Values and Metrics Drive Emergent Strategies

This is part of my ongoing series on Lean Disruption. Where I write about combining Innovation, Lean, Lean Startup, Agile, and Lean product development methodologies.

Clay Christensen argues that there are two types of strategies corporate leaders engage with, deliberate and emergent. Porter’s 5 Forces analysis is an attempt to use tools to pull emergent strategies based on changing environmental landscape into the corporation’s deliberate strategy. A deliberate strategy is the strategy that leaders have vocalized and intentionally invested money and resources into. Emergent strategies on the other hand are strategies that develop through metrics and actual organizational behavior. While a leader may intentionally push resources one direction another metrics that has much more value to lower level managers may require those resources to be redeployed in another context. Resulting in a different strategy to develop than what executives had originally planned.

Hoshin Kanri (Policy Deployment) plays a similar role to the 5 Forces in the Toyota Production System where leaders start with their stated 3-5 year goals and turn those into annual goals, projects, and finally the metrics by which those projects will be measured. However, the process isn’t done after a single meeting, this policy is reviewed monthly and if conditions change enough can be completely reworked or modified based on what conditions are emerging. This is important because it can, in fact, feed changes the whole way back at the the 3-5 year goal levels where if serious issues are occurring in multiple projects associated with a goal, such as lack of resource commitment, that goal must be re-evaluated or there needs to be other changes to incentivize resource commitment to those projects.

The Lean Startup and Agile approaches are likely the most closely tied to emergent strategy development. The Lean Startup approach values experimentation and customer engagement above all else which can result in initially a great deal of change in project/corporate strategy. In the Running Lean the author uses the Lean Canvas as a tool to maximize the power of emergent strategy develop and smooth the transition from emergent to deliberate strategy development. In many cases that transition is relatively easy anyway, however it is possible to see that transition occur as a corporate leader iterates through versions of the Lean Canvas resulting in less and less changes to the Canvas.

Agile similarly promotes engagement with customers and using iteration to eliminate uncertainty. In this way Agile is closer to Lean Startup than traditional Project Management and leads to emergent based products. Where the customer need is truly met. Which, over time, results in a deliberate strategy to maximize the resulting product. This product is still, likely, within the initial deliberate strategy of the leaders of the company, but may be very different than what the leadership had initially wanted or planned. This is the best of both worlds as the leaders get a product that fits their strategy, but is more effective in serving market needs than what they ever could have planned.

The values and metrics the organization uses to manage the work that it does heavily influences the direction any project or product develops. The tighter the control over metrics with less flexibility for innovation leads to more tightly aligned products to deliberate strategies. However, this can come at a cost of less innovative ideas and poor-market fit. In the case where something might significantly change the direction of the company, for that product to survive it is best to move that into a skunkworks or protected space where funding is secure with appropriately aligned staffing levels. This will allow the metrics and values to coalesce around the product, the customer, and the market needs.

Innovation Isn’t Just a Buzzword

It’s rather unfortunate that everything has to be an innovation these days. Even worse, is that for a business to be effective, it seems they must drive disruptive innovations. Innovations are simply inventions that have been successful in the market, those inventions might actually business model changes that have been successful in penetrating the market. I personally find that looking at innovation as a framework to analyze business pressure to be extremely interesting. I did this today in an interview and it felt really good as I was able to create context around changes impacting the health insurance industry.

Several years ago I wrote about the 4 types of innovation, Incremental, Modular, Architectural, and Radical. This is a bit different than the framework that Christenson argues, since he only looks at 2 types, Incremental and Disruptive. I believe that disruptive encapsulates both Architectural and Radical. Architectural changes are business model innovations while making a very similar product but one that significantly undercuts existing businesses or creates a new market. While Radical innovations creates a new market but also attacks existing customers, through a new business model and a completely different type of product. Think of a fan competing against an air conditioner window unit, while central air is an architectural change for the window unit.

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I believe that this framework is just as useful for businesses to analyze their environment as Porter’s 5 Forces because it forces businesses to confront the disruptive innovations that they might have overlooked otherwise. Without using this framework it is likely that businesses would ignore the new entrants force as they don’t feel that those businesses will ever compete with them. However, based on historic evidence those entrants that have a different business models or a different metrics for their performance eventually supplant incumbents. I believe that this type of analysis should be conducted annually or bianually as many industries and markets have continually increasing uncertainty and faster rates of change than historically.

