schneiderism

There is a lot of talk around the successes that Toyota has enjoyed as of late, especially when contrasted against the slow demise of the traditional automotive industry leaders G.M. and Ford. Toyota’s success has been remarkable, and here is a quick recap from a recent article in Business Week:

• - Toyota has not lost money in a quarter for over 55 years… since 1951
• - In 2006 Toyota posted net profit of $17 billion (while Ford and G.M. circled insolvency)
• - Over a 25 year span Toyota went from veritable industrial startup to diversified global empire
• - Toyota is now the largest automotive manufacturer in the world

There are a number of reasons why Toyota sustains success in a fiercely competitive industry recognized for unrealistically low margins. The most obvious of these is that Toyota continues to defy convention and determine its own course. In that Business Week article author Keith McFarland reviews “How Toyota Became #1″ by David Magee and digs deep into what has contributed to the success that Toyota enjoys and comes up with some pretty powerful themes. Magee’s book looks at:

• - Focusing on the long term
• - Jumping beyond the current trend
• - Making quality everyone’s responsibility
• - Managing individual strengths

These themes essentially define Toyota’s corporate culture and you see them at work every day. They are operational practices for the entire company, but modeled and executed with prejudice by the executive management. This is consistent with the reality that effective and innovative cultures begin at the top. Beyond all of this, though, McFarland identifies another quality of Toyota’s culture that has helped drive success. Curiosity.

Toyota’s culture was conceived by curiosity. Sakichi Toyoda, the company’s founder, set out to revolutionize weaving technology and build the best looms possible. Not just in Japan. In the world. He went on a tour of looms in Europe and the United States and brought the best ideas and practices back to Japan where he improved on them and secured over 100 patents in the process. His son and successor, Kiichiro, went on his own tour of Detroit automakers in the 1920’s and upon his return moved Toyota into the automobile manufacturing business. 70 years of this approach has empowered Toyota and allowed it to always bring the best back to the company, to continuously improve, and to reward creative thinking. Toyota is not necessarily propelled by the unending belief that things can be done better as much as it is compelled by the constant search to find better ways to do things. This is institutionalized continuous improvement, it is institutionalized curiosity.

In the hyper-competitive reality of today’s business environment much is riding on effective pattern recognition. Business intelligence, and how we use it, has become the identification of business “patterns” or trends with the fewest possible facts, and this identification needs to occur quickly, accurately and efficiently as opportunities come and go with increasing rapidity. Execution on these opportunities needs to also happen quickly as the changing environment can make a late response irrelevant, and ensure that your competitors are responding to the same opportunity. Effective use of business intelligence is the best methodology for sustaining successful pattern recognition and identifying opportunity for your company. This is both data intensive, and incredibly dynamic. As you scan the competitive horizon for opportunities, you must give consideration to:

• Challenges of finding order in chaotic and conflicting inputs of info and data
• The ability to quickly refine options to the best opportunities
• Know when you have enough information to make an effective decision
• Knowing that effectiveness is directly related to your ability to overlap intelligence
• Development of a concept of the pattern, or opportunity, that you are looking for
• Being neutral about the data… optimism defeats the purpose of intelligence
• Don’t be risk averse, mistakes are a learning experience and help you to improve

We’re surrounded by companies that are doing this incredibly well. Think about the pace of change in consumer electronics or the real estate market. Think about the fluid environment of international diplomacy and economics. The business intelligence teams at organizations like Google, Apple, investment banks, insurance companies, large real estate developers, the Chinese government and the CIA devote tremendous resources to the accumulation, analysis, and refining of huge and complex data with the soul purpose of identifying patterns that signify opportunity. By and large all of those organizations also execute on that opportunity with expediency. So should we. This is not to say that we should vacuum vast amounts of information into super computer managed data bases. We should take the intelligence we gather, though, and systematically analyze it for the indication of change, of patterns of change, that signal opportunity for our organizations. This can begin with a simple and ongoing analysis of:

• How have your clients changed in the last year?
• Which client businesses are experiencing growth, and which are challenged?
• How has the economic environment affected the markets you operate in?
• What has changed in the competitive environment?
• What new capabilities/products/services are competitors introducing and why?
• What is happening in related businesses and markets?

Thanks to Marlon Hiralal for the conversation and sharing his thoughts on this.

That might sound threatening, but really… it’s not. I had the opportunity to meet and hear Polly LaBarre, the co-author of Mavericks At Work, last week at a luncheon event sponsored by Larsen and LifeScience Alley. It was an excellent event. Polly spoke about the main theme of her book, that in industry after industry business as usual is not working anymore and that businesses that were once dismissed as “mavericks” are the ones that are now growing fast. The mavericks are the success stories. This is because they stand for something original, and continue to innovate on their business model. She also offered and expanded on a couple important concepts. The one that really resonated with me was the idea of “overthrowing successful companies.” This is not a bad thing, but speaks more to the challenges of creating an environment of creativity, innovation and change in companies that have been historically performing just fine. Her point is that “just fine” is not reflective of the realities of changing markets, customer demands, and operational challenges… not to mention hypercompetiton. In essence, for many companies it is required that they be taken over by new ways of thinking, by a focus on executing on new opportunity. Overthrowing a company means rethinking the logic of how business gets done, and IMPROVING on that logic.

This is not something to take lightly and it is a concept that has revolutionary undertones for a reason. This is because, like nations, organizations resist change and this is in large part due to the difference between those who have power and those who do not. Those who wield power in business are often much more concerned with perpetuating the status quo then with reinventing the business model. Reinvention is hard work, it requires an open mind and a fresh approach. When you are already successful, that is a tough option. The point, really, is that success is fleeting. Those organizations that figure this out and continue to change and evolve stand to sustain and maximize successes. They stand to succeed in the face of innumerable challenges by offering a better way to lead and a better way to compete. A better way to do things. So many businesses are defined by models that were developed decades ago, isn’t it time that we shake those models up and explore better alternatives?

