Category Archives: Business

Our needs don’t change much, how we meet them does

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This is part 2 to my previous post.

Many products have changed over the past 30 years as technology has changed to produce different ways to meet our needs.

I recall when I wondered why I was carrying a digital point-and-shoot camera with me on vacation, while I was taking 95% of the photos with my phone and decided I no longer needed it.

The phone camera offered a way to meet a need (take vacation photos) that was multiple times more convenient on a few dimensions. One, I didn’t have to carry two devices with me everywhere and keep both charged. Two, I didn’t have to download and manage the photos on my phone. Three, I could share photos instantly with others.

Two years before, that camera did a great job of meeting the needs. I didn’t mind the $300 dollars I paid for it. It was small and easy to carry and easy to use. It took great photos. It had a nice, large screen to view the photos. Downloading photos was easy and the software that came along with it was easy to use.

But, in just a few short years, my phone could match it well enough on most of those dimensions and beat it on the ones mentioned before.

Two things worth highlighting here.

First, my need to take vacation photos didn’t change. How I met that need did.

I think that’s important because I don’t think many people view it that way. They see one product dying and another rising, but don’t connect that the need remained.

Second, I doubt the business leaders, strategy or product managers of that camera company knew what hit them. I doubt they foresaw that their products would be killed simply because people didn’t want to be bothered with carrying around two devices anymore.

Like most companies, they were probably still plotting a linear path of progression for their products based on what they heard from customers through market research. For example, a common complaint in market research may have been that the camera’s battery life was too short or the view screen was hard to see in bright daylight, so they were working on improving those.

The problem with market research is that customers can’t even foresee how they meet their needs might change.

I didn’t realize how good it would be able to instantly text a photo to people until I could actually do it. Prior to that, it seemed perfectly normal to email them once I downloaded them.

That also impacted how other needs were met. It was common to mail my parents postcards from wherever I was vacationing. But, why do that when I could just text them photos immediately? So, postcard and stamp sales declined as that need was met other ways. And the number of emails I sent with photos attached declined.

It never occurred to me, “it’d be really nice if I could just zap the photos to someone now.” Probably didn’t occur to many others did. Even if a few people mentioned it in market research, it was probably just a few so when the market research folks ranked things to work on for the future that was near the bottom of the list and longer batter life was on top.

Taking vacation photos is just one need that has changed dramatically in the way it is met over the past 20-30 years.

It’s been awhile (or happens much less frequently now) since I’ve bought a paper map, rented a DVD, had a landline, read a physical book, listened to a CD, used a copier or printer, faxed anything, left a voicemail, sent or received or a personal email, bought a stereo and quite a few other things.

What do I take from this?

When I help companies with strategy and innovation, I pay closer attention to the need the product is meeting than the product itself.

Instead of just thinking of the linear progression of the product, I think about the progression of how the need might be met.

I also like to start at the bottom of the ranked and sorted list of customer comments, because those might offer some clues to the dimensions that can disrupt the way the needs are currently met.

The heartbeat of business: how needs are met changes

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This if from “The Geek Way” by Andrew McAfee (emphasis added):

Former Google CEO Eric Schmidt explained to me one of the biggest consequences of this shift: “In the classic corporate model, everything is run in a hierarchical way, the office gets bigger over time, and bureaucracies abound. Companies like this were actually successful for a long time because they have some strengths: they’re predictable and they serve their customers well, as long as customers keep needing the same thing. The reason that culture doesn’t work very well in the information age is that the customers need changes, and you have to be able to change more quickly than, you know, every five years.”

from “the geek way” by andrew mcaffee

I liked this because it simply and clearly identifies a main driver of business.

Though I would add something. Often, people’s needs don’t change, but how they satisfy those needs do.

Think of the pager.

It served a need to let you know that somebody wanted to contact you even when you weren’t close to your landline telephone.

It served that need well in its day and age.

That solution was part of an environment where phones were stationary objects.

Pagers aren’t needed anymore, but the need for somebody to instantly contact you remains.

What changed is how that need was met.

Nobody set out with smart, intentional Harvard Business School strategy to disrupt pagers or capture that market.

How that need was met naturally evolved as the environment changed to where phones became mobile and we have them with us most of the time.

The instant contact need also got solved in different ways as those phones evolved capabilities to connect people in more ways. So much so, that phone calls have become almost as much of a relic as pagers, as a good chunk of our communication has shifted to texting and messaging apps.

Coke’s bad decision was more of an issue of its science norm

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In this post, I wrote about Andrew McAfee’s book on innovation culture, “The Geek Way.”

