Research - The Facets of Philosophy

The Facets of Philosophy

By Nils Randrup

The objective of all research is knowledge, but few researchers include an explicit discussion of the nature of knowledge. In research, knowledge is traditionally studied from the epistemological perspectivewhich focus on describing knowledge’s nature, sources and limits, and deal with distinguishing justified belief from opinion. Just because you have an opinion about something does not mean that your opinion is justified. Or in other words just because you think you know does not mean that you actually know or that your knowledge is justified. Your knowledge is worth more if its justified that if it is “just” an opinion. However, opinions can be the initiator of scientific study, and so lead to justified knowledge. So opinions are considered truths if they can be justified. However, there can exist many truths and when there are mutually exclusive we then have a conflict of knowledge and a scientific dilemma.

In addition, knowledge can be discussed from other perspectives in terms of what knowledge actually is (metaphysics) as well as why we want to know and the values of knowledge (Axiology). So what we know in a philosophical sense is not just restricted to the study of knowledge but also the study of what the nature of knowledge is and the study of our value systems. So from a philosophical perspective, knowledge is a larger universe as outlined in the “Facets of Philosophy” model which basically states that knowledge has 3 areas of study; What we know, how we know it, and why we know:

According to the classification of philosophy by the Facets model, Philosophy is the study of reality (metaphysics), knowledge (epistemology) and value (Axiology). Metaphysics explains the nature of reality through study of what is and the nature of being (Ontology), what the meaning of life is (teleology), and what the nature and origin of the cosmos/universe is (Cosmology/Natural Theology). Epistemology explains what the nature of knowledge is and how we come to know through “scientific” inquiry based on observations and factual data, (Phenomenology/Empiricism), logical thinking (Rationalism), background knowledge and historical/evolutionary perspectives (Historicism) as well as information about motives (goals, values and consequences) for both stakeholders and the object of the study (Pragmatism) . Axiology explains what is of value and values we should live by through the study of what is good and evil, right and wrong (Ethics), power and how we should live together (Sociology/Politology), and what art, beauty, and good taste is (Aesthetics)[1].  So according to philosophers, knowledge can be described as a paradigm of knowledge. It is build with logic and language, and include a metaphysical, epistemological and axiological perspectives.

 

For more informtion about facets of philosophy see "Philosophy of Collaboration", Randrup/Briggs/Druckenmiller, HICSS 2016

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Research - Philosophy of Knowledge

Do you think you know what knowledge is? Think again!

A postmodern philosophical perspective on epistemology and the universe of knowledge

By Nils Randrup

Abstract

For most people knowledge is a simple concept of what we know and are aware of and what we don’t. It is at the same time complex and mystical. The study of knowledge or epistemology has been debated throughout all ages by professionals such as philosophers, scientists, and psychologists. This paper includes a short overview and introduction to the key insights and models used to explain what knowledge is and how it is acquired. It presents the 3 worlds of knowledge as a conceptual point of entry into the study of knowledge. It then expands into a short presentation of the classes of knowledge; it explains knowledge as a belief system, and finally outlines the sources of knowledge.  As such it can be a helpful refresher of the fundamentals as well as a quick introduction and overview of what the study of knowledge is all about preceding a more profound study of epistemology.

Introduction to the concept of Knowledge

 “There are tacit and explicit knowledge” says young Bob. “NO” says old Doug, “You are quite wrong. The world of knowledge is much larger than that”. “But when we know something we either know something implicitly or explicitly, what more can there be?” says young Bob. Old Doug sighs and then exclaims “The eyes can only see so far. And right now you are looking at knowledge as an object, and not at what is further away”. "What is then the object of knowledge?" asks young Bob. "There is no object of knowledge," replies the old Doug, "To know is to be able to operate adequately in an individual or cooperative situation." "So which is more important, to know or to do?" asks young Bob. "All doing is knowing, and all knowing is doing," replies Doug, and then continues, "Knowing is an effective action, that is, knowledge operate effectively in the domain of existence of all living creatures."[2] 

Isn’t the philosophy of knowledge wonderfully intriguing? Philosophers call the study of knowledge by the fancy word "epistemology" which is in its roots a Greek word for “Knowledge” + “ Logic”. It’s about what knowledge is and how it is acquired. This article is meant as a little inspirational contribution to help readers see beyond their current horizons, in case they are not so familiar with epistemology. Now back to the story …. So, where is Old Doug coming from? What does he see that young Bob does not?

3 Worlds of Knowledge

In order to understand knowledge on a conceptual level like Old Doug, the 3 Worlds concept is a useful place to start.

World 1 - Physical

This world is the physical universe that surrounds us. It consists of the actual truth and reality that we try to represent, such as energy, physics, and chemistry. While we exist in this world, we do not always perceive it and then represent it correctly.

World 2 – Perceptional

This world is the perceptional universe that is part of us. The world of our subjective personal perceptions, experiences, and cognition. It is what we think about the world as we try to map, represent, and anticipate or hypothesis in order to maintain our existence in an every changing place. Personal knowledge and memory form this world, which are based on self-regulation, cognition, consciousness, dispositions, and processes. Note that the concept of tacit and explicit knowledge is based entirely within this world.

World 3 – Artifacts

This world is the universe of artifacts created by us. The sum total of the “objective and tangible” knowledge and representations of the abstract products of the human mind, which is then stored in historical contents and contexts by us. It consists of such artifacts as books, tools, articles, models, libraries, computers, networks, posters, sculptures, signs and so forth. It is quite a diverse mixture. While knowledge may be created and produced by World 2 activities, its artifacts are stored in World 3, for example a claw-hammer, Maslow's hierarchy of needs, and Godel's proof of the incompleteness of arithmetic.

