Three Traps: Complacency, Cannibalization, Competency

The Three-Box Solution: A Strategy for Leading Innovation by Vijay Govindarajan is a great book to help leader innovate with simple and proven methods for allocating an organization’s energy, time, and resources across the three boxes:

Box 1: The present—Strengthen the core

Box 2: The past— Let go of the practices that fuel the core business but fail the new one

Box 3: The future—Invent a new business model.

Below is an excerpt on the three behavior traps. How do you manage them to the lead your organization to innovate?

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While there were many within IBM who clearly understood the implications of both nonlinear shifts, their insights had difficulty penetrating the entrenched logic of the past. The dominant logic of the past exerts its hold on business cultures and practices in three distinctive but tightly interlocking ways. I think of their dynamic effects as traps that snare the unprepared. All three have common origins in mind-sets that focus excessively on past values, behavior, and beliefs.

The Complacency Trap

Current success conditions a business to suppose that securing the future requires nothing more than repeating what it did to succeed in the past. This is the complacency trap. Complacency shrouds the future in a fog of misplaced confidence, hiding from view a clear understanding of the extent to which the world is changing around you.

IBM’s extraordinary success driving revenues in its Box 1 mainframe business masked difficulties to come. Rather than face up to looming threats to the mainframe business, IBM applied temporary patches. One such patch ‘was to change the revenue model from leasing mainframes to selling them outright. S This produced a pleasing surge in near-term revenues that postponed IBM’s day of reckoning.

The loyalty of successful organizations to the past is often so potent that they become quite ingenious at ignoring the onset of fatigue in the Box 1 business. Instead of building the future day by day, IBM prolonged it’s past with what amounted to an accounting change. The resulting years-long period of bolstered revenues made it easy for the company to think that everything was just fine-four words that fairly summarize complacency.

Another way to understand how IBM fell into the complacency trap is that the company’s continuing Box 1 profitability delayed development of a sense of urgency that might have motivated a more prescient Box 2 judgment: that it was important to invest aggressively in the new enterprise model of client/server computing.

This is the dark side of success. No matter the industry or company, each great innovation spawns a steady accumulation of Box I-based structures, processes, and attitudes of the kind that blinded IBM to its predicament. IBM mainframes were not simply smart machines; they were smart machines that over the years had created at customer work sites whole new layers of enterprise management that had never existed before.

Mainframe computers were island fortresses, secured and operated by a newly empowered IT function and inaccessible, except through IT proxies, to the rest of the enterprise. If a technology can embody a governing philosophy, the mainframe’s philosophy was exactly opposite that of the open, accessible internet that was yet to appear. Even before the internet emerged as a business tool, there were pitched battles within almost every company about making valuable mainframe data accessible to and usable by employees with networked PCs. This increasingly loud demand clashed with the mind-set of IBM’s IT customers, who saw their mission as protecting the security and integrity of corporate data: allowing liberal access would lead to data corruption and to proliferating unreliable versions of the “truth.”

In fact, customers can play an important role in deepening a complacency trap. IBM had collaborated with its customers in creating what became an entrenched system of governance for computerized organizations. That system’s structures and attitudes were a self-reinforcing feedback loop amplified by IBM’s large-enterprise customers.

Ultimately, a more modern version of the mainframe emerged and made peace with the rest of the IT infrastructure. Today’s version powers big data analytics and other applications in many large enterprises. But in the IBM of the 1990s, mainframes cast a long shadow over the emergent model of more open, democratized network computing.

The Cannibalization Trap

The cannibalization trap persuades leaders that new business models based on nonlinear ideas will jeopardize the firm’s present prosperity. So, like antibodies attacking an invading virus, they protect the Box 1 business by resisting ideas that don’t conform to models of the past.

At its heart, the fear of cannibalization reflects a wish to keep the world from changing. It is perhaps easy to understand that wish, but it’s much harder to excuse it. The glib answer to those who suffer from this fear is to remind them that change is inevitable and the world will change either with them or without them. When a business allows worries about cannibalization to interfere with its strategy, it has overinvested in its past and is doomed to undermine its future.

Cannibalization is typically understood-and feared-as a near-term threat. As foresighted as IBM was in developing its personal computer in the early 1980s, forces marshaled within the company to protect the legacy business. Those who feared the PC believed it had the potential to threaten the mainframe computing model, perhaps by feeding the growing appetite to liberate enterprise data or by diverting attention and investment away from the company’s dominant business.

People who fear new technology are usually more right than wrong about its potential to supersede legacy products. The truth is, every Box 1 business has reason to fear, sometimes even hate, whatever shiny new thing is being launched. When Steve Jobs gave a big push to the Macintosh launch toward the end of his first stint at Apple, the group in charge of the incumbent Apple II felt threatened and undercut. It was as if cofounder Jobs had sponsored an insurrection.”

