management tools and trends 2005 - bain.com

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Management Tools and Trends 2005Author: Darrell RigbyCo-author: Barbara Bilodeau

• In 1993, Bain launched a multi-year research project to get the facts about management tools and trends. Our objective is two-fold:

-To provide managers with information they need to identify and integrate tools that will improve bottom-line results

-To understand how global executives view their strategic challenges and priorities

• Over the past 12 years, we have completed 10 surveys, assembling a database that now includes 7,283 respondents from more than 70 countries in North America, Europe, Asia, Africa, the Middle East and Latin America

• This year, we received 960 completed surveys from a broad range of international executives. We also conducted personal follow-up interviews to further probe the circumstances under which tools are most likely to produce desired results

10 surveys, 7,283 respondents covering a 12-year span

0

20

40

60

80

100%

1993-2005

Europe

North America

Asia-Pacific

7,283

2005

Europe

North America

Asia-Pacific

Other

Latin America

960

3

• This year, we focused on 25 of the most popular tools and techniques, listed on the slide below. To qualify for inclusion,a tool had to be:

-Relevant to senior management-Topical (as evidenced by coverage in the business press)-Measurable

• We defined these tools in a booklet titled Management Tools 2005, An Executive’s Guide

• Booklets and surveys were mailed to senior executives (a well-balanced mix of line and staff, corporate and divisional managers) around the world. Surveys were also conducted online in partnership with EIU.com. The survey is reprinted in the appendix at the back of this report

We focused on 25 of the most popular tools

• Activity-Based Management

• Balanced Scorecard

• Benchmarking

• Business Process Reengineering

• Change Management Programs

• Core Competencies

• Customer Relationship Management

• Customer Segmentation

• Economic Value-Added Analysis

• Growth Strategies

• Knowledge Management

• Loyalty Management*

• Mass Customization**

• Mission and Vision Statements

• Offshoring*

• Open-Market Innovation*

• Outsourcing

• Price Optimization Models*

• RFID*

• Scenario and Contingency Planning

• Six Sigma*

• Strategic Alliances

• Strategic Planning

• Supply Chain Management

• Total Quality Management* Tool included in the survey for the first time in 2005

** Tool returned to survey in 2005 4

• Global respondents represent a full range of industries and company sizes

• With results of 7,283 surveys and more than 300 personal interviews in our database, we have created the world’s most comprehensive and definitive fact base on management tools and trends

Global respondents represent the full range of industries and company sizes

0

20

40

60

80

100%

Demographics of 2005 global respondents

Industry

Services

Healthcare & pharmaceuticals

Retail & cons. prods

Manufacturing

Tech & telecom

Financial services

Media & entertainmentConstruction & real estate

Other/Unknown

TransportationUtilities & energy

Chemicals & metals

100

Corporate sales

<600MM

$600MM - $2B

$2B+

100

5

This year’s trends analysis highlights:

i Executives are becoming more customer-centric- Executives are feeling they do not know enough about their customers, with nearly two-thirds of survey

respondents agreeing with the statement “insufficient customer insight is hurting our performance”

- Respondents also feel they aren’t doing a good enough job of satisfying the customers they have, with slightly more than half agreeing that their companies “focus on new customers when we should retain and grow our existing ones”

• Innovation is the next big challenge- Executives are concerned that there is an increase in the commoditization of goods and services all over

the world. More than three-quarters believe that a growing percentage of the goods and services they offer “behave like commodities,” while 56% say they should “focus more on revenue growth and less on cost reduction”

- The solution to both concerns? Innovation. A whopping 86% of respondents believe that “innovation is more important than cost reduction for long-term success.” Yet 73% of executives say that they “could dramatically boost innovation by collaborating with outsiders, even competitors”

• Companies still need to find cash- Half of the executives in the survey confess, “When we need to increase profits, we usually cut costs,”

which suggests a broad gap between companies’ perceived need to innovate and their ability to do so

• IT is coming of age- Executives are feeling that IT is not just a computing tool; it can make their company stronger. Nine of 10

executives agree that “information technology can create significant competitive advantages.” However, fewer are investing strategically to make that happen, with only 6 of 10 agreeing that “our spending on information technology is completely aligned to our business strategy”

The view on management trends

DisagreeAgree

6

Information technology can create significant competitive advantages

Innovation is more important than cost reduction for long-term success

The hardest thing to merge is culture

A growing percentage of our products and services behave like commodities

We could dramatically boost innovation by collaborating with outsiders, even competitors

Economic cooperation can do more than military battles to reduce terrorism

Excessive complexity is raising our costs and hindering our growth

Asset management is as important as cost management to our stock price

Insufficient customer insight is hurting our performance

Our stated values effectively drive frontline actions, even when no one is looking

Our spending on information technology is completely aligned to our business strategy

We should focus more on revenue growth and less on cost reductions

Our international sales will grow faster than domestic revenues over the next 5 years

Acquisitions will be critical to achieving our growth objectives in the next 5 years

