Feb ‘11

The E-Magazine of CRESCENT, XLRI

Issue 13

CREST Consulting Research

Entrepreneurship Strategy

A NEW WAY TO MEASURE WORD-OF-MOUTH

MARKETING !

Consulting News Innovation v/s

Entrepreneurship Winning Approach to Change Management

From the Editor’s Desk...

Crescent The Committee for Research,

Strategy, Consulting and En-

trepreneurship (CRESCENT)

is the result of the endeavor

of the student community of

XLRI to promote an environ-

ment of creative solution

building amongst the stu-

dents of the institute, while

reaffirming high ethical stan-

dards and values, and foster-

ing personal development in

the pursuit of excellence. It

works with the two fold

agenda of creating a brand

presence of XLRI among the

corporate and to help nur-

ture ideas of budding entre-

preneurs by providing a plat-

form to them to showcase

their Ideas.

CREST Feb 2011

Editorial Team

Miti Vaidya

Siddhartha Saran

T H I S I S S U E . . .

Cover Story Page 3

A new way to meas-ure word of mouth marketing

Features

Innovation and Entrepreneurship | Page 2 Must the two go hand-in-hand for firms to succeed? Winning Approach to Change Management | Page 7 Going beyond John Kotter’s 8 step change model Consulting News | Page 10 What’s going on in the worldwide Consulting World?

1

CRESCENT welcomes you all to the new issue of CREST. In this issue, we have

articles on diverse areas such as entrepreneurship, consulting and strategy.

Marketers have long been worried about what impact word-of-mouth marketing has on their marketing campaigns and have long strived to create a metric to measure the impacts of word-of-mouth marketing. In this issue we talk about how marketers can finally decipher the science behind word-of-mouth market-ing and harness its potential to realize higher returns on their marketing invest-ments.

In this issue we also look at the link between innovation and harnessing the new ideas into successful business ventures. We conclude with an article on the win-ning approach to change management and wrap up this issue with the news on the latest in the consulting world.

The Editorial Team would love to get feedback from you on

crest.xlri@gmail.com. Happy Reading!

2

E N T R E P R E N E U R S H I P

Innovation and Entrepreneurship

Is innovation in businesses only the process of generating new ideas? What about the profitable aspect of these new ideas with respect to business? And if profitability of new business lines is what firms are looking for, is this not simply entrepreneurship? We look at a few example to get a taste of Innovation v/s Entrepreneurship. One of the most popular Management Gurus of our time, Peter F. Drucker said “Innovation is the specific instrument of entrepreneurship. The act that en-dows resources with a new capacity to create wealth.” When firms across the world talk about using innovation to get ahead of com-petition, are they also considering alongside the importance of building an en-trepreneurial spirit within their culture? Because, even though a firm may be endowed with creative geniuses, developing those new ideas into profitable business ventures is not possible without that atypical entrepreneurial streak. There are some of course who take innovation seriously enough to build it into their DNA. Everyone is familiar with the oft-quoted example of the information giant, Google – specifically letting employees spend part of their time in pursu-ing their own interests, and then channelizing those employee efforts into the mainstream business. Google of course takes on the inherent risk in this ap-proach – once in a while an employee may come up with such a promising idea that he chooses to pursue his entrepreneurial interest outside of the organiza-tion. However, more often than not, the kind of mentoring Google provides en-sures that ideas get absorbed within and the employee’s entrepreneurial thirst is quenched. Then there are those firms who are specifically in the business of innovation. An example is Bell Labs (currently under Alcatel-Lucent, previously under US telecom giant AT&T). An entire operating segment is dedicated to developing innovative solutions for clients – for them, Innovation is Business. Along simi-lar lines is Deloitte Innovation. It started off in South Africa in an attempt to increase growth in revenues for the parent firm, Deloitte Consulting. The suc-cess that it has been, Deloitte Innovation is now generating US$ 1 billion in revenue and is a significant part of the worldwide Deloitte operations. As their clients realize that one of the ways to tackle an uncertain future is through new ideas, Deloitte Innovation is assisting by creating new lines of business in existing enterprises. And we thought entrepreneurship was about starting from scratch, or that consulting was merely about problem-solving! On Indian shores, there are a few firms which are trying to fuel the innovation hype of this century. The Marico Innovation Foundation specifically caters to this area. Their aim is to foster innovative initiatives in India and they do this through research, awards, learning modules, etc. The government too has an official initiative in the form of National Innovation Foundation to support grassroots innovation. Whatever be the vehicle, firms realize that in a cluttered market, only different elements will stand out. And therefore, at least for this decade, strategists can-not afford to look at Innovation and Entrepreneurship separately – they must somewhere go hand-in-hand.