In it, he writes about the blunder Coke managers made in swapping its classic soda with New Coke in the 80s. I also mentioned in my previous post on why I’m not a fan of the term, ‘data-driven decisions.’

Full disclosure: I lived through the trying times of the Pepsi Challenge. My buddies and I thought we found a cheat code for scoring free soda.

I thought the New Coke story was a good choice for backdrop for McAfee to discuss one of his four innovation norms (listed in the linked post), just not the one he used it for: openness, or how free people are to speak up, even to senior people.

I think it could serve as a better backdrop for one of his other norms, ‘science.’

In McAfee’s telling of the story, he points out that the taste tests are not a good predictor of what people will actually buy.

But, then McAfee claims if Coke’s culture had more openness, someone may have made that point and prevented the CEO from making a big blunder.

It turns out that while people preferred sweeter soda side-by-side after they came into a mall from the heat of summer, there were reasons and situations where people still preferred Coke. Some folks, for example, preferred a less sweet drink paired with dinner. For others, old Coke was what they were used to.

I doubt that openness alone would have led to that discovery. I think believing it would is hindsight bias.

Had they asked Coke employees to list why this move might not work beforehand, this reason may have appeared on that list, along with hundreds of others and it would be impossible to tell which are valid or not.

If managers let those reasons prevent any new trials, then we would never get any new hits. And it would just be a guessing game to try to pick the good reasons from the bad.

This is why the other norm of science is so important. It can help you discover what will really happen despite the hundreds of reasons we can imagine why it won’t work.

Taste tests might be an early indication to help guide product development and new products.

But, before making the bold move of replacing a core product with a new one, it’s best to dip your toe in and try it in small experiment that as closely resembles how that decision will play out as possible, like a pilot or test market, to see how customers will truly respond.

“Are You Engaging in Innovation Theater?”

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That’s the title of this article by Mike Shipulski on Braden Kelley’s Innovation website.

It’s worth a read if you are involved in innovation efforts in any domain.

It hit the nail on the head with my experience with mature companies that do things that fool people into think the company is innovating.

Many folks engaged in this innovation theater aren’t aware of it. They are like characters in a play that don’t realize they are fictional characters in a play and will reject the notion.

This is a good taste from the article:

If a return on investment (ROI) calculation is the gating criterion before starting an amazing project, that’s innovation theater. Projects that could create a new product family with a fundamentally different value proposition for a whole new customer segment cannot be assigned an ROI because no one has experience in this new domain. Any ROI will be a guess and that’s why innovation is governed by judgment and not ROI. Innovation is unpredictable which makes an ROI is impossible to predict. And if your innovation process squeezes judgment out of the story-line, that’s a tell-tale sign of innovation theater.

If the specifications are fixed, the resources are fixed, and the completion date is fixed, that’s innovation theater. Since it can be innovation only when there’s novelty, and since novelty comes with uncertainty, without flexibility in specs, resources, or time, it’s innovation theater.

If a steering team is involved, it’s innovation theater. Consensus cannot spawn innovation.

Mike Shipulski, “are you engaging in innovation theater?”

Characters in the play will scoff at the notion that using ROI as a gating criterion is fruitless because innovation is unpredictable. They cannot imagine any other way of doing it. They are linear thinkers who have been told all their life that they are smart because they can solve linear problems really well — like acing tests by studying more.

If you suggest that ROI is unpredictable, they will think you don’t know how things work or that you might be little crazy. They can’t imagine any other way. How can leaders decide which ideas to work on if ROI is unpredictable?

They miss the blindingly obvious reason why predicting ROI doesn’t work. If it did, then the company should have a steady pipeline of innovation successes and the folks predicting ROI of new ideas should be making a lot of money. If not, they’d probably figure out real quick that they should leave and start their own VC firm.

So if predicting ROI doesn’t work, what does? It’s not a big secret. Many highly innovative companies and startups use it.

I saw it for the first time when we presented a new CEO of a mature company with a slate of new ideas for the next year so he could pick the 2-3 he wanted us to work on, (as if he had the secret ROI calculator to predict winners), like we had done with previous CEOs (who thought it was their job to predict winners).

He said, “How am I supposed to know? Why can’t you try them all, even if in small ways, to see which ones have the most promise?”

We did and we had the most innovative time in my career for the next few years, resulting in a culture that I’ve been trying to recreate since, without success, because the characters in the innovation theater don’t realize they are reciting lines of a play.

