Month: November 2018

Performance – show time!

Performance

We all know about performance – it’s probably the commonest metric apart from cash in any business. And there are usually two elements to it – increase the top line, and reduce the costs. Both feel like an ongoing battle usually, and for most businesses both are only achieved incrementally and not always consistently.

Exponential type organisations by definition don’t simply grow incrementally – so what are they doing differently? Well in many cases they are changing the fundamental rules of the game. The costs to increase the top line may no longer rest within the organisation for example. A classic example is user generated content for advertising – you don’t have to pay an expensive media company for the film, and there is (if done well and genuinely) the added bonus that other customers will tend to believe ‘someone like them’ more than you telling them. That example relates to two of the headings in the map above – community & crowd and social / engagement. Product development by your customers (Threadless involving their ecosystem in the design of T-shirts is a well known example) is a great instance of community / crowd as are many examples of open innovation – whether the long established Innocentive or individual competitions like Nokia’s one in. The key to all of these is that the cost is low (and the scaling cost nominal) whilst the benefit can be substantial and will be innately relevant. Because of the low cost, they are inherently agile, as they are both variable costs and (although there are pitfalls to engaging external audience and then not following through) very flexible.

AND they are not limited to high growth or start up businesses.

Automation and AI are slightly different (although both can be applied to reduce still further the costs of engaging audiences beyond the corporate boundary. But both have the same potential of reducing costs / improving productivity beyond the purely incremental. One simple example is the use of robots in industrial complexes or warehouses to work 24/7 – perhaps stacking parts or stock ready for human intervention during the day.

A final point – just as demonstrated by Amazon so clearly, the use of online connectivity can make the long tail as profitable to service as the mass volume sales, and increasingly connectivity, mobile and an ever expanding set of technologies are enabling:

  • greater visibility and reach for lower or nil cost
  • higher engagement and opportunity to involve customers and audiences
  • lower production, supply and delivery costs

Clearly none of these is without issues – but in worrying about growth prospects, it’s easy to miss the startlingly large consequences of these opportunities.

Getting smarter about assets

Balance

Our traditional view of assets has been driven primarily by the accounting records – what appears on the balance sheet, ie financial capital, and the physical assets that are similarly accounted for. Then we expanded that view to include other types of capital – human, knowledge, social etc. We’ve never managed, in spite of attempts to do so, to make these types of capital as visible, nor have markets really recognised the value of them. Until now that is. As the thinking on platforms shows the public markets are currently valuing less the physical assets and more the ecosystems, and potential of those networks to drive value.

But there are other ways in how we view assets differently these days. Not just platforms but high growth businesses and startups are essentially running off variable cost platforms – no longer do they need capital for premises (think WeWork), talent (the gig economy and virtual contractors), or IT (SaS and apps). In all cases they are leveraging the value of assets provided by others and using their financial and human capital to focus specifically on their own aspirations. Platforms like Airbnb and Uber are an extreme manifestation of this – it’s not just the infrastructure which is leveraging external assets but the entire business model. A massive contrast to the legacy of established organisations who have both a structural and a mindset issue with maintaining and updating buildings, systems and processes. The scale and lack of pace in digitisation transformations is testament to just how difficult it can be to change.

But there is yet a further way to think about assets, perhaps best typified by Amazon which has potential for these legacy businesses as well. It is easy to categorise Amazon as a platform business but considering how it has evolved it is also possible to see some really smart ways of identifying hidden assets and driving value from them. The shift from books to other products was essentially recognising the expertise and efficiency of their online and logistics processes and how to extract additional value from those. The move to selling other people’s product as well (overwhelmingly so as it’s turned out) was then a mindset shift that said we can leverage that experience and structural asset further. Perhaps the most lateral of these smart moves was the recognition of the physical asset, and even more important, experience of running large data servers – which led to the formation of AWS. Experience and expertise (together with the processes and structures that makes those manifest) is an asset that all too often remains focused on the core business (indeed many organisations treat that focus as a virtue and reward staff accordingly). Seen as an opportunity (perhaps the flip side of organisations seeking to leverage other people’s assets) it can be hugely valuable – not least because exploitation can be an incremental rather than material cost. We are seeing the germs of this in some of the pivots that are being considered – GE’s shift to a data based rather than physical asset based business for example. But there will be other instances where exploitation of expertise could be an additional rather than a replacement revenue stream.

