Over the past couple of decades I’ve spent an inordinate amount of time designing and redesigning business processes. I’ve studied the work of the Japanese manufacturing masters and seen how their work could be adapted in corporate legal departments. I’ve learned secrets of Chilean political prisoners and Israeli creative masterminds. And I’ve synthesized them into a cohesive and straightforward system for business process transformation.
This video explains in a straightforward and entertaining fashion the what, the why, and the how of transforming any kind of business process. It’s still a work in progress, so please leave any feedback you like!
Have you ever come up with a great idea and pitched it to customers and/or investors, only to have your financial justification picked apart like a carcass on the savanna?
Me, too!
And worse yet, if I was pitching to a group of people, they would each attack different assumptions or, worse, they would propose conflicting values for the same variable!
And sometimes, what I was proposing was unprecedented, and no one could really say what the right numbers were.
This problem vexed me for years, until I came up with the perfect solution! Want to know what it is?
What I am about to tell you is a multimillion dollar secret!
How do I know that?
Because the first time I used it, my client decided to spend four times their entire IT budget on a single project, when I offered two lower-cost alternatives to them.
So I tried it again on something smaller, and that client loved it.
I tried it on entire business plans, too. In each case, the client thanked me for giving them insight where there had only been rancor. (okay, rancor may be a bit of an exaggeration).
So here is one of the most valuable lessons (in dollar terms) I’ve ever learned.
The human brain is the most sophisticated pattern matcher and synthesizer ever created, but it’s not perfect. I can’t simply state a point of fact and know for certain that you will internalize it, even if I believe with all my heart and soul and have mountains of data to back it up. You will only believe the new fact to the extent that you can rationalize it with the entire set of existing beliefs/patterns in your head. [As proof, did you take that last sentence on faith to be true? Did you question it? But I digress…]
My ROI problem was an example of this phenomenon. I would present a perfectly rational model of the economics of a new system - one that I had internalized while creating it - and expect the customer to immediately “get it”. Their natural reaction was to poke at it based on their prior experience, which usually included unrealistic ROI scenarios. Can you guess the solution yet?
Let’s take a concrete example. A friend of mine wanted to get approval for a project to improve the usability of usability-savings-calculatorsome IT applications. How do you justify a project like that? By calculating the cost savings of the improved productivity. (Normally I’d prefer something more tangible, but this is a simple example) The number of effected employees is known, as is Accounting’s cost for the current tasks. But what about the improvement in productivity? No matter what number you pick, somebody is going to have a problem with it, even if you pick something way below the expected return.
The solution. Don’t pick one. Let your audience pick it. By building a simple model and letting them play with the assumptions, you provide a tool to help them internalize the dynamics of the decision. Here’s the one we built for our example:
[Note: These numbers are smaller than the real-world ones]
Now, in the presentation to the approvers, my friend could ask them what they thought the percentage should be, and let the audience see what effect changing that parameter had on the total return. Want to pick a pessimistic number? How about an optimistic one? In my experience, audiences invariably settle on a number bigger than the one I would have proposed if I had to give one number. But the real value of the tool is that it allows the group to interact and discuss scenarios and the internal assumptions they each have, and that interaction allows group members to internalize the ROI of the system.
The example is a very simple one. Typically there is more than one variable involved, but the concept scales nicely. The key is to have one page that shows the key variables/assumptions as well as the bottom line effect. This allows people to immediately see the effects of changing the value of any variable. They see which ones have big effects and which ones have small effects. Each change helps them to build a new pattern of understanding of the ROI. Go ahead and try it yourself. The ability to see the effects of changing multiple variables is very illuminating.
Let’s try something a bit more complex: a generic revenue model for money management firms:
[Click on graphic to open spreadsheet]
You’ll notice that most of the work and calculations are not shown on the main page, but are accessible on the detail sheet. This allows someone to check under the hood if they like, but keeps the main page focused on the assumptions and their effects.
There are a few other nuances I’ve learned along the way, and those you will have to pay me for. But you can succeed brilliantly with what you already know. Give it a try; you’ll be glad you did!
Want to know what the future holds for the I.T. outsourcing industry? I know, and I can tell you precisely how things will go, because it’s all happened before…
Have you ever heard of Li and Fung? Are you wearing clothes right now? If so, it’s a pretty good bet that one or more pieces came through Li and Fung’s supply chain. In the worldwide garment business, Li and Fung is the 800 lb gorilla, and they are light-years ahead of their competitors.
A few years back I did some work with a major clothing company here in the states, and learned about the garment industry supply chain. A couple generations ago the U.S. had a thriving garment manufacturing industry. But that was virtually wiped out by manufacturers seeking cheaper labor in other countries. China and India were the first countries to benefit from these moves, but many other countries in southeast asia, the middle east, and even the Carribean basin have textile manufacturing plants. At first, many of the major garment companies tried a vertical integration approach, where they owned all the pieces of the supply chain. This ultimately proved uncompetitive, since new factories with superior cost and capability were constantly springing up.
Enter Li and Fung, who made the following pitch to the garment companies:
We have thousands of partners in our supply chain that can meet any level of quality you desire. You give us the specs for a manufacturing run, and we’ll find the best suppliers at the best price and guarantee the quality of the merchandise. Even better, if you are flexible with the designs (e.g., button shape), we will work with our suppliers to create more economical alternatives for your consideration. Even including our fee, the price will be lower than you will get in-house or from anyone else.
And they consistently delivered on their promise. The China Apprentice has a must read profile on the firm. Excerpt:
So what gives L&F their advantage in supply chain management? The Li and Fung Research Center explains that the company has seven principles forming the pillars of supply chain management. The research group says the key is that the “supply chain must be flexible, agile, cost-effective and responsive. Nowadays it is more common for companies to collaborate in a global context where each of them focuses on its core competency and outsource the rest.” L&F has taken its core competency to the extreme by perfecting the science (and art) of outsourcing. The company follows the following principles to assure it stays at the leading edge of supply chain management theory and practice.
• Be customer-centric and market demand driven;
• Focus on one’s core competency and outsource non-core activities, in order to develop a positioning in the supply chain;
• Develop a close, risk- and profit-sharing relationship with business partners;
• Design, implement, evaluate and continuously improve the work flow, physical flow, information flow and cash flow in the supply chain;
• Adopt information technology to optimize the operation of the supply chain;
• Shorten production lead time and delivery cycles; and
• Lower costs in sourcing, warehousing and transportation
Read the whole thing!
