Smart is Dumb, and..

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...dumb is smart.

I was reminded of the importance of what I read about years ago in the best-selling negotiating guide, Getting to Yes, watching TURN, AMC's new drama about America's first spy ring in the American Revolution. In episode two, a Captain in the Continental army charged with creating the spy ring, serves dinner to a captured British Captain in a gesture of apparent civility between officers. At the end of the meal, the British Captain, wishing to reciprocate, gives away the exact information the the Continentals needed. The dialog:

British Captain: "Now then, to business. What is it you wish to know?"

American Captain: "Oh nothing, sir. We already know all we need to know."

BC: "Truly? You know where we mean to strike after retaking New York?"

AC: "We know you have four thousand men stationed at Throgs Neck in Brooklyn, New York, as part of your occupation force."

BC: (incredulously) "Four thousand??? (derisive snort) Try six!"

Good information is critical to success, whatever your decision-making endeavor - military, negotiations, strategy, marketing, sales... And, it requires careful planning to obtain, and validate.

Just don't let your ego get in the way.

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23 Reasons Not to Talk to Strangers? Or...

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...Little Red Riding Hood?

My friend and former colleague Eric Pelletier blogs in a wonderful post, Croissants and fairy tales. How storytelling makes strategy happen that

...when people in a similar context, are exposed to the same facts, they tend to arrive at the same conclusions. And so, when they're in the same organization then, they're also likely to arrive at the same conclusion about the right strategy to take the organization forward.

While he focuses on the power of getting people on board via storytelling to implement strategies, I have little doubt he'd agree about the power of creating shared conclusions on formulating a winning strategy in the first place.

In The Biggest Problem in Strategy? Mindset, I noted how the railroads in post war America missed out on growth opportunities because they saw themselves in the railroad business, not the transportation business, and how Blockbuster missed out on digital distribution, ignoring intelligence on the looming threat. While railroad efficiency made enormous strides post deregulation in 1980, it basically kept the surviving companies in the game. Rail's share of freight traffic in the US (measured in ton-miles) declined from about 75% in 1930 (A Short History of US Freight Railroads, pp3) to 28% in 2000 (Freight-Rail Bottom Line Report, pp 14). Worse, its share of freight revenues dropped to a mere 6%. Blockbuster went bankrupt in 2011, shuttering the last of its outlets in 2013. Other examples of failed strategies aren't hard to find: cell phone manufacturers Nokia and Motorola; bookstores Borders and Barnes and Noble; computer manufacturer Sun; the plethora of desktop application software firms - remember VisiCalc, Lotus 1-2-3 and Freelance Graphics and WordPerfect, all of which dominated at one time?

Storytelling works because of the evolution of the prefrontal cortex of the human brain, which helps us recognize and act on patterns. It also works, as Eric notes, because it creates a shared context, or "experience" (even if vicarious) in the tribe. 

But this pattern-recognizing ability is both a help and a hindrance, for individuals and groups. It helps tremendously when the situation is reasonably stable, but often fails us in times of significant environmental change, when we are unable to recognize new patterns. And the worst failures occur when the "tribe," and especially the decision-making leadership, is unable to jettison outdated mindsets.

The most powerful stories are the ones collectively arrived at, through shared experiences. And the most powerful of these are crises. IBM (where I worked for the better part of a decade), was able to reinvent itself in the early 1990s because the tribe members (the employees) knew there was no other choice, enabling Lou Gerstner to drive a change in the collective mindset. But it was painful, to the tune of 200,000 layoffs.

So I return to a theme readers of my blog will recognize: why not create simulated "crises" to enable decision-makers to "experience" the consequences of potential actions. Militaries, governments and airline pilots (see Chance Only Favors Prepared Minds) do this regularly. And some companies regularly incorporate scenario planning or business wargaming (among other experiential planning techniques), designed and facilitated by experts for maximum effectiveness, into strategy development.

Companies that invest in these now, incorporating the latest available intelligence on potential opportunities or threats, reap huge future returns and often avoid debilitating disasters.