We focus on new customers when we should retain and grow our existing ones

New laws on corporate governance are raising costs without improving governance

When we need to increase profits, we usually cut costs

Offshoring may be politically unpopular, but everyone benefits in the end

We have the capability to effectively manage a global supply chain

The job of the CEO is far less attractive than it was 10 years ago

3%

6%

5%

12%

10%

10%

17%

6%

18%

16%

22%

31%

21%

22%

26%

22%

29%

17%

30%

36%

89%

86%

86%

76%

73%

73%

68%

67%

65%

64%

60%

56%

55%

55%

51%

50%

50%

47%

42%

39%

• Some of these attitudes vary by region-North American executives 8 Are less likely to feel they could boost innovation by

collaborating with outsiders8 Are less likely to feel economic cooperation can do more than

military battles to reduce terrorism8 Are more likely to find the job of CEO less attractive than it was

10 years ago

-European executives are more likely to feel they should focus more on revenue growth and less on cost reductions

-Asian executives 8 Believe their products and services are behaving more like

commodities8 Are more likely to feel that excessive complexity is raising their

costs and hindering their growth8 Are more likely to feel insufficient consumer insight is hurting

their performance

• Information technology can create significant competitive advantages 88% 89% 88% 93%

• Innovation is more important than cost reduction for long-term success 86% 91% 87% 73%

• The hardest thing to merge is culture 86% 85% 83% 95%

• A growing percentage of our products and services behave like commodities 73% 72% 85% 68%• We could dramatically boost innovation by collaborating with outsiders,

even competitors 64% 75% 76% 69%

• Economic cooperation can do more than military battles to reduce terrorism 54% 79% 73% 90%

• Excessive complexity is raising our costs and hindering our growth 54% 67% 81% 57%

• Asset management is as important as cost management to our stock price 63% 64% 71% 72%

• Insufficient customer insight is hurting our performance 55% 68% 73% 51%

• Our stated values effectively drive frontline actions, even when no one looking 68% 57% 60% 84%

• Our spending on IT is completely aligned to our business strategy 56% 57% 64% 66%

• We should focus more on revenue growth and less on cost reductions 50% 69% 46% 61%

• Our international sales will grow faster than domestic revenues in next 5 yrs 47% 66% 50% 47%

• Acquisitions will be critical to achieving our growth objectives in next 5 yrs 54% 56% 56% 57%

• We focus on new customers when we should retain and grow existing ones 42% 45% 63% 48%

• New laws on corporate governance are raising costs w/o improving governance 63% 53% 42% 42%

• When we need to increase profits, we usually cut costs 50% 53% 45% 55%

• Offshoring may be politically unpopular, but everyone benefits in the end 53% 47% 43% 36%

• We have the capability to effectively manage a global supply chain 34% 46% 42% 44%

• The job of the CEO is far less attractive than it was 10 years ago 48% 42% 39% 17%

Agreement level varies by region

N.Amer. Europe Asia L. Amer.

7Significantly higher than executives not in that regionSignificantly lower than executives not in that region

• Attitudes also vary by company size. Executives at large companies ($2B+ revenue)

-Feel asset management is as important as cost management to their stock price

-Are more likely to feel their stated values effectively drive frontline actions, even when no one is looking

-Plan to use acquisitions as a critical piece of achieving their growth objectives in the next five years

-Believe their international sales will grow faster than domestic revenues

-Are less likely to feel they focus on acquiring new customers rather than retaining existing customers

-Are more likely to cut costs to increase profits -Are more likely to feel they can manage a global supply chain

• Information technology can create significant competitive advantages 89% 89% 89%

• Innovation is more important than cost reduction for long-term success 86% 87% 86%

• The hardest thing to merge is culture 88% 88% 83%

• A growing percentage of our products and services behave like commodities 76% 84% 71%

• We could dramatically boost innovation by collaborating with outsiders,even competitors 72% 75% 72%

• Economic cooperation can do more than military battles to reduce terrorism 72% 77% 71%

• Excessive complexity is raising our costs and hindering our growth 67% 74% 64%

• Asset management is as important as cost management to our stock price 74% 71% 61%

• Insufficient customer insight is hurting our performance 64% 66% 64%

• Our stated values effectively drive frontline actions, even when no one looking 69% 56% 65%

• Our spending on IT is completely aligned to our business strategy 56% 59% 64%

• We should focus more on revenue growth and less on cost reductions 58% 53% 56%

• Our international sales will grow faster than domestic revenues in next 5 yrs 61% 60% 49%

• Acquisitions will be critical to achieving our growth objectives in next 5 yrs 64% 60% 48%

• We focus on new customers when we should retain and grow existing ones 44% 54% 53%

• New laws on corporate governance are raising costs w/o improving governance 54% 53% 47%

• When we need to increase profits, we usually cut costs 61% 57% 40%

• Offshoring may be politically unpopular, but everyone benefits in the end 49% 44% 47%

• We have the capability to effectively manage a global supply chain 60% 46% 29%

• The job of the CEO is far less attractive than it was 10 years ago 40% 44% 37%

Agreement level varies by company size

Large Medium Small

8Significantly higher than executives in other sized companiesSignificantly lower than executives in other sized companies

• Tool usage decreased worldwide-An average of 13 tools were used in 2004, down from 16 in 2002

-This decrease was especially prevalent among small and medium-sized companies

• Of course, some of the change we see in the number of tools used may be because of the changing survey demographics from year to year

-However, if we had the exact same mix of company sizes as we did in 2002, the mean number of tools used would have been 13.6

