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The One Year, Thirty Minute Challenge :: Week 42 :: Marketing :: Five Forces Plus 1

When vending your products and services, you spend a lot of time pressing out –

  • You create new products and services you believe current and potential customers will want
  • You tweak existing products and service to keep them attractive to current and potential customers
  • You improve the customer experience to encourage loyalty and decrease defection
  • You create new messaging to tell your story in a more compelling way

But, any healthy assessment of an organization’s competitive environment asks the question, “What is pressing back against us?” Competitors, customers, vendors, and the environment at large are always changing. So, in addition to the proactive “pressing out”, you must counterpunch – not necessarily responding tit-for-tat, but tracking what’s going on around you and responding when advantageous.

Michael Porter introduced his “Five Forces Model” in 1979. Forty years later, it’s still an effective way to examine the competitive forces in your industry. In the mid-1990s, a sixth force was added to the model (some folks have credited it to Andy Grove, the former Intel CEO).

In this week’s One Year, Thirty Minute Challenge, we’re going to walk through the six forces and ask questions that will help you look critically at what is “pressing back” at you. Then, more importantly, we’ll suggest some “counterpunching” options you can evaluate with you team.

Rivalry among existing competitors – Other companies serving the same customers, offering products similar to yours, pose, in some ways, the stickiest problem. The gut reaction to lower prices only sets up a race to the bottom as each competitor settles for less and less revenue to pick up a few more points of market share. Competing on price is an unsustainable tactic. So, for products that are largely undifferentiated, what can you do instead? The short answer is to change the basis of competition. Overnight package delivery is big business, but since the end result is a package moved from point A to point B overnight, it’s highly undifferentiated. The competitors in this industry have done a good job of turning our attention to unique competencies that distinguish them from their competitors – package tracking and outsourced logistics provider to name a couple. So, if you find yourself in a slugfest with a capable competitor, consider this –

  • Are the products or services truly undifferentiated or have you done a substandard job explaining your unique value proposition?
  • If they are truly indistinguishable (electrical outlet covers, for instance), can you shift the basis of competition to a unique delivery competency or customer experience?
  • Can you move up or down to premium or economy versions of the product and capture an “end” of the market?
  • Can you leverage the competencies that allow you to create this product and use them in a “blue ocean” – one that’s free from the bloody red waters of your war with current competitors?

 

Threat of New Entrants – If you’re making money, someone else would love to make it as well. Any successful enterprise is going to draw the attention of existing companies looking for new opportunities and startups looking to crash a successful party. There’s an important discipline that comes into play here that we discussed in an earlier One Year, Thirty Minute ChallengeCreative Destruction. Creative Destruction is the practice of scrutinizing your current products and processes to make sure they are impervious to competitors and, if they are not, replacing them so that they are. If you’re not engaging in this exercise, potential new entrants will be. So, how do we stave off new entrants?

  • Build a great database and communicate with the people in it frequently. In theory, you know infinitely more about your market than a new entrant does. Use your experience to be a better listener, understanding the needs of the market more accurately than potential new entrants. Tell your story in a meaningful way.
  • Give great service. Don’t give customers a reason to look elsewhere for the same good or service.
  • Leverage the learning curve that you’ve already ascended. That learning curve should translate into better vendor relationships, more mature processes, and consequently, lower costs. You should be able to price match or even undercut a new entrant and still make more money because your costs are lower.
  • One last, more radical, idea. If a new competitor is exceedingly capable, maybe you should buy them. Unless they are incredibly well capitalized, they might have shot the wad creating their new product or service.

 

Threat of Substitute Products – This force is different from competition with existing rivals because it considers enterprises competing for the same dollars – going to the movie theater vs streaming a movie at home or playing mini-golf vs going to the movie theater. Substitute products can span industry types – gym membership (a service) vs buying a Peloton bike (a product with an optional subscription service). Value creation is always a holy grail exercise, but, in this case, it’s really the entire discussion. How can you create an offering of surpassing value for this particular dollar?

  • What is the desired end result for this expenditure? Get healthy, be entertained, not be hungry any more, be confident that my car is safe and reliable again?
  • What stands in the way of the customer achieving that goal? How can you most efficiently and convincingly eradicate those obstacles?
  • What pushes them closer to that goal? How can you most efficiently and convincingly show them that your solution takes them faster and farther towards that goal?
  • How can you communicate that you “get it” and that your methodology for reaching their goal affords them complete control, provides the biggest bang for the buck, overcomes all of their objections and checks every box – or at least checks the boxes better than all available alternatives?

 

Bargaining Power of Customers – You know intuitively that customers have power, but in some circumstances their power is outsized. If a customer’s defection leaves you with a ton of unrecovered acquisition costs (i.e. it cost you a bunch of money to get the customer to buy the first time and they’ve not made enough purchases to offset those costs) or, on the other end of the spectrum, if one or two customers represent such a large part of your revenue that their departure could cripple or destroy your company, those customers exercise substantial control over your company.

  • It seems a counterintuitive, but how can you inflict some pain on the customer if they leave? I, of course, don’t mean real pain, but something like loyalty points or a discount that can only be redeemed on a future purchase. Withhold that benefit until they transact more business.
  • If your product or service is a bit more sophisticated, can you introduce some switching costs into the equation? If you provide a service like accounting or tax preparation, institute an onboarding regimen that involves a thorough (but valuable) data-gathering exercise where you not only gather historical financial data but discuss future financial goals. The prospect of spending that time again, with a new provider, might dissuade them from defecting.
  • If one customer represents a significant percentage of your revenue (high customer concentration in finance lingo) there are a couple of things you might want to consider. If you service only one industry, can you solicit other potential clients in that industry and leverage your deep industry expertise? If servicing competitors poses a problem for your large client, change geography so that prospective client bases don’t overlap. Or, look for ways to leverage the skills you are using to service that client and find other industries where those skills are in demand. Project management, software development, process improvement and a host of other skills are highly transferrable.

 

Bargaining Power of Suppliers – The risk with a powerful supplier is three-fold. They can drive up your costs with price increases because the materials they supply are unique or scarce. They can halt or cripple your value creation activities by being late or erratic in delivery. Or they can negatively affect your quality by providing products that perform inconsistently.

  • How can you create a partnership with a powerful supplier? How can you configure your relationship so that successes and failures are shared? For example, a retroactive per piece payment or bonus payment if every shipment in the previous quarter was on time and the defect rate was below 1%? Or penalty payments, a .5% reduction in unit cost for each hour the production line was out of service because of a stockout on the part the vendor supplies?
  • How can you give them greater visibility into your processes so they can see how their product is utilized and when it will be reordered next (so they can prepare for production)?
  • How can you leverage their expertise to improve quality and drive down costs as you contemplate future versions of their product? How early can you bring them into the discussion? If you help them build ease of manufacturing into future versions, costs can come down.

 

Complimentary Products – We are awash in manifestations of this competitive force – razors and blades, phones and cases, phones and apps, printers and ink – and the list goes on. But, leveraging this for competitive advantage has some fairly straightforward components.

  • Can you clearly see the beginning and ending of the complementary wave you’re riding? If you make cell phone cases, you’ll be retooling every 8-12 months. If you make ink cartridges for printers, a model could be in use for several years. Complimentary products also vary in complexity – a VHS tape had moving parts, a DVD had none.
  • Will you be directly benefitting from both sides of the equation? Will you be making razors and blades or will you only be making blades?
  • If the complimentary products are in the tech realm, is the successor technology likely to be in your wheelhouse? Streaming video is not at all like Blu-Ray Players and Blu-Ray discs. Can you be proficient in and can you afford to play in very disparate spaces?

