, startups typically make mistakes in a different area of their strategic landscape.

Common mistakes committed by startups

The main strength of startups is that they address so-called hot topics and transform them into a novel business model, or that they fundamentally change the way customers’ needs are met. Naturally, this strategy concentrates on the first two components of their strategic landscape, i.e. business opportunities and value potential.

Yet, to go beyond business opportunities and attractive business models and to lead a company to long-term success, careful consideration should be given to the remaining three elements of a company’s strategic landscape. This is a standard weakness of young businesses and startups: They overestimate the opportunity of making profits in the new market, whereas they ignore the strong likelihood that competitors will eventually copy their ideas, or the young firm fails to build efficient structures and to develop necessary competences of staff.

What follows is, as with Tom and his friend’s firm, that these companies my be capable of creating considerable growth and amplify substantial market shares, but in the long run they will find it difficult to create attractive margins from their turnover and their gained market share.

Robust strategies for startups

If you wish to develop a robust strategy, you have to field all aspects of a company’s strategic landscape. From the outset, startups ought to include questions of value capture and value realisation in their strategic planning.

A good starting point is the following set of four questions:

  • Will our business sector deliver decent profits?
  • How will established companies react to our market launch?
  • How easily will our business model be imitated?
  • How can a startup be scaled up efficiently?

The first question can reveal if a business concept or model should be put to the test in the first place. An attractive business concept with low profit potential (e.g. because the market is too small, necessary investment expenditures will be too high or expected margins too small) will not prove successful in the long run.

Questions 2 and 3 address the behaviour of competitors. In most cases an innovative startup enters an existing market in a new kind of way. But this also means that there are established companies unwilling to give up market shares. Sooner or later they will respond to the new competitor. Depending on how strong their market power is, they may severely hinder a startup’s market development.

When it comes to digital business models, you’ll have to check how easy it is to copy it. If its only innovation consists of not more than a few lines of code, it won’t take long until the idea is imitated. In such a scenario it will be unlikely for a company to gain both high market shares and high profit margins.

The last question examines the company’s future development. The characteristic agility and dynamic resilience embraced by many startups is a good precondition for generating new ideas and launching them into the market. For growth and profitability, however, other skills are required. Long-term success requires you to look ahead and provide, right from the start, the basis for developing structures and competences crucial for further expansion, even if you may not need them at the moment, and to implement this process of company growth early on.

If you wish to know how to combine all elements of your strategic landscape into a sustainable strategy, contact us for an informal free initial consultation.

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Tool Box Talks: Decision Matrix

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Management tools are a dime a dozen. And yet, contrary to popular belief, most of them are good and helpful if used correctly and in an adequately defined context.

In “Tool Box Talks” we introduce you to common and less well-known tools and show you how you can exploit their potential for your enterprise, with today’s focus on a decision matrix.

What is the use of a decision matrix and when should it be applied?

Whenever you have to choose from several options of action while trying to achieve several targets at once, a decision matrix will help you to make an objective choice.

When it comes to innovation projects, you often can choose from a range of paths to pursue. Seldom is it clear which of these options will lead to the best result. This is where a decision matrix can be helpful by being explicit about how individual targets are assessed and by ranking all available options in a way that makes sense.

How is a decision matrix used?

When a decision matrix is used to reach a decision, three steps are necessary:

  1. Defining the assessment criteria
  2. Evaluating all options on the basis of these criteria
  3. Choosing the best option following this assessment

To define the relevant assessment criteria, you make a list of all targets or requirements to be met. Make sure that the respective criteria are as independent as possible. Sometimes you may have to combine several similar criteria into a single one. For instance, “acquisition costs” and “operating expenses” can be subsumed under “life-cyle costs”. Should some of the criteria differ in relevance, they can be weighted by different factors counteracting this imbalance.

The second step is to go through each available option by applying these criteria one after the other. Experience has shown that a single 3-step rating system is sufficient (1 = hardly true / 2 = true / 3 = going beyond expectations). If weighting is used, the assessment results have to be multiplied by the respective weighting factor. Then the individual evaluation figures for each option have to be totalled.

Last, the results are put to discussion within the resolutions committee deciding with which option is to be chosen and what is to happen with the remaining options.

Beware of pitfall!

When using the decision matrix, you need to pay double attention: First and foremost, make sure the chosen assessment criteria are independent of each other; for if there is a correlation between several criteria, it is one and the same topical area that is being assessed, thus falsifying the final result. If such interdependencies cannot be avoided, an intelligent weighting can be a valuable remedy by equal weighting of, let’s say, financial, technical and logistical aspects.

Equally important is the process of decision making. As is true for all management tools, the decision matrix delivers more or less unambiguous results. However, it should never automatically trigger a decision. Every result has to be discussed and, particularly so when there are only slight differences between the different options or when the results go against expectations, they have to undergo critical examination.

