the power to convene - bonchek (c) 2006
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The Firm as a Collaborative
Community
Reconstructing Trust in the
Knowledge Economy
CHARLES HECKSCHER AND PAUL S. ADLER
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13
The Power to Convene:
Creating Collaborative Community with StrategicCustomers
Mark Bonchek and Robert Howard
One of the most powerful forces pushing large business organizations to
experiment with new forms of collaborative community is the desireand
the needto develop closer relations with their customers. This trend is
present across the global economy, but it is especially prominent for a
particular segment of the economy: industries such as information tech-
nology, telecommunications, and business services where companies areproviding technologically complex products and knowledge-intensive
services to other large corporate customers.1
These sectors share some common characteristics. New technologies
and the increasingly rapid diffusion of knowledge are producing a
major business discontinuity, disrupting traditional ways of doing busi-
ness. In particular, companies find themselves called upon to provide
not stand-alone products but complex and often highly customized
end-to-end business solutions. Many of these solutions require a sig-
nificant up-front investment of time and capital, and feature a high
degree of ongoing interdependence between the customer and solution
provider. In such businesses, establishing deep customer relationships is
increasingly critical to success in the marketplace. And this impera-
tive is forcing companies to explore more collaborative kinds of rela-
tionships with key customers than they have typically pursued in the
past.
A case in point, and the focus of this chapter, is the recent effort of
Avaya Inc. to create an Executive Advisory Council consisting of senior
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executives from its most important customers. Avaya is a $4 billion For-
tune 500 company that designs, builds, deploys, and manages business
communications, particularly voice applications such as telephony andcall centers, doing much of its business with other Fortune 500 corpor-
ations. Created in 2000 in a spin-off from Lucent Corporation, Avaya
traces its origins all the way to Western Electric, the equipment arm of
the Bell System. Avaya is a major player in its industry. For example, it is
the leading provider of call-center systems in both Europe and the United
States, with more than 30 per cent of the market, and the worldwide leader
in both automated interactive voice response and voice-messaging sys-
tems. Avaya has been number one in the US private-branch exchange
(PBX) market, and is also taking the lead in the rapidly growing market
for internet protocol (IP) telephony.At the same time, Avaya is experiencing a major transformation in its
traditional business model. Due to its spin-off from Lucent, the company
has gone from being a division of a larger corporation to being a major
company in its own right. This shift has forced it to build an independent
infrastructure in key areas such as sales, marketing, information technol-
ogy, and distribution. Even more important, the technological shift from
PBX to IP telephony is causing customers to demand more integrated
solutions and forcing Avaya to become more agile and more integrated
in how it serves customers. The Executive Advisory Council is an attempt
on the part of the companys senior management both to respond to therapid transformation of its industry and to accelerate its own organiza-
tional transformation.
Our perspective on the Avaya experience, and the broader trend
of which it is a part, comes from our involvement with Tapestry
Networks, a specialized professional services firm that helps organiza-
tions design, orchestrate, and manage senior-executive relationship
networks.2 These networks allow a companys top executives to engage
in trusted dialogues with their peers on issues of mutual interest or prob-
lems of mutual concern. In some cases, the networks that Tapestry helps
create are designed to allow companies to realize the full value of existingrelationships with strategic customers, partners, and suppliers. In other
cases, the goal is to create new networks where they have not existed in the
past. And in still others, the purpose is to bring together diverse players
in an industry in order to address challenges that none can address on
its own.
Although the networks created by Tapestry come from diverse sectors of
the economy and have different purposes, they all have two things in
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common. First, like Avaya, the sponsors are market leaders. They possess
what Tapestry calls the power to convenei.e. the ability to bring to-
gether the key players in an industry and define shared interests and goalsin a way that can have a decisive impact on the performance of the
member companies and on the market as a whole. Second, like the
Avaya Executive Advisory Council, the relationship networks are leader-
to-leader networks, consisting of individuals at the senior-most levels of
their respective organizations. In both respects, Tapestrys relationship
networks represent an interesting laboratory for collaborative, trust-
based modes of leadership and models of business community.
Avayas experience is only one example. Still, we think it is illustrative of
a far broader trend. A key theme of the recent literature on industrial
organization has been the growing centrality of so-called inter-firm net-works.3 Such networks raise important questions for scholars and senior
executives alike. What is the role of the senior executive in a more fluid
and more networked economy? How do the leaders of major business
organizations exercise their leadership in an environment where, argu-
ably, many of the most important business relationships exist outside the
organization he or she leads? What kinds of behavior are most appropriate
in organizational settings where traditional models of command and
control, on the one hand, and market-oriented transactional relation-
ships, on the other, are either irrelevant or incomplete?
The rich literature on inter-firm networks is not much help in answer-ing these questions. Most descriptions of interfirm networks tend to
focus on the interactions on the front line of organizations.4 To the
degree that much of the most recent literature on networks is influenced
by complexity theory and focuses on phenomena of emergence and
self-organization, there is a tendency to underestimate, and sometimes
even dismiss, the role of senior executives.5 Although there is an emer-
ging theoretical literature (of which this volume is an important part) on
the complex organizational dynamics of interfirm networks, for the most
part this work still awaits its concrete application in management
practice.6
In the pages that follow, we will use Avayas experience as a case study to
explore the emerging managerial disciplines of the networked economy.
