Friday, October 11, 2013

Asha to Ashes: Microsoft's emerging market conundrum

Microsoft Chief Executive Steve Ballmer (L) and his Nokia counterpart Stephen Elop introduce new Nokia phones with Microsoft's Windows 8 operating system at an event in New York in this September 5, 2012 file photo. REUTERS/Brendan McDermid/Files

Microsoft Chief Executive Steve Ballmer (L) and his Nokia counterpart Stephen Elop introduce new Nokia phones with Microsoft's Windows 8 operating system at an event in New York in this September 5, 2012 file photo.

Credit: Reuters/Brendan McDermid/Files

By Jeremy Wagstaff and Devidutta Tripathy

SINGAPORE/NEW DELHI | Thu Sep 5, 2013 9:22pm EDT

SINGAPORE/NEW DELHI (Reuters) - Microsoft Corp's acquisition of Nokia's handset business gives the software behemoth control of its main Windows smartphone partner, but leaves a question mark over the bigger business it has bought: Nokia's cheap and basic phones that still dominate emerging markets like India.

Microsoft Chief Executive Steve Ballmer has said he sees such phones - of which Nokia shipped more than 50 million last quarter - as an entree to more expensive fare.

"We look at that as an excellent feeder system into the smartphone world and a way to touch people with our services even on much lower-end devices in many parts of the world," he said in a conference call to analysts on Tuesday.

But analysts warn that's easier said than done.

The problem, said Jayanth Kolla, partner at Convergence Catalyst, an India-based telecom research and advisory firm, is that Microsoft simply lacks Nokia's retail and supply chain experience in the Finnish company's most important markets.

"The devices business, especially the non-smartphones business in emerging markets, is a completely different dynamic," he said.

Kolla pointed to the need to manage tight supply chains, distribution, and building brands through word-of-mouth. "Microsoft doesn't have it in its DNA to run operations at this level," he said.

India is a case in point. Nokia has been there since the mid 1990s and the country accounted for 7 percent of its 2012 revenue while the United States generated just 6 percent, according to Thomson Reuters data. Its India roots run deep: it has a presence in 200,000 outlets, 70,000 of which sell only its devices. One of its biggest plants in the world is in the southern city of Chennai.

For sure, Nokia has slipped in India as elsewhere: After nearly two decades as the market leader it was unseated by Samsung Electronics Co Ltd in overall sales last quarter.

But it still sold more of its more basic feature phones.

As recently as last October, market research company Nielsen ranked it the top handset brand. The Economic Times ranked it the country's third most trusted brand.

LOYALTY RUNS DEEP

In a land of frequent power cuts and rugged roads, the sturdiness and longer battery life of Nokia's phones have won it a loyal fan base - some of whom have stayed loyal when trading up.

Take Sunil Sachdeva, a Delhi-based executive, who has stuck with Nokia since his first phone. He has just bought his fifth: an upgrade to the Nokia Lumia smartphone running Microsoft's mobile operating system.

"Technology-wise they are still the best," he said of Nokia.

But Microsoft can't take such loyalty for granted. Challenging it and Samsung are local players such as Karbonn and Micromax, which are churning out smartphones running Google Inc's Android operating system for as little as $50.

Such players are also denting Nokia's efforts to build its Asha brand, touchscreen devices perched somewhere between a feature phone and a smartphone.

Nokia shipped 4.3 million Asha phones globally in the second quarter of this year, down from 5.0 million the previous quarter.

"The sales performance of the Asha line has been quite poor," said Sameer Singh, Hyderabad-based analyst at BitChemy Ventures, an investor in local startups. "With increasing competition from the low-end smartphone vendors, I'm unsure how long that business will last."

That leaves the cheap seats. Singh estimates that the Asia Pacific, Middle East and Africa accounted for two-thirds of Nokia's feature phone volumes in the last quarter, at an average selling price of between 25 to 30 euros ($32.99 to $39.59).

"I don't see how Microsoft can really leverage this volume," he said. "The market is extremely price sensitive and margins are racing into negative territory."

TOO BIG TO IGNORE

The quandary for Microsoft is that while the basic phone market may be declining, it may simply be too big to ignore.

"If you look at markets like India and Indonesia, more than 70 percent of the volume comes from the feature phone business," Anshul Gupta, principal research analyst at Gartner said. "It's still a significant part of the overall market."

That means that if Microsoft wants to herd this market up the value chain to its Windows phones, it needs to keep the Nokia and Asha brands afloat - while also narrowing the price gap between its smartphones and the feature phones and cheap smartphones.

Microsoft has hinted that lowering prices of smartphones would be a priority. The Windows Phone series includes the top-end Lumia 1020, which comes with a 41-megapixel camera, while it also sells simpler models such as the Lumia 610 and 620 aimed at first-time smartphone buyers.

"The lower price phone is a strategic initiative for the next Windows Phone release," Terry Myerson, vice president of operating systems said on the same conference call, while declining to provide details.

An option for Microsoft, analysts said, would be to shoe-horn services like Bing search, Outlook webmail and Skype, the Internet telephony and messaging application, into the lower-end phones as a way to drive traffic to those services and make the devices more appealing.

"So you can bundle services with these low-end products and that way you can reach a wider audience," said Finland-based Nordea Markets analyst Sami Sarkamies.

But in the meantime Microsoft needs to brace for assault on all fronts as emerging market rivals see an opportunity to eat further into Nokia's market share. In India, said Convergent Catalyst's Kolla, cheap local Android brands have been held back by Nokia's strong promotion of its mid-tier Asha brand.

"Now, I expect them to pounce," he said. ($1 = 0.7577 euros)

(Reporting By Jeremy Wagstaff in Singapore, Devidutta Tripathy in New Delhi, Bill Rigby in Seattle, Ritsuko Ando in Helsinki; Editing by Emily Kaiser)


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Thursday, October 10, 2013

Smartphones try fashion makeovers to stand out from pack

A phone with a wooden back on it rests in a display at a launch event for Motorola's new Moto X phone in New York, in this August 1, 2013, file photo. REUTERS/Lucas Jackson/Files

1 of 5. A phone with a wooden back on it rests in a display at a launch event for Motorola's new Moto X phone in New York, in this August 1, 2013, file photo.

Credit: Reuters/Lucas Jackson/Files

By Alexei Oreskovic and Poornima Gupta

SAN FRANCISCO | Sun Sep 8, 2013 10:24am EDT

SAN FRANCISCO (Reuters) - Bright colors, funky textures and personalization are coming to a smartphone near you as mobile phone makers turn to fashion to buoy sales in a crowded market.

Apple Inc and Google Inc's Motorola are among those trying to score style points as game-changing technological innovation becomes harder to achieve in the maturing business.

Since the first touch-screen iPhone hit the market in 2007, software features have become easier to replicate and improvements in speed, weight, display size and resolution have become routine. The explosion of me-too products is already hurting profit margins and nibbling at Apple and Samsung Electronic Co Ltd's market share.

Time to bring out the paintbrush.

Apple has invited reporters to an event on Tuesday where it is expected to introduce new iPhones in a much broader palette of colors, perhaps even gold.

One-time leader Motorola, now owned by Google, is trying to win back consumers with the Moto X, relying partly on customized colors and, soon to come, engravings and unusual casing materials such as wood.

Robert Brunner, founder of design consultancy Ammunition and a former Apple industrial design chief, said personalization is a well-worn tactic employed when a product's uniqueness fades.

"As something becomes embedded in lifestyle and as it starts to become commoditized, people look toward more superficial design things to differentiate or at least reach more people," said Brunner, whose clients have included Amazon.com Inc, Dell Inc and Nike Inc.

"And colors are the classic. If you do it at the right time, it will create a significant increase in sales every time."

