July, 2011

This past month was the 37^th anniversary of the first use of the Bar Code.  In a grocery store located in Troy, Ohio, a pack of Wrigley’s gum that now resides in the Smithsonian was scanned for sale.  In the years after its launch, large retailers such as Kmart and Wal-Mart, adopted its use. By 1980, 8,000 retail outlets had converted to its use.  Rapid adoption by the U.S. Department of Defense followed in 1981 for all goods sold through the U.S. military.  Once the supporting infrastructure was built, costs plummeted and the technology scaled, delivering enormous benefit to the industry.

As the case for many technologies that reach the mainstream, it is easy to take it for granted and to presume that the bar code has always been there. In today’s world, new technologies seem to launch and permeate the mainstream almost immediately.  Think about any product that starts with the letter “i.”  Yet often the most durable, pervasive technologies available start out with humble roots. Such is the case with the bar code.

It took 25 years for the bar code to travel from patent into operation.  Patented in 1952 by two students, issues of cost, standardization, adoption, and investments in hardware stymied its progress.  In a technology that required significant investment from both retailers and manufacturers, neither side wanted to move first. Despite enormous potential, Business Week declared the bar code, in its early days of deployment, to be a failed initiative with an article titled The Supermarket Scanner that Failed.  Despite the initial challenges, the technology is now pervasive and used in almost every industry. They are used when you board your airplane.  Manufacturers use bar codes to track product at points in the production process. Key chains are populated with bar codes printed on the loyalty cards consumers carry.  Just a few examples of how a new technology, originally met with resistance and skepticism, touches every person, every day.

A decade ago, the bar code’s death was once again predicted.  A new technology, Radio Frequency Identification (RFID) Tags, was promised to be a superior technology that would quickly take its place.  The bar code, we were told, was destined to fade into obsolescence and become a relic to sit aside the eight track player.  Instead, the high cost of RFID and limitations of the technology has kept it much more resigned to the research lab.  The bar code’s use, though, has continued to increase.  In recent years, the bar code has extended to 2 dimensions.  These new types of bar codes are seemingly popping up anywhere information needs to be accessed or assets need to be tracked.  They are on real estate signs, so a person can scan the code to hit the URL listing.  I am starting to see 2D barcodes as new emerging standards for the business card.   As everyone starts to have a smart phone, access to information and commerce is becoming real time, accomplished through a brief bar code scan on the smart phone.  In many ways, cutting edge mobile web access and mobile commerce is being facilitated by the generation old, low cost, reliable bar code.

Approaching its fourth decade in use, and more than 60 years after its conception, the bar code has become a case study in durability.  Its rollout, like most technologies, took longer than expected. Its results, greater than imagined.  My guess is that more predictions of its death are ahead, which will be premature.

June, 2011

Like I suspect many of you, economic news passes across my web screen by the second.  When the balance sheet of Greece hiccups, I hear it immediately sitting in Chicago.  One of the common threads in these stories is the engine of small business and entrepreneurship that will power the recovery.  More growth and innovation come from smaller companies. Small companies hire at a faster rate than big ones.  A strong fact base has shown repeatedly this to be true.  The growth equation appears to be that innovators create and grow new ideas that big companies buy in order to scale. The economic growth engine speeds up when this is repeated over and over again.

A wonderful example on the front end of this growth cycle has been Pure Digital.  In late 2007, the company launched a product called Flip Video, which quickly attained icon status.  An elegant example of designed-down innovation, Pure Digital stripped out the complexities of the modern day camcorder, added a slot for a 9 Volt battery and a big red button for recording.  Obvious now in hindsight, their innovation was not a new invention or anything added, but the genius of simplicity by taking things away.  The product took off.  Consumers tired of wires, too many buttons, and recharging lithium batteries snapped up the new cameras in mass.  With one product, a stagnant category was revitalized and a new market was born.  If you have one, you likely love it.  In May, 2009, after less than 2 years of incredible success, Cisco bought Pure Digital for $590 million.  Cisco’s biggest acquisition in a consumer market, the acquisition was heralded as a game changer for the company’s future.  With its purchase, Cisco inherited a mass market product with industry leading position.  Just over 2 years later, Cisco bagged the whole idea and announced this past April they were shutting the business down.

So what happened?  Well, Cisco has been in the news with unfavorable stories in the past year about its strategy.  The company’s skeptics began to question its voracious appetite for acquisitions, buying more than 100 companies since 2008.  This is a far cry from the stories written a few years prior when Cisco was often looked upon as the marquee company for successful acquisitions.  Yet, in 2011, as the company’s financial performance began the wane, something needed to give…and perhaps the tax write offs from recent acquisitions like Pure Digital were too much a temptation to resist.  That $590 million will now be amortized along with a new strategy containing words like “focus” and “core business.”