Why use a decision matrix?

As has been said before, a decision matrix makes it possible to evualate all available options by comparing them with each other, visualising them and making them measurable. In this way this tool allows decision makers to have an open discussion about the pros and cons of each individual option, showing very clearly how suitable each option is for reaching the set targets.

Nevertheless, the decision matrix does not by itself arrive at a decision for or against an option. This has to be brought about by the responsible staff members within a company. Likewise, even the option rated highest can be voted down – on the basis of a decision matrix providing the relevant arguments.

Follow us on LinkedIn to learn on a regular basis how you can make the most of management tools, so that you will stay one step ahead of your competitors.

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Why strategies don’t work – Part 1

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The pressure is on, and Mike’s post of CEO is threatened: Over the past ten years he has been constantly strengthening the market position of his company and continuously improving all areas within the enterprise. On the whole, all had been going well and the business owners had always been more than satisfied with his achievements.

However, for about two years business figures have been moving in the wrong direction: first sideways and then downhill, the downward trend having become more and more obvious lately. His strategy no longer worked although Mike had started several counter-initiatives and implemented as planned. Why was it that a weathered strategy that had been used and approved of for years suddenly flopped?

The answer is simple and does not only hold true for Mike’s company but in almost any cases where strategies do not render the desired results: The strategy misfired because it failed to take into account the whole strategic landscape of the business. Mike has made a mistake which according to a current study by David J. Collis is rather common among established companies.

 

The strategic landscape

A company’s strategic landscape is characterised by five elements: set of opportunities, value-creation potential, value capture, value realisation and business performance. A successful strategy has answers and approaches that harmonise these five areas reasonably well.

Set of opportunities

The set of opportunities describes the external environment of the respective company. They comprise, among other things, the political and legal framework or technological developments, but also demographic trends or changes in our natural environment.

These opportunities define the frame within which values can be captured – plus what is to be seen as “value”. This frame will change over time, thus causing answers given and approaches chosen to be adapted to these altering general conditions. A useful tool to take into account these changing conditions is scenario planning.

Value-creation potential

A company’s value-creation potential depends on the chosen business model: How can a company, based on current and future opportunities, generate value for potential customers? What payment models are chosen for products and services?

This sector of the strategic landscape has the potential to transform whole industries, as was the case when video shops were supplanted by streaming services or when pay-per-call contracts were replaced by flatrate phone call offers.

Value capture

While the business model describes what creates value for potential customers, value capture is about how this value for the company can be measured. Here topics like market attractiveness, the best positioning of one’s own company or possible reactions of competitors have to be assessed and taken into account.

All these questions can be tackled with classic strategic approaches, like positioning, Michael Porter’s five forces model or SWOT analyses. An unorthodox, but interesting way of designing a strong strategy is to make use of game theory.

Value realisation

Value realisation comprises anything generally called strategy implementation. It intends to build capabilities and resources needed for long-term success and to re-adjust structures, so that they be more adaptable to change.

Having identified suitable and necessary measures, questions of timing and deadlines need to be taken into consideration. In this way the respective organisation can be guided into adopting a new strategy without straining its capacities.

Business performance

The fifth feature of the strategic landscape is represented by the actual outcome. Often within the scope of controlling, here current developments are observed and compared with intended targets, objectives and goals. If necessary, corrective measures are being implemented.

However, measuring performance must not be the end of a process chain, but merely a single building block of a company’s strategy.

A common mistake of established companies

A robust and successful strategy equally takes into account all five components of the strategic landscape. Established companies, like Mike’s in the introductory example, often make the mistake of focussing too much on value capture, while at the same time they tend to neglect changes in opportunities and to overlook new value-creation potential.

Often these enterprises have for years been successful in one specific business model and have made themselves at home there. Turnout and profits have been stable or are even increasing, so there seems to be no reason to change the running system.

When things have become a habit, change is frequently seen as unnecessary: “We’ve always done it this way – and it always worked!” is what you will hear all too often. But this approach will only work on the condition that the external environment will basically stay the same or that no competitor will start to satisfy customers’ demands in a different, more effective way.

When external conditions will change after all, CEOs like Mike more often than not seek to make up for a worsening outcome with new or better answers in the area of value capture and value realisation. It is all too clear, though, that this will prove unsuccessful in the long run.

Robust strategies for incumbent companies

A robust strategy which can be successfully implemented is holistic, i.e. when it comes to planning and implementation, it takes into account all five elements of the strategic landscape. Established companies in particular have to keep analysing their set of opportunities and value-creation potential and not only to pay attention to pursing a specific business model.

A first step can be questioning the way things have always been done:

  • How is the environment of my business currently changing?
  • Are customer demands changing as a result as well?
  • What new approaches are there to satisfy customer demands?
  • What do these changes mean for the business model I have adopted?

