Building transparency builds trust

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“Trust your people.  No matter what happens. When you give trust you get trust.” -Howard Behar, Former President, Starbucks

Howard said it referencing internal transparency, but of course he was standing on the shoulders of giants before him who said it many times over about the importance of honesty among colleagues.  What happens when you build trust and transparency in the marketplace as well?  Now, possibly more than ever in free trade commerce, consumers are asking discriminating questions about the source and visibility of the product chain.  A couple years ago Michael Pollen’s Omnivore’s Dilemma was one of many shots over the bow of comestible providers to say out loud that not only should food providers be more transparent in their sourcing and growing process, but that the consequences were market loss due to loss of trust.  Apply that principle to your t-shirts, or XBoxes, or even consulting or intellectual efforts – the market has a heightened bullshit detector and it has become increasingly difficult to hide as a provider.  If you have been able to stomach watching Food Inc., you’ll walk away with another insight altogether.

The Organic Exchange, with Historic Futures, has pioneered a track and trace program which validates the materials sourcing process to assert to the market that the end product has integrity.  The key idea is that, while providers do not “own” their supply chain per se, they must be accountable in building value along the way, and are ultimately accountable to the consumer that their product created value at all points along the chain.  Wouldn’t you feel better knowing your killer flash new sneakes weren’t stiched by child labor?  In this interview, David Bennell, Executive Director of Organic Exchange explains what this is all about.

The culture defines the outcome

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Autonomy, mastery and purpose are the new building blocks for the emerging workspace – or what Pamela Meyer calls our Play-space.  Because as Don Tapscott reminds us the emerging Net Gen has it right: work = collaboration = creativity = fun = work

The Results Only Work Environment is coming of age and the hypertension-inducing nation of clock-punching is eroding.  WL Gore, HCL Technologies, Google and Whole Foods are currently out front in management innovation and the race is on to build the 21st century play-space environments that foster the kinds of killer app product creation that happened organically in the 90s.  The thing is – we’re now understanding that these creative hotbeds don’t have to happen by happy accident.  We can create environments that are not command-and-control, that allow the best ideas to emerge and where resources gravitate to the best ideas, instead of being hierarchically allocated.

Google wants to be a highly inventive company with little tier-based control, and so attracts highly inventive people and then assigns managers about 60 direct reports, which is intentionally unmanageable.  Who can possibly exert granular management over 60 people?  That’s the point.  Google also is a world of radical transparency, or as Schmidt puts it, “highly porous.”  Because remember, if you want real sustainable competitive advantage it has to be in the DNA.  A product sleight of hand, or lucky market timing break won’t persevere.  As Eric Schmidt, CEO of Google, says it so nicely here, “The culture defines the outcome.”

Inspiration favors a prepared mind

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On the 18th hole of the British Open a few years back, Gary Player was mired 8 feet deep in a greenside bunker without even a view of the flag.  From this preposterous position he opened the clubface and pitched the ball straight up over the wall and, after bouncing twice, rolled it into the hole.  As he approached the flag to retrieve his ball a fan yelled out, “Hey Gary, you gotta admit that was a pretty lucky shot.”  Gary replied, “Yes, but I find the more I practice, the luckier I get.”

Stephen Lundin tells this story as a reminder that there are things one can do to have a prepared and open mind, receptive to inspiration and poised to alight on innovative ideas and move them to execution.  His first piece of advice is to try to envision the next major milestone, or finished result.  However impossible the goal may feel now, if imagined you can more easily recognize fragments of the solution and draw them closer to integrate.

Chip Heath uses the example of when Chip Conley was building his first Joie de Vivre hotel in the rough meatpacking district of San Francisco back in 1987.  He had taken an enormous chance on the location and had gathered his team on-site to help envision what the new hotel might look like.  After a couple days of talking past one another and lacking any agreement on direction, Chip arrived the next morning and placed a copy of Rolling Stone on the table and suggested they imagine a Rolling Stone hotel.  Now with an end intent it became much easier to iterate on what the flavor, culture, ambience of the place might be.  And thus it became the first Joie de Vivre hotel.  Chip Heath’s advice amplifies Lundin’s point – inspiration and innovation favor a prepared mind.

Dan Ariely on Pricing and Perception

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My thanks to colleague Kieran who reminded me of this lesson from Dan Ariely, who we filmed recently.  He uses the example of an advertisement in the Economist magazine offering three options for subscription to illustrate the power of pricing and positioning.  The Economist came out with the following offering:

  • Online version for $59 – wow.  Quite expensive but arguably the Economist is a quite good periodical and perhaps that’s a good deal.
  • Print version for $125 – more wow.  In comparison, that’s expensive indeed and in this age of digital on-demand media why buy the hard copy – which requires checking the mailbox and reading in hard copy and so on…
  • Both Print and Online versions for $125 – whoa, now both versions for the same price as the print offering.  Makes you wonder who in the world would buy the print-only version.

