PERF RMANCE 04 - The Performance Portal - Ernst & Young

PERF RMANCE 04
Volume 3
Connection as competitive advantage:
Bridging space and building community to drive performance in today’s
social enterprise
Making a world of difference:
Collaboration.Excellence for inter-cultural teams
Advanced solution center:
Drive change when it is most important

Foreword
One of the fundamental sources of organic
growth in an increasingly competitive
market is innovation. New products
or services developed and brought to
market speedily and effectively is what
differentiates high- and low-performing
global organizations. Innovation
management can be described as the
application of external evolution on
internal business processes. As
external evolution becomes more
varied and volatile, the challenge for
organizations to keep ahead of the pack is
increasingly difficult.
In this issue of Performance, we
examine different aspects of innovation.
For example, in “Choosing the right
technology,” we consider a framework
which can help organizations make
informed decisions about their
technological development. The article
explains the four challenges which
businesses need to confront in order to
master technological change.
The importance of networks and
connections on innovation is explored in
two different articles. The first looks at the
powerful impact of online collaborative
communities. By harnessing the power
of these networks, organizations can tap
into a collective knowledge which is far
broader than could be achieved by more
traditional methods. The article introduces
the concept of “coolfarming,” enabling
companies to lead in the development of
the next hot phenomenon.
“Connection as competitive advantage,”
examines some of the risks inherent
in these new social, collaborative
communities, and offers some options as
how to manage those risks well.
The theme of effective collaboration
is also strong in “Making a world of
difference,” which gives some great,
practical insight into how to improve the
performance of intercultural teams. In
the past, cultural awareness training has
tended to focus solely on communication
whereas, in reality, when problems occur,
they are due to dissimilar expectations
about how the work should be done and
how performance should be managed.
If your challenge is more around how
to improve the speed with which your
organization can react to or anticipate
change, then there are two case studies
which will be of interest. “Advanced
Solution Center” examines how you can
drive change at a faster pace. In a separate
case study, we explain how transforming
Fresenius Medical Care’s supply chain
enabled the organization to respond more
quickly to changes in customer buying
patterns and, as a result, make cash
savings of over 15 million euros from a
reduction in stock holding.
I hope the articles in this edition of
Performance provide inspiration as you
rise to the challenge of how to grow
your business.
Enjoy reading this issue!
Markus Heinen
Chief patron, Performance

Global Business Performance Thinktank
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The web portal for GBPT is an open platform to amplify the activities and connect a wider audience. All GBPT-generated content as well
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Everything We Do.”
Contents
Articles
04 Coolfarming: discovering
the surprising power
of social networks
12 Choosing the right
technology: a framework
for success
22 Making a world of difference:
Collaboration.Excellence for
intercultural teams
30 Measuring corporate
sustainability, maximizing
shareholder value
Case studies
36 Connection as competitive
advantage: driving
performance via community
44 Advanced Solution Center:
giving stakeholders a voice
48 Supply chain transformation:
a blueprint for success
58 Competing for market
share in rural India

Article
Coolfarming:
discovering
the surprising
power of social
networks
Author
Peter A. Gloor, Research Scientist, MIT Center
for Collective Intelligence, Chief Creative
Officer, galaxyadvisors AG, MIT Sloan School
of Management, Cambridge, MA, US
This article applies the
principles of social
networking to corporate
leadership, arguing that
we need a new brand
of company, where
customers become one
with the leaders and product developers
of the company, working in collaborative
communities fostered by the internet and
online social networks. It offers proven,
practical steps on how to transform an
organization into one capable of unleashing
the power of self-organizing swarms — a
process we call coolfarming (Gloor 2010).
Many of the best innovations have come
not from the individual inventor, or even
in a large corporate research laboratory,
but from the collective efforts of groups
of people. We see these groups of idea
creators motivated by their love of the idea
itself and by their devotion to a process of
working with ideas predicated on nothing
more than the positive feelings success
breeds. They set out initially not with
the thought of realizing a financial gain
but rather to meet a challenge or solve a
puzzle and, in doing so, make the world a
better place. We call this swarm creativity
because “swarm” ideally describes the
positive behavior that results in the kinds
of collective mindsets that generate such
powerful “creativity.” In biology, the term
swarm is used to describe the behavior of
a group of animals traveling in the same
direction, and for us the swarming of bees
is an example of our concept. Without
central direction, bees self-organize to build
nests, feed and grow their offspring, gather
food and even decide on who becomes
their next queen.

Coolfarming
“ Swarm describes the positive
behavior that results in the
kinds of collective mindsets that
generate powerful creativity.”
5

“ Whereas a coolhunter observes
communities, a coolfarmer becomes
personally engaged in the process
of creating cool trends — not taking
control of a new idea to make it
succeed, but working in swarm
creativity to bring a shared vision
to reality.”
We find the creativity unleashed by groups
of humans swarming together to be
particularly compelling. So often, humans
traveling together in the same creative,
innovative direction produce the trends
that are most interesting and exciting.
Tapping into the collective mind can offer
tremendous benefits. Within a business
organization, unleashing collaborative
innovation can be key to increasing
performance, efficiency and overall
creativity. With the tremendous expansion
of online communication, the ability of
humans to engage in swarm creativity has
grown exponentially. Creative swarms can
form instantaneously and collaborate on
innovative tasks from almost anywhere on
the planet, crossing all organizational lines.
In every large organization as well, we find
groups of creative individuals swarming
together to explore ideas about which they
care deeply, irrespective of any direct or
immediate connection to the bottom line.
Our approach is based on the concept
of the Collaborative Innovation Network
or COIN, small groups of intrinsically
motivated people who collaborate, mostly
over the web and in online social networks,
to create something radically new. They
recruit their friends and family as a
“Collaborative Learning Network“ — the
group of early adapters who try out and
further develop the early prototypes — to
help them refine and polish their products,
deciding on what will be “cool” for the
swarm of loyal customers. This expanded
group of early users and beta-testers
then reaches out to the wider group of
thousands of people in the Collaborative
Interest Network who help them get their
new product over the tipping point to be
widely accepted by the marketplace.
Based on the concept of COINs, we have
developed the idea of coolfarming — getting
involved in the actual creation of new
trends by nurturing and cultivating new
ideas. Whereas a coolhunter observes
communities, networks and even broader
society, a coolfarmer becomes personally
engaged in the process of creating cool
trends — not taking control of a new idea
to make it succeed, but working in swarm
creativity to bring a shared vision to reality.
Coolfarming is based on four principles.
They are a logical consequence of using
coolhunting (Gloor & Cooper 2007) to
discover new trends and trendsetters.
The first is to gain power by giving it away.
It is the most important principle. Give
everyone involved in a COIN, no matter
what their level of involvement, the
feeling that they have come up with the
new ideas, so that all members feel a
strong sense of ownership.

Coolfarming
The second principle is to seed a
community with ideas, to come up with the
new ideas that are outside the box. This
entails thinking the unthinkable, engaging
others in collective brainstorming and
establishing a common vision.
Third, mandate intrinsic motivation and
thus unleash swarm creativity. This ties in
with giving power to the community, letting
it self-organize while providing a nurturing
ground for creative ideas to flower. Trends
can be created with good ideas. Set an
innovative idea free and share knowledge
for free in a community or network. If
the community accepts the new idea and
the community begins to grow, the idea
becomes a new trend. Coolfarmers provide
everything at their disposal to potential
swarms to be creative, and then they let
swarm creativity happen. In a sense, they
“mandate” swarms into action to create
something cool.
The fourth principle is to recruit
trendsetters. To create intrinsically
motivated teams, they need
crystallization points in the form of
leaders who embed themselves in their
networks not to be stars but to function
as galaxies. These kinds of leaders have
succeeded in setting trends that literally
changed the world at zero budgets.
COINs ask for a new style of selforganizing,
emergent leadership. Leaders
of self-organizing swarms need to be
“balloon pilots,” not “race car drivers.”
They need to know how to nurture and
create an environment of innovation.
Such leaders must be able to let go,
empowering individual and swarm
creativity by personal example and
trust, not by organizational authority.
This new style of leadership is based
not on best practices, not on cook book
recipes of how to do it one right way,
but on creativity — individual creativity,
and swarm creativity. The step I am
proposing is a bold one — empowering
individual people at the company, instead
of collecting power in the hand of the chief
executive who is also the chief executor.
In this new type of organization, there
is no chief executor anymore, this role
has been given away to the stakeholders
of the company. Stakeholders are the
employees, the customers, the suppliers
and the management of the company. The
managers are not CEOs anymore, but they
are “chief creators,” chief creative officers.
Being highly creative themselves, they
stand out by unleashing the creativity of
their swarm — their employees, their lead
users, their customers and anybody they
touch through their vision and products.
If we look at the leaders who stand out
today, Steve Jobs, Larry Page and Sergey
Brin, founders of Google, Mark Zuckerberg
at Facebook, or Oprah Winfrey, they are
all leaders of multibillion-dollar businesses
which are highly resilient in today’s difficult
economic climate. None of these leaders
has come up the conventional management
way. They were never the CEOs of their
companies in the conventional sense,
never the chief executors. Rather, they
are the chief creators of their respective
enterprises. They might have assumed
the CEO title to make them recognizable
in their role to the rest of the world.
What they really did, however, is not
execute somebody else’s strategy, but
create radically new products, and create
real, sustainable value. They did what
they thought would be the right thing;
7

“ Just like great farmers, their main task as coolfarmer is
to provide a nurturing environment, and let the swarm
do the work by itself.”
listening first and foremost to themselves
and to their swarm, instead of listening
to management gurus, business school
professors, and strategy consultants.
These leaders don’t just listen but immerse
themselves into their swarm. While
conventional businesses are scrambling, the
businesses of these creators are thriving.
Leaders like Oprah, Mark Zuckerberg, or
Steve Jobs are not afraid to go to the front
line every day, listening to what their swarm
has to say. When Steve Jobs started Apple,
instead of obtaining an MBA, he immersed
himself into his swarm. He first listened
to what others did in the same space,
visiting world famous Xerox Parc research
lab to learn about personal computers
and computer mice, and landing a job at
a computer company to learn even more,
until he had figured it out and was ready to
start building his own computers at Apple.
These creators also give back to their
swarm. Google famously encourages its
employees to be creative, come up with new
product ideas which are then given away
for free in some form until the company
has figured out a way of making money
from it. Google acquired picture sharing
website Picasa, set up the social networking
community Orkut, and converted a startup
into Google Docs, the web-enabled office
suite, all available free to users. When
Steve Job’s swarm of fanatic iPhone
owners complained about a new price cut,
he immediately gave back the difference
in price to anybody who had bought the
iPhone at the old, higher price.
In short, chief creative officers, other than
conventional CEOs, immerse themselves
into their swarm, they share with their
swarm, and go where their swarm wants
to go. Just like great farmers, their main
task as coolfarmer is to provide a nurturing
environment, and let the swarm do the
work by itself.
While these principles have been developed
for “real” bricks-and-mortar organizations,
they are no less valid in the virtual world,
where they allow the identification of
hidden leaders and innovators in online
social networks such as Facebook and
online forums. These leaders can then
be recruited as lead users and extended
members of a product development team.
I would now like to illustrate these concepts
by describing two case studies, based
on my actual projects, which have been
ongoing for the last few years.
Healthcare case study:
creating Collaborative
Chronic Care Networks
(C3N) by connecting online
social networks
Collaborative Chronic Care Networks (C3N)
are based on the concept of Collaborative
Innovation Networks (COINs). COINs are a
radically new concept to chronic illness care
and, while many use the web for health
information, existing health-related social
networks separate patients from providers,
despite the fact that patient-provider
interaction is key to chronic illness care.
In this project, a team of medical
researchers collaborates with patients of
a chronic disease, their family members,
their doctors and other researchers. The
goal of the project is to improve the living
conditions of people with Crohn’s disease,
also called inflammatory bowel disease
(IBD), which affects about 100,000 young
people in the United States. Toward that
goal, a small group of about 20 medical
researchers, doctors and patients works
together as a COIN. They are reaching out
to Crohn’s patients on Facebook, where
about 100,000 people are organized in
about a dozen Facebook groups (see
Figure 1). Members of these groups are
recruited as volunteers for patient data
collection, and to get advice on what works
and doesn’t for patients in their daily lives.

Coolfarming
Figure 1. Facebook social network of
IBD-related fan pages, each dot is a
person, each connecting line a friendship
link, different groups shown in different
colors. Note the fragmented structure
of the entire network, split into the
different groups, only the red dots are
people with membership in multiple
Facebook IBD-related groups.
We have tested new communication
approaches to create a successful
innovation network comprised of
patient advocates, public health and
social scientists, community organizers,
film makers, designers, informaticists,
engineers and social network researchers.
Our research shows that the IBD patient/
parent community is only loosely
connected, that patients experience
isolation and that the community is
not organized or activated around a
vision of improving health through
active collaboration with clinicians and
researchers. We have been able to create a
more engaged community, as measured by
number of patients/parents engaged in the
Collaborative Chronic Care Network and
in community leadership. Our patients
also form a more networked community,
as measured by the number and density
of community network ties. Finally, we
measurably increased collaboration
among patients/parents, clinicians and
scientists, as measured by number and
metrics of network centrality of patients
and parents as part of the research
team. Further improvements include
an increase in trust, as measured by
survey data and by consent rates for
participating in the IBD patient registry,
and an increase in data sharing, as
measured by number of patients willing
to share patient reported outcomes.
9

Internet banking case study:
increasing organizational
performance by analyzing
knowledge flow
Sandy Pentland, a professor at the MIT
Media Lab, has been developing jointly
with his graduate students a series of
“sociometric badges.” The sociometric
badges combine a radio sensor to measure
the relative locations of the wearer, an
infrared sensor that analyzes if people
wearing the badges are facing each other,
an accelerometer that measures how
excited the people wearing the badges are
and a microphone that measures the pitch
of the voice of the wearer, as a further
indicator of the level of excitement. Using
these badges, Sandy and his students have
been able to predict if people were paying
attention to the speaker in meetings, and
in speed-dating situations, whether the two
people would end up exchanging phone
numbers. Together with Sandy and his
students, we used these social badges to
identify social interaction networks on a
much more granular and interpersonal
level than by just mining email, blogs and
online forums.
In particular, we analyzed the interaction of
20 employees at a German bank, as well as
the interaction among nurses in a Boston
area teaching hospital. In the German bank,
20 members of the marketing department
wore the badges for the duration of one
month. Collecting the interaction data from
the badges and comparing it with the social
network constructed from emails already
exchanged, showed us that different people
were central to the email and the
face-to-face interaction networks (see
Figure 2). For example, the department
head was very central in the face-toface
social network; obviously he was a
“floor-walker,” someone who was talking
personally and continuously with the
members of his group. On the other
hand, the department secretary was quite
peripheral in the face-to-face network but
very central to the email network.
Figure 2. Combined interaction network
(email and sociometric badges) among
employees in bank department. Note the
automatic identification of hidden leaders
by their social network position, and
the split of the department into a “high
performing” and a “creativity” group.

