WHY DUMB THINGS HAPPEN TO SMART COMPANIES:
Corporate Blinders and the Case for a Second Perspective
You've hired
the best and brightest. Invested godawful amounts in marketing and consumer
research to fuel their intellect. Spent tons on R&D and customer service.
But you still keep rolling snake eyes. Time to take a serious look at
how effectively you manage brain power.
Managing intellectual capital is a leverage function. It makes the nickels
spent in day-to-day business functions sing & dance like quarters.
Makes the productivity curves of mere mortal personnel soar like Superman's.
Or Wonder woman's. Provides the kinds of breakthroughs that leapfrog
competitors, overthrow dynasties and generate sustained 30% annual
growth rates.
But after acknowledging that investments in knowledge and intellectual
capital is job one in any corporation hoping to compete effectively in
an era where knowledge is the primary commodity bought and sold in the
business bazaar, most CEOs bog down. It's a squishy issue that makes
normally confident executives squirm. The exhortation to "work smarter,
not harder" has been ruthlessly exposed as another directionless platitude
by Dilbert's pointy-haired executive and it's clearly time to
actually do something about managing brain power. But what? How does one
even know where the corporation stands relative to others on the managing
intellectual capital scale? Indeed, what are the criteria by which performance
is evaluated?
David H. Smith, head of knowledge development for Unilever feels the symptoms
that suggest corporations don't manage knowledge well can be summarized
in about a dozen words: People aren't finding it, moving it
around, keeping it refreshed and up to date. Or using it. It's
a devastatingly accurate diagnosis that is so dirt-simple it's downright
deceptive -- even Moses felt the need to gussy the Ten Commandments up
with a few well placed "Thou shalt nots."
Smith's litany lacks but one last indication corporations are not
effectively managing intellectual assets: Efforts to understand
the full implications of newly discovered information and assimilate it
into new directions are limited to a single perspective -- the corporate
interpretation. The phenomenon is akin to the harness blinders your
grandfather used to block peripheral vision and focus his mule's vision
on the furrow directly in front of him. While it may be a good stratagem
for an agrarian society raising cotton, in a global community dealing
in information the blinders obscure at least three important external
perspectives: the proven best practices of world-class corporations...a
customer first orientation...and the expertise of individuals already
familiar with the new-to-the-corporation intelligence.
Even Smith's amended diagnosis is an abstract generalization that
leaves managers the leeway to deny the severity of their affliction and
the need to do something about it -- after all, most of us prefer to slug
down a double shot of Pepto-Bismol rather than check into Johns Hopkins
to discover the origins of that unsettling twinge. But a failure to entertain
other-than-corporate perspectives is a critical shortcoming and it can
be self-diagnosed. There are nine very tangible symptoms of poor brain
power management that are easy to spot and hard to rationalize away:
- Customer-Comes-First is a PR Slogan, not an operational reality
- New Product Development efforts generate not-new products
- Low IQ (innovation quotient) enshrines outmoded business practices
- Follow-the-Leader Strategies perpetuate the leader's lead
- Reinventing the Wheel efforts repeat work completed earlier or elsewhere
- Not-Invented-Here Attitudes preclude importing excellence of others
- Recidivism...a chronic repetition of past mistakes
- Price&Margin Handcuffs hold managers captive
- Focus on Wall Street and the Next Ninety Days mortgages long term growth
In reality understanding customer needs is a complex issue. If for no other reason than in today's marketplace there is no single customer. The market is a segmented mosaic of internally homogeneous individuals differentiated from other segments by demographics, behavior and modes of decision processing. The complexity goes exponential when one realizes each segment is driven by a separate matrix of relevant needs, personal values and belief systems -- often even the comprehension of product functionality / utility.
Bottom line: Corporations that persist in dealing with "the customer" as though it were a monolithic entity are only doing lip service to the CCF principle.