 

In almost every case, the things you do to press out will be more important than the things that are pressing in, but you can’t ignore the environment in which you complete.

 

The One Year, Thirty Minute Challenge :: Week 41 :: Leadership :: Hard Skills and Soft Skills

Over the last couple of decades, we’ve collectively “seen the light” on hard skills vs. soft skills. To maximize our own effectiveness as a leader, we know we need both hard skills and soft skills. When we screen potential employees, we’ve added tools to assess not just hard skills – proficiency in a particular programming language, driving a forklift, tax planning, creating a PowerPoint deck – but also soft skills. We want to know if the potential team member is empathetic, a team player, a good communicator, a good problem solver and more.

You and every employee in your organization come to the office, factory, hospital, or studio with a unique combination of personality, innate abilities, life experiences, and education that has shaped your current set of hard skills and soft skills. Those factors have an oversized influence on how easily you’ll be able to continue honing those existing skills and adding new ones. Those with healthy self-awareness are a leg up on those who are blissfully ignorant of their own skills deficit. Those with good lateral thinking skills might have an advantage over those with only vertical thinking skills (depending on the new skill they are trying to master).

This week’s One Year, Thirty Minute Challenge is an exercise in adding soft skill and hard skill components to your employee development program. If you don’t have an employee development program (you need one), you can find a framework HERE.

A good Employee Development Program aligns the interests of the employee with the interests of the company. Achieving growth goals benefits the organization and the individual. As goals are determined and milestones are set, a mix of hard skill and soft skill mastery punctuates the path.

Translating the learning of a hard skill to employee development exercises is straightforward –

  • Read a manual
  • Take a class (online or in-person)
  • Become an apprentice

And proving mastery of the skill is equally objective

  • Take a test
  • Demonstrate a technique
  • Produce a product
  • Speak the new language

You get the idea.

But I’m afraid mastering a new soft skill seems “squishier”. It is, after all, a soft skill. So, how can we integrate soft skill development activities into our employee development program. HR sites are chock-full of lists of desirable soft skills. You’ll find items like empathy, teamwork, communication, problem-solving, work ethic, creativity, adaptability and many, many more. So, during that employee development meeting, how are you going to get that team member to learn empathy and how are they going to prove they did it?

Since none of us have a magic Geiger-counter that we can wave over a teammate and detect empathy, problem-solving or any other soft skill, we have to translate that skill into actions we can use to teach the skill and to evaluate mastery of that skill. In employee development meetings, we need to connect the dots between the desired soft skill and the action so the team member is mindful, “When I do this action, I’m giving outward evidence of this soft skill.”

So, here’s this week’s exercise. For your direct reports, make a list of the hard skills and soft skills you’d like them to add in the next 12 months – it shouldn’t be more than 1 or 2 of each. For each of the skills, identify the how. For the hard skills, it might be take a class or work with another team member who has that skill and is able to act as a mentor (that mentor might be you). For the soft skills, translate them into observable, executable actions that the employee can begin to practice. To give you a head start, I’m giving you a few activities that translate into some of the most sought-after soft skills.

  • Listen when you’d normally offer an opinion – This change in behavior can help build empathy, synthesis (creating a “mash up” of previously uncombined ideas, methodologies or technologies) and problem-solving. Don’t listen to respond better. Listen to understand more fully. Practice active listening activities like notetaking, repeating back the salient points of the speaker in your own words and nodding your head when the speaker says something you agree with.
  • Ask good questions – When you’re tempted to start a conversation with statement, use a question instead. Replace, “Send out an email blast to all our existing customers announcing our new extended warranty” with “What do you think about using an email blast to announce our new extended warranty?” Use a methodology like the “5 Whys” to probe deeper if you feel like the current discussion is addressing a “branch” and not the “root” of an issue. Questions promote teamwork, collaboration and the ensuing conversation provides an opportunity to practice the mentor mindset.
  • Look for the common ground first – Team members with a more operational bent can sometimes easily find the ten problems a new initiative will create without acknowledging the upside of the initiative (they see the upside, but they quickly run to solve the problems first, so the initiative can work). On purpose, acknowledge the upside of new ideas before jumping into areas of disagreement or potential problems. If you can’t get on board at all with the methodology, see if you can agree that they’ve identified a problem worth solving, “I couldn’t agree more that we have to solve this hold time problem. Let’s hammer away at this and see if we can figure out the best customer experience possible.” This approach fosters collaboration and problem-solving.
  • Deliberately get out of your intellectual comfort zone – Read a book or listen to a podcast authored by someone that doesn’t share your political bent, professional expertise or approach to life. For the content that espouses a different perspective, the opportunity to hold two differing opinions in your head at the same time (yours and the author’s) encourages problem-solving (enumerating and evaluating the merits of two opposing views), empathy (learning why the author holds those view) and lateral thinking. For the content that explains a skill set different that yours, the ability to understand the degree of complexity in another discipline encourages teamwork (as you appreciate someone else’s skill set) and synthesis.
  • Ask for a critique – This might be the toughest one on the list. Ask two or three people (who you respect and would go to for advice) to critique your communication style, management style or leadership ability. Receiving the feedback graciously and openly displays adaptability and a commitment to lifelong learning.
  • Find a way to help a coworker succeed – Look for a team member with a perpetually tough job or maybe one with a new, challenging assignment and figure out what you can do to help. Be a mentor, run interference so they can get the resources they need, or provide additional support from your department. Making an investment when you’re not promised anything in return shows teamwork, mentor mindset and empathy.
  • Look for a better way – Find an existing activity in the organization and look for a way to make it better. Can you more effectively engage employees, communicate more clearly with customers, or take steps out of a process (and keep the quality intact or maybe even improve it)? Improving an activity demonstrates creativity, adaptability and problem-solving.
  • Come in early and stay late and don’t waste time during the workday – This might seem like a no-brainer but putting in a full day shows work ethic.
  • Ask for extra, more challenging work – In addition to looking for a better way and putting in extra time, ask your boss for a challenging assignment or “the task nobody wants”. Executing on this extra work shows adaptability, problem-solving, and a commitment to lifelong learning.
  • Learn how to write code – It doesn’t matter what your job is, if you want to learn to think in a linear way (vertically) and to never leave any stone unturned, learn a programming language. Truly the software will only do what you tell it to do. If it’s wrong, you get immediate feedback in the form of erroneous results. If it’s incomplete, you have immediate feedback in the form of circumstances that aren’t addressed. It’s a shortcut to linear thinking, problem-solving, detail orientation, zooming out and zooming in, research, and creativity.
  • Learn how to draw – In contrast to the previous bullet point, if you want to learn to think laterally, learn to zoom out and zoom in (for a whole different reason) and be creative, take an art class.

When you’ve finished this exercise for your direct reports, schedule a one-on-one meeting, discuss the growth in skills you’d like to see, agree on the specific action items, timeline, check-in schedule and metrics for measuring progress. Encourage your direct reports to do the same thing with their team members.

The One Year, Thirty Minute Challenge :: Week 40 :: Governance :: Organizational Structure

There aren’t very many things in the course of growing a business that a business owner “falls” into – and there shouldn’t be. Each move should be calculated and deliberate. But if there’s one thing that happens, almost automatically, it’s the organizational structure.

If an electrician starts a new business, the first hire is most likely another electrician. But as the business grows, there might be an accountant, then a customer service rep, a procurement person, an IT person – you get the idea. Each of these people become the de facto head of a department and, “Viola” you have a traditional Functional Organizational Structure.

Most of the small businesses I know have this structure and most of the time it works well. And, I’m guessing the boss spends very little spare thought time considering another option.

