Posts Taged creative-destruction

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 28 :: Governance :: Change

The Greek philosopher Heraclitus said, “Change is the only constant in life.” True when he lived 2500 years ago. Still true now. That being the case, we ought to be pretty good at it. But we’re not. Inevitably, when we introduce change into our organization, it’s a struggle.

We like what we know. It’s comfortable and we know what to expect. So when change comes, for a good percentage of us, we dig in our heels. There are a small number of change addicts out there who embrace it, but they are few and far between.

Joseph Schumpeter (1883 – 1950), an Austrian economist who immigrated to the US and eventually became a US citizen, made a compelling case for change in the workplace. In fact, the change he advocated for was so far reaching, it required periodic “destruction”. Schumpeter introduced the idea of creative destruction in 1942. He taught us that if we are making money, competitors will work to find alternative ways to meet those same customer needs so they can make that money instead of us. So, to succeed for the long-term, we must be ever vigilant to look for ways to improve on our work and do a better job of meeting customer needs, sometimes requiring that we blow up what we’ve done and rebuild it. For a business, it’s the ultimate change – shoot the horse you’ve been riding and get a new horse. Think about the evolution of home entertainment over the last 30 years – VCR to DVD to BluRay to streaming services. Each change in technology required companies to abandon formerly revenue generating products and build new, different ones. Before we move on to this week’s One Year, Thirty Minute Challenge, let’s make a quick list of companies who were confronted with a mandate for creative destruction, refused and subsequently died or are dying now – Kodak, Blockbuster, AOL, Blackberry, MySpace, Xerox, Polaroid and almost every newspaper in the US.

The goal of this week’s exercise is to create a plan you can utilize when you’re introducing change into your organization. That change might be as sweeping as replacing a product line that has generated the bulk of your revenue for the past 10 years, as far-reaching as replacing an enterprise-wide software system or as personal as changing the health insurance provider in your benefit package. Use the though-starters below (listed in no particular order) and supplement with your own to create a change management plan that will equip your team for the one constant – change.

  • Start with why – Change in an organization is never random. Explain the rationale for the change – previously unseen market conditions, changing customer tastes, under-performing vendors, software no longer supported, need new functionality, price, etc.
  • Explain that “here” is unacceptable – One of the most difficult things I’ve run across in introducing change into an organization (a regular occurrence in my work) is a longing for the status quo. The status quo sometimes is laden with emotion because it represents the world as designed by a beloved founder (many times a family member). When we introduce change, it seems like we’re dismantling the founder’s legacy. In reality, change often mirrors the work of the founder – who created the original product or service to meet the needs of the market. We are honoring their work by recalibrating for the needs of a new market. “Here” is never an acceptable alternative for a business. We must evolve.
  • Change is consistent with mastery – Everyone wants to be good at their job. As we become better at our craft, we change. We find new ways to do existing work. Introducing change gives us the opportunity to up our game and add new tools to our toolbox.
  • Change is consistent with lifelong learning – We encourage individual and team growth. Some change is evolutionary, some is revolutionary. When we introduce change into the organization, we add to our collective knowledge base which allows us to become more effective, efficient and serve customers more skillfully.
  • Invite people into the process – As much as possible, involve your team in every part of the change. For example, if you’re buying new enterprise software, don’t make it solely an IT decision. Invite users from every involved department into the evaluation, buying, implementation and training process. It will take longer, but employee buy-in will skyrocket.
  • Be vulnerable – The more complex the change, the more unknowns are out there. You, and other leaders in the organization, don’t know everything. It’s OK to say, “I don’t know” or “I need help”.
  • Be transparent – As change unfolds, be upfront about everything. When a vendor drops the ball, say so. If you decide to delay a portion of the project, don’t obfuscate and or make excuses. Trust will grease the wheels of change and trust comes from transparency and vulnerability.
  • Paint the picture of the future state – As a leader in the organization, it’s imperative that, as part of the “why”, you spell out the desired future state that will result from the change. How will the change make the organization healthier, how will the customer experience improve, how will the organization have better data for decision-making, how will employees be better trained or better equipped.
  • Be resolute – As I wrote this, I almost typed, “Be confident”. But in the context of changing the organization, being resolute is better than being confident. The commitment and subsequent actions to see the transformation through to the end is better than rah-rah speeches.
  • Seek and obtain sponsorship – Don’t lead alone during change. Recruit other leaders to join you in bringing change to the organization. Share the vision and project with those who can lead the charge with you. Focus on those who have the biggest stake in the transformation. They will bring along their teams and will influence those on adjacent teams.
  • Make a roadmap – Identify the beginning, milestones along the way and the end. Flesh out this schedule with activities, status meetings, status reports and the people accountable.
  • Communicate – If this list were in order, this would be close to the top. Communicate before, during and after every phase in the change process. Communicate information, progress (included milestones reached and missed) and the transformation already happening during the implementation of the change. I like the idea of appointing a scribe for the change process – separate from the change manager (project manager, CEO, consultant) and the other project sponsors.
  • Celebrate – When you reach the end and begin to experience transformation in the organization, throw a party. Celebrate those who did the work, the work itself and the impact you’ll have on the organization for years to come.