Much of the speculation around new iPhones this year has focused on colors and material, in marked contrast to previous years when hopes ran high for a breakthrough feature.

PERSONALIZATION IS KEY

The consumer electronics industry lives and dies by innovation, and resorting to aesthetics is at best a stop-gap measure until frequently talked about new technologies such as fingerprint identification, holographics or flexible displays become reality.

Smartphone shipments grew 52 percent in the second quarter, according to research firm IDC. But the market is getting crowded, with everyone from Alcatel Lucent to China's Huawei producing an abundance of look-alike phones based on Google's Android software.

Consumers face a sea of "rectangles that are black and white" that all use similar software and capabilities, said Carolina Milanesi, an analyst with research firm Gartner. "So you need that instant hook in the store to get people to pay attention, and that comes from the fashion and style."

Nokia's phone business, soon to be part of Microsoft Corp, was one of the first to try color. Nokia's Windows-powered Lumias came in a variety of shades from blue and red to yellow, helping boost shipments by 76 percent in the second quarter and outpacing the overall market's growth rate.

"We have always believed technology is highly personal, highly individual," said Yves Behar, the chief creative officer at Jawbone, who has designed a successful line of customizable gadgets including the Up wristband and Jambox wireless speakers. "We get more people wanting to customize their Jambox than we get people not wanting to."

Making more stylish phones, however, can increase production costs and make inventory management and demand forecasting more challenging. Also, taste varies from region to region. So success in the fashion game requires mastering new supply chain and manufacturing skills.

"If you try to predict in advance precise numbers, it is a sure way to over stock or under stock," Behar warned.

BUILT TO ORDER

In 2010, Apple had to delay the launch of the white iPhone 4 twice, citing manufacturing challenges. While the company did not provide details, speculation ranged from color-matching difficulties to an issue with the device's back light.

More recently, Motorola delayed offering the personalized engravings it promised for the Moto X, and the special wood panels that consumers can choose for their phones will not be available until later this year.

To help with logistics, Motorola is using a Flextronics International Ltd contract facility near Dallas that can custom-build phones and ship within 6 days. Its long-term target is 4 days.

That kind of customization requires a completely different supply chain system, said Massachusetts Institute of Technology professor David Simchi-Levi.

Instead of optimizing for the lowest cost components, a build-to-order model needs to focus on speed, said Simchi-Levi, who has previously consulted for computer maker Dell, which popularized the model in the 1990s.

Done right, the build-to-order model can generate richer margins and provide flexibility to respond to demand: maintaining stockpiles of components means lower cost and less risk than keeping inventory of finished goods, Simchi-Levi said.

Analysts have said the impact of Motorola's new strategy on its profit margins is unclear. Mark Randall, the company's senior vice president of supply chain and operations, said it knows a build-to-order model will not be easy but is convinced that is the right approach for today's market.

"We decided on this approach ourselves, relying on some market research but also our own instincts. We thought it was time to get away from just having a white or black phone."

TRIED AND TESTED

In the 1990s, cellphone makers relied on aesthetics to stand out. Phone makers pumped slider phones, flip phones and "candy bars" in the hope of getting a hit like the sleek Motorola Razr.

Some compared the industry's evolution to watches, which rely on 50-year-old quartz or centuries-old mechanical technology and are the epitome of a business that hinges on fashion.

"Mobile phone makers are going to some of the watch suppliers to get the kinds of finishes and the quality feel that have been in the luxury watch business," said Gregor Berkowitz, a consultant who specializes in consumer electronics design.

Swatch Group, one of the world's largest watchmakers, shows how lucrative fashion can be, analysts said.

"The company benefits from being vertically integrated," Morningstar analyst Peter Wahlstrom said. "They have the designers in-house. They own the manufacturing, the distribution, they control the brands and pricing very well."

Swatch, which owns Breguet, Omega, Flick Flack as well as its namesake brand, boasts operating profit margins of 25 percent. While that is below Apple's 35 percent-range on mobile devices, it is above those of Samsung and many other phone makers.

But while fashion can provide a nice way for phone-makers to buoy sales for now, smartphone companies ultimately need unique technology to maintain a long-term advantage.

"The way we think about technology companies is in terms of sustainable competitive advantages, or economic moats," said Wahlstrom. "It's not sustainable unless you have the intellectual property or patent support behind it that really creates a barrier to entry."

(Reporting by Alexei Oreskovic and Poornima Gupta in San Francisco with additional reporting by Terry Wade in Houston; editing by Tiffany Chan, Edwin Chan and Richard Chang)


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Has training left the building?

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In-person training is no longer the only way to go, but it hasn’t died out. Why do people who use e-mail, text and the web for daily business still gather in one room when it’s time to learn? Should clicks replace bricks?

It’s no longer automatic for people to book a flight in order to go “meet” with a client. In some wired circles, even the good, old-fashioned conference call is becoming passé. If most organizations have gone almost completely virtual, what does that mean for live training? Does the face-to-face approach still offer real value even if it’s no longer physically necessary? 

Here’s the debate:

The way you work should be the way you learn.
Everyone today lives on conference calls, web presentations and shared desktop screens. Why should training be any different from the way we get things done?Make the connection.
Virtual training methods convey information, but they don’t replace human interaction and immersion in a culture. Learning requires all these elements.Sorry about those frequent flier miles, but.
When people gather in person for training, they spend more time away from their jobs. They incur travel expenses. Then there’s the cost of using or owning a facility. The cost differential is just too great.Mix it up.
Live training is an opportunity for employees to engage with leaders – people above them in the hierarchy – in a setting that invites questioning and expression. Organizations need a dose of that now and then.Train at the speed of information.
Studies support the idea that virtual training can produce the same learning results with more speed and flexibility.Train with the entire brain.
When you’re training on site, every participant is doing only one thing. The same thing. Virtual environments leave the door open to distraction and may limit people’s ability to immerse in what’s going on.That’s what the technology is for.
The only reason traveling to live training was ever a standard practice is that there was no alternative. Now there is. Sticking with the old way makes as much sense as training via telegram.People prefer to train in person.
Learning works best on willing minds – and when it comes to virtual learning, employees are less willing. Research shows live training is more popular, even among the youngest professionals.Field trips are for school, not work.
Teaching employees new skills shouldn’t have to mean buying them plane tickets and hotel rooms. Sorry, everyone.Live training works better.
Personal interaction, the communication of nuance and the opportunity to network all add up to more effective training. Surveys support the assertion.

Bill Pelster, Managing Principal, Talent Development, Deloitte Services LP

Base training plans on the outcome, not the method.

There is still a need for in-person training. Sometimes that need is so prominent that it’s worthwhile for an organization to commit significant resources to a physical environment dedicated to learning. In fact, that’s what Deloitte has done with the development of Deloitte University.

Yet no one would consider building a training center, or flying people around the country, to convey basic information like how to fill out timesheets or expense reports. There’s an identifiable point in subject matter and complexity where the convenience of virtual training gives way to the nuance and focus of live training. The trick is finding that point.

It’s important to remember that training methods take many forms and neither “live” nor “virtual” has a singular definition. Few people get excited at the “live” idea of a closed room, a box of donuts and a PowerPoint presentation and even fewer are eager to sit through a 70-page webinar while their regular emails ping away in the corner of the screen. Wherever it happens, training must take people out of their day-to-day mindset and encourage them to participate with enthusiasm.

In my view, the best training starts with the desired business outcome in mind and works backward from there. A virtual platform tends to work better when participants are working within an understood context or building on existing knowledge – for example, when a group of tax professionals has to learn about a change in tax law. For developing new skills, such as when a group of IT managers must learn about a completely new technology or business process, learning most likely works better in person. Live training also tends to fit better when the subject matter is more qualitative, or when the outcome depends on personal networking.

