Issue 11
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Business Supplement Leading Change Means Changing How You Lead Employee Engagement: How to Align Engagement With Company Values 5 Ways Managers Sabotage the Hiring Process Successfully Transitioning to New Leadership Roles How Managers Can Build a Culture of Experimentation 15 Essential Business Metrics to Track
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Table of Contents
Business Supplement 2022
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Leading Change Means Changing How You Lead
By B. Tom Hunsaker, Thunderbird School of Global Management, and Jonathan Knowles, Type 2 Consulting One of the toughest challenges facing leaders is that the job requirements can change dramatically and unpredictably, as the past two years have amply demonstrated. It would be easy to conclude—as many commentators have—that the key requirements of leadership are flexibility and empathy. While these qualities are certainly beneficial, especially at this specific, stressful moment, the enduring requirement of leadership is to be contextually effective. Effective leaders are those who adjust their leadership approach to suit the context and challenges they face.
12 Employee Engagement: How to Align Engagement With Company Values By Lara Kelly, PeopleGoal The role of company values in employee engagement is often overlooked. Employee engagement is about the level of commitment an employee has in the company they work for. Engaged employees are emotionally invested in the success of a company. They show up for more than just a pay cheque. A company with an empty set of values will struggle to have this effect on employees. Unfortunately, companies that do not live up to their values are all too frequent.
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President’s Message
26 How Managers Can Build a Culture of Experimentation
By Frank V. Cespedes, Harvard Business School, and Neil Hoyne, Google Experimentation encourages innovation, but it can also be a drain on time and resources. To make experimentation a productive activity in your organization, you must manage several conditions, including what you learn, how you apply what you learn, the opportunities presented by your learning, and the conversations you have with colleagues about it all. By Forbes Business Council Members Measuring your organization’s performance requires thorough data collection and analysis. But with countless examples of business metrics, how do you know which ones are worth tracking? While the ideal combination of key performance indicators (KPIs) will depend largely on your individual business’ needs, there are certain metrics that are vital for companies across the board. The members of Forbes Business Council share 15 KPIs every business should be tracking.
By Marina Glazman, Harvard Business Review Even the most rigorous recruiting strategy is only as strong as the decision-maker’s biggest blind spot. Nearly every hiring manager has a blind spot that, if left unidentified, can lead to devastating consequences even within well-planned systems. Over time, I’ve identified five of the most common blind spots that compromise recruitment outcomes.
Calendar of Events
By Scott Keller and Mary Meaney, McKinsey & Company Hardly anything that happens at a company is more important than a high-level executive transition. By the nature of the role, a new senior leader’s action or inaction will significantly influence the course of the business, for better or for worse. Yet, in spite of these high stakes, leaders are typically underprepared for—and undersupported during—the transition to new roles.
28 15 Essential Business Metrics to Track
15 5 Ways Managers Sabotage the Hiring Process
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20 Successfully Transitioning to New Leadership Roles
30 Advertisement Index
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2022 AWT Board of Directors President
Matt Jensen, CWT
Calendar of Events Association Events 2022 Business Owners Meeting
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September 20, 2022 Pan Pacific Vancouver Hotel Vancouver, Canada
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Stephen C. Hallier, CWT Noah Baskin
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John D. Caloritis, CWT
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Michael Bourgeois, CWT
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Jack Altschuler John Baum, CWT R. Trace Blackmore, CWT, LEED AP Michael Bourgeois, CWT D.C. “Chuck” Brandvold, CWT Thomas Brandvold, CWT Brent W. Chettle, CWT Dennis Clayton Bernadette Combs, CWT, LEED AP Matt Copthorne, CWT James R. Datesh John E. Davies, CWT Jay Farmerie, CWT Gary Glenna Charles D. Hamrick Jr., CWT Joseph M. Hannigan Jr., CWT
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President’s Message
By Matt Jensen, CWT
2022 continues to be a year of challenges, full of what many consider to be opportunities for the generation of new ideas and changes to “normal.” Thinking outside the box seems to be the “new normal” for all of us as we scramble to overcome supply chain issues, raw material shortages, and shipping delays. I hope you consider taking time this year to attend the AWT Business Owners Meeting, to be held on September 20 in Vancouver, British Columbia, Canada, the day before the Annual Convention begins. The Business Owners Meeting is designed to give you some tools to move you from striving to thriving. It is an opportunity to get out of the day-to-day grind, step back, and see a future that encourages you. Some topics this year include leadership team development, defining and living your core values, developing predictive metrics, and measuring your company profitability, as well as a peer-led roundtable discussion. In the meantime, please enjoy this Business Supplement. You’ll find articles in this issue on similar topics, as well as how to lead during change, things to consider in the hiring process, and how to build a culture of experimentation. We hope you find the articles in the Supplement helpful. As always, I welcome your feedback and can be reached at president@awt.org.
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Leading Change Means Changing How You Lead By B. Tom Hunsaker, Thunderbird School of Global Management, and Jonathan Knowles, Type 2 Consulting
Adapting your leadership approach is necessary for achieving the change your organization requires.
History is replete with examples of individuals who displayed extraordinary leadership under certain circumstances but were unable or unwilling to subsequently change their leadership approach. In business, it is frequently observed that a founder is rarely the leader best suited to run the business once it achieves a certain scale because it requires a different style of leadership and skills.
One of the toughest challenges facing leaders is that the job requirements can change dramatically and unpredictably, as the past two years have amply demonstrated. Of necessity, leaders had to divide their attention between responding to the pandemic and managing a remote workforce and have been even further stretched by issues such as social justice, supply chain disruption, climate change, hybrid work arrangements, and geopolitical instability.
Alphabet’s success is in part a testament to the selfawareness of Sergey Brin and Larry Page, who recognized the need to step away from the CEO role. Facebook’s current travails, in comparison, are partially caused by Mark Zuckerberg’s failure to acknowledge this necessity.
It would be easy to conclude—as many commentators have—that the key requirements of leadership are flexibility and empathy. While these qualities are certainly beneficial, especially at this specific, stressful moment, the enduring requirement of leadership is to be contextually effective. Effective leaders are those who adjust their leadership approach to suit the context and challenges they face.
Three Imperatives for Leading Effective Change
In our work with leaders, we encourage them to think of contextual effectiveness as comprising three main tasks: Drawing the map: The late publisher Arnold Glasgow observed that great leaders recognize an issue before it becomes an emergency. They consistently map the changing dynamics of the company’s environment and 8
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dangers of complacency (believing that there’s no need for change) and hubris (overconfidence in the quality of one’s leadership). Contextually effective leaders combat complacency by continually striving for change, and they combat hubris by recognizing that their own opinion is less significant than the opinions of key stakeholders.
create a clear, prioritized vision for where the business should be headed. Establishing the mindset: The second task of leadership is to ensure that the executive team has more than just a cognitive understanding of the map. The leader’s mindset drives a shared conviction about the necessity of change and an enthusiasm for the improvements that successful change will bring about. This enthusiasm is vital because achieving change is harder than maintaining the status quo. Communicating the message: If the map credibly identifies the needed change, and the mindset creates the appetite for change, the message is the key tool for activating that change among the broader population of employees. The leader’s message serves as the rallying cry that aligns the energies of the organization around a particular goal and the attitudes and behaviors required to achieve it. Defining the map, mindset, and message are the core tasks of leading change, but the objective of each task will vary according to the type of change that the leader is seeking to achieve. Change takes three distinct forms, as we have described in previous articles: 1. Enhancing the magnitude of the company’s current strategy. 2. Reimagining the activities for pursuing that strategy. 3. Shifting direction altogether.