I hope that you are seeing a theme developing here on schneiderism. If not, you’re either new to the blog, or an idiot. Either way, let me quickly recap:

- Creative enterprise of all sorts face a range of new strategic risks

- Business models and business practices demand investigation and innovation

- Many have lost the priority of the relationships between innovation, strategy, and execution

- We’re our own worst enemy, and actively devalue the work we perform

- Design is about value creation, not about providing a service

Last evening I received an article from a colleague who shares my perspective on the state of creative enterprise. Basically, we’re at war. We find ourselves embroiled in the challenges of navigating the mess, risks, and threats before us and orienting organizations in the proper direction. It’s exciting. The email with the article that he sent had this as the subject… “F**K Service…” Well, that definitely got my attention, so I thought it appropriate to headline this piece. But, what did he mean by that?

He meant that creative enterprise is not a service industry. It does not exist to service its clients. It exists to create value for its clients. The mindset of a service business is to operate at the whim of the client. This not only devalues our work, it prevents a creative business from having a relationship with clients that is truly compatible with effective design. You’re too busy reacting to be creative. You’re too busy producing. It is a rock you will never be able to push to the top of the hill. As a service provider you have inverted the value proposition. You may as well be a lawyer or an accountant (note that I have nothing against lawyers or accountants, I just don’t want to be one…).

The article sent is entitled “Will You Become A Master Builder?” Read it. It is from a few years ago but still meaningful.. which only means that we’ve been thinking and talking about this for a long time. And doing precious little about it. The article relates specifically to architecture design professional service firms and their inability to adapt and embrace change. Really, though, it could apply to any number of creative businesses. A terrific quote:

“Those who do not like change will like irrelevance even less.”

James P. Cramer

Cramer points out that design firms, and the environment in which they operate, are changing. Some are evolving. Some are specializing. Some are dominating their markets. Some are struggling with being relevant and are in decline. His article is a call for intervention. I would like to think that it is the clarion call of revolution for creative businesses, and we know that he is most definitely not a lone voice in this call. But what are we going to do about it?

Thinking a lot about how you practically go about creating and fostering a culture of innovation. Discussed this in earnest in a previous post, and threw down some Gary Hamel. In that post it was discussed that an innovation culture must begin at the top. That, and in order to achieve this an organization has to wholesale eschew legacy, arcane management and control methodologies. That is an incredibly tall order for most cultures. They exist to exist, not much more beyond that.

There is obviously a lot more to how you create a culture of innovation. I tried a little experiment, and want to share the results with you. I posted a question regarding how you create such a culture to my LinkedIn network, and received a broad range of answers. Below is the question put out there, and the answers received to date:

How can a company create a culture of innovation?

We hear it all of the time… “we need to create a culture of innovation!” Sounds good. But, where do you start? How do you go about creating that? How do you ensure it has longevity?

Would like your insights and to hear your experiences.

~~~~~

“Man of action never speak. Creativity creates marvels. They don’t need guidence. It is inborn. Can u force somebody to draw or paint?”

Mamta Narang

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“Step 1: First you would need to understand your organization culture, evaluating its approach to change…innovation in fact generally implies deep changes, in culture , in perspective, in the day by day apporach to problems, even in the way information are shared and in the way people communicate.

If you realize that your organization is already “transparent” to above mentioned issues, you move to step 2 , otherwise you need first to implement a Change Management Dpt. , leading the people side of change.

Step 2 : you need to encourage your people toward whati is called “lateral thinking”, organizing a rewarding “Best Ideas ” …people need to feel they work in a challenging enviroment.

Step 3: give your best worker time enough to study and to share their toughts”

Private

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” There are plenty of corporate examples, like IBM and 3M.
Employees are given time each week for creative exploration of concepts and ideas, as well as the resources (people, material and money) to pursue them.

You have to AND you can structure in innovation.”

Ray Miller

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“Flexibility is key. There are few things more guaranteed to stifle innovation than a rigid inflexible business process that must be obeyed at all costs. Another vital ingredient is the acceptance that not every idea can be a roaring commercial success. Often, budget is needed to test an idea, simply to find out that it’s actually not that good. It’s money well spent.”

Alison Coulson

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“You have to make it worth while and beneficial for people to share knowledge within the organisation. Most employees with a traditional mindset think they are undermining their own position by sharing their knowledge. As a result no innovations will take place, because in a culture of innovation the lone genious is replaced by inter disciplinary teams. You have to change the cultural environment to stimulate new behaviours.”

Morten Lindholm

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“The value system in the company needs to support that culture. Examine the systems, processes, corporate communications and rewards and figure out what the values really are (not what they are stated to be). Often times the heroes are firefighters and systems and processes are about removing variation - attributes that are very much about not innovating. What are the real values that all of your systems, processes, rewards and communications really need to support? It is very likely that each of them must evolve to support a more innovative culture.

That may sound insurmountable, but you can start by determining the most likely areas where innovation would be helpful to the business. Are you most interested in innovative new products, innovative processes or an innovative business model? The answer helps drive what the first moves are. Even when trying to start, adjustments must be made in congruence across all aspects of that part of your systems, processes, rewards and communications.”

Bob Becker

~~~~~

“Check out Phil McKinney’s podcast, Killer Innovations, for some ideas.”

killerinnovations

Kore Peterson

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“It MUST come from the very top of the organization, define what innovation means to you and your organization, develop problems for your people to start thinking about, reward systems must be changed to drive toward the creative and innovative behaviors you are seeking, constant and consistent communication of the need and desire to innovate, demonstrated increased tolerance for risk and failure, mandate time for thinking, tinkering and collaboration, increase opportunities for horizontal communications, and finally, implement a few of those promising ideas!!!”

