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Posts from the ‘Change’ Category

Surfing the Kondratieff wave of business

Long-term business cycles: The Kondratieff Wave (kondratieffwinter.com, 2012)

We all have to be reminded every so often that business is cyclical. It is nice when things are going well, it makes us feel good, and makes us feel that we have taken all the right decisions.

I remember chatting to a client in the depths of the stock market crash of December 2008 and him saying, “Will, we’re going to look back on this moment as the best buying opportunity ever!” He was right, it was a good time to buy and I only wish that I had had more cash available to buy at that time. However, I have little doubt that there will be further great buying opportunities in the future!

Some of you may have read Benjamin Graham’s book “The Strategic Investor”, first published back in 1949 and widely credited as being the book on which Warren Buffett bases his investment philosophy. Graham talks about the length of bull markets lasting between 3 & 5 years, the difficulty of course is identifying when you are actually in a bull market and not in a false rally. Still, if your stocks have been going up over the past 3 years it might be worth taking a closer look at the market for signs of increased turbulence, the bull market may be ending.

Business cycles are of different durations, in amongst the market noise there are longer economic cycles which can be identified. The most famous long-term analysis of business was done by Kondratieff. This shows the very long-term cycles in the business environment. He described the cycles in terms the seasons with inflation (spring), stagflation (summer), beneficial deflation (autumn) and deflation (winter).

According to the blog Kondratieff winter, we are now entering a long deflationary cycle.

Reading:

Kondratieffwinter.com (2012) http://kondratieffwinter.com/blog/k-wave/kondratieff-summary/

Graham, B. (1973), The Intelligent Investor, Harper Collins Publishers, New York, New York, USA.

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Group Dynamics: The Politics of Risk

I’ve just come back from a ski tour in the Silvretta region of the Alps, which spans the border of Austria and Switzerland between the towns of Klosters and Ischgl. Here is the location of the Wiesbadener Hutte in Austria where we stayed on our third night of the  tour.

These ski-tours require careful preparation and an experienced guide. At this altitude, over untracked snow, there is a constant risk of avalanches, bad weather or of falling into a crevasse. Any single event, or succession of small mistakes can lead to disaster. Over the past few years I have started to venture off-piste without a guide with a group of friends. Now we are making crucial decisions in a group, such as which route to take, analysing the weather, avalanche risk and other signs.

Heading toward the summit of Piz Buin, having crossed the Silvretta Glacier

My question to you is this: Is a group of off-piste skiers likely to be more or less risk averse than an individual off-piste skier?

To answer this question let’s analyse the dynamics of the group. Are these people natural risk takers or generally risk averse?

Off-piste skiers are risk-takers; some might even consider them adrenalin junkies who get a thrill from being in the danger zone. In this situation the more risk takers there are in a group, the higher the risk threshold of the group. A group of risk takers will be inclined to take more risk.

Risk mitigation: crevasse rescue training with our mountain guide Remo Baltermia

Now consider a group of accountants or actuaries;  would their group decisions become more or less risk averse than as individuals? Accountants are stereotypically risk averse (I acknowledge this is a sweeping statement). If the stereotype holds for this particular group the risk threshold of the group is lowered and they become more risk averse.

This is just one example of “group think” (Janis, 1972) where people may be afraid of introducing conflicting opinions in a group. This is one of the reasons why companies tend form cross-functional teams or may even use personality tests when selecting team members to ensure there is a divergence of opinion.

In our group of off-piste skiers we are aware of this problem of group dynamics and this forms part of our discussions when decision-making. However, I think that the most effective form of risk reduction for our group is the frequent messages and phone-calls from wives/girlfriends throughout our tours telling us to “be careful”.

Further reading:

Janis, I. (1972) Victims of Groupthink. Boston, MA: Houghton Mifflin.

“If it ain’t broke, don’t fix it”. Why change isn’t always good.

My editor has a complaint. “William! So far all your articles seem to be about change being a good thing. Perhaps try and give a more balanced view and show examples of when change hasn’t worked”.

It is always good to get feedback even if it isn’t necessarily what you want to hear. My editor makes a good point. I have written a fair amount about the benefits of change and it is true change isn’t necessarily good.

I therefore considered this constructive criticism on my morning walk along the banks of lake Zurich before settling down once again to my MBA dissertation. I didn’t come up with a suitable example for the blog of change being bad. Of course there are lots of examples of change being bad in everyday life, but I couldn’t think of a nice, personal, interesting example.

My morning walk along the shore of Lake Zurich

My friend and former colleague Rob was arriving from Milan that evening. I decided to ask him. Over a beer, while waiting for the Yorkshire pudding to rise we discussed when, in our former workplace, change had been bad. After racking our brains for an hour we still hadn’t come up with a good example. Exasperated Rob said, “we didn’t change anything that didn’t need fixing; the changes we made were necessary”.  He’s right; in the words of an old English saying “if it ain’t broke, don’t fix it”.

