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Leading Global Transformations The IMD Guide

The IMD Guide to the Seven Journeys Reshaping Corporations Today

Quest Leading Global Transformations

N. Anand Jean-Louis Barsoux







Introduction: The Quest for Transformation


1 – The Quest for Global Presence


2 – The Quest for Global Value Generation


3 – The Quest for Global Leadership Development


4 – The Quest for Global Solutions


5 – The Quest for Global Agility


6 – The Quest for Global Co-innovation


7 – The Quest for Global Sustainability


Conclusion: Learning from Transformation Journeys 203



List of Pictures




About the Authors


4 The Quest for Global Solutions “ In the past, the idea was to make more and better products. Now, we do not provide a product to customers, but a solution. In the past, selling an item was the end of the sales process. Now, selling an item is the beginning of the sales process. Eventually, we want to turn Haier from a product manufacturer to a service provider. ” Zhang Ruimin , CEO of Haier 1


Leading Global Transformations

LESSONS FROM COMMODITIES Oil is the most valuable traded commodity in the world. But what ranks second? Surprisingly, the answer is not gold or silver, but coffee. 2 Its historical spread as a beverage offers a fascinating take on the notion of “solution selling.” Introduced into Europe in the mid-17 th century, coffee quickly became a popular beverage, particularly in Britain. Forty years later, there were some 2,000 coffee houses in London alone. Today, people sometimes wonder how Starbucks can charge such high prices for a drink that can be made at home or bought from another store for a fraction of the price. CEO Howard Schultz responds, “Our product is a lot more than coffee. Customers choose to come to us for three reasons: our coffee, our people and the experience in our stores.” 3 It is a response that would have resonated with the 17 th century coffee-house owners. The appeal of the first coffee houses was in part due to the novelty and alleged health benefits of the drink. But the real pull lay elsewhere. Compared to the rival pubs and taverns, which were often rowdy and unpleasant, coffee houses encouraged sobriety, dialogue and deliberation. They became the venues of choice for people wishing to exchange ideas and do business. For the price of a penny, patrons gained access not just to a drink of coffee but also to the latest news, and could participate in or listen to sharp social debate. Some coffee house owners went one better, catering for the needs of a particular clientele by providing additional services. Jonathan’s coffee house issued a list of stock and commodity prices that attracted brokers and gave birth to the London Stock Exchange. Edward Lloyd provided free information on shipping in his coffee house, which later evolved into the insurance underwriters Lloyd’s of London. And the great auction houses Sotheby’s and Christie’s grew out of coffee houses that proposed the use of salesrooms to hold auctions. More than three centuries ago, coffee was the glue to the social networks that then spawned organizations, much like the internet does today. Coffee was really a proxy for networking. Coffee

The Quest for Global Solutions


houses succeeded because they tapped into an unmet customer need (for serious exchange) and sold an experience (social, economic and intellectual stimulation), not just a rush of coffee. Yet, making the transition from selling commodities to selling services or experiences is not easy. Even for companies that succeed, it can prove a surprisingly arduous journey. Take the classic case of IBM. 4 In the space of two decades, IBM

has evolved from a seller of mainframe and personal computers to a provider of IT-related solutions, designed to help companies meet their business objectives.

The shift to selling solutions is not for the fainthearted.

Today, more than half of IBM’s workforce is in the services business as opposed to selling hardware or software. But leading this transformation from products to global solutions has required some major strategic and psychological adjustments. Professor John Weeks notes, “IBM’s leaders had to acquire service firms whose employees then had to be integrated into Big Blue’s famously insular culture. They also had to implement painful cuts in IBM’s US workforce and drive a dramatic change in mindset because the service arm could not compete if it proposed only IBM products.”