-And if we had the exact same regional mix, the mean would have been 13.7

Mean= 12.5

1993199419951996 1997199819992000 20022004

11.8 12.6 13.212.1 11.9

13.3

10.7 10.4

16.1

13.4

0

5

10

15

20

Average number of tools used

Tool usage moved toward the mean in 2004

9

• As we have found every year, larger companies use more tools

• This year, we also found that small and medium companies have decreased the number of tools they use much more substantially than large companies have

Tool usage varies by company size

2000 2002 2004

14.2

17.416.2

0

5

10

15

20

2000 2002 2004

11.3

16.1

13.1

0

5

10

15

20

2000 2002 2004

9.2

15.2

11.7

0

5

10

15

20

Large companies ($2b+)*

Medium companies ($600M - <$2B)*

Small companies (<$600M)*

10*Based on annual revenues

• The number of tools varies by region, with European companies using the most and Asian companies, driven largely by firms in China, using the least

Differences in tool usage around the world

0

5

10

15

20

Average number of tools used in2004

Europe

15.6

16

North America

14.6

15

Latin America

12.4

12

Asia

10.0

10

202302 293101

2002average

11

China2004(7.5)

OtherAsia2004(16.3)

• Tool usage decreased across most industries in 2004

• Healthcare and pharmaceutical firms use more tools than the global average, while media and entertainment companies use fewer

Tool usage declined in most industries

15.1 14.4 14.1 13.9 13.7 13.5 13.5 13.3 12.511.7 11.2

Heal

thca

re*

Tran

spor

tatio

n

Serv

ices

Tech

/Tel

ecom

CP &

reta

il

Chem

icals

& m

etal

Utilit

ies

& en

ergy

Finan

cial s

vcs.

Man

ufac

turin

gM

edia

& e

nter

.*

Cons

truc

tion

& RE

0

5

10

15

20

Average number of tools used in 2004

Respondents 67 49 86 148 51 45 46 129 210 28 26

12

2002 average

*Significantly above or below the overall mean of 13.4

The tools that executives are using generally support their view on strategic challenges and priorities:

• Executives use more customer tools- But some tools are more effective than others. Customer Segmentation is tied for 4th on satisfaction, and

CRM is tied for 9th. Both are also among the top five most used tools. Two other customer tools, Loyalty Management and Mass Customization, are both below average in usage and satisfaction

• Companies experiment with innovation tools, with mixed results- While executives recognize the need to innovate, Open-Market Innovation is one of the three least-used

tools. It also has below-average satisfaction ratings among those who use it. However, as we will show later, companies using it as part of a major effort are much more satisfied than those using it on a limited basis

• Cost-cutting tools become business as usual- We saw that half of firms still rely on cost cutting when they need to increase profits. Outsourcing is the

number one tool for cost cutting, with 73% using it to some degree. Another cost-cutting tool, Supply Chain Management, is now used by 56% of firms, and its users give it strong satisfaction scores. Executives less often use a third cost-cutting tool, Offshoring, with only one-third of respondents reporting that they send work once done at home to other countries

• IT tools come of age- Several tools with heavy information technology components have increased in usage in recent years

including CRM, Supply Chain Management and Knowledge Management. The changes in satisfaction have been even more dramatic: CRM climbed from 22nd on the satisfaction scale in 2000 to 9th in 2004, Supply Chain Management moved from #16 in 2002 to 2nd in 2004, and TQM improved from 17th in 2002 to 7th in 2004. However, just because technology powers a tool doesn’t necessarily endow it with a competitive edge. For example, Knowledge Management increased in use but remains near the bottom of satisfaction ratings

Usage and satisfaction rates in 2004

Strategic Planning*CRM*Benchmarking*Outsourcing*Customer Segmentation*Mission and Vision Statements*Core Competencies*Strategic Alliances*Growth Strategies*Business Process Reengineering*TQM*Change Management Programs*Balanced Scorecard*Supply Chain ManagementKnowledge ManagementScenario and Contingency PlanningActivity-Based ManagementEconomic Value-Added Analysis*Loyalty Management*Price Optimization Models*Six Sigma*Offshoring*Open-Market Innovation*Mass Customization*RFID*

79%* 4.14*75%* 3.9173%* 3.98*73%* 3.8972%* 3.97*72%* 3.8765%* 3.97*63%* 3.9562%* 3.9161%* 3.9061%* 3.9359%* 3.75**57%* 3.8656% 3.99*54% 3.7354% 3.90**52% 3.74**44%** 3.8640%** 3.67**36%** 3.8734%** 3.8933%** 3.9326%** 3.70**24%** 3.69**13%** 3.90 13

*Significantly above the overall mean **Significantly below the overall mean

Usage Satisfaction

• We identified the top 10 tools globally and by region-Strategic Planning is the most frequently used tool in every region except Asia, where it is fifth

-CRM has lower penetration in North America than elsewhere-Benchmarking is used heavily in all regions except Asia-TQM is the second most often used tool in Asia but does not break the top 10 in any other region

Top 10 tools

North LatinGlobal America Europe Asia America

• Strategic Planning 1 1 1 5 1

• CRM 2 9 3 1 5

• Benchmarking 3 2 2 12 2

• Outsourcing 4 6 4 4 4

• Customer Segmentation 5 7 5 3 6

• Mission and Vision Statements 6 3 6 7 3

• Core Competencies 7 8 11 6 10

• Strategic Alliances 8 4 7(t) 13 12

• Growth Strategies 9 5 10 14(t) 7

• Business Process Reengineering 10 11 9 9 15(t)