We begin by exploring some of the trends in the business world that are
making customer collaboration not just desirable but absolutely critical
for companies like Avaya. We then turn to a detailed description of the
Avaya Executive Advisory Council, which we analyze in terms of some of
the theoretical concepts introduced in other chapters in this volume:
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specifically, Adler and Heckschers three-part model of collaborative com-
munity and Sabels concept of the pragmatic organization. Next, we
consider some of the limits of the advisory council model at Avaya andhow the company is trying to manage the tensions inherent to it. Finally,
we conclude by discussing the potential generalizability of the model to
other key stakeholders both within organizations and across inter-firm
networks.
To anticipate our conclusion here at the beginning: we believe that
even as inter-firm networks become an increasingly important part of
the economy, the organizations participating in these networks remain,
in important respects, traditional hierarchies. And, in an economy that is
becoming a network of hierarchies, there is unique leverage in bringing
together the senior-most people from organizations across the network.But the way executives function and behave in such networks is funda-
mentally different from the way they behave in traditional hierarchies
less transactional, and more collaborative. In helping to lay the foun-
dations of collaborative community at the senior-most levels of its cus-
tomer networks, Avaya is laying the groundwork of an institutional and
managerial infrastructure for the networked economy. And its advisory
council model is an important new mechanism of strategy formulation,
through which business organizations are, as Sabel explains, applying
the core principle of iterated co-design to the choice of strategy or goals
itself.7
The strategic logic of customer collaboration
Of course, efforts on the part of corporations to get closer to the customer
are anything but new. From the quality movements early focus on the
voice of the customer in the 1980s, to the more recent emphasis on
programs and systems for customer relationship management, the
importance of developing closer relationships with customers has been a
persistent theme of the strategy literature for nearly thirty years. In thepast decade, however, three trends in particular have highlighted the
critical importance of building trust and fostering collaboration with
strategic customers in complex knowledge-intensive businesses.
The new economics of relationships. Since the early 1990s, a growing
literature has demonstrated that building stronger and deeper customer
relationships has powerful economic benefits. The early work of Earl Sasser
and Frederick Reicheld of the Harvard Business School argued that profit-
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ability isnt driven by market share (the prevailing assumption of much of
the early strategy literature) but by customer loyalty.8 In his subsequent
work on loyalty at Bain & Company, Reicheld observed that across a widerange of industries, a 5 per cent improvement in customer retention rates
will yield anywhere from 25 to 100 per cent increase in profits.9 He argued
that increased customer retention led to a variety of beneficial effects,
including a customer volume effect in which increased loyalty leads to
the growth of the firms customer inventory, and a profit-per-customer
effect in which the profit earned from each individual customer grows as
the customer stays with the company.10
This and other research gave birth to a cluster of new business concepts,
variously described as customer life-cycle economics, lifetime value of
the customer, customer equity, loyalty economics, etc.11 It has alsocontributed to a shift in mindset on the part of at least some execu-
tivesfrom a situation where, as Reicheld described it in his book, firms
overvalue transactions and undervalue relationships to a new awareness
of customer relationships as an important financial asset to be managed.12
And yet, the evidence seems to suggest that for all the focus on customer
loyalty, many companies have yet to achieve it. In a 2002 survey of more
than 2,200 information-technology buyers at major corporations, for ex-
ample, more than 80 per cent said they were satisfied with their technol-
ogy vendorsbut less than half described themselves as truly loyal, i.e.
predisposed to place their next order with the same company.13
The shift from products to solutions. A second important trend under-
lying the growing economic importance of deep customer relationships is
the shift in many industries from products to solutions. In a wide
variety of businesses, the product is increasingly something that is
co-created with customers.14 This trend takes many different forms.
One example is the increasing service component in even the most trad-
itional manufacturing products.15 And in complex technology-driven in-
dustries such as information technology and telecommunications,
customers are demanding that companies provide not stand-alone prod-
ucts but integrated business solutions.16
Increasingly, most of the value isin the solution, not in the (increasingly commoditized) product.
When companies provide solutions, the quality of their relationships
with leading customers becomes central to competitive success. In the
new world of manufacturing, write Richard Wise and Peter Baumgartner
of Mercer Management Consulting, the sturdiest barrier to competition
is customer allegiance. The goal is not necessarily to gain the largest
share of customers but to gain the strongest relationships with the most
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profitable customers.17 What Arnoldo Hax and Dean Wilde have termed
customer bonding allows companies to better anticipate customer
needs and work jointly to develop new products.18
To succeed at customer bonding, however, presents new organizational
challenges. Sales personnel on the front line of the customer relationship
need to learn how to operate, in effect, more like consultants.19 They must
coordinate the many aspects of the customer offering, providing a cus-
tomized bundle of not only technical but also business services. In the
process, they are called upon to exhibit what, in a different context,
Michael Useem and Joseph Harder have termed lateral leadership20in
particular, orchestrating a broader array of more complicated relation-
ships, with their customers certainly (in order to understand their business
needs) but also with suppliers (who are often the most knowledgeableabout the latest technology solutions) and even with their colleagues
around the world (who may have already encountered a particular busi-
ness problem and devised an effective solution for it that the salesperson
can borrow).
Customer bonding also poses major challenges for senior executives.
