Willie’s Blog Posts

The Five Best Business Ideas of 2017

In turbulent times, concentrate on what’s important – not what’s new

After a year has passed it is customary to take stock. What were the major developments of the year?  How should they guide our thinking on managing our businesses more effectively?

As a professor of strategy for nearly 20 years now, my mind turned to this question: what were the most powerful business ideas of 2017?

My reflections produced answers that surprised me: none of the best ideas are new. Indeed, some are centuries old. But more than any others, they have deepened our understanding of how to thrive in today’s dynamic world.

Our only sustainable competitive advantage is our ability to learn faster than our competitors.

In his 1997 article, “The Living Company” Arie de Geuss asserted that sustainable competitive advantage cannot be achieved through particular products or strategies. These are soon overtaken by fast-moving events. Instead, he argued, an organization’s survival depends on its ability to build an adaptive enterprise – one that constantly learns and renews its strategies as the environment changes.

The Darwinian logic of this idea is inescapable. Learning must be imbued in the culture of every organization for it to sustain itself as a “living company.”

Organizational learning, however, does not happen by itself. It must be ignited, sustained and directed through a deliberate company-wide process. There is no greater leadership responsibility than this.

To contend with today’s dynamic world, this must be a dynamic process – a learning cycle that guides organizations continuously from the discovery of fresh insights to the implementation of innovative actions. This requires an essential shift of gear from strategy as planning to strategy as learning.

Consider the US military’s technique of action-learning. After every engagement it applies its famed “After Action Review” to examine what worked and what didn’t, to ensure that every subsequent engagement will be an improvement over the prior one. This makes a huge difference to its prospects of winning. 

Success means putting the customer at the center of business decisions  

As a young brand manager at Unilever, I became fixated on emphasizing the distintive product attributes of my brand and presented my strategy to my boss accordingly. He gave me a chilly reception. “Your thinking is back to front,” he said. “Customers don’t buy attributes. They are looking for solutions to their needs. You must learn to think outside-in, not inside-out.” With that, he handed me Theodore Levitt’s 1960 masterpiece, “Marketing Myopia.” Levitt’s ideas have influenced my thinking ever since.

Products, Levitt argues, are a means to an end, not an end in themselves. Their job is to satisfy customer needs. As a result, a product-centered, rather than a customer-driven, orientation can destroy a company’s ability to survive change. The railroads failed, according to Levitt, “because they assumed themselves to be in the railroad business rather than in the transportation business.”

Levitt’s underlying idea is that companies don’t sell products. They sell benefits. Competition expresses itself through the provision of benefits that transcend the product itself.

Take Hallmark Cards’ statement of purpose: “We help people connect with one another and give voice to their feelings.” The cards themselves are simply a vehicle. Human connection is the value they provide.

This means there is no such thing as a commodity. There are human beings at either end of any transaction and the service model – the way the transaction is conducted – is the key benefit.

In the burgeoning “tech revolution” we see dangerous signs that product centricity is beginning to eclipse customer centricity. Customers are too often offered acronyms or buzzwords – Al, IoT, Cloud Computing, Big Data – rather than the benefits they confer. To compete successfully, claims Levitt, companies must build “a customer-satisfying process, not a goods-producing process.”

Strategy is about achieving differentiation by making choices 

Strategy is plagued by greater confusion than any other business discipline. Ask five companies to explain their strategy and you will get five very different notions of what a strategy looks like.

Strategy was born in the military, then co-opted by  business. Businesses, however, court failure by neglecting to apply the key concepts of this essential leadership domain.

Michael Porter, in a 1996 article titled “What is Strategy?” and in a subsequent interview with Fast Company magazine, defines strategy’s essentials as follows:

1) Strategy is a process of making choices on where to compete, what to offer, and how to differentiate your business by creating greater value for customers than competing alternatives.

2) Such choice-making requires balancing trade-offs. The essence of strategy is deciding what not to do.

3)  Operational effectiveness is not a strategy. It is necessary, but not sufficient.

There is a dangerous notion that in a world of rapid change, strategy is no longer necessary. This, Porter calls “ridiculous” and  “a deeply flawed view of competition.” While strategies may need to be updated more frequently, without a clear direction, no company can succeed for long.

Customers have choices. To succeed, companies must have what I call a “winning proposition”, a compelling reason why customers should choose their offering over their competitors.