So what does this have to do with I.T. outsourcing? The New York Times today ran a story titled Outsourcing Works, So India Is Exporting Jobs. It turns out that the same pattern of labor arbitrage that hit the garment industry decades ago is repeating itself in the I.T. outsourcing industry. And it looks like the major Indian outsourcing firms are leading the way. Today they are taking the approach of building their own centers in various geographies. Who will be the first to take the Li and Fung approach, and when? From the NYT article, it looks like Infosys Technologies is leading the current trend, but no major player seems to be focusing on the partnering model yet. Maybe Li and Fung should get into outsourcing….
Photo of silk factory in Uzbekistan courtesy of upyernoz at Flickr
I’ve been working on knowledge management projects for over 15 years, so I know a little something about information, so I feel qualified to answer the question:
Rob over at BusinessPundit links to an article describing new research that shows that Co-workers hoard their ideas. I’m sure glad MY tax dollars didn’t go to support research that restates the obvious!
As a public service, I’m going to explain things in simple terms even academic researchers can understand. My normal audience would get the gist of post from the opening poster, but here goes:
People hoard information because we perceive it as a scarce resource, and thus our r-Complex cave-man subconscious brains do it as a survival strategy.
That’s it. If all you want to know is the reason co-workers hoard information, you can stop reading now.
The urge to hoard scarce resources is wired into us, as Robert Cialdini brilliantly described in his book Influence: The Psychology of Persuasion. You can’t stop me from doing it without truly extraordinary measures, and the scarcer (and thus more valuable) I perceive the information to be, the more closely I’ll hoard it (see poster).
So what can a manager do to stop the hoarding?
The concept is painfully obvious, isn’t it? Change people’s perceptions about the scarcity of information! This usually involves two subprocesses:
Lead by example: Don’t use information hoarding as a management tool
Show people that the value of their knowledge lies in what they do with it.
Everything else hinges on defining the context for the new concept, and then executing the two-step plan outlined above. Have you encountered this problem before? What did you do to overcome it? Leave a comment and we’ll all be smarter for your contribution.
UPDATE: In the comments section of Rob’s post Laurence Haughton asks:
“Do you have any thoughts on what knowledge hoarding means for business blogs?
I see a link between what you posted and the fact that business blogs are either very short-lived or nitwittery.”
I’m not sure which I am, and I’m not well-read enough to comment generally, but I can speak to my own experience. My first post contains a distillation of most of what I’d learned over 20 years. It bugs me that it may still be my best post. It took me more than six months to put what I thought was my most valuable intellectual capital out on my blog. I was like one of those entrepreneurs who thinks he’s got a world-beating business concept and so refuses to discuss it without a Non-Disclosure Agreement and then gets frustrated when his idea goes nowhere. I finally asked myself why I was blogging. It certainly wasn’t for fame and fortune (although Hugh says that if I bang away about what I care about daily for five years I might do okay). Now I try to post things I find truly interesting and insightful, without concern about giving away something valuable. I’m sure lots of it comes off as nitwittery, since the content often comes out of my head for the first time into the post text.
I think that business blogging may be analogous to the music business. The short-lived blogs, like the one-hit wonder bands, burn through a lifetime’s worth of material in short order (the debut album), and then struggle to come up with new stuff real-time. Most new bloggers don’t get a lot of traffic and/or comments. I’ve had precious few of either and would have quit long ago if that’s what I got out of this. The road to nitwittery is probably a fork off the crash-and-burn turnpike, and I’m guessing that creating content for content’s sake contributes heavily to this problem. Just grind out some old gristle to keep up the stats. I’d like to say I’ve never done it, but I’d be lying.
The funny thing is that the best people don’t hoard their best stuff. My favorite example of this principle is David Maister’s site. He hasn’t been afraid to put his best intellectual capital out on his site, and to engage people in discussions about questions he gets. He does this because he knows that if his Concepts are valuable, people will pay him well to help them implement those concepts in their own context. [Okay, maybe not his best stuff, but truly valuable material. Care to comment, David?]
I guess it really does come down to Hugh’s “blog about what you’re passionate about” and not worrying about IP if you want long-term relevancy. I’ll never put out anything as good as David or a wholehost of others, but if I don’t put my best stuff out there I’m doomed to the fates you described.
Does that make you more or less inclined to start your own?
Great Caeser’s Ghost!
Reader David Maister responds:
” Yes, Spooky, I would like to comment.
You have it exactly right. My philosophy always has been that to get people to believe that I have someting to offer, I have to actually demonstrate it by showing them. It would be ridiculous bo say “I’m really valuable but I’m not going to prove it until you pay me!”
Your music analogy is perfect. Like many performers and bands, I make my name (but not much money if any) from the albums, once you take into account the time it takes to make them. And like MTV (at least in the early days) as a performer I pay for and give away my videos.
But what I get in return is the chance to go out on tour where I can perform for real people in real time and get paid obscene amounts of money for mixing my greatest hits with my new tunes.
And you know what? Mostly the audience wants to hear David’s greatest hits, rather than just the latest stuff. and yes, there are some “cover bands” out there playing my tunes, but good luck to them.
As long as I can keep the balance going between old and new stuff and feel that I’m making a real difference,it continues to work for me.
Check my website out. I give away as much as I can for free - blogs, videos, articles, podcasts, the lot. That’s how you become famous and in demand!”
If we pass the bright light of G2G through the prism of epic mythology, what will project onto the opposite wall?
Before we begin, let me state why I think this is a pertinent question. In researching G2G, Collins and Co. looked at the performance of hundreds of companies over the past few decades and found 11 that went from middle-of-the-pack, living-a-quiet-life-in-suburbia performance to vastly outperforming their peers. And not some Buster Douglas / Starland Vocal Band one-shot performance, but sustained, consistent, unrivaled growth.
But not unparalleled (though very elite company).
And not unprecedented.
Throughout history, societies have developed tales of epic adventure to teach and inspire virtue and greatness among their peoples. Like the stories of the G2G companies, these tales begin with characters living normal, unremarkable lives in safe, well-defined comfort zones. Then, unexpectedly, the comfort zone is destroyed, usually by the intrusion of actors in a larger conflict. One of these actors (the mentor) reveals the nature of this larger conflict to the would-be heroes, and recruits them to play a pivotal role in resolving the conflict.
