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Mark S. Bonchek
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    The Power to Convene

    Creating Collaborative Community with Strategic Customers

    Mark Bonchek and Robert Howard

    in The Firm as Collaborative Community, 2006
    edited by Charles Heckscher and Paul S. Adler

    Key Takeaways

    1. The shift from products to solutions has increased the need for deep customer relationships
    2. Companies are exploring more collaborative ways of engaging key customers
    3. Advisory councils are a way to "co-create" strategy with customers
    4. Based on Avaya's experience, strategic advisory councils can have a powerful effect
    5. Key success factors include membership criteria, executive commitment, and accountability

    One of the most powerful forces pushing large business organizations to experiment with new forms of collaborative community is the desire—and the need—to 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 technology, telecommunications, and business services where companies are providing 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 business. 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 significant 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 imperative is forcing companies to explore more collaborative kinds of relationships 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 executives from its most important customers. Avaya is a $4 billion Fortune 500 company that designs, builds, deploys, and manages business communications, particularly voice applications such as telephony and call centers, doing much of its business with other Fortune 500 corporations. 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 systems. 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 technology, 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 company’s senior management both to respond to the rapid transformation of its industry and to accelerate its own organizational transformation.

    Our perspective on the Avaya experience, and the broader trend of which it is a part, comes from our work helping organizations design, orchestrate, and manage senior-executive relationship networks.2  These networks allow a company’s top executives to engage in trusted dialogues with their peers on issues of mutual interest or problems of mutual concern. In some cases, they are designed to allow companies to realize the full value of existing relationships 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 come from diverse sectors of the economy and have different purposes, they all have two things in common. First, like Avaya, the sponsors are market leaders. They possess the power to convene — i.e. the ability to bring together the key players in an industry and define shared interests and goals in 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, relationship networks represent an interesting laboratory for collaborative, trustbased modes of leadership and models of business community.

    Avaya’s 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 networks.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, arguably, 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 relationships, on the other, are either irrelevant or incomplete?

    The rich literature on inter-firm networks is not much help in answering 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 emerging 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 Avaya’s 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: specifically, Adler and Heckscher’s three-part model of collaborative community and Sabel’s concept of the ‘pragmatic organization.’ Next, we consider some of the limits of the advisory council model at Avaya and how 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 fundamentally different from the way they behave in traditional hierarchies— less ‘transactional,’ and more ‘collaborative.’ In helping to lay the foundations of collaborative community at the senior-most levels of its customer 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 movement’s 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 the past 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- ability isn’t 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 wide range 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 firm’s 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 also contributed to a shift in mindset on the part of at least some executives— from 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 example, more than 80 per cent said they were ‘satisfied’ with their technology vendors—but 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 underlying 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 traditional manufacturing products.15 And in complex technology-driven industries such as information technology and telecommunications, customers are demanding that companies provide not stand-alone products but integrated business solutions.16 Increasingly, most of the value is in 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 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 customized 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 leadership’20—in particular, orchestrating a broader array of more complicated relationships, with their customers certainly (in order to understand their business needs) but also with suppliers (who are often the most knowledgeable about the latest technology solutions) and even with their colleagues around the world (who may have already encountered a particular business problem and devised an effective solution for it that the salesperson can borrow).

    Customer bonding also poses major challenges for senior executives. Increasingly, a company’s most important strategic relationships are outside 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 The Death of Competition: Leadership and Strategy in the Age of Business Ecosystems, 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 discontinuities due to technological change, deregulation, globalization, and other factors, what were once relatively stable businesses have become more fluid. Traditional strategic contexts are disrupted. There is a sharp increase in uncertainty—and, therefore, the need for timely and accurate knowledge about customers, competitors, new technologies, market trends, etc. In this respect, a company’s external relationships are becoming a key knowledge asset—but involving a fundamentally different type of knowledge than in the past. In a less complex and more certain business environment, the answers to key business questions may have been difficult to discover but they were fundamentally knowable. An entire industry, management consulting, grew up around doing the hard analytical work of getting the ‘right’ answer.