This week’s One Year, Thirty Minute Challenge isn’t an exhortation to change your organization’s current structure, but instead an encouragement to ponder the pluses and minuses inherent in that structure and to consider whether another structure might make it easier to execute your mission and push you closer to achieving your vision.

The Functional Organization Structure is easy and intuitive. There are three primary advantages to the functional structure –

  • Focus – The finance folks direct their attention to finance, the IT folks to IT, the production folks to production, etc. Unlike the solo practitioner who is salesperson, accountant, service provider and janitor, people who work in a functional structure can train all their attention to a single discipline. This, theoretically, produces superior work, allows for narrow specialization, and lessens the probability for dropping the ball in that discipline.
  • Collaboration – Having the software developers, or salespeople, or accountants together allows them to bounce ideas off one another, work in tandem on projects, and encourages mentorship.
  • Redundancy – Having multiple people working in the same discipline allows for cross training and for one person to have a working knowledge of the responsibilities of a co-worker. This mitigates the risk of a “single point of failure.” If one person gets hit by the proverbial “bus”, the work of the company goes on, uninterrupted.

However, the functional structure has a couple of built-in challenges –

  • Hand Offs – Every organization I work with struggles with hand offs. How does the new customer order flow seamlessly from sales to production to accounting to customer service? How do we make sure that nothing falls through the cracks? How do we make sure the customer service rep has complete visibility into all the information they need to service the customer just as soon as the order is taken? As the boss, if you want your functional structure to work, focus your attention on hand offs.
  • Alignment – As the organization grows, functional areas can sometimes take on a life of their own – especially if a particular discipline is preeminent in the value creation activities of the company. A software company might elevate the importance of brilliant software developers or a company in a very competitive commoditized industry might elevate the importance of a few star salespeople who can land large, lucrative clients and gain market share. These are good things. Excellent performers should be recognized. But the difficulties begin when some functional areas begin to wag the dog – when production becomes the enemy of the salespeople who procured the killer order that now must be fulfilled or advertising becomes the enemy of editorial who claim that taking advertising from a particular business will compromise the journalistic integrity of the enterprise. As the boss, it’s your job to keep every functional area on the same side of the equation.
  • Kingdom building – A possible ugly symptom of failed alignment – a bad apple in the management ranks can begin to kingdom build. Amassing an outsized staff or exercising undue influence in the organization is unhealthy. It’s your responsibility to build an idea meritocracy where the best ideas rule the day, not the overgrown influence of a single person or department. Kingdom builders have ceased to look out for the good of the organization and are focused on their own enrichment.

I want to look at two other organizational structure options for small and medium sized enterprises.

The Matrix Structure has the components of a functional structure, but project or product teams cut laterally across the functions. The idea is to eliminate handoff problems by creating a multi-discipline team that focuses on a project or product with representatives who act as the authority and proxy for the discipline they represent.

The first thing you probably noticed is the very thing that makes this structure challenging. People have two bosses – a straight line to a functional boss and a dotted line to a project or product manager. So who do they listen to when priorities are conflicting? Typically, employees give more allegiance to the boss that has the greatest ability to make their life better (does their performance review, gives them raises, affects their upward mobility in the company). This structure can work, but the mechanics of the dual reporting must be crystal clear to the functional boss, the project manager, and the employee.

The Product Team Structure works to remove the dual reporting problem.

In this structure, the employee truly reports to the product or project manager but keeps a dotted line relationship back to the functional area they represent. This dotted line relationship attaches them to resources for collaboration with others in the same discipline and maybe even provides some redundancy for their work, but they are tied to the project/product team. The project manager is their boss (does their review, gives them raises, affects their upward mobility in the company). Representatives of each discipline (depending on the size and complexity of the project, there might be multiple people representing each discipline) are true cross-discipline collaborators since their fortunes are more strongly tied to the success of the project than they are to the functional area they represent.

I’ve laid these out a bit more cut and dried than they have to be. Certainly, companies can morph them to work for their particular situation (for example, in either the matrix or product team structures, functional and project bosses could collaborate on employee reviews instead of an either/or situation).

So finally, let’s jump into this week’s exercise. For this one, I’d suggest you get your leadership team together and step through each of the structures and associated pros and cons. If you think changing structures makes sense, discuss what it would look like to make the change. Ask why? Do you want to change because you’re doing a sub-par job managing in the current structure? If so, why will a new structure make the managing better? If you’re convinced a new structure is desirable, explore the changes necessary to make the transition. How will the responsibilities of managers and supervisors change? How will the responsibilities of employees change? How will career paths change? How will processes change? How will the customer experience change? Will these changes build the company culture you’re trying to install/maintain? Will these changes make it easier to execute your mission? Are any technology changes necessary to support the new structure?

If in the comparison, you feel like you’ve got the optimal structure now, evaluate how well you’re capitalizing on the strengths of that structure and how well you’re dealing with the weaknesses. Identify corrective action items for anything that you need to fix or exploit and assign them to someone. Get it on your calendar to check back in a couple of weeks to track progress.

Since you’re a reader of the One Year, Thirty Minute Challenge, it’s unlikely you’re the CEO of global enterprise. That was never the target audience. So the chances that you need an organizational structure that spans multiple business units or multiple large geographies are slim. But, if you need to examine organizational structures that are more complex, hit me up at mchirveno@clearvision.consulting and we can explore some additional options.

 

The One Year, Thirty Minute Challenge :: Week 39 :: Strategic Planning :: Annual Plan

Strategic Plans fail at an alarming rate. According to The Balanced Scorecard, 90% of businesses fail to execute their strategies successfully. According to onstrategyhq.com, 95% of employees don’t understand their organization’s strategic plan and 60% of companies don’t link strategy to budget. If those are the stats, why even engage in the Strategic Planning process at all?

First, there’s value in the process. General, and later President, Dwight Eisenhower said, “In preparing for battle, I have always found that plans are useless, but planning is indispensable.” Every plan, whether it’s for a military campaign or for running a donut shop, is built on informed theory and assumptions. But the minute those plans are implemented, they become vulnerable to forces outside our control. The enemy has more artillery than we anticipated. The muffin shop down the street lowers their prices. Does that mean it’s time to abandon our plan? That all our planning effort was wasted? No, it means just the opposite. If we exercised the discipline to plan thoroughly, we contemplated multiple actions and the anticipated outcomes for each. We chose one, or possibly a couple, of those actions and assembled the resources to execute it. But the real value in planning was that we analyzed all of the possible actions, all of the possible outcomes and all of the resources necessary to execute those actions. Now this knowledge is at our disposal. So, when reality collides with our plan and our initial choices don’t seem so wise, we already have a wealth of accumulated thought on how to readjust and redeploy our resources to still achieve our original objective.

Second, there’s value in the discipline. It is very easy to be caught in the tyranny of the urgent. Crises with employees, customers, vendors, equipment, and money can consume every waking work minute. Dedicating time for deliberate planning gets us off the hamster wheel of constant busyness. The discipline of –

  • thoughtfully examining our human resources – the people we have now and the people we’ll need in the future
  • carefully evaluating our value creation activities – supply chain, transformation activities, vendor performance
  • revisiting our financial management – liquidity, cash management, return on invested capital
  • carefully considering our market – customer problems we are solving, messaging, competitors
  • taking the temperature of our organization – culture, metrics

helps us see things clearly and truthfully with fresh eyes and more accurately plot a new course that moves us closer to our vision for the organization.

Finally, the biggest reason that Strategic Plans fail is lack of execution. Execution must be baked into the plan from the beginning and pursued fanatically through the entire organization as the plan is rolled out. A good Strategic Planning methodology leans heavily to the implementation side.

