Business 3.0: Core Capabilities

1 January 2016

Cash flow and customers – your business needs both. But in times of rapid change, just about everything else is up for grabs. What business skills will keep your company relevant? What are the capabilities of Business 3.0?

Five UQ Business School thought leaders give their take on core capabilities for competitive corporations.

PARTNERSHIP

“Partnership, implementation and the ability to pick the fab from the fad are the names of the game for tomorrow’s successful IT leaders,” says Andrew Burton-Jones, Professor of Business Information Systems at UQ Business School.

“CIOs must be across the latest hardware and software, of course, but knowing how to integrate it to support business is where competitive advantage will emerge,” he believes. Inadequate implementation drives up costs, slows change and has knock-on effects in terms of frustration and morale. Building partnerships with business sectors across the company is critical to ensuring technology is optimised.

Burton-Jones says that under-developed partnerships between IT and the rest of the business is one of the main reasons that more than 50 per cent of technology implementations fail to some degree.

“People who can see technology as a part of the business and how it can help them consider new ways of developing products, new options for customers, new ways of reducing costs – they’re the innovative executives,” he says. “And that’s what the IT function is there to support.”

“It’s about finding the fundamentals among the fads, but still being able to talk about the fads,” he says. “The ability to sense quickly what’s happening in the market and then respond internally will increase in importance.”

Burton-Jones sees one of the most common mistakes in IT management is succumbing to the ‘silver bullet theory’: promoting a piece of technology beyond its possible benefits, even hyping it as transformational.

This is a particular challenge for CIOs, who may be pressured to follow IT trends from many areas of the business. It is doubly concerning that research shows companies that don’t follow IT trends often experience a dip in corporate reputation. The key is to follow the trends that help, while focusing on the fundamentals.

Any business focused on innovation must have the culture that nurtures new ideas and the wherewithal to deliver on them, says Damian Hine, Associate Professor at UQ Business School.

‘Competitive intent’ which focuses on long-term success, not short-term wins.
‘Learning focus’ which encourages exploration – not exploitation alone: exploring new products ideas, markets, partners, and alliances for new ways of behaving, thinking, working.
Embedding successful ideas in the business. If something works, share it and make it part of how the company works. Patterns and routines are helpful as long as they are not so formalised that flexibility is stifled.
Getting the right equipment, skills and experience to get an innovation up and running. An overlooked resource is often the money to invest in the innovation, without putting undue stress on the rest of the business. “You need slack resources,” says Professor Hine. “To get slack resources a degree of prior business success is useful.”

COMMUNITY

Lays is a US potato chip company. Their campaign ‘Do us a flavor’ challenges customers to come up with a new flavour for their range. The prize, one per cent of the profits for 2013 or one million dollars, has generated eight million suggestions from 14 countries.

Could ‘Builder’s Breakfast’ or ‘Cajun Squirrel’ be the next fad food flavour?

Chief Marketing Officer Anindita Mukherjee is clear about the company’s intention: “It’s not about brands you buy, it’s about brands you buy into. If you want consumers to love you, they’ve got to have a hand in the brand,” she says.

It’s co-creation in action, an emerging marketing practice that engages customers and frequently delivers new ways of thinking to the business as customers are invited to provide input at various stages of the product life-cycle.

“Marketing is about building lasting relationships,” says Dr Nicole Hartley, a lecturer in marketing. “Customer interactions are no longer simply transactional. There’s a huge shift towards non-transactional interaction and trusted relationships,’ she says. Research shows that people are quite willing to take a financial risk if they trust the company they are dealing with.

Collating, analysing and exploiting enormous reservoirs of customer data will underpin the marketing capability of the future. Building vibrant customer communities goes hand in hand, in collecting data and in making it part of a meaningful contribution to customer communications.

Fundamental to a resilient customer community is transparency. Users of social media are sophisticated in their understanding of marketing techniques, and easily smell a rat. They are well aware that companies engage in social media campaigns to boost sales, but it doesn’t mean that authentic relationships can’t be developed, says Dr Hartley.

Social media content needs to be high quality, unique, up-to-date, relevant; and, more importantly, unbiased.

“Ultimately, you’re trying to build trust,” says Dr Hartley. “You’re trying to build a platform where people can talk openly. If customers sense a bias, they’ll back away. There may even be a backlash.”

TRANSPARENCY

Building capabilities for the future comes at a price, or, as businesses prefer to think, at an investment. All investments must be measured. The problem is, money spent on building future capabilities is difficult to identify.