Paul Williams

~~~~~

“In my (our company’s) view from working with innovation for more than 20 years is that the innovation capability (innovativeness) of a company consists of three elements:

1) Steering fo innovation
2) Atmosphere of the organisation
3) Channels

The steering has to do with the fact that in order to generate new ideas, one needs to have some direction, guidance on what the ideas should be about. The atmosphere has greatly to do with the management style in the company (in all levels), how line managers take in new ideas and improvements. The third part has to do with how well the comapny is able to gather the often rough ideas from the people and foster them into readymade innovations. Good ideas are only a start, they need to be implemented well.

First thing you need is a good understanding of the current situation. Without knowing where you are and where the biggest challenges are you can not aim in the right direction. This can be obtained through a number of ways from surveys to consultative analysis. Key is to start at the top, but make sure to go all the way (vertically and horizontally) to the different parts of the organisation. Innovation needs to be built all around, naturally in different ways in different places. The activities may vary from training of innovation methods, building processes and systems, starting up innovation organisations of many sorts, having idea competitions, etc. This depends on what the problems are - this can only be analysed with enough information. ”

Olli Kuismanen

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“Actions will create more innovation than any words you can speak. If you seek to create a culture of innovation it must be more than lip service and must begin at the top.”

Eileen Bonfiglio

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“There is an inherent creativity in everyone - specially when we talk about the subject area of work of people. For modern workplaces, innovation cannot come only with creativity but also require core knowledge about the subject.

I also believe that people are NOT a problem - most people do want to contribute and want to bring their best ideas (unless you are talking about some hopeless crowed where this question anyway doesn’t apply!)

The issue, however, really is that no new idea can succeed without sever effort and keeping faith in it. Unless the management (who determines the resource allocation), support this activity, and if he management is inherently not risk taking in nature, most efforts to create innovations will become a failure.

The ultimate key to organizational innovation i believe an open, transparent and risk taking culture and the real competence of the people. People is the only thing really matters! ”

Diphan Mehta

~~~~~

Thanks to everyone for taking the time to offer their perspective on creating a culture of innovation. I think the differences and similarities in the answers is indicative of both how seriously we take this question, and how complicated the issue really is.

We hesitate to even utter the word anymore, it is so over-used and abused, but innovation remains part of most company ’s “strategy” and in the motivational speeches of CEO’s everywhere. This, despite the fact that few can really define not only what innovation means, but what it means for their business or their business model. We push through this fog, though, hoping that the presence of innovation in executive job descriptions and on the whiteboards of meeting rooms is enough to get us where we need to go. In many ways, innovation comes and goes in cycles within a company… typically driven by financial and economic realities and the “need to be innovative” to counter poor financial performance or operating inefficiencies. This is reaction, not strategy.

So, innovation talk is seemingly everywhere again… but things are a bit different now. Yes, you will find features in most monthly business periodicals just like five years ago. Yes, the business section at the bookstore is full of “new” perspectives on innovation in business. But as you survey the content, you find that the vernacular has changed a little and there is much more discussion around the practical matters around innovation management. As companies discuss the need to innovate, they find that the managing of innovation is the biggest challenge, the biggest obstacle to actually accomplishing anything.

The reality is that companies need to come up with new ideas and rethink their models, but to do this effectively and meaningfully they also need to develop and support a culture that consistently encourages and rewards innovation. A culture that is defined by the value of bringing new ideas, and executing on those determined to be of the most value. I wrote a post on strategic risk management and the importance of business model innovation in moving companies from stasis to growth. A survey of the last ten years yields abundant contrasts between the companies that managed to pull this off, changing their culture and reinventing their business, and those that did not. The failures are in the news every day, whether they be in consumer electronics or industrial machinery, packaged food products or franchise restaurants. Typically, the companies whose challenges are highlighted in the news are the same companies that, years ago, were dominating their category. The difference, instead of using that momentum and competitive advantage to further develop markets and foster innovation, they focused on exploiting their success, arrogantly thinking that would sustain success in perpetuity. It obviously did not.

The companies that got it, though, are the ones that started with their culture and made endemic the drive to innovate. We also see these companies highlighted every day in the news. Some companies have so deeply ingrained a culture of innovation, and have so effectively managed that innovation, that their business model defies definition in the traditional sense. Look at Toyota. Look at Samsung. In categories rife with competition and low margins, they are successful. How is this possible? Effective innovation management, clear vision, and a determination to execute successfully.

Knowing that your company faces a diversity of risks and challenges to a successful future, and knowing that effectively navigating this situation depends on bringing forth new ideas and setting in motion a cycle of reinvention, it is confusing to know where to even begin. Do you hire innovative people? Do you acquire an innovative company? Do you create an innovation task team? Those may be options, and shorter term in their value, but what about ten years from now? You need to begin with the management culture.

There is a terrific article in Fortune by Gary Hamel that is excerpted from his new book “The Future of Management.” He posits that legacy management thinking, a focus on efficiency over excellence, has thoroughly undermined the development of innovation cultures in business and that to ultimately be successful, the change needs to start at the top:

“The sooner your company starts sloughing off its legacy management beliefs, the sooner it’s going to become truly fit for the future. As we’ve seen, a few companies are already traveling light, having left a lot of their outdated management baggage back there in the 20th century. In the end, there’s really not much of a choice: You can either wait for tomorrow’s management heretics to beat the orthodoxies out of your company, or you can start coaxing them out right now.”

Gary Hamel

In an article titled “Innovate or Perish: New Technologies and Architecture’s Future” for the Harvard Design Magazine author David Celento posits that architecture’s refusal to embrace technological innovations is ensuring irrelevancy to the audiences that have historically valued their services. More directly, architecture is on a path to extinction. He is absolutely right. Architecture struggles with a fixed, backward view and legacy thinking. Let’s just say that the world of “The Fountainhead” is alive and well inside the offices of many a prestigious architecture firm. At issue is the reality that a diversity of professions are claiming the traditional territory of the architect. Technology has efficiently removed architects from the value stream of the built environment (through their unanimous inaction and determined resolve to not evolve their industry, their practice), and empowered any number of competitors, including “furniture system designers, sustainability consultants, construction managers, and engineers.” Celento sites Martin Simpson of the rockstar engineering group Arup Associates as suggesting that architects may “eventually become unnecessary — except, perhaps, as exterior stylists.”

I can’t believe he just said that out loud. Ouch. From an engineer. Somebody get the architects a glass of water.

Honestly, David Celento has only voiced what everybody is already thinking, and what the industry as a whole is struggling with. This is a reality shared with a number of creative enterprises, and those facing this reality have nobody to blame but themselves, really. This storm has been brewing since the advent of desktop workstations in the 1980’s. Go to the business section of your local bookstore and count the books that offer a perspective on the phrase “innovate or die.” Why so many? Because the range of strategic risks facing contemporary business demands a strategy of innovation for survival and longevity. It demands business model reinvention, and architecture has not yet gotten the memo on this.