Coolfarming
Even more interesting things can be found
out by combining the face-to-face and
email social networks. Interpreting the
readings of the sociometric badges allowed
us to predict if people were introverts or
extroverts, if they were neurotic, if they
were agreeable and if they were open to
new things. Combining the readings on
the team level for five different teams also
allowed us to find the creative and not-socreative
teams. This was very valuable for
the bank, as some of the teams, such as the
one developing new marketing campaigns,
were looking for creative people, while
the team giving phone support didn’t
particularly need creativity, but rather
agreeable people. We also found some
people who had quite important roles as
communicators, but, as it turned out, spent
most of their time tucked away in their
offices. Based on our findings, the bank
was therefore able to realign people based
on their real strengths and weaknesses.
Another interesting finding was that the
most extroverted people had a hard time
finding discussion partners, whereas
introverts and moderately extroverted
people were much more likely to be chosen
for a chat.
Summary
Whether you’re an entrepreneur
or business leader, what you want
most is to be at the head of the pack
with the latest, hottest consumer
enthusiasm: a product or service that
comes across as brilliant, original,
and trendy; the kind of thing that
not only seems cool in and of itself,
but makes the lucky consumer who
uses it feel cool. Coolhunting refers
to the process of seeking out and
finding the latest trends. Coolfarming
shows you how to dig deeper
and become a part of the initial
development phase of what will be
the next hot phenomenon, converting
creative dreams into cool products by
enlisting the help of dedicated
and passionate collaborators.
11

Article
Choosing the right technology:
a framework for success
Many of today’s new
products employ
new technologies.
But it’s often hard for
companies to decide
which technology will
work best or be most
successful for these products in the future.
Yet the success of the product may depend
on choosing the right technology. No
wonder there is a huge race in technologydriven
markets.
This race is particularly visible in the
automotive field. Companies around
the globe are vying to build a new, less
polluting automobile engine that does
not run on gasoline. In the US, for
instance, General Motors (GM) spent over
US$1 billion on developing an electric
car that runs on a hydrogen fuel cell. It
originally chose hydrogen fuel as the basis
for the engine. Yet mass production of an
electric car for sales to the public is not
expected until 2013.
In contrast, Tesla Motors 1 , spent about
US$105 million on developing a new
electric automobile. Its electric motor
uses a radical configuration of 6831
lithium-ion batteries. The car can be
recharged at home from a regular electric
socket. This is a much simpler solution
than the one originally developed by GM,
which required the costly storage and
transportation of corrosive hydrogen
fuel. A new Tesla car was launched in
early 2008.
1
Tesla Motors Inc. is a Silicon Valley startup that engages in the design, manufacture, and sale of electric vehicles based on lithium-ion batteries. At present Telsa produces
around 15 cars per week — mostly custom-ordered vehicles manufactured to owners' specifications. Adapted from Wikipedia, 22 August 2010.

Choosing the right technology
Authors
Gerard J. Tellis, Professor of Marketing, Neely
Chair of American Enterprise and Professor of
Marketing, Director of Center for Global Innovation,
Marshall School of Business, University of Southern
California, U.S.
Ashish Sood, Professor of Marketing, Goizueta
School of Business, Emory University, U.S.
Notes: This research benefited from a grant
by Don Murray to the USC Marshall Center for
Global Innovation.
In this case, as in others before, a small
outsider — Tesla Motors — seems to have
jumped ahead of an incumbent industry
giant to develop a radical new technology
for an ongoing product. The outcome is
still to be decided. However, at this point
in time, the lithium-ion battery seems to
have an edge over the hydrogen fuel cell
because it is more efficient, cheaper, safer,
more widely available and more easily
recharged. Indeed, after observing Tesla’s
success, GM has abandoned the hydrogen
cell in favor of a lithium-ion cell for its new
electric car due to be launched in 2013.
The core question — which
technology is best?
This raises the question, “Which is a better
technology for the automobile engine:
hydrogen, lithium-ion, methanol, ethanol
or any one of the other options in the
market?” And secondly, “How should firms
choose in a timely way?” This is probably
the main challenge facing companies
in technology-driven markets because
technological change is such a powerful
force in today’s markets. New technologies
can merge old markets (e.g., music and
voice), create new growth markets (e.g.,
online networking) and destroy established
ones (e.g., travel agencies). Moreover,
technological change transforms the
market power of firms in these markets.
It fuels the growth of new brands (e.g.,
iPod), brings down incumbents that fail to
innovate (e.g., Walkman), and transforms
small outsiders into industry leaders (e.g.,
Google). Companies need to understand
technological evolution to shape and
master competition and thrive
in contemporary markets (Sood and
Tellis 2009 2 ).
Figure 1. Seven markets studied
1
Display
monitors
External
lighting
Analgesics
Desktop
printers
2
Desktop
memory
3 4 5
6 7
Energy
storage
devices
Data
transfer
technologies
To understand how firms flourish in the
new environment, we studied technological
evolution in seven markets: external
lighting, desktop memory, display
monitors, desktop printing, data transfer,
analgesics and energy storage devices (see
Figure 1). We covered these markets over
quite a varied time period, from almost 200
years for analgesics to 30 years for desktop
printers. From our in-depth analysis, we
identified four challenges that firms need
to confront to master technological change
(see Figure 2).
Figure 2. Four questions to ask when
confronting technological evolution
On which level to innovate?
What is the pattern of evolution?
Which is the appropriate dimension
of performance?
Which technology to back?
For companies in technology-driven
markets, these challenges are a good
point to start from when thinking about
developing a growth strategy. Each
challenge can be considered as a question.
Even if a firm cannot fully answer each
of these questions, just grappling with
them can reveal the dilemmas it faces
and help it define a coherent strategy. We
now discuss the issues involved in each of
these challenges.
2
Sood, Ashish and Gerard J. Tellis (2009), “Do Innovations Really Payoff? Total Stock Market
Returns to Innovation,” Marketing Science, May/Jun 2009. Vol. 28, Iss. 3; p. 442.
13

On which level to innovate?
We identified three key levels of technology
innovation: platform, design or component
(Figure 3).
• A platform innovation is an underlying
technological level that relies on a
unique scientific principle, distinctly
different from other principles, to
achieve some function. For example,
in the display monitor category, we
identified four different technologies:
CRT, LCD, plasma, and OLED. Each of
these uses a distinct scientific principle
for forming an image on a screen. For
any technology, firms can use a variety
of design innovations.
• A design innovation is a layout or linkage
of parts to achieve some function. For
example, a flash drive stores data as a
charge in a capacitor to compact its size
relative to a hard drive, though both
are based on the principle of magnetic
memory. At the same time, a variety of
component innovations may be used on
any platform or design.
• A component innovation is one that
uses new parts or materials to achieve
some function. For example, a fuel cell
could use hydrogen or methanol to
generate electricity.
“ Companies
have a tough
time keeping up
with technological
change and
selecting the right
technologies for
their products.”
Innovation occurs almost constantly at the
level of designs and components. Indeed,
day-to-day competition often occurs at
these two levels. Platform innovations are
less frequent, but when they do occur,
they have the potential to transform
markets and cause upheaval among
firms. The great danger to firms is to be
so immersed in design and component
innovation as to miss the change in a
technological platform. For example, Sony’s
pre-occupation with improving its CRT
television sets with Trinitron technology
perhaps led it to miss the oncoming
revolution in flat screen LCD televisions.
Samsung invested heavily in the latter
technology so that Sony had to license
technology from Samsung and enter into
an alliance in order not to miss out on the
new generation televisions.
This discussion suggests that companies
have a tough time keeping up with
technological change and selecting the
right technologies for their products. That
is one reason we have used our data to
develop a more systematic framework of
analysis for these decisions. Our framework
has the advantage of not using after-thefact
definitions of technologies based on
their effects, as do the terms radical or
disruptive technologies.
Figure 3. Three key levels of technology innovations
Level of technology
innovation
Definition
Examples in display monitor
technologies
Platform Unique scientific principle CRT, LCD, plasma, OLED
Design
Linkage or layout within 5”, 25”, 45” size in LCDs
same scientific principle
Component
Material or content within
same scientific principle
Glass, plastic in LCDs

Choosing the right technology
For example, we do not know whether
lithium-ion battery, the hydrogen fuel cell,
or the methanol fuel cell will disrupt the
automobile market. Anyway, once such
disruption occurs, the answer is no
longer relevant. But we do know they
constitute different levels of innovation.
A further advantage of this framework
is that we provide a method and metrics
to analyze technological change to make
informed decisions.
How can a firm choose among such
platform technologies? A firm can do so
by evaluating the pattern of evolution on
various dimensions of performance, as we
describe next. A dimension is a measure of
performance such as resolution (dots-perinc)
of printers or brightness (lumens-perwatt)
for lighting.
What is the pattern of
evolution?
The received wisdom is that technological
performance evolves along an S-shaped
curve (see Figure 4a). The S-curve arises
because the performance is initially low for
a new technology, then improves rapidly
after some breakthrough and ultimately
levels out in maturity. A new technology’s
performance supposedly starts a new
S-curve below that of the old technology,
crosses it once and then reaches a
superior level of performance (see Figure
4b). Managers were supposed to jump to
a new technology before its S-curve of
performance crossed that of the old one.
However, our analysis of these six
markets shows that technological evolution
violates this simple S-shape pattern. Figure
5a-f shows what we found. It illustrates the
evolution of performance in the six markets
we considered.
Figure 4a. Technological S-curve
Performance
Inflection
Figure 4b. Theory of S-curve
Performance
Old
Single crossing
New
1 2
Time/effort
Time/effort
A review of Figure 5 reveals several novel
aspects about the pattern of technological
evolution. First, where a new technology
enters the market provides no evidence
of its future trajectory. For example, in
Figure 5d, laser enters the printer market
above dot matrix while inkjet enters below
dot matrix. Second, once it enters, the
performance path of each technology
is typically neither linear nor S-shaped
but rather a series of step-functions.
Importantly, a big spurt in performance can
come after a period of apparent stagnation.
For example, in 1980, gas discharge
shows its biggest jump in performance and
surpasses arc discharge in brightness after
a period of flat performance for almost
20 years (see Figure 5a). Third, some
technologies show a steady trajectory of
performance. For example, dot matrix
improves in performance over time but
at a steady, lower rate relative to other
technologies (see Figure 5d). Most
importantly, these curves cross multiple
times. This pattern implies that superiority,
when attained, is never permanent.
A case in point is the competition in
performance between inkjet and laser in
the printer market (see Figure 5d). In the
mid 1980s and again in the mid 1990s,
laser was superior to inkjet in resolution.
Indeed, inkjet got a reputation for being a
cheap and low-level printing technology.
However, that was no reason to abandon
inkjet. Wisely, HP did not so, because in
1997, inkjet surpassed laser in resolution
and has stayed above laser. But that
again is no reason to now abandon laser
technology. To HP’s credit, it has supported
both technologies simultaneously. An
important implication of our findings is
that firms should consider investing in or at
least monitoring a portfolio of technologies
so they are neither blindsided nor overly
enthralled by the sudden growth of a
new technology.
15

Figure 5. Technological evolution in six markets
5a) External lighting
5b) Desktop memory
Lighting efficacy
Areal density (MBPSI)
Year
Incandescent Arc discharge Gas discharge
LED
MED
Year
Magnetic Optical Magneto-optical
5c) Display monitors
5d) Desktop printers
Resolution
Resolution
Year
Year
CRT LCD PDP OLED
Laser
Ink jet
Thermal
Dot matrix
5e) Data transfer
5f) Analgesics
Bits per sec
Efficacy (1/NNT)
Year
Year
Cu/Al wires Fiber optics Wireless
Acupuncture Opiods (Narcotics) NSAIDs
Non-opiods Non-anti-inflammatory
Note: The values for all graphs have been kept confidential

“ Good decisions require
careful analysis of all data.
It is critical to consider
the appropriate dimension
of performance.”
Choosing the right technology
The S-curve is definitely a simple and
appealing rule of thumb for evaluating
technological evolution. However, in-depth
analysis of all technologies in numerous
markets shows that it can be seriously
misleading. Unfortunately, the real world is
quite messy. Good decisions require careful
analysis of all data. Such analyses do reveal
patterns that can help make informed
decisions about investing in technologies
and the potential payoff. Figure 5 shows
the performance in various markets, each
on only one dimension of performance.
It is critical to consider the appropriate
dimension of performance.
What is the appropriate
dimension of performance?
A dimension is a measure of performance
such as resolution (dots-per-inch) of
printers or brightness (lumens-per-watt)
for lighting. The received wisdom is that
the dimension or performance is primarily
a demand issue, determined by consumer
tastes. Some authors go so far as to assert
that tastes are genetically wired within
human nature. However, our analysis of
seven markets shows that at any point in
time, a dimension may stand out as the one
on which firms compete most and which
consumers value the most. That is by no
means the only dimension of performance.
Actually, at any point in time, multiple
dimensions are at play. What makes the
world particularly interesting is that these
dimensions are in a state of constant
flux. This change is neither random nor
one driven primarily by consumer
demand. Rather it is change driven by
the emergence and evolution of new
platform technologies.
When a new platform technology enters
the market, it often introduces one or more
new dimensions of performance. The
new technology is sometimes (but not
always) superior to the old technologies
on those new dimensions. The new
entry sensitizes consumers to the new
dimensions and changes the configuration
of consumer demand.
For example in displays, in the 1970s and
in early 1980s, when the cathode ray
tube (CRT) display monitor was the sole
platform, consumer interest focused on
resolution, especially as that dimension
improved rapidly till about mid 1980
(see Figure 5c). When the liquid crystal
display monitor (LCD) came on the scene,
it created excitement and interest in two
new dimensions, thinness and lightness.
Consumers had the option to trade off
lower resolution (at least initially) for lighter,
thinner displays. In the 1990s, when
plasma came on the scene, it introduced
two more dimensions, brightness and large
screen size. Now, the organic light emitting
diode (OLED) display monitor has come
with foldable screens, introducing the new
dimension of convenience. Table 4 shows
how dimensions changed in the other
markers we studied.
Is evolution of dimensions
driven by consumer demand or
technological evolution?
It’s a philosophical issue whether desire
for these dimensions is inherent in
human nature or created by the emerging
technologies. In our opinion, technological
evolution is what brings dimensions into
play, makes them salient to consumers and
shapes consumer demand.
As technologies improve on these
dimensions, they also target new
applications in new, promising
environments or markets. The new
market may redefine selection criteria,
performance thresholds and price/
performance trade-offs 3,4 . These
factors, together with the abundance of
opportunities in the new market,
enable rapid growth in performance
of the new technology. For example,
wireless communication technology was
initially applied to wireless telegraphy,
then to broadcast radio and recently
to voice communications over cellular
telephone markets.
In some cases, the new technologies may
not even compete directly in the same
market because of low performance. For
example, LCD did not compete directly with
CRT for many years as the technology did
not offer high resolution. The technology
was initially used for pocket calculators,
3 Romanelli, E. and Tushman, M. (1994), “Organizational Transformation as Punctuated Equilibrium:
An Empirical Test,” Academy of Management Journal, 37(5), 1141-1166.
4 Levinthal D. (1998), “The slow pace of rapid technological change: gradualism and punctuation in
technological change,” Industrial and Corporate Change, 7, 217–247.
17

