How is complexity being killed? - Forth question in Stress-testing your Enterprise Architecture

It's time for the forth of seven questions in stress testing your enterprise architecture: How is complexity being killed?

First of all, let's look into which types of complexity we are facing. I can come up with at least three, there may of course be more, but this is enough for this discussion

1. Business complexity. The way our business is organized and its processes add to complexity further down in IT Systems and information.
2. IT System complexity. Our IT landscape and how we have decided to divide systems into discrete components will add yet a layer of complexity on top of the business complexity.
3. Information complexity. Both the structure, content and ownership of information throughout the enterprise adds complexity to both IT system and business.

Don't forget that complexity will be a consequence of your strategy, your goal is to get rid of all of the unnecessary complexity not aligned with your strategy. 

Complexity grows exponentially - what seems manageable initially eventually becomes a behemoth 

Just a word of caution: The costs of complexity is seen first during implementation and then while operating and maintaining the solution. The problem is that complexity costs are higher in later stages - what appeared to be manageable in design, gets hard to implement and impossible to maintain.

But let's try it out. My advise is to use these three steps to find your way to the rumble - once there you will have to navigate on your own.

• Business driven. Whatever you do, make sure there is a clear business case based entirely on business benefits, not IT benefits. Once there are clear business benefits, then the business will make sure those benefits are realized and that the complexity is in line with the business' strategy. Your responsibility is to ensure that the resulting IT Systems are not adding complexity not introduced by the business.
• Business verticals. Break down the problem into verticals and implement them one-by-one. Yes, it adds costs. Yes, it reduces risks and time. This can be done both using a best-of-breed and a best-of-suite strategy. Just do it one vertical at a time. Then you will faster learn, faster get something valuable out there and get cashing in on the business benefits.
• Business information. Information is a strategic asset in any enterprise. Decouple business verticals from an information standpoint. Then they can live their own life and evolve according to the business needs they support. Have clear ownership, clear structure and clear interfaces. Who's owning which information, for what purpose is it used and when is it updated. 

Thus you can have the business drive your architecture through verticals where information is exchanged for the benefits of the entire enterprise.

Makes sense? Let me know what you think.

More to read:

• HBR June 2011: Learning to live with complexity

Insight generating questions that brings science to the art of strategy

One thing that's bothered me in many strategy discussions is that you very easily end up in locked positions throwing oral hand grenades at each other. Even if it doesn't go that far, it's hard to get an open and curious strategy climate. I've seen top-level strategy discussions to contain much more energy and openness when moving from finding "What is the right answer" to looking for "What are the right questions".
Let's look at a set of questions that will help you find the right questions that, once answered, sets the direction and involves stakeholders in embracing the decision.
We'll go through the four most important questions: Inside-out; Outside-in; Far-outside-in; Opportunity evaluation. Note the openness in the reasoning. We're not looking for the answer, we're looking for opportunities and choices.

Inside-out: Start with your assets: activities, resources, brands, partnerships, etc and then reason outward. What are we especially good at that some segments of the market might value and that might produce a superior wedge between buyer value and our costs?

Outside-in: Start with looking at markets. What are the under served needs, which needs do customers have a hard time to express and which gaps have competitors left?

Far-outside-in: Start with analogues reasoning. What would it take to be Google, Apple, P&G or another successful organizations in your industry and context?

Opportunities generated. The result of asking these three types of questions: Inside-out, Outside-in, Far-outside-in, are a lot of questions that opens up for new opportunities once answered. Do any of them make you feel uncomfortable? If so then they posses the possibility for new opportunities that differs enough from the status quo.  Then it's time to evaluate and decide.

Opportunity evaluation: Evaluate each opportunity by asking the question "What must be true for the opportunity to be valid?". Don't ask "What is true" - that only causes heated head-on discussions - instead asking "What must be true" - you open for all sorts of opinions to be expressed.

Now you have generated a large set of opportunities and the conditions governing their validity. Once they are answered, you have gained a lot of new insights - regardless if the answer was true or false.