The initial reaction to this request is usually a combination of disbelief, denial, and refusal to participate in the larger conflict. But the mentor eventually succeeds in convincing the characters to pursue the fantastic quest. The heros then embark, with help and guidance of the mentor, on a series of challenges and encounters with allies and enemies. Through this process the heros are transformed in ways that neither they nor their old acquaintances would ever have imagined - and achieve lasting greatness.
So how do the old good to great stories relate to the new ones? Two ideas suggest themselves to me.
First, the parallels between the role of the Mentor in mythology and the Level 5 Leader in G2G. One of the most surprising findings in G2G was the necessity of a selfless but driven leader who was focused on building something beyond their own success. Collins himself didn’t suspect it, but it makes sense in light of mythology, because all heroes need a guide/counselor who keeps their eyes on the prize while making sure everyone else does the same. Someone more interested in the achievement of the group than their own accolades, and someone that can help smooth over the eventual differences between team members. And while there aren’t many stories of CEOs sacrificing themselves to further the G2G quest, they all labored to insure that the quest would succeed beyond their participation.
The second idea is related to the “right people in the right seats” aspect. While heroes are often reluctant to participate in the quest, members of the group all eventually internalize and are driven by it. Those who do not often end up dead or part of the villain squad.
Another key characteristic of enduring members of the quest team is a commitment to each other. This bond often formed between members of non-allied groups; individuals willing to look past their natural prejudices in support of the cause. This isn’t to say that team members were in perfect harmony. The groups had members with a range of skills to handle a range of challenges, and so they often differed in approach. The key to success is that once the group decided on a course of action the individuals all stuck to it. These characteristics took form throughout the course of the quest, often under the guidance of the mentor.
One question people have about G2G is: how many people need to be in the right seats? Is it everyone? Only the top level of management?
After several fruitless hours of overanalyzing the issue, giving up in despair, and sleeping on it, the answer seems to be:
Everybody who’s going to be watching someone’s back when you encounter that first pants-wetting scene from your worst nightmare.
In business, we rarely have to deal with giant, one-eyed cannibals or skeleton armies (I’m speaking literally here), but the G2G leaders knew they were going to ask their people to do the seemingly impossible. And that the “people on the bus” characteristics listed above are just as necessary to conquer figurative demons as literal ones. In business, surrounded by rented plants and wielding nothing but cellphones, it is easy to forget that we are asking our people to make the same mental exertions as crossing the River Styx. It is easy to fall into the trap of “Human Resources” and hiring by keywords on resumes, but Collins’ research says that it is a fatal mistake - a step into the best practice quicksand of good.
This idea further reinforces my conviction regarding the CEO-as-mentor analogy. Selecting the right team BEFORE embarking on a stroll to Mount Doom is obvious. Doing the same before mounting a campaign to transform your business is not as obvious, but is no less important. In the modern business world, the CEO needs to focus on the mentor role because it’s easy for all of us to forget we’re on a quest when we still go home and sleep in our own beds at night.
I can’t seem to find the right words to emphasize the importance of this point. In a way, the mythical mentor has it easier than the CEO. The physical presence of lethal enemies helps focus the attention of the quest team in a way that Excel spreadsheets and investment analysts never will. A CEO, or anyone wanting to lead a G2G transformation, needs to understand the importance of filling this focus gap before beginning the journey.
Which brings us back to the issue of how many “right people in the right seats” is enough to start the journey. Given the discussion of the last couple of paragraphs, what do you think?
My take is this: we need enough ‘right people’ to ensure that every person involved in our customer value chains will meet the challenge when asked to do the seemingly impossible. In some areas, this may mean that we need every single person to share all three characteristics. Key customer-facing areas such as sales come to mind. In other areas, where processes will change over time but are repeatable, perhaps a ‘right person’ supervisor will be sufficient to start. Since the CEO mentor can’t be everywhere at once, enough ‘right people’ proxies need to be in place to preserve the spirit and progress of the quest.
I went to the bookshelf and pulled down G2G, and began reviewing the key tenets. Suddenly, both the content and the order made perfect sense!
Level 5 leadership is first, because without a dedicated/committed guide and mentor, no organization can be transformed. If you’re not convinced, you haven’t internalized the previous material. Go back and read it again.
No, really. Still having doubts? Go back; you’re wasting your time reading the rest of this.
Next comes “First Who, Then What”. Again, we’ve already covered this, but now we ask ‘why is this SO significant’? Hint: the next component of G2G is “Confront the Truth”.
In any organization there are two kinds of truth (sometimes more; we simplify for narrative’s sake): official truth and ground truth (h/t Susan Scott). Official truth is the story bought and paid for by your CEO and cronies; the one they put in their biographies and the one they want to see in Forbes/Business Week. Ground truth is the one told by old hands to new staffers at the water cooler; the one that guides real corporate survival. These truths often bear no resemblance to each other. When you see these truths mismatched, short the company’s stock. Of course, you may not have enough money to cover all of your newfound opportunities!
Aligning official and ground truths is very, Very, VERY hard to do. That’s why it’s one of the G2G differentiators. And it’s completely impossible unless all key members of staff and management TRUST each other. And this won’t happen unless we’ve got the right people in the right seats as described in the previous post. Without that level of trust, the quest team (and subordinates, colleagues, customers, and interested parties) will never be able to accurately judge the gap between good and great and build a realistic roadmap to greatness.
Then comes the execution portion of G2G, the all-important Hedgehog concept. Collins states unequivocally that there is no greatness without a hedgehog focus. Why is finding the hedgehog so important?
In two words: Organizational Flow
In the early 90’s a fellow named Mihaly Csikszentmihalyi introduced the term flow to describe a state of optimal performance. His research team had interviewed people from all walks of life and discovered that regardless of the circumstances and context (work or play, complex or simple activity), people experiencing flow shared 8 characteristics:
A clear understanding of goals/objectives
Immediate feedback on performance/progress
Skills matched to the task/opponent
Attention concentrated on the task
Operating here and now in the moment
Not afraid of losing control
Unconcerned with outward appearance
Distortion of time
Every reader of this post has experienced flow in your life. Think back to one of those experiences. Does the list ring true to you?
Stop now and put yourself back in that moment. Remember how connected every fiber of your being felt. Remember the sense of mastery. Remember how it felt to easily do things you didn’t know you could do.