“Innovation is

the specific in-

strument of en-

trepreneurship.

The act that en-

dows resources

with a new ca-

pacity to create

wealth.”

CREST Feb 2011

3

C O V E R S T O R Y - S T R A T E G Y

A new way to measure word-of-mouth marketing

Consumers have always valued opinions expressed directly to them. Marketers may spend

millions of dollars on elaborately conceived advertising campaigns, yet often what often

makes up a consumer’s mind is quite simple: a word-of-mouth recommendation from a

trusted source. As consumers overwhelmed by product choices tune out the ever-growing

barrage of traditional marketing, word of mouth cuts through the noise quickly and effec-

tively. In this article Siddhartha Saran reviews a novel method to measure the impact of

word-of-mouth marketing devised by McKinsey

Defining word of mouth

‘Word of mouth’ stands for consumer-to-consumer communication with no economic incentives. The sender may, however, reap social gratification or re-wards. Word of mouth is stated to be the primary factor behind 20 to 50 per-cent of all purchasing decisions. Its influence is greatest when consumers are buying a product for the first time or when products are relatively expensive. These factors tend to make people conduct more research, seek more opin-ions, and deliberate longer than they otherwise would. And its influence is growing: the digital revolution has amplified and accelerated its reach. Product reviews posted online, opinions disseminated through social networks, web-sites and blogs created by some customers and online social networks have led marketers to recognize the growing importance of ‘word-of-mouth’ marketing. This article explores how word of mouth can be dissected to understand ex-actly what makes it effective and how its impact can be measured using “word-of-mouth equity”—an index of a brand’s power to generate messages that influ-ence the consumer’s decision to purchase. Consumer purchase decision Once consumers make a decision to buy a product, they start with an initial

consideration set of brands formed through product experience, recommenda-

tions, or awareness-building marketing. Those brands, and others, are actively

evaluated as consumers gather product information from a variety of sources

and decide which brand to purchase. Their post-sales experience then influ-

ences their next purchasing decision. Word of mouth has different degrees of

influence on consumers at each stage of this journey. This can be depicted by

the following exhibit (Exhibit 1):

Exhibit 1:Top 3 factors that influence whether a product is considered at each stage of the consumer decision

journey (based on a study by McKinsey)

“[…] factors

tend to make

people conduct

more research,

seek more opin-

ions, and delib-

erate longer

than they oth-

erwise would.”

CREST Feb 2011

4

The three forms of word-of-mouth marketing Experiential

Experiential word of mouth is the most common and powerful form, typically accounting for 50 to 80 percent of word-of-mouth activity in any given product category. It results from a consumer’s direct experience with a product or ser-vice, largely when that experience deviates from what’s expected. Complaints when airlines lose luggage or when flights get delayed are a classic example of experiential word of mouth, which adversely affects brand sentiment and ulti-mately, equity, reducing receptiveness to traditional marketing. Positive word of mouth, on the other hand, can generate a buzz for a product or service. Consequential

Marketing activities also can trigger word of mouth. Consequential word of mouth occurs when consumers directly exposed to traditional marketing cam-paigns pass on messages about them. The impact of those messages on con-sumers is often stronger than the direct effect of advertisements. Marketers thus need to consider both the direct and the pass-on effects of word of mouth when determining the message that goes in their advertisements. Intentional

A less common form of word of mouth is intentional—for example, when mar-keters use celebrity endorsements to trigger positive buzz for product launches. Few companies invest in generating intentional word of mouth, partly because its effects are difficult to measure and because many marketers are unsure if they can successfully execute intentional word-of-mouth cam-paigns.

Word-of-mouth equity

This article explores a way to calculate the ‘word-of-mouth equity’. It repre-sents the average sales impact of a brand message multiplied by the num-ber of word-of-mouth messages. By looking at the impact—as well as the volume—of these messages, this metric lets a marketer accurately test their effect on sales and market share for brands, individual campaigns, and compa-nies as a whole (Exhibit 2). That impact—in other words, the ability of any one word-of-mouth recommendation or dissuasion to change behavior—reflects the ‘what, who and where’, i.e.: (a) what is said, (b) who says it, and (c) where it is said The impact also varies by product category.

“ „ w o r d - o f -

mouth equity‟

represents the

average sales

impact of a

brand message

multiplied by

the number of

word-of-mouth

messages.”