For a philosopher the concept of tacit/explicit knowledge[4]  is useful to tie the concept of Knowledge down as done in behavioral sciences. The tacit/explicit epistemology is narrower and has a limited basis for understanding knowledge as compared to the 3 Worlds of Knowledge, which provides a broader epistemological foundation. There are various relationships between these three worlds:

·         The Physical World 1 drives and enables the Perceptional World 2 to exist, while the Perceptional World 2 tries to control and regulate the Physical World 1.

·         The Perceptional World 2 produces the Artifacts World 3, while Artifacts World 3 helps in the recall and the training/education/development/learning of Perceptional World 2.

·         Artifacts World 3 describes and predicts Physical World 1, while Physical World 1 is the inferred logic of Artifacts World 3.

·         Perceptional World 2 control the relationship between Physical World 1 and Artifacts World 3. Since world 2 is composed of people, we can use our senses to cut across boundaries and observe and test the exchanges and relationships of worlds 1 and 2.

Thus, the roots of the 3 World concept is that:

“Knowledge surrounds us (world 1), becomes a part of us (world 2), and is created by us (world 3).”

In this framework there are two different senses of knowledge or thought:

·         Knowledge in the subjective sense, consisting of a state of mind with a disposition to behave or to react [cognition].

·         Knowledge in an objective sense, consisting of the expression of problems, theories, and arguments.

While the first is personal, the second is totally independent of anybody's claim to know — it is knowledge without a knowing subject.

Classes of Knowledge

Within the perceptional “world”, epistemology is the discipline of logical knowledge. However, there exist other classes of knowledge[5] besides what is generated as a result of scientific inquiry. The classical classes of knowledge include:

·         Craft knowledge (Tehne) – Concerning production (not action). Every craft is concerned with producing a work product, something coming to be.

·         Scientific knowledge (Episteme) – What is necessary and known, eternal, ingenerable & indestructible.

·         Intelligence (Phronesis) – A capability of rational thinking. Practical Concerning living well;

·         Understanding (Nous) – Ability to grasp first principles, having an intellect.

·         Wisdom (Sophia) – reasoning concerning universal truths, understanding plus scientific knowledge, “theoretical” wisdom, ”Booksmartness”

·         Action (Praxis) - thoughtful, practical doing, practical “wisdom”

Knowledge as beliefs

When discussing the nature of knowledge within the perception world 2, the modernists and postmodernists have a different perspective on what beliefs are.

Belief as Truth

“Modern” philosophers[6] defines knowledge as a “justified true belief"[7] or in short a “truth”. The definition consists of 3 “conditions” and when they are met, one knows something is true. The starting point is than knowledge starts as a “statement”, and that statement resides in a person or individual. A person has to believe that a statement is true, the statement needs to be in fact true, and the belief must be justified before she can truly say that she knows something to be true. The belief exist in the perception world 2, whereas what is in fact true belongs to the physical world  2. A justification means that something is a warranted assumption, that there is a logical rule which makes the statement correct and that there are “proof” that the rule is a solid rule. For a modernist there is such a thing as Absolut knowledge and truths. And the 3 Worlds of Knowledge originates from a Modernistic perspective of knowledge.

Belief as Perceptions

In contrast postmodern philosophers study of knowledge define knowledge more in terms of something (a condition) that can be perceived, and acknowledge that perceptions can change, depending on us, on time and on our perspective or lenses we use to perceive. Therefore nothing can be known to be certain, and we have to have a specific, skeptical attitude towards certainty, and a relative view of belief and knowledge. Postmodernists see truth as much more fluid and in the eyes of the beholder. There is in essence no absolute knowledge, only relative knowledge. Postmodernists also state that everything exist and is known already, and so when we talk about inventing new knowledge, this knowledge is based on knowledge we already have. So nothing is really “new”.

Sources of knowledge

Where does our knowledge come from? Of course, we learn a lot of things from artifacts (books, from the media, and from other people) but how has knowledge come about?

Scientific Knowledge

Within the academic world, the primary source of knowledge is derived from Science. To be termed scientific, a method of inquiry must be based on gathering observable and measurable evidence, and subject to specific principles of logic, reasoning and experimentation. The scientific method consists of the collection of data through observation and experimentation, and the formulation and testing of hypotheses. There are two competing traditions within science concerning the ultimate source of our knowledge: empiricism and rationalism.

Empiricism

Empiricists hold that all of our knowledge is ultimately derived from our senses or our experiences. They therefore deny the existence of innate knowledge, i.e. knowledge that we possess from birth. Empiricism fits well with the scientific world-view that places an emphasis on experimentation and observation. It struggles, however, to account for certain types of knowledge, e.g. knowledge of pure mathematics or ethics.

Rationalism

Rationalists hold that at least some of our knowledge is derived from reason alone, and that reason plays an important role in the acquisition of all of our knowledge. There is clearly a limit to what we can learn through abstract thought, but the rationalist’s claim is that reason play a role in observation, and so that the mind is more fundamental than the senses in the process of knowledge-acquisition.

5 sources of knowledge

Knowledge is very closely related to what we can perceive or register, our mental capacity to perceive and process tangible and intangibles. It is furthermore closely related to terminology and language which is used to communicate knowledge by. The origins of knowledge can be classified in terms of its sources[8]:

·         Perception — that which can be perceived through the experiences of the senses. The view that experience is the primary source of knowledge is called empiricism.

·         Reason — Reason can be considered a source of knowledge, either by deducing truths from existing knowledge, or by learning things a priori, discovering necessary truths (such as mathematical truths) through pure reason. The view that reason is the primary source of knowledge is called rationalism

·         Introspection — Knowledge of one’s self that can be found through internal self-evaluation. This is generally considered to be a sort of perception. (For example, I know I am hungry or tired.)

·         Memory — Memory is the storage of knowledge that was learned in the past — whether it be past events or current information. Memory and its development is the root of historicism.

·         Testimony — Testimony relies on others to acquire knowledge and communicate it to us. Some deny that testimony can be a source of knowledge, and insist that beliefs gained through testimony must be verified in order to be knowledge.