Amazon provides a striking example: “We make it easy for people to buy things by offering a wide range of products at great prices with fast delivery.” This statement not only explains the benefit to the customer, it tells employees what (and what not) to concentrate on every hour of every day to enhance that benefit.

Leaders must be able to simplify a complex world  

In the mid-90s the United States Army War College introduced a new acronym to describe the confusing world order left behind in the wake of the Cold War: VUCA. Today the business world, no less than the military one, is beset by the same forces of Volatility, Uncertainty, Complexity and Ambiguity.

It is the responsibility of leaders to create clarity from a bewildering world. Effective leadership is impossible without the ability to distill an organization’s challenges and its strategic focus.

Simplicity is not a short cut: it is hard, messy work. Blaise Pascal, the seventeenth-century French mathematician and philosopher, captured this aptly when he said: “I am sorry to write you this long letter, but I didn’t have time to write you a short one.” 

No organization’s strategy should be longer than 10 pages. Boiling it down in this way is in itself an exercise in clarity of thought which can then be shared by the entire organization.

Sam Palmisano, the former CEO of IBM, insisted on this clarity of thought, requiring that every executive in IBM be able to answer these 4 questions in a concise and compelling way:

1)  Why should customers choose to do business with us?

2)  Why should investors choose to give us their money?

3)  Why should employees choose to work for us?

4)  Why should communities welcome us in their midst?

By laying out these simple, yet profound questions, Palmisano forced his executives to address the needs of all the company’s key stakeholders and to understand how they fit together.

To move people at the deepest level, you need compelling stories 

The  final deliverable of a strategy is not simply a document.

People don’t follow documents, they follow leaders and ideas. Of course, it is important to record your strategy for easy reference, but that is only where the main task begins. The ultimate aim of leadership is to win the hearts and minds of your employees in support of your strategy.

Howard Gardner, the developmental psychologist, in an interview in Strategy + Business, emphasized the importance of story-telling as a way to engage and motivate employees. “People have a real thirst for stories that give them a better sense of how they belong” he said. He emphasized that effective leadership involves the creation of powerful narratives, and that the greater the change you aim to make, the more important the story becomes.

3M has embraced this concept by transforming business planning from a list of bullet points into a narrative that not only tells everyone what the goals are, but also how to reach them.

The crucial task is to translate the strategy document into a compelling leadership message, then to convey that message repeatedly with impact and sincerity. Leaders must return to one of our oldest human traditions, that of story-telling. As the poet Muriel Rukeyeser observed, “the universe is made of stories, not atoms.”

What are the elements of an effective story? I suggest they contain the following essentials:

–  They simplify complexity

–  They engage people emotionally through vivid metaphors and examples and pictures

–  They raise – and resolve – an important issue

–  They clearly frame a “call to action”

–  They are embodied by their tellers

Stories arise from our universal search for causes and effects, for purposes and ideals. Stories create meaning. Increasingly, this desire for meaning and authenticity is being subjugated to the deadening dominance of PowerPoint presentations.

These five ideas convey an overriding truth. In our world of escalating change, the core principles of strategy have not only remained the same; they are now more important than ever for creating enduring success.

 

 

Posted by Willie Pietersen at 11:49 AM | 0 Comments

Learning How To Learn

In a 1997 Harvard Business Review article with the propitious title, The Living Company, Arie de Geus declared: “In the future, the ability to learn faster than competitors may be the only sustainable competitive advantage.”

Of course change has always been with us. The list of corporate casualties is a long one: Kodak, General Motors, Sears Roebuck, US Steel, Borders, Pan Am, to name a few. But they represented a slow descent to the bottom. Today’s digital environment is more disruptive than ever, with sudden revolutions that can change the rules of success almost overnight. Witness the rapid demise of Nokia and Blackberry, the two giants of the smartphone industry, in the wake of the 2007 launch of the iPhone.

“Welcome to the Exponential Age,” as Robert Goldman, chairman of the International Medical Commission, said.

De Geus’s prediction was based on Darwinian principles. The life expectation of a species is dependent on its ability to generate favorable variations – those that will enable it to flourish as the environment changes. In nature this happens randomly  over numerous generations. The “survival of the fittest” signifies those variations best suited to the shifting environment.

For organizations to survive, however, they must generate favorable variations purposefully within their lifetimes. They cannot rely on the genetic lottery. Here we return to de Geus’s concept of a “living company.” In an increasingly turbulent world, the crucial life-sustaining competency is learning how to win at learning.

