Category Archives: Strategic

Beyond Default

71gkby-vpilDavid Trafford and Peter Boggis are those kinds of under-the-radar strategy consultants that ever so discreetly (and dare I say, in their inimitable British way) travel the world, advising enormous companies most civilians have never heard of about such issues as how to organise your internal departments so that they are capable of responding to technical change. (I should know, because I worked with them, first in CSC and then in the Concours Group, between 1994 and 2009.)

Now David and Peter have begot a book, Beyond Default, that provides a perspective on strategy and organisational change less built on fashionable frameworks than on solid experience. Their focus is on how organisations fail to see changes in their environment and develop strategies – real strategies – to adapt to them. The reasons are many, but most important is the fact that organisations have developed processes and measures to do what they currently do, and the focus on those particulars does not permit stepping back and seeing the bigger picture. Instead, companies carry on towards a “default” future – and, crucially, that future may be declining. Companies need to know what they don’t know and what they do not have the capabilities to do – and to acquire those capabilities when necessary. To do that, the authors advocate experiential learning – seeing for yourself what the future looks like by seeking it out, preferably as a group of managers from the same organisation experiencing and reflecting together.

The authors have a background as IT consultants, and it shows: They very much think of organisations as designed systems, with operating practices and (ideally) articulated operating principles. While eminently logical, this way of organising is hard to do – among other things, it requires thinking about organisations as tools for a purpose, and that purpose has to be articulated in a way that gives direction to its members. Thinking about your principles can make you articulate purpose, but it is very hard not to make the whole process a bit self-referential. Perhaps the key, like for Newton’s second law of thermodynamics, is to keep adding external energy, constantly identifying and understanding ramifications of technical and other change – a process that requires energy, if nothing else.

Both authors care about language and explaining and discussing what happens in a way that can be understood by the organisations they are trying to help. This means that they primarily use examples and stories, rather than frameworks (beyond simple illustrations), to convey their points. They end each chapter with a set of questions the reader can has him- or herself about the organisations they manage – and do not, in any way, try to offer simple solutions. As such, the book works best when it talks about how to explain strategic necessities and start on a strategic journey – through collective leadership, not “great man” charisma. It works less well when trying to explain strategic analysis, perhaps because the authors have too much experience to settle on a simple, all-encompassing method.

Well worth the read, not least for the senior executive trying to understand a new world and wanting an explanation held in a language that fosters understanding rather than just excitement.

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Key myths about analytics

My excellent colleagues Alessandra Luzzi and Chandler Johnson have pointed me to this video, a keynote speech from 2015 by Ken Rudin, head of analytics at Facebook:

This is a really good speech, and almost an advertisement for our course Analytics for Strategic Management, which starts in two days (and, well, sorry, it is full, but will be arranged again next year.)

In the talk (starting about 1:30 in), Ken breaks down four common myths surrounding Big Data:

  1. Big Data does not necessarily imply use of certain tools, in particular Hadoop. Hadoop can sift through mountains of data, but other tools, such as relational databases, are better at ad hoc analysis once you have structured the data and determined what of the data that is interesting and worth analyzing.
  2. Big Data does not always provide better answers. Big Data will give you more answers, but, as Rudin says, can give you “brilliant answers to questions that no one cares about.” He stated the best way to better answers to formulate better question, which requires hiring smart people with “business savvy” who will ask how to solve real business problems. Also, you need to place the data analysts out in the organization, so they understand how the business runs and what is important. He advocates an embedded model – centrally organized analysts sitting geographically with the people they are helping.
  3. Data Science is not all science. A lot of data science has an “art” to it, and you have to have a balance. Having a common language between business and analytics is important here – and Facebook sends its people to a two-week “Data Camp” to learn that. You ned to avoid the “hippo” problem – the highest paid person’s opinion – essentially, not enough science. The other side is the “groundhog” issue – based on the movie – where the main character tries to win the girl by gradual experimentation. Data is like sandpaper – it cannot create a good idea, but it can shape it after it has been created.
  4. The goal of analytics is not insights, but results. To that end, data scientists have to help making sure that people act on the analysis, not just inform them. “An actionable insight that nobody acts on has no value.”