C O V E R S T O R Y - S T R A T E G Y

CREST Feb 2011

5

Exhibit 2:Measuring the impact of word of mouth marketing

What’s said is the primary driver of word-of-mouth impact. Across most prod-

uct categories, the content of a message must address important product or

service features if it is to influence consumer decisions. In the mobile-phone

category, for example, design is more important than battery life. In skin care,

packaging and ingredients create more powerful word of mouth than do emo-

tional messages about how a product makes people feel. Marketers tend to

build campaigns around emotional positioning, yet it has been found that con-

sumers actually tend to talk—and generate buzz—about functional messages.

The second critical driver is the identity of the person who sends a message:

the word-of-mouth receiver must trust the sender and believe that he or she

really knows the product or service in question. ‘Influentials’- people who have

trust and influential power over consumers, typically generate three times

more word-of-mouth messages than ‘noninfluentials’ do, and each message

has four times more impact on a recipient’s purchasing decision. About 1 per-

cent of these people are digital influentials—most notably, bloggers—with dis-

proportionate power.

Finally, the environment where word of mouth circulates is crucial to the

power of messages. Typically, messages passed within tight, trusted networks

have less reach but greater impact than those circulated through dispersed

communities—in part, because there’s usually a high correlation between peo-

ple whose opinions we trust and the members of networks we most value.

That’s why old-fashioned kitchen table recommendations and their online

equivalents remain so important. After all, a person with 300 friends on Face-

book may happily ignore the advice of 290 of them. It’s the small, close-knit

network of trusted friends that has the real influence.

C O V E R S T O R Y - S T R A T E G Y

CREST Feb 2011

6

Harnessing word of mouth

The starting point for managing word of mouth is understanding which dimen-sions of word-of-mouth equity are most important to a product category: the who, the what, or the where. In skincare, for example, it’s the what; in automobile pur-chase, the who. Equipped with these insights, companies can then work on gener-ating positive word of mouth, using the three forms of word-of-mouth marketing: experiential, consequential, and intentional. a) Harnessing experiential word of mouth is fundamentally about providing cus-tomers with the opportunity to share positive experiences. Some companies, such as Apple and Lego, build buzz around products before launch and work to have early, highly influential adopters by involving consumers in product development, supported by online communities. Consistently refreshing the product experience also helps harness experiential word of mouth—consumers are more likely to talk about a product early in its life cycle, which is why product launches or enhance-ments are so crucial to generating positive word of mouth.

b) Two things supercharge the creation of positive consequential word of mouth:

interactivity and creativity. One example of a company successfully harnessing

this power is the UK confectioner Cadbury, whose “Glass and a Half Full” advertis-

ing campaign used creative, thoughtful, and integrated online and traditional mar-

keting to spur consumer interaction and sales.

The campaign began with a television commercial featuring a gorilla playing

drums to an iconic Phil Collins song. The bizarre juxtaposition was an immediate

hit. The concept so engaged consumers that they were willing to go online, view

the commercial, and create amateur versions of their own, triggering a torrent of

YouTube imitations. Within three months of the advertisement’s appearance, the

video had been viewed more than six million times online, year-on-year sales of

Cadbury’s Dairy Milk chocolate had increased by more than 9 percent, and the

brand’s positive perception among consumers had improved by about 20 percent.

c) Intentional word-of-mouth campaigns revolve around identifying’ influentials’

who become brand and product advocates. Ambitious marketers can use word-of-

mouth equity insights to shift from consequential to intentional campaigning. Mo-

bile carriers, for example, have granular customer data that can precisely locate

‘influentials’ who know the category, talk to many people, and provide them with

trusted opinions. That means messages can be directed at specific individuals who

are most likely to spread positive word of mouth through their social networks.

Marketers have always been aware of the effect of word of mouth, yet the science behind ‘word-of-mouth equity’ helps reveal how to hone and deploy this strategy: it shows which messages consumers are likely to pass on and the impact of those messages, allowing marketers to estimate the tangible effect word of mouth has on brand equity and sales. These insights are essential for companies that want to harness the potential of word of mouth and to realize higher returns on their mar-keting investments.

(With inputs from McKinsey Quarterly)

The science

behind „word-

of-mouth eq-

uity‟ helps re-

veal how to

hone and de-

ploy this strat-

egy: allowing

marketers to

estimate the

tangible effect

word of mouth

has on brand

equity and

sales.