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Creating Winning Strategies by Changing the Dialogue

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In far too many companies, "strategy" has become a euphemism for planning or budgeting. The underlying - and unstated - assumption is that marketplace conditions are largely static: the future will be largely an extension of the past and, thus, all we need to do is optimize our current operations.

This assumption, unfortunately, has proved fatal in industry after industry. Just a few years ago, Motorola and Nokia were major cell phone players, Sun was a significant server manufacturer, Blockbuster was the source for many of us for at-home movie viewing, and Borders and Barnes and Noble were where we shopped for books...

To drive serious strategic discussions, you first need to accurately assess your source of competitive advantage. Here's a framework we've found useful:

Source of Competitive Advantage (worst to first):

1. Commodity with cost disadvantage

2. Commodity with cost parity

3. Commodity with 10% to 20% cost advantage

4. One-year offering development lead

5. Two-year offering development lead

6. Brand, patent, copyright

7. Owning the customer relationship

8. A string of dominant positions (for example, cost advantage + development lead + patent protection

9. Managing the value net or ecosystem

10. Owning the industry standard

Importance of Marketplace Insight

The first two, of course, confer no competitive advantage; unfortunately, a realistic assessment of their true competitive position would surprise many companies... Hence the importance of helping decision makers develop relevant marketplace insight. Answers to these critical questions will help:

• What are customers really buying? How are their preferences changing?
• What new initiatives are current competitors undertaking: operations, innovation, marketing, sales, customer service?
• What economic or regulatory trends will impact the industry?
• Which emerging competitors have the potential to change the nature of competitive dynamics?

Assessing the Consequences

Once the decision makers have grappled with these issues, they'll need to assess the impact on the organization, including:

• Systems and processes: Do we need to change our offerings development or production processes? Which need to be re-engineered? Which can we outsource? What support do we need from IT?
• People and skills: Do we need to retrain our existing workforce? Change our hiring requirements? Restructure the organization?
• Culture: Do we need to change the behaviors? If so, where? Only in specific functions? Or everywhere in the organization?
• Incentives: Do we have the right incentives in place? And how will we align these across the organization?
• Profits: How will we make money in the future? How can we protect our profit streams?

Creating Winning Strategies

With all of the above in hand, decision makers can proceed to the important work of re-allocating resources to create:

• Differentiated value propositions
• Innovation, operational and go-to market initiatives
• Organizational alignment

Challenging work, all this, since it means the nature of the strategic discussion must change, from planning / budgeting to strategy, from past to future and from business-as-usual to new business models. Importantly, it means changing mental models - how decision makers interpret information about the marketplace. And this, in turn, means creating opportunities for dialogue and debate, v. reading reports.

But it could mean the difference between organizational life and death.

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How Good Are Your Marketplace Insight Capabilities?

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Since posting Insight is Where the Game is Won and Lost, many have asked "how can we assess our insights capabilities to identify where to focus?" Building on both internal work I did in the early 2000s, and an article published independently by Herring and Leavitt in 2011,* here is a framework you can use to quickly evaluate your organization's insights capabilities. There are five dimensions to rate your organization on (directions at the bottom):

• Insights culture
• Sources used to generate the information base to help create insights
• Marketplace focus
• Personnel
• Early warning of emerging threats and opportunities

The organization's culture sets the tone for insights creation, which can address markets, customers, technology or competition. Initially reactive (Level 1), executives ask for data and task available personnel to gather information for a presentation or meeting, invariably sourced from easy-to-access published data, such as annual reports, existing market research or industry analyses. The initial focus is on traditional markets, customers, technology and competitors.

Soon, a frustrated executive or ambitious analyst determines that standardized profiles, newsletters and databases will improve organization awareness. Dedicated, often part-time individuals (becoming full-time as demand increases) standardize outputs, create delivery schedules and expand the fact base to include subscriptions to specialized industry publications, and start to focus on partnerships and alliances which impact growth and the ability to compete (Level 2).