This reactive approach helps companies realise when it is necessary to adjust their business model. In this way enterprises can be prevented from clutching to outworn business models and, as the proverb has it, beating a dead horse.

Better still would be a pro-active approach that anticipates future developments and predicts customer needs and business models not having yet been identified. This is how enterprises can say goodbye to outdated strategies and business models while there is still time and also actively shape the market, hence strengthening their own market position.

Contact us when you want to lead your company into the future with an active strategy.

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Tool Box Talks: Risk Matrix

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Management tools are a dime a dozen. And yet, contrary to popular belief, most of them are good and helpful if used correctly and in an adequately defined context.
In “Tool Box Talks” we introduce you to common and less well-known tools and show you how you can exploit their potential for your enterprise, with today’s focus on the Risk Matrix.

What is a risk matrix and when should it be used?

A risk matrix is a tool which helps you to deal with risks. This device visualises a risk assessment by taking account of its probability, its consequence severity and its level or priority.
To support risk managers in their work, risk matrices are often incorporated into risk registers, which they represent in a condensed and visualised form. Also, they have become customary in reporting, where they show the amount and distribution of risks in a project or in a specific operational unit

How do you use a risk matrix?

Before you can apply a risk matrix, you first have to identify and assess the risks for your project or your operational unit. Evaluating these risks works in three dimensions: probability, consequence severity and priority. The first two values can be assessed either qualitatively (high / medium / low) or quantitatively (in % or €), whereas the priority of risks is typically categorised into high / medium / low.
Depending on this assessment you then plot these risks on a two-dimensional matrix, with the x-axis representing the probability of occurrence and the y-axis corresponding to consequence severity. Priority can be visualised by the choice of different colours

Beware of pitfall

However, it is in particular due to this manner of visualising priorities that certain risks are neglected. The most frequent reaction to traffic light colours – the most often used colour for high / medium / low is red / yellow / green – is to focus on the red items by ignoring the green ones.
While it may certainly be right to prioritise some risks as ‘high’, classifying a risk as ‘low’ still does not necessarily mean that it “does not have to be dealt with actively”. So take a closer look at every single risk and double-check, no matter what the priorities, what measures you can take and which of them is suitable and should be put into action.

What is the use of a risk matrix?

A risk matrix is a tool to visualise all risks and their individual assessment. Thus it helps to quickly identify the most relevant risks – both in terms of their individual probability and consequence severity, and with regard to their priority.
This visualisation is particularly useful if you have to handle a great number of risks as it will make it easier for you to identify the most important issues at a glance and to tackle the most crucial ones first.
Furthermore, this form of graphical representation is ideal for reporting as this intelligent system of visualisation offers a valuable insight into the total number of risks and their criticality without the necessity to go through or analyse huge amounts of data.

Follow us on LinkedIn to learn on a regular basis how you can make the most of management tools, so that you will stay one step ahead of your competitors.

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5 Dimensions of Successful Innovation

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Innovation seems to be the buzzword in today’s world of business: Innovative business models which, through novel products and services, cause disruptive changes of markets, this is the subject matter of which dreams – or nightmares – of many entrepreneurs, politicians, lobbyists are made.

The question here is: What are the characteristics of successful innovation and how can it be deliberately brought about? The answer is astonishingly simple: by focusing on the company’s value creation and the expected added value.

Features of successful innovation

What is innovation?

The Duden defines innovation as “a deliberate and systematic change or reform in a social, technical, economic or other system by applying new ideas and technologies. Two aspects are striking in this description:

First, innovation is not simply a new idea or a new technology but results from using them. This means that you do not have to generate groundbreaking brand new ideas to be innovative. All you have to do is to discern and apply suitable approaches that help you to make a difference.

The second interesting point in the above definition is that it talks about a “deliberate and systematic change”. In other words, innovation is a carefully planned and controlled process and not just the result of an ingenious flash of inspiration – even if such a brainwave often does spawn a new invention or innovation.

What are the characteristics of successful innovation?

In other words, innovation involves deliberate decisions that cause modifications or reform. This, however, does not mean that any carefully planned change automatically is successful innovation. Rather, any change will have to create a value for the company of some kind.

If something adds value in this context depends on two factors: first, the actual improvement made by this change; and second, how this improvement captures financial value.

Any innovation, if it is to create added value for the company, has to be an improvement on the approaches used so far. This improvement can either mean that additional value is brought to potential customers or for production or distribution.

Note that this improvement has to result in financial value, like the realisation of higher sales prices, lower manufacturing costs, increased sales or bigger market shares. Moreover, financial value can also be created by strengthened customer bonding, an improved public image or just the opportunity of selling alternative products or services.

Point of departure for innovation ventures

If innovation is understood as a process that is carefully thought out and planned, the next question will be what methodology will enable a company to identify and pursue successful innovations.