Perhaps shareholders were best served with this decision.  But still, the decision nags at me.  Didn’t this small business with a few people create an iconic brand and several hundred jobs along the way?  Of course, all the major camcorder manufacturers have launched their version of the Flip Video and you can argue that the company’s legacy, along with new fuel to the economy, can be found there.  But it still feels a bit like a squandered opportunity.

Successful acquisitions are always a challenge and a roll of the dice.  The mixture of start up moxie with big company conservatism can make these efforts even harder.  Subjugating the priorities of the acquired brand to larger corporate priorities means original ambitions can get lost.   The acquirer measures results differently as well.  In some cases, the technology is the acquisition target more than a company’s products.  Taking out an upstart competitor is another potential objective in the acquisition game.

Yet this example is so striking because of the value lost.  It is an example that shows the growth equation can be broken.  Those companies that buy into the equation, unfortunately, have no obligations to see it through.  As we collectively look for answers to drive economic recovery, we are under no obligation to solely rely on a growth equation that can so easily be broken.

April 18, 2011

Border’s Bookstore is one of the more recent and highest profile casualties of recession, going into bankruptcy and closing down most of its store fronts.   Accompanying the closure is a lot of hype – ironically unmatched by the company when they were a going concern – about fire sale pricing and store liquidations.  These declarations of once in a lifetime bargains are attracting the masses.

This event has been a long time coming.  Remember the phrase “Amazoned” in the late 1990’s? The catchphrase entered the corporate mainstream as an attempt to characterize the inevitable decline of brick and mortal business.  Meant for general consumption, it bore specific relevance to the 2 big brick and mortal bookstore juggernauts of the day; Border’s and its chief competitor Barnes & Noble.  Leading up to this period, both chains experienced explosive growth as they expanded across the U.S. consolidating an industry.  The conversation around the water cooler those days – sometimes with power points brought along for added credibility – was that these two chains were dead men walking.  It took longer than expected and now has come in full force.

So, salivating at the prospects, my family and I recently jumped in the car and headed for the nearest Border’s Bookstore set to close.  We all thought it would be like a hunting trip at the library, except this time we get to keep the spoils for pennies on the dollar.  Perhaps our visit would be just like the old times of browsing the shelves and finding that one gem of a book that lifts the spirit.   It didn’t exactly turn out that way.  Instead of a buying spree, our experience was more like a funeral for the past.  Our visit was similar to a wake for a distant relative whom we were once close to but had lost touch with over the past several years.  Oh sure, we recognized the store and there were the familiar memories once again in front of our eyes.  Our reaction to the best seller shelf was a bit awkward, not having access to what others thought of the read through a click of the mouse.  Huge signs gave testament to the large discounts.  These discounts melted away through a quick price comparison on the phone.

We continued to stumble over the old ways of doing things and, like some older relatives, instantly recognized the attempts to stay young that simply translated into a message of increased age.  Do we really need this movie on DVD?  The 50% off did not seem like a bargain for the choice movie on DVD, as our own DVD player starts to collect more and more dust.  Curious about the clearance rack, I asked myself, “What is this thing called the Kobo?,”  With further exploration, I came to the conclusion that it was Border’s version of the Kindle.  Or the iPad.  Or the Nook.   Additional merchandise as we walked through the aisles seemed out of place.  No doubt that crafts, scrapbooking, gift cards are all worthy categories marked by recent growth.  But these items aren’t destination items for Border’s consumer. There are other places, like Michaels stores, for those.  To cross-sell at point of purchase, some orientation and instruction is necessary.  Simply stacking such items without some orientation – are these the best items?  What is this stuff used for?  – means most folks continued walking as these items are not “destination” items for the fire sale.  Our old friend was dabbling in new hobbies, none of which seemed to take hold with passion and commitment.

So we kept walking and waited at the checkout.  Our family hunt netted a few items, mostly books on discount.  We journeyed home feeling a bit unsatisfied compared with the fervor that brought us there. It was visit with the promise of rekindling the past, only to realize that you can’t go back.

Bill Gates has a saying that came into mind as we drove away. “We always overestimate the change that will occur in the next two years and underestimate the change that will occur in the next ten.”  Indeed, Border’s demise took longer than the prognosticators predicted.  It did not happen overnight, but when it came, it happened swiftly and was total.  An indication of the complete transformation in bookselling is that no one wanted to buy the company.  Barnes & Noble has more than enough on its hands dealing with its own problematic and unprofitable real estate and did not see any advantage of inheriting more.

Longer than expected, we reintroduced ourselves to an old friend, realized how long it had been since we had been in touch, and saw that times had passed him by.

If you live in a relatively large city and have visited an Asian grocery store, you likely did so in a China town.  Outside the store, the parking lot offers an interesting customer study.  There is usually a line of cars streaming out the small lot.  Lexus, BMW, Mercedes are the logos of choice.  The store itself is probably small and less than well-kept.  The narrow aisles were stacked floor to ceiling.   The difficulty in finding items perhaps met with the charm (for some of us) of a chaotic check out.