The mapping task in this change context is to pursue excellence and reinforce the current drivers of uniqueness, utility, and value as perceived by customers and other key stakeholders. The required mindset is that of rising to a challenge—framed either as a competitive threat or an innate commitment to excellence. Finally, the task of messaging is to maintain a focus on the ultimate priorities of the business rather than on concerns that are fleeting or disconnected from the company’s core strategy. Apple’s leadership has consistently executed an enhance magnitude change focus over the past two decades. It has deliberately chosen to use itself as its competitive frame of reference, creating a constant challenge to enhance its already leading position through targeted and continuously deepening innovation and the integration of hardware, software, and services — all without relying on large-scale acquisitions. (Apple’s largest acquisition ever was the $3 billion it paid for Beats in 2014.) The result has been the delivery of distinctive and consistent value to an expanding and engaged customer base.
Below, we illustrate how the objective of the “map, mindset, and message” tasks varies according to the type of change that the leader is trying to achieve. Our research indicates that enhancing magnitude (doubling down) is the right decision for the 20% of companies or business lines that perform strongly on both fit to purpose and relative advantage; shifting direction (pivoting) is required for only those 15% of companies that perform poorly on both dimensions. For nearly two-thirds of companies, the change imperative is to reimagine the activities they use to pursue their strategy rather than reimagining the strategy itself.
Reimagine Activity When the goal of change is reimagining activity, the leader’s mapping task is to innovate new routes to the current destination. The accompanying mindset is one of focused experimentation and targeted risk-taking. Rather than radically reinventing existing processes, the reimagination agenda instead often looks to digitization, machine learning, and artificial intelligence to create more efficient methods to perform them. In this context, the task of messaging is to emphasize the benefits that customers and other stakeholders will continue to enjoy if the methods for delivering these benefits are improved. (This is the objective that many companies are currently trying to achieve through AI.)
Enhance Magnitude When a business is performing well on fit to purpose and relative advantage, the leader needs to recognize the twin
Netflix’s leaders have navigated this path with particular expertise over the past 20 years. They have remained focused on a goal of convenient, personalized, immersive
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Leading Change Means Changing How You Lead continued
entertainment delivered without advertising, even as the technologies for achieving this goal have changed dramatically. By keeping employees focused on innovating on the means to the end rather than on the end itself, Netflix’s leadership has maintained a sense of stability even as the business has undergone significant transformations: in its mode of distribution, from mailed DVDs to streaming; in its core business, from a content distributor to both a creator and distributor of content; and in its implementation of a “glocal” (both global and local) model of content development.
in which you compete) gave way to creativity (most famously associated with Apple’s exhortation to “think different”) only to be superseded by disruption (popularized by Zuckerberg’s mantra to “move fast and break things”) and hyperscaling (celebrated in the 10x mantra of the venture capital community)—which in turn have been replaced by the current celebration of empathy.
Shift Direction When a company performs poorly on both fit to purpose and relative advantage, a shift of direction is required. In this context, the mapping task is to explain why a pivot is needed and how the purpose of the business must be redefined. While it can be effective for leaders to ratchet up the pressure under the other two change scenarios, this approach is less effective in the context of shifting direction. Pressure in this context drives up anxiety levels, which hinders effective problem-solving and may even reinforce existing behaviors. Instead, the leader’s mindset task is to build belief among employees, customers, and partners in the new destination for the business, and an environment that’s receptive to fresh ideas. Reflecting this, the messaging task is to promote a sense of possibility.
Using Change Goals to Inform Leadership When leaders carry out the three essential tasks of MI MIT T SLO SLOAN AN MAN contextually effective leadership—drawing the map, establishing the mindset, and communicating the message—their vary depending on the type of Using Change focus Goalswill to Inform Leadership change the organization is seeking. When leaders carry out the three essential tasks of contextually effective leadership — drawing the map, establish
and communicating the message — their focus will vary depending on the type of change the organization is see
Which of these leadership ideals is actually ideal in practice? The point is, of course, that the task of leadership is deeply contextual: The attitudes and behaviors that are effective in one environment will not deliver the same outcomes under different circumstances. The form of change sought—enhancing magnitude, reimagining activity, or shifting direction—shapes how contextually effective leaders define and pursue the tasks of map, mindset, and message. As a Chinese proverb powerfully expresses, “The wise adapt themselves to circumstances, as water shapes itself to the pitcher that contains it.”
The turnaround in Lego’s fortunes led by Jørgen Vig Knudstorp is a master class in how to maintain a supportive environment even while making dramatic changes to the business—halving the number of bricks made from 13,000 to 6,500, exiting the theme park business, and expanding into video games and movies— and how the business engaged with its customers. Lego went from revenues of 800 million euros ($1 billion) and near bankruptcy in 2004 to revenues of just under 6 billion euros in 2020. Much of the writing on leadership takes the form of lists defining its required attributes or universal norms. But these ideals change over time and reflect the environment in which they were created. This evolution explains how competitiveness (epitomized in Jack Welch’s famous 1980s era directive to be first or second in every industry 10
B. Tom Hunsaker is on the strategy and leadership faculty at Arizona State University’s Thunderbird School of Global Management. Copyright © Massachusetts Institute of Technology, 2022. All rights reserved. ¥ Reprint #63408 ¥ sloanreview.mit.edu
Jonathan Knowles is the founder of the advisory firm Type 2 Consulting. © Massachusetts Institute of Technology, 2022. All rights reserved. sloanreview.mit.edu
the ANALYST Business Supplement 2022
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Employee Engagement: How to Align Engagement With Company Values By Lara Kelly, PeopleGoal
Employee engagement has myriad benefits—but it can be a challenge. Find out how to keep your employees engaged and motivated with core company values.
What Is employee engagement?
Engaged employees find work rewarding. They arrive at work in the morning buzzing with ideas. They are invested in companywide goals—and feel purposeful about moving towards them. CIPD defines three aspects of employee engagement:
In the world of HR, employee engagement is the word on everyone’s lips. We are conscious of the link between engagement and company success—and most leaders create a strategy with this in mind.
1. Vigour (energy, resilience, and attention to detail) 2. Dedication (finding inspiration, motivation and feeling pride) 3. Absorption (focus and finding your flow at work)
However, the role of company values in engagement is often overlooked. Think about it—employee engagement is about the level of commitment an employee has in the company they work for. Engaged employees are emotionally invested in the success of a company. They show up for more than just a pay cheque.
Employee engagement is clearly linked to motivation— so HR needs to consider what drives employees at work. In order to feel absorbed by their work and dedicated to it, employees need to feel that smaller tasks build towards greater goals.