Executives appear to recognize this imperative and frequently exhort their companies to become “learning organizations.” Still, many businesses fail to instill the right practices for developing a thriving learning culture.

In my experience, the following five precepts have proved to be powerful drivers of organizational learning.

First, define what to learn about

Learning is a demanding pursuit. The human brain typically comprises about two percent of our body weight, but consumes roughly 20 percent of our metabolic energy – more than any other organ. There are many ways to deploy that energy. To be strategic, organizational leaders must direct these intellectual resources toward the right goals through a process of guided learning.

By far the most advantageous learning is outside-in. This means incessantly honing practices to achieve a superior understanding of the external environment before looking inward.  Research done by Unilever, the Anglo-Dutch consumer products giant, confirms the primacy of understanding customers. Their investigation concluded that customer centricity, not operational efficiency is a firm’s main source of competitive advantage. The winning way is to turn the learning about customer needs into a collective obsession.

 Learning is a journey, not an event

Shortly after I became an American citizen, my son and daughter finished school. Where I was raised in South Africa these events are exclusively called a “graduation.” This suggests the end of something. But in the US these milestones also have another name, a “commencement”, meaning the beginning – or at least the continuation – of something. This exactly conveys the essence of learning as a way of life, not a once and done enterprise.

Oliver Wendell Holmes, the famous US Supreme Court judge, serves as an inspiring example. When he was 91 and in retirement, president Franklin Roosevelt paid him a visit and found him reading Plato. Roosevelt asked him why, to which the old man replied, “To improve my mind.”

In too many companies, learning is treated as a seasonal occupation, something that is given its due at strategy time, and then brushed aside as they turn their attention back to operational matters. Change won’t stop on the outside, so no company can afford to stop learning on the inside.

Instilling learning as a habit starts at the individual level. A practice I recommend is to keep a learning journal. We continuously take in learning from diverse sources such as newspapers, books, conversations, and experiences. But these insights are soon lost in the ferment of everyday life. Research by the nineteenth-century psychologist Hermann Ebbinghaus shows that in the absence of counter measures the average person loses up to 80 percent of new information after 30 days. He recommended these antidotes to forgetting: Promptly record new learning; review these insights regularly; and apply them in practice as soon as you can.

I have kept a learning journal since I was sixteen, and now have a number of these books. I regularly refer to them during times of reflection, and often draw on them in my teaching. Dr. Ash Tewari, the chairman of urology at the Icahn School of Medicine at Mount Sinai Hospital, goes a step further. He insists that everyone on his team keep a learning journal. Then at his weekly meetings he calls at random on members (including himself) to share their learning. Tewari has created a team of learners. He serves as a role model to leaders in every organization.

Questions are more important than answers

Learning is engendered by the ability to ask the right questions. Most advances in knowledge through history have stemmed from a searching question dauntlessly pursued. In fact, producing answers without the right questions can be downright dangerous. As noted by the eleventh century poet and philosopher, Solomon Gabirol, “A wise man’s questions contain half the answer.”

Socrates, as we know, was the great exponent of learning through questions. His method was revolutionary. Before him, learning was mainly about mastering the art of rhetoric – demonstrating knowledge by making impressive speeches.  Socrates turned this method inside out.

Comparing his approach to that of his mother, a midwife, Socrates asserted that he sought not to give birth to an insight, but to facilitate its delivery. He showed that entrenched answers create fixed mental models and become substitutes for critical thinking. Inevitably these fixed ideas – and the organizations that cling to them – are overtaken by events. The right questions force us to challenge our underlying assumptions. They unfreeze us and open our thinking to new vistas.

What often brings us down is the question we failed to ask. Just look at the tragic collapse of General Motors before it was rescued by the government. As their market share and profitability declined year after year, they obsessed over their cost disadvantages versus Toyota and in the process lost touch with their customers. Questions exploring the decline in customer satisfaction – the root cause of their market share collapse – were simply not pursued.

A key part of a leader’s mission is to serve as the chief learning officer. This requires  cultivating the practice of asking good questions as a driver of organizational learning. But there is an important caveat. Questions can also be used as weapons. These are the intimidating “gotcha” kind, designed to expose ignorance or incompetence. Such questions shut down discussion and produce fear and evasiveness, not learning. The key is to promote the habit of asking non-threatening questions that invite exploration and dialogue, and that demonstrate an honest  interest in the answers.