In north suburban Chicago, a new alternative has emerged.   Asian immigrants come from all over the area to shop at HMart.  They experience clean, wide aisles and a brightly let store.  All the food from home you can buy.  Clearly, this is not your mom and pop Asian grocer of yesterday.  HMart operates 33 stores across the United States. Estimates are these stores total $500 million in revenue.  It has been reported that one of HMart’s stores located in metropolitan Atlanta earns about $35 million annually.

There are examples additional to HMart of Asian-centric grocery stores operating at this kind of scale.  Started in 1993, T&T Supermarkets grew to encompass 17 stores across Canada.  Becoming Canada’s largest Asian grocer, the company was acquired last year by Loblaws Co., a leading mainstream Canadian grocery chain, for $225 million.   The reason?   23% of grocery spending in the large Canadian cities stem from Asian immigrants.  99 Ranch Market, originating out of California in the mid-80’s, now has over 30 grocery stores across California, Washington, and Nevada.  The company opened up a grocery store in the Dallas area with over 80,000 square feet of selling space

Growth in Asian grocers is being driven by several factors.  The large urban centers are increasing becoming populated by an ethnic majority.  Almost 40% of residents in San Francisco County are foreign born.  Asian consumers also benefit from higher incomes.  Asian buying power in the US is expected to increase $250B between 2008 – 2011.  Second, several studies indicate Asian consumers spend proportionally more of that buying power on groceries.  Consumers to these stores, and people who tend to enjoy Asian food, tend to be higher income segments.  A study released my Mintel last year indicated people with incomes above $150,000 are increasingly driven towards these kinds of offerings.  That same study projected annual growth in the ethnic foods market of 20%.

The recent economic downturn appears to be accelerating the trend.  Due to the downturn in commercial real estate, big-box retailers are consolidating their store base, providing opportunities for the growing momentum behind Asian grocery chains.

The grocery market is known as a mature industry with razor-thin margins.  You can only sell the product in so many ways, conventional thinking goes.  It always seems that innovation sneaks up on us, breaking the compromises of that conventional thinking.  And so it is with Asian grocery chains, one of the up and comers in this industry.

June 7, 2010

Innovation comes in many shapes and sizes.  Increasingly, the focus of innovation today is on solving “last mile problems,” providing transparency and collaboration when multiple processes and people converge (see Last Mile Innovation for a deeper view on innovation today).   Textura is a rapidly growing entrepreneurial venture solving the last mile problem for the construction industry.  We recently had the opportunity to talk with John Smith, Product Architect for Textura, to learn more about their success, innovation path, and even a little bit about time travel.

John, welcome, tell us about the first insight that led to Textura’s entry into the marketplace?

The idea was and is about risk transfer in the construction financing and payment process.  The documentation required monthly in the industry today is significant, where the risk associated with any single transaction could be in the millions of dollars.  This drove the industry to develop an absolute addiction to paper and 100% audit processes where no payment is allowed to proceed without scrutiny.  The construction payment process was overdue for the application of collaborative technologies.  Construction as an industry has seen historically low investment in technology – all of which helped pave the way for us.

The innovation applied by Textura is conceptually simple:

1.       Define a best-practice invoicing, compliance, approval, and payment process (tuned for construction’s unique financial, legal, and process issues)

2.       Build a team capable of delivering exceptional customer experience and put the right tools at their disposal

3.       Have fun, change the industry

The applications which we deliver to our customers today, through a SAAS model, are fundamentally derived from the original insight that we could do better.

What further innovations were instrumental as the company has grown?

Let me rephrase the question, to something like; “Were there innovations hidden in that initial implementation which you were not immediately aware of (but which proved instrumental in growing the company?)”

Yes, actually there were quite a few “secrets.”  Simple things like using the internet and standing arms length from any of the direct project participants as a third party.  The simple, structural advantage of being a third party was actually quite powerful.  We are capable of carrying out collaborative transactions which installed software never could.  Our concept of “distributed administration”, where each organization manages their own corporate persona, rules, permissions, etc. has allowed our solutions to greatly reduce the variability in the process.  Each has a common framework for invoicing, compliance and payment with many different general contractors and owners.

Ok, further innovations.  Basically we have stayed true to the idea of connecting construction industry participants to each other with shared tools in a way which decreases their risks, transaction costs, and improves communication and transparency.  We simply branched out into other areas which are either adjacent to the construction payment process, or support the same industry participants in a different process space altogether (but still with the common threads; shared tools, common network infrastructure, and project-based workflows).  We look at the industry participants and the process threads which connect them much more broadly today than five years ago.

So you are branching out.  As you do this, are you managing innovation as a process?  A small group of geniuses that you throw in a conference room?  Customer-centric?