“The Geek Way,” by Andrew McAfee

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On this EconTalk podcast, Andrew McAfee discusses his book The Greek Way, which is about four cultural norms of highly innovative companies.

After listening the podcast, I bought the book and read it. I highly recommend it.

Here are the four cultural norms with a brief explanation.

Speed of iteration — Geek way companies try things at a frenetic pace, constantly learning from their trials and failures.

I call this an iterative, trial-and-error process.

I personally believe most of our lives fall into this type of process, but we don’t recognize it. Getting a job is an iterative, trial-and-error process. You write a resume, apply, network, interview and you don’t expect 100% success rate. Each iteration you tweak things along the way based on what you learn from each failure.

Dating is the same. Learning to walk and talk. School work, to a degree. You try a homework problem, see what you got right and wrong and keep iterating until you can do it right.

Ownership — In Geek Way companies, people are encouraged not only to have ideas but to take the initiative to try to prove them out, rather than just throw them over the wall to an innovation group or slot them through a bureaucratic review process that arbitrarily decides which things to try.

Science — How does your company settle disagreements? Geek Way companies prefer trying things over other methods, like Highest Paid Person’s Opinion.

Openness — In Geek Way companies, it’s safe to have and air opinions that are different from leadership.

I agree with these and highly recommend the book for anyone interested in innovation.

I lived a good A/B/A test of seeing a company — by accident — go from a typical large company bureaucracy with anemic innovation, to a Geek Way culture back to bureaucracy and anemic results.

During the Geek Way, it was fun, folks across the organization pitched in on things that weren’t necessarily on list of strategic initiatives, we iterated toward successes that are still in use in that company today, learned from failures and hit one big home run.

I can attest that it works.

I can also attest that it’s really difficult for bureaucrats to buy into it.

I do have a few nits of the book, two of which I will mention here and will save more for future posts.

McAfee calls it the Geek Way because this culture is common in tech companies, which are commonly founded by geeks. In some parts of the book it seems like he thinks this culture originated in turn of the century Silicon Valley due to certain factors, like the ability to quickly alter software code to iterate.

I think the Geek Way is common early on in successful startups dating way back. He even provides plenty of examples. It wasn’t clear to me whether he realized this or not.

Second, McAfee offers surveys for folks to rate their organizations on each of the norms.

If I gave those surveys to folks in bureaucratic cultures, I believe many would rate their company high.

“But we already do that,” is the most common objection I encounter when I pitch this culture. I believe that’s because they have no point of comparison.

For example, at the end of the speed of iteration chapter, a survey statement is how much do you agree with: “We have a short cycle time for delivering something?”

Many people I’ve worked with in bureaucratic organizations will strongly agree with this statement. When a project fails to be a commercial success, they even often cite as as success that we at least showed we could get something to market quickly.

Except that usually took 9 months to a year.

I’d re-write the statement from “we have a short cycle time for delivering something,” to “the typical cycle time from initial idea to initially getting it front of real customers in the marketplace is days or weeks instead of months or years.”

This gives them something to compare to.

People ingrained in bureaucracies would be more likely to strongly disagree with that statement.

Though, they would also try to tell you why that’s dumb. “We would not want to do it that quickly! That wouldn’t give us enough time to make sure the product is refined to our high standards.” Or, “There’s no way we can do it that fast and not risk big legal issues if something goes wrong.”

That they can’t imagine ways to overcome these objections and achieve such quick cycle times is part of why bureaucracies persist.

It doesn’t dawn on them that other companies, like Geek Way companies, have figured out how to overcome these and that might be part of the reason they do well.

Advertisers leaving X

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One unspoken reason advertisers may be pulling ads from X is that their ad BS might get Community Noted. I’ve seen some ads with Community Notes and I think it is great, because it exposes some of the tricks marketers play on people.

I might be inclined to think that the advertisers who stick with X are feeding us less BS.

Ways soccer and corporate cultures are similar

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In soccer, the best players are often thought to be the ones that are always in the action even though most of that action results from their own bad decisions.

While players who keep the game calm, predictable and make it look easy are not thought to be very good.

Similarly, in corporate culture, some of the best employees are thought to be the ones that are good at putting out fires, mostly fires they had a hand in setting.

While employees who are good at preventing fires aren’t noticed.

Dithering on the margins

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A vast majority of projects I’ve seen and worked on in my career was dithering on the margins.

They run a new marketing campaign that moves market share from 16% to 17.5% and claim victory. Never mind, the profit from that that extra 1.5% was much less than the cost of the marketing campaign.