• TQM 11 - - 2 -

• Change Management Programs 12 - 7(t) - -

• Balanced Scorecard 13 - - 10 8(t)

• Supply Chain Management 14 - - 8 -

• Scenario and Contingency Planning 16 10 - - -

• Economic Value-Added Analysis 18 - - - 8(t)Note: (t) = tied

14

• Strategic Planning remained the most widely used tool in 2004, as it was in 2002

• CRM moved from 7th in 2002 to 2nd in 2004

• Mission and Vision Statements dropped from the 2nd most used tool in 2002 to 6th in 2004

• Business Process Reengineering reversed a decade long decline in use, jumping from 19th in 2002 to 10th in 2004

Top 10 tool usage has shifted

Strategic Planning*

CRM***

Benchmarking

Outsourcing**

Customer Segmentation**

Mission and Vision Statements

Core Competencies

Strategic Alliances

Growth Strategies*

Business Process Reengineering

1st year surveyed

usage83%

35%

70%

71%

60%

88%

52%

62%

55%

67%

2004usage79%

75%

73%

73%

72%

72%

65%

63%

62%

61%

2004rank

1

2

3(t)

3(t)

5

6

7

8

9

10(t)

2002rank

1

7

2(t)

5

4

2(t)

11

13

9

19

15*Tool added in 1996 **Tool added in 1998 ***Tool added in 2000

TQM 61% 10(t)67% 18

• Comparing the top 10 tools over time shows several key points about tool usage

-Certain tools such as Strategic Planning and Benchmarking are consistently used by a large number of companies

-Tools that once seemed to be fads may become popular again—Business Process Reengineering was heavily used in the early 1990s, dropped out of the top 10 for several years and is now again in the top 10

29

Top 10 tools have varied over time

1993

• Mission Statements (88%)

• Customer Satisfaction (86%)

• TQM (72%)

• Competitor Profiling (71%)

• Benchmarking (70%)

• Pay-for-Performance (70%)

• Reengineering (67%)

• Strategic Alliances (62%)

• Cycle Time Reduction (55%)

• Self-Directed Teams (55%)

1996

• Strategic Planning* (83%)




• Core Competencies (69%)

• TQM (66%)

• Reengineering (65%)



• Growth Strategies* (55%)

2000




• Outsourcing** (69%)





• Customer Segmentation (51%)


2004


• CRM*** (75%)


• Outsourcing** (73%)

• Customer Segmentation (72%)





• Business Process Reengineering/TQM (61%)

*Tool added in 1996 ***Tool added in 2000**Tool added in 1998

16

• Usage rates for the individual tools vary by region-North American firms are the most frequent users of Strategic Alliances, Growth Strategies and Offshoring

-European firms are heavy users of all tools except Six Sigma andRFID

-Asian firms generally use all tools less than companies in the rest of the world, except for TQM

-Latin American firms are the heaviest users of Economic Value-Added Analysis

Usage rates vary by region

N. America Europe Asia L. America

• Strategic Planning 91% 90% 55% 85%• CRM 71% 86% 69% 62%• Benchmarking 88% 88% 42% 80%• Outsourcing 76% 85% 58% 72%• Customer Segmentation 75% 83% 61% 61%• Mission and Vision Statements 82% 80% 50% 79%• Core Competencies 73% 70% 53% 57%• Strategic Alliances 79% 74% 41% 54%• Growth Strategies 77% 71% 39% 59%• Business Process Reengineering 68% 72% 45% 47%• TQM 56% 63% 63% 55%• Change Management Programs 66% 74% 39% 49%• Balanced Scorecard 64% 62% 43% 58%• Supply Chain Management 56% 65% 46% 45%• Knowledge Management 52% 66% 43% 47%• Scenario and Contingency Planning 69% 67% 28% 44%• Activity-Based Management 50% 62% 39% 48%• Economic Value-Added Analysis 45% 52% 28% 58%• Loyalty Management 36% 48% 33% 27%• Price Optimization Models 37% 42% 24% 39%• Six Sigma 44% 32% 27% 36%• Offshoring 44% 39% 20% 22%• Open-Market Innovation 25% 36% 19% 17%• Mass Customization 23% 29% 18% 20%• RFID 15% 15% 9% 12%

17Use tool significantly more than those not in regionUse tool significantly less than those not in region

• The low tool usage by Asian firms is driven by firms in China, who are light users of most tools

• The two tools that have no statistically significant difference in usage levels between China and the rest of Asia are TQM and Six Sigma

Chinese firms use almost all tools far less than firms in other parts of Asia

Strategic PlanningCRMBenchmarkingOutsourcingCustomer SegmentationMission and Vision StatementsCore CompetenciesStrategic AlliancesGrowth StrategiesBusiness Process ReengineeringTQMChange Management ProgramsBalanced ScorecardKnowledge ManagementScenario and Contingency PlanningSupply Chain ManagementActivity-Based ManagementEconomic Value-Added AnalysisLoyalty ManagementPrice Optimization ModelsSix SigmaOffshoringOpen-Market InnovationMass CustomizationRFID