More to read:

• HBR September 2012: Bringing Science to the Art of Strategy

What is the key customer value proposition that is supported? - Third question in Stress-testing your Enterprise Architecture

It's time for the third of seven questions in stress testing your enterprise architecture: What is the key customer value proposition that is supported?
Your customers turn to you because they perceive a very specific value offered. Align your architecture to support that value. Never find yourself in a situation where the architecture is considered state-of-the-art and the business struggling.
What is a customer value proposition? Here's a starting point:

• Which jobs-to-be-done are solved?
• What is the correlation between the benefit offered solving the jobs-to-be-done and price?
• How does the customer value proposition differ from the competition?

It can be a daunting task to do it for the entire company. A good starting point is then to start within a sub-domain, division or geography to limit the workload and be able to get to some sort of results quickly.

Once you have broken the workload into manageable pieces it's time to start analyzing from the key customer value proposition aspect. The following areas are covered from an Enterprise Architectural point-of-view:

• Top-line factors: 
• Jobs-to-be-done. How do we collect and generate insight into our customers? How do make that insight available to everyone within our organization and partners? 
• Channels. How do we support our channels in promoting the value and jobs-to-be-done that we help with? How do we analyze the performance and profitability of our channels? 
• Pricing. How do we make price and discount information transparent? How can we analyze correlation between insight into value and price?
• Bottom-line factors:
• Customization. Which customizations and flexibility do we offer to tailor to customer needs? How do we manage that information all the way from engineering through manufacturing to sales?
• Supply-chain. How well have we integrated the information flow from customer behavior all the way to our suppliers? What is our agility in terms of managing sudden changes in demand or supply?
• Sourcing. How have we balanced between in-house and external supply in order to have flexibility and cost-control? How well is our sourcing integrated with engineering and sales in order to create variants to meet customer demand?

Do you have other areas to be added and more questions to ask?

More to read:

• Jobs-to-be-done: Interview with Clayton M. Christensen
• HBR November 2010: Stress-Test Your Strategy: The 7 Questions to Ask

Second Question in Stress-testing Your Enterprise Architecture: Which critical effect are you aiming for?

It's time for the second of seven questions stress-testing your enterprise architecture: Which critical effects are you aiming for? In any endeavor it's important to know what you aim for, that will sharpen your decisions, prioritizations and firmness. Be extremely clear on the goals, objectives and effects you want your enterprise architecture should achieve.
The key critical factors in defining, measuring and delivering on the effects are:

• Goal hierarchy: 
• Create a hierarchy of goals that should be reached. The top goal is the critical effect you want to create. Make sure that goals means something concrete and valuable for your stakeholders and customers. If not, revise and rephrase until it does so.
• Under the top goal define sub goals that needs to be reach in order for the top goal to be accomplished. Break down each sub goal into third level goals. 
• As you go from top goal to sub goals you answer the question How will I reach the previous level of goals. As you move upwards you answer the question Why should I reach this goal.
• Visual management:
• Decide on how, who and when you communicate the goals and progress. It's important that you have a clear view on who the recipient of each message is and what they expect from the project.
• Make the communication visible. Put it up so that everyone can see it and follow it. Make it everyone's interest to follow progress and contribute.
• Decide on progress reporting structure. How will reporting add up the ladder and counter measures ripple down?
• Measurement:
• When setting goals make sure you know how to measure progress. Where will you find your data? How fast and with which frequency?
• Setup automatic data capture that collects data as they are created avoiding double entering of information.
• Make the data measurement near realtime, at least once per day and create project heart-beats showing current status.
• Celebrate success:
• Define small steps for mankind but giant leaps for the project. It is important to acknowledge even the small steps forward towards the top goal.
• Find all kinds of ways celebrating success. Involve the project team, top-management, key stakeholders and family. After all it's often your family that has paid a high price when achieving a hard to reach goal.

