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The Deloitte Big Shift Index 2009: What's Missing?

By Francis Cholle on July 14, 2009 9:15 PM | Comments | TrackBacks

If you have not already read "The Big Shift Index" report from The Deloitte Center for the Edge led by John Hagel III, John Seely Brown, and Lang Davison you should do so immediately.

 

This first release of the Shift Index reveals a startling fact: the return on assets (ROA) for U.S. firms has steadily fallen to almost one-quarter of 1965 levels; at the same time,  the researchers found modest improvements in labor productivity.


Grim news, indeed. The report also finds:


- The ROA performance gap between winners and losers has increased over time, with the "winners" barely maintaining previous performance levels, while the losers experience rapid deterioration in performance.


- The "topple rate," at which big companies lose their leadership positions, has more than doubled, suggesting that "winners" have increasingly precarious positions.


- U.S. competitive intensity has more than doubled during the last 40 years.


- While the performance of U.S. firms is deteriorating, the benefits of productivity improvements appear to be captured in part by creative talent, which is experiencing greater growth in total compensation. Customers also appear to be gaining and using power as reflected in increasing customer disloyalty.


- The exponentially advancing price/performance capability of computing, storage, and bandwidth is driving an adoption rate for our new "digital infrastructure" that is two to five times faster than previous infrastructures, such as electricity and telephone networks.
                                     

The Shift Index consists of three indices: Foundation, Flow, and Impact, and 25 metrics that together quantify the stock, pace, and implications of the shift. The index enables analysts to anticipate changes, identify bottlenecks, and guide strategy. Not everyone, of course, will choose to monitor the same metrics or assign them the same weights.  Thus, the Shift Index is less a single measure and more an informational platform that will give rise to a diversity of models and, a stronger collective sense about the pace and nature of change, constraints and opportunities within that system.  As constraints fall away and opportunities increase, old configurations become unstable and new structures emerge.

 

A number of key ideas in the report resonated with our observations at The Human Company:


- the importance of creativity and innovation in ROA

- information "flows" over information "stocks"

- passion as a driver for higher productivity

- more and more discriminating consumers

- consistently declining return on assets

- increasing rate at which big companies lose their leadership positions

- rising executive turnover tied to increasing performance pressures

 

However, I was surprised to find one element missing in their measurement model.


What's missing? Sustainability and its impact on the economy.


Sustainability is the business imperative for our time. From global-warming to competition for natural resources, sustainability must necessarily sit at the core of any sound business strategy. The sooner businesses understand this the better.


Organizations will have no choice but to follow government regulations and anticipate consumers reactions and merciless communication via ever more powerful social networks aiming at securing a healthy future.


More importantly employers who align their businesses to create a more sustainable world will also attract, retain and empower more and better employees. Sustainability challenges have become so pressing that they not only affect us at a rational and emotional level but they also threaten our survival instincts. And  as such they are bound to impact employee productivity, loyalty, and creativity. Meaning is the underpinning and decisive factor of human efficiency. How could a corporation careless of its employees' and employees' children future ever encounter long term success in a flat world?


In order to maintain competitivity, growth and profitability organizations will have to build sustainable blueprints for the future. Take a look at Adam Werbach's latest book: Strategy for Sustainability.

The Deloitte report is an example of a brilliant work conceived in an intellectual tradition largely limited to our analytical minds. Yes, they do mention creativity and talent and yes, they talk about information flows, but I wish they had mentioned sustainability. A quick glance at the Intuitive Compass™ shows us that Deloitte overlooked the South West Quadrant. Regrettably, this is often the case with our business thinking.

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Going forward, we cannot leave out the importance of our reptilian brain in its relentless ability to impact every second of our lives and its superior intelligence to sustain our species and hence help us make the best business decisions for a sustainable future (1).

Here's looking forward to the the 2010 Shift Index; I hope to see a section on sustainability and a study on the decisive intangible dimensions of value creation which intuitive intelligence is designed to help us reckon with.

(1) In 2004 MIT School of Science Picower Insititute for Learning and Memory has shown that the basal ganglia which are parts of our reptilian brain are involved in our most sophisticated decision processes (Nature, Feb 24 2005)

Case Study: Creativity versus Results at L'Oréal

By Francis Cholle on May 28, 2009 10:21 AM | Comments | TrackBacks
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According to a recent report in the Wall Street Journal, L'Oréal SA, the world's largest cosmetics maker, reported flat sales for the first quarter of 2009 as consumers shied away from its luxury skin creams and shampoos in favor of its cheaper brands. The maker of products ranging from Giorgio Armani perfume to Lancôme skin cream and Maybelline eye shadows said sales increased 0.3% to €4.37 billion ($5.83 billion) in the first three months of 2009. Jean-Paul Agon, L'Oréal's chief executive, said that he would not offer specific guidance for the year but that results would "improve" during 2009.

After accounting for the effect of currency fluctuations, sales fell 9.3% in Western Europe and 5% in North America. This shortfall was partly offset by an increase in revenue in Asia.