digital watches and other portable display
applications before being considered for
notebook and desktop computer monitors.
Yet today, the demand for LCD monitors
outstrips the demand for CRT monitors.
Hence, the incumbent technology can
be taken by surprise as the competitive
technology improves at a faster rate than
the incumbent technology and enters
new markets.
The three critical issues for managers to
keep in mind are that a) new dimensions
are constantly emerging, b) their
importance is in a state of constant
flux, and c) this state is driven primarily
by technological evolution not innate
consumer tastes. To understand the nature
of competition on these dimensions,
managers need to analyze the range of
current and potential platforms, on current
and emerging dimensions, over time,
along the lines shown in Figure 1. They
also need to monitor related markets
that use the new technologies to identify
progress and opportunities posed by the
new technologies.
Which technology should a
company back?
This discussion brings us back to the
key question that managers face. Which
technology to back? In GM’s case, it turned
out to be a billion-dollar question. How can
our framework help managers to identify
the most promising technology to back? We
argue that the multidimensional analysis of
multi-technology dynamics provides a rich
and insightful picture of a firm’s options.
An example of how to use the
new framework
Let’s consider the automobile battery
market shown in Figure 6. In this
market, we can identify three platform
technologies: galvanic cells, fuel cells
and flow cells. An important dimension
to evaluate the choice of a technology
is its effectiveness in miles per kilowatt.
Figure 6a shows the evolution of these
Figure 6. An example of using the new framework
technologies on this dimension. Within
each of these platform technologies, there
are numerous design and component
technologies that were commercialized
in the auto-battery market. For example,
within galvanic cells, lead-acid, nickelmetal-hydride
(NiMH) and lithium-ion
technologies are all alternate component
technologies. Similarly, the proton
exchange membrane fuel cell (PEMFC)
and zinc-air are alternate component
technologies based on fuel cell and flow cell
platforms respectively.
Zinc-air was better in performance
prior to 2005 and the other technologies
had comparable performance to each
other. Lithium-ion began showing a
sharp increase in effectiveness soon after
its introduction in 1997 (see Figure 6b).
By 1999, lithium-ion crossed fuels cells
and NiMH. In 2006, it crossed lead-acid
and zinc-air as well. It has stayed on top
ever since.
6a. Evolution of platform innovations in the auto-battery market
Efficiency (miles/kW)
Year
Flow cell
Galvanic cell
Fuel cell

Choosing the right technology
6b. Component innovations in portable storage market
Efficiency (miles/kW)
Lead Acid
PEMFC
NiMH
Zinc-air
Many firms were taken by surprise by
the sudden dominance of lithium-ion.
Managers could have predicted the promise
of success of lithium-ion in the auto-battery
market much before 2006 by using our
framework. Lithium-ion batteries were
initially used in portable electronic products
(e.g., laptop computers, cellular phones
or cordless power tools). The demands of
performance and power are less stringent
in these markets than in the auto-battery
Year
6c. Component innovations in auto-battery market
Specific energy (w-hr/kg)
Lead-acid
NiMH
Lithium Ion
Ni-Cd
NaS (ZEBRA)
Lithium Ion
Year
market. The key dimension to evaluate
performance in these markets is specific
energy in watt-hr/kg. Figure 6c shows the
dynamics of technological evolution of
batteries on this dimension. Performance
of lithium-ion batteries improved drastically
in portable electronic markets even though
similar improvements were not evident in
auto-battery markets (see Figure 6b). Thus,
as early as 1997 and certainly after 1999,
firms should have considered lithium-ion
as part of their portfolio of investment
choice for the auto battery. Lithium-ion also
performs well on other dimensions such as
safety, availability and cost. Our framework
can alert firms of such opportunities before
rivals take advantage of them.
GM invested heavily in the hydrogen fuel
cell, probably at the cost of alternate
technologies. Our analysis shows that such
decisions need not be left to gut feelings
or undefined creativity. Rather, they can
emerge from a careful, scientific evaluation
of technology dynamics on multiple
dimensions. For years, GM argued that fuel
cells were the only long-term alternative to
the internal-combustion engine yet ignored
improvements in lithium-ion technology.
However, both fuel cells and flow cells have
serious disadvantages to lithium-ion on
other dimensions of safety, portability, cost
and infrastructure. The following quote
explains the firm’s focus on fuel cells while
competitors were experimenting with
alternate technologies using lead-acid,
NiMH, and lithium-ion batteries. “GM had
the technology to do hybrids back when
Toyota was launching the first Prius, but
we opted not to ask the board to approve a
product program that’d be destined to lose
hundreds of millions of dollars,” said GM
Vice Chairman Mr. Bob Lutz, in a blog post 5 .
“In the end, it cost us much more than that;
it cost us our reputation for technology
leadership and innovation.”
Recently, GM seems to have belatedly
reversed its strategy and adopted a more
multi-technology approach. “We made
that mistake once,” GM Vice Chairman Mr.
Bob Lutz said. “We won't make it again.”
However, he did not specify how or why
he would avoid such mistakes. This paper
offers a framework to do so.
5
Lutz, Bob, (2008), “Thank You, Citizens of Volt Nation,” retrieved 8 June 2008,
http://fastlane.gmblogs.com/?s=Thank+You%2C+Citizens+of+Volt+Nation
19

Use discipline to select
technologies
For firms facing rapid technological
change, knowing which technology to back
need not be a guessing game or a purely
creative exercise. We provide a framework
for informed decisions as shown in Figure
7. The framework consists of identifying
the levels of innovation, the competing
technologies at each level, the dimensions
of performance on which to compare
them and the patterns of evolution on
each dimension.
Our study has shown that some prior beliefs about
technology evolution and selection are wrong. It
refutes the “confirmed wisdom” that technology
evolution patterns follow simple successive S-shaped
curves. Rather, patterns of evolution are complex,
on multiple dimensions and only partly predictable.
Importantly, firms need to invest in, or
at least monitor, a portfolio of technologies in
order to appreciate which technology to back.
Figure 7. Suggested tellis/sood framework for technology selection
1. Do not rely on simplistic models such as the “S-curve.”
2. Identify the different levels of innovation (platform, design, or
component?).
3. Identify the competing technologies at each level.
4. Identify the dimensions of performance on which to compare them.
5. Follow the patterns of evolution on each dimension.
6. Continuously monitor a portfolio of technologies in order to
appreciate which technology to back.
7. Be ready to change technologies if one seems to be improving
faster than others.
Note: The tellis/sood framework for technology evaluation study examined the
evolution of all the technologies in seven markets. The study used data from as early
as 1879 to 2001.

Choosing the right technology
“ For firms facing rapid technological
change, knowing which technology
to back need not be a guessing
game or a purely creative exercise.”
21

Article
Making a world of difference:
Collaboration.Excellence for
intercultural teams
Authors
Luise Schneider, CPT, is General Manager at performance
design international GmbH, Germany. She provides HPT
expertise in Europe, Asia, and the US for public organizations
and private companies. She is on the Board of Directors of
International Society for Performance Improvement.
Claudia Romberg is President of Romberg Consulting,
Germany. She is an expert in intercultural cooperation
and supports medium and large-sized companies in their
collaboration with Japanese partners (Toyota production
system and implementation).

Making a world of difference
Cultural awareness
training that emphasizes
communication delivers
only a partial solution to
the challenges faced by
intercultural work teams.
Improving collaboration
requires a strong
foundation of performance
management. The program
Collaboration.Excellence
offers a three-phase
approach that performance
improvement professionals
can take to build effective
intercultural work teams.
23

Setting the scene (take I)
My first project in
Sri Lanka began
in July 2005. The
project goal was to
enable untrained
coaches from
technical colleges to
successfully counsel and coach students in
career planning.
After my proposal was accepted by the
sponsoring organization, I contacted the
local Sri Lankan partner and shared my
project plan. We immediately established
a good working relationship, agreeing
to all steps in the plan, particularly the
preparation phase. This was the first of
what would be many times that I heard
the phrase, “No worries, Miss”. In frequent
phone calls and a lively email exchange, I
followed the status of the arrangements
and the preparation was working well.
In addition to the training, I was to have
the opportunity to introduce the program
to other organizations at the Chamber
of Commerce in Colombo, Sri Lanka.
During my flight there, I reviewed the
training plan, changed a few details, and
landed in Colombo on a Sunday morning,
immediately impressed with the welcoming
spirit of this charming country.
On Monday at 7:30 a.m., I took a threewheeler
(one of those motorbikes with a
shell) to the local partner’s office where the
training was to start at 9:00 a.m. I arrived
well in advance (8:10 a.m.) and had to
wait at the entrance until 8:55 a.m. until
someone came to let me know that I could
enter the office. A nice lady brought me tea
and exchanged pleasantries that I did not
understand. At 9:30 a.m., my local partner
arrived. “I need to prepare the training
room,” I said. He shook his head vaguely
and said, “No worries, Miss. The room will
be cleaned within the next hour.” This was
how it began.
“ How people live affects their work
life and their expectations about
work performance.”
At 11:00 a.m., the participants arrived and
let me know that they would love to have
tea and something to eat. The materials
were printed by noon. By the time lunch
was over, we were ready to start training –
it was 2:30 p.m. I was confused but had the
feeling I was the only one with a problem.
So I said to myself, “Luise, don’t get
German now!” I reminded my local partner
that we had missed a whole training day
and that this was a problem because I
had planned to spend the last day of the
week at the Chamber of Commerce to give
my presentation. “No worries, Miss,” he
said, “We will simply invite people to the
Chamber in the evening, after the training.”
I frowned, “But the presentation was
supposed to be this week; it might be too
late to change now.” He shook his head
vaguely, “Well, yes, theoretically, but we
have not invited them yet. We can still
change that.”
The sympathetic reader might think that
this chain of events would lead to chaos – at
least my German colleagues would think so
— but no, things proceeded very well. The
training participants were enthusiastic and
diligent, and the invitees reacted more than
flexibly. All went extremely well.
A failure to communicate?
Would it have helped the situation had I
asked my local partner to explain what
exactly “No worries, Miss” meant?
Probably not. What would have really
helped is information about local customs
and constraints:
• In Sri Lanka, it is hard to plan ahead
because the infrastructure and the
resources are not as reliable as in some
other countries
• Everybody in Sri Lanka knows about the
problems of planning ahead, so people
are very flexible and adjust quickly and
calmly to changes
• Participants could not afford to book a
hotel in Colombo and had to travel three
hours in the morning from the suburbs
by bus, in the humid climate, which
explains why they were late and hungry
when they arrived
When we work in another culture, we need
not only to understand the constraints of
communication, but also, and perhaps
most importantly, the conditions in which
people operate. How people live affects
their work life and their expectations about
work performance.
My story of Sri Lanka highlights some
of the challenges and adventures of
working in another culture. But what if the
differences in culture happen in your own
team — every day? What are the constraints
for an intercultural team and how can we
solve them?

Making a world of difference
Setting the scene (take 2)
Intercultural teams often claim the work
does not “flow” — even if they try to be
tolerant and have a sense of sympathy for
each other, conflicts pop up repeatedly.
When intercultural teams have difficulty
performing, the usual response is to
provide cultural awareness training.
In these classes, cultural backgrounds
and traditions are discussed, general
communication rules in the respective
cultures are analyzed, and more effective
interaction techniques are taught.
What’s missing?
First, the different cultural groups are
trained separately from one another, and
the scenarios used for practice are rather
general. What is needed is for participants
to focus together in one group on situations
that are relevant to their collaboration, that
have an impact on the team’s performance.
Second, cultural awareness training tends
to focus almost entirely on communication.
While this is a helpful approach, it doesn’t
go far enough. Participants get the
impression that they simply have to invest
more effort to communicate successfully
and all differences will then be resolved.
What’s needed?
Intercultural teams need support in their
collaboration. Most goal conflicts come
from dissimilar expectations about how the
work should be done and how performance
should be managed. These expectations
can differ for any factors influencing
performance. The aim of performance
improvement for intercultural teams should
be to understand each other’s expectations
towards performance management and
to reach an agreement about how to
collaborate. Once the expectations match
and the mechanics of the collaboration are
specified and agreed to, the interactions on
the communicative level can be resolved.
“ The aim of performance improvement
for intercultural teams should be to
understand each other’s expectations
towards performance management
and to reach an agreement about
how to collaborate.”
Setting the scene (take 3)
Let’s imagine two companies, Otto
Normalverbraucher GmbH (the German
equivalent of John Doe Ltd.) and Saito
Corp. (the Japanese equivalent of John
Doe Ltd.), have merged, and new mixed
work teams have been established. Six
months later, it is a fact: the collaboration
has failed. The German colleagues
question their Japanese colleagues’
need for extensive consultations over
tiny details. It makes the Germans doubt
the qualifications of the Japanese team
members. From the German perspective,
the Japanese need much more leadership
than they consider normal among
colleagues, because the Japanese
continually come back with new questions.
The Japanese sense similar difficulties in
the collaboration. They feel that they lack
information about the overall project and
consider the Germans to be individualistic,
rude, and extremely unproductive due to
their maverick work style.
Even if the Japanese and the Germans
communicated with the tongues of angels
they still could not work together smoothly.
At the root of the problem are their
dissimilar expectations about collaboration
— a world of differences.
Sustainable collaboration
When cultural awareness training focuses
on communication barriers, the foundation
for a high performing intercultural team
is missing. Like most performance
improvement solutions, this one calls for
a phased approach where collaboration is
constructed on a solid base.
The program Collaboration.Excellence
strives to create sustainable improvements
in the collaboration of intercultural teams
and thus acknowledges the requirement
that intercultural teams need to pass
through three phases geared specifically to
their performance in the workplace:
• Intercultural awareness
• Shared performance system
• Intercultural skills
25