In reality, however, cannibalization should be understood as a long- term benefit. The new Apple Macintosh embodied features that soon enough would make its predecessors obsolete. If Apple hadn’t moved quickly, a competitor-maybe even IBM-would have filled the vacuum. Given its history, IBM’s embrace of microcomputing was unexpected. But it quickly set the standard for PCs and legitimized them as tools for both home and business users. While IBM’s marketing of the PC initially tilted toward home users, the real revenue bonanza came from businesses. Suddenly, at least part of IBM had reason to root for client/ server computing. No matter what anyone in the mainframe business thought about it, the client/server model had the shine of inevitability.

So, while companies must take the fear of cannibalization seriously as a problem to manage, it can’t become a reason not to act with foresight when new nonlinear strategies or business models present an opportunity.

The Competency Trap

The competency trap arises when positive results the current core business encourage the organization to invest mainly in Box 1 competencies and provide little incentive for investing in new and future-oriented competencies. In established companies built around a spectacular success, such as IBM’s industry-defining mainframe computers, it is natural to want to create a workforce whose skills dominantly reflect the legacy success. But a competency trap is a double- edged sword. IBM’s investments in Box 1 competencies helped its mainframe business. But Box 1 logic asks, why invest in skills not vital to the company’s current profitability? That is why Box 2 is necessary.

IBM eventually recognized that the dominant computing model it had exploited to achieve such great success was changing. Yet, despite having made significant investments in a robust R&D function, it was having chronic difficulty incubating new ventures. It struggled to find what IBM insiders called “The Next Big Thing.” The organization appeared to have succumbed to a “four monkeys” value system.

Believing that there were indeed systemic problems, then-CEO Louis Gerstner commissioned an internal inquiry to identify root causes. The inquiry, led by Bruce Harreld, IBM’s head of corporate strategy, confirmed Gerstner’s fears. Looking at a number of recent examples of flawed new-business incubation, Harreld’s team concluded that the company’s dominant Box 1 systems, structures, processes, and culture had:

  • Created a powerful bias for near-term results.
  • Encouraged a focus on existing customers and offerings to the extent that new technologies and nonlinear trends were either underestimated or escaped detection entirely.
  • Burdened new businesses with unreasonably high performance goals-especially damaging to ventures that targeted newer, riskier, but often more promising markets.
  • Motivated an unimaginative approach to market analysis that impaired the company’s ability to understand the sorts of “embryonic markets” most likely to spawn nonlinear Box 3 ideas.
  • Interfered with development of the skills necessary to adaptively transition a new business through its emergent and growth stages until it finally became an established enterprise.
  • Caused assorted failures of execution, many owing to the inflexibility of Box l=driven organizational structures, which leaders of new ventures “were expected to rise above … Voicing concerns over [such challenges], even when they were major barriers to new business initiatives, was seen as a sign of weakness.”

What the report didn’t say is important to note. IBM’s problem was not caused by a lack of research competency. On the contrary, its workforce possessed at least some expertise in a wide array of disciplines and technologies. Among its research projects were some that were quite promising and others that were highly speculative, unproven, and obscure. But for all the reasons listed, even ideas that managed to get traction were being ineptly developed and executed. What IBM needed was a well-designed process for enabling, supporting, and rewarding its maverick monkeys and likewise for managing new ventures onward through their developmental stages.

Such a process typically should incorporate a range of structural, cultural, and leadership remedies. At IBM-first under Gerstner and later Sam Palmisano-these distinctive remedies came together under the emerging business opportunities (EBO) framework, which created new structures, changes to the buttoned-down IBM culture, and more versatile and adaptive leadership behavior.

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HBR: Ineffective Sales Leaders Can Cause Lasting Damage

Is your vison or strategy going in the right direction? Are you retaining the right talent? Are you serving your customers? Or managing your sales team badly? Is your culture wrong for your vision and strategy? Below is a blog from the Harvard Business Review by Andris A. Zoltners, Sally E. Lorimer, PK Sinha.

Ineffective Sales Leaders Can Cause Lasting Damage

Success in a sales force requires having strong talent up and down the organization. A weak salesperson will weaken a sales territory, a bad sales manager will damage their team and dampen results in their region, and a poor sales leader will eventually ruin the entire sales force. For even the most seasoned among us, it can be difficult to recognize the signs of a poor sales leader and the possible damage the person can do — especially when they appear to do some good early on.

Consider two examples.

An education technology startup hired a sales leader who came from a large, well-respected firm. He had extensive market knowledge and a stellar track record. Although good at scaling and operating a sales organization, the leader was unable to succeed in a rapidly changing environment that needed experimentation and nimbleness. The mismatch between the startup’s need and the leader’s capabilities set progress back at least a year.