To the students we’ll meet on Tuesday: This is not a bad way of gearing up for the course. To anyone else interested in analytics and Big Data: This video is recommended.

(And if you think, like I do, that his sounds like the discussion of what IT should be in an organization 20 years ago – well, fantastic, then we know what problems to expect and how to act on them.)

Strategic management – EMM program

Flyer Strategic Management

Update, July 1 2015: Unfortunately, this program did not get enough applicants, so the first instance of the course will not be until next year. This was partially because Norwegian students who were interested but ultimately chose the Norwegian version, and because the message hasn’t gotten to the expat community (which, I remain certain, is a significant market.) We’ll be back next year, with 1) a changed program, differentiating it from the traditional strategic management course and hence palatable to the Norwegian student, and 2) increase our marketing to the expats, particularly to HR managers trying to recruit foreigners and facing difficulties because, well, spouses need something useful to do. Such as getting a part-time degree.

See you next year!

As previously mentioned, BI has a very successful set of part-time programs that, if you take three of them, will confer the degree Executive Master of Management.

So far, this has been a program for Norwegian-speakers only (with one exception.) I have long been an advocate of more English-language programs at BI – and so I have (with my excellent colleague Alessandra Luzzi) created an EMM program called Strategic ManagementYou can read more about this program at BI’s web pages, but let me highlight a few points which I think sets it apart (aside from the centrality of its topic, of course):

  • The program has a cumulative structure, where the end result (i.e., the term paper) is gradually built in a managed process, borrowed from Ragnvald Sannes‘ and mine (actually, Ragnvald’s as far as the process is concerned) program Strategisk Forretningsutvikling og Innovasjon. This means that you as a student will write your term paper (a detailed strategic analysis and plan of a company you choose yourself) in portions towards each course module (there are five of them) as you add new methods to your quiver.
  • We will make use of some brilliant new teachers; The aforementioned Alessandra Luzzi (good on technology competition, innovation and intellectual property), Paulina Junni (strategic alliances and knowledge strategy) and Chandler Johnson (strategic decision making, decision analysis) as well as some old war horses, such as Øystein Fjeldstad (strategic business models, network strategy) and yours truly (whatever is left). Variety for all and a chance to interact with some really smart people. And me.
  • The program is in English – did I mention that? – which means that not only do you not have to know Norwegian (which we Norwegians for some reason seem to think is an important language), you also get to meet other people of the same ilk. Foreigners in Norway tend to be interesting in themselves…
  • We use the HBS Core Curriculum: Rather than base the course on a textbook (which we find a trifle boring and never can agree with on everything) we will be using the Harvard Business School’s Strategy Core Curriculum, which is very fresh indeed and present strategy with excellent examples and very up-to-date theories (as a matter of fact, about half the literature has not been written yet, but if the existing articles are anything to go by, it will be very interesting reading indeed.)
  • …and finally, we will do five modules instead of the usual six, and instead have some videoconference-based lectures, which means more flexibility for you (and fewer hotel nights if you are living outside of Oslo).

And with that – apply now while supplies last! Feel free to send me an email if you have questions, unless they are difficult and administrative in nature, in which case you should send them to Elisabeth Lund (who can also be reached at +47 464 10 073.

(Incidentally, if you feel inclined to share this post with others (particularly within the English-speaking expat community in Norway, I will not be offended or even demand royalties. Feel free to spam everyone you know…)

Elon, I want my data!

Last week I got a parking ticket. I stopped outside BI Norwegian Business School where I work, to run in and deliver some papers and pick up some computer equipment. There is a spot outside the school where you can stop for 10 minutes for deliveries. When I came out, I had a ticket, the attendant was nowhere in sight – and I am pretty sure I had not been there for 10 minutes. But how to prove that?

