Sunday, October 28, 2007

Strategic Insight in Three Circles

Sometimes the simplest tools are the most elegant and powerful.  In this month’s Harvard Business Review, Joel Urbany and James Davis of Notre Dame’s Mendoza College of Business suggest that critical strategic insights can be gained from populating a template involving just three circles.
Although most executives can recite the truism that a company must build a distinct competitive advantage in order to grow and be profitable over the long term, many have only the fuzziest idea what that really means. . .We often encounter these executives in our consulting work and in our classrooms. We tell them to draw three circles. Those circles, placed in the proper relationship to one another, provide a good visual representation of what strategy—both internal and external—means. 
While Urbany and Davis visualize this as a team exercise, you might try it first by closing your door for an hour, turning off the phone and email, and utilizing the tools of yesteryear: a pencil and a piece of paper.  Here’s how it works.

1. Draw a circle and fill it with the things that customers value and why—that is, Customers’ Needs. Depending on the complexity and breadth of your offering, you may need to focus on a specific customer segment. Note that this exercise, when done in a group, may reveal brand new or emerging opportunities for value creation. Urbany and Davis explain, “The first circle thus represents the consensus view of everything the most important customers or customer segments want or need.”

2. Now draw a second circle. You’ll fill this one with how customers perceive Company Offerings. This one could be especially tricky in a group exercise, because (short of good, hard analysis), there may be plenty of opinions about how customers perceive your product and brand.

3. Now “slide” the two circles together so that your specific set of offerings overlap with customers' needs. Let’s hope that the overlap “feels” good and solid, so that there’s a high comfort level that you are providing some significant benefit or set of benefits that the customer requires. Urbany and Davis tell us, “Even in very mature industries customers don’t articulate all their wants or problems in conversations with companies. ..Customers’ unexpressed problems can often become a source of relationship building and growth opportunity.”

At this point, working on your own, you can probably see a number of areas where further investigation may be required—even though you think about this stuff everyday. And, working as a group, it may be time for a lunch break, as (at least the first time through) there is bound to be a fair amount of debate around both circles, and their overlap.

4. Now it’s time for the last circle, which represents how customers perceive the offerings of your competitors. In a group setting, this may be the circle where there is the least amount of agreement. (Which is why you’re trying this exercise in your office with the door closed, first. Forewarned is forearmed.) This third circle slides up to overlap the first two in a variety of interesting ways, as follows:

Each area within the circles is strategically important, but A, B, and C are critical to building competitive advantage. You should ask questions about each.

For A: How big and sustainable are our advantages? Are they based on distinctive capabilities? (Urbany and Davis note: “But the biggest surprise is often that area A, envisioned as huge by the company, turns out to be minuscule in the eyes of the customer.”)

For B: Are we delivering effectively in the area of parity?

For C: How can we counter our competitors’ advantages?

You first, and later the team, should form hypotheses about the company’s competitive advantages and test them by asking customers. The process can yield surprising insights, such as how much opportunity for growth exists in the white space (E).

Another insight might be what value the company or its competitors create that customers don’t need (D, F, or G). This plays, by the way, to Christensen’s Innovator’s Dilemma: Where have you pushed the technology or offering so far that folks stopped seeing value in it?

Perhaps the greatest insight will be how much opinion and conjecture there are behind your "analysis," instead of data-based knowledge. That alone—knowing what you don’t know—may be one of the most useful outcomes of the exercise.

Thursday, October 11, 2007

The Myths of Innovation

The stickiest thing on earth is a myth.  Columbus discovered America.  Washington could not tell a lie.  Edison invented the electric light.  Batman could beat Superman.

See? Powerful, sticky, charming, and wrong.  And yet, we still love them.

We learn myths to help us cope with some new, complicated situation or body of knowledge. Then we get a little experience, and we spend the rest of our time unlearning the myths so we can get something useful accomplished.

If we’re lucky, that is. Because, inevitably, the truth is more interesting and richer than the myth, and the key to forward progress.

Thursday, October 4, 2007

Today I Turn 50

I turn 50 today.  I was born on October 4, 1957, the same day Sputnik launched the Space Age and, in its panicked wake, NASA, DARPA, and the Small Business Investment Act.  Their children would be Route 128, the venture ecosystem, and Silicon Valley.

1957 was somewhere just past the mid-point of the Baby Boom and turned out to be the largest birth year in the midst of the largest baby boom in U.S. history. So, at a time when the country was only 60% of its current population, we graduated the largest batch of infants ever from hospitals, and then on into high schools, colleges and the job market. The class of 1957 has been fighting for position our entire life.

At 50 I am smart enough to ask for your sympathy on this point, and wise enough not to wait around for it. Just know, as you go to the polls to vote on the bond issues to renovate and expand all of those elementary schools built in the 1960s: They were built for us.