A medical device company hired a vice president of sales with an intimidating management style. He ruled by fear. Achieving goals was everything. He tolerated (and even encouraged) ethically questionable sales practices. Results looked excellent at first, but the sales culture became so unpleasant that good performers began leaving in a trickle, and then in a flood. The average tenure of salespeople dwindled to just seven months. The damage to the company continued for years after the VP was replaced.

The reasons that sales leaders fail fall into four categories:

  • Direction. Poor understanding of the business, leading to errors in vision and strategy
  • Talent. Inability to pick and keep the right people for the team
  • Execution. Poor processes serve customers and manage people badly
  • Culture. Inappropriate values damage the very core of the organization

When such failures are coupled with a leader’s egotism or lack of self-awareness, it’s unlikely that the leader can lean on others to overcome his own deficiencies.

Yet ineffective leaders can do some good in sales organizations. They can bring about needed change quickly. Leaders who lack sensitivity have an easier time eliminating poor performers. Leaders who are intimidating can use their muscle to implement difficult changes that past leaders avoided — for example, an organizational restructure that disrupts an existing power hierarchy.

But unless a poor leader can overcome or compensate for his deficiencies, eventually the bad will overpower any temporary good. A tyrant, for example, may fix some things in the short term but create other problems at the same time. For every gain, there are likely to be multiple missteps with the sales force’s vision, team, execution, and culture. A key and very visible marker of ongoing or impending trouble is when talented people on the leader’s team become frustrated and depart the company.

It can take years to repair the damage done by an ineffective sales leader.

First, it takes time to replace the leader and reconstruct the sales team. When a health care company hired the wrong leader for a sales region, it took more than three years to rebuild the team and recover from the initial error of putting the wrong person in charge.

Second, it takes time to reverse the questionable decisions that ineffective sales leaders make, especially decisions that affect sales force structure or compensation. Weak leaders at a technology company made a decision to restructure the sales organization using a model from their own past that did not match the current situation. Again, it took more than three years to undo the damage.

Third, it takes time to rebuild the culture a poor leader creates. Poor leadership at a medical device company had allowed an unhealthy “victim” culture to pervade the sales force. Salespeople had no confidence in their leaders, and managers were willing to accept salespeople’s constant excuses for poor performance.

Bringing about change required replacing the company’s president, followed by more than two years of sustained focus on transforming the sales force using the following process:

  1. Create a fresh vision, reflecting a culture in which salespeople trusted their leaders and in which all salespeople were held accountable for results.
  2. Communicate the vision using every opportunity, including sales meetings, videoconferences, and the company’s intranet.
  3. Rebuild the team starting with a new vice president of sales who had integrity and judgment, and was willing to replace anyone on the sales team who could not adapt to the new culture.
  4. Realign sales support systems and rewards by overhauling the systems for recognizing and rewarding performance and creating accountability.

These four steps are a good starting point for any company seeking to recover from poor sales leadership.

Bad sales leaders can sometimes bring about change in a broken environment and make temporary gains. But they will wreck a sales force unless they are replaced quickly.

S+B: What It Takes to Stay Ahead of the Competition

Are you maintaining a high level of performance? Are you aware of new and innovative products on the market? Below is a blog from the STRATEGY+BUSINESS Blog by Matt Palmquist.

What It Takes to Stay Ahead of the Competition

Bottom Line: For companies, sustaining a consistently high level of performance requires unique capabilities that may differ sharply from the strategies they used to succeed in the first place.

Leading firms set themselves apart by achieving a high level of performance and meeting or exceeding consumers’ expectations relative to the competition. It’s usually an arduous, years-long process. But sustaining that level of performance is a completely different challenge — one that few companies can overcome in the modern business landscape.

There’s plenty of substantive advice available on how to attain high-quality performance in the first place. Researchers have variously touted the ability of firms to create barriers to entry for competitors, for example, or to draw (pdf) on unique capabilities to differentiate themselves. But rivals learn quickly, once-novel strategies can eventually be duplicated, mistakes can be made, and complacency can set in. What it takes to sustain top-quality performance, therefore, is also deserving of study — but it has received comparatively little attention from researchers. Indeed, most analysts have implicitly assumed that the capabilities required to attain high-quality performance are the same as those needed to sustain it.

A new study aims to shed light on the issue by analyzing which capabilities enable companies to sustain a consistent and high level of performance. It should be noted that for the study, the quality level and consistency of performance are two distinct concepts. Whereas a firm with a high quality level outshines its competitors in the short term, consistency involves maintaining that high level with minimal variance for a five-year period.

