Marina Gorbis's Blog, page 1569

We Appreciate Your Business. Please Stay on the Line.

On a recent business trip I somehow left my credit card at a restaurant in San Juan. No big deal, I thought: Simply call the bank. When I got home, I eventually found, hidden on a remote corner of the web site, the number to call for lost cards. I was assuming this would be an important call for them, but I was left on hold to think about the power asymmetry between service provider and customer.

During this time I was subjected to sales pitches for sundry credit-protection services and told it "only takes a few minutes to enroll." Clearly, this institution believes it's less important to meet your service needs than to get you to spend more. But what could I do? I couldn't hang up. I had to resolve the problem. So that's how I spent the next 31 minutes.

I experienced a similar asymmetry when a credit-card company informed me that the terms and conditions for claiming hotel rewards had changed. For example, the number of miles needed for a free night in a top-category hotel room had gone from 125,000 to 160,000. "If you're not satisfied with these changes you can cancel your account by calling us," the statement said — hardly an attempt at building customer satisfaction or loyalty. Just as before, I was stuck; I didn't want to cancel the agreement and forfeit my accumulated miles.

Customers — maybe even your customers — experience this kind of thing every day. They feel small compared to your bigness. They feel weak in comparison with your power. But it doesn't have to be that way.

Companies in a few industries have adopted policies of transparency and accountability that reduce some of the asymmetry. Airlines are a good example. JetBlue offers rebates under clearly stated circumstances: If your flight is delayed an hour and a half to an hour and 59 minutes, you get a $25 credit; if you're delayed six hours or more, you get a round-trip ticket.

But airlines did this in response to new government regulations establishing fines for companies that leave customers sitting for hours in planes on the ground. Those regulations themselves were the result of a push by customer-advocacy groups such as FlyersRights. If the airlines had assumed that consumers were weak and insignificant, they were wrong. Consumers got so mad that they figured out how to be powerful.

Your company shouldn't wait for customers to do that. The time to revisit your customer guarantees is now.

Here are a few proactive steps a company can take to reduce the asymmetry that customers despise:

Make it an ironclad policy to honor original contractual agreements, come what may. If you're a credit-card company or a hotel and you've told customers they need a certain number of miles or points or whatever to get a free room, keep the requirement at that level. If this becomes a burden for the company, make it harder for customers to earn future points. That way you're not punishing people you made a commitment to in the past.
Don't punish customers by manipulating the rules. Companies that play bait-and-switch not only create dissatisfied customers but generate resentment and end up with lower loyalty rates. For example, phone companies that promised unlimited data plans and then, at contract renewal, changed the mechanism to retain these functions are seen by customers as unreliable partners.
Explain why an action is being taken, and be trustworthy. If a call center is busy, don't tell customers the hold time is five minutes and then, after four minutes (as higher-priority customers enter the queue), revise that to 10 minutes. If the wait is going to be long, have the system take customers' numbers and call them back — and if you say you're going to call back, do call back.
Be there for customers when they need you. If you've explicitly or implicitly offered a certain level of service, just provide it. Don't try to nibble away at its corners or mindlessly try to turn each service encounter into a sale. Customers don't enjoy hearing recorded pitches when they're holding for your service reps.
Don't conceal important information. Don't take the phone number off your web site or hide critical service information deep in a site. FAQs are great, but customers still need to talk to your people. Open the person-to-person channel, and monitor it: Measure the call center's queue length, answering speed, and abandoned-call proportion, as well as customers' rate of zeroing out (hitting "0" repetitively to get an operator).
Empower your employees at all levels to change processes in customers' favor. Zappos CEO Tony Hsieh instills this approach into the company culture, with the desired aim of "wowing" customers.

If you don't take these steps, you're leaving yourself open to customer flight. Customers' memories of the times when they were poorly served tend to be a lot more vivid and longer-lasting than their recall of seamless service experiences. You also leave yourself vulnerable to possible retaliation through social media. Reacting to a social-media disaster is a much more expensive proposition than providing excellent customer service and first-time problem resolution.