39%62%25%49%54%35%45%26%23%35%60%24%33%35%10%40%31%19%28%15%26%8%13%12%

6%

96%85%89%81%78%89%75%81%80%70%72%79%68%64%75%63%60%53%46%49%31%51%37%33%17%

China Other Asia

18Significantly higher usage rate than China

• Large companies use all but one tool a statistically significantamount more than small and medium-sized companies

-While Open-Market Innovation is also used by a higher percentage of large companies, the difference is not statistically significant

Usage rates vary by company size

Strategic PlanningCRMBenchmarkingOutsourcingCustomer SegmentationMission and Vision StatementsCore CompetenciesStrategic AlliancesGrowth StrategiesBusiness Process ReengineeringTQMChange Management ProgramsBalanced ScorecardSupply Chain ManagementKnowledge ManagementScenario and Contingency PlanningActivity-Based ManagementEconomic Value-Added AnalysisLoyalty ManagementPrice Optimization ModelsSix SigmaOffshoringOpen-Market InnovationMass CustomizationRFID

74%70%63%65%67%65%64%59%53%54%59%49%44%42%50%44%47%34%34%30%23%23%24%20%

6%

76%72%71%73%72%67%60%60%61%60%56%56%57%59%52%53%53%48%38%35%36%29%26%23%18%

Large Medium

19

89%84%89%85%80%85%71%72%77%74%67%76%75%75%62%69%59%58%49%46%49%51%29%31%20%

Small

Significantly higher usage rate than small/medium companies

• The average overall satisfaction rating is 3.89, similar to the average satisfaction of 3.85 in 2002

• Satisfaction leaders are-Strategic Planning-Supply Chain Management-Benchmarking

• Tools with the lowest satisfaction ratings are-Loyalty Management-Mass Customization-Open-Market Innovation8 However, don’t automatically assume these tools will fade

away. A few years ago, CRM was at the bottom of both the usage and satisfaction lists

• Asian firms are generally less satisfied with tools, while Latin American firms are more satisfied

Overall satisfaction scores

Strategic Planning*Supply Chain Management*Benchmarking*Core Competencies*Customer Segmentation*Strategic AlliancesTQMOffshoringGrowth StrategiesCRMRFIDBusiness Process ReengineeringScenario and Contingency PlanningOutsourcingSix SigmaPrice Optimization ModelsMission and Vision StatementsEconomic Value-Added AnalysisBalanced ScorecardChange Management Programs*Activity-Based Management*Knowledge Management*Open-Market Innovation*Mass Customization*Loyalty Management*

4.14 4.17 4.12 3.88 4.433.99 4.06 4.00 3.84 4.243.98 4.02 3.96 3.78 4.123.97 3.96 3.94 3.91 4.063.97 4.01 3.94 3.88 4.143.95 3.88 3.93 3.89 4.243.93 3.81 3.88 3.93 4.243.93 3.88 3.99 3.85 3.673.91 3.85 3.90 4.05 3.913.91 3.85 3.91 3.90 4.153.90 3.64 3.98 3.92 4.103.90 3.98 3.90 3.70 4.123.90 3.89 3.88 3.83 3.973.89 3.92 3.91 3.72 3.903.89 3.75 3.93 3.83 4.223.87 3.82 3.87 3.70 4.003.87 3.98 3.71 3.80 4.223.86 3.91 3.82 3.72 4.023.86 3.84 3.90 3.68 4.023.75 3.71 3.73 3.66 3.983.74 3.74 3.71 3.67 3.783.73 3.61 3.74 3.65 3.823.70 3.91 3.67 3.62 4.003.69 3.71 3.70 3.68 3.883.67 3.52 3.71 3.65 3.86

Global Avg= 3.89

20*Significantly above/below the global mean

Global N. Amer. Europe Asia L. Amer.

Significantly higher than other regions Significantly lower

• Satisfaction levels also vary by company size-Large companies are more satisfied with Six Sigma-Small companies are more satisfied with TQM, Growth Strategies and Outsourcing

-Knowledge Management is viewed more satisfactorily by small companies and less so by large firms

Satisfaction by company size

Strategic PlanningSupply Chain ManagementBenchmarkingCore CompetenciesCustomer SegmentationStrategic AlliancesTQMOffshoringGrowth StrategiesCRMRFIDBusiness Process ReengineeringScenario and Contingency PlanningOutsourcingSix SigmaPrice Optimization ModelsMission and Vision StatementsEconomic Value-Added AnalysisBalanced ScorecardChange Management ProgramsActivity-Based ManagementKnowledge ManagementOpen-Market InnovationMass CustomizationLoyalty Management

4.163.923.964.003.914.034.013.913.993.963.923.963.914.003.743.873.873.863.833.803.793.913.693.773.71

4.143.974.003.914.013.983.993.783.833.863.913.783.833.723.854.043.923.803.843.763.793.643.673.763.72

Large Medium

21

4.094.053.993.964.003.823.773.983.853.883.853.893.903.834.003.773.833.883.893.693.623.573.733.563.60

Small

Significantly higher satisfaction rate than other sized companies Significantly lower satisfaction rate