The authors analyzed data on 147 business units within large companies in the manufacturing sector that were based in either the U.S. or Taiwan. The reason to zero in on U.S. firms is obvious: They tend to set the tone for the global economy. The researchers chose to study Taiwanese firms as well in order to consider the differences between Eastern and Western cultures in their management approaches and assess any impact on performance. (In the final analysis, no significant differences between them appeared.) Taiwan also has a well-established reputation for advanced manufacturing.

To assemble a sample, the authors reached out to executives whose companies had won awards or earned acknowledgment from associations dedicated to recognizing high-performing businesses. The authors conducted surveys with quality or operations managers at the firms, who could speak to the specific strategies employed, and with general managers, who could field questions about the firm’s overall performance and the nuances of its business environment. For a subset of companies, the authors also obtained financial-performance data from the business unit’s accountant as well as internal audits that gauged the quality of its products and services.

After controlling for firm size, competitive intensity (pdf) of a given industry, and level of uncertainty faced — in the form of rapid technological developments or changing market conditions — the authors found that four particular capabilities emerged as integral to sustaining high-quality performance:

Improvement. This capability was defined as a firm’s ability to make incremental product or service upgrades, or to reduce production costs.

Innovation. Defined as how strong a company was at developing new products and entering new markets.

Sensing of weak signals. Defined as how well a company can focus on potential banana peels in order to improve overall performance, including analyzing mistakes, actively searching out production anomalies, and being aware of potential problems in the surrounding business environment.

Responsiveness. Defined as a business’s ability to solve problems that crop up unexpectedly and to use specialized expertise to counter those complications.

But these capabilities influenced different aspects of sustaining high performance, the authors found. For example, innovation capabilities primarily help firms maintain a certain level of quality, whereas the capacity for improvement affects mostly the consistency component. That’s probably because innovations are typically unique events that meet customers’ immediate needs and establish a certain level of quality, whereas incremental improvements are geared toward ensuring the long-term reliability of products and services, which translates into consistency.

Meanwhile, a firm’s capability for responsiveness had no significant effect on consistency, but had a decided positive impact on its level of quality — presumably because responding to quality-related problems quickly and efficiently is also a way of exceeding customers’ expectations in a one-off way.

Sensing of weak signals had a strong positive effect on consistency, but a moderately negative impact on the level of quality. This suggests a potential trade-off, the authors note, because maintaining both a high quality level and consistency is essential to sustaining performance. The authors speculate that a focus on sensing weak signals mandates that firms spend a lot of time collecting data and analyzing the occasional blip, which could cause them to get mired in minutiae and distract them from the more important tasks associated with sustaining a high level of performance. Although the benefits may pay off over time, a concentration on preventing failures rather than seeking out successes could also lead firms to take a short-term view and be overly conservative, too concerned with simply surviving, and to thus shy away from taking chances.

Intriguingly, the capabilities that increase consistency (improvement and sensing of weaknesses) are unaffected by the level of competitive intensity or uncertainty surrounding a firm, whereas those that affect the level of performance (innovation and responsiveness) depend heavily on the external context, the authors found. Presumably, the value of innovation and responsiveness is higher in the face of unanticipated external shocks, whereas improvement and sensitivity to failure are capabilities that are more internally oriented. As a result, firms may need to invest in certain capabilities more than others, depending on their business environment.

Source:An Empirical Investigation in Sustaining High-Quality Performance,” by Hung-Chung Su (University of Michigan–Dearborn) and Kevin Linderman (University of Minnesota), Decision Sciences, Oct. 2016, vol. 47, no. 5

 

Two Yardsticks for Measuring Risky Decisions

How Women Decide: What’s True, What’s Not, and What Strategies Spark the Best Choices by Therese Huston is a fascinating book. How do you make decisions? Do you know the risk in making your decision? Below is an excerpt from the book:

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Are there strategies for figuring out when to take a risk? I was torn on whether to include this advice because I don’t want to send the message that women are, underneath it all, fearful of risk. The data doesn’t support that. But whether you’re a man or a woman, someone who takes too many risks or too few, you need strategies for evaluating new opportunities. There are any number of risky decisions you might be considering. Maybe you’re thinking about taking a new job or quitting your current one. Maybe you’re trying to decide whether to invest your time in a project that your friends think is a dead end but that you believe is just beginning. I’m going to offer two tools, two yardsticks you can use to measure a daring move and whether it’s headed in the right direction.