Sub-conscious and Intuitive knowledge

Let’s look at the source of knowledge from the other end of the scale. Knowledge is NOT just derived from scientific inquiry through empirical or rational study. And it is not limited by our conscious awareness. The subconscious[9] is considered the part of consciousness that is not currently in focal awareness. Underneath the layers of critical-thought functions of the conscious mind lay a powerful awareness that he called the subconscious mind. Carl Jung said that there is a limit to what can be held in conscious focal awareness, an alternative storehouse of one's knowledge and prior experience is needed, and this is also referred to as the sub-consciousness.

An example of our sub-conscious knowledge is Intuition. Intuition is the ability to acquire partial knowledge without inference or the use of reason. An individual may "know" about a situation but be unable to explain the process that led to their knowledge, with no observations, logic or reason as the origin of the knowledge. Classical knowledge is derived from consciousness or awareness. Un-conscious knowledge is also knowledge which resides somewhere within us, whether it is in our brain, our DNA or elsewhere. Unconscious knowledge can – like sub-conscious knowledge - “surface” and become conscious through manifestations or experiences such as intuition, dreams, hallucinations, hypnosis, meditation and similar. Or it can stay unconscious and manifest itself as automatic behavior or reactions we are not conscious about, or perhaps even stay internal and never “surface”. Therefore some un-conscious knowledge can surface and be observed and studied, but scientific inquiry does not (yet) give us access to more than a partial study of un-conscious or sub-conscious knowledge. But it is there, it exist. It is just less accessible. The unconscious mind has a will and purpose of its own that cannot be known to the conscious mind (hence the term "unconscious") and is a repository for socially unacceptable ideas, wishes or desires, traumatic memories, and painful emotions put out of mind by the mechanism of psychological repression[10]

Philosophy of Knowledge

Knowledge is traditionally studied from the epistemological perspectivewhich focus on describing knowledge’s nature, sources and limits, and deal with distinguishing justified belief from opinion. Just because you have an opinion about something does not mean that your opinion is justified. Or in other words just because you think you know does not mean that you actually know or that your knowledge is justified. Your knowledge is worth more if its justified that if it is “just” an opinion. However, opinions can be the initiator of scientific study, and so lead to justified knowledge. So opinions are considered truths if they can be justified. However, there can exist many truths and when there are mutually exclusive we then have a conflict of knowledge and a scientifical dilemma.

 

In addition, knowledge can be discussed from other perspectives in terms of what knowledge actually is (metaphysics) as well as why we want to know and the values of knowledge (Axiology). So what we know in a philosophical sense is not just restricted to the study of knowledge but also the study of what the nature of knowledge is and the study of our value systems. So from a philosophical perspective, knowledge is a larger universe as outlined in the “Facets of Philosophy” model which basically states that knowledge has 3 areas of study; What we know, how we know it, and why we know:

 

According to the classification of philosophy by the Facets model, Philosophy is the study of reality (metaphysics), knowledge (epistemology) and value (Axiology). Metaphysics explains the nature of reality through study of what is and the nature of being (Ontology), what the meaning of life is (teleology), and what the nature and origin of the cosmos/universe is (Cosmology/Natural Theology). Epistemology explains what the nature of knowledge is and how we come to know through “scientific” inquiry based on observations and factual data, (Phenomenology/Empiricism), logical thinking (Rationalism), background knowledge and historical/evolutionary perspectives (Historicism) as well as information about motives (goals, values and consequences) for both stakeholders and the object of the study (Pragmatism) . Axiology explains what is of value and values we should live by through the study of what is good and evil, right and wrong (Ethics), power and how we should live together (Sociology/Politology), and what art, beauty, and good taste is (Aesthetics)[11].  So according to philosophers, knowledge can be described as a paradigm of knowledge. It is build with logic and language, and include a metaphysical, epistemological and axiological perspectives.

 

Conclusion

And to round this article out in a truly philosophical way, let’s see what the postmodernists can contribute with to the discussion of knowledge and life:

 “We - the scientists - stand on the back of each other, and where one leaves the torch, the next will pick it up, a run the next lap. But then the guy in the speaker box looks down at the race from above and tells the crowd through the loudspeaker: “Our guys are now running in circles and will probably do that for ever. Let’s all go to lunch instead at the Beachcomber Café, and watch the dolphins play in the emerald blue waters of Laguna Beach”.

 “Old Doug laughs and young Bob sighs. Old Doug is familiar with Popper’s 3 Worlds but young Bob is only familiar with Polany’s Tacit/Explicit concept. BUT, now young Bob knows as much as old Doug and will eventually be able to become wiser than old Doug. And as time is seeping through the hour glass of life, it will soon be young Bob who laughs and Old Doug who does his last Sigh ….”.

From here on out it can only get better or worse depending on your perspective.

Let’s throw knowledge out the door and play with the pieces.

So now you know what you know and that was that.

 

 

References

 www.phdcomics.com, Jorge Cham 2008

3 World Concept originates back to Karl Popper. For reference see e.g. Maturana, H.R., and F.J. Varela. The Tree of Knowledge: The Biological Roots of Human Understanding. Shambhala Publications, Boston, MA, 1998.

Michael Polanyi's concept of tacit and explicit knowledge. For reference see e.g. Michael PolanyiThe logic of Tacit inference” in Philosophy / Volume41 / Issue 155 / January 1966, pp 1 – 18

Aristotelan definition of knowledge

Modern as in modernistic, based on Plato’s definition (e.g. in “Theaetetus”).

 Steup, Matthias, "Epistemology", The Stanford Encyclopedia of Philosophy (2014), “The Sources of Knowledge” Robert Audi, Honderich 1995, The philosophical index e.a.