Increasingly, a companys most important strategic relationships are out-
side the firm. It is people outside the company who have the knowledge or
experience a company needs to understand where the market is going and
whom a company has to influence in order to shape the evolution of the
market. As strategy consultant James Moore put it in his 1996 book TheDeath of Competition: Leadership and Strategy in the Age of Business Ecosys-
tems, in the new networked environment, the job of . . . top management
is to seek out potential centers of innovation where, by orchestrating the
contributions of a network of players, they can bring powerful benefits to
bear for customers and producers alike.21
The transformation of strategy in an era of discontinuity. These changes put
the development of close customer relationships at the center of sales and
marketing for many companies. A final meta-change puts it at the center
of business strategy as well. As companies struggle with major discontinu-
ities due to technological change, deregulation, globalization, and otherfactors, what were once relatively stable businesses have become more
fluid. Traditional strategic contexts are disrupted. There is a sharp increase
in uncertaintyand, therefore, the need for timely and accurate know-
ledge about customers, competitors, new technologies, market trends, etc.
In this respect, a companys external relationships are becoming a key
knowledge assetbut involving a fundamentally different type of know-
ledge than in the past. In a less complex and more certain business
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One legacy of its origin in the quasi-monopolistic Bell System was an
uncompetitive cost structure. Since its founding, Avaya has had to reduce
its workforce by some 7,000 employees to bring its costs into line withrivals in what has become a more competitive business environment. And
the majority of its revenues come from traditional product lines such as
PBX maintenance and voice messaging, where growth has flattened and
where commoditization has put margins under pressure.
At the same time, Avayas business is confronting a major technological
discontinuity. With the growing convergence of communications with
computing, new technologies like internet protocol (IP) telephony are
providing Avayas customers with new options for organizing their in-
ternal communications networks. On the one hand, these technological
changes provide Avaya with an opportunity to participate in promisingnew high-growth markets. Over the next decade, more than a hundred
million phone lines are likely to move to IP telephony.
On the other hand, the convergence of telecommunications and com-
puting has exposed the company to new competitors. In addition to
traditional telecom rivals such as Nortel Networks, for example, Avaya
now competes regularly with Cisco Systems and other companies that
are trying to leverage their expertise in data networks to get into commu-
nications through the provision of so-called voice over internet protocol
(VoIP) networks. Perhaps most important, to succeed in these new mar-
kets, Avaya must migrate from being primarily a product and technologycompany to become a solutions company that provides customers with an
integrated communications capability encompassing hardware, software,
and services.
Parallel to the technological transformation in Avayas business is a
transformation in the relationships that matter with Avayas customers.
Traditionally, the companys account teams have developed good relation-
ships with the telephony organizations at Avayas customers. But with
convergence, selling to the telephony organization is no longer good
enough. Avaya has had to develop a whole new set of relationships inside
its customers IT organizations.Even more important, the buying decision for complex communications
networks has steadily migrated to more senior levels in the customer organ-
ization. Because telephony was neverconsidereda strategiccapability (with
the possible exception of call centers), Avayas relationships were not very
senior, usually at the director level. But as intelligent communications
networks become a critical component of a companys key business
processes and as the decisions about what kind of networks to buy
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and how to configure them become more complex and require increas-
ingly bigger bets, buying decisions are being made by more senior man-
agement.In one of the paradoxes of the networked economy, decision making is
becoming increasingly centralized even as organizations are becoming
increasingly distributed. Companies are focusing on a few critical stra-
tegic suppliers. Suddenly, Avaya finds itself having to influence decisions
at the very top of its customers IT organizations. And yet, until recently,
the company has had few strong relationships with its customers chief
information officers (CIOs).
All these changesfrom a regulated business environment to a highly
competitive environment, from products to solutions, from the voice
organization to the IT organization, from mid-level relationships tosenior-management relationshipstake Avaya out of its traditional com-
fort zone. To begin to address those challenges, in 2002 Avaya CEO Donald
K. Peterson proposed the creation of an Executive Advisory Council con-
sisting of CIOs from some of the companys most important customers.
Petersons vision for the council was simple: to develop more personal and
more strategic relationships with leading executives at its top customers in
order to inform them of Avayas innovation and thought leadership and to
bring the voice of the customer inside Avaya.
In the fall of 2002, Avaya hired Tapestry Networks to help shape the
agenda and orchestrate the meetings of the council. As of October 2004,the advisory council has met for three major one-to-two-day meetings,
with occasional teleconferences on specific issues conducted in between.
In the little more than a year that the council has been in existence, it has
had a major impact on the evolution of Avayas strategy, been a catalyst for
the creation of two additional executive relationship networks at the com-
pany (one focused on customer contact centers and the other focused
on communications security in government agencies), and led Avaya to
establish a full-fledged executive relationship management program to
extend the reach of the councils by building relationships with a broader
range of customers and disseminating Avayas ideas and innovations to awide audience.
But for the purposes of this chapter, Avayas Executive Advisory Council
may be most interesting as an illustration of how new forms of collabora-
tive community are taking shape at the senior-most levels of business
organizations. It is to that story that we now turn.
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Defining the shared journey: design rules forcollaborative community
In Chapter 1 of this book, Adler and Heckscher propose a three-part model
to characterize the new form of community that they see emerging in
modern business organizations: a shared ethic of contribution to ensure
reciprocity and shared value in the relationship; formalized norms of
interdependent process management to coordinate activities in the ab-
sence of hierarchy; and an interactive social character that encourages
individuals to look for opportunities to collaborate.28
The first part of the model concerns how these new collaborative com-
munities conceive of value. Unlike traditional loyalty-based organiza-
tions, Adler and Heckscher argue, the new form of community is foundedon an ethic of value contribution or a commitment on the part of all its
members to contribute to the collective value of the group and to the
mutual success of all its members. But unlike the stability of the traditional
loyalty model, this commitment is highly provisional, informed by a
continuous calculation as to whether the community is providing enough
value to make it worthwhile to keep participating. Maintaining this deli-
cate balance requires the capacity to understand the concrete interests and
identities of others in a collaborative relationship.29
The designers of Avayas Executive Advisory Council faced this chal-
lenge from the outset. Company executives were convinced that it wasimperative for Avaya to forge closer bonds with senior customer execu-
tives. But it was not self-evident that the executives themselves would
participate. Many of the target CIOs they hoped to attract had only a
cursory understanding of Avaya and its strategy. They were not aware of
how Avaya had overcome the financial challenges created by the spin-out
or that it possessed differentiation and capability that would distinguish it
in the fast-evolving world of enterprise communications. How to persuade
busy executives that participating in the council would be worth their
effort and their time?