Then it dawned on me – I have a Tesla Model S, a very innovative car – not just because it is electric, but because it is constantly connected to the Internet and sold more as a service than a product (actually, sold as a very tight, proprietary-architecture product, much like whatever Apple is selling). Given that there is a great app where I can see the where the car is and how fast it is going, I should be able to get the log from Tesla and prove that I parked the car outside BI less than 10 minutes before the ticket was issued…

Well, not so fast. I called Tesla Norway and asked to see the log, and was politely turned down – they cannot give me the data (actually, they will not hand it over unless there is a court order, according to company policy.) A few emails back and forth have revealed that the location and speed data seen by the app is not kept by the internal system. But you can still find out what kind of driving has been done – as Elon Musk himself did when refuting a New York Times journalist’s bad review by showing that the journalist had driven the car harder and in different places than claimed. I could, for instance, use the data to find out precisely when I parked the car, even though I can’t show the location.

And this is where it gets interesting (and where I stop caring about the parking ticket and start caring about principles): Norway has a Personal Data Protection Act, which dictates that if a company is saving data about you, they not only have to tell you what they save, but you also have a “right of inspection” (something I confirmed with a quick call to the Norwegian Data Protection Authority). Furthermore, I am vice chairman of Digitalt Personvern,  an association working to repeal the EU data retention directive and know some of the best data privacy lawyers in Norway.

So I can probably set in motion a campaign to force Tesla Norway to give me access to my data, based on Norwegian law. Tesla’s policies may be American, but their Norwegian subsidiary has to obey Norwegian laws.

But I think I have a better idea: Why not, simply, ask Tesla to give me the data – not because I have a right to data generated by myself according to Norwegian law, but because it is a good business idea and also the Right Thing to do?

So, Elon Musk: Why not give us Tesla-owners direct access to our logs through the web site? We already have password-protected accounts there, storing documents and service information. I am sure some enterprising developer (come to think of it, I know a few myself, some with Teslas) will come up with some really cool and useful stuff to make use of the information, either as independent apps or via some sort of social media data pooling arrangement. While you are at it, how about an API?

Tesla has already shown that they understand business models and network externalities by doing such smart things as opening up their patent portfolio. The company is demonstrably nerdy – the stereo volume literally goes to 11. Now it is time to open up the data side – to make the car even more useful and personable.

PS: While I have your attention, could you please link the GPS to the pneumatic suspension, so I can set the car to automatically increase road clearance when I exit the highway onto the speed-bumpy road to my house? Being able to take snapshots with the reverse camera would be a nice hack as well, come to think of it. Thanks in advance! (And thanks for the Rdio, incidentally!)

Update a few hours later: Now on Boingboing!

Update Sept. 2: The parking company (Europark) dropped the ticket – didn’t give a reason, but probably not because I was parked too long but because I was making a delivery and could park there.

The disrupted history professor

Jill Lepore, Harvard HistorianProfessor Jill Lepore, chair of Harvard’s History and Literature program, has published an essay in the New Yorker, sharply critical of Clayton Christensen and his theory of disruptive innovations. The essay has generated quite some stir, including a rather head-shaking analysis by Will Oremus in Slate.

I find Lepore’s essay rather puzzling, and, quite frankly, unworthy of a professor of history, Harvard or not. At this point, I should say that I am not an unbiased observer here – clayClay is a personal friend of mine, we went through the doctoral program at Harvard Business School together (he started a year before me), he was on my thesis committee (having graduated three years ahead of me) and we have kept in touch, including him coming to Norway for a few visits and one family vacation including a great trip on Hurtigruten. Clay is commonly known as the “gentle giant” and one of the most considerate, open and thoughtful people I know, and seeing him subjected to vituperating commentary from morons quite frankly pains me.