Not-New New Product Development. NPD efforts generate poor new product record. In a decade where half the volume contribution of many of the world's most-admired corporations did not exist 3 years earlier, new products are the lifeblood of corporate growth. They are also high risk ventures. Surveys consistently indicate less than 20% of legitimately innovative new product launches meet management's targeted objectives.
Most new products fail because they are neither new nor competitively differentiated -- at least in ways that are meaningfully relevant to end-users. In most well managed operations the failure traces not to inept product engineering but to misdirected efforts -- good tech, but wrong concept. The product attributes engineers struggled to develop were irrelevant to end-users and the technology important to end-users was no different from competitor's offerings. The new product was new only to the corporation -- not the end-user.
To create the kind of innovative "big ideas" that drive consumer acceptance and high volume repeat purchase it's necessary to understand the mind of the target prospect and how it will process the purchase decision for your new offering. Which brings managers back to the Customer Comes First issues.
Low IQ (Innovative Quotient) enshrines outmoded business practices. Management procedures are the knowledge tools used to produce products and services faster, better, cheaper. There is a dynamic commitment in the suffix "er", as in fast-er, bett-er, that implies an ongoing effort to continual improvement and sustained innovation. To keep ahead of the pack it is necessary to innovate corporate business practices. Without that passion for innovation only diminishing incremental change occurs. As Ameritech's CEO, Tim Cauley put it: "If we always do what we always do, we will always get what we always get."
Follow-the-Leader Strategies perpetuate the leader's lead. The strategy is a hybridized version of the third deadly sin: Coveting thy neighbor's strategies, business process, scale of operations, customer base, etc. Invariably "me-too" efforts to replicate the process of the market leader -- or out-execute standard industry practices -- relegate the emulator to the role of a perpetual follower. To get ahead of Numero Uno it's necessary to change the rules of the game. Discover something -- consumer insights, a business practice, a different perspective -- the leader doesn't know and change the rules.
Chrysler, Wal Mart, Southwest Air and Bill Clinton are examples of formerly small-time players that outwitted bigger companies by changing the rules of the game. They refused to play follow-the-leader and introduced competitors to a new game: Leapfrog.
Reinventing Wheel efforts repeat work completed earlier or elsewhere. There are companies that reinvent more wheels than Schwinn. Their personnel steadfastly refuse to replicate someone else's success either in-house or from the world at large. Occasionally it's an innocent breakdown in knowledge management -- employees don't know where to seek the wheel they need, or they're embarrassed to ask for help, or the search takes too much time and energy. More often the ego's behind the reinvention of wheels: " I can do it a little better."
The truth is, the streamlined corporation of today has neither the time nor spare talent to waste in reinventing wheels. Furthermore the effort accepts an unnecessary risk -- new wheels have an unsettling way of falling off. It's better to assign someone the knowledge management task of benchmarking the best practices of an operation reputed to have already built the world's best wheel, import it and get on with using it to produce the stuff that pays the light bills.
Not-Invented-Here attitudes preclude importing excellence of others. NIH is a corporate form of the fifth deadly sin -- pride. It makes an elitist and prejudicial assumption if we don't already know it, it's not worth knowing. And certainly not worth adapting to our unique needs. The attitude often traces to a deliberate or unwitting attempt to keep the corporation dependent on a few key individuals whose pride or insecurity makes them reluctant to acknowledge others may do what they do, only better.
Although benchmarking the best practices of other world-class operations frequently reveals business process and even the metrics to prove another process is twice as effective, it's an unpopular tool with many functional managers. Initially corporate pride makes many managers doubt improvements of that magnitude are possible. It also makes more than a few fear the possibility of finding out.
One of the distinguishing characteristics of the corporations most admired for their innovative abilities is their enthusiasm for discovering and adapting business tools with a pedigree of success in other industries. It's not that they're not proud of their own process, but they're prouder of their productivity.