The first tool is the 10-10-10 rule, developed by the journalist and author Suzy Welch. The purpose of this strategy is to help you look at a decision from three angles, with the hope that one of those vantage points will provide a pop of clarity. In her book 10-10-10, Welch offers three easy-to-remember questions: “What are the consequences of this decision in 10 minutes? In 10 months? In 10 years?” Simple, yes, but potentially quite powerful. The goal isn’t to constrain you to those exact numbers – you could think about two days, six months, and seven years from now. The goal is for you to think about the immediate consequences, the impact your decision will have in the foreseeable and imaginable future and in a distant part of your life, a time far enough in the future that you can’t predict the intervening details or events but you still have clear hopes for yourself. Imagining forty years out is probably too far. The idea is that all too often when we’re trying to make a decision, we’re focused on one, maybe two of these time frames, but wisdom might lie in considering all three.

The second tool for sizing up a risk is something called a premortem, a strategy discussed in the bestseller Thinking, Fast and Slow, by Daniel Kahneman, a Princeton University professor and Nobel Prize- winning economist who has been studying reasoning and decision- making for over forty-five years. You may be familiar with a postmortem, which is what you do when a project or event is over, but a premortem is just what its name suggests – a step you take before the project launches, before you’ve committed to a plan of action and the risks that come with it. The concept is simple. Once you have a concrete plan on the table, bring together the key people who know about the decision you’re making and say, “Imagine that it’s a year into the future and we’ve gone ahead with our current plan. The result was a disaster. Take five to ten minutes and write down a brief play-by-play of that disaster

You might not be immediately impressed with this strategy. You’re thinking, But I’ve already asked “What could go wrong?” a dozen times. But that question involves looking forward, to possible events in the future, whereas the premortem involves looking back. (A premortem is similar to the look-back we discussed in chapter 1.) Looking back may not seem like much of a shift, especially since it’s all in your imagination, but this small shift in perspective can be profound.

Consider these two questions: “How likely is it that an Asian American will be elected president of the United States in 2024? Why might this happen? List all the reasons that come to mind:’

Before you read on, take a moment to think about this future possibility and generate some ideas.

That was looking forward. Now consider these two questions: “It’s 2024 and an Asian American has just been elected president of the United States. Why did this happen? What events might have preceded this one? List everything that comes to mind.”

If you’re like most people who’ve been asked these questions, a wider variety of vivid details come to mind in the second, hindsight scenario. It’s not just that you’re getting a second chance to think about the same event – people generate better answers to the hindsight questions even if they never heard the first ones. Deborah Mitchell at the University of Pennsylvania, J. Edward Russo at Cornell University, and Nancy Pennington at the University of Colorado collaborated on a project and found that people who are given the second, hindsight scenario generate 25 percent more reasons than people given the first, foresight scenario.” Perhaps even more important, people generated more specific and concrete reasons in the hindsight scenario. When we think about future events, we’re content to think in broad generalities, but when we think about something that has already happened, we feel a need to provide more convincing explanations. This is why the premortem is so effective- it’s looking back at a fictional event as though it’s happened. You’ve always heard that hindsight is better than foresight, and that, remarkably, includes imaginary hindsight.

 

HBR: Focus on Keeping Up with Your Customers, Not Your Competitors

Who’s controlling the sale you or the customer? Do you have a customer-driven journey for your company? Below is a blog from the Harvard Business Review by Mark Bonchek and Gene Cornfield.

Focus on Keeping Up with Your Customers, Not Your Competitors

Every company these days seems to be either contemplating or pursuing digital transformation. Most cite the need to keep up with disruptive and well-established competitors. But perhaps this focus is too narrow. We believe the greatest challenge to companies today is not keeping up with their competitors, but with their own customers.

One reason is that individuals are transforming to digital faster than organizations. Think for a moment about people as tiny enterprises. They’ve redesigned their core processes in the area of procurement (online shopping), talent acquisition (marketplaces), collaboration (social networking), market research (peer reviews), finance (mobile payments) and travel (room and ride sharing). Have you reinvented your core processes to the same degree?

Customers’ expectations are also more liquid and no longer based on industry boundaries. Customers – whether consumers or business buyers – don’t compare your customer service to that of your competitors, but to the best customer service they receive from anywhere. The same is true for their expectations of your web site, mobile app, loyalty program, branding, and even social responsibility.

So how can you keep up with your customers? You have to start thinking like them.

Customers don’t think in or; they think in and. You have to transcend trade-offs.

The adage used to be that you could pick any two combinations of “cheap, good, or fast.” But today’s customer doesn’t want to make tradeoffs. They want it cheap, good, and fast. As leaders, we are accustomed to thinking of business being about making tough decisions between competing objectives. But we need to think more like our customers. Instead of focusing on how to make tradeoffs, we need to focus on how to transcend them.

Some of the tradeoffs that are most suited to digital transcendence are:

  • Big and small: Combine the speed, agility and creativity of being small with the scope, scale and influence associated with being big.
  • Complex and simple: Manage the systems and processes to run a global business while creating simple and elegant experiences for customers.
  • Global and personal: Achieve universal consistency and reach around the world while delivering relevant, tailored interactions to every customer.