A parting shot:

“To increase its desirability and market share, architectures need to harness emerging technologies and tap more deeply into consumer desires, using both plurality and branding in product delivery methods. These efforts would be self-correcting — they provide an opportunity for architects to evaluate the success of their offspring quantitatively. Doing so would also encourage architects to move beyond “isms” geared toward revolutionizing aesthetic and social agendas every decade or so — a phenomenon that architects themselves can’t even keep up with — let alone the public at large, since architectural journals which feature these sorts of rapid-fire volleys (including this one) are rarely found nestled between The Economist and Vanity Fair at newsstands. Two decades of fanciful catalogs stuffed in mailboxes have done more to shape popular taste (and educate people about design) than the club of architectural priests that has elevated its game by preaching to the converted while leaving out the laypeople that architects ultimately need.”

David Celento

By the way, he’s an architect and this is classified as tough love.

Ed Wilms, this one’s for you.

In line with the proliferation of talk around execution, there is also much going on as it relates to strategy. Strategy and execution are inextricably linked, they are useless without each other. Without a focus on execution and performance, strategy is a purely academic pursuit. Without a strategic foundation, execution is a “car without a steering wheel” (or any number of fitting clichés). Strategy is one of those things that seemingly everyone talks about, but few actually practice. It is something that is typically top-of-mind as companies think about the imminent new year, but once that new year commences it is quickly forgotten about, and rarely followed through. This plays out everywhere. We have all seen it in one form or another. The same can be said for execution. At the heart of this is determining how an organization is going to get where it needs to go, how it is going to navigate the range of strategic risks before it.

The linking of strategy with execution, and understanding the importance of the relationship between the two, has been gaining important attention. The Harvard Business Review just published an article discussing the rise and importance of the Chief Strategy Officer. There are a number of reasons that companies are creating and assigning this position, the most common of which is most likely that CEO’s now find their attention diverted to an increasing range of priority issues, and the nurturing and development of strategy suffers. The CSO’s entire purpose is around developing and executing on a range of strategies, and ensuring that decision making supports these strategies and aligns with the company vision.

The HBR article does a nice job discussing the importance of linking strategy to execution and lists three critical strategy implementation tasks:

• - Engendering commitment to strategic plans. Articulate a clear definition of your company’s strategy and explain how each person’s work relates to it. This clarity enables the building of the federation necessary to put strategic plans into action.

• - Drive immediate change. Facilitate the change initiatives required to execute the strategy.

• - Promote decision making that sustains change. Ensure that strategic decisions don’t get watered down or ignored as they’re translated throughout the organization. Communicate with managers at all levels to determine whether decisions being made over time continue to be aligned with the strategy.

Now, the role of the CSO is most likely not a reality for many organizations, but the value of this approach is inherent. What this article effectively describes is the role and importance of strategy and implementation for organizations of all types and sizes. This is serious stuff, and with the complexity and speed with which markets change is also potentially the only way to effectively navigate this complexity, stay on track, and begin to anticipate risk.

The mantra of execution is heavy on the minds of everybody these days. Actually, that would be accountability AND execution. Seems that we all need a little primer in business 101 as without a culture based on both… all is lost. Or, at least all is at risk. It turns out that execution is also a top concern with CEO’s around the world. Actually, according to a Conference Board global survey, execution is their number one concern, ranking above profit and top-line growth.

“This year’s overall top challenge shows that CEOs from around the world are realizing that strong execution is a critical factor in driving profits and revenues. These executives are also becoming increasingly aware of the crucial role that people play in growing their companies.”

Jonathan Spector, President and CEO of The Conference Board

As a part of this survey, 769 CEOs from 40 nations were asked to rate their greatest concerns from among 121 challenges. “Excellence of execution” was selected as the top concern with “keeping consistent execution of strategy by top management” the third-greatest concern. Of particular note is that “sustained and steady top-line growth”, which led the list last year, now ranks second, with profit growth fourth, and finding qualified managerial talent fifth. I believe that this indicates a shift in the concept of performance within many organizations, and that the inception of performance is execution. This is being driven by the myriad of strategic risks we face in our industries, and by the ethereal nature of success that is today’s reality.

Of note is that the survey uncovers some interesting regional differences. The European CEOs surveyed expressed greater concern with speed, flexibility and adaptability to change as it relates to getting new, more responsive ideas out sooner. This was a dominant theme in Europe (third place), while in Asia it tied for eighth and the U.S. was back in 10th place.

I do not think that anybody can question or doubt the realities that most creative businesses face. The business environment for creative organizations is changing rapidly and presenting unique challenges to those charged with leading successfully. Specifically, our firms face issues of technology use and integration, team organization, process development, leadership and leadership transition, intense competitive realities (and increasingly global), and the commoditization and devaluing of our work. Many of these specific challenges have been discussed on Schneiderism already. I speak the obvious when I say that determination of success in the future is dependent not on navigating one or two of these challenges successfully, but all of them.

I had the opportunity to recently attend a presentation by Adrian Slywotzky, the author of “The Upside: The 7 Strategies for Turning Big Threats into Growth Breakthroughs“, at an event for YPO. It was especially good, and prescient regarding the challenges that many organizations face, but it seemed especially relevant to creative businesses (design, marketing, advertising, architecture). At a high level everything comes down to innovation, being innovative, and how you innovate. Easy to say, hard to do. But beyond those relative truisms, there was one all encompassing concept that I loved hearing about:

STRATEGIC RISK MANAGEMENT

The presentation began with the concept of business model design and that business models that remain static are destined for failure. The environments in which we all operate are changing and evolving in ways that were not possible 10, 15 and 20 years ago. This demands reinvestigation, in an ongoing manner, of a company’s business model and introduces the opportunity for business design innovation. Most industries have seen dramatic change, and those of us who anticipate change and evolve our companies as our markets change will be around to talk about. Adrian Slywotzky not only aligns with this thinking, he takes it much, much further.

“Our greatest growth opportunities are our greatest risks - reversed.”