The food revolution

meat.jpeg

The question of food security and the planet’s ability to feed it’s projected population has been around for a while, cumulating in the UN’s second sustainable development goal being ‘Zero Hunger’. And whilst it is clear that ‘the number of undernourished people in the world has been on the rise since 2014, reaching an estimated 821 million in 2017’ (The state of food security and nutrition in the world, 2018), it is equally true that obesity is becoming an increasing problem. Together they represent a major problem today for almost all areas of the globe. Both have huge implications for health, economic growth, the environment (particularly rural areas), climate change and societal welfare. But both have been widely discussed for years without significant behavioural shifts or changes in agricultural practices. Is that about to change?

During 2018, just in the UK, we have seen:

And all before we look at some of the wider signals such as product marking with climatic impacts, questions of waste or predictions such as the end of animal farming. The latter makes clear how difficult predicting the timing of changes can be when the levers and barriers are predominantly behavioural – but, as we’ve seen in our connected world, once a tipping point is reached, demand and appetite can change remarkably fast. And what seems immutable today, can with hindsight appear to be entirely the wrong approach!

 

Grow & Kill

As a strategy for growth corporate venturing is not new – I remember loads of conversations around it at the back end of the dotcom boom in the early 2000’s. But there is a new urgency and aspiration behind some of today’s thinking. If you believe that it’s just too hard to take the legacy organisation and transform it into a butterfly then corporate venturing is one way to explore the alternatives. And it’s not a massive step from there to say that if successful, the old organisation becomes the cash cow which funds the growth of the new – which in turn cannabalises the historic success.

cannabalisation

So simple to write on paper but in reality so much harder. As many find (from Kodak and Blockbuster onwards) the lure of the old, ‘guaranteed’ revenue stream is a constant distraction from investment in the new. And there are multiple pitfalls in the contrasting styles of old and new business models.

Corporate venturing is of course nothing new – and there are many differing models from the hands-off, pure investment play to the internal intrapreneurial activities. The latter can be anything from an innovation portfolio to a fully integrated strategy. And one of the newest models is in the collaboration space – interestingly often best portrayed in the public sector with a public sector (or quasi-public sector) body initiating activities amongst local (geographic or virtual) communities. What underpins the differences (although not always fully articulated) is the rationale for the venture.

There are at least 4 obvious drivers for corporate venturing – financial (to generate returns from an investment portfolio), R&D (to provide coverage over and above the specific focus of the organisation), increased impact/reach (frequently a public sector driver to achieve more than existing resources/knowledge/reach make possible) and strategic. Grow & Kill is clearly in the latter category – but there may be other strategic rationale for having a venture portfolio which are linked to specific functions within the business (new markets, new products, new channels for example) rather than an all encompassing agenda.

The issue with Grow & Kill really lies in the distinction between a genuine desire and strategy to cannabalise the legacy business vs an appetite and approach for complementarity (which may still be underwritten by an aspiration for cannabalisation). The latter is clearly much more comfortable as an approach – trying something new and yet protective of the old but has within it many pitfalls, not least the allocation of investment, remuneration practices, organisational environments, and the decision on when / how to integrate the new.

Many of those apply equally to the cannabalisation route, but the overt strategic approach makes the need to deal with those up front a no brainer. In ideal world the new venture operates a much faster pace, frequently adopting Agile working practices, occupies a very different work environment, one which makes self-managed teams and project oriented work much easier as well as sending a very clear signal that this is different business. People will be looking to be remunerated differently and for many recognition of their contribution in the speed and outcomes will be a big driver. The question in an agile environment is less about performance measurement frequently and more about how to deal with experimentation – what happens when experiments do not succeed but are valuable learning exercises for example?