    But in a business environment characterized by high levels of complexity and uncertainty, there seem to be fewer ‘knowable’ answers. And, therefore, a new type of knowledge comes to the fore. Call it interpretive rather than analytical: the ability to detect weak signals, connect bits of fuzzy information, ‘make sense’ of poorly defined business problems and challenges.22 In such an environment, strategy ceases to be what David Lane and Robert Maxfield have termed ‘optimized precommitment.’23 Rather, a central task of strategy becomes to develop and manage a set of ‘generative relationships’ that ‘can induce changes in the way the participants see their world and act in it.’24 For Lane and Maxfield, the development and coordination of generative relationships lies at the very center of strategy in environments of high uncertainty where the ‘foresight horizon’ is complex (i.e. the future evolution of the technology or market is impossible to predict). ‘As foresight horizons become even more complicated,’ they argue, ‘the strategist can no longer foresee enough to map out a course of action that guarantees desired outcomes. Strategy must include provisions for actively monitoring the world to discover unexpected consequences, as well as mechanisms for adjusting projected action plans in response to what turns up.’25 In other words, strategy is ‘a process consisting of a set of practices, in which agents inside and outside the firm structure and interpret the relationships, inside and outside the firm, through which they both act and gain knowledge about their world.’26

    In this respect, strategy becomesmorelike a mutual learning process.And as Hax andWilde point out, learning can itself be an important enabler of customer bonding.27 Deep customer relationships are not only essential to success in the new marketplace of solutions selling; they are also critical to defining and executing a company’s evolving competitive strategy in an increasingly uncertain competitive environment.

    The Avaya Executive Advisory Council

    For an illustration of how these trends play themselves out at a specific company, consider the example of Avaya. Despite its clear position as a market leader, from the moment of its spin-off from Lucent in 2000, Avaya confronted some major competitive challenges. 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 with rivals 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, Avaya’s business is confronting a major technological discontinuity. With the growing convergence of communications with computing, new technologies like internet protocol (IP) telephony are providing Avaya’s customers with new options for organizing their internal communications networks. On the one hand, these technological changes provide Avaya with an opportunity to participate in promising new 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 computing 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 communications through the provision of so-called ‘voice over internet protocol’ (VoIP) networks. Perhaps most important, to succeed in these new markets, Avaya must migrate from being primarily a product and technology company to become a solutions company that provides customers with an integrated communications capability encompassing hardware, software, and services.

    Parallel to the technological transformation in Avaya’s business is a transformation in the relationships that matter with Avaya’s customers. Traditionally, the company’s account teams have developed good relationships with the telephony organizations at Avaya’s 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 organization. Because telephony was never considered a strategic capability (with the possible exception of call centers), Avaya’s relationships were not very senior, usually at the director level. But as intelligent communications networks become a critical component of a company’s key business processes and as the decisions about what kind of networks to buy and how to configure them become more complex and require increasingly bigger bets, buying decisions are being made by more senior management.

    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 ‘strategic’ 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 changes—from 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 to senior-management relationships—take Avaya out of its traditional comfort zone. To begin to address those challenges, in 2002 Avaya CEO Donald K. Peterson proposed the creation of an Executive Advisory Council consisting of CIOs from some of the company’s most important customers. Peterson’s 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 Avaya’s innovation and thought leadership and to bring the ‘voice of the customer’ inside Avaya.

    In the Fall of 2002, Avaya began to recruit the members, design the agenda, and orchestrate the meetings of the Council.  As of February 2007, the advisory council has met for six major one-to-two-day meetings, with occasional teleconferences on specific issues conducted in between. In the nearly four years that the council has been in existence, it has had a major impact on the evolution of Avaya’s strategy, been a catalyst for the creation of two additional executive relationship networks at the company (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 marketing" program to extend the reach of the councils by building relationships with a broader range of customers and disseminating Avaya’s ideas and innovations to a wide audience.

    But for the purposes of this chapter, Avaya’s Executive Advisory Council may be most interesting as an illustration of how new forms of collaborative community are taking shape at the senior-most levels of business organizations. It is to that story that we now turn, with a focus on the first year of the Council's existence.

    Defining the ‘shared journey’: design rules for collaborative 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 absence 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 communities conceive of value. Unlike traditional ‘loyalty-based’ organizations, Adler and Heckscher argue, the new form of community is founded on 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 delicate balance requires the capacity ‘to understand the concrete interests and identities of others in a collaborative relationship.’29

    The designers of Avaya’s Executive Advisory Council faced this challenge from the outset. Company executives were convinced that it was imperative for Avaya to forge closer bonds with senior customer executives. 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 value proposition 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. What’s more, they tended to be less interested in product-focused marketing pitches than in a strategic dialogue about market trends and the ways the technology could be used to create business value. Organizers understood that before they could 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 uncertainty and change for everyone, and also a chance to get to know Avaya’s senior management team (and, implicitly, assess for themselves whether they were a real player in the emerging new business of ‘converged communications’).