In big companies, it's easy for managers to forget that the acquisition of each customer represents a real victory for product development, marketing, and sales. Don't squander that effort by letting customers slip away due to service failures. By fighting the slide to a power-asymmetry culture, you'll bind your customers closer to your company, a very desirable outcome in an environment of decreasing consumer loyalty.

IT Cannot Be Only the CIO's Responsibility

IT is not something that can be managed from a box on the organizational chart. Unfortunately, this is not the view in most C-suites. Just look at what most do: They appoint a CIO and give him or her a budget and a mandate to get on with it! Why? As one CEO said to us: "I just want to forget about IT and concentrate on my core business."

Of course, this response would be fine if the challenge were merely to deploy technology (on time and to budget) and ensure it continues to function properly for as long as required. It would also mean that outsourcing to a proven tech provider would be a legitimate response to perceived problems with IT (get someone with more experience and knowledge to run it for you). Or that the cloud is the remedy for IT's perceived inability to deliver, its inflexibility, tardiness, and questionable return. (By portraying IT as a utility like water and electricity, with apps on demand, a pay-as-you use model, and unparalleled scalability, what could be more attractive?)

The reality is somewhat different. This approach may work for business functions like manufacturing or logistics, but it definitely won't work for IT.

For one thing, what a manufacturing director is and is not responsible for is very clear. So what can a CIO be held responsible for? Technology? This only results in technology being deployed on time and to budget and works. What about being held to account for the benefits and value from IT spend?

This raises the fundamental question as to whether a CIO can really be held accountable for something that will only emerge when their colleagues step up to the plate. For example, successfully deploying CRM software on time and to budget will deliver little unless sales, customer services, and fulfillment processes are redesigned, staff trained to have the right conversations with customers, data quality improves, and marketers build the right competencies to use all the data that will now be available to them.



Let's say that a company's sourcing strategy calls it to move all IT requirements to best-of-breed cloud-based providers. Infrastructure and IT-based services will now be provisioned and delivered directly from the cloud. The question is, will problems with IT go away, particularly the challenges around delivering business value? Of course not! Why? Because the problems with enterprise IT have generally nothing to do with IT. They never have!

What the cloud does is make the technology-supply side more efficient and perhaps more agile. It may make costs more predictable and shift investments from CapEx to OpEx. It may even lead to access to leading-edge technologies. But these are generally not where the challenges lie when we look at the situation in most companies regarding return from IT spend.

The reality is that the organization still requires a strategy for information and systems. It still needs to make choices around process standardization and the extent of digitization, define the degree of integration required, and think about innovation opportunities enabled by IT, whether they be process innovation, business model innovation, management innovation, or innovation in the customer experience. And the organization still needs to prioritize IT spend, run programs and projects, manage the IT investment portfolio, orchestrate the organizational change to deliver expected business benefits, and make sense of information.

Accountability for some of these areas reside with the CEO and the other members of the C-suite (we are assuming CIO is a member of the c-suite), for others with LOB manager, and some will be shared. What is clear is that they are not the sole responsibility of the CIO. All members of the C-suite needs to recognize and embrace their fundamental roles.

What is therefore required is strong governance of IT. Be clear about the decisions concerning IT that need to be made, who gets to make them, how they are made, and the supporting management processes, structures, information, and tools needed to ensure that they are effectively implemented, complied with, and are achieving the desired levels of performance. Unfortunately, we have found that the focus of governance around IT continues to be on the more operational IT issues of delivering technology capabilities and IT services.

The basic requirement for success with enterprise IT has changed little over the decade. There is no magic bullet. The bottom line is that executives need to get their hands dirty and actively engage with their CIO and IT. Decisions about IT today really have little to do with technology!

Reinventing Corporate IT
An HBR Insight Center





CIOs Must Lead Outside of IT
You, Too, Can Move Your Company Into the Cloud
The CIO In Crisis: What You Told Us
How to Compete When IT Is Abundant

Big Brain Theory

An interview with Adam Waytz and Malia Mason, authors of the article Your Brain at Work.

Download this podcast

A written transcript will be available by July 25.