Success begets more challenging questions, such as what does this data mean? how will the trends play out? and what emerging customers, technologies and competitors should we be concerned about? Improving capability requires teams of skilled analysts under a functional manager (Level 3). Since the answers are rarely contained in published data, analysts must incorporate validated opinion and observations from individuals who don't have the time to write it all down - customers, channel partners, R&D and sales personnel, their own executives, and industry observers and experts.

The expanding organizational knowledge base generates new requirements: what are the implications of these projections? what options do we have? what should we do about them? how might customers or competitors react? how feasible is a new technology? Mature organizations assign or recruit a senior leader to answer these, using increasingly sophisticated research and analysis techniques and a well-nurtured source network. And the organization expands its focus to better understand the interactions within the industry value chain and how these will play out (Level 4).

Finally, a radical shift occurs, from an emphasis on producing reports to facilitating dialog: the organization structures insights-driven strategic decision-making sessions (Level 5). Key executives interact directly with well-prepared internal and external experts, to determine how to best position the enterprise for future success. Topics might include identifying and evaluating the strategic risks of potential new initiatives, untapped sources of customer value, the next generation of customers, emerging competitive threats (frequently through business wargames) and new growth opportunities.

The importance of early warning. 

The organization's ability to avoid surprises - a major executive concern - increases with the sophistication of its insights capabilities. Fledgling operations frequently start by looking at any of a variety of "megatrends" (example here), "boiling the ocean" to try to find a something the organization can act on. They progress to tracking studies, targeted assessments of specific marketplace issues and systematic monitoring of the periphery (emerging customers, competitors and technologies). But real breakthroughs occur when organizations form heavyweight teams, consisting of both internal and external experts, to address critical emerging issues through innovation and new business models.

How good is your organization's insight capability? Identify where it is in each category, sum the associated levels, and divide by five. If it is:

• below 2.0, it is drowning, with little chance of a lifeline in the next round of budget cuts
• between 2.0 - 3.0, it is treading water, with increasing odds of getting a lifeline
• between 3.0 - 4.0, the shore is in sight, but beware of undercurrents
• above 4.0, the beachhead is secured and the insights function is capable of making a real difference

Now ask what will it take to improve? And, importantly, what will be the impact on the business?

* Herring, Jan and Judith Leavitt, "The Roadmap to a World-Class Intelligence Program," Competitive Intelligence, January - March, 2011 

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Growth is Hard

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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.* Compounding the challenge are the prevailing conditions found in many markets:

• The new product failure rate is repugnantly high: estimates range from a minimum of 40% to as high as 95%; 

• Few completely new categories have emerged in recent years;

• Risk aversion results in few real disruptive market strategies;

• Rivalry is intense and along many dimensions;

• The role of channels is becoming ever more pervasive and powerful; and

• Cost pressures continue to escalate, absorbing significant company resources to address.

Companies can beat the odds through a structured approach (chart):

• Marketplace insight – What is the customer need or problem a new growth initiative will resolve? How have recent competitive and supplier initiatives and technological developments impacted customer needs? What is going on in competitors’ minds, what are they planning, and how will they respond to our initiatives?

• Opportunity assessment and selection – How can we extend current capabilities to address new opportunities or change the nature of competition? How do we develop and test new growth opportunities beyond our current strategy? Which customer segments will we choose to serve? Which will we not serve?

• Strategy – How do we resolve a market problem / need in a valuable and differentiated manner? What is the value proposition? How will we capture value, what scope of activities will we perform and how will we protect our profit? 

• Organization alignment – What processes, systems, structures, and incentives need to be changed? What will inhibit successful execution of the growth strategy: culture, mindsets, resources, incentives?

• Execution – What specific actions will deliver the product / offering and profitably capture value? How will we measure success? How will we monitor results?

*McGrath, Rita Gunther, “How the Growth Outliers Did It,” Harvard Business Review, January – February 2012

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Chance Favors Only Prepared Minds

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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

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

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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

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Avoiding "Surprises"

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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

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"Surprise"

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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)

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Rice, Autos and Online Retailers

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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

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Opportunity or Afterthought?