To address this question, council organizers developed a three-part valueproposition that they described as the shared journey. First, the council
would be about learning, not selling. Although the CIOs that Avaya was
hoping to attract were key influencers in the buying process, they were
often not direct buyers themselves. Whats more, they tended to be less
interested in product-focused marketing pitches than in a strategic dia-
logue about market trends and the ways the technology could be used
to create business value. Organizers understood that before they could
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credibly sell to the CIOs, they needed to establish share of mind first. So,
they made clear that the council would be an opportunity for the CIOs to
gain insight into where the market was going at a time of major uncer-tainty and change for everyone, and also a chance to get to know Avayas
senior management team (and, implicitly, assess for themselves whether
they were a real player in the emerging new business of converged com-
munications).
A key part of this mutual learning was what organizers called reciprocal
valuethe idea that there would be as much, if not more, value for
participants in learning from each other as in learning from Avaya. The
council would be an occasion for participants to share best practices,
problems, and issues. And participants from the customer organizations
would play a lead role in shaping the agenda and determining what thecouncil would address. The commitment to reciprocal value was embed-
ded in the design of council meetings. For example, all participants were
interviewed before each meeting to understand what they hoped to get
out of it and to gather input on the agenda. No more than one half of
participants at any meeting would be from Avaya. Participants would be
encouraged to present on their own experiences, initiatives, and business
problems.
Finally, and most important, the council would be an occasion for the
customer executives to participate in a real-time strategic dialogue that
would help shape Avayas emerging strategy. Avayas leaders wanted thecouncil to be a basic input into their strategy-making process. And they
were determined to make the meetings action orientedto listen and
then change direction based on the input they received. Finally, from
the beginning, they recognized that they would need to hold themselves
accountable to the council. As a sign of its commitment to the strategic
dialogue, the companys entire senior-management team, including Peter-
son, two group vice presidents, the CIO, the head of strategy and technol-
ogy, and the head of sales and marketing, committed to attending every
council meeting.
This delicate balance between Avayas goals and those of its targetparticipants raises the question, Who owns the network? Who decides
what it will address at any particular moment in time? The answer is clear:
Avaya as the sponsor of the network and the institution that pays the bills
is the owner and, in the end, decides what it will and will not support. This
has the advantage of avoiding the typical dynamics one often sees in inter-
firm networks which can disintegrate into factionalism, coalition build-
ing, and politicization. By the same token, participants in the council can
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always vote with their feet by not attending a meeting or leaving the
council, so it is incumbent on Avaya to make sure that the networks focus
remains of direct interest to a broad enough subset of its members. Thisserves to keep the network squarely focused on value.
The second dimension of Adler and Heckschers model of collaborative
community is interactive process management or norms and rules gov-
erning relations among peers. These norms are ways of structuring how
people relate to each other, and how sanctions are applied when they
deviate. Creating such norms requires, on the one hand, understand-
ingi.e. helping participants to grasp the logic and sympathize with
the feelings of other actors by putting them in their shoes. On the
other hand, it requires commitment, or the ability of members to count
on future acts in a situation where such commitment does not followautomatically from the formal structure of the status order.30
In the Avaya Executive Council, perhaps the most important structural
norm concerns the strict definition of who doesand does notconsti-
tute a peer. The organizers were convinced that, in order for the council
to work, the participating companies needed to be comparable in terms of
their scale and scope and strategic importance to Avaya. Even more im-
portant, the individuals involved had to be at the same executive level in
their organizationsi.e. CIOs or their equivalent in seniority, responsibil-
ity, and scope of managerial challenges.
This peers-only rule was not so much an issue of status, as one mightexpect in a more traditional hierarchical organization. Rather, it was more
a matter of context. In order to stimulate the kind of discussions Avaya
wanted, it was essential that participants be working on the same kind of
problems and face the same day-to-day issues and challenges. They also
needed to share a strategic perspectiveto be passionate not so much
about the technology itself but about its potential to create business
value. Only if participants shared a similar mindset and the same level of
risk would they be likely to speak freely and engage in the kind of frank
exchange of views that was a prerequisite to delivering on the councils
potential value.Another structural norm that council organizers emphasized was profes-
sional intimacy. In effect, they wanted to give the council the look and feel
of a membership club, a club in which Avayas target audience would feel
comfortable and privileged. Membership would be kept small: only fifteen
to twenty customer executives. The venues for council meetings would be
selected to reinforce this sense of membership and professional intimacy.
Working sessions would be designed to maximize discussion over presen-
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tation, with expert facilitation and the latest technologies for real-time
anonymous polling. Time would be set aside for informal social inter-
action in the evenings. Finally, all communications about council pro-ceedings would be governed by the Chatham House rule, which specifies
that the membership of the council is kept private and, although lessons
and insights may be freely shared, no comments can be attributed to
specific individuals or company identities be disclosed.