    A key part of this mutual learning was what organizers called reciprocal value—the 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 the council would address. The commitment to reciprocal value was embedded 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 Avaya’s emerging strategy. Avaya’s leaders wanted the council to be a basic input into their strategy-making process. And they were determined to make the meetings action oriented—to 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 company’s entire senior-management team, including Peterson, two group vice presidents, the CIO, the head of strategy and technology, and the head of sales and marketing, committed to attending every council meeting.

    This delicate balance between Avaya’s goals and those of its target participants 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 interfirm networks which can disintegrate into factionalism, coalition building, and politicization. By the same token, participants in the council can 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 network’s focus remains of direct interest to a broad enough subset of its members. This serves to keep the network squarely focused on value.

    The second dimension of Adler and Heckscher’s model of collaborative community is ‘interactive process management’ or norms and rules governing 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, ‘understanding’— i.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 follow automatically 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 does—and does not—constitute 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 important, the individuals involved had to be at the same executive level in their organizations—i.e. CIOs or their equivalent in seniority, responsibility, and scope of managerial challenges.

    This peers-only rule was not so much an issue of status, as one might expect 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 perspective—to 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 council’s potential value.

    Another structural norm that council organizers emphasized was professional intimacy. In effect, they wanted to give the council the look and feel of a membership club, a club in which Avaya’s 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 presentation, with expert facilitation and the latest technologies for real-time anonymous polling. Time would be set aside for informal social interaction in the evenings. Finally, all communications about council proceedings 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.

    It’s easy to characterize—and perhaps dismiss—such 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 interactions emerge. Think of them as elements of an ‘interaction infrastructure’ designed to encourage real conversation and a frank exchange of views.

    The third and final element of Adler and Heckscher’s 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 hierarchical 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 of making 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 assumptions on the table’ for real-time reactions and review from their chief customers.

    To promote interactive dialogue, the company has provided considerable preparation for those Avaya executives who participate in council events. One member of the design team describes the message to executives this way: ‘In general, you will learn more by asking questions and listening 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 customers 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 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 organizations.’ Indeed, during council meetings participants engage in something akin to what Sabel describes as ‘metaphoric benchmarking’—in which deliberation about a given problem or challenge produces ‘something ‘‘like’’ a provisional taxonomy or map of accessible solution strategies in relation 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 technological infrastructure to enable converged communications, and then find specific applications to take advantage of it? Or would they focus 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 companies 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 crosshairs.’ The only investments that were being approved were those associated with specific business applications that had a near-term return on investment. What really mattered was not ‘infrastructure push’ but ‘applications pull.’ Avaya’s proposals to its customers would need to demonstrate 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, Avaya’s executives already knew that applications and near-term returns were important—but they had not realized how important. 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. Avaya’s senior team came away from the first meeting realizing that they had to tackle the business case and applications 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, Avaya’s senior team had some concrete changes to announce. The company had added an applications group to start focusing 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 demonstrate near-term cost savings, in addition to long-term revenue growth. What’s more, the company had purchased a professional services company 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 weaknesses in Avaya’s strategy. The new applications group was an improvement, 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. ‘You’re still selling us technical solutions and not asking us about our business problems,’ said one participant.

    What’s 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. The reactions 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 impression. ‘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 company trying to become a services company,’ said another, ‘but I’m 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 organization to bring products and services to market. To head this new organization, the company called on its former head of services,whohad been hired from IBM and had helped lead that company’s transition from a product organization to a more solutions-oriented company. One of his first actions was to thoroughly re-examine Avaya’s 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 strategy. The result was a more compelling set of messages and value propositions, 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 Council’s meetings took place in May 2004. Avaya presented its new go-to-market strategy and new organization, and elaborated on its evolving vision. What converged communications was really all about, from a business perspective, company executives now explained, was the ability to draw people more seamlessly into a company’s business processes, through the automatic provision of information at just the right moment.

    The company called this development ‘communications-enabled business processes.’ In manufacturing, for example, exceptions in the manufacturing process could automatically trigger notifications to those with the authority and expertise to remedy the situation. In financial services, a major change in a company’s 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 call—all without any human intervention. In general, such communications-enabled processes remove the delays that result from people trying to connect with each other or gather required information.

    On the one hand, participants strongly confirmed that Avaya’s customer strategy was on the right track. On the other, they became engaged in an animated discussion about what communications-enabled business processes would mean for them. Two critical insights, one for Avaya, one for its customers, emerged from this discussion.