Customers want to be empowered, not controlled. You have to act with empathy.

Business used to be about getting customers to do what you wanted them to do. But customers don’t accept this any more. They don’t like to be told what to do. They want relationships based on reciprocity, transparency and authenticity. If you want to keep up with your customer, you can’t be focused on getting them to do what you want, but instead on helping them do what they want.

This evolution from control to empowerment means a change in the basic building blocks of customer engagement.

  • Funnels used to be linear processes that moved customers from one stage to the next. There was no going back until a sale was either won or lost. Now these funnels have become Escherian journeys, fluid, customer-led and multi-dimensional. It’s not about capturing and converting towards a transaction, but connecting and collaborating around a shared purpose.
  • Channels used to be pipes connecting you with your customer, carrying carefully crafted messages to passive audiences. Now they are experiences connecting customers to their own desires, and communities connecting customers to each other. It’s not about promoting the features and benefits of your product, but building empathy and understanding of each customer’s intent – and helping them achieve it – as part of an ongoing relationship.

Customers don’t think in straight lines. You need to be non-linear.

To keep up with your customer, you have to let go of linear thinking. Customers today expect you to be where they are, deliver what they want, when they want it, and how they want it. If they’re browsing your website on their laptop, they will expect that when they next come to your site from their mobile device or tablet, or talk to a sales person in your store, branch or call center, you will pick up right where they left off. Business has become like that old game of Twister. You have to be flexible if you are going to win.

This requires rethinking and redesigning core disciplines:

  • Strategy has to go beyond analyzing markets, making plans, and forecasting the future. Strategy also has to build capabilities, transform culture and architect for constant change.
  • Campaigns have to be more than one-way communications for one-time responses. They need to initiate and expedite personalized journeys as part of ongoing conversations.
  • Personalization needs to go deeper than looking simply at what someone buys. It needs to be based on the subconscious motivations of why someone buys, revealed through real-time analysis of a wide variety of data sources.
  • Social can’t be treated merely as a channel for distributing messages. Done right, it’s a context for building genuine relationships that demonstrate how much they really matter.
  • Loyalty needs to be more than accumulating points for rewards. To be genuine and enduring, loyalty needs to be reciprocal. If you want their loyalty, you have to be loyal in return.
  • Operations need to go beyond the efficiency of the company to the efficiency of the customer. How can you optimize to help customers get more for their time and effort, not just their money?

It’s a significant shift in mindset and practice to reorient from keeping up with competitors to keeping up with customers.

We suggest getting started by assessing where you are.

  • How does your transformation compare to your customers? In what areas are they moving faster or slower than you are?
  • Who is setting your customers’ expectations? It’s probably coming from outside your industry.
  • What kind of relationship do you want to have with your customer? Are you trying to get them to do what you want? Or figuring out how to help them do what they want?

Next, look at where to focus your attention.

  • Which tradeoffs do you need to transcend? We mentioned a few above. Others include speed and scale, consistent and nimble, high-tech and high-touch.
  • Where is linear thinking getting in the way? Review the disciplines outlined above and see which ones will have the most impact on your customer experience.

Creating sustainable advantage is more elusive than ever. The new game is designing customer-driven journeys across touch points to help them achieve their intent, and to create more multidimensional relationships. To win this game, stop thinking about just keeping up with your competitors, and start thinking about keeping up with your customers.

 

HBR: 5 Strategy Questions Every Leader Should Make Time For

Below is a blog post from Harvard Business Review. Are you taking time out of your busy schedule to strategize? It requires substantial periods of careful, undisturbed reflection and consideration. Leadership is not just about doing things, it’s also about thinking. Make time for it!

5 Strategy Questions Every Leader Should Make Time For

Have you ever noticed that when you ask someone in your company, “How are you?” they are more likely to answer “Busy!” than “Very well, thank you”? That is because the norm in most companies is that you are supposed to be very busy – or otherwise at least pretend to be – because otherwise you can’t be all that important. The answers “I am not up to much” and “I have some time on my hands, actually” are not going to do much for your internal status and career.

However, that you are very busy all the time is actually a bit of problem when you are in charge of your company or unit’s strategy, and responsible for organizing it. Because it means that you don’t have much time to think and reflect. And thinking is in fact quite an important activity when it comes to assessing and developing a strategy.

The CEO of a large, global bank once told me: “It is very easy for someone in my position to be very busy all the time. There is always another meeting you really have to attend, and you can fly somewhere else pretty much every other day. However, I feel that that is not what I am paid to do. It is my job to carefully think about our strategy.”