Three Priorities for the Digital CMO

The principal role of a CMO has always been to be a great storyteller. Once upon a time, this meant waxing eloquently about the brand's promise, giving people a hero to cheer for and something to relate to and believe in. And the process of storytelling used to be fairly simple: create an ad, place it in a magazine, newspaper or on the radio or TV, and you were done. Today, we live in an entirely different world — one in which brand narratives are often co-opted, molded and even created by consumers.

This means the journey now taken by brands and consumers together is filled with many more twists and turns. It spans the web, social networks and mobile devices, a dazzling array of digital means to access information, make decisions, buy products and then share purchases, opinions and ideas about brands.

Each of these stops along the journey is a point of light in the digital mosaic that creates a brand narrative built on billions of interactions. As we've seen, the brand narrative can become something wildly different from the one the CMO envisioned.

How can today's digital CMO navigate this new landscape? Here are a few simple steps you can take to chart the best course for your brand story.

1. Craft Narratives Around the Right Digital Storytelling Tools

There is no pun intended when I say, "don't leave customers to their own devices." Every digital CMO should devise ways to guide the consumer to connect with the brand story on different platforms. Think about where your brand fits into all that pinning, posting, sharing, filtering, and tagging. Help consumers engage with your narrative by making it easy to digest and share it, using the tools that matter most to your audience.

At the same time, take into account that your narrative needs to be designed to succeed across multiple devices — sometimes simultaneously, sometimes sequentially. Consumers are using the iPad and other tablets in very different ways than a desktop or smartphone. In comparison, while the smartphone is a very small landscape, if executed thoughtfully, brand stories can be delivered there in a simple and compelling way.

For example, Sephora, the beauty and cosmetics retailer, offers a mobile app to help customers navigate their stores, a website for more traditional e-commerce, and an iPad experience for inspiration and discovery. They've also enabled their fans and followers to actively share and solicit advice via Facebook and Pinterest. Each digital experience, while created for different channels, speaks to a common storyline: they are the "Beauty Insiders" — with the latest and greatest in beauty trends to share with you, one of their best friends.

2. Build Bendable Storylines

Because the feedback loop can completely re-shape a brand story, the digital CMO must be ready to embrace a new course. One way is to design a brand discourse that is flexible from the start. By building these bendable storylines, CMOs will be ready to co-opt a better narrative if one emerges.

Agile narratives can allow you to take advantage of positive trends or even a world-changing event. Being prepared is of the utmost importance. Be sure to free up resources after a campaign hits the marketplace so that if something resonates with your customers, you can allocate funding accordingly and focus aggressively on what — unexpectedly or not — is taking root.

Airbnb, a service enabling people to rent out their spare rooms or entire homes, is a great example of a company that understands the new age of shapeable storylines. For example, during Superstorm Sandy Airbnb's local community base in New York City rallied to launch a microsite that allowed people living nearby the storm-ravaged region to donate a room or couch and help Sandy victims find a place to stay at no charge. This required a fast redesign of their booking and payment system to accommodate the emergency free shelter option. No doubt it was an investment well worth the effort, not only aligning with the community-powered notion at the core of the company's brand story, but taking the narrative in an entirely new direction.

3. Create Content Worth Sharing

Before the digital age it didn't much matter if content was worth sharing because there wasn't usually the option to do so. "Sharability" is now a key ingredient of any successful brand narrative that has a chance of resonating with the consumer. Connect to emotions and ideas that are bigger and more interesting than selling your products, and they will speak for themselves.

TED, the non-profit conference organization, has perfected this model. Their tagline is of course, "Ideas Worth Spreading" and they've hit the nail on the head. Instead of stacking their site with the thousands of talks that they have tape each year, they choose only the most compelling and interesting talks to highlight and put all their resources, including social channels and blog, behind promoting one outstanding talk per day. This highly curated approach to creating genuine content that is worth sharing is what has made the brand so successful — and it's the reason that TED talks surpassed one billion views worldwide last year.

Today's digital CMO has a harder job than the CMO of the past. But ultimately it's a more exciting one. As chief storyteller, you have more opportunities to develop compelling and relevant brand identities by including your customers in the narrative creation process right from the start. And consumers have shown time and time again that they trust brands that trust them. And while sometimes scary, that can't be a bad thing.