A company with an empty set of values will struggle to have this effect on employees. More than 75% of respondents said it was “very important” to work for a company with a clear set of core values. Unfortunately, companies that do not live up to their values are all too frequent. We’ll show you how clear, meaningful company values can drive up engagement.
What are core company values and how do they effect employee engagement?
"The role of company values in employee engagement is often overlooked.”
Employee engagement is an internal feeling or mindset— but it is also associated with how an individual feels within an organization. Organizational identification is key to employee engagement - a feeling that one’s own aims/ interests/strengths align with those of the company.
Company values are the building blocks of your company culture. They are behind every transaction your company makes. Values should be consistent—so that through times of change, employees have some guiding principles to hold onto.
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2. Cultivate purpose among your employees Simon Sinek’s book Start With Why provides a great model for leaders. He writes that “People don’t buy WHAT you do; they buy WHY you do it.”
Employees who identify with the company’s vision are more likely to be engaged. Managers and HR must communicate values in a clear and inspiring way. For example, Ben and Jerry’s mission guides provide a clear personality for employees as they start at the company. It also provides an inspiring “mission statement” for employees to rally around.
In other words, it is more meaningful for us to understand purpose than process. We are most motivated when we can grasp the company’s mission—and when we feel like an integral part of that mission.
Benefits of improved employee engagement
Improving employee engagement is a worthwhile aim. Employees who are engaged experience better well-being and find work more rewarding. The company itself benefits from increased productivity and better outcomes. • Employees are better motivated • Boosts productivity • Better collaboration • Improves business outcomes
Purpose is so crucial to employee engagement. It’s that feeling when we arrive at work and are confident that we can make an impact towards the company’s goals that day.
With this in mind, we’ll explore how you can align company values with your engagement strategy.
For example, if your core values are customer service and integrity, your “why” might be to serve your community and improve convenience for your customers.
How to align corporate values with employee engagement
Compelling core values help build purpose, as employees are more aware of the driving values behind what the company does. Your core values may not fully explain the “why” you do something, but they definitely add meaning to your mission.
If your company is true to its values in every interaction with employees, they are more likely to fully engage with your “why.” Employees are more likely to go the extra mile.
1. Involve all employee levels when writing company values It is the CEO’s role to draft up the company’s values. However, if they create values that are irrelevant to frontline employees and managers, they will lack sticking power.
Ways to Create Purpose at Work Always link tasks to company goals.
Consult all company levels and tenures as you write your company’s values. Vivian Maza recommends asking employees “if your company was a person” type questions. For example, you might ask what personality traits they most associate with the company—is it friendly, welcoming, hard-working, creative?
Avoid silos and conduct all hands meetings.
This provides an honest picture of how it feels to be part of your company. Company culture is difficult to grasp because it is the personality of the organization—only your employees can provide an accurate picture.
Establish development programs and professional development goal setting.
Brainstorm activities to think creatively about company problems. Create opportunities for employees to collaborate.
3. Value relationships in your organization Managers make up 70% of the variance in employee engagement. This tells us that employee relations are key to engagement.
If responses are inconsistent, this should immediately ring alarm bells. This suggests that your core values are not reflected in the day-to-day experience of your employees. 13
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Employee Engagement: How to Align Engagement With Company Values continued
every employee brings something of value to the table, employee engagement skyrockets.
High-performance company cultures value relationships. This means they prioritize community. When employees feel connected to both their co-workers and managers, they are more likely to feel engaged by the company culture.
5. Express how your core values relate to work ethic We’ve all felt those Monday blues—that feeling that work is the last thing we want to do. These negative feelings reduce our productivity and wreak havoc with our well-being.
Find ways to build a community that reflects your core values. If one of your core values is integrity, you might prioritize open communication, honesty, and empathy. Managers should action this when they communicate with their teams.
Employees who feel this way regularly are disengaged— and managers and HR must create a strategy to improve motivation.
Managers could adopt a coaching management style to more actively engage employees. Coaching managers are invested in their employees’ personal development goals. This improves the employee’s motivation, as managers recognize their progress and cheer them on.
Your company values and culture should reflect the work ethic you seek in your employees. Go further than a standard code of conduct.
4. Encourage collaboration based on a clear set of values Collaborative work is also a great way to build employee engagement. Teamwork requires a common purpose— which should align clearly with your core values.
Instead, you could hold lunch and learns with tips on staying motivated. Encourage employees to use fun apps to set goals during the day. Even better, your CEO could give an inspirational speech about their work ethic—and how everyone in the company can aspire towards this.
Core values are not just a PR move—something for the outside world that doesn’t match your company’s internal workings. They are the identity of your company—and all employees contribute to this identity.
Through these small steps, you create a companywide work ethic. Better motivated teams are also better engaged teams.
A team identity is needed for great collaboration. Relevant core values build common purpose between team members and a desire to work together. By making values clearer and more central to the tasks at hand, team members are more likely to build more sustainable working relationships. According to a Deloitte Digital study, employees’ working relationships with colleagues was the second most important aspect in employee satisfaction.
6. Check in on your company values with an employee engagement survey Living up to your company values will not happen overnight. An employee engagement survey can help HR to track how employee experience matches these values. Create a company culture section in your engagement survey. Ask employees to write down what the company’s core values are so that you can measure awareness. Adjust your strategy if your culture is falling short of your employees’ needs.
Employee engagement requires clear values
Working with our dream team prevents burnout, boosts morale and fosters creativity. By cultivating a clear team identity, every employee is aware of their role. When
Employee engagement is the secret ingredient to creative, collaborative organizational cultures. Do not underestimate the power of company values to create purpose and engage employees.
“Great things in business are never done by one person. They’re done by a team of people.” Steve Jobs
Lara Kelly is part of the content team at PeopleGoal. 14
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5 Ways Managers Sabotage the Hiring Process By Marina Glazman, Harvard Business Review
When building a team at a startup earlier in my career, our investors, advisers, and I crafted what looked like a bulletproof recruiting strategy. But despite the wealth of expertise behind our hiring process, I learned an important lesson: Even the most rigorous recruiting strategy is only as strong as the decision-maker’s biggest blind spot.
If you recognize this blind spot in yourself, one of the best ways to mitigate the danger is obvious but underused: Don’t make hiring decisions alone. Seek out a second opinion. If you already have a second opinion, listen to it.
Nearly every hiring manager has a blind spot that, if left unidentified, can lead to devastating consequences, even within well-planned systems. Over time, I’ve identified five of the most common blind spots that compromise recruitment outcomes.
“Emily,” a CEO at a tech startup, found her business in jeopardy when beta testing revealed a flaw in her company's product. (Some details have been changed for privacy.) No one on her team had voiced any criticisms before launch. She didn’t understand how this was possible. But Emily admitted that she only hired people who showed unbridled enthusiasm in interviews. To her, candidates who failed to amply praise the product were “not passionate enough.”
Validation Seeking
Fixing and Rescuing
Entrepreneurs are by nature more likely than average to believe they can create massive change. This can extend to an overconfidence in their ability to develop employees, even in light of evidence that a person is lacking the requisite character traits for growth, like accountability and openness to feedback. Beyond overconfidence in their problem-solving skills, entrepreneurs are also vulnerable to this pattern because of their tight budgets. They’re often looking for a deal, and a candidate who is, say, willing to take a sizable portion of their salary in equity represents just that. Leaders with pride in their organization will assume that the individual’s motivation is their passion for the business. They’ll overlook the possibility that other reasons may drive someone to take a step down financially—including a lack of options.
