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Seeing Your Customers

Says Erich Joachimsthaler:

“The goal of customer advantage is to identify and develop innovations — products and services, new business models, go-to-market models, marketing programs, and service configurations — that fit into and change customers’ lives, are relevant to the everyday challenges customers face, and create transformational customer experiences.”

In his Strategy + Business article, Joachimsthaler finds that if a company is truly to innovate time and again, and is to achieve profitable growth and create customer advantage, it must do three things:

Understand the people it is trying to serve as individuals, apart from any connection or interaction with the company. That is, the company must be able to temporarily let go of its current business strategies, products, and brands as it observes how people (not just customers and potential customers) go about their daily routines.
Know how to go beyond its own perimeters of product, markets, and competencies; let go of and challenge the assumptions, common practices, and golden rules of doing business still held today and go beyond what it has learned from consumers. Only then can the company conceive of entirely new opportunities by innovating across customer behavior. It must know how to define the spaces of greatest opportunity that others have yet to imagine.
See itself from the outside in and formulate strategies around people’s behaviors, not just seek to satisfy consumer needs and desires or customer requirements. The company must execute activation plans that engage consumers and seamlessly fit innovations into their behaviors so that they absorb and assimilate them. It must create transformational life experiences, not just communicate features and benefits.

Sounds like he’s been reading John Hagel’s work in the late 90s. Except he focuses on just one of the three types of businesses Hagel describes in “Unbundling the Corporation.”

May 13th, 2007

Lee Iacocca on Leadership

Lee Iacocca, former Republican?

That’s the verdict if you read the excerpt from his new book on leadership:
Where Have All the Leaders Gone?

Iacocca’s book describes the “Nine Cs of Leadership”:

- Curiosity
- Creativity
- Communication
- Character
- Courage
- Conviction
- Charisma
- Competence
- Common Sense

Wait, there’s more: the ability to deal with a Crisis

Maybe Iacocca ought to go buy Chrysler.

The book is written in his unmistakable voice:

Am I the only guy in this country who’s fed up with what’s happening? Where the hell is our outrage? We should be screaming bloody murder. We’ve got a gang of clueless bozos steering our ship of state right over a cliff, we’ve got corporate gangsters stealing us blind, and we can’t even clean up after a hurricane much less build a hybrid car. But instead of getting mad, everyone sits around and nods their heads when the politicians say, “Stay the course.”

He’s right. Much more here >>

April 14th, 2007

The Competitive Advantage Assessment: Can Your Company Compete?

In 4 Sources of Advantage, authors Peter S. Cohan and Barry Unger tell us that technology leaders create success cycles by the way they perform four critical business processes – which they call “the four sources of advantage.”

The four processes are:

- Entrepreneurial leadership
- Open technology
- Boundaryless product development
- Disciplined resource allocation

So where does your company stand? If you’re seeking to accelerate your company’s, take this self-assessment and find out: [hint - A is good, B is bad]

Entrepreneurial leadership

1. Hiring
A. Hires engineers with strong technical skills and keen business sense; or
B. Hires engineers with strong technical skills and limited business sense.

2. Self-driven research
A. Gives engineers, say 10 per cent to 20 percent, of their time to work on projects they choose; or
B. Requires engineers to work exclusively on manager-directed projects.

3. Publishing
A. Allows engineers to publish current research in peer reviewed publications after appropriate patent disclosures have been made; or
B. Requires engineers to keep their research company confidential.

4. Peer recognition
A. Holds annual celebrations for engineers who develop innovative products; or
B. “Rewards” engineers who innovate by letting them keep their jobs.

5. Culture
A. Uses culture and supporting measurement and reward systems to emphasise how society benefits from its products; or
B. Uses culture and supporting measurement and reward systems to focus on enhancing shareholder value.

Open technology

6. Speed to market
A. Acquires companies or licenses technology to obtain rapid access to products its customers want to buy; or
B. Uses only internally developed technology to develop new products.

7. Customer perspective
A. Builds technologies that create customer value; or
B. Builds technologies that satisfy executive requirements.

Boundaryless product development

8. Cross-functional teams
A. Uses cross-functional teams of, say, engineering, manufacturing, sales, marketing, finance, and early
adopter customers, to design new products; or
B. Uses its engineering department to design new products.

9. Prototypes
A. Uses cross-functional team input to build new product prototypes; or
B. Manufactures product based solely on engineering blueprints.

10. Fast feedback
A. Redesigns prototypes using feedback from early adopter customers, manufacturing, and other functions; or
B. Redesigns products only after they’re out in the market.

Disciplined resource allocation

11. Timing discipline
A. Creates strong incentives to meet project milestones; or
B. Lets product development deadlines slide.