Was your memory of an individual flow experience or a team experience? Focus now on a team experience. Remember how your teammates acted in extension of your own thoughts - that you were all one. Remember the feeling of invincibility?
Was that team flow memory a business experience? If yes, did you need an alarm clock to wake you up the next day? I didn’t think so.
If you are a CEO, how much would you pay to make all of your employees feel that flow?
It’ll cost you exactly ONE hedgehog.
In G2G Collins makes a very big deal about the hedgehog concept, but I - along with most people I discussed the book with - didn’t understand why it was so important. Or why we couldn’t find it until we had Level 5 leadership and the right people in the right seats. But if you can actually recall a team flow experience, it all makes perfect sense.
The Hedgehog Concept:
What can we be the best in the world at?
What are we passionate about?
What drives our economic engine?
There are only three bullets to the Hedgehog, and eight to flow, but the alignment resonates deafeningly.
What can we be the best in the world at? Implies we have skills and the ability to improve enough to be the best. Which of the eight points of flow do you think this addresses?
I’ll wait for you to think about it; it’ll be the best thought investment you’ve ever made.
I think that the question: What are we passionate about? defines the universe of what we can do more than the previous question. The question “what can we be the best in the world at” doesn’t get people out of the bed in the morning.
But what if you knew you were going to spend your workday in flow? Would you need an alarm clock? I doubt it.
The hedgehog drives organizational flow, because:
Passion creates focus and desire to focus (1,2,5,7)
A clear goal and understanding of our economic engine sharpens our focus (1,2,3,4)
An understanding of what we can be the best in the world at makes us define our goals (1,2,4) and gives us immediate feedback on how we are doing.
The hedgehog makes group (and individual) flow possible in the company context. Think back to your individual flow experiences. How powerful were they? Now multiply that by the number of people in your company. How powerful would that be?
It would be powerful enough to jump the gap from good to Great.
Go ahead. Fly your hedgehog kite. Catch lightening in a bottle.
Will Web 2.0 initiatives eventually be dominated by paid participants? Yochia Benkler and Nicholas Carr have a wager on it:
“In a critique of Benkler’s work last summer, business writer Nicholas Carr speculated that Web 2.0 media sites like Digg, Flickr and YouTube are able to rely on volunteer contributions simply because a market has yet to emerge to price this “new kind of labor.” He and Benkler then entered into what has come to be widely known in Web circles as the “Carr-Benkler wager”: a bet on whether, by 2011, such sites will be driven primarily by volunteers or by professionals.”
“The parallels between the positions of Carr and Benkler on this issue and Carr and the IT community with respect to IT Doesn’t Matter are striking. The proponents of the new technology say “We are dealing with new and unprecedented things!”, to which Carr’s basic reply is “The things may be new, but the people dealing with them have dealt with other new things repeatedly in the past, with very predictable behaviors.” Technology changes quickly, but our brains do not. We are running the same ‘wetware’ as our ancient ancestors. Certain behavior patterns have been noted consistently for thousands of years. I think one of those patterns was expressed nicely by Abraham Maslow and his hierarchy of needs. The challenge for Benkler and company is that you have to climb a good way up the hierarchy to get to the needs that common-based peer production projects can satisfy. Throughout history, people who have gotten to those levels have been very successful people. And they have been successful people who specialized in doing a small number of things extremely well and employing others to do the rest. We are fortunate to live in a time where more people than ever are at these levels, and what are some of the fastest growing sectors of the economy? Personal services! Self-actualizers are prodigious buyers of cleaning services; they buy food prepared for them by rent-a-chefs (even if it’s chef Ray Kroc); they have personal trainers and life coaches. They will pay for quality services, sometimes in barter; sometimes in cash.”
Confused by all the Web2.0 / Social Media hype these days? How do you choose which tools to spend your time on? Which will be successful, and which will fall by the wayside? I think a valuable paradigm for answering these questions was created in ancient Greece. Read what it is and why I think it’s so valuable.
2,000 years ago Archimedes famously quipped “Give me a lever long enough and a fulcrum on which to place it, and I shall move the world”. Theoretically, he was right, but practically it remains impossible to this day. Where would the fulcrum rest? What material would we use to create a lever that stretched to another star system?
Many social networking applications suffer from the same “theoretically great, but practically daunting” problem. In these applications, the fulcrum is a critical mass of participants eager and ready to contribute, and the lever is the compelling experience offered by the system (a combination of content and functionality).
Neighborhoods, from Point2 Technologies, is one such application. Point2’s NLS is a prominent nationwide listing service for real estate professionals. In 2006 they undertook the effort to organize a database of neighborhoods that included not just cities and zip codes, but actual subdivision names. This database allows a Neighborhoods user to specify their city and state/province and see a listing of all Facebook users in their neighborhood (this is a great feature). You can also see people in adjoining neighborhoods, your entire city, and other neighborhoods and cities as well!
For each neighborhood, there is a listing of neighbors and friends, as well as areas to for descriptions, photos, a wall and the NLS listings for the neighborhood. This would allow for people thinking about moving to an area to get information about it, and for residents to keep in touch in a single network. That all makes sense, right?
But there’s a problem. Two, actually. The fulcrum and the lever. Right now there are about 25,000 Neighbors on the app. I live in Scottsdale, AZ; population 242,000. You can see from the view above, the total number of neighbors is 62. There are 214 neighborhoods listed under Scottsdale in Neighborhoods. That’s 4 neighborhoods per neighbor. You will also notice in the picture that there is no information whatsoever filled in about our city. Hmm. Let’s try Phoenix, population: 1.5 million. One ‘About’ and two wall items from a single neighbor on the same day in early August. Chicago (with 3668 neighbors)? One wall enty. If I’m not here for the real estate listings, there’s nothing going on.
Who exactly is supposed to be that “critical mass” of early users? I’m pretty sure Point2 figured that it would be their larger core audience, real estate folks, but they are conspicuous in their absence. Realtors are missing out on a real opportunity to seed the content for the neighborhoods they work.
Which brings us to the second problem. As mentioned above, there’s virtually no content out in the system today. And even if there were content, an About box, a general Wall, and a block of photos doesn’t seem to make for a thriving community. Finding neighbors and then creating a regular Facebook group would offer us all a lot more.
