This is Part I of a two part blog post.

Richard Rumelt is the Harry and Elsa Kunin Professor of strategy at UCLA’s Anderson School of Management who has spent his life in the study of corporate strategy.  His seminal studies in 1972 on corporate strategy and profitability established that moderately diversified companies outperform more diversified ones.  And then his work on the role of business competence over corporate ownership determining the success in business units landed him at the beginning of, what now is a large body of academic literature on the resource-based view of strategy.

In a recent article from McKinsey, he maintains that there’s plenty of bad strategy around - I guess all you need to do is read the latest news to appreciate that, no big revelation there.   However, he goes on to say that a good strategy, “does more than urge us forward to a goal or vision; it honestly acknowledges the challenges we face and provides an approach to overcoming them.”  He then provides four hallmarks of bad strategy:
  • Failure to face the problem - having a clear assessment of the obstacles to be overcome by the organization
  • Mistaking goals for strategy - setting the BHAG and thinking that will somehow get us there; the bigger, hairier and more audacious the better!
  • Bad strategic objectives - either a catch-all of everyone’s top to-do’s or just “blue sky” objectives that are weak on substance and just restate the goal in glowing terms
  • Fluff - boy have we seen this one!  Just a bunch of high-sounding, latest business-fad buzzwords and slogans that say nothing and mean the same
I’m sure we’ve all seen plenty of examples of these.  And, while we probably don’t want to admit it, we’ve probably contributed a few of our own over the years.  So, what does Rumelt think is behind all this bad strategy?  He sites two things:
  • Vision-Mission-Values-Strategy template approach - you know the routine, fill in the blanks with a bunch of great sounding phrases after spending weeks or months agonizing over word choices.  Only to end up with something that sounds oddly similar to everyone else's “unique” approach.
  • The Inability to Choose - we can’t get everyone to agree on what the strategy needs to be because everyone’s turf needs to be protected, so we just say yes to everyone and never actually make any strategic choices at all.
Finally, Rumelt provides his “kernel of good strategy”:
  • A diagnosis: explanation of the challenge to overcome
  • A guiding policy: the overall approach to overcome the identified obstacles
  • Coherent actions: coordinated steps to take to accomplish the policy
I certainly agree with Rumelt in his assessment of strategic failings, they certainly ring true for me, and as I said, I’ve seen all too many of these over the years.  What is most notably absent for me in defining strategy, however, is the intended customer we are seeking to serve.  This, however, doesn’t surprise me because Rumelt has a resource-view of strategy, and therefore is, by definition, an “inside-out” context for the strategic plan.

It’s revealing that in this article Rumelt starts with a military example: Nelson’s brilliant strategic maneuver in the battle at Trafalgar, (French & Spanish minus 22 ships, British, minus 0.)  Rumelt calls this a classic example of good strategy, and it certainly is.  But, military strategy, which is all about applying superior force, gaining the “high ground” and maneuvering for maximum advantage (and destruction) has it’s limits, I believe, when applied to certain businesses that don't derived sustained advantage from resource-based means.

Knowledge and service-based business are a good example of such businesses.   Their mission is to build and maintain high value, customer relationships - the software industry being a prime case.  Resource and capital intensive industries, especially those that deal in hard goods that have long product life-cycles, (how long has Cheerios been around?) with well entrenched and clear competitive environments, tend to be more applicable to the military-styled, resource-centric strategies.  And even they need to keep the customer-focus as General Motors has illustrated in the past few years.

A good strategy for a software company, I believe, must be crafted to focus the organization on building those relationships by delivering superior customer experiences.  That’s why I don’t believe it’s appropriate for software company to build their strategies around an inside-out, resource-oriented viewpoint.  Just because you’ve got a bunch of great programmers doesn’t mean you’re going to great products that customers will be clamoring for.

If you’re not building your business strategy around the customer experience, you’re building on the wrong foundation which will lead to a “bad strategy”.  As one author put it: “The customer has the best view of the inherent contradictions in the strategy.”  Amen.

So, what shape is your strategy in?  What’s your strategic viewpoint?  Does it start with the customer? 

And, stay tuned for Part II next week where I’ll share some thoughts on creating a “good” strategy by adapting Rumelt’s “kernel” mentioned above.

 
“Finding the Problem is the Hard Part”:  I recently viewed a short video clip from Stanford University’s Entrepreneurship Corner that makes the point that finding solutions is much easier than finding real problems.  This really resonates with me as I’m in the middle of a project with one of my clients to do just that - find the critical problems to solve that they can build a new business on.  

Why is it that we tend to move to “solution space” so quickly and then wind up in a quixotic search for customers who want our solution?  It seems so obviously backwards, which of course, it is.