Let’s jump into this week’s One Year, Thirty Minute Challenge. Clearly you won’t finish your thirty-minute exercise with a strategic plan, but that’s not the goal. The goal for this week’s challenge is to identify the people who will be involved, set up a time and decide on a process.

  • Good strategic plans require input from up and down the food chain. The larger the organization, the more difficult this becomes. As organizations grow, people at the top necessarily move away from important value creation activities and customer interactions. But it’s just those activities and interactions that must inform future strategic plans. The first order of business is making sure that all the information you need to get an accurate picture of the current state of your organization is in the room. Gathering that information and involving people in the strategic planning process who can accurately interpret and advocate for the stakeholder interests represented by that information is crucial.
  • Put in on the calendar and don’t let anything displace it. Find a time and make it happen. Depending on the size of your organization and how solidly your mission, vision and core values are defined, it might take a day, or it might take a week. If you’ve spent time to carefully define your mission and vision and are solid on your core values, you can jump straight into your strategic planning exercise. If those things are new to you, you’ll want to spend time on those first. For a frame of reference, when I’m doing this with a client ($2 – $20 million in revenue), we go at least 3 full days or 6 half days or a bit more depending on what we find as we define the current state of the organization. Once you’ve put it on the calendar make sure you protect the time both for yourself and for those working with you on the plan.
  • Decide on a process. There are a number of good strategic planning processes and tools out there. They range from the one-page variety to more complete and detailed frameworks. Remember, much of the value is in the discipline of the exercise, so no matter the framework, utilize fully, think deeply and create deliberately. Here are the things you want to look for in whatever framework you use.
    • Get an accurate picture of the current state of your organization. One of the most prevalent and most damaging mistakes in a strategic planning exercise is failing to get an accurate picture of where you are now as an organization. You spend a lot of time on where you want to go but not nearly enough on where you are now. How can you make a map from here to there unless know your current location? Find a tool with powerful assessment tools.
    • Create several fully-loaded future scenarios. With your knowledge of the current state of your organization, your assessment of your place in the external environment (with customers, competitors, regulators) and the efficacy of your products or services to successfully solve problems for current and potential customers, craft a number of strategic alternatives. These alternatives might solve a personnel problem, correct an operational deficiency, exploit a market opportunity, recreate an existing product or service or tech-enable your customer experience. Some alternatives might play well with others. Some might be bold and very different from what you’re doing now.
    • Evaluate and choose the best opportunities. Your framework should give you tools to evaluate your alternatives in the light of financial return on investment (measuring the impact on shareholders in the long-term and in the short-term). You should also evaluate your alternatives considering employee experience, customer experience, regulatory compliance and, of course, in how much the alternative will push your organization closer to your vision. This part of the exercise should yield three, or at the most four, initiatives that you’ll be implementing over the next 12-18 months.
    • Execute like crazy. Employ an implementation framework that lets you rollout the why and the what for the selected initiatives to every person in the organization. This framework must enable every team member to connect the dots between their job and the new initiatives. It must include accountability mechanisms and a scoring framework so that everyone knows how the organization is progressing toward its strategic initiatives.

If you want to safeguard the long-term health and viability of your organization, you need to do a regular Strategic Planning exercise. The discipline of critically evaluating your organization and making measured course corrections is the best insurance I know to keep you out of the trash heap of irrelevant, failed enterprises.

If you want more information on the strategic planning framework I use, contact me at mchirveno@clearvision.consulting.

The One Year, Thirty Minute Challenge :: Week 38 :: Operations :: Customer Onboarding

There’s nothing more critical to a great customer experience than onboarding. Many times, we limit “onboarding” to something we do with a new employee, but every stakeholder in the organization should have an onboarding experience. Onboarding sets expectations, defines responsibilities and describes “winning”.

In this week’s One Year, Thirty Minute Challenge, we’re focusing on customer onboarding, but many of the outcomes and methodologies can be applied to other stakeholder groups.

Here’s why onboarding is so important. Have you ever received a movie recommendation from a trusted friend and, after watching the movie, realized you’d never get those two wasted hours of your life back (or in the case of Dances with Wolves, 4 hours)? It’s pretty disappointing. But why is it disappointing? Because the friend’s glowing recommendation created high expectations. In the absence of that recommendation, you might have still hated the movie, but you would have just added it to the list of movies you’ll never watch again. But now, you’re presented with confusion. You’ve had reliable recommendations from that friend in the past. What did you miss in the movie that your friend loved? How are you going to explain your disappointment to your friend? Will you ever be able to trust their recommendations in the future?

That all stemmed from faulty expectations created at the beginning of the interaction. We can have the same problem when we begin a relationship with a new customer. If we don’t successfully create correct expectations at the beginning of a relationship, the customer will create their own. Those will come from experience (the last time I hired a plumber, it took them an hour to replace my kitchen faucet), from hope (I would love it if the plumber spread a tarp in front of the sink before they began working on the drain) and from people who influence them (my friend hired a plumber and it cost them $300 to get their sink unclogged).

Let’s jump into this week’s exercise. We want to finish with a rock-solid customer onboarding framework. Depending on your product or service, this could be very simple or a bit complex. You can do this one solo or invite some trusted team members who are familiar with the flow of work from initial customer contact to delivery. We’re going to focus our attention on three things – expectations, responsibilities and metrics.

Before I jump into the steps below, let me quickly say that I’m aware we’re talking about a mix of communication, some before the sale and some after the sale. I realize that in some pre-sale messaging, you’re selling a feeling or experience (someone buying insurance is buying peace of mind in the midst of an unfortunate circumstance, not a policy). The bulk of the ideas below are to create clarity of expectation, responsibility and metrics. You decide where to deliver them in your messaging based on your product, service and desired delivery experience.

 

Expectations

  • Succinctly describe what product or service the customer is buying (A great meal at a great price, the most sophisticated timepiece you’ll ever own, you’ll never know your car was wrecked).
  • Give clear direction to the first step in the discovery or purchase process (Visit our showroom at 123 Main Street, contact one of our friendly customer service representatives at 555-555-5555, click here to schedule an initial appointment).
  • Explain the steps in which you create value for the customer (It all starts with a free health assessment, we’ll email you the results of the assessment along with our recommendations, in three days we’ll contact you and get your decision on which weight loss program is best for you, we’ll kick off your exercise and diet plan, and by week 4, you’ll be down 10 pounds).
  • Explain what interactions will look like (you’ll never be stuck in voicemail jail – a real person will always answer the phone, you’ll be able to manage your account from anywhere on our award-winning mobile app, you’ll have unlimited support via email with a 4 hour guaranteed response time).
  • If your product or service has inherent uncertainty, explain the path from uncertainty to certainty (When our technician arrives to examine your appliance, you’ll get a full explanation of the problem and a complete estimate of what it will cost to fix it. We’ll get your OK before we proceed with any repair. And when it’s fixed, the parts and labor are guaranteed for one year).
  • Explain the customer’s financial responsibility ($99/month for the first six months, then $129/month for 33 months, there’s a $400 administrative fee on top of the price of the car). If you want to make customers extremely unhappy, bury some previously undisclosed cost in the fine print.
  • Explain what will happen if something goes wrong (our workmanship is guaranteed for 10 years – if your roof leaks, we’ll fix it at no charge to you, if this isn’t the best snow-cone you’ve ever eaten – your money back, if you don’t like the like the paint color you’ve chosen with our patented color match system, we’ll repaint your room for free).

 

Responsibilities

One of the key parts of customer onboarding is explaining the customer’s role in the delivery of your product or service.