The word "subconscious" represents an anglicized version of the French “subconscient” as coined by the psychologist Pierre Janet (1859-1947)

 Philosophy of Collaboration, Randrup/Briggs/Druckenmiller 2016

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Sales Excellence - B2B Sales Skills

From Salesperson to Management Consultant

by Nils Randrup

The B2B trade is getting more and more difficult.  The traditional selling points, low price, assured delivery and a broad selection, do not work as well as they used to, and having your sales people call more often and sell harder is getting stale as well.  You need to look for ways to help the customer add value, be more profitable, using your product(s).

Companies that sell based on the lowest price typically have their production facilities, when production has a material labor component, in low wage or low expense countries such as Vietnam, China, Pakistan, or some of the Eastern European countries.  Flextronics, for example, which is one of the biggest outsourced electronics manufacturers, supplying to Microsoft, Sony-Ericsson, Motorola and others, manufactures most of their European products in Hungary, due to low wages and low expenses.  Most other companies cannot compete on price and use other arguments, “best” product, “best” service, etc.  This is typically not enough in today’s market, thus the drive towards helping your customer gain added value.

It should be obvious that you don’t help your customer add value by selling harder.  In fact, many production companies as well as large retail chains have started to restrict meetings with vendor sales people.  To these customers, the sales person acts as an unwanted distraction and, to add insult to injury, if the sales person succeeds in getting through and in selling their more expensive product, it is almost a given that the customer will not buy from this vendor in the future.

You help your customer add value by working with your customer, not as a sales person, but as a consultant.  The steps to success are: analyze the customer’s situation, hopefully in cooperation with the customer; create a joint strategy for improvement with agreed upon metrics for success; implement; and finally keep looking at the metrics to make sure you are in fact adding value.

An international company, headquartered in Denmark, selling plastic feedstock to the packaging industry used these techniques with great success through what in hindsight may seem a simple solution:  the supplier assumed responsibility for the feedstock inventory at the customer’s location.  Sensors installed by the supplier communicate the instantaneous inventory level changes to the supplier who can then schedule topping up when necessary.  The supplier gained predictability, a long term customer, and the customer gained certainty of inventory and lower cost of purchasing and inventory management.

The take-away is:  if you want to be a trusted supplier to your customer, you'd better make sure your people in sales understand the customer’s processes so they can help the customer be more profitable.

 

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Finance - Direct Customer Profitability

Follow the Money!

by Nils Randrup

 

If you want to get more profit out of your current stock of customers, it is necessary for you to know the direct customer profitability per customer, and not just the total sales figure or gross margin. Tools like Activity Based Costing applied to your individual customers will help. They give you the ammunition to make better decisions about how to increase bottom line profits and on how to spend your marketing and sales resources better than you do today.

With apologies to “Deep Throat” of Watergate fame, this is not about political shenanigans.  Rather, it is about the changing income statement.  Did you look at your corporation’s income statement lately and maybe compare it to the income statement of some years ago?

If your company is like most, there is a constant movement, over time, of expense from the Cost of Sales line to the SG&A (Selling, General, and Administrative) line.  Studies show that where twenty years ago 70% of expenses were variable, it is now not unheard of to see only 30% being so.  The big changes are caused by the cost of additional marketing expenses, sales resources, HR, the IT department, etc.  Thus, where a meaningful discussion about customer profitability might once have centered around the Gross Margin exclusively, it is now essential to look at the – traditionally “invisible” – expenses two lines down.

What does that mean for your business?  Among many other things, it means that where it might have been relatively easy some years ago to break down the cost of sales into the specific market areas and customer classifications to identify the profitable customers, this is now much harder to do.  To do a customer profitability analysis you now need to know the specific SG&A contribution by class of customer or market segment.  Do you know how much marketing effort you expend per market segment?  If not, you’d better find out.

If you are like the participants in a recent study of medium-to-large size Danish companies, right now you are losing money on one out of every four customers when you add up all the expenses, including the SG&A.  And the profitability of a further 15% of your customers is below the hurdle rate for return on invested capital.

At this point, your Marketing and Sales people will start talking very fast about strategic accounts, etc.  And of course they might very well be right.  The point of this is not to tell you to get rid of all customers who do not create returns above the hurdle rate.  Rather, it is to suggest that you should know in detail what each class of your customers is really bringing you in terms of profitability, image, brand value, second level opportunity, etc.

We shall save the discussion of brand value for another time.  For now, let us concentrate on the issue of quantification/separation of SG&A expenses by market segment.  Traditional cost accounting allocates SG&A cost according to some metric, quite often total sales volume.  So, if one segment has twice the sales, it will get twice the allocated SG&A.  This might be perfectly fair though, as we have all seen, to sell a contract for X amount of product might take the same effort as selling a contract for 10X.  If that is the case, it is unfair to allocate by sales volume.  Enter “Activity Based Costing” – ABC.

In the Activity Based Costing model you identify activities that you can quantify and identify the cost for each, for example – to stay with the sales example – the number of sales meetings necessary to close a contract.  If the number of sales meetings is not correlated with the contract value, the allocation of SG&A to the segment by contract size will be quite different.

So, the takeaway is:  follow the money.  Know what your customers bring you in terms of profitability and other benefits and look at Activity Based Costing.  The more you know, the easier it will be to make the necessary decisions and still sleep at night.

 

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Positioning - The Positioning Star method

Positioning Star

How to transform a competitive advantage to the most profitable and powerful value proposition

By Nils Randrup

 

Positioning Issues

Many companies feel that they have some great products or strong brands which generally should be able to perform much better than today. Many suggestions and ideas for how to close the gap between the current product contribution and the potential is discussed and tested without much success.

Our analysis of 200 different products in such companies suggest that more than 75% of these companies are not able to clearly and effectively define the financially most attractive position of their product.

This symptom is an indication of a grave problem which hides below the surface. Many products are not positioned on the right dimensions or at the most profitable position in the market. Most companies seem not to have a clear and quantifiable understanding of what the customers have of key decision criteria for choosing one product over another. Most companies base their positioning on dimensions that key customers do not put a high value on. And often there is no relationship between the competitive advantage of the company and the position chosen for it’s major products. That is in essence the key reasons why companies in our study seem not able to select a strong position.