I can imagine an application like this with 500,000 members as part of thriving communities sharing all kinds of information in several media – the web2.0 idyll. I just can’t imagine that application being Neighborhoods given its current status. No fulcrum; no lever.
In the original FaceReviews post, I didn’t offer suggestions for how to fix the problem. What would you do?
The answer was blatantly obvious to me, and to Bryan.
So let’s role play. You’re a company that has created a competitor to the almighty Multiple Listing Service (MLS). You’ve fought them in the courts. You’ve fought them in the minds of real estate agents. And you’ve thrived.
One day one of your developers walks into the Marketing department and says: “You know, Facebook is really hot right now and we could pound out a Facebook app in a weekend if you provided the Amp and pizza.”
Yeah, baby!
And they all lived happily ever after, except for one detail. Social networks require a network of people wanting to network. How many people are going to sit down at their computer and ask “I wonder if there are any facebook applications that can connect me to my neighbors?”
Zero. Okay, eight. But that’s not critical mass, even in one neighborhood.
So if you’re Point2’s now-embarrassed marketing exec, what should you do?
Ask yourself the following series of questions:
1) Who would benefit from making this a vibrant network (and who do I have a strong relationship with)?
Um. Real estate agents. How would they benefit? Oh, let’s say that Agent X puts up a bunch of great information on the neighborhood and its goings-on, demonstrating their superior knowledge of what’s going on. Do you think that will generate any extra business for Agent X?
Is the pope Catholic?
2) Do real estate agents have networks that might benefit from such an app?
Are the first two intials of the person buried in Grant’s Tomb ‘U.S.’?
3) Do real estate agents want to build interactive networks?
Will the sun rise in the east tomorrow?
4) Will real estate agents pay to grow their networks?
Point2 knows the answer to that question. So why aren’t they screaming at their premium agents to jump all over this opportunity?
Every year bold initiatives in organizations large and small fail miserably for a handful of predictable reasons. This series examines a few of them in an irreverent manner. Excerpt:
How can such bad things happen to good concepts?
Simple. The executive who read about the new concept in Harvard Business Review doesn’t really want to apply the concept. No, he wants an instant application that gives him the same results as the HBR case study! And he wants it in time to effect this year’s earnings!! There’s no time for a complete definition of context, and besides, we’re mostly similar to those other companies anyway, so let’s bring in a complete application, tweak it for the most important unique characteristics of our company, and get a quick win!
But since we don’t know anything about the new concept - and because we’re in a hurry - we don’t realize that the color of the boot was only relevant because the last application the consultant built was at a bullfighting establishment in Matamoros. Dios Mio!
I think I’ve got this whole customer delight thing figured out!
Here is an article that I wrote back in 2004. It has been in the top 5 Google results for “customer delight” ever since. Surprisingly, over the last year I’ve gained a deeper understanding of the whole phenomenon and how to systematically design and deliver delight that I’ll be sharing here in the near future. For now, this article should give you a good grounding in the topic.
Imagine that you are a partner in a professional services firm in an industry that had been completely decimated over the past few years – say, technology consulting. There’s overcapacity across the board, offshore firms are driving a pricing doom loop, and customers are increasingly choosing to do more themselves (because they have to Do More With Less – see previous post). You’ve hung on by your fingernails for 3 years, but it’s beginning to dawn on you that things will never be the same again. How will you survive? You’ve always traded on having great ability to execute, but that’s not going to be enough – at least not enough to support your current lifestyle. You need to be able to make the experience of working with your firm more valuable than working with other firms. You need to not only satisfy your clients, you need to delight them.
Is there a way to systematically build delight into everything you do for your clients? The answer, of course, is yes.
The key to successfully implementing this kind of program is to first understand the theory of customer delight. There are many great sources of information on the subject, but perhaps the most insightful one on the theory of customer delight is a book entitled The Customer Delight Principle, written by Tim Keiningham and Terry Vavra. One of their key insights is that a customer experience consists of a number of factors, which fall into two categories:
Satisfaction-Maintaining
Delight-Creating
Satisfaction-Maintaining characteristics are the ones for which there is an accepted standard of performance. A good example is order correctness at a fast food restaurant. The restaurateur can only get your order 100% correct, which – for most fast food chains – is the excepted norm. You cannot create customer delight by giving them what they asked for. BUT, if you give them something different than what they asked for, they will be less than satisfied. There is no limit to how bad the experience can be, but there is an upper limit. There is no additional economic return in improving performance of satisfaction maintaining characteristics once the expected norm (rest practices?) standards have been met.
Delight-Creating characteristics are exactly the opposite. They have absolutely no downside, and unlimited upside. How can that be?
Surprise! The answer is not in this sentence, but in the previous one.
Delight can only occur in the absence of expectation, or in bridging the gap between expectation and aspiration. In the latter case, expectation has been set by vendors, but doesn’t reflect the desires of customers. Think “Department of Motor Vehicles”, “IRS Audit”, or “Prostate Exam”. All could create the impression of delight by the mere absence of frustration or humiliation. For most businesses it’s not that easy. Your customers need more than “Hey, that wasn’t a complete nightmare!”
Another key finding is the relationship between the two types of experience factors. Delight-creating factors are useless unless 100% of the satisfaction-maintaining ones are up to par. Predictable delivery of satisfaction is a prerequisite to the possibility of delight.
The final key piece of delight theory is that delight-creating factors inevitably decay into satisfaction-maintaining factors, because the surprise element becomes a new expectation. This means that customer-value-delivering processes must constantly be improved to add new delight-creating elements.
Okay, you say. The theory is nice, but how exactly do I go about designing and maintaining delight-creating processes? One good methodology for analyzing processes and brainstorming delight-creating factors is the Customer Focus Process outlined in the book The Wow Factory. The author, Paul Levesque, lays out a complete program for running focused brainstorming sessions to build delight into any customer facing process. Taking incredible license to abbreviate, here is the gist of the process:
1. Define Customer Categories
- What different categories of customers do we do business with?
- What kind of unique expectations do [customers of a particular category]
have when they do business with us?
2. Map the Current Customer Experience
- What are the various steps our customers typically go through as part of
[this particular type of transaction]?
3. Now Design In Delight, using the following Customer Focus Principles:
- CFP1: Exceed customer expectations every step of the way
- What can be done in each step of the process to
exceed our customers’ expectations?