I believe his view is spot-on. And there are other successful business leaders who understand the value of making time to think. Bill Gates, for example, was famous for taking a week off twice a year – spent in a secret waterfront cottage – just to think and reflect deeply about Microsoft and its future without any interruption. Similarly, Warren Buffett has said, “I insist on a lot of time being spent, almost every day, to just sit and think.”

If you can’t find time to think, it probably means that you haven’t organized your firm, unit, or team very well, and you are busy putting out little fires all the time. It also means that you are at risk of leading your company astray.

As famous management professor Henry Mintzberg has described, much of strategy is “emergent.” It is often not the result of a strategic plan just being implemented, but driven by opportunistic responses to unexpected events. Stuff happens. Companies often engage in new activities – customers, markets, products, and business models – serendipitously, in response to external events and lucky breaks. But this also means that business leaders need to make ample time to reflect on the configuration that has emerged. They need to systematically analyze and carefully think it through, and make adjustments where necessary.

Many leaders don’t make that time – at least not enough of it.

If you are in charge of an organization, force yourself to have regular and long stretches of uninterrupted time just to think things through. When you do so – and you should – here are five guiding questions that could help you reflect on the big picture.

  1. What does not fit? Ask yourself, of the various activities and businesses that you have moved into, do they make sense together? Individually, each of them may seem attractive, but can you explain why they would work well together; why the sum is greater than the parts?

As the late Steve Jobs explained to Apple’s employees when he axed a seemingly attractive business line, “Although micro-cosmically it made sense, macro-cosmically it didn’t add up.” If you can’t explain how the sum is greater than the parts, re-assess its components.

  1. What would an outsider do? Firms often suffer from legacy products, projects, or beliefs. Things they do or deliberately have not done. Some of them can be the result of what in Organization Theory we call “escalation of commitment.” We have committed to something, and determinedly fought for it – and perhaps for all the right reasons – but now that things have changed and it no longer makes sense, we may still be inclined to persist. A good question to ask yourself is “what would other, external people do, if they found themselves in charge of this company?”

Intel’s Andy Grove called it “the revolving door” when discussing strategy with then-CEO Gordon Moore; let’s pretend we are outsiders coming new to the job, ask ourselves what they would do, and then do it ourselves. It led Intel to withdraw from the business of memory chips, and focus on microprocessors. This resulted in more than a decade of 30 percent annual growth in revenue and 40 percent increase in net income.

  1. Is my organization consistent with my strategy? In 1990, Al West, the founder and CEO of SEI – the wealth management company that, at the time, was worth $195 million – found himself in a hospital bed for three months after a skiing accident. With not much more to do than stare at the ceiling and reflect on his company’s present and future, he realized that although they had declared innovation to be key in their strategy, the underlying organizational architecture was wholly unsuited for the job. When he went back to work, he slashed bureaucracy, implemented a team structure, and abandoned many company rules. The company started growing rapidly and is now worth about $8 billion.

As a consequence of his involuntary thinking time, West did what all business leaders should do: he asked himself whether the way his company was set up was ideal for its strategic aspirations. What would your organization look like if you could design it from scratch?

  1. Do I understand why we do it this way? When I am getting to know a new firm, for instance because I am writing a case study on them, I make it a habit to not only find out how they do things but also explicitly ask why. Why do you do it this way? You’d be surprised how often I get the answer “that’s how we have always done it” [while shrugging shoulders] and “everybody in our industry does it this way.”

The problem is that if you can’t even explain why your own company does it this way, I am quite unconvinced that it could not be done better. For example, when more than a decade ago I worked with a large British newspaper company, I asked why their papers were so big. Their answer was “all quality newspapers are big; customers would not want it any other way.” A few years later, a rival company – the Independent – halved the size of its newspaper, and saw a surge in circulation. Subsequently, many competitors followed, to similar effect. Yes, customers did want it. Later, I found out that the practice of large newspapers had begun in London, in 1712, because the English government started taxing newspapers by the number of pages they printed — the publishers responded by printing their stories on so-called broadsheets to minimize the number of sheets required.  This tax law was abolished in 1855 but newspapers just continued printing on the impractically large sheets of paper.

Many practices and habits are like that; they once started for perfectly good reasons but then companies just continued doing it that way, even when circumstances changed. Take time to think it through, and ask yourself: Do I really understand why we (still) do it this way? If you can’t answer this question, I am pretty sure it can be done better.

  1. What might be the long-term consequences? The final question to ask yourself, when carefully reflecting on your company’s strategy and organization, is what could possibly be the long-term consequences of your key strategic actions. Often we judge things by their short-term results, since these are most salient, and if they look good, persist in our course of action. However, for many strategic actions, the long-term effects may be different.