• Executives express a large increase in satisfaction with five tools

Satisfaction increases since 2002

2002 2004 2002 2004mean mean rank rank

• Supply Chain Management 3.80 3.99 16 2

• Strategic Alliances 3.80 3.95 18 6

• Business Process Reengineering 3.75 3.90 20 12

• TQM 3.80 3.93 17 7

• CRM 3.81 3.91 13 10

22

• The odds of success vary widely for different tools. For example, 36% of those who use Strategic Planning report that they are extremely satisfied with the tool, while only 6% say they are dissatisfied, creating a positive “satisfaction spread” of 30 points (36–6)

• At the bottom of the page are tools that dissatisfied almost as many users as they pleased

• No tool has a negative spread—where the number of dissatisfied users outweighs those who are extremely satisfied

Satisfaction spreads

Strategic PlanningCustomer SegmentationSupply Chain ManagementCore CompetenciesOffshoringRFIDScenario and Contingency PlanningBenchmarkingStrategic AlliancesGrowth StrategiesCRMTQMPrice Optimization ModelsMission and Vision StatementsOutsourcingBusiness Process ReengineeringSix SigmaEconomic Value-Added AnalysisBalanced ScorecardKnowledge ManagementMass CustomizationOpen-Market InnovationChange Management ProgramsLoyalty ManagementActivity-Based Management

3020201919171616151515151514131312129877443

Spread

36%26%26%26%27%22%22%21%26%22%23%25%21%25%23%21%22%21%15%19%14%14%15%16%10%

% Extremelysatisfied

-6%-6%-6%-7%-8%-5%-6%-5%-11%-7%-8%-10%-6%-11%-10%-8%-10%-9%-6%-11%-7%-7%-11%-12%-7%

% Dissatisfied

23

• Major efforts achieve better satisfaction scores than limited efforts do for all tools. Perhaps some tools should not be used on a limited basis at all

• For some tools, the differences are enormous. Core Competencies achieves the 3rd highest satisfaction score of any tool when it is implemented as part of a major organizational effort. However, its satisfaction rate when used as part of a limited effort is much lower. Open-Market Innovation is tied for 10th when used as part of a major effort but is next to last when used on a limited basis

• It is important to understand incremental benefits of pursuing amajor versus minor effort with each of these tools before deciding which tools to use and how much effort will be devoted to implementing them

Major efforts achieve higher satisfaction

RFIDScenario and Contingency PlanningCore CompetenciesStrategic PlanningBenchmarkingSix SigmaStrategic AlliancesBusiness Process ReengineeringCustomer SegmentationTQMEconomic Value-Added AnalysisOpen-Market InnovationSupply Chain ManagementOffshoringGrowth StrategiesPrice Optimization ModelsMission and Vision StatementsBalanced ScorecardKnowledge ManagementCRMOutsourcingActivity-Based ManagementMass CustomizationLoyalty ManagementChange Management Programs

3.723.663.603.723.703.613.703.643.663.573.603.523.673.713.583.683.553.633.523.643.703.573.523.423.59

4.434.404.394.384.324.284.284.274.274.274.254.254.244.224.214.214.194.184.164.154.134.114.094.073.97

Limited effort scoreMajor effort score

24

• We analyzed respondents’ loyalty to each tool by calculating the percentage that stopped using the tool in 2004 after using it atleast once in the past five years

• The three tools with the highest defection rates are-Business Process Reengineering-Economic Value-Added Analysis-Core Competencies

• Of course, managers might stop using a tool for many reasons:-The tool may have served its purpose, and no longer be required-The company’s needs may have changed-The management team may be dissatisfied with the value they received from the tool

Defection rates in 2004

Business Process Reengineering*Economic Value-Added Analysis*Core Competencies*Activity-Based ManagementBalanced ScorecardTQMSix SigmaRFIDLoyalty ManagementMission and Vision StatementsChange Management ProgramsOpen-Market InnovationStrategic AlliancesGrowth StrategiesPrice Optimization ModelsOffshoringKnowledge ManagementMass CustomizationBenchmarkingOutsourcingScenario and Contingency PlanningSupply Chain Management*Customer Segmentation*Strategic Planning*CRM*

10%8%8%7%7%7%7%7%7%6%6%6%6%6%5%5%5%5%5%5%4%4%4%3%3%

Mean = 5.7%

25

*Denotes a tool that is significantly above/below the mean

1. Get the facts: Every tool carries a set of strengths and weaknesses. Success requires understanding the full effects—and side effects—of each tool and then creatively combining the right ones in the right ways at the right times. Use the research. Talk to other tool users. Don’t naively accept hyperbole and simplistic solutions.

2. Champion enduring strategies, not fleeting fads: Line managers and tool gurus don’t always have perfectly aligned agendas. Tool gurus may provoke stimulating discussions, but managers must manage. Managers who promote fleeting fads undermine employees’ confidence that they can create needed change; such managers’ programs are greeted with increasing skepticism. Executives would be better served by championing realistic, strategic directions and regarding the specific tools for getting there as ancillary.

3. Choose the best tools for the job: Managers need a rational system for selecting, implementing and integrating the tools appropriate for their companies. A management tool will improve results only to the extent that it:a. Discovers unmet customer needs;b. Builds distinctive capabilities;c. Exploits competitor vulnerabilities;d. Develops breakthrough strategies by effectively integrating these

accomplishments.