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As a result, she overlooked contrarian candidates: people who might call out problems even when doing so is unpopular. A study out of Cornell’s Johnson Graduate School of Management warns that leaders who develop “heightened overconfidence from high levels of such ingratiatory behavior” will be less likely to “initiate needed strategic change.” Emily, who conflated validation with passion, was a case in point. If you have a validation-seeking blind spot, also known as “affect-based” decision-making, you should acknowledge that it also takes passion to point out flaws. It requires attention, analysis, and courage to speak up. Praise is easy. Don’t overlook the candidates who offer thought-provoking criticism of your business, even if your knee-jerk reaction is to dismiss them. the ANALYST Business Supplement 2022
5 Ways Managers Sabotage the Hiring Process continued
Boundary Breaching
that all conflict (some of which can be productive) is unwelcome.
“Anna,” a marketing executive, believed a selling point for job candidates was that her team was “like a family”—at least until a colleague confessed that the team resented how much time Anna spent helping “Jill,” one of her direct reports, navigate her divorce. With Jill, something was always wrong—with her partner, her parents, her social life, her car—and Anna felt it was her duty to indulge these “emergencies,” often at the expense of the rest of the team, who picked up the slack.
Detachment
Anna remembered how Jill was drawn to the idea of a tight-knit team during the interview process. What Anna didn’t understand is that there is a time and place for empathy. Empathy can turn a good leader into a great leader, but it can also be misapplied. In describing her team as a family, Anna thought she was signaling an empathetic culture to job candidates. But language like “we’re a family” or “we’re always there for each other no matter what” actually signals a lack of professional boundaries.
“Jamie,” a health care leader, was forced to fire someone she’d hired after he bullied colleagues. This was not the first time a hire of Jamie’s didn’t get along with the team, and she didn’t understand how it happened again. Upon review, we realized that Jamie touted “total freedom” in interviews as a hallmark of company culture, telling candidates she would only weigh in on an as-needed basis. Jamie thought she was signaling that she didn’t micromanage. But according to colleagues, she instead telegraphed that she didn’t really care. While hands-off management can show your team that you trust them, emotional detachment tells people that they’re on their own. Research indicates that teams with an absent leader often end up feeling like they’re in a sink-or-swim environment, which can become a breeding ground for unhealthy conflict. A laissez-faire leadership style creates a vacuum that allows bullies to thrive. Jamie had never considered that her interview style attracted power seekers instead of team players.
If you find yourself attracting high-drama candidates who monopolize everyone’s time, make a note of any overly personalized language you might be using. Also be wary of oversharing by candidates, particularly when they present personal stories as mitigating factors for recurring problems at work.
Micromanaging
Many leaders may signal a micromanaged culture to candidates while recruiting them. For instance, a hiring manager who hints at heavy oversight during recruitment will likely attract candidates who tolerate inflexible environments well—individuals who lack passion, are not highly engaged, prefer linear work, and are not highly driven. Enterprising people, on the other hand, require the freedom to take risks, make mistakes, and challenge ingrained practices. If you find yourself struggling to attract and hire selfmanaging, creative people, it’s worth considering the signals you’re sending. Think about whether you may be placing too much emphasis on rules and procedures, glamorizing the hierarchy or org chart, or suggesting
Going too far with the “you’re on your own, good luck” messaging can also result in a transactional group of individuals looking to clock in, clock out, and not be bothered. If this is your team, consider balancing a culture of independence with reassurance that a strong network and committed leadership are in place. All of these blind spots are damaging, not just because of who they attract but because of what they lead you to miss out on. Every time a leader brings in a team member who lacks accountability or is unengaged or a bully, the rest of the team pays the price. With a bit of self-reflection and an honest assessment of the oversights that may be driving repeat hiring offenses, managers can nip many of these patterns in the bud—and begin to notice the superstars they’ve passed over. Marina Glazman is an entrepreneur, an organizational design and communications strategist, and a business writer. ©2022 Harvard Business School Publishing Corp.
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Successfully Transitioning to New Leadership Roles By Scott Keller and Mary Meaney, McKinsey & Company
In Leading Organizations: Ten Timeless Truths (Bloomsbury Publishing, June 2017),1 McKinsey senior partners Scott Keller and Mary Meaney address the ten basic issues facing leaders: attracting and retaining talent, developing current talent, managing performance, creating leadership teams, making decisions, reorganizing to capture value quickly, reducing long-term overhead costs, making culture a competitive advantage, leading transformational change, and transitioning to new leadership roles. “Attracting and retaining the right talent” (McKinsey.com, November 2017) was the first in our series of articles based on the book. The second was “Reorganizing to capture maximum value quickly” (McKinsey.com, February 2018). Every leadership transition creates uncertainty. Will the new leader uncover and seize opportunities and assemble the right team? Will the changes be sustainable? Will a worthy successor be developed?
These questions boil down to one: Will the leader be successful?
Why are leadership transitions important? Hardly anything that happens at a company is more important than a high-level executive transition. By the nature of the role, a new senior leader’s action or inaction will significantly influence the course of the business, for better or for worse. Yet in spite of these high stakes, leaders are typically underprepared for—and undersupported during—the transition to new roles. The consequences are huge Executive transitions are typically high-stakes, high-tension events: when asked to rank life’s challenges in order of difficulty, the top one is “making a transition at work”—ahead of bereavement, divorce, and health issues.2 If the transition succeeds, the leader’s company will probably be successful; nine out of ten teams whose leader had
Every leadership transition creates uncertainty. Will the Exhibit 1. If atransition leadership transition succeeds, thewill leader's If a leadership succeeds, the leader’s company probably Exhibit 1 company willover probably be successful over several years. be successful several years. new leader uncover and seize opportunities and assemble the right team? Will the changes be sustainable? Will a Successful transitions result in ... Unsuccessful transitions result in ... worthy successor be developed? These questions boil down to one: Will the leader be successful?
Why Are Leadership Transitions Important? Hardly anything that happens at a company is more important than a high-level executive transition. By the nature of the role, a new senior leader’s action or inaction will significantly influence the course of the business, for better or for worse. Yet in spite of these high stakes, leaders are typically underprepared for—and undersupported during—the transition to new roles. 2
20
90%
13%
20%
15%
higher likelihood that teams will meet their 3-year performance goals
lower attrition risk
less engagement
lower performance
Source: CEB Blogs, “Corporate finance: The cost of poor leadership transitions,” blog entry by Kruti Bharucha and Nitika Dial, October 29, 2013, cebglobal.com
The Consequences Are Huge Successfully transitioning to new leadership roles
Executive transitions are typically high-stakes, hightension events: when asked to rank life’s challenges in the ANALYST Business Supplement 2022
Leadership changes are more common and important than ever. But most companies don’t get it right.
order of difficulty, the top one is “making a transition at work”—ahead of bereavement, divorce, and health issues.(1) If the transition succeeds, the leader’s company will probably be successful; nine out of 10 teams whose leader had a successful transition go on to meet their three-year performance goals (Exhibit 1). Moreover, the attrition risk for such teams is 13 percent lower, their level of discretionary effort is 2 percent higher, and they generate 5 percent more revenue and profit than average. But when leaders struggle through a transition, the performance of their direct reports is 15 percent lower than it would be with high-performing leaders. The direct reports are also 20 percent more likely to be disengaged or to leave the organization.(2) Successful or not, transitions have direct expenses—typically for advertising, searches, relocation, sign-on bonuses, referral awards, and the overhead of HR professionals and other leaders involved in the process. For senior-executive roles, these outlays have been estimated at 213 percent of the annual salary.(3) Yet perhaps the most significant cost is losing six, 12, or 18 months while the competition races ahead.