I’m surrounded by @ssh*les!

Everywhere I look I see bad managers these days. Which is surprising considering that there are articles being published every day with headlines like “People don’t quit companies they quit bad managers” or “Bad Managers are the no 1 reason why people leave their job.” This is a problem specific to one company or one industry, but rather it’s across industries and sectors. I’ve worked in Semiconductor manufacturing, semiconductor design, and now health insurance all of them have had their share of bad managers. It’s not even just home grown managers that make poor decisions, it’s managers that are specifically hired to come in to effect change that don’t have the right skills to do the job that needs to be done.

It is whenever managers are put into a position where they do not have the information they need or the right skills to do the job that they become assholes. This is especially problematic in complex environments and this complexity isn’t linear from person to person, which is to say that a given person might find one level of complexity manageable, while another person may be unable to handle it. So for one manager that could be managing the line at a fast food restaurant, while another it might be managing a project that has 5 internal stakeholders and 5 government regulatory agencies as stakeholders.

In large organizations complexity is only going to increase. In this way complexity is like entropy, it only increases. We implement new policies and likely never eliminate historic policies. This is especially true with government regulations. We rarely sunset those provisions. The only way to manage this complexity is to plan. Like all plans, they are pretty much worthless after you build the plan, but going through the process is invaluable.

For instance, my preferred strategic planning approach is to pull in three types of data, Voice of the Customer, Voice of the Business, and Voice of the Team. Voice of the customer is what your customers are telling you about your existing services and offerings. They can tell you how much you’ve screwed up and where you’ve screwed up. They might not be able to help you identify the next iPhone, but they can tell you not to build the next Blackberry device. Voice of the business is typically the loudest voice at any organization. This is what the C-Suite is telling everyone to do, this is the competitive landscape and the regulatory environment that you operate within. Together these voices are powerful and loud. Finally, the voice of the team is almost always ignored, mostly because the team won’t speak up. This needs to be a true analysis of the capability of the team using Capability Analysis of Business Architects or doing a SWOT. Using these three voices to have a frank conversation, you can build a three to five year road map. Then you can build out your strategy to enable your team to meet your customer needs as well as your business requirements.

Managers become less of an asshole whenever they have clear management processes in place. Clear reasons why they are doing what they are doing. Employees aren’t the only ones that need processes. Managers and leaders need them too. They prevent churn and waste if they stick to them.

Strategy and Business Management

As I mentioned in my Business and Silver Bullets article, there are a lot of different approaches to managing your business, or at least a portion of your business. None of these approaches are easy to implement and it seems that there’s a bit of a revolving door around what leadership approach is the best for a given business. Furthermore, it’s troubling to me that organizations are looking at initiatives like Lean and Six Sigma as only operational improvement opportunities. As I’m reading through how Business Architecture works, it’s obvious to me that many of the organizational deployments of LSS have failed in reaching their full potential. I saw it at Samsung, AMD, and I’m skeptical of the full reach I’m going to have at Regence. It’s not a failure of the individuals deploying it or of a given leader, it’s a failure of the full organization to accept that changes need to happen. Organizations need to integrate approaches like LSS into their core strategic planning process. Otherwise those methodologies will only impact a limited area and won’t appear to have a holistic approach to making changes to an organization.

From my experiences Lean and Six Sigma methodologies can indicate the need for organizational re-alignment. These require real change with serious effort to implement those changes. In many cases those are outside the scope of the project facilitator, the leader of the process improvement center of excellence, and likely the owner of the processes. It’s got to come from an executive sponsor. They have to be able to provide the organizational courage to make real changes to an organization. Through these tools it’s possible to identify redundancies and areas where organizations require massive change.

Why don’t organization implement these changes? Too many priorities is likely one problem. Another is that these changes are hard and unless they are well versed in Lean or organizational structures, they won’t understand why the changes are fundamental to continued success of an organization. They may not understand the changes because they weren’t involved in the redesign process intimately enough. Finally, it might also be that these changes are bottoms up recommendations and not top down.

I believe this is why Business Architecture eventually was a created as a discipline. I believe in organizations that are truly Lean that these types of roles are not needed. Simply because the bottoms up approach allows the leaders to focus on different things especially since a true Lean organization is always customer centric. In organizations that there is a great deal of legacy behavior and entrenched management fiefdoms, it might be a requirement to go through an organization like Business Architecture to give the true sense of ownership to the leaders. It makes the bottoms up recommendations that come from the BA team seem like it’s a top down approach that is sanctioned by all of leadership. It let’s people see that clearer tie between the different organizations in a way that a lot of Lean work doesn’t. It’s designed to be holistic not something grown into the whole over time.