So, we've had to adjust to the Space Age, the Cold War, the British invasion, Kaizen, the oil crisis, globalization, the knowledge-based economy, and Digital Sapien. We survived folk music and disco and grunge and Neil Diamond. We've gone from three black-and-white channels (and some very weird puppets on PBS) to satellite TV and Tivo (and, come to think of it, still some very weird puppets on PBS). We used to have a single pair of "sneakers" that we wore for any and all sports, and now have made room in our closet for running, cross-training, tennis, hiking and biking shoes.

And speaking of that, we have walk-in closets that are as big as our bathrooms used to be, and bathrooms as big as our bedrooms used to be. In fact, I grew up in a house built around 1910 that had no shower--only a bathtub in a single upstairs bathroom. We got two adults and three children cleaned and fed and out the door every morning by 7:30 a.m. We did not know at the time that we were breaking the laws of physics.

Our class and its Boomer kin have perhaps traveled the furthest technologically: We are the people that can program Tivo and improve reception with rabbit ears. We may have been the only junior year high school Physics class forced to learn the slide rule while hiding our Bowmar Brains under the desk. We are still capable of changing a typewriter ribbon and text-messaging with our thumbs. And, not to put too fine a point on our technological flexibility, but we know how to rip MP3 files (legally, of course) and how to tape a nickel to a tone arm of a record player so the record won't skip.

Now that I think of it, we've bought "Sympathy for the Devil" on vinyl, cassette, CD, and iTunes. And we would have bought it on 8-track had that technology lasted more than five minutes. No wonder the Rolling Stones are so rich.

I suspect, given our capacity to adapt, we'll make it through the digital economy and Web 2.0, we'll weather global warming and outsourcing, we'll survive the meltdown of the nuclear family and the polar ice caps, and we'll do just fine with whatever the next half-century throws at us.

To be fair, we've had our share of breaks as well. Being born in 1957 kept us out of Vietnam and even gave us a free pass on the draft.

Being 50 creates a set of indelible markers. We are the first-graders who got off the bus to find our mothers in tears at the news of President Kennedy's shooting. We stayed up late to watch Neil Armstrong walk on the moon. We were building our careers when the Challenger exploded and were beginning to really hit our stride on 9/11.

The trip to 50 is also about perspective. The First Lady has gone from being our grandmother to our mother to someone we might have dated. The oldest veterans in professional sports, hobbling around in extended careers, are still just youngsters. We place our lives in the hands of experienced doctors twenty years younger than us. We hire people in entry-level jobs who were born in 1986. We remember when "Made in Japan" meant something entirely different than it does now. We miss getting prizes in cereal boxes. We ask people to "roll up the window" in the car. We still call CDs "albums" and occasionally say "it's quarter-to-two" when our digital watch says "1:45," and we know enough about the old Moxie not to want to try the new Moxie.

It helps, of course, that we were born into the Great Peace, and the richest, most powerful country in the history of the world.

So, what have I learned during my 50 years? Here are 13 very minor take-aways: 1. This is how you get old: One day you wake up and your face looks tired. You take a shower and your face looks refreshed again. A years later you wake up and your face looks tired again. This time when you shower, it still looks tired. When you go to bed you check again, and now it really looks tired. Now, you’re old.  2. Never be the first or last person to drink from a quart of milk.  3. If you haven't made at least three good enemies by the time you're 50, you're not really trying.  4. I saw an analysis that showed that Cal Ripken's career production would have been much better if he'd rested occasionally. I get that.  5. The worst musical mistake generations make is to carry their tired, old songs with them through life.  6. I own a mountain bike that is as expensive as my father's first car, and my grandfather's first house. We call that progress.  7. By 50, you begin to accumulate ghosts, the many people who have touched your life but who are now dead.  Many lived long, active, full, meaningful lives. To my children, they are stories, and a name on a family tree. It is a very odd feeling to have parts of your life slip away like that.  8. Speaking of slipping away, I have this sinking feeling that the Baby Boomers may be pitied as the last generation that didn’t regularly live to be 125, or maybe even 200.  9. Write this one down: If you turn the spout of the plastic lid so it lines up with the seam of the coffee cup, you will drip coffee on your clothing on the way to work. Guaranteed. 10. If you're explaining, you're losing.  Count on it.  11. When I first became a CEO I pulled aside one of my trusted board members and asked, "Any advice for a new CEO?" Without hesitation, he said, "Make your numbers." "Anything else," I asked? He thought for a second. "No. Just make your numbers." The secret to credibility? Make your numbers.  12. I agree with Homer Simpson when he said, “When someone tells you your butt is on fire, you should take them at their word.”

I was told once that if you can double your age and still reasonably expect to be alive, you're alright. I'm hanging onto that thought all day.