Nearly Half of Leadership Transitions Fail
Studies show that two years after executive transitions, anywhere between 27 and 46 percent of them are regarded as failures or disappointments.(4) Leaders rank organizational politics as the main challenge: 68 percent of transitions founded on issues related to politics, culture, and people, and 67 percent of leaders wish they had moved faster to change the culture. These matters aren’t problems only for leaders who come in from the outside: 79 percent of external and 69 percent of internal hires report that implementing culture change is difficult. Bear in mind that these are senior leaders who demonstrated success and showed intelligence, initiative, and results in their previous roles. It would seem that Marshall Goldsmith’s advice—“What got you here won’t get you there”(5)—is fully applicable to executive transitions.
Leadership Transitions Are More Frequent, Yet New Leaders Get Little Help The pace and magnitude of change are constantly rising in the business world, so it is no surprise that seniorexecutive transitions are increasingly common: CEO turnover rates have shot up from 11.6 percent in 2010 to
16.6 percent in 2015.(6) Since 69 percent of new CEOs reshuffle their management teams within the first two years, transitions then cascade through the senior ranks. (7) Sixty-seven percent of leaders report that their organizations now experience “some or many more” transitions than they did in the previous year.(8) Despite the increase in frequency, only 29 and 32 percent of US and global leaders, respectively, feel that their organizations appropriately support new leaders. As many as 74 percent of US leaders and 83 percent of global ones think they are unprepared for their new roles.(9) As CEB puts it, “most organizations approach new leadership transitions in the same way many organizations approach mergers and acquisitions: as one-off events…. The typical unsystematic ‘hands-off’ transition approach relies heavily on new leaders to self-manage their transitions. However, most leaders experience only a handful of transitions … so for them, each transition remains more art than science.”(10)
Organizations most often try to help newly appointed leaders by supplying them with mentors
or informal “buddy” networks. Yet only 47 percent of external hires and 29 percent of internal ones find these helpful. Standard orientation programs are the second most common approach, but only 19 percent of externally and 11 percent of internally recruited executives consider them effective. Some methods— for instance, tailored executive coaching and customized assimilation plans—have been shown to double the likelihood of success, but only 32 percent of organizations use them. (11) When companies are asked what additional support they intend to provide in future, the commonest response is to have HR play a more supportive role. But HR departments already have a full plate.(12)
What Are The Big Ideas?
Newly appointed leaders should take stock of their situation in five areas and then take action to deal with them. They should also clearly state not only what they 21
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situation in five areas and then take action to deal with them. They should also clearly state not only Successfully Transitioning to New Roleswon’t, continued what they will do Leadership but what they as well as forget the idea that they have only 100 days to make an impact.
will do but what they won’t, as well as forget the idea that they have 100and days to make Takeonly stock take actionan in impact. five areas
herself or himself, and other stakeholders that need to be managed (Exhibit 2). Beware of generic answers because every leader’s starting point is different. For some, the starting role is to maintain and improve steadily what they inherited in each herself or himself, and other that need to be of these dimensions. For stakeholders others, transformational managed (Exhibit 2). Beware of generic answers change in all the dimensions is necessary. Stillbecause everyothers leader’s starting point is different. For some, the face a mix of requirements.
The great Spanish writer Cervantes once wrote, Take Stock And Takeis half Action In Five Areas “To be prepared the battle.” What is the other starting role is to maintain and improve steadily what inherited in eachmanaging of these dimensions. others, The great Spanish writer Cervantes once wrote, “To be half? A second famous Spaniard, the artist Pablo they Simultaneously the five focusFor areas isn’t transformational change in all the dimensions is necesprepared is Picasso, half the said, battle.” What is the other half? A “Action is the foundational key to easy. As with spinning plates, do it too slowly, and Still lose others face a mixand of crash requirements. second famous Spaniard, artist Pablo Picasso, said, success.” They the were right, so every leader should sary. they momentum to the ground; do “Action is the foundational key to success.” They were mount a transition in two equally important stages: it too quickly, and they spin out of control. Get this Simultaneously managing the five focus areas isn’t easy. right, so every should mount a transition inasking two firstleader take stock and then take action by right, and you can succeed spectacularly. As with spinning plates, do it too slowly, and they lose equally important stages: first take stock and then take questions about five basic dimensions of leadership—
momentum and crash to the ground; do it too quickly, and they spin out of control. Get this right, and you can succeed spectacularly.
action by asking questions about five basic dimensions of leadership— the strategy and operation of the business or function, the corporate culture, the team, the leader
Leaders should think about mounting a transition in two equal steps: first take stock, thenmounting take action across Exhibit 2. Leaders should think about a transition in two five equaldimensions. steps: first take stock, then take action across
Exhibit 2
five dimensions.
Your business or function
Culture
Team
Yourself
Other stakeholders
Take stock: Do you understand the current performance and capabilities?
Take stock: Do you understand the current culture and any shifts required to improve performance?
Take stock: Do you have the right team with the right skills and attitudes and the right structure?
Take stock: Have you done what it takes to get up to speed, set boundaries, and consider your legacy?
Take stock: Do you understand your mandate and the other expectations of major stakeholders?
Take action: Have you aligned and mobilized your team and organization on the future aspiration and priorities?
Take action: Are you influencing those shifts with all levers available?
Take action: Have you together embarked on a structured journey to become a high-performing team?
Take action: Do you spend your time wisely by assuming roles only you can play?
Take action: Have you established a productive working rhythm and relationship with them to shape their views?
Be Clear About What You Won’t Do, Not Just What You Will 4
When Alan Lafley took over Procter & Gamble in June 2000, the global consumer-goods giant had become the worst-performing company in the Dow Jones Industrial Average. Lafley increased P&G’s profits by 70 percent and its Successfully transitioning to new leadership roles revenues by almost 30 percent in his first five years. His success was as much about what he stopped as what he started. Lafley and his senior team quickly ended almost $200 million of experimental technology projects and regional marketing campaigns. They prioritized four core businesses and ten countries. As Lafley says, “be clear on what you won’t do—what needs to stop…. Most human beings and most companies don’t like to make choices, and they particularly don’t like to make a few choices they really have to live with.” Along the same lines, management thinker Jim Collins notes that great companies create “stop-doing” lists to complement their “to-do” lists.(13) In our experience, too, senior executives in new roles must be clear not only about what they want to do but also about what they don’t. Otherwise, when employees hear about the company’s new direction, they will reframe what they are already doing to show that this supports the changes, and many pet projects will crop up in the 22
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Successfully Transitioning to New Leadership Roles continued
name of advancing them. Well-intentioned but fragmented and ineffectual efforts then proliferate, and momentum vanishes. Successful leaders are 1.8 times more likely than others to communicate explicit ideas about what to stop, not just about what to start.(14) So, as leaders in a transition take stock, they should ask what they can delay or terminate—for example, initiatives, meetings, process steps, reports, and rituals. As leaders take action, they should not only be clear about what will stop and start but also adopt a philosophy from the world of good housekeeping: one thing in, one thing out. When people propose new initiatives, leaders should ask what the company will stop doing to free up the time, money, resources, and focus needed to implement them well.