Remember, that training is an investment in your talent. What you expect from these people 10 years from now should count more than which training method is more convenient over the course of a few days.

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Is outside-in architecture right for your company?

Outside-in architecture connects partners, suppliers and other external parties to a company’s ecosystem. While this design is growing in popularity, does the ability to share information with third parties justify the cost of replacing your current centralized architecture?

Recently, increased competition has led some companies to embrace an emerging IT architecture model that supports information sharing among internal and external parties. Advocates of this “outside-in architecture” approach argue that it will soon become an essential element of business results. Yet this notion meets with resistance from companies that have invested heavily over the years in creating and maintaining a traditional, centralized IT architecture. Their reaction is understandable and it raises the question of whether companies should divert resources toward a new architectural model that has yet to mature and demonstrate its longer-term value to the enterprise.

Explore all sides below by clicking on each button:

Eric Openshaw

Eric Openshaw, Principal, Vice-Chairman of Technology, Deloitte Consulting LLP

Outside-in architecture should be on the CIO’s radar now. The growing need to share information – not just internally, but externally with partners, vendors and clients – is leading companies to think beyond traditional centralized IT architecture models. Indeed, they will likely need to tie multiple, and in some cases thousands, of autonomous entities into a single IT ecosystem where they can move and share data freely.

With this in mind, CIOs should consider experimenting with outside-in architecture to get a better idea of how it could support their company’s strategic goals and, potentially, add value. Perhaps they could implement the model on a small scale in an environment that has many of the characteristics and needs of the larger ecosystems, such as supporting a new product, or as part of a geographic expansion. One of the features/benefits about outside-in architecture is that, unlike centralized architecture which requires a large investment to achieve scale, it can be implemented incrementally. As a result, you can pay – and learn – as you go.

The potential benefits of taking an incremental approach can be formidable, while the cost of failure can remain modest. However, the cost of doing nothing could be high. Competitive pressures are forcing companies in virtually all sectors to expand toward much larger ecosystems of specialized providers. Increasingly, small companies are leveraging this model to expand their scope of services. Large companies are assessing it as a potentially cost-effective alternative to centralized models. The question, then, is likely to change from “if” they will embrace outside-in architecture, to “when” – and for some companies the answer may likely be “now.” 

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When developing mobile enterprise apps, should you go native?


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Should you trust your gut or follow the numbers?


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Ladder or Lattice: Does “One Size Fits All” Fit Anyone?

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Can you edge into the changing world of work by bolting flexible practices onto traditional corporate ladder workplace norms, or does the shift require a new corporate latticeTM paradigm?

The corporate ladder has been the prevailing model for managing work and people since the beginning of the industrial revolution. But we no longer live in an industrial age – nor is the workforce a uniform one. Can you address the issues of the changing world of work as they arise, or do you need a new playbook that moves beyond longstanding assumptions about how careers are built, work gets done and participation is fostered?

Take on challenges within a conventional ‘ladder’ frameworkEmbrace a more adaptive ‘lattice’ frameworkThe corporate ladder has been serving the business world well for more than a century. Specific issues can be addressed with new programs, but standardization is time-tested – as are workarounds to accommodate the occasional one-offs.Globalization, technology and today’s heterogeneous workforce have forever altered one-size-fits-all workplace rules. Just as standardization was a key attribute of the industrial past, customization is a key enabler of the path forward. Companies need a model tailor-made for the information age not a retread of the industrial one.We’re facing workforce changes just as our competitors are. But change doesn’t come easy. Why make it more difficult by having deal with a shift in mindset at the same time? We can focus on that later.What you’re doing is reacting to a changed reality, not proactively creating a contemporary workplace. Lattice makes sense of the changing world of work so you can organize and advance the set of disconnected activities and investments already underway into a strategic response.Email, SMS, IM, video conferencing, private networks – we’re investing in them all. And we didn’t need a new workplace vision to do so.Without a vision and framework for how technology meshes with the organizational change it enables, you’ll wind up with a patchwork quilt of technology tools – not a 21st century culture of collaboration.High performance and career-life fit are inherently opposing forces. Our flexibility programs help mitigate the conflict, but there’s no way to resolve it. Ultimately, you have to choose one or the other.The ladder belief – that high performance and career-life are irreconcilable – is based on a workforce and home infrastructure that hardly exists anymore. The new reality: They are inextricably linked and mutually reinforcing. Get used to it.Cathy Benko

Cathy Benko
Vice Chairman and Chief Talent Officer, Deloitte LLP

We walk to the future backward – using the past to direct us. We approach new problems from the perspective of old experiences, mental models and ways of doing business. The first cars were touted as "horseless carriages." The first TV shows were formatted as radio shows with pictures. And so on.

Once, 60 percent of corporate value creation depended on hard assets. Now, more than 85 percent relies on the intangible assets of people, brand and intellectual property.i Organizational structures are 25 percent flatter.ii Employees are less tethered to traditional offices and set hours. Nonroutine and project-based work is far more prevalent. Fewer than 20 percent of households have traditional family structures.iii Women now constitute half of the U.S. workforce and are the primary breadwinners 40 percent of the time.iv Men cite career-life conflict increasingly more often than womenv and younger generations are bringing different attitudes to work at the same time that older workers are looking for ways to stay in the labor marketvi. Careers zig and zag. Work is done whenever and wherever. And information flows in every which way. The point? It’s futile to keep investing in the future based on yesterday’s hard-coded corporate ladder blueprint.

It’s time to take a forward-facing stance. The corporate lattice signals a mindset that measures productivity through delivery against results and it affects more than working hours. Engagement is also a spur to the way we participate and the ways we define our careers. In a lattice culture, work flows where it needs to – along horizontal and diagonal paths in addition to ladder-like vertical ones. So do ideas, expectations and credit. Project teams accomplish more when they’re assembled along knowledge lines. Companies produce more when technology enables 24/7 collaboration. And when people can move up, over, or even down in the organization, they’ll find the choicest rewards for the things they do best.

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i Douglas Elmendorf, Gregory Mankiw and Lawrence H. Summers, eds., Brookings Papers on Economic Activity (Washington, D.C.: Brookings Institution Press, Spring 2008).
ii Raghuram Rajan and Julie Wulf, “The Flattening Firm: Evidence from Panel Data on the Changing Nature of Corporate Hierarchies,” National Bureau of Economic Research Working Paper Series, Working Paper #9633, April 2003, http://www.nber.org/papers/w9633 (accessed March 2, 2009).
iii U.S. Census Bureau, Housing and Household Economic Statistics Division, Fertility and Family Statistics Branch, “America’s Families and Living Arrangements: 2007,” http://www.census.gov/population/www/socdemo/hh-fam/cps2007.html (accessed December 16, 2008).
ivHeather Boushey and Ann O’Leary, eds., The Shriver Report: A Woman’s Nation Changes Everything (Washington, DC: Center for American Progress, 2009), 32.
v Ellen Galinsky, Kersten Auman and James T. Bond, “Times Are Changing: Gender and Generation at Work and at Home,” National Study of the Changing Workforce, Families and Work Institute, 2009, http://www.working-families.org/organize/pdf /Times_Are_Changing.pdf, 19.
vi Sid Groeneman and Elizabeth Pope,“Staying Ahead of the Curve 2007: The AARP Work and Career Study,” AARP, http://assets.aarp.org/rgcenter/econ/work_career_08.pdf., 13, 44.

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Who do you want driving your finance transformation?

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Already have a finance team veteran with a gift for project management? Lucky you. Everyone else has to choose. Here’s one way to work through this important decision.