12. Expected value discipline
A. Validates development projects’ expected value (EV) via continuously updated market research and kills them if their EV goes negative; or
B. Once their budget has been set, sticks with development projects.

13. Learning discipline
A. Allocates resources and shares learning through control systems that measure competitive performance; or
B. Rewards those who tell the CEO what the CEO wants to hear and fires those who contradict the CEO.

14. Renewal discipline
A. Develops a deep bench of management talent; or
B. Dismisses ambitious managers to protect the CEO.

March 5th, 2007

A.G. Lafley and Jeffrey Immelt on Innovation

How do you deliver and sustain profitable growth?

That’s the key challenge shared by Procter & Gamble’s A.G. Lafley and GE’s Jeffrey Immelt.

Writes Fortune’s Geoff Colvin:

“To meet P&G’s growth targets, Lafley has to find about $7 billion of new revenue this year, equivalent to a company the size of Barry Diller’s IAC/Interactive. At GE, Immelt has to find about $15 billion of new revenue, equal to the size of Nike. And if they succeed, of course, they’ll have to turn around and find even more next year.”

So what’s the secret formula?

Both CEOs have “reformatted their companies’ fundamental approaches to cultivating change and innovation.”

Colvin finds out more in this insightful interview:

Immelt: “The initiative we’re driving now is organic growth. If that’s your initiative, it doesn’t make sense to be training people exactly the same way you trained them in the past. So we identified about 15 companies that had grown at three times the rate of GDP, and asked what they had in common. It was five things: external focus, decisiveness, inclusiveness, risk taking and domain expertise. So we reoriented the way we evaluate and train along those lines. We just recently added leadership, innovation and growth, which is basically oriented around teams. This is the first team training we’ve done in ten or 15 years.”

Lafley: “We made innovations in two areas. First was in the leadership training we felt we would need for the 21st century. We have an inspirational leadership program that is highly individualized for handpicked managers. They’re nominated by business leaders or functional leaders, and I pick them. A big chunk of it is about personal development. We also have a general-manager program, right before or right after you become a general manager. And then we have an executive-leadership program for individuals headed to be a president or a group president. It’s pretty intense.

“The other thing we pushed at - and Jeff and I talked about this - is, How do we get a global leadership team. Some 55 percent of our business today is outside the U.S., so my top leadership team for the first time in our history is now up to half non-Americans. We pushed really hard to get there. It makes for a very different discussion when we get together for our quarterly or semester meetings. I think we’re a lot more challenging of each other.”

Other insights:

Immelt on China: “China - we just got a big order from the Ministry of Rail. I got it on a Sunday - the whole ministry is working all day on a Sunday. I believe in quality of worklife and all that stuff, but that’s the competition.”

Lafley on Globalization: “Lafley: One of the challenges for the business community broadly is to articulate in a simple way the benefits of globalization and then face head-on the fact that there will be some disruption. When a company like GE or P&G has plants to shut down, we have a pretty enlightened program for handling retraining and early retirements, so employees have the best chance to have a good income and a good life. We do need to be a little more creative in that area because there are a lot of instances that doesn’t happen. But I don’t think it’s for lack of funding or because there aren’t opportunities somewhere in the economy. Our employment rate is still the envy of the world.”

Read the interview >>

February 20th, 2007

Doug Smith: Putting Shareholders First? Wrong!

Joe Nocera of the The NY Times recently visited the annual Corporate Social Responsibility conference and came away dazzled by the paradoxes. The contradictions would have been hard to miss. For example, what must Joe have wondered as he spoke to Exxon Mobil’s and Chevron’s corporate social responsibility representative the week following the Stern Report catalogue of the catastrophic risks of continuing to treat environmental damage as an externality. Ditto for Pfizer’s ‘do-gooder’ who, as a person undoubtedly seeks to better human kind and cannot be held individually accountable for his company’s maniacal focus on bottom line practices such as kick-back like rewards for doctors who push Pfizer products, research and development trials conducted without objective oversight, campaign funding to politicians who support extending legalized monopoly, product development efforts aimed at minor improvements over fundamental innovation, and marketing campaigns that draw attention away from health risks while misleading consumers about the actual costs of new drugs.

Ditto for Ford Motor Company — whose advertising mantras for years and years (e.g. “No Boundaries”) use the imagery of pristine environmental experiences to push gas guzzling SUVs. Or, how about General Electric? Having fouled the Hudson River for decades, GE poured tens millions of dollars into delaying court-ordered cleanup and miselading the public about it’s actions because, from a shareholder point of view, the costs incurred in delay outweighed the costs of the clean up. McDonalds? The same week it’s representative chatted about the company’s sense of social responsibilty at the NY City confab, McDonalds was also funding the effort to fight a NY City ordinance banning transfats.