Dan Ariely tried to figure out the relative value by presenting these options to his graduate students.  Here are the results:

16% chose online only.  84% wanted the combo deal, and nobody wanted the print-only version.  Interesting results, but it makes you wonder what the economist was thinking in creating an offering that no one wanted.  Were the marketing people asleep?

Dan then re-printed the offering – deleting the middle option print-only – and the results were that the first $59 option became the most popular by far and the combo deal the least popular.  In consumer perception, by offering the combo deal at the same price as a less desirable option, the higher priced option became more valuable.  It was only the comparison that led people to choose the $125 option.  Think about that next time you price options in the world of selling when no one is buying.

Forget Everything You Know

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“Innovation doesn’t happen by spontaneous combustion. You must set yourself on fire.”

A big thanks to my colleague Taavo who pressed me to read Gary Hamel’s The Future Of Management. Previously I’ve posted here about the importance of product innovation, as defined by Michael Treacy, or business model innovation, as described by Clayton Christensen, or operational innovation a la Michael Hammer. I’m here to testify in the wake of reading Gary Hamel’s The Future of Management, I’m converted. I’m a true believer in the importance, value and urgency of what he calls management innovation. As Hamel writes it, management innovation is the killer app, the ultimate competitive advantage and I’m inclined to believe he could be right.

Early in the book he outlines the “innovation stack” as consisting of – from the ground up in ascending order of competitive value

  • Operational innovation – mostly the leveraging of short-lived replicable IT capabilities to optimize processes. IT advantages are time-sensitive and can be quickly and ubiquitously deployed and replicated and offer no proprietary long-term advantage.
  • Product or service innovation – while a true product innovation can no doubt propel a company from obscurity to market competitor (he cites Dyson’s bagless vacuum cleaners), again even with patent protection, product and service innovation isn’t a barrier to market entry. Witness Whirlpool who, within eighteen months, had a competitive product to Dyson, which they were able to distribute on a scale Dyson can’t compete.
  • Strategic innovation – a.k.a. business model innovation, which can produce true game-changing disruptors. For example, while the music industry first ignored online piracy, then enacted draconian scare-tactics (e.g. lawsuits against undergrads), and finally DRM-laden music products, Apple walked right through an open opportunity door with iTunes. Remember Apple went from never being in the music retail business to being the most powerful player around. It’s all catch-up now for Microsoft, RealPlayer and others.

Toyota has enjoyed a decade-spanning market-dominating run owing to management innovation. That’s right – I said the key is/was management innovation beyond all other identifiers. In a telling anecdote Gary Hamel describes a dinner with a group of U.S. automaker executives in which they had just completed their twentieth annual Toyota benchmarking study and Hamel inquired what, pray tell, did they learn this year that they couldn’t figure out over the past twenty years. Only now have other automakers acknowledged the innovative management practices at Toyota which empower each front-line employee to be “problem-solvers, innovators, and change agents.” In stark contrast Henry Ford once quipped, “Why is it, whenever I ask for a pair of hands, a brain comes attached.” Such is the management legacy and culture asked to compete against a market foe that believes innovation and solutions are welcome and expected at all levels of the org chart.

Hamel argues that only management innovation can produce the lasting and ultimate competitive advantage to protect your business from certain paradigm-shifting challenge. As Gary puts it, without question, “…sometime over the next decade your company will be challenged to change in a way for which there is no precedent.” And the way to be ready is to institute management innovation which is endemic, not crisis-based. While Gary would certainly laud Gerstner’s efforts at IBM, or Anne Mulcahy’s stern hand at Xerox, he argues these seismic change efforts are short, crisis-based, and built on out-moded command-and-control tactics in which senior tiers set agendas and execute effectively in a cascading manner.

Straight from the pages of The Future of Management, Gary offers a few questions to help start your journey:

  • What’s the tomorrow problem that you need to start working on now?
  • What are the tough balancing acts that your company never seems to get right?  What values does your company espouse yet have the hardest time living up to?
  • What are you indignant about in your company? What are the frustrating incompetencies that plague your company and other organizations like it?

If you read this and feel like you’re lost in the beaucracy and lack the power to initiate change, pick up Hamel’s book – he has immediate recipes to help you be a change agent.  Beware – he will ask you to be bold!  Enjoy the journey!

The Great Convergence! Cornell Global Forum June 1-3 NYC

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Last week we had the opportunity to spend three intense days filming and working with delegates at the Cornell Global Forum on Sustainability.  Representatives from Google, Intel, GE Healthcare, Cascade Engineering and many more, converged on NYC for three days dedicated to understanding the immense opportunities at the Base of the Pyramid, and to participate in closed working sessions to build disruptive innovations aimed at creating products and services to serve the BoP and build sustainable business models for global multinationals.