Finance transformation is messy. It’s technical, it’s strategic, it’s political, it’s ridiculously complex and it’s usually a lot bigger than anyone thinks it’s going to be. On some days, you’ll want someone at the helm who already knows the recipe for great project management – the jack of all trades who’s already demonstrated her ability to manage all types of hairy projects. On others, you’ll want someone who knows where all the bodies are buried. But it’s rare to find a person with both of those qualities: the grizzled finance veteran who can manage a complex project like it’s nobody’s business. You’ll probably have to choose. So which is it? 

Here’s the debate:

How much institutional knowledge do you really need to succeed?
Everyone thinks their organization is special. The truth is, the best project managers know how to quickly learn and navigate the political and cultural currents as well. Don’t overestimate the difficulty of this part of the job.It would take at least six months just to learn the ins and outs of our organization.
A veteran can get us there faster.
If we go with a finance veteran, what we may lose in project management skill is more than made up for in institutional knowledge. For our organization, that’s really important.We can’t afford to go with someone who sees the world through finance-colored glasses.
Finance transformation is way bigger than finance alone. It’s about supply chain, sales, marketing, IT, you name it. We need someone who brings broader experience in all those areas.Jack of all trades, master of none.
We’re talking about the same project, right? The one that will shape the future of our finance function for the next 5-10 years? For that, I want someone who lives and breathes finance, not a generalist.We can’t afford to lose our best talent to the black hole of finance transformation.
No matter which veteran we put at the wheel of finance transformation, we’ll lose their leadership in another key area. This isn’t the time to give up key leadership anywhere. Let’s bring in the project management specialists and stick to what we do best.This is a big opportunity to take our top talent in finance to the next level. We can’t just hand it off to an outsider.
Take a great controller or accountant, put them behind the wheel of a big transformation and what do you have? The next generation of leadership. Plus, when the transformation is done, we’ll still have someone who can help sustain the change for years to come.Transformation is too tricky for anyone who’s not a project management ninja.
Have you ever had an up-close-and-personal look at finance transformation? If you have, you know that it takes a special breed to handle that kind of job. Go with a professional.That’s what a team is for.
Put a finance vet at the helm, then make sure she has plenty of project management firepower on her team.

Sam Silvers, Principal, Deloitte Consulting LLP

Sound familiar? The question of whether to bring in a specialist or go with an existing resource definitely isn’t unique to Finance Transformation (FT). But with FT, the stakes are a lot higher. That’s why I see a lot of hand-wringing about this question among CFOs and other finance leaders set to embark on a big transformation project.

So which is it? Experienced veteran, or project management ninja? This is the part where I say it depends. It’s all about the talent you have to work with. You may have that unbelievably skilled controller who you know can run circles around the best dedicated project managers – in that case, the answer is a no-brainer. Similarly, a project manager with a history in finance, or a deep knowledge of your particular organization, may be a perfect fit.

Having seen this debate played out time after time, however, I tend to come down in favor of the finance team veteran. Good finance leaders should have some core project management strengths – strengths that they can build on to take on a huge undertaking like finance transformation. And don’t forget that they’ll be supported by a team – this isn’t a one-person job. Having an effective team can help compensate for most minor gaps.

The benefits of going with a finance vet can be significant. People who have been around the block can more skillfully navigate the political currents that so often become big obstacles to others. This has a direct impact on the speed and momentum of the project. Plus, when it’s all said and done (they do end, in spite of what you might have heard), you’ll have an important resource within reach at all times – while “hired gun” project managers take a lot of institutional knowledge with them when they go off to their next adventure. Finally, finance transformation is about the DNA of your organization. Ideally, a finance person would be leading the charge.

All things considered, this isn’t an exact science. The important thing is to find the right person, regardless of their pedigree. Time’s a-wasting.

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Are you using allocations as a management crutch?

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For many finance teams, allocations are an article of faith. But today, some companies are questioning their real value as a management tool. Who’s right?

Financial allocations and charge-backs have conventionally been used to understand the unit cost of a service or product (cost accounting), manage a shared resource (often IT or infrastructure), or view profitability of a given entity (fully burdened P&L). In theory, allocations create transparency into financial and operational business drivers, empower business leaders with facts on what is really driving costs and align managers on profit, not sales. Some business leaders try to use allocations to create a market-like environment for shared resources in a company by burdening managers’ P&Ls. They assume that if a manager is held accountable for their use of resources, they will only make the best and wisest use of them. In pursuit of this market-like environment though, companies have built allocations on top of allocations, ultimately obscuring the visibility they sought to achieve. As a result, some companies are now breaking away from the conventional wisdom and abandoning allocations. They are questioning whether they are an effective management tool, a crutch – or an obstacle. Should we use allocations and if so, when? Are they of value or are they really an academic idea that has failed in implementation?

Here’s the debate:

How else can we hold managers accountable for what they use of shared resources?
It’s simple. Managers use shared resources. We measure their usage. Then we build it into their budgets through allocations. That’s just common sense  Allocations actually obscure accountability.
In order to get to a fully loaded cost, companies have layered allocations on top of allocations so much that they have lost the direct connection to cost drivers. We should only hold managers accountable for what they control, then use equality decision making to allocate shared resources (e.g., IT and marketing spend).Allocations are a key part of understanding portfolio profitability.
We need to understand which parts of our business are truly making money and which are not. We can’t do this if we don’t allocate them their share of costs.Sure, but a forecast is not a portfolio evaluation.
Agreed, portfolio measurement is important and needs allocations. But other processes like forecasts and budgets are better when ownership is clear and accountability direct (no allocations) – leave the allocation models to the business development guys.Without allocations, our forecast is incomplete.
Knowing which parts of the business are responsible for which costs is a key input into our forecasts.Managers don’t own allocations in a forecast, they fight about them.
In reality, managers spend more time arguing over allocations rather than making valuable decisions. Assign this to a small group of people, examine it periodically and get out of the way of the forecast process.   To truly manage our business, we need to fully allocate all costs.
We have to look at all costs across the business and employ use of full allocations in order to make smarter decisions about using shared resources.There is no value allocating any corporate costs.
Line management actions have little impact on corporate costs, therefore burdening managers with them borders on irrationality.

Miles Ewing, Principal, Deloitte Consulting LLP

Allocations have their place. But in my work, I see two of the same mistakes being made over and over by companies when it comes to using this accounting tool.

For starters, many use them as a core part of their regular management processes, like planning, budgeting and forecasting. Why is that a problem? Because allocations are complicated – they’re heavily layered, with distributed ownership. So in reality, the amount of labor required to create an accurate forecast that relies on allocations data just isn’t worth it in the end. I’ve seen plenty of companies that create exquisitely detailed forecasts and even P&L statements using allocations data, but when you ask them what it all means when it comes to decision making, nobody knows. What good is that?

The other common mistake companies make about allocations? They create what I call a pseudo-market for internal services, assuming that managers will make rational, market-informed decisions when consuming resources. In my experience, that’s okay when you’re working with clear, known quantities – the cost of localizing a product in a different language, for instance In that case, everybody knows how much it will cost and they can make decisions accordingly (however charge-backs used to manage these things often delay other things like the close and forecast). But the picture becomes murkier when you’re considering resources that managers are going to have to consume no matter what or the cost is more negotiable – like IT projects. That’s the moment when allocations tend to get in the way of smart decision making. In those cases, the market model is flawed – there really is no competition for some internal resources. 

In both of these cases, companies may be abdicating key management responsibilities to an imperfect tool. Instead, they should implement a rigorous decision-making process to evaluate the distribution of shared resources across opportunities, not rely on allocations to make the decisions for them. This is really where management fails by trying to rely on allocations as a crutch for good decision-making. Allocations are at their best when used for unit cost measurement or periodically examining profitability: But allocations are often unleashed in day-to-day management, where they just tend to get in the way. Is that happening in your organization? If so, it’s time to put allocations in their place.