Change usually has a cost but it is the human element too that is usually most problematic and often overlooked. Change is generally traumatic for people. I admit I’m unusual, I find it exciting but for the majority of people, this isn’t the case. Change needs to be carefully managed and only carried out when the advantages outweigh the disadvantages. I hope you find this graphic detailing the transition cycle useful for better understanding how people react to change.

The Transition Cycle (Williams, 1999). Edgar Meyer lecture notes (see note).

This is a slightly more complex graph than the negative response to change graphic that I published earlier in the year. Here we see the various personal outcomes of change and just how traumatic it can be –sometimes people don’t recover and end up leaving the company.

Note: The transition cycle – a template for human response to change (Williams, 1999) reprinted from Dr Edgar Mayer’s MBA lecture on Change Management at the University of Southampton, UK 05/05/2011.

Overcoming the Resistance to Change. Step 1: Find Yourself A Burning Platform. Step 2: Jump!

World Speed Climbing Championship Wall, Chamonix, France. (I wasn't on this one)

Step 1: Find Yourself A Burning Platform. Step 2: Jump!

I’m afraid of heights. In fact I’m terrified of heights. Yet 2 days ago I found myself climbing a sheer wall 10m above the hard ground, my fingers clinging grimly to a pathetic handhold and my toes digging into a thin ledge. My straining muscles ached, I was sweating profusely and my strength was draining away. Even worse, I couldn’t find the next handhold, my feet were in the wrong position and I dared not look down. I knew I was going to fall.

2nd attempt: bouldering at the Kletterzentrum, Zurich (Schlieren), Switzerland.

Business Analogy: “Find Yourself A Burning Platform”

I don’t know if you’ve ever heard of the phrase “find yourself a burning platform”. It comes from the 1988 Piper Alpha tragedy in the North Sea when a drilling rig exploded resulting in the loss of many lives. Survivors described how they jumped from the burning rig into the sea. The choice: certain death from the flames of the exploding rig, or the slim chance of surviving the massive jump and then the possibility of staying alive in the freezing North Sea. This phrase is now used to describe an action in business where you are forced to act because the alternative is worse.

Our Resistance To Change

The burning platform metaphor alludes to the fact that people tend to resist change; they don’t like it and only change when there is a crisis. In other words we tend to stick to our comfort zone. Often it is only an external pressure that forces us to act differently. Ideally, a business should try and build flexibility and adaptability into its workforce and procedures so that it can change before it reaches a state of crisis and has to jump.

Relief

As for me, the moment passed, I found the next handhold. I got my feet in a better position. I made it to the top of the wall. Relief and exhilaration surged through me. I’d done it.

Compelling Reasons For Change

How did I get myself in this ridiculous situation? Well, you may well laugh and rightly so; a beautiful Brazilian girl invited me to go climbing. How could I possibly refuse? After some expert tuition she challenged me to climb to the top of the high wall. In that moment, my fear of failure surpassed my fear of heights. I resolved that I would climb the wall and I would reach the top. The alternative of not impressing the girl was infinitely worse. So in that moment I found my own burning platform and jumped.

After completing the via ferrata on the Mer-de-Glace, Chamonix

Further Reading:

Ellis, W. (2011) “What Is Our Emotional Response To Change” (online) Available: http://wp.me/p1RUDq-E

Try using an “Emergent Strategy” when you’re not sure which path your business should take.

Many companies, particularly when it comes to new technologies, are often unsure about which strategy to use. Experimenting on a small scale and seeing what works is called an “Emergent Strategy”.

It looks a bit like this:

Graphic adapted ex "Strategy Safari", Mintzberg et al (2009).

Emergent Strategy: A definition

Emergent Strategy is defined as: “A pattern is realized that is not expressly intended. Actions were taken, one by one, which converged over time to some sort of consistency, or pattern” (Mintzberg, Ahlstrand, Lampel, [2009])

When to use an Emergent Strategy:

Emergent strategies are a good option when companies are not sure which approach to take. It’s particularly valuable when companies are entering new markets as research shows that companies in this situation tend to start with the wrong strategy (Anthony et al. [2008]).  An Emergent Strategy is about taking small tentative steps, testing the ground until you discover the right path. Social Media experimentation is a good example where companies are deploying an Emergent Strategy.

Emergent Strategy Example: Warwick Business School’s Social Media Strategy

Researching my MBA dissertation on the use and development of social media, I came across a video on Vimeo detailing Warwick Business School’s (WBS) use of social media.

Take a look.

The video, published 2 years ago, outlines how WBS’ social media strategy developed “organically” in 3 phases, moving from an emergent to a deliberate strategy as WBS found out what worked.