Its easy to characterizeand perhaps dismisssuch details as mere
event planning. And yet, in many respects, they are essential to creating
the necessary context of confidentiality and trust so that the right inter-
actions emerge. Think of them as elements of an interaction infrastruc-
ture designed to encourage real conversation and a frank exchange of
views.The third and final element of Adler and Heckschers model is the
emergence of what Maccoby calls a new interactive social character, or
a personality structure that values more collaborative forms of interaction
over more traditional interaction styles elicited by bureaucratic or hier-
archical organizations.31 At Avaya, there was a strong focus on the type of
behaviors that would make the council successful and how they differed
from the default behaviors that managers typically bring to exchanges
with customers. For example, in order to create a true strategic dialogue,
Avaya executives understood that they would have to behave differently
than most executives do in their interactions with customers. Instead ofmaking decisions about strategy and then announcing them, they wanted
to bring these strategic partners into the dialogue on certain decisions and
solicit their input and counsel. Executives talked about developing an
open mindset about the meetings and putting their strategic assump-
tions on the table for real-time reactions and review from their chief
customers.
To promote interactive dialogue, the company has provided consider-
able preparation for those Avaya executives who participate in council
events. One member of the design team describes the message to execu-
tives this way: In general, you will learn more by asking questions andlistening to what customers have to say than by explaining or defending
your own point of view. Before you say something, first ask yourself: Is
what I have to say more important than what I can learn from the cus-
tomers here? If so, then by all means say it. But choose your shots
carefully. Based on our experience to date, we would say that while
some individuals do take to the collaborative style of council interactions
more readily than others (and a few have never really been comfortable
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with it at all), the right context and coaching can go a long way toward
eliciting collaborative interactions.
Strategy as iterative co-design
The evolution of the dialogue in the Executive Advisory Council is
a striking example in the domain of strategy of the kind of iterative
co-design that Sabel describes as characteristic of pragmatic organiza-
tions. Indeed, during council meetings participants engage in something
akin to what Sabel describes as metaphoric benchmarkingin which
deliberation about a given problem or challenge produces something
like a provisional taxonomy or map of accessible solution strategies inrelation to each other. In such a process, he goes on to explain, the
revision of categories is a desirable and expected outcome, not a failure
of intelligence.32
At the first meeting of the council in June 2003, Avaya executives
described their high-level vision of the technological shift transforming
enterprise communications. They emphasized the many opportunities
made possible by what they called converged communications and put
a critical question on the table. Would companies first build the techno-
logical infrastructure to enable converged communications, and then
find specific applications to take advantage of it? Or would theyfocus first on new applications in order to justify the investment in the
infrastructure?
The CIOs were clear. Given the downturn in the world economy and the
cost pressures that many companies were facing, the days when com-
panies would invest in new technological infrastructure because of its
long-term potential were over. As one participant explained, technology
providers like Avaya needed to understand that IT itself was in the cross-
hairs. The only investments that were being approved were those associ-
ated with specific business applications that had a near-term return on
investment. What really mattered was not infrastructure push butapplications pull. Avayas proposals to its customers would need to dem-
onstrate a business case with immediate financial payoff. Promises of new
capabilities and long-term revenue growth, long the cornerstone of
typical infrastructure proposals, had become less important, merely nice
to have.
On some level, Avayas executives already knew that applications and
near-term returns were importantbut they had not realized how import-
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ant. The frank feedback from senior executives at major customers had a
way of concentrating the mind and producing a new degree of alignment
around tangible action. Avayas senior team came away from the firstmeeting realizing that they had to tackle the business case and applica-
tions issues directly. They also now had critical ammunition, in the form
of direct testimony from leading customers, to drive the internal changes
necessary in order to make these adjustments.
By the time of the second meeting of the Executive Advisory Council
in December 2003, Avayas senior team had some concrete changes to
announce. The company had added an applications group to start focus-
ing on critical business applications, and had identified three key areas of
focus: branch offices, customer contact centers, and mobile workers. The
sales and service organizations had also redoubled their efforts to demon-strate near-term cost savings, in addition to long-term revenue growth.
Whats more, the company had purchased a professional services com-
pany to improve its capabilities in providing business solutions.
The new plans were a major step forward, but in the discussion at the
December 2003 meeting, council members identified additional weak-
nesses in Avayas strategy. The new applications group was an improve-
ment, they said, but the company in general was still too focused on
technology and not enough on business value. Even the domains chosen
for applications development were fundamentally based on technologies,
rather than starting from a clear understanding of business needs. Yourestill selling us technical solutions and not asking us about our business
problems, said one participant.
Whats more, although the company had begun to talk about integrated
solutions, its own organizational structure was not integrated. There was a
separate products group and services group, each with its own sales,
marketing, and product development (the new applications unit was
located in the product group). Avaya was still organized in product silos
with no single face to the customer. As one participant put it, I want one
global throat to choke.