Nnamdi Lowrie, Principal, Deloitte Consulting LLP

Can companies survive without the use of allocations? The simple answer is No. Allocations do provide value when used appropriately, however in many companies there is a tremendous opportunity to reduce their complexity and still provide the business with simple, actionable information.

When allocations go wrong their unintended consequences can cause an incredible level of inefficiency within the Finance organization and business as a whole. Typical symptoms of allocations gone wrong include business owners not understanding the allocation and allocation recipients being unable to directly impact their value. This can cloud an organization’s view of business performance. As businesses evolve and grow, often times the complexity of allocations also grows, resulting in reduced transparency into key business drivers. In fact, the level of granularity and rigor sometimes applied to allocations places an emphasis on a set of assumptions that may not align to a company’s business strategy and management philosophy.

Allocations can also be a costly management tool. The effort and resources associated with developing allocation methods to spread costs, maintaining calculations and adjusting drivers can occupy significant parts of close and planning processing time. 

The concept of a “fully allocated” P&L largely serves the purpose of both helping to approximate business views of profitability (e.g. regional profitability, business unit profitability, product profitability, etc.) and aligning spend with demand. CFO’s need a mechanism to manage spend and measure the economic return on every dollar spent, however, this can be achieved through diligent management of gross spend drivers and periodic reviews of high level allocated profitability.

Allocations do have their place. Their place is to provide leadership with simple views into profitability and not as a core day-to-day detailed management process. 

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As used in this document, “Deloitte” means Deloitte LLP and its subsidiaries. Please see www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries. Certain services may not be available to attest clients under the rules and regulations of public accounting.

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Shared Services: Should You Stay or Should You Go?


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Who’s Marrying Your Ex? Choosing a Carve-out Buyer


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Is social media too risky for your company?

An inadvertent social media post containing sensitive information can land a company in hot water with regulators and inflict considerable damage on the business. Given this exposure, is it possible for organizations to govern social media in ways that effectively manage risk?

If an account manager inadvertently includes sensitive firm information in an update to his own profile on a professional or personal social networking site, will regulators find out? If they do, will they really care? The answer to both questions is yes. For all of its potential value, social media exposes regulated companies to increased risk. Some may argue that this increased risk is manageable. Others, however, feel that the potential risks are just too great—the damage that regulatory non-compliance could inflict far outweighs social media’s value to the enterprise.

Explore all sides below by clicking on each button:

We don’t worry about increased risk. After all, we have a broad social media policy.
All employees are required to review and comply with company rules for social media use. This should be sufficient to manage regulatory risk.Having a social media policy is not enough.
Employees may understand what the social business policy says, but do they understand why it is important and will they remember to apply it?We don’t use social media. No risk here.
Our company does not engage in social business. Also, we block employee access to social media sites.Social media affects your company whether you currently use it or not.
Your customers use social media and you can bet your next generation of employees use it, too.There are no regulations in place that govern the use of social media in my company.
How can there be increased regulatory risk if regulations don’t specifically address social media?Current regulation is broader in scope than you may think.
Existing regulations that apply to your company could be interpreted to include social media.Our employees only use social media outside of work.
What an employee posts on a personal social media site outside of work hours does not really concern the company.Any social media communication referencing your company can raise your risk profile.
Discussions by your employees or others about their professional background, their service experience with you, or your company’s information may have regulatory consequences. Remember, regulators are watching.Wallace Gregory

Wallace D. Gregory, Jr., Partner, National Risk Management, Deloitte LLP

Social media is just another communications vehicle that organizations deploy to help them advance a strategy. As such, all of the standard regulatory and contractual obligations of confidentiality apply. What makes social media riskier than other communications vehicles like telephones or email is its extreme viral and permanent nature: Information posted on social media platforms can potentially reach millions of people in a matter of minutes. For regulatory bodies like the SEC, the FDA, FINRA and HHS that are charged with enforcing rules and regulations, one careless reference to a client’s confidential business goals or performance in a social media post may be just as problematic as inside information shared between two friends over lunch.

Some might argue that the risks associated with social media are just too high and that regulated companies should shut down their current social media initiatives. This is somewhat unrealistic. Social media is here to stay. To ignore it or shut it down is to miss out on all of the value it can bring to the enterprise. Companies deploying social media tools can manage regulatory risk effectively by working closely with employees to understand the role that social media will play in the company and the ways that it can be leveraged to help achieve goals.

But beyond setting out policies listing procedural dos and don’ts, employees should “own” their social media usage. What does this mean? They should understand how the inappropriate use of social media tools can affect them. For example, someone posting negative comments about a client can negatively impact his future promotions, raises and other opportunities at the company. Violating rules of confidentiality or other professional obligations can lead to regulatory non-compliance and legal difficulties that can impact the company as a whole and impact them personally. 

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As used in this document, “Deloitte” means Deloitte LLP and its subsidiaries. Please see www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries. Certain services may not be available to attest clients under the rules and regulations of public accounting.

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Value-based pricing: Still worth the trouble?

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In the face of rising commodity prices, it’s tempting to make the break from value-based pricing in favor of a simpler approach. But is that really the most effective response?

There’s no way around it: the prices of commodities are rising, seemingly with no end in sight. The result is that many companies are feeling the pinch when it comes to pricing. Raising prices may stir up a backlash that can leave the business hobbled. But standing by and hoping for a desired outcome while prices continue to rise can chip away at margins until nothing’s left. Are indexing, surcharges and fees an effective response to the rising cost of commodities?

Here’s the debate:

Value pricing is too complex for us to deal with now. Just tie it to an index and let’s move on.
Even if we could master a value approach to pricing, it would take more time than we have. There’s also value in clarity, which is what indexes, surcharges and fees can deliver.Indexing is just going to move the complexity somewhere else – like sales.
Indexing is easy enough on paper, but think of the impact it may have on other parts of the business. Is your sales force ready to handle it?Indexes, surcharges and fees only put more focus on cost.
Focusing on cost comes at the expense of our ability to sell value. If we give that up now, it may be gone forever.We already sell on cost. What does value have to do with anything?
Hello? Cost is already the subtext for every sales conversation we have. Value pricing doesn’t apply to us.Switching to surcharges and indexes is only a short-term strategy.
Plus, it can hinder your ability to grow, even as it introduces new risks (such as price volatility). That’s not worth it, no matter what the short-term benefits are.If we don’t figure this out in the short term, the long term won’t matter.
We need to solve our pricing issues now – particularly rapid increases in commodity materials – so that we can move on to other issues.Indexes and surcharges result in too much transparency.
Do we really want to give customers and competitors a clear window into how we price? We shouldn’t give up that control.Since when is transparency a bad thing?
Does linking prices to an index or adding surcharges and fees really leave us that exposed?We don’t have the brainpower to make value pricing work.
We can’t all be Olympic gold medalists. Let’s stick to what we’re good at.Nobody is great at this today – so value pricing can give us a leg up against our competitors.
That doesn’t mean we should just wave the white flag and move to indexing, surcharges and fees. Our competitors certainly aren’t. And when they get great at value pricing, they’ll eat our lunch.

Julie Meehan, Principal, Deloitte Consulting, LLP

First things first. This isn’t necessarily an either/or proposition. Indexes, surcharges and fees have their place – often right alongside value pricing strategies. There are probably some products in your portfolio where index-based pricing makes a lot of sense.

But…

I’ve seen companies take an overly enthusiastic leap to indexing, only to find that they’ve given up options along the way. Don’t get me wrong, the relative simplicity of indexing can be refreshing. But relying too heavily on indexing, surcharges and fees can result in a significant loss of control. Suddenly your customers are able to see the elements of your pricing strategy much more clearly – which means they’ll likely start maneuvering to take advantage of it quickly. And what happens when commodity prices slip? Customer expectations may shift just as quickly, possibly leaving you in a less desirable spot than before. There’s just some inherent risk that comes with the territory in indexing.