Adrian Slywotzky

The strategic risk management piece is important in several ways. Obviously, this is hugely informative as we investigate the threats and opportunities of a given business model, and the proper identification and understanding of strategic risk is what ultimately determines a course of action. Elements of this is knowing the reality of where your center of gravity resides with respect to your customers and clients. To ensure prolonged success, that center of gravity needs to reside at the heart of your company, at the core of what you do and the value you create. Inevitably, though, it resides with the customers who have a range of relatively equal options from which to choose. The challenge is in retaking that center of gravity and subsequently reversing or inverting the value chain. A traditional value chain begins with assets and ends with a customer, inverting it creates a business model around the customer that results in assets. Think about that for a second and get back to me.

Getting into more detail about strategic risk management… it is the perpetual survey of your landscape for those things which will make you irrelevant, those things which can damage your business design. Things like:

• Misreading your customers
• Damaged reputation
• Commoditization of your product or service
• Technology
• Ownership/leadership transitions
• Global politics
• Currency fluctuations
• Supplier changes
• Factor of costs
• Talent deficits
• Changing customer demographics

Now, that list is by no means comprehensive and is pretty high level. So, stop for a second and reflect on your own business. What would your list look like? Can any of these strategic risks be turned into opportunities? To be successful, the answer needs to be a committed “Yes.” We live in an age of volatility and our lives, our businesses, are subjected to a diverse and evolving range of generators and catalysts of this volatility. What we do about this is also evolve our businesses in advance of these risks and in answer to the volatility. When these risks are unmanaged they will affect even the very best teams and the very best business models. No one is immune, and we are seeing this play out seemingly everywhere. There are innumerable case studies of companies not managing this risk:

• Contrast the S&P High-to-Low Quality ratio of A-ranked stocks to C-ranked stocks over the last 25 years. The A-ranked stocks have decreased from 31% to 14% of total value while C-ranked stocks have increased from 12% to 30%
• Why has Procter & Gamble taken 5 years to recover from the 2000 market value drop? Why did they suffer the drop in the first place?
• Other blue chips face the same fate… look at McDonald’s, Siemens, Merck and Deutsche Bank. Their performance lines are nearly identical.
• More specifically, why has Coca Cola lost market value while Pepsi has gained market value over the same time?
• Sony has lost while Samsung has won, Johnson & Johnson is winning while Merck is losing, and Maytag tanks while Whirlpool takes off. Each example, two companies in the same industry. One wins, the other is losing.

What is going on here? The winners sited properly assessed risk and realized that the time of maximum value is the time of maximum risk. This is really tough for most companies, but especially difficult for historically successful companies to address. Legacy thinking persists. This can be scary, and sometimes is not something anybody really wants to talk about or bring up in a meeting. Even worse, it just is not what management wants to hear… they can’t handle the truth. The reality is that strategic risk is the killer of business models. It is killing the US automotive industry, it is working its way through consumer electronics, and (getting back to the beginning) it is challenging creative enterprise.

Knowing this, and anticipating risk at this level begins to tell you how to protect and grow your business. For creative enterprise it entails a concerted effort to identify what the true value is in the work we do. Really, do our clients VALUE the work that we provide on their behalf? Do we create value at all? Who in our space is being successful and why? What are they doing differently and what is setting them apart from the rest of the firms around them? This starts with shrewd competitive analysis, but it cannot stop there. What are the technology risks that we face and what are the event horizons for these risks? Where are we allocating capital to activities that give us no differentiation? Ultimately, after answering all of these questions (and many, many more) what are the business designs that take advantage of the fact that all of our competitors face the same questions, challenges and realities?

How do we turn our problems into our competitor’s problems?

A summary of the risks we face, and that successfully navigated will inform your business model design:

• Technology shift
• Industry economic squeeze
• Brand investment mix (advertising, design, PR, training, information…)
• Project risk
• Customer shift
• Stagnation risk

While automobile companies on this side of the Atlantic determine how best to disassemble enterprise, elsewhere things are somewhat more positive. In contrast to the hard times seen by GM, Ford and Chrysler, Porsche has had a remarkable few years. So much so, that with the strong increase in sales, and the commensurate increase in profits, the employees of Porsche will be getting a significant bonus, and one larger than their bonus last year. I posted about the changes that went down at Porsche in the mid-1990’s, and as a result of those changes the successful strategy that has transpired. It would seem that Porsche is on the right track, and continuing to expand into new markets with new products. This will not last forever, as luxury automotive products can reach saturation in a market very quickly, but for the time it is a reality to be savored. Not fifteen years ago Porsche was on the brink of insolvency.

Porsche is, and has been, the world’s most profitable car company as of late. As a result, its 8,000 workers will receive a bonus of $7,350. Their bonus last year was $4,900. The increase is due to the fact that they sold nearly 98,000 cars and as a result profits rose by 3.4 percent to $10.5 Billion. Fifteen years ago Porsche’s sales numbers were decreasing towards 10,000 units.

That’s quite a turnaround, and I applaud the success. Porsche is an amazing case study in the value of decisive leadership, clear vision, knowing how to expand the value of a recognized and iconic brand, innovation across the board, and a belief in reinvention.

via Winding Road

An ongoing area of interest for me is how we can innovate in the guidance and leadership of a creative enterprise, and thus sustain successful operations. This is centered around the challenges facing most professional services in the creative arena, something that it would seem all are struggling with, at least at some level. The core of this is the commodification of creative work, whether that be advertising, architecture or graphic design. Many firms have allowed themselves to become factories, to become production houses. In some ways, this is the result of our own devaluing of our efforts. In others, it is born out of an entirely different decision-making process that has been progressively gaining ground with the clients for creative services… the prevalence of value assignment based on time worked and not on value created.