Once you have defined your critical effects in a goal hierarchy, communicated it visual throughout the organizations to to key stakeholders, measured the progress and celebrated success along the way you will reach your desired effect. I'm saying will because there is no way you cannot reach that goal. The sum of these activities are that you set the entire team's mindset on these effects and they will focus on them.

You will have avoided active inertia - the state where all you do is running around doing a lot of activities not moving progress forward.

The question is: Are these the critical effects or not? That can only you and the future answer.

More to read:

• HBR Nov 2010: Stress-test Your Strategy: The 7 Questions to Ask

Enjoy, advocate and bond - the loyalty process in the digital age

Loyalty has always been about two things; getting a positive word and recurring purchases. To reach that goal organizations define small enough segments allowing them to overachieve their customers expectations. With a too broad defined customer base you will most probably not meet anyone's needs.
How does then loyalty work in the digital age? Is it any different from the traditional way?
The main difference seems to be that purchasing decisions are made much later in the purchasing process, majority in the store. The other is that influence from friends and social network are much more visible and play an integral role in the decision. The Enjoy, advocate, and bond cycle after a purchase is much more important than previous. It reinforces the purchase decision and drives recurring purchasing at a much greater extent than previous. The other is that it has much greater effects on what your friends decide to purchase.

So are your marketing Euros well spent? Are they in the store in due time for the purchase decision? Are they helping your customers to enjoy, advocate and bond to the product and brand?
Here are some ideas on what could make it simpler in the customer decision journey:

• Where do your customer encounter your products and services? Is it attractive to buy? Simple and convenient? Do capture the value and experience, do the customer have to make other decisions? Make the experience the purchase, not the product itself.
• What is the physical experience? Packaging, instructions, registration, etc.
• After the purchase, is the value there to be enjoyed? If the customer experiencing any problems, can they easily get access to support and advice?
• How can the customer advocate their purchase and experience? Which ways to express themselves through real world and on the web? If I buy a SAAB, will I get something that shows I have a SAAB outside of actually showing my car? Wallet, belt, shirt, iPhone app, email signature, etc? The more digital it is the easier to turn it into actual advocacy. If it is an iPhone app then you can easily share parts of it with your friends. 
• Bonding is a little bit harder as it requires more time to build up. The advocacy builds bond as well since a recommendation reinforces ones own perception.

Take aways: 

1. Purchase decision is much later influenced by friends. 
2. Advertisement Euros in the right customer decision journey steps. 
3. Ensure customer experience to start the reinforcement feedback loop. Experience, not discrete products that needs assembly.

More to read:

• HBR Dec 2010: Branding in the digital age

First Question in Stress-testing Your Enterprise Architecture: What is the driving purpose behind the business?

We've come to the first of seven questions to ask when stress-testing your Enterprise Architecture: What is the driving purpose behind the business?
The purpose of asking this question is to put the focus where it belongs: Why do we exist? What purpose do we have?
The answer to the driving purpose behind the business is underpinning all the other questions.

So how can the driving purpose behind the business be broken down into smaller pieces? Here's one way of breaking it down:

• What is the purpose? What value are we contributing to the world and justifies our existence? Some strategists claim that there are really only two main strategies possible to follow; cost focus addressing a mass-market or niche markets with value and segmentation focus. 
• Clearly articulate which of the two strategies you are following. In which terms is low-cost defined? How will low-cost develop over time? Which niches are you targeting now and will it be on segmentation or additional niches further growth will come from?
• For example IKEA, the furniture retailer, is following a low-cost mass market strategy. Adhering to a low-cost strategy its IT should be in line with that both from an IT perspective and from which business process support is most crucial. Within furniture retailing the supply-chain and store operations are most critical to maintain the low-cost of overall operations. Providing state-of-art supply-chain systems in line with operations, meeting their requirements of total-cost of shipping and keeping store balances in line with targets are among the most cost cutting actions IT can provide.
• What is the drive behind the business? What pushes it forward? Is it product development, customer satisfaction, geographic coverage or some other dimension? 
• Be specific on which drive your are focusing on right now. The drive varies over time and can be different things at different times. 
• For example Ericsson, the telecommunications company, were first driven by product development during AXE switch development, then by expanding globally through its product leadership, then products again when the mobile industry took up speed and now it is customer satisfaction in its professional services line. Following these shifting demands means that IT should shift focus over time. The critical issue is to know when to invest in supporting a certain area and when to stop further investments. It is as important to stop investments to afford supporting new growing dimensions.