“ When cultural
awareness
training
focuses on
communication
barriers, the
foundation for a
high-performing
intercultural team
is missing.”
Phase 1 — Intercultural awareness
In our example, to make both the
Japanese and German group more open
to negotiating and reconsidering their
work expectations, the first step is to
raise awareness of the differences and
the inner logics of both cultures. This is
best demonstrated through concrete work
examples from the collaboration of this
specific team, enabling the Germans to
understand that their Japanese colleagues
are used to a continuous exchange of
information about their work within the
team. Consequently, the desire to discuss
work on a micro-level does not signal a
lack of ability. The Japanese learn that, for
Germans, teamwork does not necessarily
mean working together intensively to
develop a result, but that it may mean
putting together the results produced by
individual performers into one piece — like
a puzzle.
Clearly, different underlying values
and expectations can easily be
misinterpreted as differences in the style of
communicating: “Germans are snippy and
arrogant,” “Japanese ask way too much.”
If we only address the communication,
we will not reach the real sources of
misunderstanding: Germans value
individual performance, Japanese favor
working in a group. Once this is clarified,
communication misunderstandings are
turned into understandable outcomes
based on different perspectives, values
and behaviors.
Initially, the goal is not to understand the
other culture fully, but rather to accept
that each culture has a valid logic. Team
members need to understand that, for
the team to perform effectively, new and
different conclusions must be drawn about
collaboration. This might sound simplistic
but, depending upon the cultural origins of
the team members, this realization can be a
significant step.
The team is now ready for change.
Phase 2 — Shared performance
system
Germans have a different idea of
performance than Japanese. Germans
strive for self-monitoring: transparent goals
and consequences, discretionary decisions
and minimal oversight. The Japanese
strive for group membership: group goals
and consequences, decisions based on
consensus, lots of mutual support and
close interaction.
These cultural differences have a
strong impact on the team. If there
is little agreement about what
performance should look like, it is hard
to work together cohesively.
Performance is influenced by a number
of factors, from goals, feedback and
consequences, to resources available and
the role of management. Each of these

Making a world of difference
factors is viewed differently in different
cultures. Thus, various expectations can
exist about feedback, consequences and
the like, and how they should be designed.
After we have raised team awareness in
Phase I, we now need to reach a shared
understanding.
The PerformanceSystem.mapping tool
captures all these factors and makes them
visible (see Figure 1). The performance
system — all relevant factors influencing
performance and their interrelationships
— is transparent and understandable.
Now each element can be discussed and
understood, offering a systematic and
systemic approach to clarifying different
views and negotiating solutions. Everyone
can see where different expectations are
coming from. This is particularly helpful
since most of us are not aware of why we
do certain things. We have absorbed our
cultural behaviors since infancy. As we
learn about others and ourselves, we gain a
bit of distance and it becomes easier to
accept different perspectives.
Once the different expectations are
understood through the elements in the
performance system, the team starts to
negotiate a shared performance system.
They ask: which rules or procedures will
be helpful? Do we want group goals or
individual goals? How are we going to share
information?
The team starts to function.
27

Figure 1. The PerformanceSystem.mapping tool
1
2
3
Workplace-relevant intercultural
awareness
Performance expectations
match
Workplace-relevant intercultural
communication
Collaboration
excellence
Enabling elements
Steering elements
Management
Adequate coordination
Are all elements
coordinated adequately?
Sufficient knowledge
about customers
Are customers‘ needs
and expectations
sufficiently known?
Promoting job
design
Is the design
of the workplace
performance
enhancing?
Sufficient
resources
Are all
necessary
resources
available?
Sufficient
support
Do the
performers
get sufficient
support?
Appropriate
consequences
Are consequences
connected to
action and are
they performance
enhancing?
Clear aims
Do the goals +
performance
standards meet
the customer‘s
needs, are they
sufficiently clear,
and have they
been accepted?
Adequate
feedback
Is there adequate
performance
feedback?
Proper input
Does input
meet desired
standards?
Work flow (part of any business process)
Competence
Does the
performer have
enoughabilities,
skills,
competencies?
Desired execution
Is the work
being carriedout
according to the
standards?
Desired output
Does the output
conform to the
requirements?
Customer
Drivers
Performer
Source: Wittkuhn, Klaus; Das Performance System auf der Aufgabenebene in: Wittkuhn, Klaus D., Bartscher, Thomas (Hrsg.): Improving Performance, Leistungspotenziale in
Organisationen entfalten, Luchterhand 2001.

Making a world of difference
The PerformanceSystem.
mapping tool
Benefits:
• All factors influencing, enabling
and driving performance are
visible as one system.
• Performance management
becomes easily comprehensible
without oversimplifying.
• Performance problems are no
longer equated with performer
problems (suddenly there is more
than skills and motivation).
Phase 3 — Intercultural skills
After a shared performance system has
been developed, it is not unusual for team
members to still exhibit insecurities in
interactions with each other. Indeed, the
group has found a shared perspective
on how to collaborate, but how will they
resolve conflicts? To learn how to
react effectively in work situations, skills
training is now appropriate. Once typical
work scenarios have been rehearsed, all
team members will be more secure in
their collaboration.
The team is ready to perform in excellence.
“Improving
collaboration
cannot be
accomplished
by improving
communication
alone.”
• Each element can be discussed
singly without losing sight of the
interrelations within the system.
• Cultural differences in the design
of performance management
are displayed and can be
discussed objectively.
• A shared concept of performance
can emerge, which is understood
and supported by all members of
the team.
• The visualization helps to
reduce misunderstandings in the
course of discussion (especially
important for intercultural teams).
Summary
Cultural awareness training that emphasizes communication delivers only a partial solution
for the challenges faced by intercultural work teams. Improving collaboration cannot be
accomplished by improving communication alone.
To achieve sustainable changes in collaboration, performance improvement professionals
must help create a shared performance system owned by all involved parties. This will
make different expectations transparent, manageable and comparable, and will establish a
strong foundation for continued, ongoing collaboration.
29

Article
Measuring corporate
sustainability, maximizing
shareholder value
Although sustainability issues are omnipresent, a company’s
contribution to sustainability is still hard to measure. This
article reconciles the concepts of corporate sustainability and
the shareholder value management. The model of Sustainable
Value Added is introduced, balancing the synergies and
challenges of integration.
With sustainability
issues high on
the agenda for
business, it is no
surprise to find
that more than
80% of Fortune
500 companies have sustainability issues
on their websites. Yet, even though 90%
of major US corporations demonstrate
a commitment to sustainability issues,
only 35% are able to prove they stick to
their principles (Parisi & Maraghini, 2010,
p. 131). There is a definite gap when it
comes to performance measurement
and sustainability. This article attempts
to bridge that gap by considering the
principles of corporate sustainability.
We also ask if it is possible to integrate
corporate sustainability and shareholder
value management, i.e., the maximization
of shareholder value.

Measuring corporate sustainability
Authors
Christian Faupel, M.A., Project Manager,
University of Paderborn, Germany
Susanne Schwach, B.A., University of
Paderborn, Germany
31

“The objective of a sustainable measure
is to assess the contribution of an
entity (e.g., a company) to sustainability
comprising all three dimensions:
environmental, social and economic”
(Figge & Hahn, 2004a, p. 176).
One of the most common methods for
measuring corporate sustainability is
called the triple bottom line approach. It
incorporates the three dimensions referred
to by Figge & Hahn:
• Environmental — measuring the impact
on resources, such as air, water, ground
and waste emissions (Baumgartner &
Ebner, 2010, p.79)
• Social — relating to corporate
governance, motivation, incentives,
health and safety, human capital
development, human rights and
ethical behavior
• Economic — referring to measures
maintaining or improving the company’s
success. For example, innovation and
technology, collaboration, knowledge
management, purchase, processes and
sustainability reporting
Measuring corporate
sustainability
As a general rule, there are two approaches
when measuring corporate sustainability.
The first is called the absolute Sustainable
Value Added, and the second is the relative
Sustainable Value Added (SVA). The former
is expressed as follows (Figge & Hahn,
2004a, p. 177):
Absolute Sustainable Value Added =
Value added — external environmental
and social cost + relative Sustainable
Value Added
The absolute SVA shows how much value
a company has created or damaged as
a result of its economic, environmental
and social resources, compared to a
benchmark. Crucially, the concept of
SVA is the first value-based approach to
measure corporate sustainability. While the
conventional approach focuses on the costs
of using a particular set of resources, the
SVA approach focuses on the return that
can be achieved from using the same set of
resources (Figge et al., 2006, p. 17). The
concept of the relative SVA is particularly
useful as it strips out external factors and
“ The concept of Sustainable Value
Added is the first value-based
approach to measure corporate
sustainability.”
instead gives a comprehensive view of a
company’s contributions to sustainability.
The SVA can be expressed in monetary
terms, thus the user is able to assess to
what extent a company has made a positive
or negative contribution to sustainability.
Put simply, the relative SVA represents
the size of a company’s contribution to
increased sustainability expressed in
monetary terms.
Calculating the relative SVA comprises four
important steps:
• First, the change in use of resources
compared with the previous period
is determined.
• Second, the opportunity cost of the
increase or decrease in consumption of
those resources is calculated with the
help of a suitable benchmark.
• Third, the sets of resources are
considered. This is unlike conventional
approaches where resources are
typically investigated individually. By
averaging the opportunity cost of all
resources employed, the total value
and the total opportunity cost are taken
into consideration.
• Finally, the total opportunity cost is
compared to the economic growth of
the company. Provided that the
economic growth exceeds the
opportunity cost, a positive outcome is
established, i.e., the company has made
a positive contribution to corporate
sustainability. The calculation is
summarized in Figure 1:

Measuring corporate sustainability
Figure 1. Procedure for calculating SVA
Changes in usages of resources compared
to previous period
Opportunity cost of increased or decreased
consumption of resources
Average of opportunity cost
of all resources
Average and economic growth
Result: Sustainable Value Added
Source: According to Figge & Hahn, 2004b, p.132
We will now look at the formula for
calculating the sustainable value in a little
more detail, as this will be the starting point
for further examination in this article
(Ang & Van Passel, 2010, p. 1):
SV = 1 R y
∑
i R r x
i
ir
y
x r
x
Where:
SV i = Sustainable Value of companyi
R = Total amount of resources considered
y i = Economic output of companyi
y = Economic output of benchmark
x ir = Resource of companyi
= Resource of benchmark
x r
ir
First of all, the economic output of
〖company〗i is determined in relation to its
use of a particular resource Xir. This is
then compared to the benchmark which
gives the relevant opportunity costs. The
benchmark’s factor is then subtracted
from the company’s factor resulting in
the value spread. The value contribution
of a resource, which 〖company〗i uses, is
calculated by multiplying the value spread
by the amount of the resource. To avoid
double counting, after adding up all value
contributions, the figure is divided by the
total amount of resources considered.
This calculation measures a company’s
sustainable value for just one period and
so in order to develop a more dynamic
process, the sustainable value for two
periods needs to be calculated. This is
arrived at as follows:
〖SVA〗i,t0 =〖 EG〗i,t0 — (〖SV〗i,t1— 〖SV〗i,t0)
Where:
〖EG〗i,t0 = Economic growth of 〖company〗i in
〖period〗t0
The sustainable value of 〖period〗t1 and 〖
period〗t0 are subtracted to obtain the
change in use of resources of 〖company〗i.
As 〖period〗t0 is the period we are looking at,
this figure is deducted from the economic
growth in 〖period〗t1. The result is the relative
SVA of 〖company〗i in 〖period〗t0 representing
the change in use of a set of resources
which has contributed to an increase in
sustainable value.
Links with Economic Value
Added
If we now consider the Shareholder Value
Approach, its main purpose is in long-term
shareholder wealth maximization. This is
particularly true for medium-sized firms
which view increased shareholder value
as essential to a company’s success. In
order to operationalize and implement
the Shareholder Value Approach, there
are a few indices of measurement but it is
the Economic Value Added (EVA) method
which is one of the most applied indices
when it comes to putting the Shareholder
Value Approach into practice. The EVA
approach is the prevalent concept and has
a multitude of benefits compared to other
approaches (Kunz et al., 2007). A survey
with 186 major US enterprises which
was performed in 1999 concluded that a
majority of 87% was already familiar with
value-based management. The value-based
accounting concept EVA achieved 94% and
was therefore by far the most well-known
concept (Ryan & Trahan, 1999, p. 49).
The EVA is given after deduction of all
interest on net operating capital. In other
words, the EVA comprises the profit for a
period after subtracting all capital costs.
A positive value means there are residual
earnings or excess profits. Typically, the
formula comprises:
E = NOPAT – (Invested capital × WACC)
Where:
NOPAT = Net operating cash profits of the
company after taxes but before any interest
expenditure
Capital invested = Economic capital
invested in the business includes both
equity and debt but does not include noninterest
bearing current liabilities
WACC =Weighted average cost of capital 1
1 For the calculation of WACC see Faupel et al. 2010, p. 57.
33

“ The true benefit of the EVA is the
ease with which it can be calculated
and communicated.”
The economic profit is excess of NOPAT
over capital costs (invested capital x
WACC), and therefore represents the
return the firm has to generate in order to
satisfy its shareholders who have “rented”
capital to the firm. In practice, the true
benefit of the EVA is the ease with which it
can be calculated and communicated. The
process of value creation quickly and easily
becomes apparent. Value drivers can be
characterized by profit maximization, by
the decrease in the capital invested, or by
the reduction of the WACC.
Using the EVA terminology, the investors’
expectations are taken into account with
the Market Value Added (MVA). This
approach relates to the market value
minus capital:
MVA = Market Value – Capital = present value
of all future EVAs = ∞ EVA
(1 + WACC)
In this way, future EVAs are estimated. If
the increase in market value is added to the
business assets (BA) of a company, then we
can arrive at the firm value (FV) (Faupel et
al. 2010, p. 59):
FV = BA + MVA
The adoption by businesses of EVA will
assist in the decision-making process by
encouraging decision-making which is
better aligned to maximizing shareholder
value. One of the main benefits of EVA
is greater transparency, which means
shareholders have a much better
understanding of the business and its
interaction with external influences
(which could also be viewed as external
costs). In addition, EVA represents a very
flexible index as it can adjust to particular
requirements using specific conversions.
The EVA index provides great potential
for integration with not only the absolute
but also the relative SVA. Although both
concepts are backward looking (the
conventional method of SVA always
measures the SVA of the previous period
instead of the current period), a clear
difference exists. While the new concept
of the SVA represents a dynamic process,
as shown in formula (3), the EVA index
does ignore periodical interdependencies.
The introduction of the MVA attempts to
compensate for this problem with the EVA.
By incorporating the future perspective
provided by the SVA, an analogue model
to the MVA index could be derived. The
concept of the Total Sustainable Value
Added (TSVA = a company’s contribution
to increased sustainability in total) could be
calculated as follows:
MSVA = MSV — Resources = present value of
all future SVAs= ∞ SVA
(1 + WACR)
Where:
MSVA = Market SVA = market's
contribution to more sustainability
WACR = weighted average cost of
resources 2
By estimating all future SVAs, the increase
in the MSVA is taken together with the
resources a company owns (resources
owned = RO) resulting in the TSVA:
TSVA = RO + MSVA
In this way, a method for measuring the
performance of a company’s contribution
to increased sustainability in total is
achieved. If the SVA is adopted in addition
to the EVA or the MVA, when measuring
performance, companies will see increased
motivation among employees and will be
in a better position to facilitate a dialogue
with shareholders.
Realizing synergies
The links between the concept of SVA,
shareholder value management and EVA
provide enormous potential for synergies.
The concept of SVA goes well beyond
the generally accepted standard tools for
performance measurement, which typically
consider only return on capital. It is not
just the opportunity cost considerations
but also the introduction of the three
dimensions of corporate sustainability
which make the use of SVA so unique. As a
consequence, what is normally a restricted
view of standard financial performance
measurement, can instead be expanded.
Moreover, the concept of SVA relies on the
patterns of shareholder value management
and on the performance measurement of
financial markets.
At the heart of the concept of SVA is
the measurement of the size of a
company’s contribution to increased
sustainability and an indication of the
strengths and weaknesses of corporate
sustainable performance.
2 The calculation of the WACR is made analogously to the WACC, where the equity is equalized with the
resources owned by the company and the debt is related to the resources loaned by the company.

