Chance Favors Only Prepared Minds

Creating Crises

On January 15, 2009, US Airways flight 1549, with 150 passengers and five crew, struck a flight of geese two minutes after take-off, losing power in both engines. Four minutes later, Captain Chesley B. "Sully" Sullenberger's crew landed the Airbus A320 in the middle of the Hudson River. Aided by first responders, there was no loss of life, and the five injuries and a number of cases of hypothermia were quickly treated.

How did these teams perform such an incredible feat? Was it a miracle? Perhaps. Most commercial flying is routine and pilots rarely experience a real crisis. The FAA reports the odds of a bird strike are one in 10,000, and experts estimate the odds of losing both engines are one in several million.

Yet the crew and first responders instinctively knew what to do. They had rehearsed responses to low-probability, high-impact events in simulated crisis conditions. It's part of their job.*

The chances of an employer going bankrupt in 2012 were 0.007%**, 70 times higher than a bird strike. How many executives rehearse responses to such a high-impact crisis? OK, maybe that's stretching the point. After all, company bankruptcies don't risk catastrophic loss of life.

But what if the odds of business failure were greater than one in two? Writes Harvard Marketing Professor John Gourville, "most studies estimate new product failure rates at 50% or more," ranging "from 40% to 90% across product categories."***

Alternatively, consider the difficulty of sustaining profitable growth. Columbia Business School professor Rita Gunther McGrath writes that only 8% of the 5,000 companies with over $1 billion in revenues grew sales by 5% annually over a 5 year period, and only 4% grew net income by at least 5% annually - that's less than one in 20.****

Why not increase the odds of success by taking a page from pilot training and have teams "rehearse" in launch or growth simulations?

Master motivator Lou Gerstner, who took over an IBM in its death throes in 1993, determined that the organization had the capability to perform incredible feats, if only he could refocus its efforts. Early on, he challenged his senior executives to attack their businesses as if they were their primary competitors, in effect "rehearsing" competitive responses.

Later, in the early 2000s, IBM embedded "crisis" simulation into the strategy process. Executive business unit teams went offsite to confront their biggest challenges, such as reversing a loss or identifying how to grow revenues by an order of magnitude, in response to likely market, competition and technology evolution. To make the "rehearsal" as consequential as possible, the teams had to present their solutions to the senior-most executives in the organization - the stakes were high. As English writer Samuel Johnson said, “nothing so focuses the mind as the possibility of being hanged in a fortnight.” At IBM, the teams had three days.

Organizations can similarly improve results by running simulations focusing on assessing and responding to growth opportunities, marketplace risks, untapped sources of customer value, the next generation of customers or emerging competitive threats.

While each simulation requires a different approach, the key to success is creating a realistic environment - a "crisis" - that challenges existing mental models and addresses the organization changes required to deliver a new initiative (structure, systems, people and culture).

It's hard work, but the results can be significant: IBM's EPS increased eight-fold over the decade following the launch of the strategy simulations, tripling the share price.

As Louis Pasteur said in a lecture at Lille University in 1854, "...chance favors only prepared minds."

*Newman, Rick, "How Sullenberger Really Saved US Airways Flight 1549," USNews & World Report, February 23, 2009
**42,008 bankruptcies in the US in 2012: "Bankruptcy Filings Down in Fiscal Year 2012," US Courts; 6,049,655 employers: "Statistics about Business Size," US Census Bureau
***Gourville, John, "The Curse of Innovation: Why Innovative New Products Fail," MSI Reports, Issue Four, 2005.
****McGrath, Rita Gunther, “How the Growth Outliers Did It,” Harvard Business Review, January – February 2012

You Can't Find What You're Not Looking For

Ask the right questions

Smoke detectors are programmed for early warning. But they don't detect CO2, equally as dangerous.

With a specific threat - or opportunity - identified, designing a system or capability to capture and process the relevant signals and issue an alert is pretty straightforward.

The challenge for companies is to articulate the potential business threat or opportunity. But in a dynamic marketplace, these are everywhere. Organizations simply can’t monitor every Bill and Dave or Steve and Steve in their garages or Jeff in his warehouse.

It is exacerbated when organizations obsess on collecting reams of customer data or developing in-depth competitor profiles, especially when these focus is on what the customers wanted or what the competitor did. The often-unstated assumption – the mindset – is that the future will be largely like the past and, circuitously, the historical facts support the prevailing view.