  • Define deadlines (For your policy to be in effect by 10/11/2020, we need your driver’s license number and the VIN from your car by 9/30/2020, to terminate your lease please notify us 180 days before the renewal date).
  • Explain their involvement. The number of used treadmills, ellipticals and Chuck Norris Total Gyms on Craigslist owned by people who are still overweight are a testament to the number of customers who don’t embrace their responsibility during onboarding. Customers buy, what appear to be, solutions to a problem they are experiencing. Clearly lay out the steps they must take for that problem to be resolved. And explain the how, not just the what.
  • Provide engagement tools. Think about the number of companion apps you have for the products or services you consume. I can lower my thermostat, manage my robot vacuum, change the payment method for my car insurance, and get a reminder when my Home Depot credit card bill is due on my phone. Each time you make it easier to interact with your product or service, you help the customer derive more value from the product or service, make it easier for the customer to fulfill his or her responsibilities, and ultimately solve their problem. Engagement tools don’t have to be as sophisticated as a mobile app. I recently got a bid from a roofing company to replace my roof. Part of their proposal was a checklist for me to follow before they began work on my home. The checklist explained not only what I needed to do, but why it would aid them in quickly solving my problem (getting a new roof on my house in the minimum amount of time and with the least amount of expense).
  • Give examples of customers who have successfully engaged the product or service and achieved the desired results. These examples inspire, inform, and help customers connect the dots between what the product does and what they must do.

 

Metrics

Everyone wants to “win” with their purchase. In the onboarding experience, we need to accurately identify winning for them.

  • Help customers measure leading indicators, not just trailing indicators. If they buy exercise equipment, “winning” is working out 20 minutes a day and cutting their caloric intake, not losing 20 pounds. If they do the former, they will get the latter.
  • Help customers attach greater meaning to their purchases. The financial planner’s 1% annual management fee isn’t a cost, it’s an investment in someone who devotes their professional life to helping clients secure their financial future and the financial future of the client’s family.
  • Help customers attach greater reach to their purchases. The business coaching purchased by the CEO doesn’t just benefit the executive. All who work for that executive benefit as he or she becomes a more effective leader and pushes what he or she learns down through the organization. And, by increasing the organization’s effectiveness and efficiency, shareholders benefit.

 

When expectations, responsibilities, and metrics are clearly defined for a new customer, everyone involved in the equation knows how to behave. If the company fails to deliver on the expectations, they can quickly make it right. If the customer fails to live up to their obligations, the company can jump in with a bit of accountability and encouragement to get the relationship back on track. When both parties agree on what “winning” looks like, they can track it with reporting and reinforce it with messaging.

The One Year, Thirty Minute Challenge :: Week 37 :: Strategic Planning :: Bullets Then Cannonballs

In his 2011 book, Great by Choice, Jim Collins introduced the concept of “Fire Bullets, Then Cannonballs”. Create a low-cost, low-risk product or service launch (a bullet) and measure its success. If the bullet came close to the target (good consumer appeal, more profitable, potential to capture more share), recalibrate (refine the offering, improve the delivery, hone the messaging) and fire again. In the course of this iterative process, when the bullet hits the bullseye (confirmed by data), invest in the proven offering and craft a fully developed product or service paired with a strong launch (a cannonball).

It’s easy for a person or an organization to become enamored with an unproven “cannonball” that’s going to propel the organization to the front of their industry (or create a new industry) and cause their revenue and profits to soar. We love the idea and our ego convinces us that we’ve found a unicorn. To be sure, those cannonballs are out there, but, compared to the number of companies and product launches, those products or services are, as they say, scarcer than hen’s teeth. Plenty of companies have lost money (and investor’s money) by shooting unproven cannonballs from the beginning without any evidence they would find the bullseye. For most of us mortals, the path to sustained competitive advantage is bullets first, then cannonballs.

In this week’s One Year, Thirty Minute Challenge, I want you to spend your exercise identifying opportunities in your organization where you can craft some bullets. Take these six “bullet starters”, get your team together and take a virtual walk through your organization. See how many bullet opportunities you can identify.

Create a Pilot Product from Scratch – Over the last few years, software companies have taught us the value of creating a Minimum Viable Product (MVP). For example, early versions of Gmail, Evernote and Google Docs had only a fraction of the features they have now. That’s because the purpose of the early versions was to gauge interest and commercial viability. When it became clear that the products had potential, only then was more development effort expended to make a full-featured product (and the development goes on today). Can you create a minimum viable product to explore a new market or a new segment within an existing market?

Change the Customer Experience – Could you increase conversion rates for new customers, increase retention rates for existing customers or streamline internal operations by changing the customer experience? Maybe you could deliver food to tables instead of calling a number or change the automated call routing on your phone system, making it easier for a customer to talk to a live person. Make small, measurable changes and survey customers to get their feedback, plus track the financial impact. If customers respond favorably continue to tweak the customer experience until customers experience function, form and feeling when interacting with your organization.

Create a Stripped-Down Version of an Existing Product – One of the things we hopefully learned from the coronavirus was the ability to pivot. If our successful, three-day, onsite training program wasn’t an option, what do we do to make money? Strip out one of the topics from one of the days and create a webinar. It sells for a fraction of the price and customers can consume it from their home. Look for the opportunity to deconstruct an existing product or service and sell a stripped-down or fractional version. You might find that smaller micro-offerings are more profitable and have the added advantage of opening the door for larger sales later.

Create Another Product from an Existing Product – Many years ago, back when I had a corporate job, one of the smartest things I ever saw my former employer do was take something worthless and make it into something valuable. In their heyday, newspapers accumulated thousands of pictures each year. Only a small fraction of those ever made it into the newspaper. So, what do you do with all those unused pictures? My former employer made them into coffee table books. They identified several themes – architecture, sports, signs – just to name a few, and, combing through decades of pictures, put together fascinating collections of photos in very cool coffee table books. So, what assets do you have that you could recompile into a new product or service?

Develop a Strategic Partnership – If you run a service company – let’s say an exterminator, could you begin to offer wildlife removal services to your customers by partnering with an existing wildlife removal service? This type of relationship allows you to “stick your toe in the water” with very little downside risk. If the test goes well, you might consider a merger or acquisition, or you might add that expertise to your staff and expand your service offerings?

Tap the Collective Genius of your Team – For years, 3M operated with the “30% Rule” – 30% of revenue had to come from products created in the last 4 years. To fuel that initiative, 3M authorized 15% time – 15% of your work week can be devoted to projects that are interesting to you, not mandated by your boss. Post-It Notes and light-recycling lens (a $100 million product) came from 15% time. Google, for a while, crafted their own version (in their case 20% time). Gmail, AdSense, Google Maps and Google Talk were born from 20% time. I’m not saying you need to give employees a day a week to do what is interesting to them, but I am saying there are ideas ruminating in the minds of your employees. You need to create a mechanism to get them out. Fund some pilot projects that come from employees. You might find a future cannonball.

Here’s a quick bullet primer as you begin your exercise –

  • Use speed as a differentiator – Make a product variation where the price is cheaper but delivery is slower or make a product variation where the price is higher and delivery is faster.
  • Use geography – Limit the reach of your bullet. If you’re going to start delivery, do it in a small radius. If you’re going to introduce a new product, only offer it in one of your locations.
  • Remove risk – Use a freemium/premium model – a stripped down version for free, a version with more features for a fee.
  • Build testing into the bullet launch – Take advantage of A/B testing. You can keep an existing product or customer experience for a control group, then offer your “bullet” offering in another group. Or you can make a couple of similar bullet products (or messaging options) and launch them together. Track them side-by-side. If your bullet offering is sold online, there are dozens of tools that will facilitate this.