I came across an article that was very insightful in relation to these realities by Avi Dan in Advertising Age. It succinctly lays it all out. His article is leveled squarely at advertising agencies, and why so many are facing the music as their business model is yanked out from under them. As I read his article I could not help but see strong similarities to the realities we face in architecture, and those I experienced in other creative businesses. Avi outlines five key areas that agencies, and by extension most creative enterprise, need to investigate:

• COMPENSATION
  Should be tied to value creation and not based solely on labor. Clients and creative firms need to work out a fairer compensation scheme recognizing the value of intellectual capital.
• OUTSOURCING
  Smart creative organizations should evolve into creative portals, outsourcing external creative talent in areas such as production, as well as in logistical operations.
• REVENUE STREAMS
  Firms need to explore ways to monetize new areas of involvement such as licensing, e-commerce applications and even the work itself.
• SPEED
  Creative enterprise must recognize that in a web-based world that moves at warp speed, speed itself is a strategic asset and those that can help their clients with speed-to-market executions will have an advantage.
• SOCIAL RESPONSIBILITY
  The firm model should recognize that social responsibility is at the core of the modern firm, hand in hand with its financial accountability to shareholders, and is essential for recruiting top talent.

Of special note are the ideas around outsourcing and revenue streams. There is a controlling mindset in most creative firms that they must own all waypoints in the project process. I cannot help but ask “why?” Outsourcing is a tremendous opportunity to not only diversify your talent, but to allow you to focus on what you are truly good at… and seek support from partners who are better at the other project roles than your team may be. Additionally, seeking complimentary and supplemental revenue streams is enormous. As creative businesses we are perpetually innovating with respect to our client’s businesses. Why is it that we cannot bring this same approach, this innovation, to benefit our own businesses? Over the course of a year there will be any number of revenue opportunities available to a firm that are outside of their traditional business model, but because of that model these ideas will make it scarcely farther than the whiteboard.

All of this to say, many companies face an environment of intense change and competition. Those that get it are focused on changing with the environment in which they operate. Some are changing fast, with a cultural premium on innovation and knowledge in the value created by their own people. Those that do not are not going to last. I feel it is that simple.

Digital Arts had a great post yesterday that speculates, and probably very accurately, on the secrets to the sustained success of Apple in the fiercely competitive consumer electronics category. There is no denying that Apple has honed an approach to engaging the consumer that no other company can claim. Beyond creating loyal customers, Apple creates passionate adherents. Why? How? The article breaks it down into eight secrets:

Secret 1 - Engineering supports design — no exceptions

Typically, design enters the strategic momentum behind an idea at precisely the wrong time, and that is once the idea has been defined by real world constraints in the wrong direction… from the concept to the audience. Success comes out of designing from the audience to the concept. Apple understands that the interaction is the design, and that designers need to drive the strategy for an idea.

Secret 2 - Fewer is better

Apple clearly understands the dangers of product oversegmentation. They work to create the fewest number of products with the broadest possible appeal. This works incredibly well.

Secret 3 - The experience is the product

See Secret 1. But even beyond crafting the experience of using their products, Apple has integrated the experience of interacting with their packaging, and added drama to the unboxing of a new product. Websites are dedicated to this phenomenon alone, and it takes product fetishism to an entirely new level. While competitors look at packaging as necessary, Apple sees it as another incredible opportunity to connect with their audience. This extends to the physical environment of the Apple Stores, and to the Apple website. The experience is consistent.

Secret 4 - The product is the product

As companies become successful, they generally become bigger. At some point, feeding the machine becomes the product that the executives are selling. Look at Microsoft as an example. Apple maintains a relentless focus on their products, on what they do, and everything else is secondary and useless to their audience.

Secret 5 - You can’t please everyone, so please people with good taste

I cannot say this any better… from the post:

“Targeting the low end cheapens the brand. Going after the ‘average’ consumer shrinks margins. Only the high end creates the pixie-dust intangible quality of buzz, brand affinity and, ultimately, brand loyalty, which can be converted into higher margins and higher sales.”

Secret 6 - Leave the past behind

You are either a company focused on innovation and invention, or on supporting legacy ideas, systems and technologies. You cannot do both and keep your customers.

Secret 7 - Product names are important. Really important

A name supports the identity, which supports the overall brand. It gives people something immediate to identify with, something to reference. It is recognizable. A series of letters and numbers is confusing, not memorable, and not user friendly.

Secret 8 - Group affiliation is the driver

This is the biggest, baddest secret of the eight. Basically, people want to belong and they want to identify with things that make them feel secure, or in some cases superior. Apple has created this by maintaining a cohesive “fan-base” around their products and technologies. I pointed this out in my post on Steve Jobs… but how many company CEO’s launch their products to the world? How many do it 2-3 times per year? How many CEO’s command standing-room-only attendance at every event announcing these new products?

The answer is easy… One company. One CEO.

The really compelling thing is how many of these concepts, these secrets, translate directly to just about any creative enterprise, and how concrete an example and reminder this is for all of us. I especially take to heart Secret 5, about pleasing people with good taste. I take this to mean choose your customers, the audience for what you do, and choose them very carefully. Say no to the business that does not move your company forward that you are not passionate about doing. It is better to restructure your company around a solid vision, and around the customers you want to serve than to compromise. This helps you to break the commodification cycle that currently plagues so many professional services creative companies.

I had the opportunity to participate in a design charette yesterday put on by Steve Orfield and Wes Chapman at Orfield Laboratories. The charette is part of their Open Plan Working Group, which seeks to address issues of building performance, user experience, and innovation in workplace design. Steve Orfield has been working, through effective and substantive research, for over 30 years to support investigations into workplace quality, worker health, and challenging accepted norms of office design, organization, and function. Human factors is a huge driver of Orfield’s work, and the belief that the concept of “Architectural Dynamics (AD)” can change the world.

Organizations like Herman Miller and Lutron support his efforts, and sponsor the OPWG. Both were present at the charette yesterday. Specifically, this event was to explore opportunities to improve a building environment by the creative application of Architectural Dynamics. AD refers to environments that are controlled and influenced over time based on knowledge and inputs from occupant preferences and actual occupant behavior. AD seeks to effect change in these environments through such things as bio-mimicry, cuing, stimulation, calming, and other forms of occupant reinforcement. The goal is to change the workplace from a non-preferred and involuntary environment into a preferred and voluntary environment. Specific areas of influence are lighting/daylighting and view, thermal comfort, and sound addition and attenuation. Lofty goals, to be sure, but Steve and his group are far down the path of effecting real change.