Measuring intangible business inputs and outputs is especially challenging in an accounting environment inherently orientated to recording investments in bricks and mortar, plant and equipment.

Nonetheless, it’s good business practice to build capabilities for the future. It’s also good practice to know how much this costs, and to show the cost in ways that make clear whether value is being created or even destroyed.

Investments that build intangible capabilities tend to be buried in the books. Is business, asks UQ Business School’s Professor Anne Wyatt, missing critical insight that could inform more effective investment?

“Value-added is now less about machines and more about people’s intellect, so it is harder to track. Knowing how to track value creation and destruction requires a return to fundamentals.”

Professor Wyatt says that a major stumbling block to measuring intangibles is a lack of understanding of how value is created in the wider system in which the business operates. This deficiency is built into the tight regulation in the accounting system. The difficulty in identifying intangible expenditure means that regulators experience difficulties coming up with a relevant accounting standard.

Businesses have so far not been able to come up with their own, comprehensive systems for reporting on intangible expenditure. Regulators have not encouraged the process because of concerns about the prudence properties of external reporting.

However, Professor Wyatt believes that if expenditures on intangibles are not clear and isolated, it effects the relevance of external reporting.

If it is not clear how much it costs to develop future capabilities, how can the CEO know whether it’s worth it? And can shareholders tell whether management are doing their job, and the business is on track for a great future?

“When you don’t identify expenditures on intangibles you must wait until the investment outcomes appear in profits before the existence of the investment is revealed. Arguably, it is the role of accounting to provide internal stakeholders, as well as investors, with early warning of investments and their attendant risks,” says Professor Wyatt.

TRUST

Researching cultural dynamics will pay business dividends for companies moving into China, according to Dr Zhu, a Senior Lecturer in Strategy and an expert in cross-cultural management. It will also offer important lessons that will enrich the opportunities of doing business in any Asian country.

Dr Zhu believes that Western organisations entering China should understand the concept of Guanxi, which divides a person’s network of contacts between ‘insiders’ and ‘outsiders’. It also stresses obligations to one another within a network (hence the trust).

While Westerners inevitably begin business relationships as outsiders, the boundaries of Guanxi are flexible and foreigners can negotiate their way across them to move towards the centre. “The goal is to eventually get into the circle.”

“The Chinese are actually very open in terms of Guanxi,” she says. “There is a stress on harmony in society, and Guanxi is a part of this. Within their circles, people really help each other; they go out of their way to do so. Expressing gratitude is a large part of the culture.”

Overall, there has been a shift towards a more balanced relationship between East and West since the development boom in China. “The West led the East in the past, but now it’s West meets East,” says Dr Zhu. ”People are now communicating and doing business within this new context.”

“Most of the research in cross-cultural management, to date, has been from a Western perspective, which limits understanding to that of an ‘outsider’, she explains.

“You have to be very well prepared, and be innovative about your approach to any new culture,” Dr Zhu believes. “In China, especially, the reciprocity of understanding is what is appreciated, and it builds closeness.”

VIVIAN GEE, HEAD OF ASIA, SCHWAB FOUNDATION FOR SOCIAL ENTREPRENEURSHIP

Vivian Gee is a global citizen. Fluent in Cantonese, Mandarin and English, she was born in Hong Kong, and has bachelor and masters degrees in engineering from Stanford, US, and an MBA from INSEAD, Europe. Vivian is the Head of Asia at the Schwab Foundation for Social Entrepreneurship, and travels throughout the region selecting, supporting and leading social entrepreneurs. She is based in Geneva.

“Working successfully in any country starts with an effort to warm the relationship,” she says. “Showing you are willing to engage in the language or culture is always appreciated, no matter what part of the world.”

When it comes to working in China, Vivian has more specific insight. She recommends taking the time to understand the history and socio economic context of this emerging economic and political force. “China was an innovator and exporter for centuries. Under colonial rule much of the country was carved up, and the Chinese lost control. In recent years the country has dug its way out of pure poverty, changing the quality of life for millions for the better,” she explains.

Singapore is seen in the West as an economic miracle of will over circumstance. As Vivian points out, China has overcome the same challenges – but with a population of 1.3 billion people.

“I believe that the Chinese people are sophisticated and self aware. They know the shortcomings of the political system. But with the devastation of the cultural revolution in living memory for so many, there is also an awareness of remarkable gains.”

Respecting the history and understanding why the path of protectionism and control are sometimes so evident, will deepen appreciation of the business context and strengthen relationships, she says.