 

Select two or three bullet opportunities from your list, recruit a project sponsor from your team for each of the bullet opportunities, create the bullets and launch them. Measure demand and solicit feedback. Be brave enough to kill the bullets that are too far from the bullseye, then be relentless iteratively honing and relaunching those that show promise – eventually crafting cannonballs.

The One Year, Thirty Minute Challenge :: Week 36 :: Technology :: Big Data

According to Statista, in 2010, the total of amount of data collected worldwide was 2 zettabytes – or to use a unit of measurement you might be more familiar with, that’s 2 trillion gigabytes. In 2024, that number is projected to hit 149 zettabytes. All that data isn’t kept, so IDC predicts that by 2025, the world’s accumulated datastore will be 175 zettabytes. According to Forbes, we (collectively) generate 1.7 megabytes of new data per person, per second. And here’s maybe the most interesting fact of all, according to IDC, less than 5% of that data will be analyzed.

So, why is any of that important in the world of the One Year, Thirty Minute Challenge? Companies who capitalize on the data available to their organization by –

  • Identifying what parts of that data directly impact their financial performance
  • Making meaning of that data with expert analysis
  • Turning that analysis into actionable insights
  • Changing organizational behavior based on those insights
  • Measuring the financial impact of those changes
  • Making additional changes based on those measurements

are seeing results. Here are a few examples from Tech Republic.

  • Supply chain safety and theft detection enables companies, with help of item-placed sensors and business intelligence, to reduce in-transit theft rates of supplies from 50% to 4% and to detect when the environmentals or seals on shipment containers have been compromised.
  • Logistics tracking and routing using business intelligence and machine-based data/sensors optimize delivery routes and driver habits creating fuel savings and better service.
  • Collections work at companies is avoided by learning more about customers who are behind on their payments through big data aggregation and business intelligence that can predict who in good faith can pay their debts with a little help–and then helping these customers keep their purchases and keeping companies from having to write off defaults.
  • Buying habits and preferences of consumers are better understood and lead to increased sales.
  • Predictive maintenance enables urban tram systems to stay online, reroute traffic where necessary, and flash adviser alerts to customers over their mobile phones while repair crews are dispatched to replace faulty components before the components actually fail.

Big Data doesn’t just refer to just the volume of data available today, it encompasses the “4 Vs” of Big Data –

  • Volume – Certainly volume is an important part of the equation. We have internal data from our CRM and ERP systems that tell us about vendor performance, product performance, customer behavior, employee performance and a host of other things. We have external data from social networks, online review sites and more. Because of the Internet of Things (IoT), we have data that originates not just from the actions of our employees or customers, but from inanimate devices connected to the internet. So, we can know the number of times a door opens and for who, the temperature inside a shipping container and when a client’s copier is low on toner.
  • Variety – This data comes at us in multiple ways. Structured data from internal systems where we’ve controlled what is collected and how and unstructured data from external sources. We might get a text from a customer with a video of the dishwasher we just fixed showing us that it’s still doing what it was doing before we “fixed” it, a Google review, a Twitter DM, a reading from a sensor on our delivery van alerting us to a tire pressure problem and the list goes on.
  • Velocity – If the previous two aren’t enough, maybe the most daunting is the speed at which it comes at us. Last minute’s data reporting that all is well, is superseded by this minute’s data reporting a problem on the factory floor or a customer unhappy with your product or service. Multiply those by the number of inputs (customers, employees, vendors, sensors) and it can seem overwhelming.
  • Value – In actuality, this is the one that matters most. Of all the data collected by your organization, what really impacts financial performance, customer experience and employee wellbeing (ability to do their job effectively and efficiently)?

One more thing before we jump into this week’s exercise. Big Data requires different skills and tools than the traditional reporting you’ve pulled from your internal systems. First, because of the mix of structured and unstructured data, you’ll need a data management infrastructure that can manage both. Second, you need someone who can help you navigate this new world. You can hire a data scientist or you might opt for outsourcing this part of your work to a vendor specializing in Big Data Analysis. The most rudimentary Big Data analyses are looking for trends (each month for the past six months, distributors of our product in the Southeast have reported a stock out. Each month, it’s been earlier in the month than the month before), patterns (customers whose first purchase from us is product X never make another purchase, but customers whose first purchase is product Y have an 80% chance of being a repeat customer), and correlations (in the Fall, the first time the temperature dips below 50 degrees canned soup sales double and stay at that level until the first time the temperature hits 60 degrees in the Spring). A Data Scientist can help you start thinking in this vein. Third, in addition to the infrastructure tools to do the heavy lifting, you need visualization tools that help you easily see what this large amount of data is telling you. Even if the data scientist tells you everything you need to know, you want to roll this information out to everyone in the organization who can benefit from it. Good visualization tools will allow them to consume large amounts of information (and make sense of it) more easily.

For this week’s exercise, I want you to identify some problems or opportunities in the organization where Big Data-generated insights might make a difference. Here are some thought starters –

  • More callbacks on service calls – Is it the same technician? Are they working on the same brand of equipment? Are replacement parts from the same vendor failing at a high rate?
  • Inventory management is more challenging than it should be – Can you get access into distributor data so you can see when distributors are most likely to place a reorder? Is a single vendor slowing production with late or defective products?
  • Customers seem uninterested in a new product or service – What is the factory defect rate on this product vs the defect rate on its predecessor? Have customers who purchased the product commented on social media regarding the product? Is it especially unpopular among your customers who purchase another product from you?
  • We have too many employees during some shifts and not enough during others – Can you examine sales by hour for the same day of the week last week or the same week last year? Can you examine the nature of sales during each shift – selling a hand-dipped ice cream cone is more labor intensive than selling a bottled soft drink?

Take your list and contact a Big Data company for a consultation. See if it makes sense to do a pilot project.

Big Data is the foundation for technologies like Machine Learning – the improvement of computer algorithms through experience (people who bought this book also bought this book, powering your Amazon recommendations) and Artificial Intelligence – when a system “perceives its environment and takes actions that maximize its chance of successfully achieving its goals” (think Big Blue playing chess against a Grand Master, examining the chess board and making the optimal chess move).

Of all the technology assets in your company, data is the most important. It catalogs the past behavior of your employees and customers. And the best predictor of future behavior is past behavior. Don’t neglect the power of this asset to solve problems that have puzzled you for a long time.

The One Year, Thirty Minute Challenge :: Week 35 :: Finance :: Capital Budgeting

It’s that time of year when companies look at their capital budgets for the upcoming year. Capital budgets differ from operating budgets in a couple of important ways. Capital budgets represent a trade – swapping one type of asset for another – $30,000 in cash for a $30,000 delivery truck, $100,000 in cash for a $100,000 enterprise software package. These capital purchases are reflected only on the Balance Sheet. Later, they make their way to the Income Statement and Balance Sheet a chunk at a time using an accounting mechanism called depreciation. Depreciation is driven by the “class life” for each capital purchase. At the time of this writing (August 2020), IRS guidelines set the class life for real property at 39 years, office furniture at 7 years and autos and trucks at 5 years. So, for our $30,000 delivery truck example earlier in the paragraph, we’re spending the physical $30,000 in cash now and reflecting the purchase only on the Balance Sheet – the cash comes off, the truck goes on. Going forward, we’re going to recognize the depreciation on both the Income Statement and the Balance Sheet. Each year, for the first five years we own the truck, we’ll see $6,000 of depreciation expense on the Income Statement and $6,000 removed from the value of the truck on the Balance Sheet (in actuality, it will be accumulated in a single account with all the rest of the depreciation). Conversely, operating budgets are for those expenses that don’t represent a “swap” of assets. Salaries, utilities, and every other non-capital expense happen here. The accounting piece is very simple – reduce cash (on the Balance Sheet) and recognize the expense (on the Income Statement).