Measuring corporate sustainability
“ At the heart of the concept of Sustainable Value
Added is the measurement of the size of a company’s
contribution to increased sustainability and an
indication of the strengths and weaknesses of corporate
sustainable performance.”
A win-win situation
The aim of corporate sustainability is
to satisfy the needs of both the direct
and indirect stakeholders. The primary
purpose of the shareholder value
approach is to maximize shareholder
value or wealth. Therefore, a significant
win-win situation occurs when both
concepts are used together. The economic
dimension, previously considered, has as
its goal “raising the firm’s value” which is
intricately linked to the goal of maximizing
shareholder value. Hence, the economic
pillar of the triple bottom line approach
could be described as an integral part of
both the shareholder value approach and
the concept of corporate sustainability.
Figure 2 illustrates this hypothesis.
Provided the requirements of the two other
dimensions (i.e., the ecological and the
social ones) are fulfilled, a maximization
of one dimension (here, the economic
one), when also taken together with the
objective of increasing shareholder value,
gives a win-win situation. The arrows on
the left side depict influences which effect
corporate sustainability from the outside.
The “…” stand for other influencing
factors such as demographic, political or
climate change. Any examples of influences
could be listed there, therefore, the “…”
were chosen.
The emphasis on looking to the future is
also fostered by both approaches.
Summary
The TSVA could serve as an excellent
model for companies looking to measure
sustainability performance.
In addition, due to their similarities,
the practical advantages of the EVA
can also be seen with the SVA
approach. Improved communication,
transparency and simplicity of
calculation contribute to a company’s
ability to implement and measure valuebased,
sustainable objectives.
Figure 2. Economic pillar as a connecting factor
Sustainable development
Macro level
Corporate sustainability
Micro level
Technological
...
Social
Cultural
Economic
Shareholder
value
management
Ecological
Social
...
...
35

Case study
Connection as competitive
advantage: driving performance
via community
Leading organizations
are investing in the
connections between
people, leveraging a
strong foundation of
management scholarship
and leading practices to
increase returns on
these investments.
New ways of doing things
and perceptions of work
can contribute to a new
era of community value in
an enterprise.
Authors
Loretta Lenzke is a Senior Manager in the Advisory
Services, Ernst & Young, U.S
Brad Kenney is a Manager in the Advisory Services,
Ernst & Young, U.S
Bill Dixon, PhD is a Client Engagement Leader in the EY
Global Knowledge, Ernst & Young, U.S
Colleen Powers is a Senior Advisor in the Advisory
Services, Ernst & Young, U.S

Connection as competitive
advantage
If you polled 100 enterprise CEOs tomorrow, the overwhelming
majority of these leaders would surely agree with the idea that
“our people are our most valuable resource.” While people
are truly an essential asset worthy of the huge organizational
commitments to talent and recruiting seen in many leading
enterprises, the full realization of this value largely depends
upon the strength and diversity of connections that people
have with each other.
Even in the best of times, forging these connections is not easy.
Many enterprises have aggressively globalized operations to build
top-line growth and build or maintain market share around the world;
simultaneously, many of these same firms have had to cut headcount
aggressively in order to deal with capital constraints and bottom-line
pressures brought on by the global financial crisis. The convergence
of these two trends has left gaping holes in once-robust internal
networks of colleagues — and these gaps have very real consequences
in the form of missed market opportunities, deficiencies in
organizational agility and innovation flows, regulatory compliance
risks and operational inefficiencies from duplication of effort.
In such an environment, it is no longer enough to invest in acquiring
and developing talent simply; instead, it is organizations that skillfully
invest in bridging the gaps between their people that will achieve and
maintain high performance and secure competitive advantage.
“ It is organizations that skillfully invest in bridging
the gaps between their people that will achieve and
maintain high performance and secure competitive
advantage.”
37

Boundary-spanning and helpseeking
behaviors
The idea of building a “connected
enterprise“ seems a commonsense
goal. The study of connectivity in large
organizations follows a long tradition of
academic and management scholarship. In
his landmark 1973 article, “The strength
of weak ties,” sociologist Mark Granovetter
observed the extent to which bi-directional
communication taking place between two
colleagues is indicative of the strength of
their social ties to one another. He argued
that weak ties, represented by infrequent
interactions among peers, had significant
value for organizations as they formed a
channel for the exchange of information.
Granovetter linked weak ties directly to
cohesion among peers and saw the analysis
of social ties as a way to highlight valueproducing
relations between groups.
In his 1992 book Structural holes: The
social structure of competition, theorist
Ronald S. Burt argued that two people
who provide novel and non-redundant
information in a social structure represent
holes in the social network — and that
the spanning of these structural holes
provides the mechanism relating weak
ties to positive outcomes. In Burt’s theory,
“The value a manager adds to a firm
is his or her ability to coordinate other
people: identifying opportunities to add
value within an organization and getting
the right people together to develop the
opportunities. Knowing who, when, and
how to coordinate is a function of the
manager's network of contacts within
and beyond the firm” (1997). Thus, the
value of employees within an organization
largely lies in the contacts that they
develop over time.
These well-functioning ties can translate
into more efficient operations via improved
information flows; one clear example of
which can be found in “help-seeking”
behaviors within the enterprise.
In his 2010 book Enterprise 2.0,
MIT research scientist Andrew McAfee
describes an employee at a large
firm, searching for someone who can
do the following:
“. . . keep her from reinventing the wheel,
answer her pressing questions, point her
to exactly the right resource, tell her about
a really good vendor or consultant, let her
know that they were working on a similar
problem and had made some encouraging
progress, or perform any of the other
scores of helpful activities that flow from a
well-functioning tie.” (McAfee 2010)

Connection as competitive
advantage
Studies have shown that the help seeker
must have enough knowledge of the
formal and informal structure of the
organization to find the right colleague
with the right answer — and if they do
not, the resulting “information search
cost” has a bottom-line impact in lost
productivity for all concerned, lowered
morale due to frustration, as well as other
perceived “social costs” such as furthering
a perception of incompetence (Bulkley
2007, Lee 2002). Multiply this isolated
issue across the whole organization and the
potential for widespread inefficiency due to
the lack of connection between colleagues
quickly becomes evident.
The fact that enterprise-wide inefficiencies
of this kind exist is not exactly news. In
fact, most executives could likely recount
as many examples of how their efforts
have been hampered by the scale of
their organization as they could give
examples of that leverage successfully
harnessed. And yet, despite the apparent,
commonsense value of connection, most
large organizations lack an effective,
scalable employee connection and network
development strategy.
Why might having a coherent strategy and
mechanism for connecting employees be
important? In “Wellsprings of Knowledge”
Dorothy Leonard (1995) used the term
creative abrasion to describe one of four
key activities necessary to sustain the flow
of intelligence across an enterprise, thereby
producing value. In Leonard’s research,
integrating problem-solving across business
units enabled new levels of creativity and
innovation. This was the direct result of
having made reasonably possible use
of the incredible diversity of knowledge
existing within the organization. It is
only in a connected organization, where
leadership has invested in the white space
between colleagues, that information,
knowledge and intellectual capital can
flow in a capillary network between a
colleague’s communities and networks,
and the leveraging of scale can happen
spontaneously, from the ground up.
When connections are successfully
encouraged, those handicaps so often
experienced by larger organizations instead
become strengths. It is specifically the
size of the organization which provides a
significant opportunity for engagement and
the formation of cross-boundary networks
that leading thinkers from Granovetter
to McAfee to Leonard have marked as
essential to high performance.
“It is only in a connected
organization, where leadership
has invested in the white
space between colleagues,
that the leveraging of scale
can happen spontaneously,
from the ground up.”
39

The new era of community
value
Connecting many thousands of
geographically dispersed global employees
can seem daunting. However, two trends
ease the difficulty of this task: the first
is the rise in self-organized behavior of
individuals within the enterprise, and
the second is the development of nextgeneration,
social-enabled communities
which achieve connections and bridge
white space.
The dramatic and continuing rise in usage
of the social web across all demographic
groups has increased the everyday
employee’s familiarity with transparent,
interactive online behavior, leading to
an equally dramatic change in cultural
behaviors both outside and within the walls
of most organizations. As a direct impact of
this trend, employees have
become increasingly comfortable
knowing, and sharing, more about
themselves and each other, setting the
stage for increased connectivity.
Rather than looking to discourage these
connections, leading organizations are
harnessing this trend by channeling the
desire for connection into value-producing
communities. These communities may
have many purposes — improving technical
competency, problem-solving, innovation,
customer or partner relationships, or
affinity groups, to name a few — but
perhaps just as crucially, they serve the
vital purpose of segmenting an enterprise
of thousands of people into smaller, more
human-sized units (Dunbar, 1993).
Well-functioning communities are crucial
for the formation of well-functioning
ties. They can provide a mechanism for
“ These communities serve the vital
purpose of segmenting an enterprise
of thousands of people into smaller,
more human-sized units.”
employees to build up social capital,
form personal networks based on shared
interests and experiences, and develop
trust with one other. Engaged and vibrant
communities can quicken time-to-value for
new employees and become an incentive
for them to remain, while also serving
as a vehicle for capturing and retaining
the knowledge of employees leaving the
organization — creating greater cultural
durability in good times and bad. These
communities can become the keepers of
intellectual capital, continually refreshing,
refining and extending it over time — as well
as archiving it via a process that satisfies
shifting compliance requirements. They can
create a channel for employees to provide
value, as well as a channel for recognition
of that value in a compelling and credible
context — and at the scale and level that has
maximum impact on the individual.
Communities can also promote innovation.
Once formed, many of these communities
can — through a combination of active
management, competency development,
training and engagement programs —
be effectively transformed into small
startups within the enterprise. Generation
and harvesting of pioneering ideas from
within and across these “intrapreneurial“
communities can provide crucial
differentiation in crowded product and
capital markets. And coordinated correctly,
this small office culture can be distributed
among employees who then feel loyalty to
the same set of organizational priorities —
no matter where in the world they may sit.
For these communities to flourish and
provide differential value, they must
be explicitly sponsored, appropriately
resourced, and actively managed (see
Figure 1 and 2).
For enterprise executives looking to the
future, the skills used in managing and
driving internal communities to create
value can directly translate into market
differentiation. Strong and weak ties
already span the boundaries between
suppliers, partners and customers — they
are not, however, being invested in at a
rate or level that equals their potential
value. This is especially true with external
engagement for those enterprises with
historic legacies and flagship brands.
By investing in strong community
management skills today, executives
can take a first step toward developing
talented mangers for tomorrow’s
external communities.

Connection as competitive
advantage
Figure 1. Communities follow a life cycle with definite phases of value
Building
Sustaining
Closing/transferring
Plan
• Identify sponsor and engage
stakeholders/core team
• Identify business requirements
and timescales
• Identify success measures
• Create community charter
Develop
• Identify community processes
• Identify community business and
functional requirements
• Build IT systems and processes
(conference calls, dbase, etc.)
• Define rewards and recognition
Implement
• Launch community
• Train/equip community members
• Capture and implement initial
lessons learned from rollout
Feedback
• Meet with sponsor and
stakeholders regularly
• Survey/poll participants on
progress and direction
• Monitor usage of technology
systems
• Review and report against
success measures
Evolve
• Refine/evolve business purpose
• Enhance IT systems and
processes
• Review rewards and recognition
in context of participation/results
• Standardize approach
Ongoing
• “Wash, rinse and repeat” the
cycle of lessons learned and
course corrections
Reinvigorate (option 1)
• Identify new sponsor and
members
• Change processes and
procedures
• Discuss state of community with
participants (as they “own” it)
Transfer (option 2)
• Change scope
• Identify other networks to link
to, transfer or partner
Close (option 3)
• Understand why closing is
necessary
• Have an honest discussion with
sponsor, core team and
membership
• Explain alternatives
• Close and transfer knowledge to
permanent repository
41

Figure 2. Community “critical success factors”
Explicit, agreed-upon
expectations for
measurement and
metrics
Supporting
technology
that meets
community
needs
Connecting
people
Strong, visible
sponsorship and
governance
Community
Rewards and
recognition
Relevant
content
A clear business case,
community charter
and goals/objectives
Engaged
members with
defined
roles and
responsibilities
Clear
expectations
for activities
and deliverables
Successful enterprise communities
must be explicitly sponsored, appropriately
resourced and actively managed to
develop and maintain momentum over
time. Although they may look quite
different from the outside, successful
communities often have many things in
common, including:
1. Strong, visible sponsorship and
governance
2. A clear business case, community
charter and goals/objectives
3. Engaged members with defined roles
and responsibilities
4. Clear expectations for activities and
deliverables
5. Mechanisms and support for
developing trusted relationships
6. Knowledge generation, capture and
transfer processes
Incentives,
recognition and
rewards that
match the culture
Knowledge generation,
capture and transfer
processes
Mechanisms and
support for
developing trusted
relationships
7. Incentives, recognition and rewards
that match the culture
8. Supporting technology that meets
community needs
9. Explicit, agreed-upon expectations for
measurement and metrics
Figure 3. (A) Disconnected groups (B) Boundary-spanning behaviors
Not every successful enterprise community
will have every single one of these;
however, these nine elements form a
good checklist for those looking to begin a
community, or to find ways to add value to
existing communities.