And employees (or contractors) are not the only concerned stakeholders – the attitude of investors, especially for those in the public markets is critical. Even those alert to the threats and risks to conventional business models can be less tolerant of unproven new directions.

But for many established organisations, whether it is articulated or not, the direction of their transformation programmes may make a grow & kill strategy more of a consideration, as the programmes inevitably become broader and deeper.

Purpose and Narrative

A brief deviation from growth and similar approaches to consider purpose and narrative.

Purpose and narrative

Behind all of growth, performance, agility and resilience lies the heart of the business – frequently these days described in its purpose (and often following a big exercise to determine, articulate and communicate what that is). It has become increasingly fashionable to talk about a ‘massive transformational purpose’ (MTP) or ‘big, hairy audacious goal’ (BHAG). And if you are a startup or recent organisation it is inevitably easier to create that kind of purpose which is both coherent (after all you have designed the company around it) and resonates with your current organisation. Both of those are significantly harder if you have years of legacy, a brand or brands position and global infrastructures operating in multiple cultures.

To add to the confusion, in my experience, very few organisations of that established nature have any widely understood clarity (let alone articulation) of what it is that lies at their heart – what it is that has consistently driven their success. For me, understanding that is crucial to asking the question ‘is there more or less opportunity for that (whatever it is) in the future VUCA world?’ and the related question, ‘how do I then link that to my role / purpose in a meaningful way?’ So there is a strong link to growth and resilience here.

To me the start point for the answer to both lies in one of my long term favourite bloggers and authors – John Hagel, talking about narrative. But narrative, whilst a perfectly normal word is not necessarily familiar in organisational terms. To my mind, it’s important to understand the distinction between narrative and story telling which John Hagel makes clear here (he has much to say on narrative and all of it valuable!). Story telling has become increasingly popular in corporate communications and can be hugely valuable – but the gulf between a message communicated via a story, and an open ended narrative that underpins the role of the organisation looking forward, whilst recognising the value of the past, is huge. And reading on corporate narrative he makes it very clear that the perspective of the narrative is the audience – not the organisation.

Looked at from this perspective, narrative is both broader than purpose but integral to it – in effect setting the broader context for it. Purpose all too often gets reduced to a soundbite – narrative offers a much wider canvas. One aspect of that wider canvas is the ability to reference the value of legacy and heritage – to leverage the heartbeat that has driven success to date. Listening to organisations that get closest to what feels like a genuine heartbeat often suggests it’s a capability or skillset (the start point for the conversation is so often ‘our people’). So the big oil majors tend to reference their engineering skills and the mindset that those characteristics bring.

Heartbeat need not be related to capability but thinking about it in that way does clearly distinguish heartbeat from mission or purpose. And it is frequently a valuable root when thinking about narratives looking forward – how can those capabilities be applied to provide the value audiences seek in an authentic way. That’s not to suggest that the heartbeat will not need to change (after all heartbeat by definition is a purely internal concept, and the narrative is defined from the external) but the continuity needed to provide credibility in narrative offers a change to turn the disadvantage of the established organisation (a big legacy and reputation) into a positive attribute. Incidentally that capability or expertise need not be applied to the new narrative in the same way as in the past – think of Philip Morris talking about their future without cigarettes earlier this year.

And writers are beginning to recognise the complexity of today’s world, and to distinguish the northstar or compass represented by narratives from the narrowly defined purpose and associated targets that has tended to arise thus far. The latter is perhaps not surprising if the start point,as it most often has been, is to define purpose as an increment to the business and then seek to demonstrate how that purpose can be met in numbers, akin to other targets of the business. That’s very different from a business following and developing its own narrative around specific audience needs or desires underpinned by the expertise and value demonstrated from history.