This key strategic problem has grave impacts on the profitability of the products, and on the effectiveness of the sales and marketing initiatives:

 

·         It seems impossible to have and sustain a strong product strategy without this knowledge

·         The key selling proposition is not in line with the real potential of the product.

·         The sales budgets does not fit the real market potential

·         The key strategic activities such as investments in R&D, Branding investments, communication plans, product arguments in sales materials, sales meetings/presentations, and advertising are a waist of money and time because they give a negative return on investment (ROI).

 This give rise to the conclusion that the go-to-market strategy for many companies is weak, and that poor positioning is the key reason for that product is not performing as is should.

 Solution

Some companies realize that a significant improvement is necessary in how they market their products, and they want to engage in an improvement process that starts with their positioning, which consequently leads to more effective market activities.

 Benefits

When the positioning analysis is done the company has a sharp and focused strategy for the product, and a clear understanding of the profit and turnover potential in the current market. They know exactly what customers they are building their business on and has a much more precise target group definition. They can improve the effectiveness of the sales efforts by having much stronger and more relevant arguments for why customers should choose the products over other product options. They can improve their price setting. They can achieve higher ROI on their advertising. They can focus the R&D efforts. And they are able to plan the product portfolio in a much more effective way. And the ultimate benefit of this is a significantly improved bottom line for the product.

 

Implementation

Successful positioning is done based on selection of which primary selection criteria the company are able to support in order to generate higher than average profit in the target market. The same product might have different positioning, if the target market selection include multiple target markets with differences in primary choice criteria. The objective of competitive positioning is to successfully choose positions that enable the company to generate a higher than average profit in the industry or segment served.  Successful positioning is usually connected to the competitive advantage of the company. Within a chosen target market, the customers short list criteria outline the “must haves” of the value proposition, the generic performance criteria. It is not possible to successfully position a value proposition on these generic short list criteria. They are the “ground rules of engagement” to be a player in the first place. There usually exist different key selection criteria, not just one or two, depending on the number and nature of target markets in the chosen market segment. By pragmatic multi-source analysis, it is possible to identify and quantify the primary selection criteria in the chosen market segment. When this is done it is possible to estimate the volume sales and the expected profit/product contribution for a specific value proposition in a specific market.

When considering to implement improvement of the positioning, there are typically some concerns when considering and deciding to do the positioning improvement:

 Too difficult?

For some it might seem like a very difficult task, when it is hard to see how the improvement should be done in practice. This problem is a problem of knowledge, and is therefore easy to solve if there are some time invested in finding a good practical model with an outline of what should be done on what order.

 Skills and tools available?

For some it might be a problem, that the current organisation does not have the intellectual skills,  competences, or planning principles readily available, which is needed to be successful with the improvement of the positioning. This is a question about intellectual capacity, and is easy to solve if it is possible to find and buy the competences from a consulting agency.

 Resources available?

For some it might be a problem that there are no resources both in terms of manpower available or budgets for analysis or external consultants to engage in such a process. This is in essence a financial problem. If there are no resources available then it might be relevant to review the situation for the all market activities and departments, and the shift resources from other less important initiatives to the improvement of the positioning. If this is not possible, then it is possible to borrow the money. Current cost of capital is very low (2-5%) and so for a small premium, the company can invest the money up front and pay back over time when the improvements improve the cash flow.

 Measurable Value?

For some it might be hard to see the actual value of improving the positioning strategy, when it is the sales and marketing initiatives which need to be improved in terms of ROI. This is a cost/Benefit problem. On the benefit side - in order to identify the potential tangible value of the improvement - it is necessary to quantify the expected potential (benefits) of the product vs. the current potential. This can be done based on a speculative analysis or a bench-marking analysis against other types of products. On the cost side, it is necessary to evaluate the manpower and external cost it will take to have a stronger position. This equation as a rule of thumb always show a large positive value add from the improvement investment when the ROI is calculated for a period of more than 5 month.

 Give priority?

For some it might seem easier and quicker to invest in other more successful products, than to start an improvement process. This is a convenience problem. The easier way is not always the best way, especially if the product has a larger share of the turnover, or if the product is one of the products with the largest potential. So the best thing to do is view the investment based on the payback level, not on what is the easier thing to do.

 Bottom line

So when the key financial performance problem is a weak positioning, the solution is implementation of a positioning improvement process, and the result is insights about how to re-position the product in order to significantly improved profits.

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Operational Excellence - Process Ownership

Who owns the processes?

By Nils Randrup

 

Organizations are usually organized by functions, and when they want to improve the way they work, they often have to redesign their processes so they work well across functions. Furthermore, process reengineering gurus such Allan Brache, Jim Champy, and Michael Hammer have over 20 years preached the gospel that companies must appoint process owners to make sure that processes are optimized across functions for the benefit of the customers and the company’s financial performance. Yet, very few organizations which have gone thru process improvement initiatives have process owners or can sustain them. However, best practice companies such as Nokia, Shell and Air Productsamongst others have followed this advice and created high-level process owners, and created a process management structure, that was put on top of the functional structures. Top management is following the critical processes and KPIs on an ongoing basis. And it is also well documented, that having a process owner structure in place create outstanding results. Air Products tripled their productivity in 3 years, and grew operating return on assets by 34% from just over 9% to 12,5%. The company themselves testify to the fact that having process owners has been critical for their successful results, especially because it has provided them with a significant competitive advantage, which they have cashed in on financially. So the success of their process improvement work was significantly impacted by having process owners for cross-functional processes.   So it cannot be because organizations don’t realize that they need process owners for cross departmental processes.

Based on interviews with key managers there seems to be at least 6 possible explanations for the lack of cross-functional process owners:

1.      Uncomfortable Employees

·         Most employees are used to and identify themselves with a specific function which they have trained for and which is part of their traditional identity. So employees think of themselves as a marketer, a sales person, a finance specialist. Process Management structure changes this; employees lose their functional power and have difficulty redefining their work identity accordingly. In one company, customer satisfaction rose, but employee satisfaction plummeted.