 

If you’ll use this week’s exercise to put together a change management toolbox using these ideas (plus any additional that you come up with), you’ll be ready to lead your organization through the inevitable, necessary changes that will make your organization ready for the future.

 

Is a Strategic Plan Really Necessary?

You’re making money, customers are buying your products or services and your employees seem happy? Do you really need a strategic plan?  Isn’t strategic planning for big companies with lots of money and lots of employees?  Or maybe for companies that are struggling?  If things are going great, why mess with it?

Read the ten statements below, answer TRUE or FALSE, and we’ll chat at the end.

 

I know exactly what I want the business to look like 1 year, 3 years and 5 years from now.

  • I don’t mean you want to be making more money, I mean –
    • you have a clear picture of new product and service offerings
    • you’ve identified new markets or new target clients for growth
    • you have a plan for hiring and/or developing employees that can get you where you want to go
    • you’re already putting together the production, service and technical infrastructure to support the new products and market
    • you know how you’re going to finance your plans

 

When my leadership team meets, we talk regularly about long term plans.

  • Current operational problems are extraordinarily demanding and will consume all your time.  It’s good and right to talk about and solve them, but to borrow from Jim Collins, this is a perfect time for the “genius of the and”.  To remain viable in the long-term, we must effectively manage the organization today AND successfully position it for tomorrow.

 

The employees in my organization share my passion for the business.

  • You’re the boss, no one will care more than you – right?  You might be surprised.  Social scientists assure us that engaged, empowered employees will go far beyond just punching the clock.  Clear, concise communication and commitment to an overarching purpose are the starting place.

 

I know where we are vulnerable to competition.

  • A correct assessment of the competitive environment is much more than examining the companies that do the exact same thing you do for the exact same set of customers.  It also involves examining companies that compete for the same disposable dollars.  It involves surveying replacements for your good or service.

 

My employees know what success looks like in our business.

  • This might seem apparent, but unless you’ve assembled an easy-to-understand scorecard with hard and soft metrics, employees with very narrow job responsibilities might not know if the enterprise at large is succeeding or failing.

 

If I was gone tomorrow, the business would continue to function.

  • At the risk of sounding harsh, if the organization can’t run without you, you’ve built a cult, not a business.  Skilled execution of a strategic plan will force you systematize the business, building it around principle instead of personality.

 

I have a steady stream of new clients coming into the business and they are the clients I want.

  • New revenue streams, both from new products and from new customers are the lifeblood of any organization.  But as organizations mature and are better able to identify and serve the customers to whom they deliver the greatest value surplus, they can narrow their focus.  This focus allows them to build relationships with customers who are willing to not only grow the relationship, but also act as an advocate for the brand.

 

I have a process for identifying changes in the organization that would allow us to deliver our product better, faster or cheaper.

  • The inward-looking part of a strategic planning exercise focuses on the component parts of the value creation process.  How does the organization transform inputs into desirable outputs deriving the greatest amount of utility from the resources available?  The strategic planning process is about challenging the status quo, asking probing questions about procurement, people, processes, money and more.

 

I have a reliable feedback mechanism for customer sentiment.

  • Sam Walton observed that customers have the ability to fire everyone in the company from the CEO down.  That being the case, it’s critical to understand their perception of your products, people and processes.  A reliable feedback loop is the lifeline to these important stakeholders.

 

I have a plan of action to break and rebuild my business model to keep it fresh and safe from new, innovative entrants.

  • If you’re making money and satisfying an important customer demand, there are competitors who would love to take those customers and their money away from you.  If they can satisfy those demands better or more economically, your business is in jeopardy.  With an existing business relationship, you have an enormous advantage.  However, an unwillingness to innovate or even re-invent your business, product or service can be a shortcut to irrelevance.

 

If you answered FALSE to any of these, I believe you should very seriously contemplate a strategic planning exercise. It’s incredibly easy to cling to the status quo and not deliberately create and execute a plan to build a healthier organization going forward.

Convinced and ready to go or still have some questions?  Either way is fine.  Click here to schedule a free, no-obligation thirty-minute conversation with me.  I look forward to learning about you and your business.