I think the short video from the founders of Instagram hit the nail on the head - because it’s hard to do right!  But that begs the question, what makes it so hard to do?  Part of the answer came from another article that I recently read that  I think hints at a deeper root cause to this faulty approach - decision bias.

An article from Harvard Business Reviews online magazine entitled “The Big Idea: Before You Make That Big Decision...” the authors provide an excellent overview on decision bias and how it can effect organizational effectiveness.  We all know we have biases, apparently, knowing that we have them isn’t the answer to overcoming them.

By the way, the article has a link to a very cool survey tool that helps give you individualized feedback on how your own particular decision-making style compares to hundreds of other respondents who’ve taken the survey.  It also apparently is helping them with their ongoing research of the topic as well - so you’ll be providing them with one more valuable “data point”.

So, back to decision bias and it’s contribution to finding problems before solutions.  In the HBR article the authors identified 12 questions that explore a variety of biases.  I thought it would be interesting to look at a few of these to see how they reinforce the “solution before the problem” approach.

Self-Interested bias: we start with a solution because we’re already invested (and rewarded) for a specific product or solution, so we try to we try to fit it to a problem.

Affect Heuristic bias: essentially we’ve fallen in love with our elegant solution and therefore ignore whether or not it actually solves a real problem (that we can get paid for.)

Groupthink bias: dissenting opinions were suppressed when we were in the ideation phase and everyone jumped on the bus, only problem it wasn’t the right one.

Saliency bias: this is a big one in my view, especially when we’ve had “home runs” before.  Effectively this bias is causes us to be overly influenced by an analogy to a memorable success.  It may not even be our own success - we may very well see this in the wave of tablet computers after Apple’s success, for example.

And the last I’ll mention, which I think is one of the key biases affecting solution before problem thinking, is - 
Overconfidence bias: we simple think that we know best what the customer wants; our brilliant solution is the “wave of the future”; the cat’s meow; the best thing since... you get my point.  

It’s interesting to note in this article how the author’s link this to “inside view” vs “outside view” thinking.  I have seen this a lot, where organizations base their reality on their own set of assumptions and data and rationalize away massive amounts of external, objective external feedback (like customer complaints) that doesn't fit with their view of the world.

So, if you get a chance check out the survey and see how your decision-making style compares to others.  But more importantly realize and act on the truth that the only way to reduce bias is by moving from individual decision-making to a systematic, organizational decision-making model, because we can detect biases in others but not ourselves.

And if you’re interested in further reading in this area here are some good books to check out:
    Nudge: Improving Decisions About Health, Wealth, and Happiness by Richard H. Thaler and Cass R. Sunstein
    (Caravan, 2008)
    Think Twice: Harnessing the Power of Counterintuition by Michael J. Mauboussin (Harvard Business Review Press,
    2009)
    Think Again: Why Good Leaders Make Bad Decisions and How to Keep It from Happening to You by Sydney 
    Finkelstein, Jo Whitehead, and Andrew Campbell (Harvard Business Review Press, 2009)
    Predictably Irrational: The Hidden Forces That Shape Our Decisions by Dan Ariely (HarperCollins, 2008)
    Thinking, Fast and Slow by Daniel Kahneman (Farrar, Straus and Giroux, forthcoming in 2011)

What are your thoughts?  How has a more team-based decision process helped you think outside of your "bias box"?   Your comments are always welcome!
 
I know many of you are not Apple followers, customers or aficionados by any stretch.  And the point of my blog today is not to convince you to rethink your entire personal and professional platform strategy.  The point of my blog this week is a very important truth about customer value that permeated Apple’s huge WWDC this month at Moscone Center in San Francisco.  

So, in case you didn’t follow any of the ‘big’ news, Apple has introduced with the usual understated fanfare, iCloud.  Of course this all comes with the usual legal hassles from people who claim, perhaps correctly, that this infringes on their name - but I digress.  iCloud is a mammoth undertaking by Apple to essentially change the way Apple customers interact with their computers and herein lies some very intriguing insights into customer experience and customer value.  BTW, If you want to know more about all of Apple's news, check out the WWDC keynote presentations.

As Dan Moren, Macworld Senior Associate Editor, points out in his great article on iCloud, like the iPad, “has set out to change the idea of computing”.  Wow, that’s a significant step I’d say.  Kind of a “small step for man, giant step for mankind” kind of thing.  So what’s this monumental change?

Get rid of files...

Really!  On the surface this seems pretty underwhelming, especially for those of us who have grown up during the earliest stages of personal computing and have learned to be file-masters to survive.  But, the fact of the matter is that files and all the concepts related to the care and feeding of them are just as counter-intuitive and anachronistic as floppy disks, command-line prompts and punch-cards, for that matter.  It’s not the way “normal” people think.  