The concept is this: While there are nearly 7 billion people on the planet, historically business has created products and services catering to the very top of that pyramid – the wealthy communities and populations.  And the “Base of the Pyramid” has been largely relegated to unsustainable philanthropic activities.  While charitable donations and efforts from first world nations to aid emerging nations certainly has a welcome and important role to play, the challenge and fantastic opportunity available to both corporations and entrepreneurs, is to build effective, inexpensive services and products which both serve the BoP and unapologetically make profits for leading innovative groups.  For example, hand held cheap and readily scalable water purification systems selling for as little as $50 can purify local water sources and remedy dysentery and water-borne illnesses that incapacitate millions around the world.  Such a simple purification device can be built and deployed in markets of need numbering in the millions, even billions.  This simple device can then be improved and innovated up the pyramid long before (for example) a full-scale cost-intensive desalination plant is required.  Of course a full blown desalination plant and requisite distribution system is both expensive and requiring immense infrastructure to deliver the needed clean water.  Think of it!  Instead of competing for the narrowing markets at the top of the global population pyramid, companies and entrepreneurs can address the needs of immense markets.

While at the conference, we had the privilege to conduct video interviews with the leading environmental engagement and sustainability practitioners from Google, SC Johnson, Whirlpool and others.  Our interviews were conducted by David Bennell, Executive Director of the Organic Exchange.  And the entire event culminated at the 92nd Street Y in a panel discussion with Fisk Johnson, CEO of SC Johnson, Stuart Hart, Vice President Al Gore, Ratan Tata, and hosted by Charlie Rose.

During the course of the conference we filmed the proceedings and built a real-time video narrative to capture the intent and ideas generated.  Enjoy!

Ideacide

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The best leaders understand that the best ideas come from the ground up – or rather in W.L. Gore‘s case, in the round, in teams.  At W.L. Gore there are no bosses, only mentors, champions, and other self-descriptors as associates are invited to define their own roles and play to their strengths in a collaborative fashion.  This approach has yielded a company which produces over 1000 products.

Matt May was consulting to a car company prior to joining Toyota, and after interviewing people in the organization he discovered theirs was a culture that stifled ideas in a command-and-control hierarchical fashion.  The leaders of the company rejected his report, didn’t believe him and insisted they had an open environment where all ideas were welcome to the table.

So Matt played a trick on them at an off-site meeting – watch here:

Customers buy holes, not drill bits

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Familiar story: One day Joe comes up with what he thinks is a killer new product app for his company that he is certain will rock the market.  So he takes the half-baked idea and spends a few days drawing up a provisional plan to present to his product team.  He works on the product development team so of course his colleagues like the idea with a few changes – mostly enhancements and expansions as they get excited and brainstorm over the concept.

Next Joe takes the idea to the sales manager, because of course you can’t take anything to market without the support of the sales group.  The sales manager takes a look and says, “There’s no way I can get my salespeople to focus on this.  The price points are too low and our commission structure, based on your proposed pricing, won’t motivate them.  And besides, your product requires a different buying point with our customers.  My people don’t have relationships with who you need to sell to.  My guys won’t even glance at this.  It looks cool on paper, but let me know when you have something we can actually sell.”  So Joe makes some price modifications and product changes so it is more appealing to both the sales group and their existing relationships.

Next Joe has a meeting with the CFO who says, “I’m not sure you recognize this, but we have a financial plan and margin goals here and your product doesn’t come close to meeting these targets.  You’re going to need to optimize the cost structure around your product before we can introduce it.  Come back to me when you can make it fit our financial model.”  So Joe and his team figure out how to optimize the cost and materials structure, and margin values of the product and finally the CFO approves.

Meanwhile Joe and his team have been having discussions with the engineering group to develop specifications to build the product application.  And the lead engineer says, “Your requirements exceed the talent and capacity of our team.  You’re gonna need to find some money and identify an external resource to build this thing.  Not only that, it will take us 18 months to integrate any external efforts to make your product market ready.”  So Joe and his team make more modifications to reduce the enhancements, scale back the performance, etc.. so it can be built for less, using internal resources, and on time.

Eventually what comes out in product release is laden with the constraints of the company’s business model and is no longer recognizable as what Joe and his team dreamed up.  And of course the product no longer looks like something that will satisfy consumer demand, but more like something that satisfies internal mechanisms.  Well, the customer doesn’t buy what is best suited to the business model conveniences of the manufacturer.  They buy to get a job done.