A key to leveraging value pricing is having a clear understanding of the differences between the cost and value components of your price. From there, you may be able to find some components of your price that you can tie to an index, or cover with surcharges and fees. But what’s left is a real competitive advantage for you – if you manage it correctly. Value pricing is still one of the most powerful ways for companies to keep their edge, even in the face of rising commodity prices. And despite many reports to the contrary, it’s not rocket science.

Don’t give up on value pricing when the going gets tough. Dig in.

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Social business: Should leaders stand back or jump in?

Social business may be ready for the enterprise, but are enterprise leaders ready for social business?

Deloitte and MIT Sloan Management Review surveyed more than 3,400 enterprise leaders and managers around the globe to learn whether social networking and software are transforming their businesses. We found that many respondents use social technologies to better understand and connect with their customers. Others use social business tools to push employee interests, ideas and knowledge across the enterprise.

While 52 percent of the survey respondents said social business is at least somewhat important to their enterprises today, many leaders of organizations have not joined the trend. Are they wise to hold back? Or should they get started now?

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Doug Palmer

Doug Palmer, Principal, Deloitte Consulting LLP

Enterprise leaders are just beginning to embrace social business, and the survey indicates that many are enthusiastic about its value – especially in the media and technology industries. While others are cautious, more than 80 percent of survey respondents acknowledge that social business is likely to be at least somewhat important to their organization three years from now. If that’s the case, it’s important that leaders get to work now. Here’s how you can get started:

Align social business to strategy. How can social technologies and networks help you better serve customers, gain a competitive edge and achieve the business strategy? Design social business initiatives that directly support your business goals, but don’t expect an immediate return on investment. You should look to continually pilot new projects, measure results and adapt strategies to build the business case.

Assess where you are today – and where you want to be. Monitor and track what your employees, consumers and influencers say about your organization, brands, customer service and competition. Explore how business analytics can connect social data with enterprise data. This can help your organization move beyond understanding to influencing and anticipating behaviors.

Support effective adoption. Provide clear guidelines and training for employees so they know what they can and cannot say through external social media channels. Executives should also be trained on social technologies to help them more effectively sponsor social initiatives and use social tools to shape the organization’s culture to promote innovation and collaboration.

Prepare to act. Social conversations are likely to reveal brand, product and employee issues. Provide processes and resources for appropriate and quick responses.

For more insights, download the full survey report here. 

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Okay, Telework is Good. Good for Whom?

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Telework may be here to stay, but that doesn’t mean it’s easy to categorize. Everyone knows employees like the flexibility- but is it a boon for the organization, or just a giveaway?

On June 7, 2011 all federal agencies will need to comply with Public Law 111-292 Telework Enhancement Act of 2010, requiring the establishment of telework policies and procedures for all employees. But what should your expectation be? The acceptance of location-flexible arrangements has been growing for years and has only gotten stronger since we examined it last year. Is this a gift you’re giving the troops, or an engine that helps drive productivity and reduce costs?

Here’s the debate.

Save on real estate.
When you stroll through your workplace, does every desk and office have a person in it? Ours neither. Freeing people from their one-on-one link to a piece of territory can add flexibility to one of your most costly inputs.Don’t underestimate the tech expense.
You’ve reduced your physical footprint by letting people work remotely. How much did you spend on hardware, software and network architecture to make that possible? The cost to obtain and maintain flexibility technology may rival the savings in real estate.If you employ it, set it free.
It’s prima facie that people are happier with more flexibility. Typically, they also face less commuting time, less stress with work-life balance and fewer constraints on when work begins and ends. Studies show teleworkers may actually put in more hours each week.Money saved isn’t always money applied.
Your real estate people have seen this before: A cutback in their allotment is justified because it will free up money for new-age workplace efficiencies. The money comes out of their budget, but instead of funding telework nirvana it somehow melts into the general ledger.It’s expected of you.
You don’t have to outrun the grizzly – you just have to outrun your hiking companions. Similarly, it doesn’t take an entire industry to make telework standard – it only takes one company. The one with whom you’re competing to attract talent.Keep your employees closest.
If you work in a public-sector arena, it’s likely your people handle sensitive information. The same goes with law firms, health practices and many other private-sector organizations. Does telework align with your security responsibilities?Telework frees more than employees.
If they’re not tied to their desks, you’re not tied to their ZIP codes, either. Which means that a telework-enabled company can use geographical arbitrage to hire talent where it’s most cost-effective.You may become less special.
Do you rely on location – family-friendly suburb, vibrant city, extreme outdoor hotspot – as part of your talent lure? Not anymore, if people can join your team while living anywhere they like.

Barbara Adachi
National Managing Director, Human Capital, Deloitte Consulting LLP

Telework is valuable – and it’s more than a yes or no decision.

Flexible work opportunities have the potential to bring value to most organizations. But like any other business tool, flexibility isn’t a guaranteed net-plus. You have to use it right – and “right” won’t look exactly the same from one company to the next.

One important differentiator is who gets to use telework. It’s easy to offer that option to senior, desk-based executives and then check the “we offer telework” box. It’s less simple, but perhaps as rewarding, to find opportunities for others. At one major tech company I know, administrative assistants don’t sit next to the executives they support. Instead, they have their own work area and use webcams a lot. That’s one form of workplace flexibility. I can even imagine adding flexibility to a physical assembly line – a worker can’t build cars or toasters from home, but his or her employer could allow one day every other week to attend to paperwork and other non-manual tasks.

Applied correctly, telework can produce not only savings in real estate, but also flexibility in its use. When work space is configured around communities and shared purposes, there’s generally less energy use and more productivity than when everyone has a personal cell in the hive. Telework also has obvious, if hard to quantify, benefits in employee satisfaction and retention.

It doesn’t come without tradeoffs, however. Few workplace cultures can do entirely without personal connections and interaction. I’m a big fan of telecommuting, but not at all a fan of having everyone do it all the time. Companies who implement flexibility should also reexamine the subtle ways in which “face time” and “looking busy” contribute to employee evaluations and retention. Applying old standards to a new system may breed unfairness.

Seth Siegel
Director, Technology Strategy and Architecture, Deloitte Consulting LLP

Why is it possible to free people from their desks more than it used to be? Technology. That costs money up front and can/may also expose you to unpredictable trends. Right now, the technology at the heart of flexible work arrangements is also the most volatile: tablet computers. A year after the iPad, the market is in a shakeout phase with respect to form, price and most importantly, operating systems.

That’s why I’m advising a wait-and-see attitude toward major commitments to mobile technology, even though I agree the benefit of workplace flexibility is a well-settled argument. On the hardware side, there’s no first-mover advantage right now.

Once the tablet market stabilizes, perhaps in 12 months, companies will have the solid information they need to begin making educated decisions about telework technology. It will likely be a complex, nuanced process then. It could be a gamble now.

Jim Reidy
Director, Capital and Real Estate Transformations, Strategy and Operations, Deloitte Consulting LLP

Telework can definitely be a value driver, but only if you’re willing to make other corresponding changes that put you in a position to reap the benefits.

Start with realizing that telework is more than just letting people work from home. It’s empowering them to be active and productive wherever they are. If you free your people from offices but keep paying for the office space, you aren’t saving. Follow up the workplace freedom with new physical setups like hoteling, project-based collaborative space and flexible space. In a traditional setup, a company pays for about 1.1 desk spots per person. After making some of these changes, my own location has 0.8 seats per person – a 30 percent reduction.

Rethinking your real estate strategy can turn the potential benefit of telework into a measurable net savings. The trouble is that real estate changes can take longer than and be a little harder to implement than work rule changes. You need to move everyone beyond the traditional insistence on the perk of an assigned personal space. There will be initial costs, such as the need to physically restructure your space or the need to break a lease early. And unlike a telework policy itself, real estate changes are typically/generally harder to undo. However, the benefits of significant cost reductions and improved operational efficiencies can make these changes well worth the effort.