Price&Margin Handcuffs hold managers captive. Few companies deliberately choose to place themselves in a commodity business. Many inadvertently do it anyway. At issue are the ways in which the corporation manages, or fails to manage, brain power and intellectual assets. Knowledge is power and the way out of the price game is to truly understand what adds value to the price / value equation. In the eyes of the customer.
Every shred of information acquired about the customer can be converted into a point-of-difference that makes it harder for a competitor to undercut your price point. The result: Margin. The result of better margin: More ways to compete on a basis other than price. It's an upwardly mobile spiral from which only good things can come.
Recidivism...Chronic Repetition of Past Mistakes. Some companies repeat the same mistake so many times it seems they're trying to perfect the blunder. It's a phenomenon, for instance, that manifests itself in a series of new product introductions that are perennially late to market. No one deliberately sets out to belatedly introduce new products, so why does it happen?
In this case it happens because the New Product Development process perpetuates the error... by failing to recognize the hidden causal factors that produce the end-game mistake. The process is riddled with built-in delays and costly bottlenecks, changes, rework and unnecessary work resulting from either a flaw in the process used to prioritize / fund / initiate the new product candidates or a poorly conceived stage-gated effort to coordinate the corporate resources. The costs and time to market double and by the time it makes its belated debut, competitors have preempted the idea. The product fails. But the causal factors are either not recognized as an avoidable error or assiduously hidden away by managers who are more interested in dodging blame than learning from past mistakes. And, of course, it's a history that repeats itself.
Focus On Wall Street & The Next Ninety Days. To managers mesmerized by the slash and thrust of financial management and shareholder satisfaction, it's easy to get so involved in the short term that the long term gets short shrift. And it's true -- a nickel spent on setting strategic direction, corporate vision, anticipation of long term opportunity, or even understanding the implications of an emerging technology will not pay back in time to impact the quarterly earnings that Wall Street expects to see.
One of the key considerations that separate the most admired companies from their peers is they have the courage to look beyond Wall Street fussing over short term tremors in quarterly earnings. As Coke's CEO, Roberto Goizueta put it, "We do not manage our business by five minute ticker increments, or even the day's closing price. We cannot control that."
According to Fortune's survey respondents, Coke can -- and does -- control product quality. Better than any other corporation in the world. Same goes for developing new talent. And overall global effectiveness. And the ironic kicker? The company that publicly thumbed its nose at Wall Street was chosen as the best long-term investment!
What does it all add up to? Simply this: Every business floats on a sea of assumptions that shape its perspective of the marketplace, the appropriate strategic response to key issues and the very process by which it operates. Cumulatively these assumptions become the corporate culture -- the values shared by everyone from the CEO to the lowliest summer intern -- that dictate corporate action. But inevitably external change causes key assumptions to lose validity and those who persist in the old ways of doing business just as inevitably find themselves eating dust. Even the seemingly invulnerable -- Sears, Pan Am, IBM, AT&T -- forfeit leadership positions.
It happens because organizations, particularly successful ones, are so caught up in conducting daily operations they fail to pause to think critically about their operations. They simply neglect to ask themselves the unsettling questions that could force themselves to question their basic assumptions...or refresh their strategies...or reengineer their processes.
There are half a dozen information-gathering activities involved in assumption breaking and unarguably the discovery of new information is vital to managers intent on keeping one step ahead of competitors. But information does not carry its own interpretation; the analytical functions must be provided by corporate managers. And now we're back to the blinders your grandfather's mule wore -- the real meaning of potentially significant information will be missed by individuals harnessed to the traditional corporate perspective. Collecting new information and subjecting it to the traditional corporate perspective only leads to the maintenance of status quo.
New voices, new conversations, new passion and out-of-the-box perceptions are the stuff from which assumption-breaking perspectives are reached. And sustainable competitive advantage is created.
Failures to challenge installed assumptions -- and the corporate perspective -- are the reason dumb things happen to smart companies.
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