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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

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What Really Matters

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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

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Understand the Competitor's Strategic Intent

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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

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Know Your Enemies

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Creating differentiation: how much do you know about your competition? 

“You don’t have to be the best, you just have to be better than your competitor.”*

Successful marketing executives know a lot. That's how they create differentiated value propositions.

But first, please don’t tell me you think competitive intelligence (CI) is espionage. I’m not naive – there have been far too many cases to pretend industrial espionage doesn't exist and some major countries are well known to engage in spying for their companies.

Ethical competitive intelligence has a long history, going back centuries. The first published mention dates from 1876, in an Institute of Civil Engineers discussion of carriage design. It gained popularity in the 1980s following the publication of Michael Porter’s Competitive Strategy,** now in its 60th printing. Today, most major corporations have a CI function and there is even a professional organization of Strategic and Competitive Intelligence Professionals (SCIP).

I actually got my start at 18, as a mobile ice cream salesman. Ice cream sales is a winner-take-all business – if you get to a swimming pool full of kids on a hot summer day 10 minutes after your competitor, you sell nothing. A long-standing competitor straddled the routes of a friend who was selling for the same company I did. At the end of each day, we plotted his route until we knew exactly where he was when (this was before cell phones...). Once we had the intelligence, our sales skyrocketed, while his dropped to near zero. He abandoned the route within weeks and we had free rein for the rest of the summer. I didn't know I was doing CI. It was purely a matter of financial survival.

In my first corporate job, marketing aircraft tires, I could predict within 1% the price our competitors would offer, through a thorough analysis of bid performance. My technical team was able to assess the performance characteristics of each tire in our competitor’s line, which enabled us to arm the sales force with the information they needed to increase sales. We gained share every year.

Perhaps surprisingly, the first thing you need to do is learn as much as you possibly can about your own business, before you try to understand the competitor’s. You’re only as good as your ability to impact your business – you can be the greatest analyst in the world, but if you don’t understand your own business well enough to know what intelligence is needed to impact a decision, you’ll fail. And, as you deepen your knowledge of your business, you’ll gain incredible insights into the competition. Faye Brill, who was CI chief of Ryder Systems, Inc., ‘believes that 80% of what you need to know about your competitors is right inside your company.’***

You’ll find this easier than you might think. Consumers and “clients are often happy to provide feedback to soften the blow of losing a contract”**** or selecting another product.

As Chinese philosopher Sun Tzu wrote: “If you know your enemies and know yourself, you will not be imperiled in a hundred battles.”

Next: What do You Need to Know About Competition?


*Elix, Doug, SVP, IBM, conversation with the author
**Porter, Michael, Competitive Strategy, The Free Press, 1980
***DeWitt, Michelle, Competitive Intelligence, Competitive Advantage. Grand Rapids, MI, Abacus, 1997
****“Get something from losing,” One Minute Articles (link no longer active).

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Hammering a Nail with a Screwdriver

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Awareness Building

Marketing, in many respects, is about building awareness. After all, if customers aren't aware of your offering, they won’t buy it.

Unfortunately, awareness building is perhaps one of the most misunderstood aspects of marketing, by both non-marketers and inexperienced marketers alike.

In your marketing career, you've probably received an ad-hoc request to run an ad, post a press release or write a brochure. Each of these has a place in the marketer’s toolkit, but far too often someone reaches for the tool before adequately assessing the situation. It’s like trying to hammer a nail with a screwdriver because that’s what you have – it might work, but the odds are against it.

Successful marketing communications requires discipline. While there are occasions when you need to run, say, a spot ad as part of an existing initiative, you’ll be better off if you've done the heavy lifting of developing your marketing strategy and plan. Every single communication should be thought through and evaluated against the selected target markets and customer sets and the value proposition, whether it is an individual Tweet or a comprehensive thought leadership campaign. As a marketing executive you can’t, of course, micro-manage every detail, but that’s where the awareness-building plan, with associated tasks and responsibilities comes into play. Everyone should know his or her role, expectations, accountabilities and how he or she will be evaluated.