Connection as competitive
advantage
The risks of the social
software-enabled enterprise
However exciting the convergence of social
and technological trends might be, there
are risks for both sides.
Any community initiative not positioned
correctly and championed by both formal
and informal leaders will be slow to achieve
a return on investment. Social initiatives
must be explicitly supported by the
hierarchy of leaders, from the executive to
the line management level. Just because
it’s “social technology” doesn’t mean
people will use it — the usual enterprise
change management rules apply, and
leadership support is often a crucial
constraint at the best of times.
The definition and modeling of desired
behaviors is another essential element.
One informal law often cited is that the
collaboration technology used in an
organization will default to the lowest
level of comfort of the most powerful
person in the collaboration — a correlation
also reflected in Burt’s research on social
structures and seniority (Burt, 1997).
Therefore, engaging credible leaders in
a visible manner in the initiative, and
equipping them to succeed, is one key step
on the path to success.
Non-verbal and behavioral cues have
always impacted human behaviors, and
perhaps even more so in a connected
organization. Resources need to be
made available to encourage risk taking,
boundary spanning (see Figure 3) and the
courage to innovate. Success stories need
to be harvested and told far and wide, using
all available channels, by leadership at
multiple levels in the organization.
The new capability from the social web
comes with a new set of user expectations.
If the community tool you launch internally
falls short of these user expectations, then
user adoption will be low. This means you
will have failed before you even started,
as low user rates means no network and
therefore no value to the organization.
Business and IT leaders need to have
frank discussions about how to balance
the needs of the user base to connect
and collaborate with the needs of the
organization. This will help to control costs
and keep technology portfolios in order.
Because the technologies involved can be
sourced from the internet with low startup
costs, many social-forward managers are
already piloting social business software
applications for various purposes.
The effect of this is a “traffic jam” of
disaggregated applications with no overall
strategy or link to your organization’s
enterprise architecture. If your goal is
an eventual enterprise-wide platform,
tread carefully, as each of these pilots is
an emergent community that must be
carefully and skillfully brought within the
fold. Do it wrongly and you risk creating
a hundred social brushfires from a wellnetworked
group of dissident employees.
To forestall this, focus on their needs early
and often, and integrate their requirements
wherever possible.
The technologies used both inside
and outside the organizational firewall
play a key role in connecting people,
but serious challenges associated with
adoption and productive use of such
tools is common. In fact, the very userfriendliness
of social tools produces one
of the greatest risks of this new toolset.
Without clear guidelines and governance,
technology-enabled communities have the
potential to create “shadow repositories“
of authoritative documents that may
be critical to organizational success.
Content management challenges, such as
document version control and adherence
to intellectual property rules, are emerging
as significant sources of risk to a firm’s
information architecture from improperly
governed activities on social business
software platforms.
Technology must be compatible with
employee workflow in a very pragmatic
way. Changes to well-entrenched
enterprise-wide process workflows are not
easily adopted. Training programs, even on
highly usable technologies, can play a key
role in change management efforts and
the achievement of organizational goals.
SharePoint 2007 has been deployed by
many clients for years as an enterprise
collaboration platform. However, basic
challenges of adoption and proper use still
remain at the individual and departmental
level, leading to a landscape of duplicate,
redundant and abandoned Sharepoint
sites — most of which could have been
avoided given more targeted investments in
embedding proper processes into employee
workflows around the Sharepoint platform.
In sum, these technologies stand poised
to deliver significant value to large
organizations — but offer significant risks
as well. A methodical current state analysis
can pay dividends in identifying current
organizational, cultural and governanceoriented
gaps, as well as illuminating
any social projects flying under the
radar for the purposes of evaluation and
engagement. Gaining this understanding
and engagement are crucial first steps on
the road to the social enterprise.
43

Case study
Advanced Solution Center:
giving stakeholders a voice
This article examines how the Advanced Solution Center (ASC) can drive
change at a faster pace. The ASC brings together key decision-makers
from across an organization and allows them to create and develop better
solutions to complex problems in a short time period.
The economic turbulence
we have seen in recent
years has underlined the
importance of companies
having a fast and reliable
decision-making process
which enables them to
act quickly when necessary. The ability to
respond immediately, not just regarding
processes and management tools but
also the flexibility to adapt the business
model to a rapidly changing environment
becomes paramount for short- and longterm
success. Driving major changes
or transformation projects within your
organization can be painful. However,
there are ways to likely reduce that pain.
Turbulent times offer the chance to
outperform your competitors by taking
quick, decisive action. To do this, you need
the rapid buy-in and collective support
of your management team so you can be
confident of bringing your employees along
with you.
Ernst & Young’s Advanced Solution Center
(ASC) approach follows a particular
concept, designed to increase the speed
and efficiency of decision-making, change
initiatives and transformation programs.
It offers an effective way to bring together
key decision-makers from across your
organization and allow them to create
and develop solutions jointly to complex
challenges over the course of only a few
days. Detailed preparation is vital but
experience shows using the ASC can
likely reduce the time needed for major
transformations by up to 30%. It can also
dramatically improve other factors, such as
commitment and buy-in, which play a key
role in every change-related initiative.
Authors
Christian Mertin is a Partner in the CBS
Practice, Ernst & Young, India
Frank Broetzmann is a Partner in the Advisory
Practice, Ernst & Young, Germany
Wolfgang Holzhauer is a Manager in the
Advisory Practice, Ernst & Young, Germany

Advanced Solution Center
Common objectives realized with Advanced
Solution Center Events are:
• Better solutions developed in a faster,
more collaborative way
• Stronger buy-in and commitment across
the organization
• Innovative strategies and solutions
designed with multiple stakeholders
• Effective launch of new programs across
the organization
• Seamless communication, creating
mutual understanding
• Likely reduced risk, even in large and
complex transformations
The secret to the success of ASCs lies in
the combination of proven group-based
learning techniques, leading tools, fresh
and focused facilitation, carefully designed
creative environments and professional
information design.
The concept is founded on scientific
principles which stimulate participants’
ability to create new ideas and work
together to develop innovative solutions.
Each event has a customized design, with
a diverse mix of individual, small group
and plenary exercises, which encourage
participants to think outside the box as
well as reaching mutual agreement. The
output from an ASC is a solution to which
all participants contributed and therefore
accept as their own creation. The effect
is long-lasting engagement and a
motivated team.
Over the past few years, we have further
developed our ASC concept including
virtual elements and Web 2.0 technologies,
turning customized event documentation
websites used in earlier years into powerful
transformation tools. One significant
advantage is the way we make the
transformation process more efficient by
enabling hundreds of people across the
globe to be involved in the process without
incurring travel time and expenses. For
example, we use crowd-sourcing platforms
to actively engage large audiences in
important stages of the transformation
process, such as issue identification, idea
generation or feedback collection. In this
way, the spirit and momentum created
at the initial ASC event extends and
continues to provide lasting and sustainable
transformation support long after the
event itself.
“ What most excites me is the way
we are doing this all together,
with people from all parts of the
organization. It got every single
person involved in every key aspect
of the transformation.”
45

Case study 1 — Developing a
global finance strategy
A global client and industry leader, with
operations across the world, faced the
challenge of globally aligning its disparate
and bespoke finance organization. This
included harmonizing process scope,
organizational structures, target setting
processes, people development and
IT systems.
Working with a small team from the client’s
side, we developed an overarching vision
and mission statement for the finance
function, outlining the key principles of
the future operating model for finance.
The team developed three possible
scenarios. Each looked at the implications
for the finance functions with respect to
processes, organization and governance,
HR and people development, as well as IT
systems. Together this formed the input for
the Advanced Solution Center.
" It’s different
to our usual
approach, there
is much more
involvement.
This is about true
ownership."
“ It was the first time
we had the chance
to impact a strategic
discussion”
We brought together over 40 key
decision-makers from around the globe,
with representatives from all regions,
business areas including shared service
organizations and stakeholders from
outside of finance for a two day event.
After learning about the key aspects of
the three scenarios, participants worked
in small groups to develop their own
interpretations of how the future finance
operating model would function. Already
on the first day, the groups presented
their results to the plenary. By using
our specific Advanced Solution Center
techniques, it became quickly apparent
that the individual groups had designed
almost identical solution. This meant
about 80% of the new finance strategy
was agreed upon right away, including an
updated version of the finance vision and
mission statement. Before moving on to
explore further details of the strategy, a
leading academic on organizational design,
as well as two representatives from other
leading global companies, shared their
views and experiences on finance strategy.
This provided the chance to hear fresh
perspectives and enabled the group to
challenge established practices when they
met the following day.
At the end of the event, the key aspects
of the finance strategy centered around
the operating model, including processes,
organization, people and IT, was defined
and agreed upon. Documentation of the
results was completed and circulated to
the participants just two days after the
event. The results formed the basis for the
detailed strategy document agreed upon by
the 40 key finance decision-makers.
The key benefits achieved from the ASC
event included:
• Agreement of the finance strategy by all
major decision-makers and stakeholders
• Reduction in the time for alignment by
about 30%
• A strategy reflecting views and
requirements from all regions and
business areas, not just corporate
headquarters

Advanced Solution Center
“ It is astonishing what we have
achieved in just one and a half days.”
Case study 2 — Rolling
out a global markets and
organizational strategy
The client, an international leader in
the professional services industry, had
developed a new strategy for one of its
business units. The challenge was to
involve the top 500 global managers and
motivate them to engage actively in the
implementation of the strategy, thereby
achieving a strong sense of momentum
around the transformation process.
To jump start the transformation process,
we designed a series of ASC events
around the globe to involve the 500
managers in the strategy rollout. The
events took place across Asia, Europe,
North and South America in parallel,
bringing together managers from different
business areas and support functions.
Working with a core team from the client’s
leadership, we developed the key messages
that needed to be communicated and
to where input and feedback from the
participants is required. With the help
of designers, we applied multi-sensory
learning techniques by creating, for each
strategic focus area, a visual expression
of the content. This made the content
much more memorable than if it had
been presented in a written format. By
doing this, we achieved several important
aspects. Firstly, it had the effect of making
the participants feel this was something
different right from the start. They were,
more willing to contribute and to be
involved. It also enabled complex issues
to be communicated in a memorable and
concise format. This approach and the
subsequent output also provided the basis
for an internal communications toolkit
which could be re-used to consistently carry
the message forward.
All the events were structured in three
successive parts. The first part was as
described above focusing on understanding
the strategy content with a short reflection
on personal implications. The second
part was about detailing certain aspects
of the strategy, defining implementation
requirements, and providing feedback to
the central strategy team. The third part
was about developing a transformation
roadmap at a corporate level and also at a
very personal level. In the second and third
part of the events, we used techniques that
enabled all participants to contribute to all
aspects of the strategy while focusing on
the parts that were most relevant to them.
At the same time, we made sure that, at
each event, a common view on every topic
was reached among participants. We also
aligned the content across the event series,
taking key insights from one event to enrich
the discussions on the following events.
After the event series, we consolidated
the results into one detailed document
for the central strategy team. It contained
the developed content on detailing and
operationalizing the strategy as well as the
transformation road map. The documented
results formed the basis for the next stages
of the transformation process.
In total, the event series achieved a
number of fundamental objectives. All
500 participants gained a common
understanding of the new strategy,
provided valuable input for the rollout
(detailing and operationalizing) of the
strategy and its implementation, as well
as creating personal action plans for
everyone’s individual contribution to the
transformation process. It enabled the
central strategy team to refine the strategy,
taking into account a more detailed
regional and functional perspective,
as well as setting up a transformation
team and providing them with concrete
and actionable tasks to turn strategy
into reality.
The key benefits achieved from the ASC
events included:
• Complete and consistent communication
of the new strategy at a global level in a
very short timescale
• Actionable and attainable strategy,
thoroughly challenged by all regions and
all business areas, including regional
and functional specific requirements
• Great momentum for change
which enabled swift and decisive
follow-up actions based on the event
series’ outcomes
Summary
The Advance Solution Center
methodology is versatile and can be
applied to a wide range of situations.
It is particularly valuable when you
need the input and agreement of many
stakeholders and time is a crucial factor.
When it is important that you have
your whole team on board and truly
committed to a common goal, and you
need tangible and actionable outcomes,
that is when you want to use the
Advanced Solution Center.
47

Case study
Supply chain transformation:
a blueprint for success
A case study examining
how we helped Fresenius Medical
Care EMEALA transform its supply
chain operations, enabling it to
make cash savings of 15 million
euros from the reduction in stock
holding and laying the foundations
for future growth.

Supply chain transformation
Authors
Peter Leather is a Senior Manager in the Advisory Practice,
Ernst & Young, Switzerland
Juergen Peukert is a Partner in the Advisory Practice,
Ernst & Young, Germany
This case study brings to
life the journey which
Fresenius Medical Care
(FME) has been on
over the last three years
in redefining supply
chain management
across Europe, Middle East, Africa and
Latin Americas. Along this journey,
Ernst & Young has helped coach and
support the FME team, enabling them
to achieve some significant milestones
in what has been a challenging and
exciting transformation initiative for
an organization which is on the way
to become the world’s leading renal
therapy company.
The transformation project was named
SCALE, which stands for Supply
Chain ALignment EMEALA (EMEALA
represents Europe, Middle East, Africa
and Latin America.) SCALE launched
in early 2009 and was a key strategic
initiative in laying the foundations for
the future growth of the company. As Dr.
Emanuele Gatti, Global chief strategist
and chief executive officer EMEALA said
at the time: “As we seek to transform FME
into a leading renal therapy company,
reliability in supply chain performance is a
key success factor in our strategy.”
With more than three decades of
experience in dialysis and innovative
research, FME is the world's largest
integrated provider of products and
services for individuals undergoing dialysis
because of chronic kidney failure. FME is
widely regarded as the organization which
sets the standard in terms of treatment for
patients with this condition, which affects
just under two million people worldwide.
The following extract from the annual
report 2009 gives an insight into what FME
stands for: “Together with our employees,
we focus on pursuing strategies that will
enable us to uphold our technological
leadership. As a vertically integrated
company, we offer products and
services for the entire dialysis value
chain. The highest medical standards
are our benchmark.”
49

Transforming the EMEALA
supply chain operations
For FME, supply chain is a key driver in not
only supporting the growth of the business,
but also generating cash and laying the
foundations for the future, such as an
integrated business model and harmonized,
cross-company working practices.
Thomas Dimt, at that time Head of
commercial department and logistics
EMEALA, observed: “A key part of our
mission in building FME into a leading renal
therapy company is that we continually
face the challenge across the company
of how best to re-invent ourselves in a
fast changing business environment. How
best to change the way in which we are
organized, the way we work together and
collaborate to ensure that we achieve both
business and personal goals as well as
deliver real benefits and results.”
This challenge is especially significant in
the highly cross-functional and complex
world of FME’s supply chain operations.
Here, there is a focus on core processes
that must always be “done well” across all
functions and countries throughout the
EMEALA regions. The goal is to ensure that
FME efficiently services the needs of both
its internal and external customers.
These core, supply chain processes include:
• Producing accurate forecasts that drive
the supply chain process
• Optimizing stock levels so as to balance
efficiency and customer service
• Sharing transparent and reliable
information for decision-making
These ambitions are clearly reflected in the
goals of SCALE which include:
• Striving for simplicity and efficiency
• Reducing complexity and barriers
• Aligning and transforming processes,
tools and organization across the
supply chain
• Target results included:
• Create stock transparency for effective
inventory management
• Increased forecast accuracy
• Flexible and customer-focused
production
• The rollout of a standard replenishment
approach throughout FME EMEALA
Leaders who serve
Discussions between the FME supply chain
leadership team and Ernst & Young began
in 2008 when we were engaged to provide
support at company headquarters in Bad
Homburg, Germany. Initially, this involved
some executive coaching for the head of
the supply chain operations, concerning
potential reorganization issues. We were
also asked to help in developing the content
for the annual Logistics summit meeting,
which was scheduled to take place in
Portugal in October 2008.
Leadership wanted to use this summit
meeting to introduce the need for change
and the intended mission to transform
supply chain operations, getting
people involved and creating the
momentum for change.