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"Almost-enterprise" applications: CIO threat or opportunity?


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Brand risk higher than ever: Where to focus to protect your brand

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As enterprises become more global and virtual, many leaders recognize that they must vigorously defend their brand against the threat of saboteurs. But are disgruntled customers and aggressive competitors the biggest threats to brands? Or are intentional or accidental disruptions from within even more dangerous?

Brand reputation is more precarious than ever. Online news and social media can immediately turn a small blunder into a public relations catastrophe, making even the most venerable brands vulnerable to attack. Should your brand defense strategies first target potential saboteurs on the outside? Or those within? 

Here’s the debate:

Defend the brand against external saboteurs. It’s the top priority.
More than ever, disgruntled customers, activists and competitors are using the Internet and other improvised weapons to attack brands.Protect the brand from internal attacks first.
Where do you think external saboteurs get their ammunition? It’s important that leadership, employees and suppliers understand how they contribute to maintaining a strong brand and how easily they can undermine it.Our people are loyal. Focus on the external people who are out to hurt you.
Why would senior management or employees do anything to hurt the brand – and risk their livelihood? Better to focus on countering the deliberate attacks that external saboteurs may launch.Employees can be loyal – and still hurt you.
Many internal attacks result from people who don’t fully consider the consequences of their words and actions. It’s important to make sure all employees, including senior leaders, are well informed and well trained when it comes to brand risks.Competitors are quick to capitalize on a misstep.
You need to know what angry customers and other outside saboteurs say before your competitors use that information against you. A good defensive strategy must anticipate, pre-empt and mitigate the damage they can inflict.That’s why it’s important to pay attention to what’s happening inside your organization.
You’re right – monitoring is important. But don’t limit surveillance to external sources; find ways to engage employees in monitoring external and internal threats.Let HR handle the internal problems. External ones are a bigger deal.
Hire and train right and your internal threats will disappear. Dealing with customers and competitors is more difficult – you don’t handpick them.This is much bigger than HR.
Practically every corporate decision can help strengthen or weaken the brand – from safety standards to pricing decisions to supplier selection. A broad strategy to reduce brand threats should encompass the entire enterprise.

Jonathan R. Copulsky, Strategy & Operations, Deloitte Consulting LLP

Many leaders react to outside threats to their brand, while ignoring internal risks that could be even more damaging.

When I talk with executives about brand sabotage, many are concerned about brand risks that emanate from outside sources – dissatisfied customers, cantankerous critics and unruly competitors. Attacks from outside sources are often purposeful and menacing.

However, individuals within the company who may not intend to do harm, may inflict as much – or more – damage to your brand. Consider the manager who forwards a confidential email to the wrong person, or the CEO’s snide remark that’s secretly recorded, or employees who upload at-work pranks to YouTube. These internal saboteurs may not set out to destroy brand equity, but the impact can be just as devastating as the acts of a willful saboteur.

Because it’s impossible to know who will attack or what weapons they will use, some risk intelligent companies are adapting the strategies and tactics of counterinsurgencies to reduce brand threats, both internal and external:

Plan for the worst. Evaluate brand risk as you would a financial or strategic risk. While it’s impossible to anticipate every outcome, plan for the consequences of brand threats that could be most damaging, even if the chances of them happening seem relatively unlikely. When your planning is done, rehearse, just like you would with any emergency response scenario.Be proactive. Enroll everyone in your organization in brand risk management, including employees, senior executives and value-chain partners. Engage employees in monitoring and reporting internal and external threats. Build your organization’s ability to anticipate, track, report, manage and respond to internal and external brand threats.Learn and adapt. Pay attention to how other organizations respond to brand threats to learn what works and what doesn’t work. Sabotage tactics are constantly evolving; your brand defense must change as well. When an attack takes place, take the time to analyze your response, assess what worked (and what didn’t) and embed these learnings in your go forward plan.

Brand defense doesn’t get a lot of attention until something bad happens and then everyone wants to know why you didn’t do something to prevent it. By then it’s too late.

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As used in this document, “Deloitte” means Deloitte LLP and its subsidiaries. Please see www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries. Certain services may not be available to attest clients under the rules and regulations of public accounting.


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Can mobile technologies transform the in-store checkout process?

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Smartphones and other mobile technologies are already transforming many aspects of the in-store shopping experience. Is mobile-enabled checkout an idea whose time has come?

For retailers working to implement an effective mobile strategy, the potential impact of mobile technologies is so vast that it can be hard to know where to begin. One option is to start at the end by using mobile technologies to help reinvent the checkout process. For example, one consumer electronics retailer designed their stores without traditional point-of-sale registers and queues; instead they equipped their associates with mobile devices designed to process checkout, accept payments and email electronic receipts to customers, right there on the sales floor.

In another example, a fast food chain has created a mobile app that allows customers to place an order and pay with a credit card while standing in line, or before even arriving at the restaurant.

In addition, several retailers and restaurant chains have already equipped their stores with near field communications (NFC) terminals, which allow customers to pay by simply waving their credit card in front of the device. With the advent of NFC-enabled phones, this technology could have the potential to change the checkout process as we know it.

Does mobile checkout present a real opportunity for retailers to save money and keep up with changing customer expectations? Or is it too early to tell whether the benefits will outweigh the risks? 

Here’s the debate:

Save big money.
The traditional checkout process can be labor-intensive and takes up a lot of space. Mobile technologies could help you to reduce costs and reallocate staff and floor space to increase service levels and sell more products.Cut your losses.
A new approach to checkout might increase the risk of payment fraud and theft. Will the savings outweigh the risks?Give customers what they want.
Customers accustomed to one-click checkout at their favorite online stores are becoming less and less willing to wait in line at a traditional cash register. Convenient checkout can make people more likely to buy – and less likely to take their business elsewhere.Resist change.
High-tech checkout might appeal to young people and early adopters; but many customers are fine with the traditional approach and may not want to change. Also, customers without smartphones might feel discriminated against.Kick the credit card habit.
Transforming the checkout process may create an opportunity to introduce new forms of electronic payment – helping to reduce the big bite that the credit card companies take.Mobile-based payments? Don’t count on it.
Creating a viable alternative to credit cards can be a major challenge with a lot of moving parts. For the foreseeable future, the checkout process will likely still revolve around customers paying with cash, checks and credit cards.Work backwards.
The trick to solving a complex maze is to start at the end and work backwards. When reinventing the in-store shopping experience, it may be smart to begin with the checkout process, which is well understood and can offer immediate and compelling benefits.Follow fast.
Mobile technologies and the shopping experience of the future are unfolding at a dizzying pace. Instead of investing a lot of time and money trying to hit a fast-moving target, it might make sense to consider waiting for things to slow down.

Kasey Lobaugh, Principal, Deloitte Consulting LLP
Direct to Consumer and Multichannel Retail Leader

There’s a saying that people tend to overestimate the effects of technology in the short run, but underestimate them in the long run.1

Mobile technology is already changing the way people shop at retail stores and the race is just getting started. In my view, companies with a physical retail presence should start looking for new and innovative ways to exploit mobile technology in an effort to improve the checkout process and the overall customer experience.

If associates and customers can process checkout from mobile devices, the implications for the checkout process as we know it could be enormous. By forgoing the traditional process, retailers could potentially realize significant labor savings, reallocate valuable square footage and even capture savings from credit card interchange fees.

Mobile technology can decrease costs by reducing the need for dedicated clerks and checkout lines. At the same time, it can boost sales by allowing stores to reallocate staff and floor space to value-added selling – and by helping to deliver an improved customer experience. Even a small shift away from the traditional process could have significant benefits.