Having a group of geniuses certainly helps.  The problem is that even the best geniuses will occasionally hit a dry spell.  As a recent fortune cookie told me “Success is going from failure to failure without loss of enthusiasm” so at least you’d have that going for you.

Customers are certainly a great source of ideas, likely the best source, and “Thanks” to any of ours who may read this.  Our process for managing new product development is pretty old school; talk to the customers about what they do today and what they would like to be able to do better in the future, cover different perspectives across a range of customers, boil “what they do today” down to basic functionality which is required, and match that with capabilities we have already or could reasonably develop.

Conversations with customers gives us a really good idea of what tools they have, what they value about each and what they find troubling.  These insights help the overall shape of the application unfold.  After a basic scope takes shape, we look for both differentiators and connections.  This is where the geniuses come into the process – that moment of “gestalt”.  You have to take a flyer once in a while and the idea may come from a customer, one of the sales guys, or a developer.  We spread the new of ideas broadly, knowing that anyone could be the one to spot the better way.

It must be hard for your customers to articulate the next generation of needs.  How do you manage through that challenge?

Textura is applying technology in a process where there were conceptually very little in the way of analogous clues.  We could and do look at the flow of the paper process, but when considering the impact of online real-time collaboration to decades old processes you have to get pretty creative to divine the rules.

We are a company founded on a process innovation that has a real impact on our customers business.  I compare it to time travel (and we keep a replica Flux Capacitor in the data center as a reminder). Our customers execute project administration processes far more efficiently with Textura than with manual processes – all the while running a less risky and lower cost process than the industry taken as a whole.  This has the effect of manufacturing time for our customers allowing them to redeploy people to value-adding but often neglected tasks like quality, people development, and customer service.

Textura’s innovations today are usually much more tightly defined.  Keep the change small.  Customers are much better at reacting to deployed features and envisioning extensions than they are at designing Greenfield features.  If I were to create an outline for successful innovation in technology development it would read like this:

1.       Cover the basics

2.       Know what you do (and why the customer wants you doing it)

3.       Take a flyer once in a while

4.       Keep the changes small

It sounds like your innovation focus is shifting as the company grows.  How does your ability to manage innovation and keep the innovation spark alive changing?

Short answer is yes, the focus is shifting.  Once you have a base of shared experience and process vocabulary with your customers, it becomes much easier for them to guide you to the value in your ideas.  They will help you if you keep putting ideas in front of them in a format that they can relate to and use – small extensions may be developed more quickly and give the customer a basis for the dialog.  The lightning bolt becomes less relevant, too risky.

Are you employing technology such as web 2.0 technologies to cast a wider net of ideas?

Yes, we have used a couple different case management tools, and have embedded a variety of idea capture processes and tools around these.  All internal up to this point – all of our external input is direct customer interviews, workshops here at Textura HQ, or client implementation teams coming back with ideas from a particular customer.  We are in process of implementing a crowdsourcing idea management tool with some clever features like a virtual cash stock market for ideas where we can let competing ideas duke it out for investment from the user community (both internal and external).  The idea is to allow for capital budgeting to occur at the very edge of the enterprise where Textura ends and the customer begins.  Using a crowdsourcing tool and the markets to predict the customer (or revenue if you will) impact of each idea.  As they graduate through the process engineering can estimate delivery resources and costs for each potential and while not necessarily scaled in the same currency you have the inputs for a comparative ROI.  The macro-decision making still comes from the center of the organization, but the goal is to get as much feedback and input from the edges as possible.  Keep the cycles short, demo the work, incorporate the feedback and make the customer a partner in the development of new innovations.

The crowd helps us to cast a wide net, refine ideas against a variety of requirements and perspectives, and enables web 2.0-esque community evaluation of ideas which improves the overall hit rate for ideas which reach implementation.  A funny side note – I was working recently on a volunteer project to build a playground for a local preschool and I had someone suggest crowdsourcing with the parents as a strategy for decision making on the build!  With that sort of data coming in I can only conclude – web 2.0, you’ve come a long way baby.

John, thank you.  Congratulations on all the success and thank you for your perspectives on Innovation.

Click here for more information on Textura.

April 7, 2010

In late February, Campbell Soup announced a dramatic redesign to its iconic soup labels.  This announcement was accompanied by additional changes in how these products will be presented on the consumer shelf with the objective of simplifying product choices.  With sales starting to ebb in its core product lines, the company made these changes in the hopes that these bold moves would be noticed by shareholders and the market.   Yet the changes themselves were somewhat eclipsed by the process the company took in arriving at these decisions.

According to media reports, first in the Wall Street Journal, and then virally expanded, Campbell’s wired up test consumers with brain measuring devices.  Comparing heart rates and eye movements while consumers scanned shelves, Campbell’s was able to determine those aspects of the shopping experience which motivated decision, and those which created distraction.   With the data collected, it became clear to the marketers at Campbell’s that the consumer was confused.  So, therefore, color codes will be introduced at the shelf and the label will be redesigned.  The key objective of these steps is an easier, more guided, route through product choice to purchase decision that minimizes decision paralysis and increases sales.