Professor Lepore’s essay has one very valid point: Like any management idea, disruptive innovation is overapplied, with every technology company or web startup claiming that their offering is disruptive and therefore investment-worthy. As I previously have written: If a product is described as disruptive, it probably isn’t. A disruptive product is something your customers don’t care about, with worse performance than what you have, and with lower profit expectations. Why in the world would you want to describe your offering as disruptive?

That being said, professor Lepore’s (I will not call her Jill, because that seems to be a big issue for some people. But since I have met Clay (most recently last week, actually), I will refer to him as Clay)  essay shows some remarkable jumps to non-conclusions: She starts out with a very fine summary of what the theory of disruption says:

Christensen was interested in why companies fail. In his 1997 book, “The Innovator’s Dilemma,” he argued that, very often, it isn’t because their executives made bad decisions but because they made good decisions, the same kind of good decisions that had made those companies successful for decades. (The “innovator’s dilemma” is that “doing the right thing is the wrong thing.”) As Christensen saw it, the problem was the velocity of history, and it wasn’t so much a problem as a missed opportunity, like a plane that takes off without you, except that you didn’t even know there was a plane, and had wandered onto the airfield, which you thought was a meadow, and the plane ran you over during takeoff. Manufacturers of mainframe computers made good decisions about making and selling mainframe computers and devising important refinements to them in their R. & D. departments—“sustaining innovations,” Christensen called them—but, busy pleasing their mainframe customers, one tinker at a time, they missed what an entirely untapped customer wanted, personal computers, the market for which was created by what Christensen called “disruptive innovation”: the selling of a cheaper, poorer-quality product that initially reaches less profitable customers but eventually takes over and devours an entire industry.

She then goes on to say that the theory is mis- and overapplied, and I (and certainly Clay) couldn’t agree more. Everyone and their brother is on an innovation bandwagon and way too many consulting companies are peddling disruption just like they were peddling business process reengineering back in the nineties (I worked for CSC Index and caught the tail end of that mania. Following this, she points out that Clay’s work is based on cases (it is), is theory-building rather than theory-confirming (yep) and that you can find plenty of cases of things that were meant to be disruptive that weren’t, or companies that were disruptive but still didn’t succeed. All very well, though, I should say, much of this is addressed in Clay’s later books and various publications, including a special issue of Journal of Product Innovation Management.

(Curiously, she mentions that she has worked as an assistant to Michael Porter‘s assistant, apparently having a good time and seeing him as a real professor. She then goes on to criticise the theory of disruptive innovation as having no predictive power – but the framework that Porter is most famous for, the five forces, has no predictive power either: It is a very good way to describe the competitive situation in an industry by offers zero guidance as to what you actually should do if you are, say, in the airline industry, which scores very badly on all five dimensions. There is a current controversy between Clay and Michael Porter on where the Harvard Business School (and, by implication, business education in general) should go. The controversy is, according to Clay, mostly “ginned up” in order to make the Times article interesting, but I do wonder what professor Lepore’s stakes are here.)

The trouble with management ideas is that while they can be easily dismissed when commoditized and overapplied, most of them actually start out as very good ideas within their bounds. Lepore feels threatened by innovation, especially the disruptive kind, because it shows up both in her journalistic (she is a staff writer with the New Yorker) and academic career. I happen to think that the framework fits rather well in the newspaper industry, but then again, I have spent a lot of time with Schibsted, the only media company in the world that has managed to make it through the digital transition with top- and bottom-line growth, largely by applying Clay’s ideas. But for Lepore, innovation is a problem because it is a) unopposed by intellectuals, b) happening too fast, without giving said intellectuals time to think, and c) done by the wrong kind of people (that is, youngsters slouching on sofas, doing little work since most of their attention is spent on their insanely complicated coffee machines, which “look like dollhouse-size factories”.) I am reminded of “In the beginning…was the command line.”, Neal Stephenson‘s beautiful essay about technology and culture, where he points out that in

… the heyday of Communism and Socialism, [the] bourgeoisie were hated from both ends: by the proles, because they had all the money, and by the intelligentsia, because of their tendency to spend it on lawn ornaments.