The charette began with occupant research presented that challenges suppositions and assertions we all have about the places in which we work. A great example of this research was measurements of occupant valuations in regards to daylighting and view. Having an outside view is shown to greatly outweigh valuations of natural daylight. That was surprising.

The design charette involved looking closely at an existing structure with significant design liabilities, and how the individual design teams might mitigate the building limitations by creatively applying AD concepts. The results were very, very cool. While there was quite a bit of similarity between the teams, there was also great difference… especially with regards to how far each team was able or willing to push the concepts. Ultimately, there was tremendous alignment on enhancing audience experience, both from a macro (building-wide) and micro (individual) perspective. There was much discussion on how much control should be given to individuals, and how to manage this control to maintain energy efficiency and minimize negatively affecting other individuals in close proximity. I came away with a much enhanced understanding both of the impact of design decisions in the workplace, and how to design to more effectively enhance the occupant experience. We want the environments we create to enhance health and well being, and to align appropriately to an individuals work style preferences. Yes, this has dramatic affects on productivity, but first and foremost it supports more healthy work environments. Increased productivity is a nice result from this goal.

All of this seeks to challenge and change the reliance on the 1950’s metaphor of workplace design. This is a metaphor that needs to be cracked open as the places in which we spend upwards of 8 hours a day, five+ days a week are not designed to support us in our work or in our interactions. They are created out of economic decisions based on minimizing expense and gaining as much space efficiency as possible. They are created out of building practices that have stood largely unchallenged by research and health assessments. We have a responsibility as designers to hold ourselves to research based standards of performance in the environments that we create, to ensure that our designs are adding health and NOT detracting. To paraphrase Steve Orfield, we should look to the Hippocratic oath for inspiration and commit our work to “doing no harm.”

A colleague of mine has launched his blog at knowlesystem. His focus is honed and specific to the forces changing and shaping the world of architecture and design. Cool stuff. We have had an infinite number of incredible discussions and brainstorms on this topic, and this was suggested as a way to begin capturing this content, and involve others in the conversation. I highly suggest subscribing as there will be a proliferation of compelling content coming forthwith.

Congrats on the site, Stephen.

Another colleague introduced acmesiren a couple weeks ago, and I wanted to offer a more formal welcome and congrats to Nick as well. His blog is focused on finding and revealing what is new, cool and interesting in the world of experimental music. Also, very cool stuff. And a terrific resource.

Both blogs are featured in the schneiderism blogroll in the right column, which is naturally an incredibly high honor.

I came across this cartoon today at Hugh MacLeod’s blog, gapingvoid. It gave me pause. Partly because I think that Hugh makes a joke about something that is probably partly true, and partly because, in so many ways, the CEO of an innovative consumer electronics and technology company has become something of a rockstar. Full disclosure… I have Apple technology all over the place. At home. At work. In my car. I am writing this blog post on my MacBook Pro which is connected wirelessly to the internet via the Apple Airport, and I am streaming music from Apple iTunes on my computer wirelessly to speakers with Apple’s Airport Express. So, just so I’m very clear, I’m an adherent. Steve’s technology works really, really well for me.

That’s all fine and good, but the CEO of Sony is not a rockstar. The CEO of Intel is not a rockstar. We don’t even really know for sure who the CEO of Dell is anymore, and while you could argue that Bill Gates is a rockstar… I would have to respectfully disagree. Bill Gates is just rich.

I think that Steve’s rockstar quality is in part due to how well he has connected with the audiences for Apple’s products. Like a great band, he gives the people what they want and leaves us anxiously awaiting the next tour. The man is not glamorous, he’s not flashy and really, he’s not that memorable… other than when he presents. And that’s the other part. Steve Jobs has become a master at the unveiling and the presenting of the new offerings from Apple. So much so that these presentations are standing room only. What other CEO can pull that off?

People are constantly writing about how Steve Jobs (and his probably enormous support team) approaches these presentations. The use of multi-media, guest appearances, and the stringing of the audience along are masterful. His slides are elegant and very well done and have inspired people all over the world to improve their boardroom presentations. His slides are also incredibly simple, beautifully graphic and visual, and he navigates them with ease and confidence. The man is a smooth presenter. On stage, as a presenter and as the CEO of Apple, this non-flashy, non-glamorous, almost forgetful individual exudes style… and he does so in a completely conversational and genuine way. The multi-media is merely a backdrop and supportive of his message, and his visuals are in perfect alignment with what he is saying. Now, if you have seen more than a couple Apple Keynotes by Steve, you quickly understand that his presentations are built on solid and consistent organization. This is what creates the flow, what makes his presentations more about hearing a really great story. The fact that, up on stage, he also seems calm, at ease, and immensely approachable allows everybody to focus on exactly what he is saying, on the story he is telling. I think that Steve Jobs is perhaps the most at ease, human presenter I have ever seen. He makes it look so easy. He is a rockstar.

These keynotes always look so effortless and so easy. A lot of people just think that is who Steve Jobs is, and that doing these incredible presentations in front of millions of rapt fans is a totally natural thing for him. It’s not. The man is charismatic, but like a great band, he and his team practice and drill, they refine and hone, then practice more until everything is incredibly well tested, rehearsed, and choreographed. How could we not think he is a rockstar? With all of the effort put into these presentations he is, by default, a rockstar. Back in the 1970’s when Peter Frampton brought arena rock to the world, he made it look easy and effortless too. Steve Jobs is bigger than Frampton.

Finding the quote was inspired by stumbling on the photo above. The world governments must redouble their efforts to reanimate this man.

“It was the Law of the Sea, they said. Civilization ends at the waterline. Beyond that, we all enter the food chain, and not always right at the top.”

Hunter S. Thompson (7/18/1937 - 2/20/2005)

I just read this article at Fast Company and, while a little simplistic, it does a nice job both describing how business needs to embrace design thinking, and the value of design in business. The author, Mark Dziersk, lists six tips to help business understand design and incorporate strategy along with the design approach to problem solving:

1. Design strategy is not an oxymoron: Creativity is the key to innovation, strategy is the mirror equivalent for business.