But there are no “facts” about the future.

Creating the necessary insight requires asking the right questions:

• How will new technologies and business value propositions impact our customers, products, services, and business growth?
• Which industries, customer segments and offerings categories offer the best likelihood of future business growth?
• Who are the most threatening traditional, emerging and potential competitors? Why?
• Where are the greatest long-term profit streams according to the capital markets?
• What is required for future competitive success?

How many organizations have good answers to these questions? How many have the leadership that asks them?

You can’t find what you’re not looking for.

Next: Creating Crises

Avoiding "Surprises"

Early Warning

Early Warning

Had these experienced commanders and executives (see the prior post, "Surprise") known what was coming, they could have redeployed assets and avoided catastrophic “surprises.” Today, of course, we can see that the available information provided sufficient early warning of clear threats - hindsight is 20/20.

But why is it these leaders couldn't see the signs at the time?

In retailing, it is not as if amazon.com and its offshoots were unknowns by the late 1990s. However, the prevailing view of traditional retailers was that marketplace success required opening as many stores as possible to both gain share and blunt competition. These built vast organization structures around site location, logistics, inventory, HR and downstream (promotional) marketing. And the most successful developed sophisticated information systems that reported operational performance variation in increasingly exacting detail. Have a hot selling item in one location? Easy - find excess inventory and load it on the next shipment. Poor performance in another? Schedule a performance review with store management to isolate and fix the root cause.

What they didn't have was an information system to warn of emerging strategic threats. No doubt these executives received information about the impact of Internet business models. But, unlike the internal information, it was unstructured, arriving initially in dribs and drabs. By the time clear trends emerged, the successful early Internet movers had learned from their mistakes and established defensible niches.

Caught in the daily exigencies of running an enterprise, these leaders simply weren't programmed to evaluate the nature of the available early warning intelligence within the context of their brick-and-mortar operational mindset and information expectations. And, eventually, when they did assess the threat, they were constrained by the amount of investments required to overcome the first-mover advantage, which would have required diverting significant resources from successful operations.

Waiting until information is absolutely certain (right hand side of the chart) results in a crisis, forcing leaders to rapidly rethink critical assumptions: maintaining outdated mindsets when bombs are falling or bankruptcy looms is suicidal. But it may be too late: they have very little flexibility in how to respond – you can’t re-position a fleet immediately or turn a brick and mortar operation into an e-commerce one overnight.

On the other hand, way back in relative time (the left hand side), leadership has more leeway in deciding where to deploy assets. However, the uncertain and often conflicting information makes it difficult, if not impossible, to challenge the existing organization mindset.

Avoiding “surprise” requires speeding up the processing of relevant information, moving the information certainty line upward and the intersection of the two lines to the left, when there is more decision-making flexibility.

Creating the intelligence necessary to challenge assumptions earlier requires choice and focus – every startup or new technology is a potential threat. And, perhaps perversely to some, the solution is not simply amassing and sorting through vast amounts of data. 

It requires asking the right questions.

Next: You Can't Find What You're Not Looking For

"Surprise"

December 7, 1941

Nothing frustrates executives I speak with more than a crisis caused by surprise: a new competitor product or unexpected price cut, unexpected loss of a key bid or long-held account, or new technologies or shifts in buyer behavior that obsolete current offerings. And heads roll when these cause a miss in quarterly earnings or, worse, bankruptcy.

The question that always arises is how could we have avoided surprise?

Lack of knowledge is not the problem. “We now live in a world where knowledge transfer and information exchange are tremendously efficient, and where there are numerous organizations in the business of collecting and transferring best practices. So, there are fewer and smaller differences in what firms know than in their ability to act on that knowledge.”*

Said another way, surprise rarely occurs due to a lack of signals. Information on the Toyota Production System was available to the US auto industry for decades, and traditional retailers certainly had time to absorb intelligence on amazon.com’s business model well in advance of having to declare bankruptcy. In the military sphere, “an analysis of surprise attacks suggests that the intelligence community seldom fails to anticipate them owing to a lack of relevant information.” And a US Congressional Subcommittee that examined several critical US political crises pointed out that “in no case had lack of data been a major factor in the failure to anticipate the crisis.”**

Take Pearl Harbor – why did the US navy fail to detect anytime in advance the movement the most powerful fleet in history? It was not as if Japan’s blue water fleet was a surprise – in 1905 it destroyed the Russian Pacific fleet. Nor were Japan’s expansionist intentions a secret – it invaded Manchuria in 1931. And it’s not as if the US Pacific Fleet wasn't concerned about the Imperial Japanese Navy: it knew it was the only real threat to those intentions. Finally, beginning in early in 1941, there was a slew of signals that the Japanese navy was targeting Pearl Harbor.