When designing an Enterprise Architecture be sure to answer the question What is the driving purpose behind the business? and how it is supported, enabled and grown through the EA work.

More to read:

• HBR Nov 2010: Stress-test Your Strategy: The 7 Questions to Ask

Stress-test Your Enterprise Architecture: The 7 Questions to Ask

Defining an Enterprise Architecture enabling IT to successfully capturing the business requirements is a daunting task. Have I captured the essence? Will architects and business analysts understand it? Is it pushing our business forward through improved alignment between business and technology? Those sorts of questions are always spinning around when defining an Enterprise Architecture. A recent article in HBR "Stress-test your strategy: the 7 questions to ask" inspired me to think of the 7 questions that would help stress-test an Enterprise Architecture. Here's my take on those questions. In coming posts I will dive into each of the questions to further add some meat.
What do you think are the relevant questions to ask stress-testing en enterprise architecture?

Here's my 7 questions stress-testing your Enterprise Architecture:

1. What is the driving purpose behind the business?
• The enterprise architecture is there only to support the business purpose, right? Making sure that the architecture supports, enables and drives business is make-or-break. The reminding 6 questions assumes that the right business purpose is in the bulls-eye.
2. Which critical effect are you aiming for?
• Be extremely sharp on the effect that the architecture should deliver in its own right. It's easy to do a lot of everything and nothing of what is important. Measure and visually communicate current state and progress. Avoid finding yourself in a state of active inertia.
3. What is the key customer value proposition that is supported?
• Your customers turn to you because they perceive a very specific value offered. Align your architecture to support that value. Never find yourself in a situation where the architecture is considered state-of-the-art and the business struggling.
4. How is complexity being killed?
• Be very clear and upfront with how complexity is eradicated from both IT and business processes through the architecture. Scale back on fancy solutions. Simplify and design for evolution. 
5. Which collaboration is generating creative tension?
• Generating new ideas and improving execution requires extensive collaboration internally and with external stakeholders. Enabling and pushing collaboration through both tools and also more importantly through open access to the central business systems will spur further performance improvements.
6. How are the implementation boundaries defined?
• Central to any architecture implementation is how it is sequenced, domains affected, and what is not touched. Without clear boundaries scope creeps during implementation. There's always this domain or system over there that needs to be touched. Timing and risk will be severely affected if the boundaries are not well defined. What not to do is as important as what to do.
7. What architectural implementation uncertainties keep you awake at night?
• Your architecture is not better than its implementation. The success depends on the way it is implemented. To succeed you have to carefully monitor the uncertainties during implementation. Which parameters you choose to keep your eyes on has to be connected with question 1 and 2; business purpose and customer value proposition. Ensure that the implementation secures successful realization of those answers.

Designing and implementing a successful enterprise architecture requires making tough, sometimes hard choices. These questions will hopefully further refine your architecture making business success a fact. There's no magic bullet that can zero in on the pitfalls of your architecture - just hard work and diligent implementation. Only then can you be confident that your architecture is on track.

More to read:

• HBR November 2010: Stress-Test Your Strategy: The 7 Questions to Ask

Enabling knowledge sharing

Sharing knowledge among peers, colleagues, and partners enables new combinations of existing individual knowledge. How to decide when, how and to whom sharing should be performed?
Dividing stakeholders into two categories; key individuals and community; it becomes easier to separate when, how and to whom knowledge sharing should be done. Key individuals are the most important peers, colleagues and partners with whom you need to share knowledge. Community are the groups of people with whom knowledge sharing benefits both parties.
I will here outline some thoughts, guidelines and examples on using key individuals and community as means of identifying knowledge sharing requirements. As example we will use a global telecommunications company with a multi-site R&D organization with deep customer and external partner relations were to define which knowledge to be accessible to whom.