The Two-Minute Game that Reveals How People Perceive You

We often write about B-school research findings in this space. Now we're going to let you take part. This video, presented by Harvard Business School associate professor Michael Norton, is a game. In fact, it's the same game Norton used in research he recently conducted, so when you play the game here, you'll be doing exactly what Norton's subjects did. The game is simple and doesn't take long.

To play it, you'll need a friend. Once you have a friend with you, just play the video and listen to Norton's instructions. When you're done, Norton will walk you through his findings.

For more, read Norton and co-author Evan P. Apfelbaum's full article in our July-August issue.

The Case for Paying People More

McDonald's and Walmart, the two biggest private-sector employers in the U.S., don't pay their workers much. This more or less eternal truth is making one of its increasingly frequent appearances in the news this week. McDonald's is catching flak for a "sample monthly budget" for employees that sets aside $20 a month for health insurance and no money at all for heat. (Hey, it's July.) Walmart, meanwhile, is threatening to cut back on plans to open stores in Washington, D.C., after the D.C. council voted to impose a "super minimum wage" of $12.50 an hour on big retailers.

For decades, most discussions of pay levels and income disparity in the U.S. have been accompanied by a pronounced economic fatalism. Pay is set by the market and the labor market has gone global, the reasoning goes — and when a Chinese or Mexican worker can do what an American can for less, wages have to go down. In explaining what's happened to autoworkers, say, that story makes some sense (although it doesn't explain why German autoworkers have for the most part kept their high pay and their jobs while Americans haven't).

But McDonald's burger-flippers and Walmart checkout clerks can't be replaced by overseas workers. Instead, both companies were able to build low pay into their business models from the beginning — McDonald's because so much of its workforce was made up of living-at-home teenagers who did not in fact have to pay for heat, Walmart because of its roots in small Southern towns where wages were low and "living wage" laws unheard of. Now McDonald's is increasingly staffed by grownups (teens have gone from from 45% of its workforce in the 1990s to 33% recently), while Walmart is trying to conquer the big cities of the North. Both companies have been understandably loath to depart from their low-pay traditions, so conflict and criticism are pretty much inevitable. Which is an extremely healthy development.

That's because it's becoming clear that pay levels aren't entirely set by the market. They are also affected by custom, by the balance of power between workers and employers, and by government regulation. Early economists understood that wage setting was "fundamentally a social decision," Jonathan Schlefer wrote on HBR.org last year, but their 20th century successors became fixated on the idea of a "natural law" that kept pay in line with productivity. And this idea that wages are set by inexorable economic forces came to dominate popular discourse as well.

Since 1980, though, overall pay and productivity trends have sharply diverged in the U.S.. And since the 1990s, research on the impact of minimum wage laws has demonstrated that there clearly is some distance between the textbook versions of how wages are set and how it happens in reality. It's not that minimum wage laws work miracles, but they also don't have nearly the downward effect on employment levels that a pure supply-demand model would predict. Not to mention that decades of research at the organizational and individual level have shown the link between pay and on-the-job performance to be extremely tenuous.

If pay levels at Walmart, McDonald's, and elsewhere are at least to some extent a societal choice rather than the natural outcome of economic law, it raises a lot of interesting questions. One is whether the doldrums the U.S. economy has found itself in since the early 2000s might to at least some extent have been inflicted by corporate executives committed to keeping labor costs down. In 1914, Henry Ford famously more than doubled wages at his factories, mainly to fight attrition but also so that Ford's assembly line workers could afford to buy the cars they were making. By that standard, McDonald's and Walmart are doing okay — their workers can afford to buy their (remarkably inexpensive) products. But Ford's workers could buy a lot of other things, too, and they and their counterparts at other automakers went on to form the bulwark of a giant new American middle class that helped drive economic growth for decades.

Economic analysis of Ford's decision has focused on the efficiency gains of paying higher-than-market wages — less turnover and more-productive workers led to higher profits and higher market share, the reasoning goes. That in itself is a big deal. But the even bigger argument that by raising wages Ford might have led a shift in societal norms that put more money in average Americans' pockets, thus boosting consumer spending and economic growth, hasn't had much appeal to mainstream economists in the U.S..