2. The world is upside down, embrace it: Embrace the death of the controlled business model.

3. Invent new training, train thyself: If you understand little about design or creativity, learn more.

4. Understand your DNA: At the core of every go-to-market effort is a strategy based around the DNA of the consumers’ experience.

5. Visualize strategy: Visually map your processes. Designers are visual people.

6. Stop using Powerpoint and start telling stories: Use creativity in your presentations and get it back in spades.

While the article is directed at a more traditional business audience, one that is maybe unsure about how to incorporate design into their strategic approach, there is something here for all of us. In fact, the article pulls together several thoughts that have been expressed here on schneiderism into one cohesive narrative. We all need to understand how our audiences have changed, and how we need to change in order to best communicate our value and engage them as they wish to be engaged. We all need to become massively better at telling stories and move away from reporting. The value for understanding is in the story, in the context within which a situation exists. Reporting delivers a snapshot, and business moves too quickly today to base decisions on snapshots.

Ultimately, what the article describes is a competitive necessity. Design brings a deeper understanding and more substantive connections to our audience, and these are the things that are supporting innovation in business and success in the most competitive of industries… think personal computing, music, automobiles, fashion, publishing… I can keep going. In each case, there are businesses that are still governed by a business model born out of another time, and those that are fast moving, adapting and innovating, constantly reinventing the business model for their industry. My money is on the latter for being around in ten years.

I have really enjoyed the Manifesto issue of ICON, and posted earlier the manifesto of Bruce Mau. It is interesting to read the results of a person’s efforts to catch something smart and concise for the benefit of us all. Admittedly, some of the manifestos are pretty weak. But some were pretty great. Joshua Prince-Ramus’ was pretty great.

Prince-Ramus is an architect and designer, and a partner in the recently formed architecture studio REX. He came out of OMA, the studio of the famous “starchitect” Rem Koolhaas, where he led various projects like that for the Seattle public library. My first exposure to the thinking of Prince-Ramus was via his presentation at TED in 2006 (absolutely worth watching). In that presentation he dropped more than a few bombs on the world of architecture. Nothing we didn’t know or acknowledge already, but powerful to hear spoken out loud. He described a “hyper-rational” approach to architecture, explaining how logic can act as the catalyst for extraordinary buildings and yield opportunities otherwise hidden by the bias of the designer. This hyper-rational approach is something paid lip service to by most design fields, but Prince-Ramus lays bare the the essential mechanics, and results, of this approach to solving design problems.

His manifesto in ICON is a summary of that TED presentation, and essentially forms the mission statement for his studio. Following are a few of my favorite excerpts:

“We design collaborations rather than dictate solutions. The media sells simple, catchy ideas; it reduces teams to individuals and their collaborative work to genius sketches. The proliferation of this false notion of “starchitecture” diminishes the real teamwork that drives celebrated architecture.”

Design is riddled with myths, and designers are perhaps the best at perpetuating those myths. The reality is that successful design solutions come directly from a thorough understanding of context, constraint and audience. Meaningful design is also most often the result of effective collaboration and the blending of perspectives. These perspectives, and the efforts of the team to develop a 360 degree understanding of the situation, are the foundation on which opportunities are built. Anything less is at best a stylistic bias.

“We embrace responsibility in order to implement vision. The implementation of good ideas demands as much, if not more, creativity than their conceptualisation. Increasingly reluctant to assume liability, architects have retreated from the accountability (and productivity) of Master Builders to the safety (and impotence) of stylists.”

We see this all of the time. Sometimes we are like gold miners. We strike a rich vein of ideas, or a successful approach, and then mine the hell out of it. We become identified by those results, it becomes our genre. Ultimately, this leads to commodification and the disregarding of the importance of context, constraint and audience. It is a one size fits all approach to design.

“We side with neither form nor function. REX believes that the struggle between form and function is superficial and unproductive. We proffer the term “performance” instead: a hybrid that doesn’t discriminate between use, organization and form. We free ourselves from the tired debate over whether architecture is an art or a tool. Art performs; tools perform.”

If you watch the TED presentation that Prince-Ramus gave last year, it is abundantly clear that REX is practicing what it preaches. The approach that resulted in the team’s solution for the Seattle public library is exposed for exactly what it was… total understanding of the context, constraints and diverse audiences for that project. It is also clear that from its inception, that project was about performance and the inextricable integration of form and function, of the aesthetic with the need for the solution to work.

“We love the banal. REX dares to be dumb (like a fox).”

Back in 1966 Ford entered one of the most grueling and competitive events in motorsports… the 24 Hours of Le Mans. They had no experience with this type of racing. None. Ford had previously been thwarted in an attempt to purchase Ferrari, a force in European motorsports at the time (they still are) and the company that had been dominating at Le Mans for years. Ford could not buy Ferrari, so Ford would beat Ferrari and knock them from their place on the winner’s podium.

To do this Ford organized an incredible team. They brought on the best engineers, technicians, pit crew, managers, and drivers. They set about creating a new car just for this race, and just to beat Ferrari, and they did so in record time. The Ford team came together quickly, had a clear mission, a stated purpose, and the support of the bigwigs back in Detroit. They created the Ford GT40, and not only did they beat Ferrari in 1966, but the Ford team ended the 24 hour endurance race with a 1-2-3 finish (as pictured above in a photo staged for the press). Ford dominated Le Mans for three years in a row, and then dropped out of the race. Point proven. They organized to win, and they won. Handily.

We have already discussed here the realities of the competitive environment we all operate in. We’ve also discussed the ways in which our clients are changing and becoming more like us, and less like people who really need us. Given these two facts, it would seem imperative that the emphasis should be on creating the winning team, not on the winning. This is about the way in which we get there, not just getting there. Teams that win do so because they are organized to win. Teams that are organized to win are unstoppable.

There is tremendous pressure to perform, to win, to not fail. This creates urgency, and a fair amount of anxiety. It is also incredibly short sighted. This is an excellent opportunity for a long term strategy, to focus on building the best team, and supporting that team in coming together. With clear goals, good direction, and support great teams can be unstoppable. Taking the time to create and support a winning team has real long term value. Making the mistake of focusing only on winning means having to start over each time.

Image from autoblog