They will get fired or move on before the stagnant bottom line sticks to their reputation.

Their replacements will cut marketing spend and claim victory on the cost savings, while ignoring the loss of 1.5% market share.

It’s funny how these are seen as major projects with game changing potential.

The system is gamed

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A recent X post asked why search results, be they Google, Duckduckgo or whatever, aren’t as good as they once were.

By that, he means, in the early days of Google, when you typed in what you are searching for, bang, you got it.

I agree.

But, now when you type it in, you usually have to muddle around a bit.

There’s good reason for it. Everything has been gamed.

In the old days, they got to you to the best search results by ranking sites based on things like how many links had been made to the result. That was their algorithm.

Once people figured it out, they looked for ways to game it. For example, they would find ways to create fake links to their content to game the the algorithm into ranking their content higher than it really had earned by merit.

Google games it, too, by selling ads based on what you search on. So now the first things you see aren’t the best based based on merit, but on what the owner of the content was willing to pay.

This gaming is everywhere.

Product companies pay Amazon dearly to display their products on the first page of search results.

Even Amazon Reviews, which was once a source of decent information, have been gamed, with many products having faked or coaxed reviews. Have any products you’ve bought from Amazon offered you anything for submitting a favorable review?

Youtubers beg you to hit the ‘Like’ and ‘Subscribe’ button because they are trying to game Youtube’s algorithm (Likes and Subscribes get Youtube to push their content more onto other users that fit your profile).

Everybody that gets reviewed these days tries to game the system by prompting you, just like the Youtubers. “You will get a review by email in a few days. Please take the time to fill it out. And I hope you think I served you well so you will rate me high.”

Some even seem to know that many people won’t ever rate the extremes (e.g. 5 out of 5, they’ll rate 4 out of 5 instead), so they prime you that that is okay. “Give me a 5! I would really appreciate it. That will help me out.”

While working in finance for a corp, I saw how bonus structures were gamed. Every year, it seemed, management fell in love with some new trendy metric that they thought was key to driving the business, so they would incentivize it.

And, they may have been right that if those metrics moved organically, it could help the business. But, the problem was they didn’t move organically.

Every year, employees figured out ways to game the system to make the metrics move and get the bonus, but the business results didn’t follow. I will give them credit for it, there were a few really clever ones out there that figured it out and then their tricks spread like cancer.

One of them was the survey. The employees wore buttons encouraging their customers to rate them a 5. So, the bonus rewards people who are really good at asking for the 5 rating, not necessarily people who are really good.

Take a look around and you might notice many more systems that have been gamed.

Rewards Program Overload

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A couple times recently, at the register in the store, the cashier asked if I’m a rewards member?

No.

Would you like to join?

No thanks.

Then they look at me funny, as if to say, why wouldn’t you want to join and get discounts?

Here’s why…

I don’t want to keep track of every rewards programs. There are too many. For some businesses, I am happy just to be a casual customer, rather than a loyal customer.

And, I feel that even the rewards programs for businesses that I am in their loyal following, the rewards programs have lost their pep. They’re complicated and I find myself not wanting to learn the rewards program. It feels like reading tax code. I’d rather not.

I have seen what companies do with reward program data on the other end. Not nearly as much as they think. Loyalty programs are a business fad that produce little value for the business, but nobody has noticed.

They are usually sold with nebulous potential (“just imagine what we can do with all this data”) or a couple of what are seen as clever insights (“we noticed that shoppers who buy tortilla chips over index with salsa”).

They also serve well to to create loads of pretty, but non-actionable charts, to litter corporate powerpoint deckage that create the illusion of good work being done.

Just look around, businesses with rewards programs are not any less likely to struggle.

Here’s a personal tale of a reward program that went stale.

For years, I used the Starbucks rewards program. It was simple. Every so often I got a free drink and it sort of made me feel like I was part of a club.

But, then it got too complicated and they got too clever.

At first, when they started using nudge techniques to get me from 2 to 3 visits a week, I thought it was cute. ‘Just one more visit to get those bonus points!”

It quickly dawned on me that the few extra seconds of thinking about that was time not well spent. It felt like Starbucks was invading my free time.

It changed the nature of the relationship I had with them. The early rewards program helped that relationship making me feel more welcome. The changes made me feel they didn’t appreciate my meager business and I needed to do more to earn their respect.

Rather than feeling like being a part of the club, it felt more like I was on a hamster wheel.

Words of advice. Keep the rewards program simple. Don’t view it as a growth engine. Ultimately, even the best loyalty program will not make up for bad quality.