The original coffee house experience


Leading Global Transformations

Clearly, the shift to selling solutions is not for the fainthearted. So what pushes companies across industries to embark on this journey? When “solutions” provide the answer The impetus to become a solution provider rather than just a supplier of products and services has two primal drivers: survival and growth. The defensive goal is to decommoditize; the offensive goal is to leverage expertise more effectively. The threat of commoditization Some companies are facing the “commoditization trap.” Margins on standardized standalone products are shrinking. Cut-price rivals (or aggressive new intermediaries) with “good enough” products and services are stealing market share from premium brands. 5 This is what happened to Australia-based Orica Mining Services. 6 The product differentiation that had fueled its growth in the commercial explosives industry began to erode. Initially, the company tried to distance itself from imitators by developing more sophisticated products for its customers, such as electronic firing systems that added precision and efficiency to the blasting process. But for many of its customers, these features were of limited appeal. Professor Adrian Ryans explains, “At one point, Orica recognized that customers don’t really want to buy explosives; what they are really buying is rock on the ground – in a quarry or a mine – that meets the customer’s size specification.” 7 So Orica’s leaders switched strategy and started to take over the blasting activities from customers. Over time, the company developed deeper expertise in the different operating conditions of its customers around the world. It was then able to leverage that knowledge to improve the yields of its blasting solutions, creating even higher entry barriers for competitors trying to muscle in on its service business. There were two further benefits. As customers became more reliant on Orica, they progressively lost their in-house blasting skills – indeed specialized blasting personnel were often transferred to Orica – making customers much more dependent on Orica than before. At the same time, the price of the service provided was less transparent than the standalone product, making Orica

The defensive goal is to decommoditize; the

offensive goal is to leverage expertise more effectively.

The Quest for Global Solutions


less vulnerable to price pressures. Its leaders transformed it from a fading products company into a global solution provider.

The lure of opportunity Other companies are offering “solutions,” drawn by the promise of longer-lasting and more profitable relationships with customers or access to new markets. This was the case for the French tire manufacturer Michelin. 8 Through their own analysis and after discussion with their key clients, leaders at Michelin realized that one of the key drivers of productivity for a commercial vehicle was the condition of the tires. Tire-related issues, such as punctures and blow-outs, were the most frequent reason for a truck to break down. A truck’s fuel consumption could be improved by as much as 20% by keeping tires in good condition. With these factors in mind, Michelin’s leaders created an innovative business solution called Michelin Fleet Solutions. Professor Wolfgang Ulaga comments, proposed an ‘all-round hassle-free’ service package, whereby clients delegated the management of their tire assets to Michelin for a three- to five-year period. By outsourcing tire management, logistics providers and bus operators gained peace of mind, and achieved better cost control with fewer breakdowns, lower fuel consumption, improved vehicle monitoring and reduced administrative burden. Transportation companies were able to turn tire-related costs into a variable cost.” Of course, taking over the tire management process for customers meant rethinking the sales approach and realigning the organization in various ways. Michelin’s leaders faced the challenge of educating the customer to reason differently: from a tangible offering (tire sales) to an intangible offering (tire productivity over its lifetime). 9 Then there was the question of internal education, because making the business case for such a solution and putting a price on it became much trickier. The transition also meant redesigning the entire supply chain and shaping new ways of working in order to deliver on that promise without alienating the traditional sales force. It was a steep learning curve for Michelin. Within the company there is increasing realization that solution selling is a powerful “Customers don’t buy tires from Michelin, but rather the seamless functioning of their commercial vehicles; they buy productivity in the form of kilometers. So Michelin Fleet Services

Customers don’t buy tires from Michelin, they buy productivity in the form of kilometers.

This book identifies and addresses the seven transformation journeys that are reshaping corporations today. It integrates and builds on the collective experience and learning of IMD’s professors, who work directly with many organizations around the world and observe their transformation struggles at close range. By taking a holistic and interdisciplinary view of how organizations are transforming themselves, IMD’s faculty accompany global executives – as individuals and as leaders of global corporations – on their transformation journeys. As a top-ranked business school, IMD is the expert in developing global leaders through high-impact executive education. The key to its success lies in its 100% focus on real-world executive development, Swiss excellence with a global perspective, and a flexible, customized and effective approach.

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