    First, despite all the talk about the convergence of voice and data networks, some of the companies present, among them some of Avaya’s most technologically sophisticated customers, were not really running their voice 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. ‘Don’t talk about converged networks,’ said one participant. ‘Talk about converged communications.’ Such comments, coming from leading-edge customers, suggested an emerging market trend that had the potential of playing directly to Avaya’s strength in the market, i.e. its deep expertise in voice-specific applications and networks (and of differentiating Avaya from its primary competitor, Cisco, whose strength is in the world of hardware and data).

    At the same time, Avaya’s vision of communications-enabled business processes got the CIOs thinking of all the ways they could use the technologies 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 council’s 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 company’s leading customers. At the same time, the council has allowed Avaya to educate its customers and influence the way they think about their business, 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.

    Balancing ‘learning’ and ‘selling.’

    For all the focus on mutual learning in the advisory council, Avaya remains, of course, a commercial organization. How to maintain the integrity of the council process while still leveraging 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 participating 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 company’s budding new CIO relationships. For example, while each individual account team knows that its customer CIO is participating, the complete list of participating 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 conditions of trust that ultimately allow it to sell in the new telecom environment. Here’s 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 didn’t.’’ 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 Customer Contact Council is described in more detail on p. 532 below). A participant said, ‘this is the first time I’ve sat in an Avaya meeting where you didn’t talk about your products. You talked about my business.’ Then, after a presentation on IP telephony, the executive made a call to his management 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 business 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 Avaya account 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 Advisory 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 in which senior executives from some of its key customers weigh in on the future strategic direction of the company, there are still many other customers that, by definition, the council cannot reach.

    To reach that broader audience, Avaya has developed a far broader and more systematic program for ‘executive relationship marketing' 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 number 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 council’s interactions. Of course, the more executives the Avaya program reaches, the more likely that its initiatives will resemble traditional broadcast marketing, rather than the participatory co-design and dialogue that defines the advisory council itself. Avaya has addressed this in two ways. First, Avaya’s executive-level content is now written not only to transmit information,but also to further conversation on vital issues. Second, interviews with council members are featured prominently in a new executive newsletter.

    A nested ‘hierarchy’ of networks.

    A potential limitation of Avaya’s 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 and creating new kinds of collaboration up and down the traditional hierarchy.33 Doesn’t the decision to limit participation in the advisory council to peers automatically limit the potential reach of the council model and undermine its effectiveness as a model for collaboration and community? Put another way, is Avaya’s success at inter-firm collaboration 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 company’s 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 customerfocused interaction between account teams and the company’s senior leadership.

    The mechanism for Avaya’s 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, ‘don’t 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 designing 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 individuals who participate.

    The creation of the Customer Contact Council, as well as the recent creation of yet another network focused on Avaya’s 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 networks’—i.e. a portfolio of loosely coupled networks at various organizational levels with different but related areas of focus. Of course, precisely how these networks interact with each other and what characterizes the flow of information among them is a critical question for the future.

    It is too early to tell what impact either of these innovations will have on Avaya’s own organization. It is possible that the success of external networks with customers will generate new best practices for more participatory 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 suggests that 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 public–private partnership in the area of assured communications for homeland security. The IT Services Marketing Association has recently identified Avaya’s program as a best practice in the area of sales and marketing.34

    One of the authors has also advised the Society of Thoracic Surgeons on the creationof multi-stakeholder forums to address the future of cardiac surgery.35 The firm that assists Avaya with its advisory councils, Truman Company, has also applied the model successfully at IBM for its Board of Advisors, a customer advisory council,and CIO Leadership Forum, an annual gathering of 150 Chief Information Officers fromaround the world. 

    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 of stakeholder 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 stakeholders—typically relating to market disruption, regulatory change, or new competitive forces;
    • The potential for the network to produce tangible benefits to the sponsor and to individual stakeholders;
    • The potential for the network to produce clear public benefits beyond the 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 alternative—especially for companies whose technologically 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’ contribute roughly 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 Sabel’s 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 decentralized 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 Toyota’s network-based model of supplier relations has been central to the firm’s 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 salespeople and customers in the fledgling PBX market in Lane and Maxfield (1997: 169–98).

    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 lifetime value’ 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). 13. See Robert Weisman, ‘Quality products alone won’t 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 also Stabell and Fjeldstad (1998).

    22. The strategy literature is beginning to recognize the central role of a company’s 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. 53–4.

    31. Ibid., pp. 54–9. See also Maccoby, Chapter 3 in this volume.

    32. Sabel, Chapter 2 in this volume, pp. 125–6.

    33. For an example, see Heckscher and Foote, Chapter 12 in this volume.

    34. Leavitt et al. (2006)

    35. See Bonchek et al. (2003).