In fact, most of the interest has instead been in how hyperefficient operations like McDonald's and Walmart boost living standards by delivering their products to consumers at ever-lower cost. A few years ago, Jason Furman — recently tapped to become Chairman of President Obama's Council of Economic Advisers, argued that Walmart was a "progressive success story" because it had driven retail prices down so much. "Even if you grant that Wal-Mart hurts workers in the retail sector — and the evidence for this is far from clear," he wrote, "the magnitude of any potential harm is small in comparison."

It's a provocative argument, and it might even be right. But it's unlikely that it's the whole story. For all its productivity innovations, Walmart has also been a key player in a "race to the bottom" that has tamped down wages and dismantled worker protections in the U.S. in recent decades. It's at least worth asking if the economy would be better off with a race in the opposite direction.

The most outspoken and visible (visible to me, at least) proponent of this view over the past couple of years has been, interestingly enough, Business Insider editor-in-chief Henry Blodget. As he put it on May Day this year, corporate America's penchant for putting short-term shareholder interests above those of workers "is actually starving the rest of the economy of revenue growth." Can Blodget prove this? No. Is it a valid topic for economic research and political debate that ought to be getting more attention? You betcha.

New York City's Culture Will Shape the Next Tech Sector

When we first decided to move the headquarters of our software company from Atlanta, we didn't think of Silicon Valley. In fact, Silicon Valley wasn't even on our short list. At Infor, we chose New York City.

There are many reasons why Silicon Valley might have been a top contender: for years, it's been the premier technology hub of the world. Talent flocks to companies like Google, Facebook, and Oracle, just as it does to the slew of start-ups looking to become the next big thing. Universities like Stanford, Caltech, and UC Berkeley continue to churn out the next generation of founders and engineers. Why would we turn to any other place to start Infor's next chapter?

In a word: culture. While no one can dispute Silicon Valley embodies the quintessential technology culture, there's another piece of the culture equation that matters just as much for a company like ours: diversity.

When I say diversity, I don't just mean racial and ethnic diversity — San Jose actually has New York beat on that front. But our company makes software that is used across dozens of industry verticals — automotive, health care, hospitality, and the public sector — each with their own specific needs and goals. So when we talk about diversity, we are talking about the diversity of customers, the diversity of job functions, the diversity of backgrounds, the diversity of training. A walk down almost any street in Manhattan is likely to involve brushing shoulders with a huge cross-section of professionals. When you put it all together, you have an environment so rich and varied in skill sets and perspectives that Silicon Valley just can't match it. We believe that when this incredible professional diversity collides with software engineering talent, you have the recipe for breakthrough innovation.

Further, Silicon Alley offers an alternative to the closed environment of Silicon Valley (e.g. the campuses of the "Googles" and "Facebooks") that keep "tech workers from having even accidental contact with the surrounding community," according to The New Yorker. Those accidental (and non-accidental) interactions are what spur creativity — working and collaborating with different people is what inspires new ideas and new thinking — it's what drives us at Infor, and more reason why New York and its open community was the right fit for us.

Infor has already benefitted by tapping this local talent pool is our in-house creative agency, Hook & Loop, which helps us design software that is intuitive and easy-to-use. Our intention for Hook & Loop was not to hire the best and brightest software developers. Quite the opposite: we wanted to hire ad agency execs, fashion designers, and filmmakers — all people who would bring an outside perspective to business software, helping us create products more powerful and intuitive than we might have ever imagined without their input.

We aren't the only tech company that's noticed New York's potential. Recent statistics speak volumes about the Big Apple's bright future in tech, including 486 new tech companies that have emerged since 2007, with start-ups popping up every day. A report by PrivCo shows that in 2012 there were 100 mergers and acquisitions for privately-held tech companies in NYC, with an accrued value of up to $8.3 billion. Further, according to the Center for an Urban Future, tech jobs in the city have grown almost 30% in five years, with no signs of slowing down anytime soon. The center also reports that between 2008 and the beginning of 2013, New York saw a 24 percent gain in the number of venture capital deals, while Silicon Valley dropped by 21 percent.