The list could go on. Joe could not avoid the paradoxes. When, for example, the McDonald’s rep claimed corporate social responsibility is “core to the way we do business”, Joe noted: “You could wonder about that.”

Nocera picked up this theme again in his conclusion. Having ceaselessly breathed in paradox and contradiction, Joe opined that for companies to become substantively responsible — as opposed to PR-oriented “responsible” — would demand all responsible values become core to those companies’ business models.

Hurrah for Joe! He is dead on correct. Now, Joe, go back, re-read and re-think this declarative statement you make earlier in the article:

“Do shareholders come first — above other stakeholders (another favorite buzzword at the conference… encompassing customers, employees, activists and so on)? Of course.”

Joe, Joe, Joe. There can never — never — be fundamental change to the core business models if shareholders come first and their concerns are the trump card of any discussion. Never.

But, Joe, listen up carefully. This last comment does not reflect today’s either/or orthodoxy. The orthodoxy embedded in your all-too-facile “of course”. The orthodoxy that insists that either the shareholder comes first. Or the shareholder comes last.

No. The shareholder cannot come last. We saw a long run of the poor consequences from the 1950s through the 1980s of what happens when the shareholder came last. We must pursue shareholder value. We must celebrate shareholder value.

But we must not make shareholder value the trump card of all human affairs conducted by business — especially if we, as I think we should, choose capitalism as an essential philosophy for the well being of the planet.

Joe, if you are to help us change the core business models then you’ve got to erase your robocall “Of course” about the primacy of shareholder value. You’ve got to think again and somehow, some way discover the more profound declaration that the shareholder, like other core constituencies, must abide in equivalency of importance. The shareholder does not come first. Nor does the customer come first. Nor does the employee come first.

The shareholder does not come last. Nor does the customer come last. Nor does the employee come last.

Sustainable and ethical corporations must shift their core business models to this formulation: “Shareholders provide opportunities to the people of the enterprise and their partners to deliver both value and values to customers who generate returns to shareholders who provide opportunities to the people of the enterprise and their partners to deliver both value and values to customers who generate returns to shareholders who….. and on and on.”

That is an ethical and sustainable scorecard. And it reflects this unprecedented and undeniable fact of the 21st century human condition: we live in a world of markets, networks, organizations, friends and families in which our organizations are the new communities that determine the fate of our planet. Our primary ethical challenge can only be met when organizations reintegrate our legitimate concern for value with our equally legitimate concern for other values. Failing this, our most dominant organizations — for-profit enterprises — will continue putting value first and, thereby, continue propelling our global society toward social, environmental, political and economic disasters.

Joe, consider only this illogical aspect of your all-too-easy-and-orthodox “of course”: Who are these shareholders who come first? I’m imagining you are a shareholder. But, let me ask this, are you a customer? Are you an employee?

Put differently, does Joe Nocera the human being come first? Or, do your concerns only matter to the extent that you happen to own stock in one more enterprises?

Should we put one of our dominant shared roles (investor) above the other dominant shared roles of our new age of human kind (employee, customer, family member, friend)? And where does that leave the extraordinary number of folks on this planet who are not investors?

Joe, if we wish to take your constructive insight about changing core business models as an essential condition to the fate of this planet, then we must move beyond either/or-ism to both/and. We must not elevate any role to trump card status while also avoiding subordinating any role as a last concern.

We must learn to practice the new golden rule: “As employees do unto others as customers, investors, family members and friends what we would have them do as employees to us as customers, investors, family members and friends.”

When the employees and executives of Chevron, Exxon Mobil, Pfizer, Ford, General Electric and McDonalds begin practicing this golden rule in earnest, we’ll all witness social responsibility (as well as environmental, medical, legal, political, technical, family, spiritual and economic responsibility) blended into the daily lives of those who make, sell, distribute and service the many good things we depend on for leading our lives.

We will experience and have good things to have that are truly ‘good’.

1 comment February 14th, 2007

Marshall Goldsmith’s Book Hits #1

StrategyWorld.org is proud to announce that Marshall Goldsmith’s latest book, What Got You Here Won’t Get You There: How Successful People Become Even More Successful, is the #1 best selling business book in the United States (as ranked by both the Wall Street Journal and USA Today).

Congratulations, Marshall! We’re going to have some excerpts from the book here shortly, so stay tuned.

January 31st, 2007

2007: Will The Leadership Crisis Continue?

This past year U.S. News teamed with the Center for Public Leadership at Harvard’s John F. Kennedy School of Government to evaluate the state of leadership.

The results were dismal:

More than half of Americans—56 percent—say they’re not proud of the country’s leaders. Two thirds and more say the country is in a leadership crisis. Nearly three quarters say the nation will decline without better leadership.