And then Lepore turns bizarre, saying that disruptive innovation does not apply in journalism (and, by extention, academia) because “that doesn’t make them industries, which turn things into commodities and sell them for gain.” Apparently, newspapers and academia should be exempt from economic laws because, well, because they should. (I have had quite a few discussions with Norwegian publishing executives, who seem to think so for their industry, too.)

I think newspapers and academic institutions are industries – knowledge industries, operating in a knowledge economy, where things are very much turned into commodities these days, by rapidly advancing technology for generating, storing, finding and communicating information. The increased productivity of knowledge generation will mean that we will need fewer, but better, knowledge institutions. Some of the old ones will survive, even prosper. Some will be disrupted. Treating disruptive innovation as a myth certainly is one option, but I wish professor Lepore would base that decision on something more than what appears to be rhetorical comments, a not very careful reading of the real literature, and, quite frankly, wishful thinking.

But I guess time – if not the Times – will show us what happens in the future. As for disruption, I would rather be the disruptor than the disruptee. I would have less money and honor, but more fun. And I would get to write the epitaph.

But then again, I have an insanely complicated coffee machine. And now it is time to go and clean it.

Disruptive is not quite as disruptive, it seems

Reuters has a great little tool showing the evolution of various buzzwords (via Boingboing). One of the worrying things is that “disruptive” is showing a remarkable growth:

image

I see this tendency (as it is with most buzzwords) that anything new (be it a technology or something else) that replaces something old is termed “disruptive”. A disruptive technology or innovation, however, as coined by Clayton Christensen, is an innovation where the incumbent companies are the ones least able to respond to it. This tends to be because the new product or service has these characteristics:

  1. Your best customers don’t want it. These demanding customers (and you want demanding customers, right?) are willing to pay top dollar for a better product – hence you try to make your product better to suit them. You then ignore the customers who does not need, nor are willing to pay, for the performance.
  2. Its performance is worse – at least in the dimensions traditionally used to measure performance. In Christensen’s original example – the disk drive industry – the existing customers wanted hard drives with more storage and higher access speed. They initially ignored the physical size of the disk drive, allowing new companies to gain dominance as new, physically smaller disk drives became available.
  3. If you entered that market, you would lose money. A disruptive innovation attacks from below – with lower profit margins. A former CEO of a minicomputer company expressed it this way: “When the PCs came, we had a choice: Selling $200,000 minicomputers with 60% profit margins, or $4,000 PCs with 20% profit margins. What would you choose?”

The funny thing is, companies launching new products keep calling them “disruptive” – do they really want to say that their products are undesirable, poor and offering low profit margins? They might want to say that, but in my view most real disruptors prefer to keep their mouths shut and build their profitability under the radar of their entrenched competitors.

In other words, if a product is launched as disruptive, it probably isn’t.

Interview by Peter Lorange


Peter Lorange has posted an interview (in German) with me on his blog. (Trust me, I don’t speak much German beyond “Bitte, bitte Kellner, noch ein Bier.” I can sort of read it, though.) I will be teaching a class (with Margherita Pagani) at his institute in a couple weeks.

I am posting the English version of the interview below – good questions, and I am happy with the answers, too.

1. There is no single business which is not affected by information technology in whatsoever way. Is there a general rule of thumb to follow in the e-commerce?

No – except, possibly, don’t ignore it or treat it as an afterthought to your regular business. E-commerce is increasingly the “normal” way to do things, and companies that are successful devote much time and resource to making sure that their value proposition online is as well thought out and delivered as anything else they do.

A persistent problem in many businesses is that, faced with new, Internet-enabled competition, they try to preserve their existing distribution channels and business models by mimicking them online. In some instances, this is the right thing to do, but surprisingly often, doing so leaves you open to competitors that have no existing business to defend. Competition online is often subject to strong network effects, meaning that it can be extremely important to establish a dominant position early – before the economics of the market financially justifies it.