New York is also creating the infrastructure to grow and develop technology talent organically. In January, Cornell's NYC Tech campus (located on Roosevelt Island) opened its doors to a class of students pursuing master's degrees in computer science. In addition, NYU opened a new urban science graduate school in Downtown Brooklyn in April, and Columbia is creating an Institute for Data Sciences and Engineering, expected to open this fall.

But the talent isn't just coming from inside the city, and the influx isn't just recent college graduates. Established executives, like former Yahoo! executive Chad Dickerson (founder of popular crafts e-commerce site Etsy), are moving from the West Coast to join the New York City tech scene. And while larger companies such as Infor, Ernst & Young, and JP Morgan are hiring from this talent pool, the NYC-born startups that are also attracting global talent. By offering flexible hours, a fun work environment, and career growth opportunities, start-ups like Catchafire, Qlabs, and Crowdtap are able to hire unique talent to help them raise capital and grow their businesses.

Mayor Bloomberg's new "We Are Made In NY" campaign points out that there are currently 900 tech startups hiring for over 3,000 jobs. The campaign highlights the city's burgeoning digital industry and underscores the Mayor's commitment to nurturing a thriving tech sector. "Growing our local tech industry is an important part of our economic development strategy to bring new businesses to our city and more job opportunities to New Yorkers," said Mayor Bloomberg. And what's even more interesting, between 2007 and 2011, a time when venture capitalism was down 11% nationally, New York saw growth of 32%.

Once we did relocate Infor's headquarters to New York last year, we found that we were scheduling up to five times more in-person customer meetings because of the location, which is having a significant impact given that 98% of companies that demo products on-site end up buying our software. That statistic is especially powerful considering the number of C-level executives that routinely visit New York City. It's a tremendous opportunity.

Would You Like Some Gender with that Leadership?

The recent toppling of Australia's first female prime minister, Julia Gillard, continues to raise questions about women and leadership. Gillard was regarded as smart, capable and resilient. However, a string of bad decisions and broken promises had the public and politicians questioning her capacity to lead. In her final exit speech before Kevin Rudd took her place, Gillard responded to the "gender wars" discourse that had come to represent her leadership, saying that "the reaction to being the first female PM"—in other words, gender—did not explain everything nor did it explain nothing.

So, when do we know it's about the gender and not about the leadership? My research on women and leadership concluded that it was difficult to make any generalizations about women and leadership simply because there were so few women leading organizations. It was difficult to distinguish between the woman doing the leading and whether her manner of leadership was specifically her own or part of a gendered pattern of leading. To paraphrase Gillard, gender explained something about leadership but did not explain everything.

So what can help women leaders make the most of their own style of leadership? How to keep the focus on leadership, not gender? Here are three suggestions.

Understand the relationship of power to authority. Understanding the connection between power and authority means that you know that having power does not give you authority. With power, you can carry out your own will; with authority, your command will be carried out by others. Others need to respect the leader's power and her authority to lead. This is why women are divided over quotas and affirmative action. While these measures may elevate more women powerful positions, the perception is that they are somehow not deserving. In other words, power can be given, but authority has to be earned. Authority is a social relationship between the leader and followers. It requires consensus: mutual expectation and mutual recognition. A legitimate rise to power carries with it the authority to lead. Because leaders need to achieve their power through their talent and through others' recognition of their talent, ensure you have the authority to lead.

Recognize that being first isn't always best. While "the first woman..." may be heralded as an achievement for womankind, this may not be for the longer term good. As the saying goes, you only get one chance to make a first impression; therefore, while some women may be given opportunities to lead and create a historical moment, they need to determine whether being first will enhance or detract from their leadership. Sheryl Sandberg and Marissa Mayer lead dynamic, diverse, and creative organizations that rely on the next new thing. They have an integral understanding of their organization and the need to update and innovate. Their leadership is suited to the context. Many younger women are well qualified, well connected, and have enough determination to lead, yet they may be missing the key ingredient that will enhance their leadership: wisdom. Wisdom means having advanced levels of cognitive, reflective, and affective capacity, and these factors have a positive effect on followers. The beginning of wisdom is to make a personal assessment of the leadership role in context. Is wisdom a hidden asset in the job? If so, then it may be wiser to wait for the next opportunity to lead.