- CFP2: Make the customer feel important
- What can be done in each step of the process to make the customer feel important?
- CFP3: Tailor the experience for this customer
- For each unique customer expectation identified in part 1: what could be done to address this particular expectation for this particular category of customer, AND
- What could be done to insure [this particular category of customer] recognizes we’ve [addressed this particular expectation] with them in mind?
Do es this process sound vaguely familiar? Have you read!Tom!Peters! !WOW! Project 50?! (Gotta have the appropriate number of exclamation points!!!) If you follow the process described above when starting a new project, you will design !WOW! into your project.
Don’t trust your team to be able to design in !WOW! by themselves? Want to have your customers do the !WOW! design work for you? Then pick up a copy of Creating Customer Evangelists.
The principles espoused by each book align as if they were iron bars hit with a hammer while pointing North. Creating customer delight is science, not magic.
My first blog post was published in June of 2004, and it contains most of my philosophy on IT and management in general. It was written in response to Nicholas Carr’s HBR article “I.T. Doesn’t Matter”, which generated a tidal wave of vitriol in the technology community. You can learn a lot about me from this one article. Since it’s my own, I excerpt the whole thing here:
Spooky Action Predicts: Nick Carr Has Your Number (.8 Probability)
If you’re in IT management or consulting, your blood pressure is now 40 points higher than before you got here. If you’re a CEO/CFO/CXO whose span of control includes IT, you may have one of those wry, one-corner-of-your-mouth-turned-up smiles on your face. If you’re none of the above, a) Hi Mom kids!, or b) thanks for stopping by randomly; I hope I make it worth your while.
Hindsight is always 20-20 – in the eye of the beholder.
Close your eyes and imagine that it’s 1998. You are the CEO of a public corporation. You make a very nice living. Now imagine one day your IT guy comes into your office and says that there’s this thing called Y2K, and if you don’t spend millions of dollars on I.T., the world is going to come to a screeching halt, and your personal fortune will go ‘poof’, as will the fortunes of thousands of litigious shareholders. You dismiss him, only to find that Business Week, Forbes, and HBR are all painting the same picture of doom. So you call your friendly audit partner, who paints an even gloomier picture, but then offers to solve the problem – for a seven-figure fee.
What do you do?
Throw money at the problem! No one will remember you as the one who spent millions on a successful Y2K conversion. But if you’re the one who doesn’t spend the money and ends up in a smoking pile of technorubble, say goodbye to the country club and say hello to the entire membership of the American Trial Lawyers Association.
So you pay the money; willingly, happily, and with a clear conscience.
Fast forward to 2000. The same cast of characters is telling you that Jeff Bezos and a bunch of greasy-haired, pizza-gobbling, latte-swilling programmers are going to dot.com your company into oblivion.
Options?
Time is more important than money! Spend now and damn the downstream consequences (there’s always plausible deniability)! So you spend the money, and everyone is happy.
Then a funny thing happens. Dot Bomb. All that technoblather disappears in the foam of a billion dollars going down the drain.
Then the economy starts to falter, and spending needs to be reduce. Guess who first? You give the CIO a stern lecture, ending with the dictum: DO MORE WITH LESS.
And cut the IT budget 10%.
2002 rolls around. Repeat Do More With Less speech and cut the budget again.
2003; ditto.
Wow, three years of cutting the IT budget and no technopocalypse. In fact, no major business interruptions at all. Oh, you had to spend plenty on that Sarbanes-Oxley nonsense, but you’ll sleep a lot better knowing that Elliot Spitzer won’t be serving any warrants on YOUR watch!
Then along comes the May 2003 issue of Harvard Business Review. It contains an article by Mr. Nicholas G. Carr entitled “I.T. Doesn’t Matter”. The text of the article doesn’t go quite as far as the title. The author argues that I.T. is essential to business and has become nearly ubiquitous, but that these circumstances now make it nearly impossible to use I.T. as a source of strategic competitive advantage. All the big first-mover opportunities are gone, and even if they weren’t most companies don’t have the change management skills to exploit them effectively. And he cites research showing how better performing companies spend relatively less on technology. His advice:
Spend less on I.T.
Be an I.T. follower, not a leader
Focus on minimizing I.T. risks, not maximizing I.T. opportunity.
After your experience of the past few years, the article seems unremarkable.
But down in the CIO’s office the article had a decidedly different effect: complete cognitive dissonance, accompanied by spluttering invective, mixed with panic.
Think of the Inquisition’s reaction to Galileo’s “Dialogs”.
Think of Einstein’s reaction to Bell’s Theorem (Spooky Action at a Distance).
Think of Cubs fans’ reaction to Steve Bartman snatching the ball from Moises Alou and a trip to the World Series from the Cubs in last year’s NL Championship Game 6.
Most CIOs believe with a passion that I.T. is without question a strategic weapon. In fact, they don’t just believe it, they KNOW it. So they reacted with righteous fury. They wrote literally millions of words of rebuttal, and are still writing them, because they cannot reconcile Carr’s arguments with two bedrock foundations of their professional belief system:
I.T. has had a profound, positive effect on nearly every aspect of business. This belief is unassailable, because they all have first hand experience of this positive effect.
Technology will continue to evolve forever, so there will always be new opportunities to gain strategic advantage.
Carr detractors also argue that the strategic value of I.T. is not the technology itself, but what an organization does with it. This is a corollary of the first belief, and Spooky Action agrees that it is absolutely, positively, unarguably true.
It is also the central reason that Spooky Action can so confidently state its prediction. Because once you introduce that dependency, you have to overcome three obstacles to be successful:
Employees
Management
The fundamental structure of the organization itself
And like Cerberus, the three-headed guardian of the Greek underworld, this trio can only be overcome by Herculean effort.
The task is not impossible, just improbable in many cases (the beauty of the .8!). Solving a difficult problem like this requires a deep understanding of the root cause(s) of the problem. In this case, one of the root causes is: genetics!
The human brain is a computer of truly inscrutable complexity, but did you know that there are over 400 “human universal” characteristics — such as turn-taking, territoriality, onomatopoeia, overestimation of objectivity of thought (guilty!) and wariness around snakes — that appear to be hard-wired in us, since they exist in every cultural, no matter how isolated. Surprisingly, resistance to change is NOT on the list.
What DOES appear to be hard-wired is an imperative for self-consistency.