2.      Complex organizational structure

·         In especially larger organizations, there are already complex organizational structures in place where employees find themselves in matrix type of functions with a product group relationship, a geography relationship and a functional relationship. Putting on yet another organizational relationship becomes too difficult to adopt so organizations just plain don’t.

3.      Marginalized management

When companies appoint middle managers as process owners, they are functioning more like support functions to the functional departments or management without actual influence on the same level at functional or geographical heads. This means that the traditional management trumph the process owners, and thereby isolate the Process Owners from the main line business.

4.      Project Leader syndrome

In quite a few organizations, the Process owners primary job was to redesign the processes and make sure that the redesigned processes was supported well by changes to the ERP systems. However, when this “project” was over the process owners moved on as they were never considered responsible for the process execution. And more importantly they were never made responsible for the actual performance of the processes they managed.

5.      Unclear job function and role

Process owners also typically did not clearly understand their actual role and the changes that the cross functional position made to their jobs. If a manager had used an authoritative and decisive leadership style, this leadership style was often ineffective when it came to influencing or adjusting job content or behavior of employees who “belonged” to other departments, when there was much more need for an influential and motivational leadership style.

6.      Short term management fad

As management tend to change their strategic priorities typically year on year, some companies, then some companies engaged in larger process improvement initiatives and did everything by the book, including the selection of Process owners. However, with the next years strategy plan, the attention shifted to other more urgent issue which arose, or in some cases management changed and so did the strategies. So with the shift of strategy, the process owners roles were not longer needed and the companies moved on.

So if a company needs sustained effect with process owners, measures has to be taken to avoid these 6 pitfalls.

 

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Product Innovation - Saving a New Great Product From Failing

Why great new products fail

By Nils Randrup

The most frustrating thing is to having developed a seemingly great innovative product, which has a large market potential, and then seeing it fail when it is launched. The most frustrating thing I’ve ever personally been involved in was just that. DUNI –  a large international company in the tabletop business with HQ in Sweden - developed a new napkin type called the “Snapkin” which was better than the traditional roll of paper towels which most people have in the kitchen, but cheaper than the nice high end paper napkins, and it came in a stylish little ice-blue box. So it created a new sub-category of paper towels with huge potential. The test marketing of the product went great. Of the consumers who were given the product over 90% said that they would certainly buy it when it came on the market. However, when it was launched the product failed, meaning that the sales did not take off and after 16 month the product was discontinued and the remaining stock sold off for almost nothing. How could a product with that high acceptance rate and buying intention score in the consumer test fail? When talking to people in other industries and colleagues in academia and from other consulting companies, we soon understood that quite a number of companies have had similar experiences and were also perplexed about the experience like Schneider Associates who have just shared their experiences[i]   and frustration with similar un-successful launches of good products.

Based on our meta research consisting of our experiences and the research and experiences of others (e.g. see Schneider Ass. comment about the same issue in Harvard Business Review, Why Most Product Launches Fail, April 2011), we come to the conclusion that there seems to be typical 6 traps which can explain most of the failure problems with launching a seemingly great new product:

1.       Category launch trap

·         The product defines a new category and requires but does not get it

·         If consumers can’t quickly grasp how to use the new product, they don’t make the final buying decision and put it in their basket.

 

2.       Timing trap

·         The product is revolutionary but there is no market for it. Customers are not ready to buy (yet) typically because of lack of vision/knowledge (inertia), infrastructural demands or fit with current behavior/systems,  high risk assessments for the changeover to the new product etc.

·         The product must pass the consumer test, and it must be clear who will buy the product and at what price.

 

3.       Expectations trap

·         The product does not deliver on some of the important claims about it benefit and ease of use and gets thumbs down by the pioneers or initial users

·         The product launch must not be pushed too much forward before the product can deliver on the most important benefits

 

4.       Desk top trap

·         The product makes sense to the managers and product development people. The competitive advantage of the product, and the business case looks good on paper, but it fails the consumer test because the difference does not sway real customers to select the new product over other alternatives or competitive products.

·         The product must go thru and be successful in a real customer test situation where the customer can choose between different alternatives.

 

5.       Agility trap

·         The product quickly takes off but because of too conservative budgeting  and sales forecasting, the company cannot support the fast growth (e.g. companies run out of products, lead-time explodes on product delivery and installation services, rushed products get quality problems, and customer service crash because of too high volume of incoming calls)

·         Companies must have a scenario plan for at least 2-3 scenarios with different levels of sales takeoff profiles, and must be agile enough andready to gear up (or gear down) when needed.

 

6.       Knowledge trap

·         The product is launched but hardly anyone in the target group has noticed or can remember seeing the product in the stores.

·         Companies must invest sufficient funds to support the launch with a more aggressive communication campaign which is sufficient enough to secure a high initial awareness level.

 

The bottom line

Great new products do fail sometimes, most often because most customers do not initially by a product from a new product category, there are contextual problems which makes the timing not right, new product does deliver on initial customer expectations, product is a desktop development project, the setup producing and delivering the product is not agile enough to solve practical problems, or knowledge about the product in the right target groups are lacking.

 

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Customer Service - Churn

Customer Service Strategy turned upside down

By Nils Randrup

Fixing churn is better than providing excellent customer service. It has been a rule of thumb for my and other consulting companies for some time and it is now also a proven scientific fact. Many companies have a Customer Service Strategy of striving for outstanding customer service which exceeds the customers’ expectations and grow general customer satisfaction. The problem with this strategy is thatit does not typically grow sales or increased profitability thru increased customer loyalty for most companies. What we have seen however is that removing the customer’s efforts by lowering their irritation points and need for service does increase profitability and customer loyalty. Our practical insights is now also supported by new research which document that it is 4-5 times more profitable for companies to work on fixing service irritation and thereby churn, than to try to exceed customer expectations. Furthermore, the research indicate that using standard customer satisfaction studies or the Net Promoter Score does no longer seem to be the best way to measure customer service efficiency, which is for sure a controversial finding.