Start with the value proposition

A value proposition is a clear statement of the promise of value (expressed as a benefit or business result) you will deliver in answer to a customer need or problem. It answers the question “why should a customer buy from us?” Writing a great value proposition is neither easy nor quick, but here are some steps that will help.

1. Clearly and precisely identify the target segment you wish to communicate to. You may have multiple segments which, of course, means you’ll need multiple value propositions.
2. Prioritize the customer’s needs or problems identified in your insights work. 
3. Then list the primary benefit your offering provides for the expressed problem. For businesses, these often focus revenue generation or cost reduction; consumers might see more benefits in terms of status, ease-of-use or service and support. A useful exercise, once you've developed the initial benefits list is to look at businesses as consumers and vice versa. 
4. Compare this to competitive offerings and list the key points of differentiation.

With this information, write out the value proposition. Here is a “starter” I've found helpful:

For [buyers in priority segments] who need [statement of customer's problem], we provide [statement of the solution / key customer benefits].

Unlike [primary competitors], our offering has / does [statement of major points of differentiation]. 

Then test the heck out of it, both internally (especially with product developers and sales personnel) and with a sampling of target buyers.

With a differentiated value proposition, your marcomms team has a tool to create a powerful awareness-building strategy through the available communications channels: traditional advertising, digital advertising, website, direct, social media, events, word-of-mouth and point-of-sale. Assuming they know their stuff, they'll do an outstanding job.

Next: Creating Meaningful Differentiation: How Much Do You Know About Your Competition?

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Don't Talk About Marketing

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Marketing Strategy and Planning

Many marketing plans look somewhat alike: executive summary, situation analysis, SWOT, objectives, marketing strategy, action plan and financials, with assorted appendices.

And most are equally ineffective.

The biggest deficiency is the lack of a business case: what business results will occur, and for what cost. This is not easy (see the post Meaningful Metrics), often because of the difficulty of proving, for example, the impact an awareness-building initiative had on sales. But building the business case is an absolute must.

It starts with the company objectives. Are you pursuing organic growth? If so, how? By expanding the customer base for current products, increasing sales to existing customers, or entering new markets? Then (yes, this is simplistic, my apologies), how will each marketing initiative support the objective?

Take increasing sales to existing customers. One organization, with two distinct offerings, wanted to increase cross-sales into accounts where one offering dominated. The challenge was that not only did the account executives not know enough about the other offering to create selling opportunities, they didn't know who in the organization to talk to. Marketing got sufficient funding by working with sales to agree on account penetration objectives and identify what programs and investments were needed to "open new doors" (offerings education, easy-to-use collateral and reference-selling coaching).

In another case, the "objective" was to increase sales, based on the assumption that was the only way to increase profits. The research marketing then unearthed a critical insight: consumers saw multiple benefits to the product that were not being communicated. This led to a new communications strategy that both increased unit profits as well as unit sales.

These plans succeeded - that is marketing got the budget it needed - because they focused on business results. The material that makes up many typical marketing plans was available during the strategy discussions, but not "presented" - when the rest of the business leadership team asked specific questions, the marketing team knew the answers.

As Andy Berndt, Head of Google's Creative Lab says, “my advice to marketers is don’t talk about marketing. Bring the CEO ideas that can make the business better or solve a problem.”*

*"What Do You Want From Me: How High-Performing CMOs Exceed Expectations," Spencer Stuart, November 2010

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Winning Over Time

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Market insight and analysis

Insight is where the game is won and lost: without superior insight, winning over time is simply not possible. Here’s what two leading CMOs have to say:

“The CMO role is getting the company to understand where the opportunities are, taking a very strong and upfront strategic approach so that the company invests where the opportunities lie and where the company has the capability to win,” said Joe Tripodi, chief marketing and commercial officer of The Coca-Cola Company. 