C O V E R S T O R Y - S T R A T E G Y

CREST Feb 2011

7

R E S E A R C H

Prof. John Kotter, the world-renowned change management guru in his famous book of 1995 titled 'Leading Change' introduced the popular 8-Step Model to successful change management. Asha Tatapudi goes beyond this 8-step model and adds a 9th step to man-aging change.

As the maxim by the famous Greek Philosopher Heraclitus goes -“Change is the only Con-

stant”. In today's enterprises, 'Change' is an imminent driver not only emanating from the

Michael E. Porter's five forces from an external perspective but also from an internal per-

spective of an organization, where the change agenda could arise out of technology up-

grades, system introduction, process improvements and above all bringing in behavioural

change.

As every enterprise needs to focus on both top-line growth and capability development as

two pivotal ends of the continuum, 'Change' is the only mantra to 'Sustainability'. Change

agenda in an organization could be micro-incremental, system wide or even organization-

wide transformation.

However, what most organizations suffer is the obvious fear of failure of the change initia-

tive. Most business leaders overly assume the ramifications of the impact of change and

are highly apprehensive about the change initiatives either at the initiation stage or when

they figure the smallest of waves of resistance to change. Especially, those business lead-

ers, who prioritize growth to capability development, prefer to negotiate with the change

initiators rather than the resisting members to restore order or worst of all maintain

status-quo.

Therefore, the approach to change management is the key to the success of change

agenda. Prof. John Kotter, the world-renowned change management guru in his famous

book of 1995 titled 'Leading Change' introduced the popular 8-Step Model to successful

change management. These eight steps that are detailed below address the commonly

unique causes of failure of change management programs on the basis of years of his re-

search which concluded that 70% of change initiatives fail because of the approach or

process of change management adopted.

The 8- Step Model (excerpts from Prof. John Kotter's book: 'Leading Change')

Step One: Create Urgency

For change to happen, it helps if the whole company really wants it. Develop a sense

of urgency around the need for change. This may help you spark the initial motivation to

get things moving.

Step Two: Form a Powerful Coalition

Convince people that change is necessary. This often takes strong leadership and visible

support from key people within your organization. Managing change isn't enough - you have to

lead it.

CREST Feb 2011

Winning Approach to Change Management

8

R E S E A R C H

Step Three: Create a Vision for Change

When you first start thinking about change, there will probably be many great

ideas and solutions floating around. Link these concepts to an overall vision that peo-

ple can grasp easily and remember.

Step Four: Communicate the Vision

What you do with your vision after you create it will determine your success.

Your message will probably have strong competition from other day-to-day communi-

cations within the company, so you need to communicate it frequently and powerfully,

and embed it within everything that you do.

Step Five: Remove Obstacles

If you follow these steps and reach this point in the change process, you've been

talking about your vision and building buy-in from all levels of the organization. Hope-

fully, your staff wants to get busy and achieve the benefits that you've been promoting.

Step Six: Create Short-term Wins

Nothing motivates more than success. Give your company a taste of victory early

in the change process. Within a short time frame (this could be a month or a year, de-

pending on the type of change), you'll want to have results that your staff can see.

Without this, critics and negative thinkers might hurt your progress.

Step Seven: Build on the Change

Kotter argues that many change projects fail because victory is declared too

early. Real change runs deep. Quick wins are only the beginning of what needs to be

done to achieve long-term change.

Step Eight: Anchor the Changes in Corporate Culture

Finally, to make any change stick, it should become part of the core of your or-

ganization. Your corporate culture often determines what gets done, so the values be-

hind your vision must show in day-to-day work.

Beyond the 8-Step Model - The critical 9th Step

Today, with the Indian Economy performing extraordinarily well, what with In-

dian entrepreneurs’ acquisition of every business opportunity and growing meteori-

cally, the greatest bottleneck they have been confronting is their failure to develop the

organizational capability to deliver future growth.

CREST Feb 2011

9

R E S E A R C H

Though, organizations identify certain change agenda they do not adopt a holistic

approach towards change management. Many enterprises have experienced that

despite religious practice of Prof. Kotter's 8-Steps of change management, the

change initiatives do not yet succeed in implementation and the scale of failures

have caused a kind of a phobia towards change. In these organizations, the major

common cause of failures is the underlying inappropriate assumption of the busi-

ness leaders that driving change is the business of the staff functions and that it is

adequate if they are just kept informed about the change initiatives. The comfort

the business leaders draw through this approach is that they could avoid embar-

rassing confrontations with the resisting agents of change. Other business leaders

assume that their tacit support to the change initiatives of staff functions would

suffice and that they could also be spared from confrontations or embarrassment

of leading from the front. Thereby, on the shop floor, the organizational change

agenda ends up into a conflict of interests of the line and staff functions. Interest-

ingly, the outcomes of both these approaches have met with failures despite advo-

cacy of Prof. Kotter's 8- Step process.