Given this, “intelligence officers could perhaps have foreseen the attack if the US, years before, had…flown regular aerial reconnaissance of the Japanese navy, put intercept units aboard ships sailing close to Japan…or recruited a network of marine observers to report on ship movements.”***

Did the US Navy create its own surprise?

Next: Avoiding "Surprises"

*Pfeffer, Jeffrey and Robert Sutton, The Knowing-Doing Gap, Harvard Business School Press, 2000
**Kam, Ephraim, Surprise Attack, Harvard University Press, 1988
***Kahn, David, "The Intelligence Failure of Pearl Harbor, Foreign Affairs, 70, no. 5 (Winter 1991/1992)

Rice, Autos and Online Retailers

Winning Marketplace Strategies

The biggest threat to success comes from failing to understand and incorporate all aspects of a winning marketplace strategy.

Success arises from differentiation in one or – better – more of three domains:

• Customer strategy (identifying and meeting unmet needs, branding – not just advertising – or finding new ways to go to market); 
• Factor strategy (raw materials, supplier relationships, logistics, manufacturing, technology); or
• Organization strategy (new business models, different systems and processes, new culture).

Many marketers focus exclusively on the first. But because differentiation is critical, marketing, perhaps surprisingly to some, has a significant, if not dominant role to play in understanding buyer behavior through the second and third, and then driving necessary changes through the organization.

To many Americans, rice is a simple foodstuff, something we eat in place of potatoes or bread, and as a side dish in Asian restaurants. And, like many, I grew up on Uncle Ben’s, Rice Krispies and Rice-a-Roni. Yet a master sushi chef in Japan might insist on Uonuma Koshihikari, which costs an order of magnitude more than the rice you’ll find in supermarkets (you can buy a 5kg / 11lb bag online for $130).

In 2009, both GM and Chrysler (for the second time) declared bankruptcy. Yet in 1990 – 20 years before – three MIT academics, James Womack, Daniel Jones and Daniel Roos published The Machine That Changed the World, a book detailing the Toyota Production System (TPS) that simultaneously cut costs and increased quality. Worse, intelligence on this radical new production and organization system was available to Detroit in the 1960s – the ideas that led to the TPS came from Ford, which opened its doors to extensive benchmarking by Toyota executives in the 1950s.

And new internet-aided business models can inhibit if not completely destroy your business. Perhaps the best known examples are the bankruptcies of Circuit City and Borders 2011 and, just this month, the announced closing of the remaining Blockbuster stores, driven by online retailers modeled on amazon.com, founded in 1994, almost 20 years ago…

Rice retailers, restaurants and food processors have multiple factor strategies to choose from, influenced by and influencing their customer strategies. And imagine if, when Chrysler first declared bankruptcy in 1979, US auto marketers had focused on understanding the role of Toyota’s factor and organization strategy on consumer behavior. Finally, only a radical shift in strategy to embrace an Internet business model confounded expert opinion that Best Buy would soon follow Circuit City.

Next: Surprise

Opportunity or Afterthought?

Support

How many great customer service calls can you recall? If you’re like me, you’re more likely to remember the endless prompts, being put on hold, or dealing with someone who can’t or won’t solve your problem.

How many trade shows or conferences have you returned from with a slew of unremarkable collateral? Admission: I don’t really collect a lot and mostly throw out what I do.

How many vendor capability presentations have caused you to take action? Or, as a consumer, how many unsolicited calls or emails have actually caused you to buy something? In my case, close to zero.

I once inherited an under-performing business development (cold calling) function. The sales team had hired a bright, engaging and outgoing young professional with the intent of qualifying leads and setting up sales meetings. But after six months and zero meetings, something had to change.