“Great CMOs understand the customer," says Maureen McGuire, Bloomberg CMO. "They can imagine the future and understand what the world might look like three to five years from now. If you believe the CMO should be the accumulator, aggregator and ‘understander’ of customer data and be the one to conduct market research, then yes, the CMO needs to incubate and imagine the future and the new products and services.”*

Creating differentiation

Success means creating differentiation. This requires capturing “change insight” before rivals. The real battle is which organization “sees” the underlying change more incisively than the competition. Often this means changing the shared mental model of the company leadership. Answering questions such as these will help the successful marketing executive become the chief “understander” of the evolving marketplace:

• What are the pain points? What keeps people up at night?
• Who’s responsible for solving this pain point on the client side?
• Who might influence their thinking and decisions?
• Who would they call today to solve their problem?
• How do we compare and contrast to the other choices in the minds of the problem owners?
• What is the conventional approach the problem-solving owner can expect our competitors to take?
• How is our approach to solving this problem different?
• What incremental value does this provide to the client?
• What must we do to enable our clients to stand out?
• Why should they believe us? Facts, statistics, customer references, thought leadership.

Next: Don't Talk About Marketing

*“What Do You Want From Me? How High-Performing CMOs Exceed Expectations,” SpencerStuart, 2010

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What Have You Done for Me Lately?

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The third year.

By now, you've gone through two annual performance reviews (good ones, if you've done everything right), and you’re really in the groove. You know the markets, the competition, the product, the organization and you've learned what levers to pull to get things done.

This is your most dangerous time. But within the danger, there is also opportunity, if you recognize and seize it.

Now’s the time to “get out there, try something and learn from it – you’ll make mistakes, but you must learn from each one. The metrics available today allow learning in a real-time manner that was never possible before,” says Sandra Zoratti, Global VP Marketing, Ricoh. “Avoid paralysis and fear about trying a new way.”

The risk is complacency on your part and boredom on the part of the rest of the organization: your team, your peers, and your boss. Let’s take them one at a time.

1. Your team. You've done everything right, weeding out the chaff, selecting new talent and providing everyone with challenging opportunities. But they've now been doing the same thing for two years, and are starting to get restless. The stars (like you) are thinking about their next move and the good performers are falling into a routine. If you’re not careful, you’ll find a team that is quietly becoming dysfunctional.

2. Your peers.  What was once unique is now mundane. The good news is that they've now learned what marketing really is, are asking better questions and starting to develop a marketing mindset to everything they do. But they’re also starting to ask “what have you done for me lately?”

3. Your boss. Your most difficult – or easiest – challenge. His or her world has changed in the last two years – the success you've helped create has both positives and negatives. Of course, your boss is delighted with the results, because that helps with the board. But the board is starting to ask what next? and wondering if s/he can take the company to the next level. S/he is, in turn, wondering the same about you.

Never forget, says Eric Fletcher, CMO, McGlinchey Stafford, that “relationships trump everything – science, metric frameworks – it about connecting relationships and leveraging them. Make sure you have regular, frequent in-depth dialog with the CEO, COO, CFO, the rest of the c-suite and the governing board. Most marketers get into trouble because they are operating out of an island.”

Next: Setting the Agenda

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Day 91

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The next nine months.

Phew.

Day 90 has arrived, and you've successfully managed the transition. Take a break, have a nice relaxing dinner and don’t think about what’s next.

Until day 91.

Now is the time to consolidate and build on the successes you've created in the whirlwind. You've got your team in place, you've begun building coalitions and know what has to be done. What you do next will ensure your success through the next two years.

Says Karen Masullo, EVP Social Media, Firestorm, now’s the time to “work really, really hard. There’s no room for laziness in marketing. If I don’t drive actionable items to the sales team, I’m not doing my job. Never get too complacent. You have to take a stand. Stick to your guns – you’re working with senior leadership, and you must give them your best insights and recommendations. Finally, your responsibility is to unify senior teams, especially technical teams. You need to know everything about the company.”