A growing body of evidence suggests consumers are indeed mentally stuck by the complexity of choice.  In 2004, Barry Schwartz published an article in the Scientific American titled “The Tyranny of Choice.” That widely circulated article outlined Mr. Schwartz’s academic research asserting that increasing options often lead to sub-optimal and value decreasing choices.  After a certain point, diminishing returns take over and consumers meet more choices with increased anxiety, confusion, and decision paralysis.  This dynamic appears to be present in all walks of life where people are confronted with choice complexity.  Retirement planning is another relevant example.  Research by the Wharton School demonstrates that individual participation in 401-k retirement plans decreases as plan options increase.  The more plans offered, the less people participate.  As the academic research has piled up, it has been given the inevitable academic label – the “choice overload hypothesis.”

With all due respect to the rigor of academic research, there is no better illustration of the choice complexity consumers face today than Stephen Colbert’s description of potato chips.  In a recent episode of the nightly Colbert Nation (click here), the ever-present host unveiled all the ways you can make a Pringles potato chip.  Who knew there were so many kinds of Pringles available to be bought?  The choices are mind-blowing, which is, of course, the point.

The fact that this amount of product complexity still exists is a testament to the durability of bad incentives at the expense of consumer satisfaction.  In the consumer goods industry, shelf space after all is king.  Even more so today.  In the United States, learning from their European counterparts, the push is on the increase private label share.  Market share of retailer private label product in the US has always lagged its share in Europe.  With the current recession, retailers have sensed opportunity to increase share of their private label product.  Branded products are, literally, being pushed aside of the primary real estate of the shelf, to put private label in the command consumer position.   As a response to stem this tide, manufacturers respond with more products to defend this space, mainly with line extensions.  The net effect of all of this is more products fitted into the same shelf space….and more choices consumers are forced to navigate.

The costs of choice complexity have been long-known in the supply chain.  Greater inventory levels required for more products tie up cash.  Greater demand variability involved across multiple, similar products impacts production efficiency of hard assets, higher distribution costs, and requires more labor to respond to often chaotic breakdowns.

The growing body of evidence, first developed in academic circles but now being applied in the real world, suggests choice complexity is a real cost borne by consumers.  That cost is shared by both retailers and manufacturers in the form of lost sales and lower consumer satisfaction.  Perhaps the Campbell’s decision will represent an effective strategic alternative to the proliferation of choice.

January 14, 2010

Note – After reading the post below, you can also view a 15 minute slidecast available here to explore this case study in more depth.

Leading business change remains an inherently risky undertaking.  In today’s environment, business change leaders need every tool possible to confront the inevitable risks and challenges that must be faced and resolved.

This post examines a change campaign in crisis and the tactics leaders used to prevail.  It is the story of a civil rights campaign under the leadership of Dr. King.  Following this examination are lessons available to business leaders championing change within their own organizations.

A Case Study in Leadership Crisis – The Birmingham Change Campaign

In the spring of 1963, Dr. King and his team were paralyzed to act.  His organization was in Birmingham to obtain racial integration in downtown shopping areas.  Support for the campaign he initiated had yet to emerge and the movement was stalled.  Success in Birmingham, and King’s career reputation as a national leader, were at risk.  In this atmosphere of crisis, King called his leadership team together.

Eight years had passed since the groundbreaking integration success in Montgomery, Alabama.  That campaign integrated city busing and raised King’s profile onto the national stage.  Since that time, his organization had searched for a new level of success that would elevate their objectives back into the national spotlight.  Racial integration in the city of Birmingham was targeted for this goal.  The strategy they employed was straightforward; force local, intransient economic leaders to negotiate racial integration through economic boycott, peaceful protest, and filling local jails beyond their capacity.

King’s Challenges

Despite a clear strategy and months of detailed planning, King and his organization faced multiple obstacles.  Their primary challenge was a shortage of volunteers willing to protest and risk jail time.  Only a few hundred people had stepped forward to volunteer, compared with a plan that required thousands.

Support from essential constituencies was also lacking:

• Established members of the local community favored a solution through the normal political process.
• Fearing economic reprisal, the African-American business community offered only tepid support.
• Federal government intervention was important to establish a path to negotiations.  But with international concerns dominating the national agenda, the presidential administration had little incentive to act.
• National media attention was a source of leverage King used to encourage negotiation.  King’s power lessened in their absence.

These issues struck at the core of King’s strategy and stood squarely between his current situation and success.

The Road to Revitalization

Dr. King first attempted to revitalize his campaign by making a very personal decision to protest and go to jail.  King believed that a public display of personal sacrifice would catalyze support and mobilize badly needed volunteers. However, King left jail after nine days in solitary confinement with heightened morale in his organization, but little increase in the numbers of volunteers or the amount of press coverage.