Consider a practice adopted by many of the UK’s IVF clinics – of selecting only relatively easy patients to treat, in order to boost short-term success rates (measured in terms of number of births resulting from the treatment). The practice seems to make commercial sense, because it (initially) makes a clinic look good in the industry’s “League Table.” But, as my research with Mihaela Stan from University College London showed, it backfires in the long run because it deprives an organization of valuable learning opportunities which in the long run leads to a lower relative success rate.

When you start a new strategy or practice it is of course impossible to measure such long-term consequences ex-ante, however, you can think them through. For instance, when we asked various medical professionals in these clinics what might be the benefits of treating difficult patients, they could understand and articulate the learning effects very well. They could not measure them, but with some careful thought they could understand the potential long-term consequences before even engaging in the strategic action. Actions often have different effects in the short and long run. Sit down and think them through.

Strategy, by definition, is about making complex decisions under uncertainty, with substantive, long-term consequences. Therefore, it requires substantial periods of careful, undisturbed reflection and consideration. Don’t just accept the situation and business constellation you have arrived at. Leadership is not just about doing things, it is also about thinking. Make time for it.

IOP: Understanding your customers, or failing to

Below is a blog post from Innovate On Purpose. You’re most important strategic decision and you “failed” at helping customers understand the change or understanding if and when the decision was necessary?
Understanding your customers, or failing to      

What constantly surprises me is how little large companies invest in understanding their customers, and how often large companies are shocked to discover that their customers are unhappy or angry about new products or new shifts in strategy.  I write today about JC Penney, once an icon and anchor for many shopping malls, and now a retailer adrift in the “in betweens”.

JC Penney is struggling.  Like Sears, another broad range retailer, Penney has seen its market share erode, due to a wide range of factors.  Some of those factors include shopping patterns (fewer people going to malls), shifts in fashion and foot traffic, the length and depth of the recession, online versus retail shopping, and many more.  Sears and Penney’s, along with some other venerated retailers who in many ways founded the way Americans shop, seem increasingly out of touch and irrelevant.

What is most telling is that Penneys has, or should have, a wealth of data about their loyal customers, but they’ve managed to anger them by eliminating coupons and promotions.  The new CEO’s strategy is to shift to everyday low prices, but that has confused and angered the existing Penney’s shopper.  Here’s how Forbes puts it:  Johnson admitted he misjudged how customers would react to the change. “We failed at that,” he says.  What?  Your most important strategic decision and you “failed” at helping customers understand the change, or understanding if and when the decision was necessary?

Penney’s management either decided that existing customers weren’t valuable, or decided that they wanted new customers who weren’t shopping at Penneys.  The problem with their strategy is that they shut off the spigit of current cash flow from existing customers, who are confused by the lack of promotions and coupons, but haven’t ramped up a new segment of customers who want everyday low prices.  Or, do these second customers exist?  It’s not clear that Penney’s understand their existing customers needs and wants, or what their potential customers needs and wants are.

This scenario is what blocks innovation in many organizations.  Management is terrified that a new innovation will kill the golden goose of current earnings, without attracting enough new business to create new earning streams.  The worst possible outcome is to confuse or distract existing customers and simultaneously fail to win significant numbers of profitable new customers.

I wasn’t present at the conception of the one low price strategy at Penney’s, but I have to believe it was driven from the top down, and the inside out.  New products, services and business models are successful when they meet real needs, whether those needs are clearly identified or still unarticulated.  I think the Penney’s executive team believes people want one low price, but it’s clear that they failed to investigate what their existing customers want and need, and whether they believed that the promotions were more work than otherwise.  Also, its not clear that Penney’s has identified prospective customers and their wants and needs.  So existing customers are angry and confused, and potential customers are uncertain what Penney’s offer.  A Twofer!

There’s a lesson here for innovators.  You may love your idea.  You may think it offers better value, better benefits for your customers than what exists.  Your opinion does not matter.  You need to solve a need that customers have, a need that is relevant and valuable to them.  And, you need to understand how wedded they are to current solutions, benefits and characteristics.  Change is difficult and inertia is strong.  Yes, Jobs argued that customers didn’t know what they wanted, but he often gave them things that didn’t exist.  When comparable alternatives exist, and customers have longevity with usage, understanding their needs, the relevancy and urgency of their needs matters.  It’s inexcusable that Penney’s doesn’t understand that and “failed” to do so.  The same is true with any innovator who assumes his or her solution meets the needs or offers important value to customers.

Get out of your office.  Meet your potential customers.  Find out how valuable the existing solution is, what’s wrong with it and how valuable new solutions would be.  As Woody Allen once said, 80% of success is just showing up.  In innovation, much of success is in finding a valuable and important need and filling it.  Just show up where your customers are, listen with an open mind. Don’t impose a solution.