Sales at L'Oréal's luxury cosmetics division fell, while sales of its consumer drugstore lines increased slightly.

This is an unfortunate turn for L'Oréal which has always been known for its commitment to scientific research and exceptional financial results.

In fact, you might say there is an unresolved tension in its culture between creativity and business results. This tension is visible even on its website. If you read about the "profiles they are looking for" under the marketing category, here's a description you'll find:

Creativity, imagination, openness to new ideas - coupled with the highest professionalism.
• Project-oriented, natural team player, at ease working with others in an environment of entrepreneurial challenge.
• Global-minded, flexible, able to juggle multiple priorities.
• Strong analytical thinker, excellent communicator.

You have a keen eye on the latest fashions, a finger on the pulse of emerging consumer and cultural trends. Highly developed interpersonal skills, a passion for results. The personality to make a difference.

Diagnosis: L'Oréal - When East dominates West...                

For the past few years I have been working with L'Oréal to change this dynamic.

The challenge: help marketers and managers develop a sensitivity to the creative nature of the beauty product development process and specifically gain an understanding for the process of research and development.

When the cosmetic group decided to develop a world wide talent appraisal process Sir Lindsay Owen Jones articulated the need to develop a competence key to the success of the group in the eye of the CEO, and that is: sensitivity to métier. What Sir Lindsay Owen Jones was aiming for was to develop a global, shared understanding for beauty products development, for L'Oréal customers, and for a number of other confidential important characteristics identified by the CEO as key factors for success in the beauty industry.

The Human Company was commissioned to research how to define this specific aptitude and how to develop it and train for it. We developed an international training track that is seen today as one of the most successful and inspiring training program available at L'Oréal.

Our approach consists in helping marketers understand how to engage and inspire creative people to contribute the best of their creativity.  We used the The Intuitive Compass™ to highlight the tension between results-driven managers and creative teams.

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Our analysis: L'Oréal has a product innovation driven business model whereas most of its competitors have often a market-driven model. The company believes in scientific innovation to promote growth. Its founder was a scientist. It is how L'Oréal sustained 20 years of double-digit growth and became the world leader in cosmetics. There is, as I mentioned earlier, a tension in its culture between creativity and business results.

Results: We helped L'Oréal's teams understand the perspective of the different teams.  The creative teams learned about the business aspects they had neglected, while the managers and marketers were helped to understand the creative process. The bridge is intuitive intelligence. Our training program is seen today as one of the most successful and inspiring training program available at L'Oréal. (Average rating: 19.5/20) because it is very relevant with the innovation imperative prevailing in the beauty Industry, articulated by the CEO Jean Paul Agon in his mandate. 

The Intuitive Compass™: A Framework for Intuitive Intelligence

By Francis Cholle on May 13, 2009 11:24 AM | Comments | TrackBacks
We know that innovation is more about people and culture than it is about process and structures. Yet many executives find themselves unable to inspire their teams and foster a culture of innovation. This is not a new theme in management thinking, but it is one that has never been more important.

Early on, as my work took me deep into this realm - the world of intuitive intelligence -  I struggled to build a model to explain why this was so.  And so it was by accident, and by now we know that there are no accidents, that the model of The Intuitive Compass™ took shape:

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Oddly enough, I was using Cartesian coordinates to explain the flaws in our linear thinking. The two principal axes, Play-Results and Instinct-Reason, give us four quadrants (NE, SE, SW, NW). Each of these quadrants represents a function or even a mindset in an organization. Let's make a few generalizations to explain the framework:

The NE quadrant is the area where reason and results prevail. This is the realm of business administration and management. Most companies excel in this department, led by teh twin beacons of "maximizing shareholder value" and "cost management."

The SE quadrant is the area where instinct is at the core and results are the rule of the game. This is the mindset one finds in a sales department, or in an athlete.

The NW quadrant is the area where reason engages in a creative thinking process as in strategic planning or marketing (think of an architectural firm or engineering company).

Finally, the SW quadrant is the area where instincts are at the heart of the creative process to invent and create from the unknown and the depth of the unconscious. This is where creators, scientists, researchers, and inventors experience eureka moments. Most executives and almost all companies, even those engaged in creative fields, lack a way to connect this quadrant back into the rest of the business.

The Intuitive Compass™ becomes a tool we can apply to assess and chart progress as companies (and executives) learn to harness intuitive intelligence in four key areas:

Strategy: how to employ intuitive intelligence to create sustainable, innovative business models which deliver real value to customers in their local environment.

Leadership: the transformative power of intuitive intelligence energizes, and builds movements - with clarity of vision and purpose.

Work Culture: the ecosystem health of your business culture is reflected in your bottom line results. The Intuitive Compass™ helps create the open culture you need to succeed in the intelligent economy.

Consumer Needs: map your customers needs and wants using The Intuitive Compass™ - creating a value innovation agenda for your customers.

The bottom line is convergence - with customers, employees, management and leadership.

Going forward, we'll use The Intuitive Compass™ to chart how companies and leaders can use intuitive intelligence to shape the future - both in their industries and in the larger world.
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