Supply chain transformation
These initial interventions were very
successful and, in early 2009, SCALE
was established with Ernst & Young as
a strategic advisor. Since then we acted
as "transformation guides" and "change
coaches", working alongside the supply
chain leadership team and the SCALE
workstream leaders to help them launch
and drive forward the SCALE initiative.
Setting sail from Porto
We started the journey of exploration and
transformation in Porto, Portugal, when
the supply chain EMEALA logistics team
came together for their annual summit.
This was a key moment. An opportunity to
really create momentum and connect with
those people who would be most involved
and affected by the transformation project.
We agreed upfront with the leadership
team that the whole meeting would focus
only on the need for transformation. In this
way, they were involved right from the start
in the plans for the new initiative.
The theme for the Porto summit in
November 2008 was “managing change
together.” Working with around 60
members of the global team, we spent
three days building the case for change
Figure 1. Supply Chain Alignment EMEALA
across FME’s supply chain. Dr. Emanuele
Gatti reinforced the importance of supply
chain both in safeguarding cash flow and in
laying the foundations for the company’s
future growth.
The Porto summit was key not just
because it provided the opportunity to
engage people in the need for change
within the organization’s global supply
chain operations, it was also the start of
generating a real feeling and need for a
common “community of spirit” across the
different supply chain functions.
One of the first things we did at the
summit was to identify the perceived
strengths and weaknesses in FME’s
supply chain operations. Then we
developed expectations for the future. (as
summarized Figure1).
FME before
FME tomorrow
This was a pivotal moment in our
relationship with FME and marked
the beginning of a shared journey of
transformation and organizational change.
During this journey, we used a variety of
techniques to assist FME and some of the
most important ones are highlighted in the
remainder of this article.
• High stock levels
• Low forecast accuracy
• Lack of flexibility
• Missing transparency
• Targets in conflict
• Diverse and unconnected systems
• Transforming the way we work across the supply chain
• Ensuring reliability in our supply chain performance
• Supporting the growth of FME as a leading renal therapy company
Source: Fresenius Medical Care
• Demand driven
• Global process optimization
• Customer focused
• Optimization across company
• Proactive
• Transparency
• Common SAP based platform
51

“ We followed a simple rule which was to give the
overall SCALE program a series of distinct targets
at a strategic level while having specific and tangible
tactical milestones and change goals.”
Juergen Peukert, Ernst & Young
Other sessions focused on introducing
the overall objective and goals of the new
program and there was also some specific
training around how to embrace, be ready
for and get fully involved in the upcoming
process of change.
During the summit, we also asked
participants to make short videos
which, working in breakout groups, they
scripted, designed and filmed themselves
based on proven methods from the
Ernst & Young advanced solution center
. This team-building exercise gave them
a voice through which they could express
what they saw as the benefits and
advantages of transforming the supply
chain operations.
Participants also brainstormed what they
believed were the necessary principles
for country involvement and which would
prove to be key to the program’s success.
The results of their brainstorm are
summarized in Figure 2.
Figure 2. Brainstorming results
Finally three key messages were agreed by
all participants as the driving principles for
the new initiative (see Figure 3).
Figure 3. Driving principles for the new
initiative
• Ensuring reliability of supply chain
performance
• Driving change in the way that we work
together
• Enabling “one supply chain community”
Source: Fresenius Medical Care
Change-leadership in action
In parallel to the Porto summit, we
worked with the existing FME supply chain
management team to develop the vision,
mission and values for what would be the
new, integrated supply chain operations.
We did this via a series of very challenging
facilitated workshops.
Following the workshops, once the vision,
mission and values had been agreed, we
then started working at a more detailed
level with the leadership team to develop
the tactical milestones and deliverables
that would form the foundation for
implementing the new business model.
The leadership team members described
these workshops as enlightening because
they not only had the chance to discuss the
practical details of the proposed changes
but also it was their first step towards
operating as change leaders. The beginning
of their own personal change journey.
The output from this intensive series of
leadership workshops is articulated in
Figure 4.
Active country participation to ensure that in standardizing our
supply chain processes together we:
• Consider freedom for entrepreneurship/local needs
• Build strong understanding of new processes and provide excellent
training on IT tools to ensure that we are able to use them properly
• Ensure that we do not complicate work more than today
• Guarantee availability of goods in the markets
Countries are therefore be expected to:
• Provide input/resource to each phase of the project
• Nominate local people to prepare for/lead SCALE transition
• Be open for change
Source: Fresenius Medical Care

Supply chain transformation
Figure 4. Articulating the strategy for the supply chain organization EMEALA
Vision
Mission
Values
Drivers
We stand for a
• Reliable
• Customer focused and
• Integrated supply chain
across EMEALA driving FME
cash flow
As a key success factor we
enable FME to become a Renal
Therapy company
• We understand our markets and
customers
• We balance customer
requirements with financial and
supplier resources
• We support the FME strategy of an
integrated business model
• We strive for simplicity and
efficiency
We continuously improve our cash
positions
• We are open and honest
• We are committed to quality
• We are team workers and
collaborate across borders
• We are looking for continuous
improvement
• We are professional and open for
change
• We are cash flow minded
We, as the supply chain EMEALA organization get there by:
Supply chain transparency
for fact based, optimized
decision making
Aligned supply chain goals for
executing FME’s EMEALA
strategy
Integrated operating model
supply chain for driving a
seamless supply chain in balance
Empowerment of the supply
chain community for enabling
and motivating our employees
Strategicobjectives
Our strategic objective is to
create transparency on the
supply chain performance,
inventories, cost , SLAs
and policies in order to
balance customer requirement
with financial and
supplier resources.
Our strategic objective is to
agree on key performance
indicators and service levels
reflecting FME strategic
goals, driving reliability
and performance across
value chain.
Our strategic objective is to build
aligned supply chain processes
across the company and to
understand our markets,
customers and suppliers
in order to drive supply
chain performance.
Our strategic objective is to
collaborate within the supply
chain community based on
defined roles and responsibilities,
core values and knowledge,
in order to achieve operational
excellence, simplicity
and efficiency.
Source: Fresenius Medical Care
53

In mid 2009 the SCALE change leadership
team decided that a broader coalition from
across the EMEALA countries and
functions should be mobilized and
empowered as key influencers and
sponsors for the transformation process at
a local country level.
Consequently, a supply chain network
of change ambassadors was set up.
The network quickly became involved in
working closely with their country general
managers, particularly in the rollout of the
new sales and operations planning process
launched as part of SCALE.
This SCALE “guiding change coalition”
within FME is represented in Figure 5.
Charting for success
The SCALE program presented a series
of complex challenges across three
dimensions (Figure 6): people, process
and technology. These challenges can be
summarized as follows:
• Orchestrating a series of parallel
workstreams across the complete span
of supply chain operations
• Each workstream with its own scope,
stakeholders, timeline, deliverables and
go-live date including specific impact of
change assessments
• Integrating the work of an
organizational design initiative with the
more operational workstreams
Figure 5. SCALE guiding change coalition
Every operational unit impacted in the project plan will be engaged
SCALE project team
“Build processes and tools;
coach rollout teams“
SCALE ambassadors
Supply chain champions
Source: Fresenius Medical Care
Figure 6. SCALE is the program delivering this supply chain transformation
Supply chain standard
New shared processes One integrated system New “one team“ setup
Common approach across all functions and countries
Transition framework for smooth implementation
Supplier Production Central Warehouse
(CWH)
Source: Fresenius Medical Care
Headquarter
Initiating change sponsors
“Provide strong backing and sponsorship”
Country General Managers/Plant Managers
“Own rollout with personal objectives”
Change Implementation Leaders
“Drive country rollout”
Country rollout team
“Execute rollout processes, behaviors and tools”
All Local
Warehouses (LWHs)
And building one supply chain community across EMEALA
Countries
Customer

Supply chain transformation
• Managing the many critical linkages
between the output of the different
workstreams while managing the critical
path for the implementation of the overall
SCALE program
• Managing the ongoing rollout of the
program deliverables through a series of
waves or pilots
• Sharing lessons learned during the
journey and tracking the real tangible
values being realized
• And building one supply chain community
at the same time
We followed a simple rule which was to give
the overall SCALE program a series of
distinct targets at a strategic level while
having specific and tangible, tactical goals
for the separate workstreams.
Team charters were completed by all of the
SCALE workstreams. As well as covering
the usual issues such as scope, timeline,
deliverables, roles, work-plan, linkages and
dependencies, these charters also became
another change instrument by addressing
the potential areas for transformation and
change impact (see Table 1).
Table1. Potential areas for transformation impact
Criteria Description Stakeholder management Critical
Resulting change
impacts to be
managed
• Local stock is legally no longer
under the responsibility of the
subsidiary.
• Local management Low
Potential
resistance to
these changes
Recommended
next steps to
manage change
• Local management might be
afraid that they no longer control
stock levels and run into stock-out
situations.
• In the kick-off meetings and
all presentations make very
transparent that the responsibilities
regarding stock levels will not
change because of the D-GmbH
ownership.
Criteria Description Stakeholder management Critical
Resulting change
impacts to be
managed
Potential
resistance to
these changes
Recommended
next steps to
manage change
• The handling of processes related to
stock changes (e.g.,goods entry of
different plants) or becomes more
difficult (e.g., scrapping, customer
returns) because two legal entities
are involved.
• Local employees might be afraid
of the changes in their daily
work because they do not fully
understand the extent.
• Explain the concrete process/
handling changes in detail already
in an early stage of the project and
invest sufficient time for training
before go live.
• Employees in the
warehouse (goods
entry, goods issue on
different plants)
• Logistics clerk/
manager (scrapping on
D-GmbH cost center,
handling of customer
returns)
Medium
Source: Fresenius Medical Care
55

All hands on deck
In the words of the SCALE Program Leader
Joachim Hoehler: “With over 30 people
from our supply chain management team
actively involved in SCALE and with the
participation of representatives from all the
EMEALA countries in the project, we are
truly building one supply chain community.”
As well as the normal, more standard
program management techniques and
governance meeting cycles, we also
worked with the FME workstream leaders
to develop some additional, innovative
techniques, which are certainly worthy of
note due to the way in which they helped
the process in FME.
A program integration meeting structure
was established to run on a monthly basis.
This involved not only project workstream
updates but also deep dive working
sessions which ran along the complete
supply chain (see Figure 7).
Figure 7. SCALE process walkthrough
A
B
Working agenda
SCALE progress update
These program integration meetings
became an excellent vehicle for the SCALE
team members to share knowledge and
experience across each other’s areas of
specialism. The opportunity this provided
to learn together and often problem
solve in a collaborative way, was certainly
breaking new ground within FME.
We also recognized that the annual
supply chain summit meetings could
play an important role as milestones in
the ongoing change process, and in the
growth and development of FME’s supply
chain community.
For example, in Porto, we identified
that the supply chain teams recognized
they were very good at fire-fighting and
problem solving but needed to improve in
proactively working together across the
value chain and across countries to find
better operational solutions.
In response, one of the key developments
during 2009 was the establishment of
bi-monthly supply chain community
conference calls which were typically joined
by over 50 participants, representing most
of the countries within the EMEALA region.
During each call, there would be a mix of
project updates both from headquarters
and the countries, deep dive working
sessions on a particular part of the value
chain, and a brainstorm around operational
hot spots and potential solutions.
In the following summit meeting, in October
2009, in Seeheim, Germany, the supply
chain community focused on a practical
walk-through of the complete new SCALE
processes. With a theme of “Moving into
operations” for this summit, experiences
were shared, particularly from the initial
pilot countries, about the benefits being
realized from the new forecast and demand
planning process. This meeting really
signaled the birth for this community of the
new supply chain operations.
By the time of the 2010 supply chain
summit meeting, held near Dublin, in
Ireland, participants at these events had
more than doubled. The theme for the
summit was “Landing, learning and living
together” in the new, integrated and
harmonized supply chain world.
SCALE
processes
C
D
SCALE deep dive
Decisions, next steps
and closing comments
Source: Fresenius Medical Care
Deep dive: “End to end“ SCALE process walk-throughs
Forecast
APO DP
Net demand planning
Sourcing
Distribution
planning
Value tracking
By involving both sales and production in
the work of the program and the summits,
we were able to develop a shared goal
aimed at creating a more agile and flexible
production facility. An additional goal was
also to develop, as well as improve, forecast
accuracy and reduce stock levels.
An evening, team-building event at the
Guinness Storehouse in Dublin also helped
grease the wheels of change and ease the
transformation toward working together
across the silos!

Supply chain transformation
Delivering results
Throughout 2010, SCALE was already
beginning to deliver significant and
tangible results:
• Inventories merged into an EMEALA
replenishment hub
• Consolidation of selected warehouses
into an EMEALA central warehouse
• Tax benefits leveraged as appropriate
• Do self-aligned sales and operations
planning across EMEALA
Supply chain reliability today begins
with forecasting. A new harmonized
SCALE forecasting process and tool
has been implemented and the country
feedback is positive: “We can calculate
forecast for products more accurately; it
becomes easier to check items that have
high deviation, saving time. We focus on
exception handling with product
managers and communication with Sales
has improved.”
Alexander Gruening, Head EMEALA
forecast and demand planning
In addition, the new forecasting tool, called
the Demand Planner (part of the SAP
Advanced Planner and Optimizer), has
been implemented and rolled out in 151
markets. Sales and operations planning
pilots have been deployed in selected
countries to provide a platform for aligning
demand and supply.
The rollout was organized in five waves
during which users in more than 30
countries were trained over three days in
how to use the system. Most of the training
was held at head office in Bad Homburg,
but there were also regional training
sessions in local countries, e.g., the SCALEworkshop
in Sao Paulo which brought
together key users from the six most
important Latin American countries.
The SCALE stock merger initiative recently
completed and, by the end of 2010, FME
EMEALA saw cash savings of 15 million
euros from the reduction in stock holding.
“SCALE is following a well-articulated
strategy, agreed with senior business
management, to deliver a target of more
than 35 million euros reduction of supply
chain managed cash and cost positions by
the end of 2012.”
Thomas Dimt, Present CFO EMEALA
Leveraging lessons learned
We also worked closely with an internal
FME consultancy group, called People,
Organizational Change, Implementation
(POI), to complete an extensive lessons
learned exercise at the end of the second
year of the SCALE program. This helped to
establish the framework which we used for
moving forward to complete the work.
A flagship for the future
"Feedback clearly shows the SCALE
program has been a tremendous success
within FME. It is widely recognized as
a “flagship initiative” for the company,
delivering in the region of 15 million euros
stock reduction within the first 12 months
of the ongoing implementation of this
transformation program."
Dr. Ulrich Weingarten, Head of supply
chain operations EMEALA
We are now working closely with the supply
chain leadership at FME, coaching them on
how to bring the program to a finish with
the same professionalism and attention to
detail that went into the initial launch and
mobilization activities.
57

Case study
Competing
for market
share in
rural India
Authors
Raghu Venkatnarayan is an Executive Director in the
Advisory Practice, Ernst & Young, India
Anant Sood is a Senior Manager in the Advisory
Practice, Ernst & Young, India