King was then immediately faced with a controversial change in tactics. King and his leadership team debated a decision to involve the community’s youth in peaceful protest.  This was a tumultuous decision given the prospect of damaging criticism.  Core constituency groups – local African-American leaders and the Kennedy Administration – strongly advised against their involvement.  Yet the youth of Birmingham shared the passion for his objectives, were rigorously trained in peaceful engagement, and were not burdened with the threat of economic reprisal like their more hesitant parents.

King’s decision to involve them was the tipping point in his campaign. The peaceful demonstrations that followed were met with violent retribution by the local authorities.  Becoming national front-page news, photographs of police dogs attacking teenagers placed King’s objectives within the context of the conditions of the time.

These events evoked a nationwide outcry that sparked a reluctant White House to act. The local government, facing harsh criticism and filled jails, were left with limited choices beyond negotiation.  They entered into negotiations which led to racial integration.  King has his organization overcame their challenges and success came their way.

Lessons Learned for the Change Leader

Several lessons emerge from this story that are instructive for today’s business leaders:

Conflict Can Be Constructive: King effectively used conflict to bring reluctant parties into negotiation and catalyze progress.

Resistance to business change is often manifested in prolonged decision making and calls for consensus.  These are the Achilles Heel of business change initiatives.  Faced with the prospect of delays that compromise commitments and erode morale, the change leader may need to escalate a conflict to catalyze dialogue, decision, and action.

Public and Personal Sacrifice Has Limits: Change Leaders believe strongly in their “personal” power.  Yet this example demonstrates that public examples of personal sacrifice have limits.  Personal sacrifice will help to bolster your own credibility and increase morale within the internal change organization.  Rarely will it have any material affect on any person or group outside of the organization you control.

Dramatizing the Reality to Vision Gap is Vital: King’s strategy focused on dramatizing present conditions in a way that built credibility for his cause.  Present-day realities are often viewed as less important than a future vision.  But the gap between the present situation and the intended change motivates action.  Placing a future vision within the context of the present demonstrates the degree of progress required, which is essential.

Execution to Plan Supersedes Stakeholder Concerns and Desires: In the case of the Birmingham campaign, King’s key constituencies demanded different tactics.  He would have failed if he catered to all of their demands.  King knew that the tradeoff between an supportive constituent and poor execution is no trade-off.  Decision-making based solely on constituency concerns becomes a “stakeholder trap” that compromises progress.

After success in Birmingham, King went on to deliver the “I Have a Dream’ speech and then received the Nobel Peace Prize for his role in leading societal change.  It was King’s persistent application of these lessons that translated into his success, and can help executives successfully lead today’s change initiatives.

Note – some contents of this posting were originally published in the Wharton Leadership Digest by the same author

December 9, 2009

Economic downturns often accelerate existing trends.  Strong companies gain share at the expense of weaker ones.  Industries consolidate.   New ways of operating emerge.  Jeff Immelt, CEO of General Electric, is has said on numerous occasions the current economic climate is an opportunity to “push the reset button.”   Fair enough.  The question before us then is what kinds of reset strategies, or buttons, are available to us.  There are two types.  As economic pressure is exerted, resourcefulness comes into play first.  People and organizations find ways to do more with less, leaning on emerging trends to squeeze the budget one dollar at a time.  Cost and efficiency are the drivers, or the reset button.  As economic growth returns, a new dynamic will emerge in 2010, leveraging emerging trends to exploit new opportunities.  In this upcoming phase, growth is the primary driver.  Yep, reset button.

Three paths will emerge in 2010 as viable strategies to “push the reset button.”

Social Networking goes Enterprise and Mainstream

Trial and error will give way to scale this coming year.  There are a few companies taking extraordinary action in social networking on the web.  They are increasing their brand equity, engaging in a deeper way with customers, and reaching new ones.  They have been the exceptions to date.  Other than a few, most of the enterprise market has dabbled and made mistakes in the Twitter and Facebook channels.   With the combination of leading adopters and trial and error, companies now have relevant examples of success and organizational learning to capitalize.  Both Wal-Mart and Honda are examples.  Honda recently launched a multi-channel campaign focused on community building.  Don’t you know someone who owns a Honda?  The company is banking that you not only answer “yes,” but are also willing to connect through Facebook and share that experience.  Early results of this campaign are promising. Since launch, fans of their Facebook page have risen dramatically. This marketing campaign follows an earlier foray into the space that failed, and resulted in a shut-down of this first campaign.  They have learned and, early indications are, getting it better.  The same can be said of Wal-Mart.  After some early mis-steps in 2007, Wal-Mart recently launched a Facebook campaign that has, in the first early weeks, attracted about 200,000 fans.