Attentive readers will already have recognised Porter’s “Five Forces” in the above description of successful innovations. Following this standard model, there are five anchors – or dimensions – that help to explore innovation in its true sense.

1. Substitution

How can I meet customer demands in a way that differs from how it was done so far and is better than before? To find answers to this key question, which is addressed by the first dimension of innovation called “Substitution”, you have to get to know the actual needs of your customers really well as it is these needs that induce customers to buy your product or service in the first place. Only then can you try to find out how you can satisfy this demand better than previously.

Many disruptive innovations of the last decade which revolutionised whole markets made use of this approach. A good example is arbnb, which meets customer demands for inexpensive lodging without the need to pay for hotels or holiday flats.

2. Added value

The second dimension of innovative thinking focuses on the question of how you can provide added value to your customers, either in the form of extended functionality or by improving product performance. This approach is particularly useful for areas in which a product is offered alongside a certain service.

It can mean that, for example, mechanical engineers offer for their machine’s interfaces containing a predictive maintenance concept, hence providing an optimised capacity utilisation and lowering service costs for clients.

3. Efficient production

Making production processes more efficient is another starting point for innovation. In addition to mere process optimisation, innovative value is created by radically transforming the patterns in which products are generated. For an ideal result, both process optimisation and process innovation should go hand in hand.

A classic example of innovation aiming at higher efficiency is the automation of production processes, but also the employment of artificial intelligence to optimise capacity utilisation of a haulage company’s lorry fleet.

4. Alternative production methods

While the focus of the previous dimension is on efficient production, where the underlying patterns remain the same, alternative production involves a completely different approach to production. Here new materials and technologies come into focus which allow to deliver the same result in a different but better way.

An example of this kind of innovation is the 3D printing technique, making it possible to produce complex structures efficiently, even in small numbers.

5. Alternative raw materials

The last dimension of innovation comprises using alternative raw materials, something that is definitely worth the effort if these are expensive, rare or hard to get by.

For instance, whereas solar cells in their early years hinged on big monocrystallines and, as a result, proved rather costly, today’s manufacturers use polycrystalline materials, which has essentially raised cost effectiveness in this sector.

To keep long matters short, you don’t have to be a genius to innovate, nor is innovation a matter of pure luck. Rather, it can be brought about systematically and make a positive contribution to your company, be this value big or small. Contact us if you feel the need of more stimulating ideas or support.

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Tool Box Talks: 5 whys

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Management tools are a dime a dozen. And yet, contrary to popular belief, most of them are good and helpful if used correctly and in an adequately defined context.
In “Tool Box Talks” we introduce you to common and less well-known tools and show you how you can exploit their potential for your enterprise, with today’s focus on 5 why.

What is 5 whys and when should it be used?

5 whys is a quality management tool developed by Toyoda Sakichi. It helps to reveal causal links and to understand complex cause-and-effect relationships. This method is mostly used in root-cause analyses in the context of failure analyses or optimising processes. Apart from this, it is suitable for any kind of cause-and-effect relationship, particularly for linear ones with no or only few ramifications.

How is 5 whys used?

The starting point of a 5 why analysis is an observed deviation from the norm, i.e. the “effect”. This is where the first “Why?” is asked: “Why has the problem occurred?”
The answer to this question is the cause of the observed effect. This cause can again be understood as another effect of another cause, which is explored by means of a second “Why?”. This process is repeated five times until the cause of the cause of the cause of the cause of the observed deviation is discovered and its origin – its root cause – is detected.

Beware of pitfall

Make sure that, when using the 5 whys technique, that you do not only identify a possible cause-and-effect relationship, but also verify it, in a way that each of the “Why?” questions undergoes a process of examination checking if

  1. the shown causal link is possisble and plausible, and
  2. if under the present conditions the alleged cause is really responsible for the effect

Only if both requirements are fulfilled, the next “Why?” should be asked.
Besides, do not be a stickler with the number “5”. As a rule of thumb it is usually appropriate to ask for the cause five times to identify the actual source of a problem; still, you should check individually and flexibly if a sixth of seventh level might give you valuable information after all, or if you can end the process after the fourth question.

What is the use of the 5 why method?

A 5 why analysis brings to light the details of the cause-and-effect chain having led to the (mostly undesired) incident. This will help you to prevent this problem from occurring again.

Here a distinction is made between corrective and preventive measures. The latter are applied in the upper layer of the causal chain, thus addressing one specific issue, whereas preventive measures are used in the deeper levels of the cause-and-effect relationship – tackling the root cause. They usually have a greater, further-reaching impact, also making it possible to avoid other negative results originating from the same weakness.

Follow us on LinkedIn to learn on a regular basis how you can make the most of management tools, so that you will stay one step ahead of your competitors.

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