Competing for market share in
rural India
This article discusses how the project team assisted a
manufacturing company to improve its market share performance
by focusing on growth opportunities in semi-urban and rural
markets in India. It highlights an approach which has successfully
enhanced market share performance and could be adopted by
other product-based businesses.
India is among the few markets
which has shown some resilience to
the general slowdown in the global
economy and is on track to continue
in this direction, with high growth
rates anticipated over the next
few years.
A key contributor to India’s strength has
been the significant growth in consumption
from its rural market. Estimates put the
Indian rural market close to 45% of the total
Indian GDP. The rural population is defined
as those who live outside the top 400
cities/towns 1 (see Table 1).
1 NCAER (National Council of Applied Economic
Research, India) reports, Industry classification,
Ernst & Young Analysis
2 Industry reports, NCAER data, Ernst & Young Analysis
3
NSSO (National Sample Survey Organisation, NCAER
reports
Table 1. Population distribution in India
Number % of population Typical population (in 100,000)
Metros 8 7 50+
Cities 19 4 10+
Towns 396 9 1 to 10
Semi-urban towns 4,738 8 Less than 1
Villages 600,000 72 Less than 5
Categorised as rural India
Rural India accounts for more than 70% of the total number of Indian households and close
to two-fifths of total consumption 2 3 (see Table 2).
Table 2. Rural vs. urban population
Rural Urban Total
Households 145m 61m 206m
Population 732m 295m 1,027m
Earners/
household
1.4m 1.3m -
59

In demographic terms, rural India is more
advantageously placed, with the number of
working population there outnumbering the
total urban population (see Table 3).
Table 3. Age distribution of rural
population in India
Age group
Population (rural) mn
Greater than 70 22
61 to 70 33
51 to 60 56
41 to 50 77
31 to 40 107
21 to 30 127
Less than 20 311
Total working population
A clear demonstration of the importance
of rural India is shown by looking at the
number of organizations which derive a
significant proportion of their overall sales
from outside of the country’s largest towns
and cities (see Table 4).
Table 4. Company presence in rural
markets
concentrated. For example, there are
4,700 towns and over 600,000 villages
spread across the length and breadth of
India. Yet more than half of the population
and approximately 60% of the total rural
wealth is concentrated in just 17% of these
same villages.
Given these characteristics, deploying an
optimal distribution structure for such
a market becomes a challenge for any
company, especially those which have been
geared toward managing a distribution
chain predominantly in urban markets. For
instance, decisions on distribution networks
have to take into account both the size of
the potential market as well as the cost
required to service the dispersed demand
that rural India represents. The two maps
(see Map 1 and Map 2) demonstrate this
point. Map 1 is an evaluation of all districts
in a particular state MP (Madhya Pradesh)
on the basis of market potential and the
second is based on cost-to-serve. It is clear
that both present very different outcomes
for any district.
Company Category % sales from
rural markets 4
Hindustan Household
45%
Unilever products
Hero Honda Two wheelers 60%
Dabur Personal
40%
products
Dish TV Media 33%
TVS Two wheelers 50%
However, while rural India has tremendous
market potential, there are some inherent
characteristics which make it significantly
different from urban India. In particular,
the way in which the population is
simultaneously dispersed and yet
“ Distribution equity refers to
the maturity and flexibility of a
business’s distribution network.”
4 Publically available information

Competing for market share in
rural India
Map 1. Assessment of districts in Madhya Pradesh based on market potential
Ujjain
Market potential 14.35
Income 3.84
Consumption 4.63
Awareness 5.12
Mkt. support 0.76
Panna
Market potential 1.47
Income 0.39
Consumption 0.44
Awareness 0.55
Mkt. support 0.08
Chhindwara
Market potential 4.60
Income 1.07
Consumption 1.39
Awareness 1.86
Mkt. support 0.27
Excellent Good Decent Poor
Map 2. Assessment of districts in Madhya Pradesh based on market potential and ease-to-serve
Market unattractive based
on ease-to-serve approach
Excellent Good Decent Poor
61

Given this situation, organizations
need to relook at their “distribution
equity,” i.e., their ability to drive market
share performance through their
distribution network.
The various elements that need to be
addressed while evaluating and leveraging
a firm’s distribution equity are shown in
Figure 1.
Background
Figure 1. Factors affecting firm’s distribution equity
Client: a top three agricultural equipment
manufacturer in India, facing deteriorating/
stagnating market share in some key states
in India.
The root cause identified during the initial
assessment was an ineffective channel, i.e.,
the inability of the company to drive sales
in line with market growth.
Distribution structure
Deployment of the distribution network structure
Distribution funding
Presence of adequate network funding to enable
flow of credit as required
Market coverage
Effective coverage of the markets allocated
Additional sales
enablers
Enablers including BTL activities, advertising, pricing mechanisms
Each of the elements mentioned typically
gets addressed as part of separate
functional structures (sales, marketing,
dealer development/management,
finance, etc.) and consequently do not
get adequate attention as part of an
overarching strategy.
The remainder of this study looks at how
the various elements of the distribution
equity of an Indian manufacturing company
were addressed as part of an initiative to
yield significant improvement in marketshare
performance.
Competitive environment: the existing
Indian market consisted of a large number
of domestic and international players
comprising well-entrenched market leaders
and aggressive new entrants.
How we addressed the challenge:
we carried out a detailed assessment
(see Figure 2) of our client’s existing
performance structure, evaluating
both brand and distribution equity. We
conducted in-depth primary interviews
with more than 750 respondents
comprising customers (farmers) and
influencers (bankers, NBFCs 5 , competition
dealers, etc.) to identify the key areas for
improvement.
5 Non-banking financial institutions

Competing for market share in
rural India
Figure 2. Assessment framework
1.1 Market presence
Brand equity
1.2 Customer acceptance
Market share
performance
1.3 Consistent customer experience
2.1 Network strategy
2.2 Channel management
Distribution equity
2.3 Sales force effectiveness
2.4 Market enablers
The brand effect
Analysis revealed there was a little
correlation between the level of brand
recognition/awareness and the market
shares of players (see Figure 3).
Additional analysis revealed a positioning
mismatch between customer requirements
and recognition of product benefits by the
client (see Figure 4).
While analysis of brand equity revealed
some findings, none of them adequately
addressed the level of underperformance
by the client in key markets.
Figure 3. Market share vs. awareness for
different brands
89%
84%
Figure 4. Mismatch between customer requirements and product benifits
Percentage of respondents recognizing
a brand as leading for different
applications/usage
Product usage by variants
35%
9%
16%
11%
60% 57%
45% 43% 39%
11% 0% 4%
Player 1
Client
Player 3
Player 4
Player 5
Player 6
Player 7
Awareness Market share (FY09)
70%
60%
50%
40%
30%
20%
10%
0%
Product
usage 1
Product
usage 2
Multipurpose
Product
category 1
Product
category 2
Product
category 3
Total
Multi
purpose
Product
usage 1
Product
usage 2
Total
64% 21% 11% 97
71% 9% 18% 285
65% 13% 17% 23
69% 12% 17% 405
Client Player 1 Player 2
Positioning mis-match
63

The distribution equity effect
The assessment of the client’s distribution
equity, however, revealed key areas which
seemed to explain the reasons behind the
underperformance.
1. Network strategy
Mapping the quality of the distribution
chain with market share revealed a
mismatch in the nature and type of dealers
deployed in specific markets. For example,
“ While only partway
through
implementation,
the client
witnessed a 50%
increase in its
market share.”
some high-performing dealers had been
allocated less attractive markets (see
Figure 5a and 5b).
In order to improve strategic deployment, a
detailed review was required of the client’s
existing network, with implementation
plans for each category of dealer (see
Figure 6).
Figure 5a. Mapping districts in MP based on market
potential vale and “cost to serve”
Figure 5b. Mapping of districts in MP based on quality of network
presence
22
21
25
23
24
Chambal
26 27
38
Malwa 1
20
32
28
2
2
9 13 17 19
9
29 37
33 33
4
CMP 18
14
30
40
5
7 10
6
34
36
15
31
16
35
8
11
12
39
EMP
Excellent Good Decent Poor Dealer present and
above threshold sales
Dealer present and
below threshold sales
Dealer with less than
4 billing in 6 months
Vacant territory

Competing for market share in
rural India
Figure 6. Recommended actions based on the dealer type
Action steps
BB
DD
Territories with good market share
2
4
1
Infuse funds
AA
Territories with high visibilty
CC
Territories with low visibility
1
2
4
2 Improve coverage
Total no. of territories
FF
5
3 Increase awareness
CC
Territories with low visibilty
Territories with good market share
GG
Territories with low market
share/vacant
1
3
5
4 Improve conversion
5 Enhance dealer network
2. Channel management
The second step in the assessment was
an evaluation of how the channel was
performing. Key to this approach was
tracking and monitoring how the channel
was being funded.
Figure 7. Channel management approach
• Should the network be self-funded, funded by
distributor/stockist or provided channel funding/CC?
• What should be liability borne by company in each case?
What rate of interest should channel partner be charged?
Again, specific action steps emerged
for each one of the elements shown in
Figure 7. For example, precise guidelines
for various funding approaches were
developed to enable mapping of optimal
funding options (see Figure 8) with the type
of dealer, the sales levels and the quality of
the market they were playing in.
• What indicators of the
channel partner’s funding
system should the
organization team be
actively tracking?
• How should dealer’s
fund in market/stock
be tracked?
Mode of funding
Network
funding
• How should dealer’s funds
be distributed among
sales/service/spares?
Monitoring
of funds
Distribution
of funds
65

“ A focus on distribution equity will yield greater
returns to organizations planning to succeed
in rural markets in India.”
Figure 8. Mode of funding
Physical stock value
as on date
Market outstanding
as on date
Physical stock norm
(days of sale)
Monthly sales target
Adjusted RCT
Physical stock value
(average value “monthly
sales target” stocking
norm/30)
Market o/s value (average value “monthly
sales target” adjusted RCT/30)
Current funding at dealership (physical stock
+ market o/s value)
Required funding at dealership
(physical stock + market o/s value)
Funding gap
(required - current)
Bank RCT
35%
No
Industry
size>500?
No
1 2 3
Candidate for channel
funding
Candidate for
territory bifurcation
Probable candidate for
distribution funding

Competing for market share in
rural India
Deployment of appropriate funding
methods and effective monitoring of
the funds deployed led to a significant
improvement in the dealers’ profitability
and enhanced their ability to service the
market more effectively.
3. Sales force effectiveness
Another critical aspect was the
effectiveness of the sales force (including
both the client’s and the dealers’ sales
forces in the local markets). Based on
the analysis, we found contact by a sales
person during the sales cycle was one of
the most critical components impacting
successful sales performance (see
Figure 9).
Analysis of customer buying behavior
revealed that customer conversion
dramatically drops when the salesman
has not met the customer during the sales
process. For example, conversion ratio
was 36% when a company salesman met
the customer, irrespective of whether the
customer visited the dealership or not.
Conversion ratios went up to 48% when the
customer visited the dealership and was
visited by the salesman. However, when
the salesman did not contact the customer
during the sales process, the conversion
was only 5%, irrespective of the customer
having visited the dealership.
As a consequence, running initiatives to
increase the number of sales personnel
(of both company and dealer) in the
market and also increasing the frequency
of visits made to a customer during
the sales process dramatically improved
sales performance.
Overall impact
By focusing on the key elements of the
client’s distribution equity and introducing
some very specific changes, the effect
was a significant overall improvement
within a very short period of time (see
Figure 10). While only part-way through
implementation, the client witnessed a 50%
increase in its market share and is currently
looking at rolling out a similar program
across its entire network within India.
Figure 10. Sales and market share
performance
8%
180
90
11.21%
226
83 100
12.35%
253
Figure 9. Analysis of customer buying behavior
December January February
Customer conversion driver
Customer conversion ratios
Implementation launch — mid December 2010
FY 09
FY 10
Salesman contact
Dealership visit
36%
Summary
Salesman contact
Salesman contact
Dealership visit
Dealership visit
48%
5%
While organizations spend significant
amounts of time and effort in developing
their brand equity, in rural India, given
the nature of the market, it is critical
for organizations to focus equally, if not
more so, on their distribution equity. We
believe this will yield greater returns to
organizations planning to succeed in rural
markets in India.
67

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Email: fjacobellis@uk.ey.com
Middle East
Ahmad Ahmad
King Fahad Road, Olaya
Al Faisaliah Office Tower — Level 6
P.O. Box 2732,
Riyadh 11461, Saudi Arabia
Tel: + 9661 2159430
Fax: + 9661 2734730
Mobile: + 966 504101407
Email: ahmad.ahmad@sa.ey.com
Michael Hasbani
Sheikh Zayed Road, 28th Floor, Al Attar
Business Tower, P.O. Box 9267
Dubai 9267, United Arab Emirates
Tel: + 971 4 312 9141
Fax: + 971 4 332 4004
Mobile: + 971 5 0551 5628
Email: michael.hasbani@ae.ey.com
Australia
Neil Plumridge
Level 23, 8 Exhibition Street
Melbourne, VIC 3000, Australia
Tel: + 61 3 9288 8957
Fax: + 61 3 8650 7728
Mobile: + 61 418 589 271
Email: neil.plumridge@au.ey.com
Mithran Doraisamy
Level 5, Ernst & Young House
51 Allara Street, Canberra
ACT 2600, Australia
Tel: + 61 3 9655 2660
Fax: + 61 3 8650 7728
Mobile: + 61 419 378 062
Email: mithran.doraisamy@au.ey.com
Japan
Brandon Jansen
Kasumigaseki Building
3-2-5 Kasumigaseki
Chiyoda-ku 13, 100-6090, Japan
Mobile: + 81 080 6704 8852
Email: jansen-brndn@shinnihon.or.jp
South Africa
Gareth Bladon
Wanderers Office Park
52 Corlett Drive
Illovo, Johannesburg
Gauteng 2196
South Africa
Tel: +27 11 772 3683
Mobile: + 27 82 602 8480
Email: gareth.bladon@za.ey.com
71

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About Ernst & Young
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© 2011 EYGM Limited.
All Rights Reserved.
EYG No. AU0851
ISSN No. 1866-3923
About Ernst & Young Advisory services
The relationship between risk and performance improvement
is an increasingly complex and central business challenge, with
business performance directly connected to the recognition
and effective management of risk. Whether your focus is on
business transformation or sustaining achievement, having
the right advisors on your side can make all the difference. Our
20,000 advisory professionals form one of the broadest global
advisory networks of any professional organization, delivering
seasoned multidisciplinary teams that work with our clients to
deliver a powerful and superior client experience. We use proven,
integrated methodologies to help you achieve your strategic
priorities and make improvements that are sustainable for the
longer term. We understand that to achieve your potential as an
organization you require services that respond to your specific
issues, so we bring our broad sector experience and deep
subject matter knowledge to bear in a proactive and objective
way. Above all, we are committed to measuring the gains and
identifying where the strategy is delivering the value your
business needs. It’s how Ernst & Young makes a difference.
This publication contains information in summary form and is therefore intended for
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exercise of professional judgment. Neither EYGM Limited nor any other member of the
global Ernst & Young organization can accept any responsibility for loss occasioned to
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seen in the context of the time they were expressed.
267 Performance_Volume 3_Issue 4_April.indd (India) 11/01.