Honda and Wal-Mart are examples that will be increasingly common in 2010. With rare exception, companies did not get social networking campaigns right the first time, but are learning from these efforts and achieving success.

Free Agent Majority

The economic consensus appears to be that the US economic recovery will be characterized by slow growth.  A recent UCLA report underscores the modest recovery scenario.  With the millions of unemployed, a return to full-time  employment for many will therefore remain elusive.  At growth below 3%, it will take more than 3 years to reduce unemployment back to the pre-recession levels of 5%.   companies that are today hesitant to turn on the hiring tap will largely remain in this position.

His recovery picture highlights the importance in the rise of temporary hiring.  The rise in temporary hiring has been one of the brightest recent trends in the jobs picture. In past recoveries, rise in temporary hiring has been a leading indicator to the return of robust full-time hiring.  Those precedents will not hold if the scenario of a more modest recovery comes to pass.  Instead, temporary hiring will become more permanent, and less transitory.  The rise in the virtual workplace, more executives being comfortable contracting out their services, and companies relying more on a variable cost labor force will all combine this coming year.  (For more detail, see a recent article in the Wall Street Journal on this trend). In 2001, Daniel Pink published a widely read book titled Free Agent Nation.  In 2010, indeed it will be.

Hold the Greens

The credit crisis has been a setback for the emerging green economy.  No doubt that it will arrive, but not in force in the coming year.  Renewable energy projects require a high percentage of upfront capital.  Debt financing is the fuel that powers renewable energy.  Yet the economy remains starved for credit.  Despite the recent signs of recovery, availability to credit and debt remains difficult.  Private equity investments are increasing in this area, but wide scale deployment of the green economy will be deferred to later years.  In 2010, the green economy will be somewhat on hold.  Some may mistake this area of the economy as a reset button, but it is really the pause button being looking at.

In place of the green economy, look to good old physical infrastructure instead.  Certainly, China’s government has been and will continue to direct billions of investment in this area (see The Other Stimulus).  The US will likely continue to invest as well, upgrading its aging infrastructure.

The reset button is a phrase that speaks to future ambition, using new technologies resourcefully to gain efficiency, and tapping new sources for economic growth.  As the recovery takes hold, leaders will seek out these opportunities that include the mainstreaming of social networking, increase in the free agent labor force, and delay of the green economy.

If you have shopped in a Costco store any time in the last few years, you have no doubt seen the flat screen televisions sold by Vizio. You can’t help but see them, positioned at the front of the store after immediately walking through the door. Multitudes have walked through those doors looking for bulk bananas and left with a large screen Vizio TV. Indeed, Vizio’s televisions have taken the market by storm the last few years, powered by the Costco channel. Some quick facts about the company; over $2 billion dollars in annual sales, market leader in LCD televisions, 87% year-on-year growth in unit shipments, founded in 2002 (7 years old). In the third quarter of this year, market share increased to approximately 16%. Catapulting from non-existence to number one has given the established category leaders like Sony and Panasonic fits. Vizio entered the category, took on established players, and is winning.

Ok.  Now, guess how many employees Vizio has?  About 200. That’s right. About 200 employees. In 2007, they obtained 13% market share with 7 employees. By contrast, Panasonic’s US division has 13,000 employees. Despite Panasonic’s larger footprint, the difference is striking…..almost mind boggling. Much has been written about Vizio and its success, but a significant point bears more emphasis – that a variable cost, virtual model was a key to success and growth.

You can probably guess where this is going. Vizio outsources and uses partner companies for practically every activity under its roof. Well, virtual roof. Design and marketing leadership are in-house. Everything else lies outside, with core functions executed by long-term, closely held partnerships. Vizio doesn’t even really do the design. They specify product performance specifications and engineers for other companies do the rest. The company’s primary contract manufacturer, AmTran, is also an equity investor, linking success of the two companies together. They truly leverage a network of third parties that gives them significant advantage.

Vizio’s founder and current CEO is William Wang. In 2002, Mr. Wang combined two ideas in the formation of the company. First, components for making LCD TVs were becoming widely available through Taiwan-based contract manufacturers, and second, that bringing the price down for these products would significantly increase their demand and move them into the mainstream.  He was, of course, right on the money. By using existing contacts through contract manufacturers, company founders designed their first LCD TV that sold at a retail price about half of current market offerings. With that, the company was born.

As the company grows, it is resisting the temptation of making large capital investments today that will become tomorrow’s legacy, stranded assets. Such assets and legacy costs slowed Vizio’s competitors in the market transition to digital. That’s the way the market works these days. In the old mindset, hard assets were nurtured into advantage. Today, in a horizontal, “flat” world, these same assets can become weights that slow speed to market and obscure market-based realities.