This leads to a different method for developing strategy than what a lot of Lean practitioners utilize. Business Architecture focuses on the current capabilities and works to align the strategy from there. Lean starts with the 5 year vision and goals and figures out how to align existing projects and improvement efforts to enact those goal, through providing a metric for the person doing the work on the ground.

I think that these business management approaches are both valid, I’m really biased towards Lean, but I do believe that in many organizations Business Architecture is likely required. It leaves the control a bit more in the leadership rather than the Lean approach. I believe they both can impact strategy in an effective manner, but it’s likely that BA will be more tightly coupled from the start than many Lean initiatives.

Content is king, but if you build it will they come?

In yesterday’s blog I wrote a lot about the different operating systems and what differentiates them. However, I didn’t answer the question around how to build a user base or even more importantly the app base. For all operating systems there is a chicken and egg problem, which comes first the apps or the users – you can’t get users with out apps and no users will go with your system with no apps!

I think a look at how two companies have worked to overcome this is crucial to provide a path forward for the other operating systems. First of all, Google entered the mobile market in exactly this position. I wrote a paper on this while I was in my Master’s (written 2011) the really details this if you want to read that. Google decided to approach the app issue from a very different direction than Apple. First, Google offered a good deal of money for developers to begin making apps for the operating system. Second, Google create a different reimbursement structure for their purchases of apps that provided incentive for developers to develop apps for them. Apple would essentially take ~30% of the total price the developer charged for their apps. This rent seeking behavior of Apple means that the developers could make more money on Android if they sold the same number of apps in both ecosystems. Both of these provided incentives for developers to develop – free money and more money for development. Furthermore, Google made it extremely easy to port an app from iOS to Android which increased the app development rate – Apple of course worked to eliminate this benefit. Finally, Google had different payment schemes than Apple for ad revenue and is a significantly better company for dealing with ads than Apple to this day. All of these provided a great deal of incentive in addition to the fact that there have always been anti-Apple developers and consumers.

The second case (which I didn’t do a research paper on) is of course Amazon. As I mentioned in yesterday’s post Amazon rarely makes a profit on any of their Kindle sales. Amazon’s current foray into tablet’s was not a serious surprise to me. The Kindle was clearly an effort to learn about their users and their consumption habits. Amazon first targeted their most loyal customers, book readers. Tablets weren’t really on the horizon at this point as anything beyond a novelty that Microsoft was pushing and eReaders had a questionable spot in the market when Amazon came out with the Kindle (the same year as Apple’s iPhone – I feel that the Kindle was a bigger step for Amazon than the iPhone for Apple). It was widely successful. I personally bought a second generation Kindle in 2009 (and have since upgraded to Paperwhite 1st gen). Amazon over time continually refined the Kindle and looked for more content to bring to the users. Amazon began to experiment with browsers, apps, and other features. Even at this point the Kindle was Android based, but their own custom version. This marked on of the first forks in the operating system. Amazon also developed applications for iOS, PC, Chrome, and Android for Kindle users. This helped to increase adoption and encourage Amazon that digital content is extremely valued by consumers. When Amazon introduced the Kindle Fire line of tablets they continued to focus on content. This is apparent from the design of the operating system. Content is first and foremost. Books, TV shows, and Movies are easily accessible and essentially the default view for the device. Through a different type of content Amazon has attracted users, furthermore, they are likely attracting a different set of users than the iPad or Nexus market. These users are very consumption focused and less engaged with applications.

Amazon has continued to push the quality of their products and can now compete spec to spec with any top of the line Android or iOS device. Their advantage is the Amazon ecosystem (which many tech writers scoff at), which is more accessible and connected with prime on their devices.

How can other operating systems learn from these cases? The owners of new operating systems need to provide an easy development platform. Many of Android’s applications are developed in HTML5 which should make it easier for porting from one OS to another. Another option is to partner with a third party company (if you know about it or not) like Microsoft did with Blue Stacks where it is possible to play any Android app on a computer. Google is doing something similar with the Chrome App store and browser, essentially turning any Win8 machine into a Chrome OS computer. Firefox OS could go this route on any computer and help to encourage developers to think multi-platform like this. Of the two problems, I believe that the app problem is the easier one to solve assuming it’s easy and there are the right incentive for developers. There are many platforms or tools that can even the playing field. Including marketing that users are able to use other platforms on your platform.