Learning from mistakes

Decision-making is not the pursuit of certainty; it is about choosing actions in the face of uncertainty. It involves taking risks. In today’s turbulent environment, the outcomes are harder to predict than ever before, and the chances of being wrong are rising. Nevertheless we know that unless organizations are prepared to take risks, they cannot expect to reap rewards.

Faced with this challenge, many CEOs are urging their employees to take “prudent risks.” But failures are often punished, resulting in the opposite effect – a culture of risk aversion.

I have found that it’s fruitful to look at this issue differently. Risk-taking is one side of a coin; the other side is mistake-making. A certain percentage of mistakes is the inevitable by-product of risk-taking. Although it sounds counter-intuitive, encouraging sensible risk-taking is all about how an organization deals with the reverse side of the coin – mistake-making.

There are dumb mistakes and smart mistakes. Dumb mistakes are repeating your own mistake, repeating someone else’s mistake, betting more than the organization can afford to lose, and acting without a strong enough case. These are unacceptable. But what’s left over are smart mistakes, under one crucial condition: that the value of the learning is greater than the cost of the mistake.

This approach shifts the culture from blaming to learning, and forces the organization to define, measure and act on what has been learned. This is the way science advances. Scientific experimentation produces progress based on the strict premise that if a failure is buried or denied, we cannot learn from it.

It is chilling but noteworthy that every time there is a plane crash, aviation gets safer. The industry is relentless in its quest to identify the root causes of failures. Once the diagnosis is complete, the learning is rapidly disseminated across the entire industry. The steadily improving statistics on airline safety testify to the success of this approach.

Getting away from the urgent to think about the important

In the words of futurist Paul Saffo, “Our dilemma is the growing gap between the volume of information and our ability to make sense of it.” Our problems accumulate at a rapid pace. How can we make creative decisions in such an intense environment?

The remedy lies in understanding how our brain works. The evidence is clear. When we have been hammering away at a problem, the secret is to not go on hammering. It is to withdraw and change our mental state.

Nikola Tesla is famous for the invention of the induction motor, a motor that can run on alternating electric current without rapidly burning out. But it was a huge struggle getting there. Tesla slaved obsessively for years with countless designs but was stymied and gave up in despair. Some months later, while walking in a Budapest park, the answer flew into his head unbidden. In that unexpected instant,  the tremendous industrial value of alternating current was born.

This could never have happened without his prior mental engagement – there is no substitute for hard work – but the breakthrough came when a different set of stimuli opened his mind.

Some years ago, I worked with Aviva, a UK based insurance multinational. The chairman had instituted the practice of quarterly two-day retreats away from the office for the executive team. I was invited to facilitate some of these meetings and was deeply impressed with what I saw. The team discussed market trends and their implications, examined alternative scenarios, reevaluated their priorities, listened to an outside speaker, and went on walks together. They also bantered and had a bit of fun along the way, creating a relaxed and open atmosphere. Invariably this process yielded unexpected insights and a firmer strategic footing for the business.

Do these retreats slow organizations down? Not at all. A good investment in time for reflection actually speeds them up. The most effective mental process in a chaotic world is: stop, look, go.

Retreats of this kind also yield an enormous social dividend. Thomas Friedman, in his latest book, Thank You for Being Late emphasizes how spending time together and sharing perspectives helps teams develop understanding and trust, vital elements for greater collaboration and teamwork.

The ideas I have offered draw their power from fundamental principles about the nature of learning. I am reminded of Alvin Toffler’s profound definition of the learning process: “The illiterate of the future are not those who cannot read or write, but those who cannot learn, unlearn and relearn.”

In my seminars I ask executives which of these challenges is hardest to master. A chorus of agreement invariably comes back. “The ability to unlearn!” This limitation is the biggest barrier to adult learning, and the most dangerous in today’s changing world. The psychologists call this the “confirmation bias” – our tendency to adhere to our preconceived notions regardless of evidence to the contrary. We tend to argue backwards from our biases. As the saying goes, letting go is hard to do.

There is a story – possibly apocryphal – that as an experiment scientists placed fleas in a glass jar. They eagerly jumped out. The fleas were returned to the jar and a lid was placed over the top. When the fleas jumped up, they hit the lid and fell back. After a period the lid was removed, so the fleas were once again free to jump out, but none did. For the rest of their lives they never again jumped higher than the imaginary lid.

While this might or might not be true of fleas, as humans we too often allow our learning to be conditioned by an imaginary lid of our own.

 

 

 

 

Posted by Willie Pietersen at 11:08 AM | 0 Comments