4. Adapt tools to your business system (not vice versa).

On the basis of our research to date, we offer four suggestions for the usage of tools:

Tool tips

• Get the facts

• Champion enduring strategies, not fleeting fads

• Choose the best tool for the job

• Adapt tools to your business system

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Appendix

27

Tool definitions

i Activity-Based Management: Tracks costs by activity and traces them to specific products and customers, allowing more accurate cost allocation and decision making. Related topics: Activity-Based Costing, Customer Profitability Analysis, Product Line Profitability

i Balanced Scorecard: Translates Mission and Vision Statements into quantifiable measures and gauges whether management is achievingdesired results. Related topics: Management by Objectives (MBO), Pay-for-Performance, Strategic Balance Sheet

i Benchmarking: Compares processes and performance with internal and external benchmarks. Companies incorporate identified best practices to meet improvement targets. Related topics: Best Demonstrated Practices, Competitor Profiles

i Business Process Reengineering: Radically redesigns core business processes to achieve dramatic improvements in productivity, cycle times and quality. Related topics: Cycle Time Reduction, Horizontal Organizations, Overhead Value Analysis, Process Redesign

28

Tool definitions (continued)

• Change Management Programs: Used to devise change initiatives, generate organizational buy-in and implement the initiatives as seamlessly as possible. Related topics: Cultural Transformation, Managing Innovation, Organizational Change, Process Redesign

i Core Competencies: Identifies and invests in special skills or technologies that create unique customer value. Related topics: Core Capabilities, Key Success Factors

i Customer Relationship Management: Collects data about customers to optimize marketing, sales and service processes to increase customer value. Related topics: Collaborative Commerce, Customer Retention, Customer Segmentation, Customer Surveys, Loyalty Management

i Customer Segmentation: Subdivides markets into discrete customer groups that share similar characteristics in order to develop tailored product offerings or marketing programs. Related topics: Customer Surveys, Factor/Cluster Analysis, Market Segmentation, One-to-One Marketing

29


• Economic Value-Added Analysis: Measures a company’s ability to earn more than its total cost of capital. Provides a framework to assess alternatives for increasing value to shareholders. Related topics: Discounted and Free Cash-Flow Analysis, ROA, ROI, RONA Techniques, Shareholder Value Analysis

• Growth Strategies: Identify and direct resources toward opportunities for profitable growth. Related topics: Adjacency Expansion, Managing Innovation, Market Migration Analysis

• Knowledge Management: Develops systems and processes to capture and share a company’s intellectual assets. Related topics: Groupware, Intellectual Capital Management, Learning Organization, ManagingInnovation

• Loyalty Management: Grows a business’s revenues and profits by improving retention among its customers, employees and investors. Quantifiably links financial results to changes in retention rates. Related topics: Customer and Employee Surveys, Customer Loyalty and Retention, Customer Relationship Management, Revenue Enhancement

30


• Mass Customization: Produces personalized goods and services on a large scale. Encompasses a company’s ability to differentiate a product or service in any way—from distinct branding to unique delivery. Related topics: Build to Order, Cycle Time Reduction, Micromarketing, One-to-One Marketing

i Mission and Vision Statements: Codify definitions of a company’s business, objectives, approach and desired future position. Related topics: Corporate Values Statements, Cultural Transformation, Strategic Planning

i Offshoring: Relocates some of a company’s operations to another country. Related topics: Core Competencies, Cost Migration, Outsourcing

i Open-Market Innovation: Applies the principles of free trade to the marketplace for new ideas, enabling the laws of comparative advantage to drive the efficient allocation of R&D resources.Related topics: Collaborative Innovation, New Product Development, Open Innovation

31


• Outsourcing: Uses third parties to perform noncore business activities. Related topics: Core Capabilities, Strategic Alliances, Value Chain Analysis

• Price Optimization Models: Use mathematical programs to calculate price elasticities, or how demand varies at different price levels, then combine the data with information on costs and inventory levels to recommend prices that will improve profits.Related topics: Demand-Based Management, Pricing Strategy, Revenue Enhancement

• Radio Frequency Identification (RFID): Uses radio waves to identify objects and read data. Related topics: Automatic Identification, Electronic Article Surveillance, Electronic Product Codes, Supply Chain Management

32


• Scenario and Contingency Planning: Involves raising and testing various “what-if” scenarios. Related topics: Crisis Management, Disaster Recovery, Groupthink, Real Options Analysis, Simulation Models

i Six Sigma: Constantly measures and analyzes data on the variables in any process, then use statistical techniques to understand what improvements will drive down defects. Requires the delivery of defect-free products or services 99.9997% of the time. Related topics: Lean Manufacturing, Statistical Process Control, TQM

i Strategic Alliances: Create agreements between firms in which each commits resources to achieve a common set of objectives. Related topics: Corporate Venturing, Joint Ventures, Value-Managed Relationships, Virtual Organizations

33


i Strategic Planning: Involves a comprehensive process for determining what a business should become and how to allocate scarce resources to achieve that objective. Related topics: Core Competencies, Mission and Vision Statements, Scenario and Contingency Planning

i Supply Chain Management: Synchronizes the efforts of multiple parties—suppliers, manufacturers, distributors, dealers and customers—to enable the seamless exchange of information, goods and services across organizational boundaries. Related topics: Borderless Corporation, Collaborative Commerce, Value Chain Analysis

i Total Quality Management: Marries customer performance requirements to product and service specifications with the goal of producing with zero defects. Related topics: Continuous Improvement, Malcolm Baldrige National Quality Award, Quality Assurance, Six Sigma

34

2005 Survey of Management Tools & Trends

All responses will be kept completely confidential and used only in aggregate.