The more difficult type of content to pull is the licensed content from the RIAA and MPAA type organizations. I think that there could be a way for this content to gain the same feel as the Amazon experience. A mobile OS could partner with either Hulu or Netflix to provide an exclusive or personalized experience for the app that allows tighter engagement, then partner with B&N and build a strong app presence for the Nook. The next step would be to develop a seamless transition between the Nook application and Netflix/Hulu so that on one hand you knew when you switched, but it felt painless and enhanced the experience. Such as recommending books or movies based on your consumption of the other.

Finally, I think the crucial step is to find the right market. There are tons of under served markets especially in the smart phone/tablet sector. Firefox OS is going after the extremely low budget market, while it’s likely that both Ubuntu and Cyanogenmod are going to be going after the extreme high end market. I think those two are going to have more competition with the Nexus line up of devices and the extra support Google is providing to non-Samsung manufacturers like ASUS and LG. Google is doing everything they can to keep the market competitive and not owned by a single manufacturer. Cyanogenmod and Ubuntu could also work those same manufacturers to help them develop other markets that aren’t served by Google.

I think that the battle is going to be on the low budget space. Amazon is working hard to capture that with powerful but affordable tablets that are subsidized by ads. While Motorola is going after a similar market with the Moto G, a high power phone that is affordable. However, if a company looks at the base of the pyramid they are likely to find a huge untapped market that will never even own a laptop. They will go from a phone only capable of texting directly to smart phone or tablet. Developing tools that these underserved users can exploit will create a huge market that will catapult the operating system past all the others in global market share. It’s just a matter of figuring out how to survive on little to no margin.

Amazon’s potential army of Drones – what’s the point?

Amazon wants to deliver packages to you in 30 minutes via drone. While the convenience might be pretty awesome. I’m not sure how good of an idea this is going to be. I also think that this points to a broader push for Amazon. In the past Amazon has mentioned how they had plans to sell groceries locally and deliver rapidly. This is currently in beta test with only two cities involved, LA and Seattle. Depending on the size of these drones this will make delivery of groceries much easier and reduce the risk for goods to thaw while waiting for the resident to come home and get the groceries. Furthermore, if these drones are really good, Amazon could time the delivery of the groceries based on when the customer wanted them to arrive at their home. Let’s say you place the order in the morning, but know you won’t get home until around 6:30, you could ask Amazon to deliver the goods around 6:30 so you could just bring them in the house and start cooking.

A few years ago there were some rumors that Amazon was planning on going to brick and mortar stores while everyone else is going more web, web, web. These drones that are in the video do not look like they have the farthest range in the world, which means for a place like my home town about an hour north of Pittsburgh by car and if there was a distribution center in Pittsburgh (there’s not, but there is one in Allentown), the drone would need to fly close to 120 miles per hour. That doesn’t seem likely for these things. They don’t look like they have the speed, they are clearly designed for shorter ranges than that. Additionally, implementing these drones would require significantly more distribution centers throughout the US. Distribution centers work best when there is a need for high volume, high speed, and high variety at least in many distribution models. However, if Amazon were to use retail stores as part of their distribution network and looked to use the stores as the location where the drones would send goods from, this makes a lot more sense. Retail stores aren’t really there to be retail stores, but micro distribution centers.

This would impact the types of items that would be a candidate for Air Prime in many locations, for instance cities with Stores only would have a much smaller list of applicable items. Cities with distribution centers near by would likely have any item up for Air Prime that would fit on the drone.

This is still 4-5 years out from being deployed, so why is Amazon showing this off now? Well, bad press recently. There have been several articles that came out this past month about how horrible the distribution centers are in the US.

All said though, I think these drones point to continued interest in providing different approaches to brick and mortar stores as well as grocery stores. I think it will start out small and grow from there. Amazon will likely build out some stores first with a similar function to Best buy where you can pick up in the store. In later store deployments they will have options for Air Prime and pick up in store for certain items. It will certainly change things for Amazon workers and will change the way the distribution centers are managed. They may simply become hubs with a lot more being pushed out closer to the end customer.