If you take only one idea away from reading this post, make it that previous sentence. In geek speak, violation of self-consistency causes a non-maskable interrupt and the brain “kernel” expunges the new idea completely. And no amount of repetition will change things. The same code runs every time and no-one yet has found a way to reprogram the kernel. Perhaps in years to come neuroscientists will learn the assembly language of the brain, but for now we must operate at a higher level of abstraction.
At this point you may be wondering:
Where are the guys in white coats with butterfly nets when you need them?
What does this have to do with Nick Carr and the business value of I.T.?
The point of the previous paragraphs in non-geek speak is that people cannot change without finding consistency of the new concept with their existing set of beliefs. And I mean CAN.NOT. Literally a physical impossibility. Not a learning disability. Not a character defect. Not a teachable moment. A physical impossibility akin to trying to bend your elbow backwards 90 degrees.
The good news is that the rules defining self-consistency are not nearly as rigid. On the nature vs. nurture scale, the locus of self-consistency seems to be very nurture-based. That is why some people are innovation-craving “sneezers” of new ideas. They define themselves as change agents, for whom new stimuli and activity ARE the constant. On the other end of the scale are people who measure consistency on the physical movement level.
Bloggers and blog readers tend to be on the change agent end of the continuum, so I feel compelled to share an experience to illustrate the other end. Years ago I was leading the implementation of a new ERP system for an old-line company. The Accounts Payable team had been entrenched for quite some time. The newest member of the team had been using the mainframe, green-screen system in the same process for fourteen years. We were planning on introducing a new GUI, PC-based system. The team manager discussed the upcoming change at weekly staff meetings for months, but on the day that the old terminals were being replaced, one of the team members suffered a panic attack and had to be taken to the hospital in an ambulance! Our new system was going to make their jobs easier; what happened?
Mark at Fourboros provides a very useful guide to understanding the internal change process.
I have no idea who William James is, but I find his framework compelling. And completely consistent with every theory of change management I have ever read. Store it away as the second most important thing in this post.
The problem for the “I.T. IS strategic” crowd is that for most technology projects, not one dollar of ROI will be realized until somebody’s behavior changes.
Not. One. Dollar.
The good folks at GE have an equation to put this into perspective:
E = Q x A
Where E is the business effectiveness (e.g., ROI) of an initiative, Q equals the quality of the solution delivered, and A represents the acceptance of the system by those charged with using and managing it. Unless 100% of the users and managers of the system change their behavior as required, the full ROI can never be realized. If 30% don’t change, the payback period on many I.T. projects approaches infinity. In a typical organization, a third of the employees are change agents who will jump on board with any new initiative. Another third will resist change instinctively, calculating from experience that they can ride out the latest management fad if they dig their heels in firmly enough. The other third are fence riders that passively resist change until they are forced to accept its inevitability, at which time they proclaim they’ve been proponents all along.
This means that a perfectly executed, CMM level 5 technology project can be expected to achieve 33% of its expected ROI without significant effort in the ‘A’ area. Yet most project managers are not measured or compensated on the ‘A’ component at all. In fact, a better term than ‘most’ is ‘virtually none’. On the day of system launch, the project team has a big party and disbands to move on to the next initiative. Sure, there is work supporting the system, fixing bugs and maybe even starting work on phase two, but the pressure is off and the laser-like focus of management is gone.
To make matters worse, unless that group of fence sitters can be converted, the initiative usually gets scrapped, resulting in a huge write-off of hard dollars and additional costs to repair the business processes. The good news is that there are very effective change management processes and methodologies for insuring behavior change, but most organizations pay them little more than lip service, often only with one lip.
These organizations start out with the best of intentions, and budget time and resources for change management. But sometime during the project approval process, some management Einstein on the steering committee says “cut the budget 10% and it’s a go.” Inevitably and predictably the project team wrestles with its options: “We could cut functionality, but our bodies haven’t completely healed from the bloodletting necessary to get agreement on what we have now.” Suddenly those change management dollars in the budget spreadsheet start to strobe. The project team thinks “we could leverage the H.R. department (gratis) for communication and leverage members of the user community for training” and voila! We make our number, get our funding, and no one will be the wiser because once we go live we’re all on to something else!” My consulting brethren are just as guilty. [geezer voice] If I had a dollar for every time a salesperson cut Change Management services at the first customer price objection, I’d be rich! [/geezer voice]
The irony is that those change management dollars are the most highly leveraged investment in the entire project. Change management typically runs 10-20% of the total project cost, but because of the Effectiveness equation, each of those dollars hais 4-9 times more impact on ROI than each ‘Q’ dollar. From a pure financial standpoint, functionality should be the first thing to go. Spooky Action will share a devious/ingenious strategy for facilitating this in a future post, but for now we use this information as additional fodder for our .8 prediction.
The second obstacle to gaining strategic advantage from I.T. is management, or more precisely best management practices. Note: Spooky Action scoffs at the term ‘best practices’ as commonly abused. If an organization really had a ‘best’ way to do something, why in on Earth would they share that with their competitors or a software vendor to build into their product to sell to their competitors?
Think about it.
Whenever someone says ‘best practices’ we here at Spooky Action hear ‘rest practices’, because generally the practice consists of what the rest of the industry is doing. There’s nothing wrong with rest practices, as we will discuss in the next section, but don’t fool yourself into thinking that there is some inherent virtue to them.
Then again, Professor Robert Cialdini might say that there IS an inherent virtue in rest practices. He wrote a book entitled: Influence: The Psychology of PersuasionInfluence: The Psychology of Persuasion, which is essential reading for any adult whose career aspirations extend beyond hermit. The gist of the book is that Cialdini, an experimental social psychologist, spent 3 years undercover working in various “compliance professional” roles (e.g., sales operator, fundraiser, recruiter, advertiser) to learn the secrets of how to persuade people to agree to things they often would not do without said influence. He found that there are six distinct weapons of influence:
Reciprocation
Commitment and Consistency (Ho! Ho!)
Social Proof
Liking
Authority
Scarcity
Social proof is the tendency to view a behavior as correct in a given situation to the degree that we see others performing it. It works subconsciously, in proportion to the number of people we observe doing it, and we are most influenced by the behavior of those we perceive to be most like ourselves! No wonder industry rest practices are veritable siren songs for managers.