• Key individuals. Simplifies sharing efforts through being aware of the key persons enabling you to continually satisfy their needs. Identify who the key individuals are, their knowledge domains, when and how they need knowledge. Be very restrictive on whom to define as a key individual. It is advisable to have a discussion with each person to gather their personal expectations. Which knowledge, when do they need it, in which format and how to access it. 
• From the example: Identifying the key individuals among the different engineering organizations, customers and partners (in all 7 internal, 3 customers and 4 partners) opened up the opportunity to tailor communication and filtering the knowledge that was made available to each of them. Some wanted only working and verified knowledge, others wanted very early ideas. Among the engineering teams very open sharing is key to successfully build upon each others experiences. With partners knowledge regarding common projects that were patented to protect IP was shared. Through the individual attention paid to each one their interests can be met.
• Community. A broader set of people in each organization can be treated. These can be development teams,. business development, sales, support, etc. Their needs on knowledge are of course also specific, but through treating them as a community it is possible to still manage their needs. If not managing them as a community they will consume too much of your resources and benefits will not materialize. A community is a simple way of giving these organizations some special treatment without having to be personal.
• From the example: Within one engineering team in Spain they had developed a new communication and message container. The actual thoughts and technologies behind these were needed by the engineering team in China in their IPTV development. Through defining the Chinese team as a IPTV community (possible including others over time) they could easily define which knowledge was needed by IPTV and make it available to that community without thinking too much on who's on the other side. Following the agreed upon depth and timings enables the Spanish engineering team to control access and still keep efficiency.

Conclusion: Identify key individuals and communities of interested parties in the knowledge you produce and that will enable much simpler control and maintenance of knowledge sharing.

The forgotten screw - How to create culture of collaboration?

Language made man into what we are today. The ability to communicate between individuals and over distances can be seen as art-work and trade in human societies already 100.000 years ago. Jesus shared bread and fish among the gathered people and got back much more than he gave away. This illustrates that when you share and collaborate you get plentiful in return.
So how can we take language and the written word to the next step and become collaborators?

Research has shown that communication between people diminishes with distance and already 100 meters makes daily communication come to a halt. To foster collaboration in an ever more global world where interaction is not just done two floors up, but across oceans. Tools are important and necessary. Without the right mindset and culture it will be hard to make it work. Let's examine some principles to foster collaboration and knowledge sharing:

• Make it fun
• People are drawn to each other when they have fun. They share experiences, knowledge and build trust within the relationship. Ensure that there is a mix of old friends and newcomers to further increase the value of networking.
• Make it easy
• Remove hurdles and thresholds to collaboration.Can the tools be accessed on the run? Is the user interface simple and time saving? Can I find what I'm searching for? Is it free?
• Make it rewarding
• Make sure that competition, financial compensation etc are playing in the direction of collaboration. The collaborative culture and tools must give the most rewards, not the old way of working. Which resources and knowledge needs to be present to start collaborating from day 1?
• Make a change for change's sake
• Change the organization, responsibilities or products. Changing one piece at a time forces people to build new networks, collaborate with new people and generating new knowledge. All the time while old relations are kept.
• Make it measurable
• Measure the level of contribution. Rate people's contributions on how valuable others were finding them. Measure where connectivity and collaboration occurs. Are we missing something in between certain organizations or countries?

Have a sincere look at your collaboration environment. Are there screws forgotten here and there? Representing lost value and rework. Knowledge and experience not shared. Are the right departments working together? What about measurements?

Get started with creating a culture of collaboration and knowledge sharing!