Moran points out, I believe so correctly, that users shouldn’t have to deal with files, finders, directories.  And while they’re technically still needed, just like microprocessors, the user shouldn’t have to know anything about them.   So what do people want to do on their computers?  They want to look at pictures, listen to music, write documents, give presentations, analyze data, read web blogs.  “It’s about actions instead of objects, verbs instead of nouns.”, Moran says.  Amen!

Why do I need to remember to “save” this document that I’m writing right now?  Why do I need be concerned about moving it, finding it, copying it or doing anything else with IT?  iTunes was of course the precursor to this and probably the customer experience laboratory for this.   And we know what that paradigm-shifting approach to music has lead to besides incredible amounts of money for Apple - 5 billion songs sold!

I’m not saying that Apple will get it perfect, or that the iCloud will transform modern computing, that’s not my point here.  What is important, I believe, is the underlying truth driving these kinds of changes - that superior value is all about truly understanding, in deep and profound ways, what our intended customers want to accomplish and then providing it to them through an overall experience that reflects what is intuitive and important to them.  Ruthlessly find and eliminate the inferior experiences - Apple found a big one, I believe.  After all, isn’t this what we all want, a computer that “just works?”

MobileMe, Apple’s initial “cloud” experience was quite a personal disappointment to Steve Jobs (and to many customers I’m sure) because it failed to deliver a superior customer experience, but it was also a valuable learning step for them and we’ll see now how well they learned.  How’s you’re customer learning going?  What inferior experiences can you eliminate for your customers?  Do you know what they are? 

 
I’ve spent my career in the B2B “corner” of the software industry, but I’ve always felt that there was much to learn from the seemingly far more popular and profitable B2C, gaming arena.  Measured by user count, revenue volume, customer loyalty, customer usage (in gaming it’s more like addiction) and just about any other metric, the software game suppliers certainly seem to be the “big brother” of the industry, (ok, maybe B2B wins in revenue per customer.)

And it hasn’t slowed down a bit, in fact, since moving to the cloud and the advent of the social game genre, it’s accelerated a thousand fold it seems.  Take Zynga that boasts 215 million (yes that’s million) monthly active users and 50 million daily active users, I’d say that’s quite a following.  For those of you not up on what one out of ten people on the Internet worldwide doing every month it’s playing one of Zynga’s 55 games like Farmville, Cityville, Cafe World, Mafia World or the newly announced Empires & Allies.  The company has raised over $200M from some of the top VC firms and is currently valued somewhere north of $10 billion now and who knows how much more if it makes it through a successful IPO.

So, back to my question, what is there to learn from this kind of company?  Mark Skaggs, Zynga’s SVP of Product spoke at the recent Game Developers Conference this last February in San Francisco about Zynga’s approach to product design and development as they’ve evolved over the years.  Several interesting “key learnings” jumped out at me from this talk.

First develop fast; while the typical game is developed in a two+ years by hundreds of developers, Zynga develops their games with small teams (typically less than 30) in a few weeks to a couple months.  

Second develop light; a variation on the Minimum Viable Product approach.  The point is get the game into the gamers hands to start learning how they use it as quickly as possible.  Then respond fast (hourly) with changes to the game to shape it by direct, customer usage.

This all leads to Zynga getting it right.  They cleverly use A/B testing with each new feature - some users getting the feature some not and then they monitor the play to see how well the feature performs.  High “click compulsion” and the feature makes it into general use.  Brilliant!

Of course, a critical enabler to all of this is, you guessed it, the software is in the cloud.  Pretty tough to do all of this in the traditional, on-premise software delivery model, where development cycles are typically long, user feedback is limited and feature bloat is common.  But not impossible, there are ways to monitor the customer’s software usage and experience with on-premise software.  User experience monitoring tools in near real-time gather actual usage data from customers using the software in “real life”, remotely.  Sage’s Peachtree development team has productively used just such a tool to improve their offering in their quest for a more user-centered design & development approach.

Software, B2B or B2C, has the capacity to achieve high levels of customer value and loyalty, but only if the company stays in close touch with the customer’s experience.  Seems obvious, but how many companies fail to learn and respond consistently and in a timely way.  Do you know what your customer's experience when using your software?  Social, online games are ALL about the user experience and the competition is fierce for customer attention with so many alternatives available and such low “switching costs”.  Quickly responding to customers with high value experience is the only way to keep them coming back for more.  

So on-premise or online, B2B or B2C; knowing the customers’ experiences and rapidly responding with timely improvements is one of the key paths to creating ongoing, superior, customer value.  The rapid response part of the equation - what I call value delivery - requires, potentially a whole new approach to software development.  Slow, waterfall-ish development practices don’t cut it.  But, that’s a topic for another day and blog post.  

As usual your comments and feedback are welcome!  

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    John Geffel

    Value is a much abused, misunderstood and misused word, everyone thinks they provide it but so few show real evidence that they do!
     

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