Visa Global Chief Marketing, Strategy and Corporate Development Officer Antonio Lucio, who has beat the average, says the secret to longer CMO tenure is simple: “You have to be effective and deliver strong business impact.” He’s been able to stay in his role by delivering against three parameters: business results, brand results and broader organizational impact. CMOs who last, he says, have an impact as leaders that has “probably been felt more broadly than in just the marketing agenda."*

Pete Krainik, Founder and CEO, The CMO Club, who’s held a variety of CMO and senior marketing positions at M&M/Mars, Avaya and DoubleClick says “Focus all your energies in things that help build relationships with customers – everything else is just noise. It is easy to get caught up in all the other stuff.” And never forget that “execution determines success. Great ideas without execution don’t matter.”

“Listen,” says Gary Slack, Chairman, Slack and Company. “Go see customers, after you've spent time with the rest of the company. Get to know your staff. Work hard on relationships with peers. Talk to prospects and to defectors. Develop a deep understanding of customer awareness, attitudes and perceptions.”

Next: What Have You Done for Me Lately?

*Rooney, Jennifer, “Average CMO Tenure Hits 43 Months,” Forbes, CMO Network, June 14, 2012.

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Where Do You Start?

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The first 90 days.

“The first thing you should do is read, or re-read, the book The First 90 Days*,” says Nigel Dessau, CMO of Stratus Technology and ex-CMO of both AMD and StorageTek.  “In the first 30 days of any new job I've taken, I gather data, qualitative and quantitative. I’m not choosy, at first. I meet with as many people as I can, and then review every night for what I've learned. From that I come up with six focus areas, two of which are most likely going to be people and budget. Then I sit with the leadership team and discuss. And then I discuss with my marketing team, to get alignment. What ensues becomes my plan for the next several years, which is the average tenure of a CMO."

Let’s go to the source: “The actions you take during your first three months in a new job will largely determine whether you succeed or fail, ” writes Harvard’s Michael Watkins, author of The First 90 Days. “The stakes are obviously high. Failure in a new assignment can spell the end of a promising career.”

Sobering.

Luckily for us, Watkins has researched the success and failure of new executives and offers a checklist of things you need to do :

1. Promote yourself. No, don’t hire a publicist. Mentally accept that you've been promoted into a new position that will require different skills than what’s made you successful in the past.
2. Accelerate your learning. Go into learning overdrive – spend as much time as you can reading about markets, product, technologies, systems and structures, and especially the company culture and politics.
3. Match your strategy to the situation. Start-ups are quite different than product line turnarounds which are quite different from new market entry situations
4. Secure early wins. This may be the most important thing you can do: nothing succeeds like success. It builds personal credibility.
5. Negotiate success. Your new boss thinks you’re the right person for the job, but isn't totally sure yet. Schedule time, weekly, to go over your assessment of the situation, his or her expectations, reporting style and the resources you will have available.
6. Achieve alignment. With each promotion, you’ll find that you “do” less and have to “get more done.” The only way to achieve this is to align, or re-align, the structure with the strategy
7. Build your team. Evaluate the team early and, if necessary, make tough calls. You can’t afford to depend on non-performers.
8. Create coalitions. More important jobs increasingly depend on your ability to influence people who don’t report to you. Make them your allies, and you succeed. Make them your enemies, and you fail.
9. Keep your balance. You’ll be drinking from a fire hose – you’ll find that the demands on your time are more than there are hours in the day. Find ways to keep your perspective and don’t be rushed into making risky decisions.
10. Expedite everyone. Bosses, peers and especially direct reports – the quicker you can get everyone up to speed, the better your performance will be.

Even - or maybe especially - if you've been in your job for some time, this is sound advice. Take some time to mentally promote yourself into that next position and contemplate what it would take to succeed. Then, follow these steps as if you were already in the position.

You may get that promotion faster than you think.

Next: Day 91

*Watkins, Michael, The First 90 Days, Harvard Business School Press, 2003

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