Make sure you have sufficient resources and support. In their research on the glass cliff phenomenon, Michelle Ryan and Alex Haslam identified the tendency to appoint women leaders in times of crisis but also showed a pattern of these women leaders inevitably failing. Further analysis showed that the failure was not because of the leadership itself, but rather because the leadership was under-supported and under-resourced. With limited resources and support, women leaders desperately try to implement their strategic vision for renewal—but they inevitably fail as their vision and strategy cannot be implemented. An important lesson for any woman taking a leadership appointment is to ensure that you have the resources and support that you need to make it work; without them, your leadership will be precarious and likely to fail.

Leadership requires certain conditions to flourish, under which women—and men—can make good leaders. As more women take up the challenges of leadership, to avoid the gendered stereotyping of their leadership, they need to have the authority and wisdom to lead, and all the resources and support necessary for leadership.

Research: Why Companies Keep Getting Blind-Sided by Risk

After tsunamis, protests, wildfires, and riots — to name just a few recent major disruptions — few managers can be unaware of companies' vulnerability to the vagaries of politics and extreme weather.



You'd think. Yet three quarters of the 195 large companies surveyed recently by APQC got hit by an unexpected major supply chain disruption in the last 24 months. We are talking here about an unforeseen event involving a physical asset owned by the enterprise or a third party. Major means an event that has the potential to severely interrupt a business' ability to deliver on its promises to customers — perhaps a power station for a vital assembly plant going dark for months. Survey responders (mostly supply chain risk operators) said things got so bad that C-suite executives had to get involved in the fix-it process for a sustained period of time.



But these are the same senior executives and middle managers that have supposedly been embracing formal enterprise risk management (ERM) for some time. Why did these systems fail so spectacularly?

Part of the problem stems from the familiar gap between the talk and the walk. Survey findings indicate that most organizations' leaders did indeed express concern about the impact of political turmoil, natural disasters, or extreme weather. But the findings also show that the people at the front lines of the business were hamstrung by a lack of visibility into risk. Nearly half said they lacked the resources needed to adequately assess business continuity programs at supplier sites. Many relied on the suppliers filling out perfunctory, unreliable checklists.



It's likely that the push to protect profits during the recession made matters even more difficult for supply chain operators. Seventy percent of the respondents to the APQC survey say their organizations pruned their lists of suppliers over the past five years, with the intent to reduce costs. Moreover, nearly three-quarters (74%) of the companies over the period added suppliers physically distant from their facilities, with 63% acknowledging that their suppliers are located in areas of the world known for high-impact natural disasters, extreme-weather events or political turmoil. It appears the urge to source in low-cost regions clouded the cost-versus-risk calculus for some.

Finally, supply chain disruption risks often got painted as an operations-level risks and for that reason never made it onto the list of 15 or so major strategic/enterprise risks assessed and managed by the Chief Risk Officer's formal ERM process. Many ERM assessments focus on risks related to competitive strategy or the customer experience. The result is that too many boards don't think to ask about — and are not briefed on — the risks of, say, sourcing key components in risky regions of the world. They wind up blind, therefore, to many crucial strategic risks.

"The important thing is to figure out what might be a severe disruption and to do this you have to look down into the different tiers of supply. People at the top need to ask: 'What might be out there that we are not currently aware of,'" says Dr. Paul Walker, an expert in ERM at St. John's University in New York.

The good news in all of this is that nearly half of the survey respondents said that their firms are now adding rigor to the process of assessing supply chain resiliency. Let's hope the purse strings will be loosened enough to get this right.

Don't Make New Hires Conform; Instead, Focus on Their Individual Strengths

Newly hired employees of an Indian call center were at least 60% less likely to leave within a period of a few months if they went through an onboarding process that, instead of emphasizing conformity, focused on their individual strengths, for example by highlighting what was "unique" about them, says a team led by Daniel M. Cable of London Business School. In a related lab experiment, new hires whose individual strengths were highlighted ended up performing more efficiently and making fewer errors. Thus the best way for an organization to develop early organizational commitment may be to encourage employees to make daily use of their unique strengths, the researchers say.