Be Impact Driven, Not Calendar Driven
If you type “executive transitions” into Amazon, you will find a long list of books offering 90- and 100-day plans Exhibit 3
for success. These works say that you have a limited period to achieve full productivity as a leader and that if you don’t make it in time, you are doomed. The evidence doesn’t support these claims: 92 percent of external and 72 percent of internal hires take far more than 90 days to reach full productivity.(15) Sixty-two percent of external and 25 percent of internal hires admit that it took them at least six months to have real impact. In general, that delay isn’t a problem. Stakeholders typically expect a new CEO to propose a strategic vision within the first eight months, not the first 100 days (Exhibit 3). They give the CEO 14 months to get a new team in place and 19 months for an increase in share prices.(16) This doesn’t necessarily mean that leaders shouldn’t move quickly—for example, 72 percent of them wish they had taken less time to reshape their teams.(17) But stale formulas shouldn’t pressure leaders to act.
The idea that new leaders have 100 days to make their mark is a myth.
Exhibit 3. The idea that new leaders have 100 days to make their mark is a myth. Time it takes to become fully productive, % of leaders reporting External hire
Number of months a CEO has to… Develop a strategic vision
Internal hire
100
Win support of employees Build the right team
72
8 9 14
Earn credibility with analysts
62
Increase share price 25 More than 90 days
More than 6 months
Turn company around Reinvent how the company does business
17 19 21 22
Source: Leslie Gaines-Ross, CEO Capital: A Guide to Building CEO Reputation and Company Success, Hoboken, NJ: John Wiley & Sons, 2002; Executive transitions market study summary report: 2008, a joint report from The Institute of Executive Development and Alexcel Group, 2008
How Do I Make It Happen?
Sofia, a high-ranking leader at a European financial services company, accepted a senior-executive position in its insurance-brokerage business. The company’s top leaders felt that although this would be a stretch assignment, she was right for it. Sofia had some previous contact with the business but knew little about how it worked, although she did market in a disciplined way rather than trying to be started toasget to know her team and met a couple know its reputation a weak performer. of colleagues from earlier in her career who now worked in the same business. 1. Aspire
Sofia quickly immersed herself. She spent time carefully Sofia’s step begin engaging the understanding thenext views ofwas the to outgoing leader and organization. She spent time at regional offices organized sessions with third-party experts to learn
everything to everyone; and to consider acquisitions after they had shown that the trends, unit could aboutonly industry dynamics, competitive and best organically grow. practices. She also started to get to know her team and
met a couple of colleagues from earlier in her career who Assess now 2. worked in the same business.
Sofia and her direct reports, supported by a strategy interviewing high-performing employees individually team, started meeting twice a week to deepen to get their advice and meeting with the rest of the their discussions. Together,2022 they decided on the staff. She also met with representatives from key 23 the ANALYST Business Supplement priorities for achieving the aspiration, identified customer accounts to hear their hopes and concerns.
Successfully Transitioning to New Leadership Roles continued
Sofia’s next step was to begin engaging the organization. She spent time at regional offices interviewing high-performing employees individually to get their advice and meeting with the rest of the staff. She also met with representatives from key customer accounts to hear their hopes and concerns. Meanwhile, a small strategy team was pulling together a baseline analysis of the unit’s performance and culture. She met the team every week to discuss the findings and create “one version of the truth.” Ten weeks into the role, Sofia assembled her team for a two-day “aspiration-setting” workshop at an off-site location. Together, they created a high-level aspiration: to operate as a bank-owned business rather than a standalone company; to segment the market in a disciplined way rather than trying to be everything to everyone; and to consider acquisitions only after they had shown that the unit could organically grow.
2. Assess Sofia and her direct reports, supported by a strategy team, started meeting twice a week to deepen their discussions. Together, they decided on the priorities for achieving the aspiration, identified the new capabilities it required (for example, digital marketing, data analytics, and customer relationship management), and considered organizational options. Twelve weeks into the new job, Sofia announced a restructuring of the business, the early retirement of two executives, and the creation of three new executive roles. She now had the strategy team running focus groups to identify limiting mindsets and behavior that could undermine the aspiration. Many employees, for instance, felt that being part of a larger financial services institution hurt the insurance operation’s performance. They didn’t trust the abilities of colleagues outside their own departments. A significant number believed that if revenues grew, everything else, including margins, would take care of itself. In the next workshop, an experienced facilitator helped Sofia’s direct reports to decide on specific performance goals (such as margin growth, cross sell rates, and customer satisfaction) and to identify the necessary shifts in mindsets and behavior.
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3. Architect Having taken stock of the business’s situation and aligned on an aspiration, Sofia and her direct reports began to plan how they would take action. They launched initiative teams to determine how to implement all the priorities. Executive-level members, working in pairs to get to know each other better and to model their collaboration, sponsored every initiative. The initiative teams focused on defining a customer-segmentation strategy, optimizing technology, standardizing office models and compensation structures, and creating more integrated partnerships with the company’s other businesses. The teams also suggested what should be on the stop-doing list and how the company’s culture could change through role modeling, storytelling, reinforcement mechanisms, and skill building. The next off-site meeting determined the scope of each initiative, the key decisions, the overall milestones, and the governance mechanisms. A few scenarios were played out so that everyone understood decision rights, key performance indicators, and interdependencies. Then a change story assembled the full picture—the what, when, why, how, and who of the whole program.
4. Act Sofia worked with her assistant to ensure that she would have enough time for the important issues as well as the flexibility to deal with urgent ones. She ensured that detailed plans were fleshed out for each initiative while simultaneously implementing some quick wins. She also established a program management office (PMO) to coordinate the initiative teams. This phase culminated in an off-site meeting with the business unit’s top 300 leaders that formally marked the launch of the new direction. In advance of the meeting, the change story and detailed implementation plans were refined. The PMO fleshed out a full change-management and communications plan. The finance and HR teams reviewed current business and talent processes to confirm their alignment with the new direction and to clarify who was responsible for what. And Sofia’s boss, Rajit, was briefed to explain what the new direction of the insurance business would mean for the company as a whole. (Sofia had previously spent time with him to ensure that he was comfortable with her plans.)