The paramount cause of such failures is the fact that the change implementers who

turn out to become members resisting the change do not consider that change ini-

tiatives are the business agenda of the enterprise and that the business leaders ex-

pect the change to be implemented. This is more so, in family managed business

houses which are incidentally the major hi-growth companies in India, where the

family representatives are placed in key positions in every business unit / func-

tion / department to facilitate internal control.

Therefore, the Critical Success Factor (CSF) of successful change implementation is

not just the 8-steps of Prof. Kotter but the 'Leader's Sponsorship to the change

agenda'. The organization should campaign internally through powerful and im-

pacting communication that the change agenda is also the business agenda of the

enterprise and that the business leaders actively sponsor the same. Only then

would the target employees get inspired and motivated to positively and actively

respond to the change programs.

Therefore, the first and foremost step that is essential for the success of Change

Management is the 'Leader's Sponsorship of Change Initiative'. In as much as,

this 9th Step would actually enable the success of Prof. Kotter's 8 Step Model of

change management.

Asha Tatapudi is a first year MBA (PMIR) student at XLRI Jamshedpur. She can be reached at p10072@astra.xlri.ac.in

CREST Feb 2011

“the first and

foremost step

that is essential

for the success

o f Change

Management is

the 'Leader's

Sponsorship of

Change Initia-

tive'.”

10

Accenture Most Prominent Consulting Brand? A report by sourceforconsulting.com reveals that Accenture is the most prominent consulting brand across the entire market of Tier 1 firms. The report was a result of survey of some of the largest consulting buyers (procurement professionals only) which collectively spend around 2.5 billion pounds. They claim Accenture accounts for 20% of all choices by buyers. The reason for Accenture’s success has been the fact that it has been able to associate itself with more than one line of service. While this part of the report may not hold wa-ter with several who believe in the superior-ity of McKinsey or BCG, there is another inter-esting finding of the report. They have tracked down the strongest firm-service asso-ciations: - McKinsey & Strategy - IBM and IT Consulting - Accenture and Outsourcing - PwC and Financing

The Battle of the Big Four

Narrowing down the focus to the Big Four (Deloitte, PwC, Ernst & Young, KPMG) alone, the Source report found that Deloitte is the most prominent Big Four consulting brand. The report says that perhaps the fact that Deloitte was the only one not to divest its ad-visory practice in recent years is behind the strength of its brand. The share of mind was worked out at: -Deloitte: 12% -KPMG: 8% -Ernst & Yong: 7% -PwC: 6% Although KPMG does not do very well here, if we narrow focus even further, then nearly twice as many people in the public sector think of KPMG than any other firm. The report also found that IBM and Capgemini Consulting also do well here, dominating associations with IT and out-sourcing.

The Best Consulting Firm to Work for!

The Boston Consulting Group (BCG) has jumped six spots to number two on FORTUNE's “100 Best Companies to Work For” list this year, making it one of only two firms to be ranked in the top dozen for six straight years. The con-sulting giant not only avoided layoffs in the downturn, but hired its largest class of recruits ever in 2010. BCG also achieved the top ranking as best “small” company (defined as companies with less than 2,500 employees in the United States) and was cited as one of the most diverse overall, with 45 percent women and 27 percent minorities.

Source: http://www.consultant-news.com/

C O N S U L T I N G N E W S

CREST Feb 2011

CRESCENT e-mail id

crescent@xlri.ac.in

CRESCENT MEMBERS

Faculty Advisor

Prof. Munish Thakur

Secretary

Mohammed Sadique Quraishi

Senior Executive Members

Aalok Sanghvi

Miti Vaidya

Nitin Agarwal

Siddhesh Ajgaonkar

Vikas Kedia

Vikram Singh Rathore

Junior Executive Members

Namrata Singh

Neeti Kumar

Rama Krishna Chava

Rohnak Shah

Shashwat Sahai

Siddhartha Saran

Urshila Ghag

Cover Photo Courtesy Karthik Srinivasan

The Editorial Team of Crest invites articles from readers for publication in forthcoming issues. If you have articles/ ex-periences/ studies to share in the areas of consulting, en-trepreneurship, research or strategy, please do send them in to crest.xlri@gmail.com mentioning your name and insti-tute name.

CREST Feb 2011