The reason soon became abundantly clear. This erstwhile and eager individual had received no training: not in the offering, not in the sales process and not in how to identify needs and nurture leads.

Six months completely wasted.

Support, or lack thereof, can make or break a customer relationship. Done well, and accounted for properly, it can pay for itself many times over. I willingly pay extra for a premium credit card because of the support I get – the company handles our inquiries with personnel whose sole purpose appears to make me a satisfied customer. And because of that, I almost invariably use that credit card for my purchases. Same with my bank: I maintain a high balance, initially to eliminate monthly fees, but more recently because it enables me to get through quickly to knowledgeable personnel who address my concerns promptly.

The subtitle of George Day’s must read book, The Market Driven Organization** says it all: your job is “Understanding, Attracting and Keeping Valuable Customers.”

This requires great support which, in turn, requires training.

Training is an opportunity, not an afterthought.

*Cartoon posted by Joel Leonard in a LinkedIn update
**Day, George, The Market-Driven Organization: Understanding, Attracting and Keeping Valuable Customers, Free Press, 2007

Get Out of the Office

Sales Readiness

“Everyone lives by selling something,” wrote Scottish author Robert Louis Stevenson.
And perhaps the ONLY thing I disagree with Peter Drucker on is his observation that “the aim of marketing is to make selling unnecessary.” Selling is necessary. While marketing is about understanding and preparing customers to buy, selling is about turning marketing programs into transactions.

That said, the lines between marketing and selling in the digital commerce age have become increasingly blurred. In many cases, when you buy online, it is without human intervention. Gerhard Gschwandtner projects in SellingPower that the number of outside sales personnel will decline from about 18 million today to about 4 million in 2020. He writes, “as the number of software applications is exploding and computing power is accelerating, we will see more sales tasks move online, requiring fewer salespeople. ”

The sales process (human or digital) requires the right collateral, sales tools, presentations and demos and comparative value propositions, albeit it in different formats. Take reference selling, for example. Spokespeople and endorsements are important in both B2C and B2B sales (either through advertising or through a list of references the buyer can call). In the digital world, online ratings and comments by buyers are now supplementing and may eventually become the standard for reference selling.

As this shift occurs, marketers, with their understanding of buyer motivation, will have an important role to play. But to take on this role, many will need to expand their worldview to include revenue generation. Says Sergio Zyman, ex-CMO of Coca Cola, the definition of marketing success is to "sell more stuff, to more people, more often, for more money, more efficiently." To do this, marketers will need to develop a deeper understanding of the sales process.

And the best way to do this is get out of the office and accompany sales people on sales calls.

*Gschwandtner, Gerhard “How Many Sales People Will Be Left in 2020,” SellingPower

Make Haste Slowly

Effective Communications Briefs

Once you've developed a differentiated value proposition, you've got to communicate it to the target audience, using powerful language and visuals. You've got to find out where that audience “hangs out” – what television programs they watch, what magazines they read, what radio stations they listen to, what social media they follow and where they spend their time online.

Creating a winning (and by winning, I mean winning in the marketplace, not winning awards) marketing communications program requires a team of specialists: communications strategists, copy writers, graphics and layout artists, media buyers and, increasingly, social media specialists, often found in marketing or communications agencies.

How well your awareness-building initiatives succeed depends on your ability to harness the full power of these talented individuals. A good agency won’t start work without a good brief, which ensures that their team stays focused on your objectives. But developing a good brief takes time and hard work, and if you leave most of the effort to the agency, not only will you receive a hefty bill, but you and your internal non-marketing clients may become frustrated with the process. Plus, leaving it to the agency risks that they will only work with the marketing department, losing you an opportunity to engage with key business stakeholders.

The solution: create your own brief, which gives you the opportunity to harness the best thinking of your organization’s talent, and not just the marketing team. Here are some guidelines:

1. Start with your market insights. What's the big picture? What's going on in the market? What are the opportunities or problems in the market?
2. Who is the campaign talking to? The more precise and detailed the better. Describe demographics, firmographics and psychographics. Explain how the audience currently thinks, feels and behaves in relation to the product category, your brand, and your specific product or service.
3. What is the objective, the purpose of the campaign? A concise statement of the effect the communication should have on customers. Typically expressed as an action, focused on what the communications should make them think, feel, or do.
4. What's the most important thing to say? What's the single most compelling statement we can make to achieve the objective? This should be a simple sentence and certainly no more than a few sentences if absolutely necessary. Avoid generalities.
5. What are the supporting rational and emotional reasons to believe and buy? Explain why the customer should believe what we say, and why they should buy. Include all the major copy points, in order of relative importance to the customer. It is also helpful to include other information the agency might need, such as a description of the brand personality, positioning tag lines, creative thought starters, terms of direct response offers, result expectations, and mandatory elements such as the logo and Web address. 
6. What do we need from the agency team? And when do we need it?