A related example are developments in the cell phone industry. Back a few years ago, Nokia dominated and simply seemed unbeatable. Their core strength was their supply chain. They offered pretty good phones that consumers wanted, all built on standard platforms. Using their supply chain as a cost weapon, Nokia attained profit margins the envy of the industry and beat everyone to market through line extensions of their platforms. Two events occurred that turned this strength on its head. First, new companies emerged that became private label houses for cell phone design. Everyone then had access to the building blocks of cell phone design. With that step, the commodity side of the market was lost. The second big event was Steve Jobs. Led by great design and innovation, a partner configured supply chain became the machine that supplied the market. Nokia’s strength in supply chain and standardization quickly turned from strength to liability. Today’s mobile phone market is dramatically different in structure. Motorola is betting its future not on in-house designed software, but instead on Google’s Android platform, as one example.

In 1999, John Hagel and Marc Singer published a groundbreaking and widely acclaimed HBR article Unbundling the Corporation. In it, the authors outlined a new framework for how companies would be structured in the new realities of the internet and outsourcing. With communication costs plummeting, it just makes less and less sense to put everything under one roof. That ground has now been broken repeatedly. I’m not sure Hagel and Singer imagined at the time the degree by which their concept would be applied, with a group of 200 beating an army of 13,000. With the recent economic downtown, these concepts are picking up speed. Companies that remain vertically integrated are being left behind.

November 11, 2009

In most of our pursuits, it used to be that a small group of elites would convene and decide how things were to be done.  Entering a new market, investing in a new technology, and how the staff spends their time were often decided upon by these small groups of the chosen.  Increasingly, our world is moving towards a different model where these decisions are distributed and more grass roots.

The growing use of the phrase “Built from the Ground Up” is a good illustration of the shift going on in our global culture.  This phrase emerged in the early part of the last century.  At the time, it was used to describe something exceptional.  A rare event.  It’s a phrase that is now commonplace.  A quick Google search shows its origins in 1910, but only mentioned twice in that decade.  There is only a single reference in the entire decade of the 1920’s.  That started to change dramatically during the 1980’s as use of the phrase became more common and used increasingly up to today. 

Mobilization at the grass roots level has always been the impetus for significant social progress (see – The Power of 11/9).  Think about any large social movement – American civil rights, Indian independence – and the power of grass roots is recalled as the determinant lever.  This week marks the 20^th anniversary of the Berlin wall’s downfall.  There is no better example of a grassroots movement prevailing. 

Today, this dynamic – building success from the ground up – is moving across the fabric of our culture. Any new idea in the world of business is increasingly vetted at the grass roots level.  Most venture capitalists value ideas coming through their door by breaking them down to their most basic level.  “Tell me how this idea works at the individual level, demonstrate how it is new, and then prove that it can scale.”  Philanthropy has moved in this direction as well.  The rise of micro-financing, perhaps the biggest trend in the use of philanthropic funds, is a direct assault on top-down grant making and its perceived failures.  Look at successful organizations like the Acumen Fund as an example of how the world of charity is being increasingly dominated by a ground up, grass roots view of the world.  Increasingly, government’s credibility faces new threats from the grass roots.  Think about the Iranian government’s challenges in controlling opinion of the recent election in that country.  The easiest step taken to control opinion and dissent was to revoke the visas of all visiting journalists.  Then they tried to stifle communications by shutting down access to YouTube and Twitter.   They did not succeed on this count.   Individuals far away from Iran set up proxy servers that thwarted the Iranian government’s actions, allowing Iranians continued access to the outside world.  The web 2.0, bottom-up world put the Iranian government on its heels.  In markets, think about Microsoft’s dominant power, and the challenges it faced in protecting its market position.  It hasn’t been easy for the global heavyweight to keep up with a few college students who invented the browser more than a decade ago.  Mark Zuckerberg, the student who invented Facebook years later, is another example.  

Web 2.0 technologies are clearly accelerating this shift with an infrastructure that will solidify a more decentralized culture.  Web 2.0 technologies allow for an individual idea to enter the collective conscious as quickly as it can be posted on YouTube.  In 2008, Analysis from Technorati, a blog indexing web site, showed 133 million blog records alive on the internet, 7.4 million of those posted in just 120 days prior to the analysis.  It is tough to comprehend how many ideas, how many innovations, how many new ways of doing things are out there to be recognized and tapped. Small groups that previously made the decisions and yielded the influence are now running to keep up. 

Think of this shift to a bottom up world as the new operating system for our culture.  In this new era, effective leadership will change its emphasis towards findings ways to leverage the new operating system.  P&G’s Connect and Develop R&D model is an excellent example of how companies are trying to tap into it.   Through this effort, P&G seeks to leverage a grassroots innovation network that is dispersed and organic, rather than dictating innovation from within.  As another example, Google has become well-known for its self organizing development teams.  Effective leadership in this new world means creating new ways for society and organizations to tap into ideas that start at a grass roots level.   Leverage the network.   It’s a bottom-up world.