  1. Students and alumni began to experiment with social media.
  2. The school decides to adopt social media and focus on 3 sites: Linkedin, Facebook and Twitter. Each with a different focus. The Twitter strategy was about getting to know the team and used as a heads-up for events. Linkedin was used as a formal portal to highlight professional interest groups and post jobs. Facebook was used informally for instance to display old photos and encourage alumni to get in touch.
  3. From the success and failures of these experiments the school is now looking to implement a “top down” or “deliberate” strategy to ensure a coherent, branded approach.

3 Steps towards designing your own Emergent Strategy

If you’re unsure about which strategy to use in your company, an “Emergent Strategy” might be a prudent option. The 3 steps steps towards building an Emergent Strategy are as follows:

3 Steps to an Emergent Strategy

Further Reading:

Anthony, S., Johnson, W., Sinfield, J., Altman, E., (2008) “Mastering Emergent Strategies –Taking Uncertain Ideas Forward” Excerpt from “Innovator’s Guide to Growth: Putting Disruptive Innovation to Work”, Boston, Harvard Business Press. Available (online) http://blogs.hbr.org/innovation/flatmm/mastering-emergent-strategies.pdf [Accessed 15/10/2011]

Mintzberg, H., Ahlstrand, B., Lampel., J. (2009) “Strategy Safari” 2nd Edition, Harlow, Prentice Hall.

9 Reasons To Harness the Power of Testimonials

“Engelberg, Switzerland has the best powder and the friendliest, most knowledgeable mountain guides”- William Ellis

A Day Out With The Mountain Guides, Engelberg, Switzerland.

Testimonial 1: Powder Days with the Engelberg Mountain Guides

I love to go skiing and I particularly like powder snow. I often go to Engelberg where the guides are friendly and the powder is deep. I’ve made a few freeride videos with my friend Werner Braun, which we’ve put on Youtube. The great thing about Youtube is that you can track the number of views. To date we’ve had 692 views. However, what are the potential benefits to the Guides’ business?

Testimonial 2: Prime Ski school’s Guestbook

Another of Prime's happy customers.

The Guides’ office is shared by Prime Ski School. It’s run by a young entrepreneur called Armin. It’s a friendly ski school and unsurprisingly it’s doing very well.

In Prime’s first year they had a stroke of luck; a journalist for the UK newspaper The Daily Telegraph wrote a glowing article about his ski lesson. Having read the article, I suggested to Armin that he display this in the office and on his website. Next, we discussed the benefits of putting testimonials on his website and he came up with the phrase “what people say about us”.  Armin understands that his business, like any business, is about satisfying customers. He knows that from their feedback he can improve his offer to clients. A great way to get instant feedback is through social media. Unsurprisingly Armin’s realised this too; Prime’s website has a Guestbook section, Blog, Facebook, Twitter and Vimeo links. On each of these you can leave a comment. Without having Youtube’s statistics to hand, what are the potential benefits of Prime’s testimonials?

Testimonial Facts: Users who write reviews view the site 9x more often.

The McKinsey-Jupiter Media Metrix study (2001) found that review writers view a site 9x more often, they are twice as loyal and almost twice as likely to buy products.

Conclusion

Giving your customers the opportunity to write testimonials is a powerful way to create a community around your company, help your customers promote your business and boost future sales.

Postscript:

The McKinsey-Jupiter Media Metrix study is “very” old (2001). However, I think it’s even more relevant for business today. You only have to look at reviews on Amazon to see this theory in action. If you know of more recent studies please let me know.

Further Reading: Huba, J. and McConnell, B. (2007) “Creating Customer Evangelists – How Loyal Customers Become a Volunteer Sales Force”. Chicago, USA, Kaplan.

 


What is Our Emotional Response to Change?

The Emotional Response to Change (ODR, 1989)

The Emotional Response to Change

Facebook changed its format again last week didn’t that annoy you? Let me guess, were your reactions something like this?

“It was it was great before, now it’s just a mess, it was perfect, why did they need to change it? Right, that’s it, I’m going to open a Google+ account! This is all such a huge hassle. If I keep my Facebook account I’m going to have to work out how to use these new so-called features.”

If this is similar to what you thought last week when you saw your “new improved” Facebook account then I sympathize. I felt the same. So too, did a lot of my friends; there were lots of witty posts about how annoying it was. Then, last evening I logged on and I actually found that the new news feed on the right hand side was pretty good and I thought, hey maybe this isn’t so bad. I might just learn to like it.

The above graphic shows our negative response to change. Next time you’re in the workplace and you’re trying to bring about change, you might like to consider this chart, perhaps even show it to your colleagues. I think it’s a pretty accurate representation of our emotional response to change and it made me laugh the first time I saw it.

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