The December meeting was a tough one for the Avaya participants. Thereactions of the customer members served to blow up some key strategic
assumptions about how well Avaya was articulating a compelling value
proposition to CIOs and how well Avaya was organized to bring solutions
to the marketplace. But to their credit, the Avaya executives were able to
listen and to engage with the criticisms. This openness made an impres-
sion. The way in which Avaya listens to customers says a lot about Avaya
as a company, said one participant. I had some concerns about a product
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company trying to become a services company, said another, but Im
impressed with the degree to which Avaya listens and have seen evidence
of movement since last time. Celebrate this progress.Coming out of the second meeting, Avaya took two major steps. First, it
reorganized all its go-to-market activities under a single leader. In effect, the
company created a customer-facing sales, channels, and marketing organ-
ization to bring products and services to market. To head this new organiza-
tion, the company called on its former head of services, who had been hired
from IBM and had helped lead that companys transition from a product
organization to a more solutions-oriented company. One of his first actions
was to thoroughly re-examine Avayas global value proposition. With the
assistance of a leading consulting company, Avaya conducted over one
hundred interviews in a thorough re-examination of its go-to-market strat-egy. The result was a more compelling set of messages and value proposi-
tions, a more streamlined model for channel distribution, and a more
strategic sales organization focused on targeted segments and verticals.
The third of the Executive Advisory Councils meetings took place in
May 2004. Avaya presented its new go-to-market strategy and new organ-
ization, and elaborated on its evolving vision. What converged commu-
nications was really all about, from a business perspective, company
executives now explained, was the ability to draw people more seamlessly
into a companys business processes, through the automatic provision of
information at just the right moment.The company called this development communications-enabled busi-
ness processes. In manufacturing, for example, exceptions in the manu-
facturing process could automatically trigger notifications to those with
the authority and expertise to remedy the situation. In financial services, a
major change in a companys stock price could automatically trigger the
communications system at a brokerage firm to locate and notify investors
whose portfolios had been affected. The systems would contact investors
through their medium of choice, ask if they would like to speak to their
broker, and immediately arrange a conference callall without any
human intervention. In general, such communications-enabled processesremove the delays that result from people trying to connect with each
other or gather required information.
On the one hand, participants strongly confirmed that Avayas customer
strategy was on the right track. On the other, they became engaged in an
animated discussion about what communications-enabled business pro-
cesses would mean for them. Two critical insights, one for Avaya, one for
its customers, emerged from this discussion.
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First, despite all the talk about the convergence of voice and data net-
works, some of the companies present, among them some of Avayas most
technologically sophisticated customers, were not really running theirvoice communications over their data networks. Rather, they were creating
separate IP voice and IP data networks. This contradicted the conventional
wisdom that the value of IP telephony was in the ability of companies to
create low-cost multifunctional networks. These companies were willing to
incur the extra cost of multiple networks because of the value they could
derive from more applications-specific network designs. Dont talk about
converged networks, said one participant. Talk about converged communi-
cations. Such comments, coming from leading-edge customers, suggested
an emerging market trend that had the potential of playing directly to
Avayas strength in the market, i.e. its deep expertise in voice-specific appli-cations and networks (and of differentiating Avaya from its primary com-
petitor, Cisco, whose strength is in the world of hardware and data).
At the same time, Avayas vision of communications-enabled business
processes got the CIOs thinking of all the ways they could use the technolo-
gies to, as one participant put it, take human latency out of our business
processes. In effect, the new systems had the potential to radically reduce
the transaction costs of collaboration. This changes everything, said one
participant. The group began to explore the implications of this change for
their current business models. A focus of the next council meeting will be to
explore these implications across a variety of core business processes.As the evolution of the advisory council dialogue suggests, the councils
deliberations have helped bring Avaya and its customers closer to each
other and to the marketplace. Council proceedings have, in effect, become
an arbiter for prioritizing issues inside the company and making decisions
about strategy and positioning. Internal discussions are informed in a
direct way by the viewpoints and reactions of some of the companys
leading customers. At the same time, the council has allowed Avaya to
educate its customers and influence the way they think about their busi-
ness, their use of technology, and the value of Avaya not only as a solution
provider but also as a trusted adviser.
Tensions in the model
Like any emerging institutional form, the advisory-council model has
some inherent tensions and limitations. There are three, in particular,
that Avaya has had to manage carefully.
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Balancing learning and selling.For all the focus on mutual learning in
the advisory council, Avaya remains, of course, a commercial organiza-
tion. How to maintain the integrity of the council process while stillleveraging the new relationships being developed for commercial ends?
The organizers of the council program have found that they have to
actively manage the boundary between learning and selling. As soon as
the Executive Advisory Council became active, for example, organizers
received numerous requests from account teams for access to the partici-
pating customer executives and for information from council proceedings
about their accounts. It was only natural that Avaya account teams sought
greater access to the senior-level individuals that were joining the council.
But council planners had to carefully protect the companys budding new
CIO relationships. For example, while each individual account teamknows that its customer CIO is participating, the complete list of partici-
pating individuals and companies remains confidential.
The irony, of course, is that the more the deliberations of the council
have focused on mutual learning, the more Avaya has created the condi-
tions of trust that ultimately allow it to sell in the new telecom environ-
ment. Heres how one Avaya executive involved in the council describes
this evolution:
After the first meeting of the council, a participant told me, the worst
thing you could have done was to sell to us. You didnt. I knew we were on
the right track. Then, after the second meeting, someone said, you know,you could sell to us more. At first, I was confused. But then I realized that
they were really starting to trust us enough to give us permission to sell.
At the limit, genuine learning turns out to be the best way to sell.
Another Avaya executive described an event at the first meeting of the
Customer Contact Council, a spin-off of the initial Executive Advisory
Council that focuses on the specific issues facing call centers (the Cus-
tomer Contact Council is described in more detail on p. 532 below). A
participant said, this is the first time Ive sat in an Avaya meeting where
you didnt talk about your products. You talked about my business. Then,
after a presentation on IP telephony, the executive made a call to hismanagement team to ask them to develop a comprehensive plan for
implementing IP telephony in their business. Our account team had
been urging them to do that for eight months, the Avaya executive
reflected. He made it happen after one day.