Clay Christensen makes the case that it’s the business model that needs to innovate to allow innovative products to emerge.  Business units do not evolve, but companies can.

When product development people dream up new products and services they typically think in terms of product market segments and/or customer market segments.  For example, car companies think in terms of compact, mid-size, luxury, SUV, mini-van, light truck, etc… Pharmaceuticals might think in terms of customer market segments – low-income/high-income, 18-24 year olds, married/unmarried, internet access or not, etc…  Christensen suggests that the most successful products answer a need for what the customer is trying to do.  In other words, think in terms of what job needs to be accomplished.  Scott Cook, founder and Chairman of Intuit said, “Looking back on it, whenever we failed with a new product, we followed a conventional marketing paradigm, of segmenting by a product attribute, or customer demographic.”  In other words, when Intuit created products that failed, they didn’t necessarily evaluate what job the customer was trying to accomplish – they thought instead of who they might be able to sell to, or how the new product might fill a narrowing niche in an already compressed market.

The original marketing guru Ted Levitt famously said, “People don’t buy a quarter-inch drill bit, they buy a quarter-inch hole.  You’ve got to study the hole, not the drill.  The drill is just the solution for it.”

Dr. Christensen illustrates the point in this amusing story about milkshakes.  Enjoy!

Green IT and the 2% Solution

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About a year ago we embarked on a project to interview senior leaders working in the area of sustainability, environmental engagement, value chain management, green product development and more. The goal is to capture the leading practices and ideas of groups and organizations who have made cutting edge contributions to optimize resources, reduce emissions and build innovative processes and products to introduce in the marketplace. I posted about this previously when we did the Thomas Friedman event.

We have interviewed sustainability practitioners from Microsoft, Green Mountain Coffee, Cornell University, Aveda, and more but most recently we had the opportunity to sit with John Glowacki, Chief Technology Officer for CSC and David Moschella, Global Research Director for CSC’s Leading Edge Forum.I asked John what role senior leaders need to play in organizations to help Green initiatives work.  I thought he would talk about the importance of leaders modeling the way, but instead he talked about how organically change within CSC has been growing from the bottom up.  Groups within CSC across the globe have been creating and sharing their own innovative green initiatives.  This kind of bottom up change behavior has also fostered a kind of creative competitiveness – divisions are competing in a friendly manner how to best optimize and reduce the impact of their operations.  And in an effort to make gains, people are building creative and innovative solutions.  This is the kind of co-opetition has the effect of accelerating change.

ET Innovation requires a market signal

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Today we had the good fortune to produce an event featuring Thomas Friedman, author of Hot, Flat and Crowded.  Go read it.  In the meantime remember one key message from his talk: If you want to make a measurable difference to mitigate climate change (Hot), build sustainable globalizing economies (Flat) and alleviate the impact of elevating population (Crowded), one of his key messages is change your leaders, not your light bulbs.  Friedman isn’t saying don’t bother switching to CFL bulbs, he’s saying that it’s our government leaders who create the rules, the regulations, which govern the manner in which our economy can grow in a sustainable manner.  And without government-imposed regulation on what we pay petro-dictators overseas, it will be exceedingly difficult for 10,000 entrepreneurs in 10,000 garages to be the change catalysts we need.  Researching his book, Friedman interviewed Jeffrey Immelt, CEO of GE, who was clear that even the greatest MNC and font of ingenuity of our last century will not invest in creating sustainable and available electrons (electric power!) to the world against the moving target of oil at $120 (Sep, 2008) and $42 (Feb, 2009).  How can even the leviathan GE make a conscionable multi-decade, multi-billion investment to compete in this market landscape?

Friedman predicts Energy Technology can be the next .Com innovative revolution to solve what he identifies as the five primary thorny issues confronting us today: Energy and natural-resource supply and demand, petro-dictatorships, climate change, energy poverty, and biodiversity loss.  In an optimistic talk, Friedman challenges us to find that silver bullet which is capable of alleviating each of these concerns.  That is – cheap, renewable, ubiquitously available electron molecules.  His challenge – from entrenched MNCs to garage entrepreneurs – is to help make sustainable and ubiquitously deliverable electric power to the world.  Sound audacious?  It is, but as he states it will start with the policies and regulations we impose on the marketplace.

A key consideration is to recognize that we the U.S. – or any other country – need to have faith that we have the skilled talent and imagination to confront this challenge and we want the bar raised.  We want regulation to dictate the baseline efficiencies of washers, air conditioners, cars, light bulbs, etc. because by raising the barrier to entry in the market we will fuel innovation.  By eradicating environmental impacts or lowering efficiency demands on the products and services we consume, we invite Chindia market disruptors who can build and deploy cheaper and dirtier technologies – which only exacerbate the big five issues shown above.