2. Some businesses are quite successful although they are not working with the newest, latest technology. Why, to quote the title of one of your papers, does the best technology not always win?

My point about the best technology not always winning is more directed at technologists – who often things that the technology that is “best” in a technical sense (most advanced, say, or most adherent to the principles of technology the technologist believes in) deserves to win. If it doesn’t, the technologist concludes that this is due to a conspiracy, most commonly arranged by whoever ended up winning the market – be it Microsoft, Google, Facebook, or whoever.

For every new technology that comes along, you will always find a number of initiatives and companies that didn’t quite cut it, even though their ideas were right and the implementation beautiful. Perhaps their timing was wrong. Perhaps they chose the wrong initial market. Perhaps they were part of a larger company that didn’t understand the importance of the new technology or were fearful of its consequences. Or perhaps they just had bad luck.

3. Conversion is a keyword in today’s e-commerce. How can a merchant convert visits on his website into sales?

To a large extent, what makes you successful online no different from what makes you successful in any business: Offering a good product or service at a price the customer is willing to pay. Being online, however, allows plenty of opportunities to surround your existing product or service with electronically enabled experiences and extensions.

A big problem with many online offerings, in addition, is that they impose complicated procedures for the customer, especially around payment. Sometimes these complications are deliberate – to make sure online sales do not harm traditional sales, for instance. Sometimes they are a result of thinking too much about security. Sometimes they come from an insistence on making electronic commerce simple for the company rather than the customer. Small differences in design, especially of the process the customer has to go through, can make a big difference.

4. Design is not just what it looks like. Design is how it works, said Apple co-founder Steve Jobs. You claim that the presence on the web is no longer determined by having a nice web site only. And yet, contemporary web-based design can be used to generate business. Where do you see specific triggers at the interface between design, usability and conversion?

In general, design of a web site matters – but content matters more than colors, pictures and logos. Specifically, many companies forget that customers will enter their web site not through the front door – i.e., through the home page – but directly into any page visible, often through search engines. This means that you must design your web page not just to be esthetically pleasant – it must also be logical in its structure, be consistent in its message and quality no matter where the customers come from, and, most importantly, easy to find and link to for customers. If you type in the name of your product or your product category in a search engine, your site better be the one that pops up on top – or you have done something wrong.

5. For a few years already another buzzword has been on everyone’s lips: social media. In brief, where do you see the most poignant relation between higher sales and social media – if there is any at all?

Social media can be important – especially if you sell branded, high-end goods and services. They can enhance your value offering by providing customers contact with each other –many technology companies, for instance, use electronic forums to let customers help each other use, fix and even extend their offerings. They can also be a threat – news travels extremely fast on social networks, and you certainly don’t want to be the company whose poor service or stiff prices everyone is talking about. That being said, social networks offer you a chance to quickly fix mistakes – and to communicate how fast you fixed them. In short, social media offers you and your reputation everything a small town offers – only on a much larger and much faster scale.

6. Online business and e-commerce promises opportunities. On the downside, like everything, ecommerce is not only related with opportunities, but also with threats.

For most companies, e-commerce is a good opportunity, but for many it can be the first chink in the armor, the first sign that an industry upheaval is on its way. For the music industry, for publishers, for newspapers and for anyone selling access to information or entertainment, e-commerce can, long-term, be a threat to the company’s whole existence. The key lies in recognizing this threat early and turning the digital marketplace into an opportunity. For every industry facing a disruptive innovation threat such as e-commerce, there are companies that go out of existence, but also existing companies that seize the initiative and thrive in a digital environment. Often, these companies owe their existence to executives who had the foresight to see what was going to happen before it showed up in the financial results – and the legitimacy with their shareholders and their workforce to take action before everyone could see that it was necessary. Surprisingly often, these executives were not technical specialists – but they understood their business thoroughly, and that makes all the difference.