This innate attractiveness of rest practices is amplified by the element of perceived risk in business management. Everyone intellectually acknowledges the old saying: nothing ventured, nothing gained, but applying the principle is an entirely different issue. Another “feature” of the human biocomputer is that we perceive risk in a very non-linear fashion, with a strong bias to exaggerate the downside risk and discount the upside potential of any particular situation. Perhaps this is a mental “change tax”, which adds some negative weight to ANY change, positive or negative. In any case, most managers naturally seek to minimize risk. They have learned through their careers that the key to success is delivering consistent, predictable results. In the era of performance-based compensation, this effect is magnified. Most managers on an annual bonus plan have a fairly good idea of the expected amount of that bonus at the start of the year. They plan for it, as do their families. The upside of the bonus range is usually capped, so betting Jimmy’s 529 college savings plan contribution for some marginal gain does not outweight the negative risk. Managers, like anyone else, make decisions for perfectly valid personal reasons.
Years ago an attorney working at a major corporation put this concept into concrete terms. He said “If we have 10 EEOC actions that each have a potential liability of $10,000, with a 10% probability of our losing each one, our management would rather settle each one for $1,500 than bear the risk of an unlucky roll of the dice.” While paying a 50% premium over expected payout may not seem like a wise business practice, the emotional value of eliminating a potential – though low probability – disaster was deemed a good investment.
The twin forces of self-enlightened risk aversion and social proof affect every aspect of management decision making, not just project selection. Jon Strande at the Business Evolutionist posted The Origins of Unengaged Employees, on the proclivity of many companies to limit employment candidates to specialists with skills exactly matching the specific requirements of a current set of tasks, as opposed to long term cultural fit. While this simplifies the recruiting process and shortens the learning curve for those initial tasks (maximizing short term economic performance), it usually creates long term problems when the employee needs to change to meet new challenges, like implementing new technology for strategic advantage. People are not fungible ‘human capital’.
The book Good to GreatGood to Great documents Jim Collins’ research into what makes companies dramatically outperform their competitors (overview by the author here). His team scoured a list of over 1400 companies to find instances where an organization went from average performance to corporate rock star. They found 11. Then, with fingers crossed, they looked for common characteristics of these companies. They found 6. One of them is: First Who, Then What.
The researchers found that the companies that went from good to great tended to first get the right team on board and then define the vision of where they wanted to go. Why was this one of the keys to outstanding performance? Hint: it usually took these companies years to hit on the exact vision and strategy they needed.
The importance of First Who, Then What is that it determines the upper limit of a company’s ability to change. Employees who are selected and evaluated on the number of times they have done task X in their career and managers who leverage rest practices to insure their bonuses have no business trying to use technology for strategic competitive advantage. The precise characteristics that make them good at their jobs makes them ill-suited for the uncertainty required to achieve greatness. This is not to say that this is the wrong way to run a business. In fact, for many business processes this is precisely the right way, but the technology implications for these processes are to do as Nick Carr suggests.
Which brings us to the final obstacle to using I.T. for strategic advantage: the fundamental structure of the organization itself.
The objective of any organization is to provide something of value for which other parties (customers) will be willing to make an exchange (usually of money). Business processes that create and deliver customer value are called core, or asset, processes. Improvements to these asset processes generally improve top and bottom line performance, but not always.
An organization also has a set of processes that do not create and deliver customer value, but are necessary for the care and feeding of the asset processes. These would include hiring new employees, the annual budget process, governmental compliance reporting, and IT infrastructure management, to name a few. These processes are known as context, or liability, processes. They are called liability processes because that is what they are to an organization, because they. only get noticed when they break down. The only way a company’s payroll process can affect customer satisfaction is if foul-ups create disgruntled employees who degrade the quality of the asset processes. Nobody’s going to be walking around with extra spring in their step because their direct deposit hit at exactly 12:00:00 a.m., for the exact correct amount!
Improvements in liability processes can translate into improved bottom line performance, but not in strategic advantage. The management strategy for these processes thus becomes to run them at the ‘rest practices’ standard of performance, while continually improving the cost efficiency of the process. Where have we heard that before?
So I.T. can be used for strategic advantage:
IF it improves an asset process
AND IF an organization has the right management team that will subordinate their own personal interests to the benefit of the entire organization
AND IF the organization has hired employees with the capability to adapt to the process changes successfully and invested in the change management activities necessary to facilitate those changes.
Between the triple obstacles and the Q x A = E factor, perhaps that .8 is a bit conservative…
…yet the purpose of this post is not to discourage I.T. organizations, but to encourage them. The past three years have permanently changed the relationship of I.T. to the rest of the organization. There’s no going back to the halcyon days of the 90’s, when the promise of the next killer app elevated the position of CIO to ionospheric levels. Future technology initiatives are going to be treated like any other business investment, and evaluated on their expected business impact – with risk discounts applied for the factors discussed in this post. Unless I.T. organizations can adapt to these new ‘market’ conditions, they will be forced into Carr mode by executive management, or worse: outsourced.
In the book Fierce Conversations: Achieiving Success At Work and In Life One Conversation at a Time, author Susan Scott argues that effective change = effective conversations throughout an organization. The author honed these fierce conversation skills through decades as a mentor to CEOs. She used the skills with them, and taught the skills to them. The book is full of tools for increasing the fierceness/effectiveness of conversation, both one-on-one and in groups. One tool is a process for problem solving in which a key step is asking yourself:
What am I pretending not to know about the situation – particularly my contribution to it?
That really makes you stop and think, doesn’t it? (It should also make you want to buy the book through the link above.) If it doesn’t, enjoy Dilbert-land!
Spooky Action believes that I.T. organizations need to ask themselves this question regarding the perception of I.T. within their companies – and be fiercely honest in answering! It is a critical first step in thriving in the new I.T. reality. This introspection will yield one or more of the following responses:
We have problems delivering on our promises
Our internal customers have no idea (or conflicting ideas of) what our promises are
Our staff has no idea (or conflicting ideas of) what our promises are
We make promises on an daily, ad hoc basis
Our internal customers don’t care what our promises are
Each of these challenges can be turned into an opportunity, and future posts will discuss ideas on solving them. But for now, as the old psychiatry saw goes: admitting you have a problem is the first step to recovery. Bite the bullet and embrace Nick Carr’s message. Adapt or take your chances against Signore Pareto!
But first ask yourself, are these the odds you’d bet your career on?
.