If you work for a company, which has a Service Commitment to your customers, about exceeding customer expectations, and you think that this will give you a competitive advantage and drive your sales and profitability, then think again. And if you work for a company who uses customer satisfaction surveys or Net Promoter scores, it is time to rethink your KPIs and performance management system. The second larger study[1] of the relationship between customer service, customer loyalty and sales has been published recently by 3 colleagues from Customer Contact Council. This study is now the largest study Customer Satisfaction and Loyalty study of its kind which took place over 3 years and included questionnaires and interviews with approx. 76,000 B2B and B2C customers, who interacted with customer service functions by phone, e-mail, chat, voice response and/or internet based self-service. The conclusions of the study correspond to earlier studies by other researcher about the same thing, including Fred Reichheld recent studies, which also supports the fact that customers punish bad service with changing supplier and telling their colleagues and friends about their experience to a much greater extend that they reward excellent service beyond their expectations with more sales, longer loyalty or positive voice of mouth. In fact, the research indicate, that delighting customers does not translate into higher sales and profitability at all.  Interestingly, the study also proves, that using customer satisfaction survey based index has a virtually no correlation with increased sales, the Net Promoter Score has some correlation with increased sales (no. of “ambassador” customers minus no. of “terrorist“ customers), but the Customer Effort Index, which is based on removing the irritation points to lower the level of customer efforts in using/consuming a product, had the highest correlation with increases in sales.

So excelling in customer service is not the best strategy choice and focus areas for Customer Service. But focusing on Churn is. Churn rates tends to be quite high in some companies, typically ranging from 10-35% across different industries. Customer Service is one of the most important drivers of churn. What causes churn from the Customer Service has now been researched thoroughly, and the major churn drivers found are these irritation points:

1.       Having to repeatedly contact the company to resolve an issue (62%)

2.       Being transferred one or more times (59%)

3.       Spending moderate to high effort to resolve an issue (59%)

4.       The need to switch from internet self-service or other web services to the phone service (57%)

5.       Re-explaining an issue one or more times (56%)

What companies should do is to measure the scope of these problems for their customers, and the work diligently to remove the irritation points listed above, instead of trying to exceed customer expectations, focusing blindly to increase standard customer satisfaction dimensions, and offer special monetary or otherwise expensive compensation as a standard operating procedure. When the irritation points are removed, this will alone create significantly higher profitability coming from lowering churn. For every 1 out of 100 clients the customer service department can help keep, so they don’t churn, the customer service department can add 1% of sales value and approx. 2% to the profit. So be smart, go for “putting the plug in the bathtub” instead of “pouring more water into it”. It is smart business and will pay off immediately.

 

The bottom line:

It is more important for improving customer relationship and profitability to fix churn by e.g. removing irritation points and removing the reason to call a supplier multiple times about a problem, than it is to diligently pursue excellence in customer service conversations and interactions with customers.

For more information on Churn see Matthew Dixon e.a. “Stop trying to delight your customers”, Harvard Business Review (6/2010)

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Customer Service - How to analyse satisfaction

Mis-management of customer service

By Nils Randrup

 

More than 80% of company sales typically come from existing customers, and a general rule of thumb is that it is 4-6 times cheaper for a company to grow sales with existing customers than to acquire new sales from new customers. Key to securing and growing sales to existing customers is not to annoy the customers so much thru the customer service, that they will choose to change supplier.

However, many customer service managers find themselves in a situation where customer satisfaction is not up to scratch, even though the performance measures seems fine.

When asking customers what really matters to them in terms of customer service, the two top factors is that the person answering the call is knowledgeable and can take care of business, and that the issue can be solved during the first call. However, these two criteria are seldom included in the performance management system of customer service departments. More than half of the customers in a recent customer survey across industries say they’ve had a bad service experience, and nearly the same fraction think many of the companies they interact with don’t understand or care about them. On average, 40% of customers who suffer through bad experiences stop doing business with the offending company.

The most important key performance measurements for customer service departments in most companies is still at many companies how long time a customer is on hold before the phone is answered, and the minutes used per call. Such KPIs drive a behavior with customer service personnel to hurry through calls, and to prioritize taking the phone over actually being able to handling the issue at hand. This is exactly the experience the customers don’t appreciate and get irritated by.

As companies emerge from the recession, customer service managers should understand that customers tolerate less in terms of bad experiences and have a tendency to shift suppliers more often now than ever before when they are irritated. New research underlines that must customers will no longer accept a rushed and inconvenient service experience, which becomes more at more common.

A recent study of customer satisfaction studies, published in Harvard Business Review, has yet another astonishing result. It studied the effect on sales of using customer satisfaction studies and customer satisfaction dimensions. Out of all the more than 50 types of customer satisfaction drivers, there were only 3 that had a direct correlation where increase in satisfaction scores meant increase in sales. The rest did not lead to increased sales. The only dimension found to correlate directly with sales across industries were the answers to the question:

·         “How likely is it that you would recommend <company/Product> to a friend or colleague?”

In a majority of industries two other dimensions also to some extent drove sales:

·         “To what extend do you consider your purchase a good buy?”

·         “To what extend do you have sympathy for the <brand/company>?”

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Project Management - How to make improvements stick

What happens after the project ends? 

By Nils Randrup

Many companies slide back to the old way of doing things when an improvement project ends, after the improvement has been identified, developed and supposedly implemented. Many organizations experience that, within a short time after the conclusion of an improvement project or effort ,  slowly but surely the process and people involved loose interest or focus. So the initiative goes from in focus to being out of focus, the improvement activities are put on the backburner vs. other pressing issues, and the good intentions become just that again, good intentions.  Can we prevent the inevitable? Is it at all possible to make change stick when the spotlight is gone, and people have left the theater?