But thinking about the opportunities in vague, abstract terms may not be enough. In order to capture the benefits and stay ahead of the pack, companies should consider establishing dedicated teams that are explicitly responsible for helping to deliver innovations that make sense for the business. People, processes and technology should be aligned to make the transition to mobile-enabled checkout as smooth as possible. And to make mobile transactions easier, retailers should consider installing or enhancing Wi-Fi to provide customers and associates with better connectivity within the store’s four walls.

Given the pace of change in this space, it might be tempting to adopt a wait-and-see attitude. However, companies that wait for things to slow down may find themselves waiting forever as their competitors – and their customers’ expectations – rapidly vanish over the horizon.

Philip L. Asmundson, Vice Chairman and U.S. Media & Entertainment and Telecom Leader, Deloitte LLP

Mobile payments are ripe with potential to offer convenience to consumers, new growth avenues to mobile carriers, differentiation to financial institutions and loyal customers to retailers. However, the mobile payment ecosystem in the United States will likely remain underdeveloped for the foreseeable future. Developing a vibrant mobile payments ecosystem that lets consumers use their mobile devices to pay for goods and services is no easy task. Industry players are upbeat, but the challenges are daunting.

Senior executives from across the mobile payment value chain—including retailers, application providers, wireless carriers, telecom equipment providers and financial institutions—are optimistic about the growth potential of mobile commerce in the U.S. According to a recent Deloitte survey,2 these executives predict that in 2012, nearly 65 million mobile subscribers will use their devices to pay for a range of retail goods.
With many other countries far ahead of the U.S. in this area, what’s the holdup? The Deloitte survey suggests the challenges include a lack of consumer knowledge, a dearth of demand, competing platforms and the absence of revenue-sharing agreements between critical players in the value chain.

One solution could be an open federation alliance, which would allow players from different industries to rally around a common vision and use mutually beneficial business models to realize the full potential of mobile payments. In this scenario, mobile carriers, financial institutions, retailers, handset makers, chipmakers, application providers and a host of others would come together on a standardized platform. A trusted third-party manager would play the pivotal role of coordinator and integrator.

Can it be done? Building trust, cooperation and a common set of standards will be challenging. But the rewards—to consumers, retailers, telecom companies and associated organizations—may be well worth the struggle.

Pat Conroy, Vice Chairman and U.S. Consumer Products Leader, Deloitte LLP

The in-store checkout process feels like much more than a simple payment transaction from a consumer’s perspective. It is the culmination of dozens of decisions, careful calculations and often impulsive actions. To many shoppers, the checkout represents a report card on their shopping performance: Did they forget anything? What meals will they be able to prepare during the week? How much did they save via coupons, promotions, or their shopper loyalty card? Did they purchase the right mix of products (e.g., small package size vs. bulk, national brands vs. store brands)? And, are they within budget?

While mobile technologies will indubitably play a role in the payment process, the smile, frown, or look of indifference on a shopper’s face during checkout at the register or self-service kiosk is the manifestation of thousands of steps in the store aisles. The checkout transaction is merely one small part of the beginning-to-end shopping process – and its potential to transform the in-store consumer experience with mobile checkout can only be seen in a broader shopping context. Consequently, I see mobile-enabled shopping as an opportunity for consumer product companies and retailers to give consumers what they want at checkout – a smile on their face. To do that, it means focusing on helping consumers along each of those thousand steps before checkout, including meal planning, shopping lists, loyalty program, product and price comparison, coupons and promotions and navigating the store. Think of mobile-enabled shopping as “whispering in the ear of the time-starved consumer” with helpful advice. Retailers (online and traditional), payment companies, third-party application providers and consumer product companies are building out mobile-shopping functionality along each step of the shopping process including payment, but the winners will provide cohesive shopping platforms that support the consumer with pre-store planning, in-store experience and post-purchase interactions. To truly shift the consumer’s mindset on mobile-enabled in-store checkout requires transforming each shopping step before and after checkout.

1 Amara’s Law; http://en.wikipedia.org/wiki/Roy_Amara
2 Cell me the money: Unlocking the value in the mobile payment ecosystem, Deloitte Research, 2011

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Is user empowerment worth the disruption?

Employees are expecting access to ever-more-sophisticated technologies in the workplace. Empowering users with such tools can generate value, but is there a point where CIOs should put the brakes on continual technology disruption?

Not too long ago, employees began asking CIOs to make business systems user-friendly. Shortly thereafter, these same employees began expecting CIOs to provide the kind of simple, innovative technologies they became accustomed to in their personal lives. Today, they want personal and contextual functionality and an IT environment in which everyone can use effective apps to accomplish their tasks – regardless of being internal or third party. Some claim that empowering users in the workplace with leading-edge technologies can spur productivity and efficiency. Yet, others may wonder if the ongoing disruption caused by largely unproven innovations may be too high a price to pay for such gains. Should going “all in” with user empowerment be a business imperative?

Explore all sides below by clicking on each button:

We’re stretched too thin as it is.
Even if we could create things like contextual and personal functionality, IT groups don’t have the capacity to support and maintain them on an ongoing basis.Empowering users with leading-edge technologies may be easier than you think.
Not every new solution requires a reinvention of the IT wheel. In some cases, persona-based layers can be added on top of existing systems.Introducing a host of new technologies could degrade system integrity.
Maintaining the integrity of enterprise systems and data is already challenging. Now you want me to introduce unproven technologies to this environment? The net result will likely be bad systems and bad data.The longer-term benefit may justify the short-term pain.
Yes, unproven technologies can increase certain IT risks. But by embracing innovation and experimentation now, you can gain a wealth of experience with leading-edge technologies that late adopters are unlikely to have.We’ve already done enough to meet employee requests.
The company has invested considerable resources to make our systems more user-friendly, and at some point we have to draw the line between supporting our core business model and becoming an in-house application development shop.Creating user-friendly systems and actually empowering users are two different things.
The idea that business systems should be easy to use is yesterday’s news. The future lies in harnessing leading-edge innovations to meet each user’s particular business needs. You need to do both.Most employees at my company are not ready to use leading edge tools.
Why introduce so much disruption just to please a handful of “power users”?The theory that “if you build it, nobody will come” is unfounded.
Many business users are likely to follow the “power user” lead and use the technology that can help them work more effectively to achieve their goals.Nelson Kunkel

Nelson Kunkel, National Creative Director, Deloitte Consulting LLP

What may separate great companies from merely good ones is their ability to identify and take bold steps towards promising opportunities on the horizon, rather than waiting for a sure thing. These pioneers understand that even with the risks involved, early experimentation and successes with new innovations can lead to lasting competitive advantage.

Such can be the case with user empowerment. We are shifting quickly from an Internet of Web pages to an Internet of things – of connected objects. Organizations should leverage innovations to interact with entire systems in new ways, absorb and analyze vast amounts of data, and socialize with others. It’s true that some of the innovations that more advanced users want their CIOs to provide today are unproven and may carry some risk. What’s more, not all users are likely to embrace leading-edge solutions immediately.

But consider this: In today’s economy, it can be far riskier to trail your user base than to be ahead of it. At an enterprise level, it is important that CIOs consider empowering more demanding users; viewing them as an indicator of the desires of the rest. To do the opposite – or to take a careful, measured approach – could frustrate the leading edge and contribute to losing critical talent.

Today, user empowerment is a significant business opportunity on the horizon. CIOs and other leaders can seize it by thinking beyond content-centric architectures and systems that match the company’s organizational structure, to context-sensitive design systems organized around the specific needs and circumstances of each individual. They should consider abandoning the persona-driven and compartmentalized view of what it means to be merely user-friendly, and consider instead architectures and experiences that can adapt to the unanticipated aspirations of individuals. 

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