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Successfully Transitioning to New Leadership Roles continued
5. Advance In the next six months, Sofia met monthly with the PMO and the initiative teams, switching to a quarterly schedule once things were well on track. She continued to manage her schedule to balance meetings with customers, business partners, and regulators and with her direct reports. She also reserved time to reflect on strategy, organizational dynamics, and her personal impact. Sofia stayed close to her direct reports, both individually and as a group (frequent one-on-one feedback and coaching sessions ensured that they remained fully on board). Six months into her role, two leaders hadn’t changed in the way she had hoped, so she made the necessary moves; fortunately, she had earlier decided to work with HR to create succession options. She also used an inner circle of informal advisers to act as a sounding board, to give her discreet advice, and to learn how the organization perceived her and her actions. A year into her role, not everything had gone according to plan: unforeseen economic changes dictated a strategic decision to focus more on the consumer business. She also had to dismiss another of her direct reports unexpectedly after major risk and compliance issues surfaced. But thanks to the operating rhythm Sofia had created, the business unit picked up the need for adjustments early on and quickly made changes. Its performance was turning around—it beat its plan, with significant increases in cross-selling and profit margins. Ninety-five percent of its employees now felt it had a clear, shared direction, up from less than half before Sofia’s arrival. Most important, she felt confident she had the right strategy, the right team, and the right support from stakeholders. Sofia effectively took stock and took action in the areas that matter, and so should all executives who want to ensure that their transitions are a success.
3.
Heather Boushey and Sarah Jane Glynn, There are significant business costs to replacing employees, Center for American Progress, November 2012, americanprogress.org.
4.
We compiled these statistics on failure rates and their causes from a number of landmark studies, including Brad Smart and Geoff Smart, Topgrading: How to Hire, Coach and Keep A Players, New York, NY: Penguin, 1999; Mark Murphy, “Leadership IQ study: Why new hires fail,” Public Management, 2005, Volume 88, Number 2; Patricia Wheeler, “Executive transitions market study summary report: 2008,” The Institute of Executive Development, 2008; George Bradt, Jayme Check, and Jorge Pedraza, The New Leader’s 100-Day Action Plan: How to Take Charge, Build Your Team, and Get Immediate Results, Hoboken, NJ: Wiley, 2006; and recent Gallup polls. The specific range mentioned here comes from Executive Transitions Rise, Challenges Continue, IED and Alexcel Research, June 2013 (27 percent), and “High-impact leadership transitions: a transformative approach,” CEB, 2012 (46 percent).
5.
Marshall Goldsmith and Mark Reiter, What Got You Here Won’t Get You There, New York, NY: Hyperion, 2007.
6.
DeAnne Aguirre, Per-Ola Karlsson, and Kristin Rivera, “Are CEOs less ethical than in the past?” strategy+business, Summer 2017, strategy-business.com.
7.
Michael Birshan, Thomas Meakin, and Kurt Strovink, “How new CEOs can boost their odds of success,” McKinsey Quarterly, May 2016, McKinsey.com.
8.
Executive Transitions Rise, Challenges Continue, IED and Alexcel Research, June 2013.
9.
Matt Paese and Richard S. Wellins, Leaders in transition: Stepping up, not off, Development Dimensions International, ddiworld.com; and “Ascending to the C-suite,” April 2015, McKinsey.com.
10. High-Impact Leadership Transitions, 2012, CEB, cebglobal.com. 11. Patricia Wheeler, “Executive transitions market study summary report: 2008,” The Institute of Executive Development, 2008; “Ascending to the C-suite,” April 2015, McKinsey.com. 12. Executive Transitions Rise, Challenges Continue, IED and Alexcel Research, June 2013. 13. Debbie Weil, “Three things on Jim Collins’ stop doing list,” Inc., September 2008, inc.com. 14. “Ascending to the C-suite,” April 2015, McKinsey.com. 15. Patricia Wheeler, “Executive transitions market study summary report: 2008,” The Institute of Executive Development, 2008. 16. Leslie Gaines-Ross, CEO Capital: A Guide to Building CEO Reputation and Company Success, Hoboken, NJ: Wiley, 2002. 17. “Ascending to the C-suite,” April 2015, McKinsey.com. More than half also think that they didn’t spend enough time taking stock of their personal leadership strengths and weaknesses during the transition and evaluating their personal operating models.
Scott Keller is a senior partner in McKinsey’s Southern California office.
References 1.
Matt Paese and Richard S. Wellins, Leaders in transition: Stepping up, not off, Development Dimensions International, ddiworld.com.
2.
CEB Blogs, “Corporate finance: The cost of poor leadership transitions,” blog entry by Kruti Bharucha and Nitika Dial, October 29, 2013, cebglobal.com.
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Mary Meaney is a senior partner in McKinsey's Paris office. © 2018 McKinsey & Company. All rights reserved.
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How Managers Can Build a Culture of Experimentation By Frank V. Cespedes, Harvard Business School, and Neil Hoyne, Google
randomized control trials in a competitive market. You must typically repair the ship while it’s sailing, on open water, in weather conditions you do not control.
Experimentation encourages innovation, but it can also be a drain on time and resources. To make experimentation a productive activity in your organization, you must manage several conditions, including what you learn, how you apply your what you learn, the opportunities presented by your learning, and the conversations you have with colleagues about it all.
You should consider the opportunity costs inherent in testing and be willing to adjust your methodology and scope accordingly. Testing will rarely produce a “scientific” result, but it can still yield insights and options. The goal is to generate relevant dialogue among decisionmakers amid changing market conditions—not eternal truths. Use what you can for today while investing in finding answers for tomorrow.
In this article we detail the conditions under which experiments should be conducted. These include the key considerations one must make when testing in an ever-changing business environment, which data to test against, and the criteria against which one should make decisions.
Mind Your Data
Understand Testing in Business Conditions Testing in business presents qualitatively different challenges than those present in most academic and medical research. There are few opportunities for
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In most machine learning projects, as much as 80% of the time and costs of data scientists and IT groups is spent cleaning up data as a result of things like inconsistent inputs, outdated views of buyer behavior, and legacy assumptions. the ANALYST Business Supplement 2022
You must build tests from data in which you’re confident. For example, product returns are a trillion-dollar issue for retailers worldwide, and a buyer’s order history provides a firm basis for testing. One study found that when shoppers interact with products, zooming in to see the texture of the fabric or rotating it to see its appearance from multiple sides, they are less likely to return the purchase. Conversely, those who order in a scattering of sizes are more likely to return products. This data can provide hypotheses for relevant tests that, in turn, generate dialogue about website design, pricing, orderfulfillment policies and terms and conditions.
Establish Decision-Making Criteria
elements beyond price. … Impact on LTV is estimated by evaluating conversion rates (free accounts who upgrade to a paid plan) and initial monthly revenue (average price a user pays after conversion to a paid plan).” These criteria helped improve cross-functional efforts to evaluate the data and implement options.
Pay Attention to “Small” Ideas
Companies tend to allocate testing time and money to big initiatives while ignoring small ideas that can have a bigger impact with less risk.
Most managers are good at asking questions, but not as good (or, for various reasons, reluctant) at specifying what would constitute a feasible answer to those questions. Data is crucial, but it’s mute. Managers must always interpret data with an end in mind.