Eighty-three percent of Americans said corporate leaders are more concerned with the bottom line than with running their companies well, 93 percent say political leaders spend too much time attacking their opponents, and only 39 percent say leaders have high ethical standards.

What’s new you ask? Well, the study, led by Warren Bennis and David Gergen, also dug up a few authentic leaders — rating the nominees from to 1 to 5 based on how well they met the following criteria:

Sets Direction (25%)

By building a shared sense of purpose
By setting out to make a positive social impact
By implementing innovative strategies

Achieves Results (50%)

Of significant breadth or depth
That have a positive social impact
That are sustainable
That exceed expectations

Cultivates a Culture of Growth (25%)

By communicating and embodying positive core values
By inspiring others to lead

Unfortunately, not many business leaders made the cut.

No mention of Branson, Gates, or Jobs.

Business leaders making the grade include Warren Buffet, A.G. Lafley, and Marilyn Carlson Nelson.

Read all about it >>

1 comment January 1st, 2007

Michael Porter Sees Red?

What do Michael Porter, Bono, and The Gap have in common?

They’re all related to “The Competitive Advantage of Corporate Philanthropy.” The HBR article, by Michael Porter and Mark Kramer, proposes a fundamentally new way to look at the relationship between business and society that does not treat corporate growth and social welfare as a zero-sum game.

They introduce a framework that individual companies can use to identify the social consequences of their actions; to discover opportunities to benefit society and themselves by strengthening the competitive context in which they operate; to determine which CSR initiatives they should address; and to find the most effective ways of doing so.

Perceiving social responsibility as an opportunity rather than as damage control or a PR campaign requires dramatically different thinking—a mind-set, the authors warn, that will become increasingly important to competitive success.

The framework identifies three ways in which social issues should be prioritized:

Generic: Social issues that are not significantly affected by a company’s operations nor materially affect its long-term competitiveness.

Value Chain: Social issues that are significantly affected by a company’s activities in the ordinary course of business.

Competitive Context: Social issues in the external environment that significantly affect the underlying drivers of a company’s competitiveness in the locations where it operates.

Case studies? Porter gives us a few examples: Whole Foods, Microsoft, GE, Volvo etc. Some of his examples are weak (ExxonMobil building roads is not exactly CSR, or is it?)

What’s truly great about this article is the diagram mapping the societal impact of the value chain ( pp.86-87). In it, Porter shows us how companies can start analyzing it’s “inside-out” linkages to see where it can do the most good — for society and itself.

Which brings us to The Gap. Duke grad-student Jeremy MacNealey writes:

“The apparel retailer has struggled mightily over the past few years, but we learned that the company may have found new hope from the most unlikely of sources — its charitable efforts. Teaming up with (Product) Red and launching a new apparel line called Gap (Product) Red, it has seen an overwhelming response by consumers to the edgier and more premium product. The response by the public has been so strong that the company is now planning to apply a similar look throughout the Gap brand. It just may be that the long-awaited turnaround that investors have anticipated will actually come about in part as a result of Gap’s charitable efforts.”

More about Product Red here >>

December 30th, 2006

Booz Allen Hamilton Study Highlights “High-Leverage Innovators”

Booz Allen Hamilton’s annual study of the world’s 1,000 largest corporate R&D budgets uncovers a small group of high-leverage innovators who outperform their industries.

Specific findings include:

Deep pockets can be dry wells. Analysis of the 2005 Global Innovation 1000 confirms the major finding from our initial study last year: Money simply cannot buy effective innovation. There are no significant statistical relationships between R&D spending and the primary measures of financial or corporate success: sales and earnings growth, gross and operating profitability, market capitalization growth, and total shareholder returns. Gross profits as a percentage of sales is the single performance variable with a statistical relationship to R&D spending.
Less than 10 percent of companies are high-leverage innovators. Compared with others in their industries, only 94 of the companies in the Global Innovation 1000 produced significantly better performance per R&D dollar over a sustained period.
Companies are getting better at squeezing benefits from R&D spending. R&D spending by the Global Innovation 1000 rose last year by more than $20 billion, but revenues rose more.
Bigger can be better, even if it doesn’t boost breakthroughs. Scale provides advantages to R&D spenders. For the largest 500 companies, ranked by revenue and indexed by industry, median R&D spending was only 3.5 percent of sales in 2005, compared with 7.6 percent for the 500 smallest firms.
Patents generally don’t drive profits. Boosting R&D spending can increase the number of patents that a company controls, but there is no statistical relationship between the number or even the quality of patents and overall financial performance.
Masters of the innovation value chain have an edge. The high-leverage innovators and the companies with best overall performance distinguish themselves not by the money they spend, but by the capabilities they demonstrate in ideation, project selection, development, or commercialization.

December 15th, 2006

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