Finally, make haste slowly. While it takes an effort to collaborate across internal functions who don’t speak marketing, engaging them in the process as trusted advisors (with marketing doing the heavy lifting) will increase both understanding and buy-in.

Don't squander this opportunity.

What Really Matters

Differentiation

Winning value propositions must be both relevant to customers and differentiated from the competition.

To create one, identify and rank the brand or offering attributes your market intelligence team identifies from customer research, and then have your competitive intelligence team assess these against competition. Organize these into four categories.

• Neutrals. Features and functionality that are irrelevant to customers
• Antes. Features and functionality that are important to customers, but provided by key competitors at similar price points and quality.
• Drivers. Benefits and attributes that are important to customers, and which are highly differentiated from competition.
• Fool’s Gold. Benefits and attributes that do not matter to customers.

You may be shocked at the results – the research may show that something everyone thought was a key point of differentiation is at best an Ante or worse, a Neutral. And you may sadly find that you've been wasting precious resources promoting benefits and attributes that don’t matter.

Clearly, you want to emphasize the Drivers. But also ask what you can do with the others. For example, a recent ad by TD Bank emphasized the difficulty of finding pens that worked in other banks (and often on chains so you can’t “steal” them). TD Bank recognized a customer service and branding opportunity and now stocks logoed pens and even encourages you to take them. The question is, of course, whether this is a Driver or Fool’s Gold, but given the lack of real differentiation between retail banks, a small gesture such as this contributes to and reinforces the overall brand experience.

Another example. Road warriors on overnight flights find it difficult to see their computer keyboards once the lights dim, even with the overhead light on. I experienced this for years, until I found a simple solution on my Thinkpad (simultaneously press Fn-PgUp – the bottom left and top right keys of the keyboard – on older models, or Fn-Space on newer models). The interesting thing is how I learned this. In a meeting with a number of IBM executives where, with the lights dimmed for a presentation, one executive’s Thinkpad had a glowing light. He explained how it worked to this seasoned group, many with decades of experience – none of us knew about it! Again, a legitimate question is whether this is Fool’s Gold, but in the commoditized PC business, it is also legitimate to ask whether it could be turned into a Driver.

Try this test. Ask an objective analyst pick out the key messages from the communications (ads, websites, social media, etc.) of you and your key competitors, present these anonymously to decision-makers and ask them to distinguish who is who.

Now get to work on creating real differentiation.

Next: Effective Communications Briefs

Understand the Competitor's Strategic Intent

What do you need to know about the competition?

The most important thing you need to know is their strategic intent – what is it they are trying to accomplish. Once you understand this, you’ll have a framework for understanding virtually every decision they make, from hiring key personnel, to product strategy, benefits, features and functionality and pricing. Take, for example, a competitor whose CEO has made aggressive revenue growth commitments. You might deduce s/he will aggressively pursue every opportunity in the marketplace, regardless of profitability. Or, if the technical staff dominates development, offerings may include features and functionality customers don't care about.

You don’t need 100-page documents, chock full of data but poor on insights. If your CI team is producing these, fire them. What you need is a one-page report that shows the competitor’s approach and what their likely next actions will be. You need to understand their key people – what they do and how they think, because people and organizations repeat their successes. You need to understand the likely impact of new initiatives, and their financial and technical capabilities. And, most importantly, you need to understand the competitor’s culture

Lou Gerstner was maniacally focused on customers and competition from the first day he joined he joined IBM. At his first executive retreat, he forced his senior executives into red-team exercises and asked them to attack their own businesses as if they were the primary competitors. He got immediate results, and extended the concept by naming each senior executive to be in charge of a major competitor as part of their responsibilities.

Make your executive peers part of your CI team. You’ll be delighted with the results.

Next: Differentiation: What Really Matters