Seek progress, not perfection, and invest in processes that allow employees to submit seemingly small ideas. Online channels make testing these ideas feasible and inexpensive when you know how to ask questions. Here are three straightforward approaches:
Pricing is an example. A price has multiple dimensions: base price, discounts, rebates, special offers, and so on. Price testing should be an ongoing part of effective marketing, but managers must first clarify the evaluation criteria because testing in business ultimately means evaluating alternatives. For instance, price changes typically have an impact over multiple time periods, not just in the short term. Yet most companies fail to specify the criteria they will use to interpret pricing tests, and they spend time and money in an unfocused fishing expedition that goes nowhere.
•
Mine your website for consumer insight. When airlines add a question asking if the purpose of a trip is personal or for business, they have insight into price sensitivity for upgrades.
•
Rotate periodically the questions you ask, gathering insights that are missed when the same questions remain unchanged for months or years.
•
Engage users and nonusers. There’s now a class of tools that enables you to engage directly with customers and prospects in real time and at different points in their buying journeys.
An exception is Basecamp, the collaborative software provider whose products span a wide range of users and applications. When it introduced its Basecamp 3 product, it conducted a combination of price surveys, A/B tests, and various offers, and it specified its criteria for making decisions upfront. As its chief data analyst noted in a Harvard Business School case, “optimal prices [are] those that result in maximum [customer] lifetime value (LTV). We’d accept a lower purchase rate if a higher average value offset that, and vice versa. We’d also accept a lower average invoice amount if it led to higher retention and thus greater LTV.” The firm was also clear about the criteria to use in evaluating results: “It’s hard to test LTV directly [because] that’s a long-term outcome sensitive to
As the pandemic demonstrated, markets move faster than ever, and it’s your job to adapt. Talk about “big data” and “digital transformation” has left many managers obsessing about how to store data. But the best firms obsess over how they can use their data to test new ideas. Think of testing in your organization as part of an ongoing conversation with your market—a motion picture, not a selfie or snapshot, made in a world that never stops changing. Frank V. Cespedes is a senior lecturer at Harvard Business School. Neil Hoyne is chief measurement strategist at Google. ©2022 Harvard Business School Publishing Corp.
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the ANALYST Business Supplement 2022
15 Essential Business Metrics to Track By Forbes Business Council Members
Measuring your organization’s performance requires thorough data collection and analysis. But with countless examples of business metrics, how do you know which ones are worth tracking? While the ideal combination of key performance indicators (KPIs) will depend largely on your individual business needs, there are certain metrics that are vital for companies across the board. Below, the members of Forbes Business Council share 15 KPIs every business should be tracking.
employee engagement ironically is also most often in the control of the business owner. – Charlie Ginzburg, Michael Page
1. Manager-Employee Connections
4. Lead and Lag Measures
This is one metric that needs the capacity of your managers acting in a trusting and connected manner when employees are having difficulties. How do they manage the soft end of employees' needs? Retention and attraction are greatly hinged at this time on the capacity to connect on an authentic level. – Roxanne Derhodge, Roxanne Derhodge Consulting
3. Customer Acquisition Cost
I believe this is one of the most important metrics. If a customer costs you more than you spend on acquisition, your business never will be profitable. – Julia Ponomareva, eMop Ltd. Different businesses should measure different things. Successful businesses track lead measures and crosscheck back to lag measures. This feedback loop allows for faster adjustments. For some it may be transaction size, the number of client visits or a production metric. When selecting what to measure, ask "Is it predictive?" and "Is it measurable?" Do this and you'll be on the right track! – Denny LaVe, Precision Precast Erectors
2. Employee Engagement
Employees are the universal lifeblood of a business. The product or service can be excellent, but unless the business is a one-person operation or has no competition, the engagement of employees will correlate to the output of the business. While being the most important, 28
5. On-Time Project Delivery
Track the rate of on-time project delivery. It's one thing to say that you deliver projects on-time or ahead of schedule, but it's another to really know how long it takes to get work done. Tracking this metric allows you the ANALYST Business Supplement 2022
11. Customer Lifetime Value
to have honest discussions with clients about how long a project will take. It also allows you to understand and improve your own processes. – Jacob Ehrlich, Pure Health Consulting
6. Retention
People drive our businesses, and retaining the best people is a top priority for every business. When organizations begin to track retention, they are able to understand what makes their business a great place, and areas for improvement come from open and honest conversation. Over time, measuring and tracking this metric will help keep an organization growing and thriving. – Raazi Imam, Sia Partners
7. Profitability
This quote has always resonated with me: "Revenue feeds ego. Profit feeds families." I've seen too much emphasis on top-line revenue without a strong understanding of the costs that impact profitability. – Gina Boedeker, The Boedeker Group
8. Order Fulfillment
An extremely important metric is order fulfillment. If you do not deliver reliable results on a consistent basis, it's unlikely that you'll retain any customers at all, and you can forget about referral business and positive feedback. It's not enough to just "deliver" either. You must deliver better than your competitors and always keep your clients involved along the way with routine updates. – S.W. Miliano, Terrazel, Inc./The Stone Register
Cross-selling and upselling current customers are the most cost-effective ways to sell your product. If this drops, you need to take a look at where the holes are in the customer experience you are providing. This metric can also be used as inspiration to continually upgrade your customer-brand relationship and product or services. – Caitlin Strempel, Rising Ranks Digital
12. Percentage of Repeat Customers
One of the most telling and important metrics is the percentage of current business that is repeat customers. If the customers continue to buy from you, that is a great indicator that they find value in your product and services. – Carrie Schochet, Purple Squirrel Advisors
13. Revenue Growth
I believe that revenue growth is 100% the most important metric that every single business, small or large, should track. Why? Revenue is the total amount of sales that you rake in by selling your products to customers with the cost of returned or undeliverable items deducted from the bottom line. To my knowledge, it's the key metric every business uses to properly calculate its performance. – Sabeer Nelliparamban, Tyler Petroleum Inc
14. Employee Well-Being
9. Website Traffic
One metric that every business should track is website traffic. If you are an e-commerce brand, this is especially important, as it will also help you understand your sales trends. I use Google Analytics to track this throughout the day. – Kelley Higney, Bug Bite Thing
10. Return on Investment
I consider the return on investment (ROI) to be one of the most indispensable metrics from the beginning of the activities. It allows you to measure profits in relation to a determined investment. In the end, this will give a perspective of what is happening and where we are going. I think it is very useful. This way we can have a reference and make decisions based on it. – Kevin Leyes, Leyes Media 29
The key metric that every business needs to track, beyond the traditional financial KPIs of performance, is employee well-being. If your employees do not have the energy to be creative and resilient when facing specific business challenges that may arise, your business will be at risk and your key strategies will not get executed. By measuring employee well-being, you can also improve it. – Andreea Vanacker, SPARKX5
15. Cash Flow
Cash flow will allow you to adapt quickly to unexpected changes out of your control. It can prepare you for supply chain delays along with a multitude of other issues that can come from not having your cash flow intact. Having a good financial partner helps, and cash (or access to it when needed) can ensure your company can weather the up and downs. – Paul L. Gunn, KUOG Corporation
the ANALYST Business Supplement 2022
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