As the council evolves, Avaya has also taken steps internally to make sure
there is a constructive relationship between learning and selling and to
creatively leverage its new senior-level relationships in its day-to-day busi-
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ness interactions with its customers. For example, the company has created
an executive sponsor program which matches each of the Avaya senior
executives participating in the Executive Advisory Council with an Avayaaccount team responsible for the customer organization participating in
the council. These executive sponsors serve as a source of strategic advice to
the account teams and also function as an escalation path to help resolve
any problems that emerge in the customer relationship. In this way, Avaya
is trying to leverage the relationships that executives have developed in the
council in their day-to-day business interactions outside the council.
Managing the trade-off between intimacy and reach. The Executive Ad-
visory Council is designed to maximize the intimacy of exchanges
among members. But this intimacy comes at the cost of limited reach.
As important as it has become for Avaya to have an advisory council inwhich senior executives from some of its key customers weigh in on the
future strategic direction of the company, there are still many other cus-
tomers that, by definition, the council cannot reach.
To reach that broader audience, Avaya is working with Tapestry to
develop a far broader and more systematic program for executive rela-
tionship management that reaches far beyond the initial participants in
the Executive Advisory Council. The company has appointed a dedicated
staff to lead the program and is looking to institutionalize connections
between the new program and other business functions, including sales,
marketing, R&D, and corporate strategy.For example, Avaya has recently explored ways to allow a broader num-
ber of CIOs at customer organizations to benefit from the networked
interactions of the council. The company is currently considering creating
a program for CIOs who would not have the hands-on advisory role that
the council has but would nevertheless have access to the learning coming
out of the councils interactions. Of course, the more executives the Avaya
program reaches, the more likely that its initiatives will resemble trad-
itional broadcast marketing, rather than the participatory co-design and
dialogue that defines the advisory council itself. This suggests an interest-
ing new segmentation of the companys customer base, based in part onthe capacity of a customer to contribute to Avayas own learning and
strategic development.
A nested hierarchy of networks. A potential limitation of Avayas strict
focus on peer networks is to exclude those critical issues that emerge in
interactions up and down the hierarchy in the participating business
organizations. After all, one of the major lessons of the new industrial
organization has been the value of working collaboratively across levels
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and creating new kinds of collaboration up and down the traditional
hierarchy.33 Doesnt the decision to limit participation in the advisory
council to peers automatically limit the potential reach of the councilmodel and undermine its effectiveness as a model for collaboration and
community? Put another way, is Avayas success at inter-firm collabor-
ation with customers at the senior-most level inadvertently creating a
collaboration gap inside the firm itself?
So far, the company has created two mechanisms to ensure that the
strategic shift defined in the Executive Advisory Council is translated into
action on the front lines of the companys business. The mechanism inside
Avaya is the executive sponsorship program described above. By placing a
senior Avaya executive into the communications flow of a major customer
account team, the program creates a new opportunity for customer-focused interaction between account teams and the companys senior
leadership.
The mechanism for Avayas customers is the creation of similar peer
networks at different levels of the organizational hierarchy. For example,
early in the deliberations of the Executive Advisory Council, a number of
participants spoke about the value of getting their direct reports involved
in the conversation. In the words of one, dont assume that my direct
reports get this. After considerable discussion and a careful search for a
focus that would attract broad interest and justify the investment, Avaya
created a Customer Contact Council to focus on the challenges of design-ing and managing customer contact centers.
Like the Executive Advisory Council, the Customer Contact Council is a
peers-only network. But unlike the advisory council, the peers in question
are one step down in their respective organizations: vice presidents or
senior vice presidents, about half from customer IT organizations with
responsibility for contact center technology, the other half from customer
business units and responsible for actually running centers. Companies
participating in the Executive Advisory Council make up about a quarter
of the companies participating in the Customer Contact Council. And in
some cases, the CIOs at these companies have selected the actual individ-uals who participate.
The creation of the Customer Contact Council, as well as the recent
creation of yet another network focused on Avayas business in the public
sector, suggests an intriguing model. It may well be that in an economy
that is increasingly a network of hierarchies, a key design element of
the pragmatic organization will be a hierarchy of networksi.e. a port-
folio of loosely coupled networks at various organizational levels with
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different but related areas of focus. Of course, precisely how these net-
works interact with each other and what characterizes the flow of infor-
mation among them is a critical question for the future.It is too early to tell what impact either of these innovations will have on
Avayas own organization. It is possible that the success of external net-
works with customers will generate new best practices for more participa-
tory forms of collaboration inside the company as well.
Generalizing from the Avaya model
How generalizable is the Avaya model of collaborative leader-to-leader
executive networks? The experience of Tapestry Networks to date suggeststhat the basic approach can be adapted to a relatively wide variety of
business issues, organizational settings, and stakeholder groups.
As we have already discussed, at Avaya itself the model has spread from
the Executive Advisory Council and the Customer Contact Council to a
new initiative known as the Federal Government Leadership Forum. The
forum, whose members include the CIOs of federal government agencies
and the leaders of the public-sector practices at the largest IT solution
providers, seeks to improve publicprivate partnership in the area of
assured communications for homeland security.