The goal of this week’s One Year, Thirty Minute Challenge, is to begin building a capital budgeting process that you can use this year and sharpen in the upcoming years. Keep using it and refining it so it always serves your organization well. Here’s a high-level outline. Your job is to flesh out the steps and fit it to your organization.

Let’s jump in –

Identify Potential Capital Budget Items – The company’s strategic direction and operational necessities should drive this part of the exercise. Typically, there’s no shortage of items clamoring for your capital expense dollars. You might want to enter a new, promising market that requires a new office, new equipment, or new vehicles. You might have to replace worn-out factory machinery or desktop computers to continue existing operations. You might need new equipment to comply with recently mandated government environmental regulations. You might be able to lower manufacturing costs by capitalizing on a new process, but it requires retooling the factory.

Estimate the Financial Impact of the Proposed Capital Budget Items – Using the best information you can gather (from vendors, from your sales, operations, and finance experts) determine the financial effect of the proposed projects on your organization. What will the item(s) cost to obtain? What will the item(s) cost to operate in the first year and all subsequent years? What additional revenue will the item(s) generate in the first year and all subsequent year? If the items are available from multiple vendors, compare item features, benefits, costs, and expected revenues for each option.

Evaluate the Proposed Items and their Financial Impact – Typically, you’ll begin your capital budgeting process with a pool of money you’re ready to devote to capital projects. After you’ve gathered all the information during the previous step, you’re ready to evaluate the proposed projects, hopefully using more science than art. Regulatory compliance gets first dibs since failure to comply could put the ongoing operation of the business in jeopardy. The remainder of the projects should be evaluated by the finance folks using some tried and true capital budgeting metrics that we’ll discuss shortly, but a couple of things first. In many cases, the money to be spent will come from cash on hand. That money isn’t free. If it sat in an interest-bearing investment, it would have a return. For purposes of discussion, let’s say the return on the cash on hand, if left in the investment, is 3%. The return on investment for the proposed capital project needs to be more than 3%. If the money for the capital project is going to be borrowed at an interest rate of 5%, the return on investment for the proposed capital project needs to be more than 5%. You get the idea – the return on the project needs to be more financially beneficial than doing nothing. Clearly, regulatory capital expenses get a mulligan here. There may be no financial benefit to the project. In fact, there might be only financial detriment. But, most likely, the financial detriment is far less than the impact of closing the company. In these cases, the increased costs must be passed along to consumers or be borne by stockholders in the form of lower profits.

Let’s talk about five of the most commonly employed methodologies for evaluating capital projects –

  • Payback Period – How quickly will the cash inflows generated by the investment pay back the initial investment? If the initial investment is $10,000 and the investment generates $5,000 a year in additional cash, the payback period is two years. This method is quick and simple, but it doesn’t take into account the value of cash inflows after the payback period or the time value of money.
  • Net Present Value (NPV) – This methodology compares the present value of all future cash inflows resulting from the project versus the present value of all the current and future outflows required to execute the project.
  • Profitability Index – The present value of all future cash inflows associated with the project divided by the present value of the current and future cash outflows associated with the project.
  • Internal Rate of Return (IRR) – This methodology identifies the rate at which the project breaks even by examining the cash inflows and outflows.
  • Modified Internal Rate of Return (MIRR) – This methodology is similar to the IRR except that it recognizes that cash inflows can be reinvested at a rate that is different than the rate at which they were generated.

Each of the capital projects under consideration must be evaluated in light of these financial metrics (and possibly others). The purpose of this week’s exercise is not to get deeply in the woods, but there are always additional considerations like tax consequence and accounting methodologies. Your finance folks can guide you into a complete discussion.

Most years, you’ll have more potential projects than you have money. The objective measures above will help the projects with the highest return on investment (ROI) bubble to the top.

Occasionally, you’ll be choosing between proposed projects with similar returns – sometimes offering mutually exclusive options. At that point, the “art” kicks in. The projects that most successfully move your strategy forward, the influence of non-financial data (market sizes, trends, patterns), management knowledge and intuition, and more will inform your decision on which projects to pick and which projects to reject or defer.

Implement – After the winning projects are selected, execute like crazy. Depending on the type of project, you might need to create a project team (hope you included that in your capital budget). Create schedules with timelines and milestones, align vendor resources, employ a solid execution framework, and communicate well. You want to implement the project as quickly as possible so it can start generating the cash inflows.

Measure – The capital budgeting tools were forward-looking. After implementation, rigorously track the actual results. Hopefully, the project is performing better than you projected. However, one of the worst mistakes a company can make is succumbing to “sunk cost fallacy”. If a project is seriously underperforming and there’s no remedy in sight, it’s noble to pull the plug. The fact that you’ve already spend $50,000 or $5,000,000 becomes immaterial. Continually investing resources with the hope that the project will magically turn around is a mistake rooted in pride. Track the performance of each project so you have better information for your next round of capital budgeting.

Capital budgeting, many times, represents an opportunity to make a big leap for an organization. A new market, product, process, or system can catapult a company into the national spotlight or into a level of revenue never even dreamed of before. Take this exercise seriously.

The One Year, Thirty Minute Challenge :: Week 34 :: Strategic Planning :: Creative Destruction

Someone else would like to take your customers. Any time an industry, company, product or service attracts a crowd (and the revenue the crowd generates), there will be host of fast followers who show up and try to siphon off some of that revenue for themselves or try to grow the size of the market so they can have a piece of the market share and revenue.

Those fast followers have a few options – create a better version of the original product or service, create a cheaper version of the product or service, create a product or service that is complimentary to the original product or service or re-solve the original problem in a radically different way – rendering the original product or service obsolete.

Let’s illustrate with personally curated portable music. For years, portable music took the form of radio. Other than choosing a station that played the genre of music you liked, you were unable to curate your own listening. Then, in the mid-1960s, Bill Lear (of Learjet fame) invented the 8-track tape player (I had one in my first two cars). You were able to choose albums produced by your favorite artists. It was subsequently replaced by cassettes (again complete albums), then CDs (still complete albums), then downloadable digital songs (on iPods and similar MP3 devices) and now streaming online music (the latest two both offer choices of mingling genres, albums and individual songs). Each of these successor technologies destroyed the commercial viability of the previous technology. Companies that failed to embrace the successor technology became irrelevant and, in some cases, closed their doors.

Recent history is loaded with companies that failed to re-invent their value creation proposition and paid the price – Blockbuster, Kodak, Polaroid, MySpace, Yahoo, Blackberry – just to name a few. These all have a tech component but there are plenty of non-tech related companies that have failed to remake their value creation activities – Toys R’ Us, Sears, Radio Shack, Borders, Circuit City.

Joseph Schumpeter popularized the term “creative destruction’ in his 1942 book Capitalism, Socialism and Democracy. According to Schumpeter, the “gale of creative destruction” is the “process of industrial mutation that continuously revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one”. This is what makes capitalism an engine for creating wealth for those who identify a problem and find a commercially viable solution to that problem. At the very same time, those who cling to solutions that are no longer commercially viable will find their ability to create wealth wiped out.

Let’s jump into this week’s One Year, Thirty Minute Challenge. I have three goals for this week’s exercise –

  • I want you to examine your value creation activities for your existing product or service.
  • I want you to ponder successor products for your existing products or services.
  • I want you to examine the competitive landscape for someone who is introducing a product or service that poses a threat to your existing products or services.