 

I once worked for a large international industrial company, which produce and sell important components to the food industry across the world. Their CEO had identified the need for significant improvements in the offer handling and sales processes, since there were huge problems with on-time delivery of offers, hit-rate and waste of resources. A project group was quickly established, and I was invited in to help the project manager (a VP of sales) lead a project with the purpose of streamlining the offer and order processes. During 2 month the project group met regularly and we developed a good and solid proposal for how to change the working processes in such a way that offers were developed much quicker and with the use of fewer resources, leading to shorter lead-time, higher hit rates and without as much waste of resources. We used the basic techniques from Lean Six Sigma and created 3 offer flows to accomplish this. At the conclusion of the project, the CEO signed off on the improvements and the revised lead-to-order sales process. The Sales department was asked to implement the improvement swiftly, which was kicked off one Monday morning. All employees in the Sales department were told about the improvement during the morning meeting (1/2 hour), where the sales manager in general terms announced, that the company was now improving the sales process. He gave a brief description of how things would be in the future.

When I came back a month later, the proposed improvement was not visible in the sales activities and processes any longer. I confronted the Sales Manager with this during a coffee break, and he said that he had told everyone about the change, and it seemed like they had understood what they needed to do. He thought the new processes worked better now. When pressed for the proof of this, he admitted that they had not really monitored the offer time, nor the resources usage per offer after the project ended, but had observed that they did not get as many complaints from customers about missing offers as before. What I saw was that the order and structure the improvement project had created as well as the significant improvement in effectiveness and efficiency, has slipped back almost to the way things were, and only a little of the value created initially was now being harvested.

We call this dilemma “The Executional Performance Gap” (see graph below).  When the CEO got involved, he was not surprisingly disappointed. The big issue now was to find out why things had gone backwards and slipped slowly but surely back towards how things were before the improvement.

My experience is not unique. Many colleagues of mine from within the consulting business, both smaller outfits like Magnificent and ROI Consulting and larger outfits like McKinsey, CSC, and Accenture, have many of the same stories to tell. When meeting up to tell “war stories” this is a common theme for us. And we have all in our own way tried different tips, tricks,  and procedures for how to make change stick. What is perhaps more interesting, different of my friends who are CEOs in companies from different industries, also have the same insights and have a slightly different set of tricks for how they have tried to secure that improvement based change becomes permanent. 

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Sales Excellence - Improving sales when it is difficult

Sales effectiveness dilemma

By Nils Randrup

Many companies we have worked with are caught in a sales effectiveness dilemma: Sales results are under budget despite reasonably good products, competitive prices and motivated sales people. This is a major management headache. The way out is often impossible to find if you do not have the right key or flashlight. And the right key is typically a more structured approach to sales improvement through a Sales Excellence approach.

Two years ago we started working for a larger Scandinavian company on an IT oriented project that brought us in contact with the sales management within the company. During one of the breaks in the meeting, we had an informal talk over a cup of coffee, where the VP of Sales introduced his biggest job challenge. He was brought in to improve the effectiveness of the sales department and was tasked with increasing sales by increasing the productivity by 10% (10% higher sales with the same headcount). As he was an experienced Sales Manager this should be pretty easy. However, after working in his new position for 6 month, he found himself in a dilemma which he had lost some sleep over. The company seemed to have reasonably good competitive products and prices. The sales force also seemed very motivated and committed, but despite this, all the sales figures we lagging including sales vs. last year, sales vs. budget and sales vs. the market development (market share).

As we have worked with companies in more or less the same situation, we took on the challenge and within 6 month the sales department was all of a sudden getting the “ketchup out of the bottle”. The Sales was now ahead in sales of both their budget, last year and the market share was increasing.

So what did they actually do which changed the situation for them? 3 things happened.

First, we had to realize what the root causes of the problem were. To do this, an analysis was done where we bench-marked their sales setup and efforts against best practice sales setups and effort. The most important problems were then unveiled. There were 12 major problems identified.

Secondly, we prioritized. Of these 12 problems, 3 were huge – prototype lead-time, quote handling, order handling - which could explain lost sales potential of approx. 30%. First of all,  the company had a low hit rate on larger customer projects, because when developing a prototype or sample of a new product, this took almost 2 month, and in most cases the customers were not willing or able to wait that long, so instead they chose another supplier.  The second and third problems were both ineffective working processes. The quote and order handling processes took place in such a way, that 10-12 people from different departments were typically part of making an offer or handling a customer order, even when the offers/orders were small and concerned low priority customers. This increased the lead time on offer/order handling, which in terms resulted in a waste of internal resources, as also lead to some existing customers buying products from other suppliers, when the customers needed a quick quote and fast delivery time.

Thirdly, we made things happen. Once the problems were spotted, the company then developed and implemented key actions to rectify the problems. A new fast prototyping process with a dedicated older machine and personnel was put in place in the main factory, they changed their standard operating procedures for smaller less complex orders and for how to handle smaller customers, they implemented a more structured follow-up on offers sent out. To make these changes stick, we also worked with formally changing the problematic processes and employee behavior.

The company caught up with their budget after 3 month and after 6 month they have reached 20% higher sales than the same month last year. Everyone was happy, the CEO, VP of Sales, the sales department employees (and the consultants :-).

Bottom line

The key insight from this and similar problematic sales situations is to solve it by doing 3 things. First, do a root cause analysis by bench-marking the current sales setup and behavior against Sales Excellence best practices. This unveils the important but hidden performance problems. Second, select the vital few specific problems instead of going after all potential problems. Third, implement a few concrete changes quickly, in this case 3 changes in the sales processes.

When we help companies solve sales problems, we use Performance Excellent tools like our Sales Excellence Wheel to find and solve the practical problems.  If you want to know more about our Sales improvement methods and techniques, or Sales Excellence principles, don’t hesitate to contact us.

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