Tapestry has also advised the Society of Thoracic Surgeons on the cre-ation of multi-stakeholder forums to address the future of cardiac sur-
gery.34 It has helped the accounting firm Ernst & Young create a network
consisting of the chairs of audit committees from the board of directors of
leading corporations, in order to identify best practices for improving
corporate governance. And it has created a network in the private-equity
sector to address operational issues having to do with growth and succes-
sion planning.
Although these networks have different structures and different goals,
we can recognize an emerging pattern of critical success factors that
applies to all of them, specifically:
. A set ofstakeholder relationships vital to the sponsoring company;
. A sponsor important enough to possess the power to convene this
stakeholder group;
. Shared strategic issues that confront, with some degree of urgency, both
the sponsor and the stakeholderstypically relating to market disrup-
tion, regulatory change, or new competitive forces;
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. The potential for the network to produce tangible benefits to the spon-
sor and to individual stakeholders;
. The potential for the network to produce clear public benefits beyondthe specific interests of individual members; and finally
. A group of committed senior executives and leaders who, as peers, can
make change happen.
Of course, leader-to-leader networks are not the only form of collaborative
community in the modern business organization. But as the Avaya case
suggests, it is likely to become an especially useful, and therefore popular,
organizational alternativeespecially for companies whose technologic-
ally complex products and knowledge-intensive services require investing
in collaborative relationships with customers. For such companies, the
power to convene is fast becoming an essential aspect of the power to
compete.
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Notes
1. According to one estimate, knowledge-intensive business services contributeroughly 30% of the total value-added from services in the United States and
United Kingdom. See Bettercourt et al. (2002: 100).
2. Bonchek is managing director of Tapestry and chief consultant to the Avaya
executive relationship management program described in this chapter.
Howard is an independent consultant and has conducted interviews with
Tapestry personnel, Avaya executives, and Advisory Council members for this
chapter.
3. The literature on inter-firm networks is extensive. Four lines of research are
worth noting here: Charles Sabels early work has emphasized the surprising
persistence (at least, from the perspective of the traditional paradigm of the
vertically integrated corporation) and ongoing strategic relevance of decentral-ized networks of firms in industrial districts. (See Sabel (1982); Piore and Sabel
(1984).) Subsequent work has highlighted the importance of the network
model in cutting-edge new industries such as computing and biotechnology.
See for example Saxenian (1994); Powell et al. (1999). Other researchers have
pointed out the increasing centrality of the network model even in traditional
vertically integrated industries such as the auto industry. For example, a recent
article argues that Toyotas network-based model of supplier relations has been
central to the firms success in the global auto industry; see Dyer and Hatch
(2004). Finally, some prominent business academics have argued that regional
networks of firms can be a distinctive source of competitive advantage. In
particular, see Porter (1998a, 1998b).4. See for example the interesting description of the interactions between sales-
people and customers in the fledgling PBX market in Lane and Maxfield (1997:
16998).
5. For a review of this tendency and an interesting contrary view, see Hout (1999).
6. See, in particular, Sabel (1993, 1995); and Chapter 2 in this volume.
7. Sabel, Chapter 2, p.134 et passim.
8. See Reicheld and Sasser (1990).
9. See Reicheld (1996).
10. Reicheld (1996). Some researchers have challenged the universality of this
relationship. See Reinartz and Kumar (2000).
11. More recently, researchers have extended the concept of customer lifetimevalue to the arena of financial valuation. For example, one recent working
paper argues that customer value is a useful metric to assess the overall value of
a firm. The authors found that improving customer retention by 1% is likely to
improve customer and firm value by 3 to 7% and has almost five times greater
impact than a 1% improvement in the discount rate of capital. See Gupta et al.
(2003).
12. Reicheld (1993: 50).
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13. See Robert Weisman, Quality products alone wont retain customers, Boston
Globe, (8 Aug. 2004), E2.
14. See Bettencourt et al. (2002).15. According to one estimate, in many manufacturing sectors, revenues from
downstream activities now represent ten to thirty times the annual dollar
volume of the underlying product sales. See Wise and Baumgartner (1999:
134).
16. On the competitive dynamics of providing customer solutions, see Halbherr
and Howard (1999); Hax and Wilde (1999); Foote et al. (2001).
17. Wise and Baumgartner (1999: 136).
18. Hax and Wilde (1999: 13).
19. For an interesting analysis of this broad trend, see Sandberg and Werr (2003).
20. See Useem and Harder (2000).
21. Moore (1996: 12). For another interesting take on these challenges, see alsoStabell and Fjeldstad (1998).
22. The strategy literature is beginning to recognize the central role of a companys
external relationships to meeting the new strategic challenges found in more
complex business environments. Indeed, one can see a trend from the classical
era with its primary focus on market position (roughly from Bruce Henderson
through Michael Porter) to the focus of the late 1980s and 1990s on (mainly
internal) capabilities and competencies (Hamel and Prahalad; re-engineering;
and, in the academic world, the resource-based view of the firm) to recent
attempts to devise a network-based view of strategy.
23. Lane and Maxfield (1997: 170).
24. Lane and Maxfield (1997: 171).25. Lane and Maxfield (1997: 190).
26. Lane and Maxfield (1997: 189).
27. Hax and Wilde (1999: 13).
28. Adler and Heckscher, Chapter 1, this volume.
29. Ibid., p. 40.
30. Ibid., pp. 534.
31. Ibid., pp. 549. See also Maccoby, Chapter 3 in this volume.
32. Sabel, Chapter 2 in this volume, pp. 1256.
33. For an example, see Heckscher and Foote, Chapter 12 in this volume.
34. See Bonchek et al. (2003).
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