It’s worth thinking here about complex systems briefly and another of my favourite authors – Dave Snowden who first raised the concept in my mind of metrics for organisations as vectors not absolutes. The value then of a northstar or narrative vs a specific goal is immense – the issue then becomes whether the organisation (or its various constituent elements) is moving in the right direction (towards making the narrative real, and at the right speed). Given sufficient clarity on the narrative, there should be progress towards it across the organisation if it is understood. This then raises the question of tight / loose frameworks – only if the vectors are transgressing the tight boundaries is tough intervention needed – within those the vectors can be used to demonstrate tolerance for different angles of progress and alternative speeds. Small nudges – reinforcing the narrative perhaps through story telling, might be sufficient to speed up, slow down or change the direction more positively.

I find talking about purpose hugely frustrating – I absolutely get the value of an MTP or BHAG for multiple stakeholders. But the time and energy spent coming up with something is frequently at odds with the impact. I’ve seen it become something which feels distant (is our priority purpose or profit?), constraining (how can we be innovative if we have to meet that?) or both to the wider organisation. That’s why for me narratives, open ended (and hence agile), audience driven (and therefore innately relevant but flexible) and yet authentic (building off and celebrating the best of the past) seem to be much more valuable. All we need now are the examples!

Platforms

So much has been written about platforms organisations, and their value in the markets is becoming increasingly dominant.

platforms value

The analysis of platform companies often focuses on the business model and it is indeed a very different one from conventional businesses. However, what is less often considered is the mindset behind the model. This contrasts fundamentally with how organisations have viewed their role in the past. The distinction is between control of scarcity (traditional) and leverage of abundance (platforms), and the role of the organisation in achieving that goal.

Most organisations have seen the necessity of command and control over a particular set of assets (physical property, people, IP, a product or service portfolio) as fundamental to their success – control which dictates who has access to those assets, for what price and via what channels. Hence decisions about sale or lease, mass or niche marketing, on or offline sales. And as growth has become more elusive, the control has been reinforced by increasing focus – on individual markets, competitive advantage, a specific market need etc.

Platform businesses have a very different perspective – in essence they perceive their role to be to maximise the market opportunity – in some cases (such as Amazon or Uber) on both the demand and supply sides. They then become the route through which the entire market accesses something – be it data (Google), property to rent (Airbnb) or transactions (Alibaba).

The consequence of such an approach is that the platform enables growth in multiple directions without materially changing the cost base. Uber is not about only the people who want a ‘taxi’ late at night, it’s about the generation that doesn’t want to buy a car, park a car or drive a car (for environmental or other reasons), or those who want an income (supplemental or otherwise), or who want convenience. The platform provides a solution to all of these and more – without change. And as Airbnb (and of course, Amazon, Apple, Google, Tencent and Alibaba too) is demonstrating enhancing the offering is equally simple. So not only is Airbnb targeting the SME market, it’s also offering ‘experiences’ – led by the existing customer base.

In all of this, the underlying mindset is not about focus, it’s about abundance. It’s not about control, it’s about opportunity and maximising it. Many established organisations have a dominant position in the market place – they understand their value networks up and down stream, and have a strong brand presence. All of which would be valuable as platform plays. But the mindset is looking for growth from a predictable, controllable, focused market or product set or route already understood.

So how might this change? Some of it is in terms of definition and perspective – being clear about whose agenda is driving change. All of these platform organisations share an obsession with understanding not just what their markets say they want and need, but what they are doing and almost more importantly why they are doing it. That’s like a supermarket asking ‘why are you shopping?’ The answer today feels like an assumption based on a lot of data about what and how (the shopping basket and whether it’s online/offline, delivered, collected etc) but behind it lie a raft of interesting ‘why’ type questions – Why a weekly shop? Why you? Does the when matter and what does it say why you shop? Why shop for food rather than go out? Then the question arises – is the platform the shopping or the activities driving it? Or is the platform the supply side – ease and cost benefit of collating goods? In his blog Edge Perspectives John Hagel talks about today’s world the contextual age – where opportunity and growth lie in deep understanding of, and responding to, the context rather than the transaction.

John Hagel also talks about transformation as the shift from caterpillar to butterfly – rather than the ability to do what’s already being done cheaper, faster, more efficiently. Thinking from a platform mindset is one angle of that kind of transformation for growth, whether the net result is to become one, partner with one or adopt some of the mechanics.