No company names will be linked to specific responses.

If you are a corporate executive, please check this box and provide survey answers related to your corporation as a whole.

If you are a division head, please check this box and provide survey answers related to your division.

I. Use of tools

For this next section, please answer only for those techniques that your company has used in the past five years. Also, in thinking about your satisfaction, consider both the benefits achieved and all costs associated with using each technique.

2. How satisfied was your organization with the overall results achieved through the usage of each technique? Please use the following scale: extremely satisfied, somewhat satisfied, neither satisfied nor dissatisfied, somewhat dissatisfied, or extremely dissatisfied.

II. Overall satisfaction with tools

The purpose of this section is to understand your organization's use of management tools and techniques. To record your answers, please check the appropriate box(es) in the grid below.

1a. Within the last five years (2000-2004), which of the following techniques have been used by your current employer?

1b. In the past year (2004), which of the 25 techniques listed has your organization used? Please indicate whether the technique was not used at all, was used on a limited or trial basis, or was a major organizational effort.

1c. To what extent do you think your organization will use each technique in 2005? Please indicate whether you think it is not likely to be used at all, it will be used on a limited or trial basis, or it will be a major organizational effort. Please note whether or not you have used each technique in the past.

Tools and techniques

Tool usage 2004 Expected 2005 tool usage Satisfaction with tools

Q. 1b Q. 1c Q. 2

(Answer only for those tools used in the past 5 years.)

Not u

sed

at all

Lim

ited

basis

Major

effo

rt

Not l

ikely to

use

at a

ll

Lim

ited

basis

Major

effo

rt

Extre

mely sa

tisfie

dSo

mew

hat s

atisf

ied

Neith

er sat

isfied

nor d

issat

isfied

Som

ewha

t diss

atisf

ied

Extre

mely diss

atisf

ied

Used

in p

ast 5

yea

rs

Q. 1aTool usage

past 5 Years (current employer only)

Balanced Scorecard

Business Process Reengineering

Core Competencies

Customer Segmentation

Economic Value-Added Analysis

Knowledge Management

Mass Customization

Price Optimization Models

Six Sigma

Supply Chain Management

Open-Market Innovation

Offshoring

Activity-Based Management

Benchmarking

Change Management Programs

Customer Relationship Management

Growth Strategies

Loyalty Management

Outsourcing

RFID

Scenario and Contingency Planning

Strategic Alliances

Total Quality Management

Other _______________________

Mission and Vision Statements

Strategic Planning

Strongly agree

Somewhat agree

Neither agree

nor disa

gree

Somewhat disa

gree

Strongly disa

gree

III. Management trendsThe purpose of this section is to understand your organization’s needs and priorities for management tools. There are no right or wrong answers. We are interested in your opinions.

3. How strongly do you agree or disagree with how well each statement describes your organization or your organization's beliefs? Please check the appropriate box to indicate whether you strongly agree...strongly disagree with the statement as a description of your organization.

Acquisitions will be critical to achieving our growth objectives in the next 5 years

Insufficient customer insight is hurting our performance

The job of a CEO is far less attractive than it was 10 years ago

We should focus more on revenue growth and less on cost reductions

Economic cooperation can do more than military battles to reduce terrorism

Our international sales will grow faster than domestic revenues over the next 5 years

We could dramatically boost innovation by collaborating with outsiders, even competitors

Our stated values effectively drive frontline actions, even when no one is looking

When we need to increase profits, we usually cut costs

Offshoring may be politically unpopular, but everyone benefits in the end

We focus on new customers when we should retain and grow our existing ones

We have the capability to effectively manage a global supply chain

Innovation is more important than cost reduction for long-term success

A growing percentage of our products and services behave like commodities

Asset management is as important as cost management to our stock price

New laws on corporate governance are raising costs without improving governance

Information technology can create significant competitive advantages

Excessive complexity is raising our costs and hindering our growth

Our spending on information technology is completely aligned with our business strategy

The hardest thing to merge is culture

Thank you very much for your help with this important project.

• 2004 sales:Less than $600MM$600MM to less than $2B$2B or more

• 2004 assets:Less than $1B$1B to less than $20B$20B or more

4c. What is your title?

4b. Describe the industry your organization is in, both at the corporate level and at the division level, if appropriate.

Corporate:

Division:

4a. Please record your company's basic business statistics under the first column. If you are responsible for a division, record the statistics for that division under the second column.

Corporate Statistics Division Statistics

This section is for classification purposes only. All responses will remain completely confidential and will be used only in aggregate. Please be assured that specific answers will never be attached to individual companies.

IV. Demographics

Please staple a business card or record the information below so that we may send you the results from the survey.

Company name: _____________________________________________

Division: _____________________________________________

Name of respondent:_____________________________________________

Mailing address: _____________________________________________

Zip/Postal code: _____________________________________________

Would you be willing to participate in a follow-up discussion on this topic?

Yes No

Business telephone: _____________________________________________

Country: _____________________________________________

4d.

E-mail address: _____________________________________________

management tools and trends 2005 - bain.com

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