Value Creation for your Existing Product or Service

Your existing product or service might be in demand and effectively solving a customer’s problem. That’s great. But what if a competitor could introduce a similar product, but at half the price due to a new manufacturing technology? Not all creative destruction means retiring or remaking an existing product or service. It might mean destroying and remaking the methodology for creating or delivering your product. Are there new technologies, new contract manufacturers, new materials or even streamlined processes that would allow you to manufacture your product or service faster, with higher quality or cheaper? Are there new delivery channels or options that would allow you to get your product or service in the customer’s hands faster, cheaper or with a better customer experience?

Successor Products or Services

When you’re pondering creative destruction, the goal is not always a better mouse trap. Before cars were introduced, people just wanted faster horses. They never envisioned a “horseless carriage”. You’re after a better solution to the problem you’re solving for your customers – think digital camera vs traditional film or Netflix vs Blockbuster. Is there a better way to solve the same problem for your customers? Can you piggyback on other infrastructures or technologies? Can you partner with another company to create something that neither company could do on their own? Is there a methodology from another industry that’s never been used in your industry, but could be leveraged to solve your customer’s problem?

Surveying the Competitive Landscape

The worst place to be in the world of creative destruction is behind the curve. Someone else has already solved your customer’s problem in a better way and they’re already eating into your customer base. The early adopters have switched to the competitor’s product or service and it appears to be going well. One quick warning – the scrapheap of failed businesses is primarily populated by companies who got to this point and stuck their head in the sand – “Nobody wants a computer in their house”, “The internet is just a fad”, “People want real pictures they can hold in their hands”. Don’t be that company. Take competitive threats seriously. So, what do you do as you survey the landscape? If you’re still strong and the successor product is just getting out of the gate, they might be an acquisition target. In the right circumstances, you might be able to buy them outright. If they’re undercapitalized, they might need some cash to grow and you might be able to buy a significant stake and ride the elevator up with them. In other cases, you might be able to create a competitive product and leverage your brand, bigger war chest and existing customer base to beat back the new entrant.

The big idea in this week’s exercise is to never be lulled into complacency. Great companies earn it every time they go into the marketplace. They reexamine their products, services and delivery methodologies to make sure they are always solving the customer’s problem in the best way possible.

The One Year, Thirty Minute Challenge :: Week 33 :: People :: Core Values

There has to be some mechanism by which employees gain admittance to your organization. Clearly, if you run a hospital and you need a thoracic surgeon, you’re looking for someone with the right education, credentials and experience. You employ a similar approach if you’re hiring a plumber, chef or accountant. But down through the years, hiring someone just because they have the right technical skills has resulted in a breathtakingly large number of terrible hires. “Qualifed” hires have produced sub-par work, destroyed morale, denigrated co-workers, undermined bosses, abused customers and committed a truckload of other organizational “sins”.

If technical skills are only one part of the screening process, what else should it include? In my opinion, you start with the core values of the organization. Core values are the personal and professional beliefs of the founder(s) that make their way into the behavior of the people in the organization. They’re manifested in the priorities of the organization. They are the personal rules the founder(s) would live by no matter where they worked. They are the personal rules that the founders would follow even if they became detrimental to the organization. They are the non-negotiable ideals that govern interactions within the company (team member-to-team member), with customers and with vendors. To borrow a phrase from the US founding documents, they are the truths that are self-evident. Employees who don’t embrace and live out these values are destined to feel out of place in the organization.

Some things in an organization are a creative process – writing a mission statement, defining a vision and, to a certain extent, even building a culture. But identifying core values is a discovery process.

When I do a core values exercise with a client, a few “values” surface immediately – honesty, integrity, hard-working. I always make clients throw these out. These “price of admission” values don’t count. No employer goes looking for employees who are dishonest, morally bankrupt, or lazy. The core values you’re after are those 4 – 8 overarching ideas that make up your organization’s behavioral compass.

I’m always reluctant to use my company to illustrate a point but in this case, it might make sense. Here are three of the core values of ClearVision Consulting –

  • A love for small business owners – I hold in the highest regard those people who have risked their personal wealth and banked on their God-given talent to uniquely solve problems for their target clients. Their desire to build a better life for themselves and their families must be celebrated. They deserve to have someone in their corner equipping them and cheering them on.
  • A desire to dig deep and understand the client’s business – I will learn as much about the client’s business as they will allow me to learn. Over the years, as I’ve done research into process improvements or created strategic plans, I’ve loaded produce on a truck, checked in resort guests, stocked shelves in a store, sat in board meetings, sat in staff meetings, conducted interviews, evaluated vendors, written SQL code and a few hundred more things. More times than I can count, I’ve fielded calls from executives who had questions about how things work inside their organizations and I’ve been able to answer them because I’m intimately familiar with their work. If I don’t know the client’s company intimately, how can I help them craft strategies that will take them where they want to go and remake processes that will transform their value creation activities?
  • A commitment to treat client resources like they are my own – before I recommend that a client spend money, hire or fire an employee or invest in a new product or market, I ask myself if I’d make the same investment with my own resources. They deserve someone who will preserve their hard-fought-for capital.

If someone came to work with me and didn’t hold to these values, they’d never survive in the organization. This is who I am and, as far as I’m concerned, this is how business should be done. This is the way core values work. They are heart-felt beliefs that translate into real-life actions in the organization.

Before we jump into this week’s exercise, let me remind of how you’re going to use your core values. I used employment as my opening example and that will be an important application, but you want to use your core values to judge all future associations. If you use vendors who share your core values, they become true partners. If you market to customers who share your core values, they become strong referrals partners for you and might even give you a couple of mulligans if you drop the ball.

So, how do you find the core values of your organization? The answers to these questions should get you there.

  • What business behavior makes you mad when you see it? Why does it make you mad? Which of your closely held values is “offended”?
  • What are the worst ways your employees could drop the ball? What could they do that would ruin your company’s reputation? Lose customers? Make you feel ashamed of the company? Which of your closely held beliefs about how to do business are being violated?
  • If you worked for another company, what personal rules would you live by (taking care of customers, looking out for the company’s equipment, etc) even if the company’s rules were less stringent?
  • What behaviors would you maintain even if it were detrimental to the company financially?
  • What behaviors do you admire in other people and companies and seek to emulate? Why?
  • When customers speak favorably about your company, what qualities do they cite? What did you or your employees do to make them get that vibe?
  • What are the jointly revered business beliefs and behaviors in the core team (the people who’ve stuck around the longest and who constitute the DNA of the company)? What makes them stay and stay loyal?

Get answers to these questions down on paper or a whiteboard and connect some dots. What themes surface? Look for approaches to work (e.g. data-driven decision-making or brutal honesty among team members), approaches to customers (e.g. highly tailored solutions or first call problem resolution) and operational priorities (e.g. work products that don’t require rework or open book management). Select four to eight and include a short description with each one. Here are a couple of examples –

  • Balance – we control our schedule and successfully manage our personal and professional priorities and accord that privilege and the trust that goes with it to everyone in the organization.
  • Rewarding – our work brings exceptional value to the client and enriches us personally and professionally.

Roll your list out to a few folks in the organization. Ask them, “Is this us?” If they say, “no”, ask them why not. That might indicate that you, as a leader, aren’t living out your values in the organization. Take their feedback and return to the drawing board. Repeat until you’ve got your final list.

After you have it, write questions to use in your interview process that help job candidates explain how they embody these values. If they don’t have the values, don’t hire them. Then use the values to vet vendors and write marketing content. You’re looking for people who, as Simon Sinek would say, “share your why”.