More to read:

• MIT Sloan Magazine Fall 2010: The Collaborative Organization: How to Make Employee Networks Really Work
• Crowdsourcing by Jeff Howe

Seeing is believing - how visualizing the innovation portfolio makes better decisions

Running an innovation organization effectively requires close control of two disparate dimensions - the value of the portfolio (regardless of currency - $, time, IP ...) and how investments are made (regardless of currency - $, time, IP ...). Keeping an eye out for opportunities, spotting potential issues and making prioritizations between different projects requires a good visual representation that enables all stakeholders to grasp their share of interest.
What can then be said about how such a visualization tool materializes? Which decision types are helped through improved visualization?

• Set a goal of killing at least 10% of all projects each year. With an average running time of 2 years that means that 20% of all projects get killed. The number has to be adjusted for actual project duration. 
• Decide on which metrics to measure for killing decisions. Is it time ahead of competitors? Is it potential revenue? Is it time-to-market combined with potential value. Make that number visible and make sure it gets updated regularly. 
• Set a goal of only running 20% of your projects at any given set of time. If average number of projects is 2 years that means 10% running in parallel. Measure and visualize project duration, time-to-market ((time left * market value)/resources ($, people, etc) and alignment with current strategy.
• Define share of projects on different levels - extension, incremental or radical. Kill projects from each category to keep the balance and loose in the long run.

These are just a few examples of the importance of measuring and visualizing the performance of the innovation portfolio. Which are your favorite way of illustrating innovation portfolio status?

How to formulate your strategy through co-creation?

Strategy work is often done by senior executives based on their point-of-view. While their view is often correct, it does not involve all perspectives from not just the internal stakeholders. Especially external stakeholders are left out. We think of them and their needs, but they are seldom involved. How can we then know that their needs are met?
Especially true is this about our friends in the value-chain. Based on Porter's Five Forces we try to create a strategy that gives us the largest bargaining power enabling us to carve out the largest share of profits.
What if you involved inside and outside perspectives in you strategy creation? How would such a process be like? Who would it involve? What results could come out from it? Which tools to use?
Based on a recent article in HBR October 2010 I will try to add something on tools to use. For further background, please read the article.
Challenges with traditional strategy processes are:

• Focused on economics of the firm and its industry
• Internally focused on the firm and an inside-out perspective on the industry. 
• It fails to allow for the possibility of co-creating an ecosystem whose members all win
• Growing the pie before the fight for shares begin
• Assumes that a strategy can be defined on the outset, though uncertainties often make that impossible
• Incremental approach that allows for learning and engaging outside and inside stakeholders

While thinking on how to co-create a strategy, I started to think on which tools are available to counter the issues listed above. Here are some of the tools you would need:

• Appreciate Inquiry
• Appreciative Inquiry focuses on the affirmative topic chosen. The set of questions defining the topic will enable everyone to focus their energies and ideas towards this topic. Involving many people will get them to work towards this topic and thus not go in all possible directions. Based on the topic the co-creation process is led towards a solution to that topic in an affirmative way. 
• Collaborative IT platforms
• Involving many stakeholders from throughout the organization and from external organizations requires each individual to collaborate and interact individually. A comprehensible IT platform enabling groups of people to collaborate together will drive results between opportunities of face-to-face meetings. The collaborative IT platform need to answer questions like: How spread out are your people? Which bandwidths do they have access to? What type of problems are we working with, numbers, visual, text, etc.
• Goal-hierarchy
• A Goal-hierarchy is a  very powerful way of illustrating where we should end-up. The top goal is related to the set of affirmative questions identified through Appreciative Inquiry. A goal-hierarchy answers questions like: Which goals reside in each organization or group? Which activities lead to that goal? Who are doing the activity?
• Experimentation
• The results from Appreciative Inquiry are based on co-creation involving internal and external stakeholder. They are still not validated in reality and for that you need to start small through experimentation. Which are the minimal features you need to test before you can say whether this will work or not? What result is the most critical? Create and execute experiments for these parameters to validate their legibility. Then grow the size of roll-out, risk and commitment to the new strategy. 

Which other tools are useful co-creating a strategy?

More to read:
HBR Octorber 2010: Building the Co-Creative Enterprise

Experiment driven innovation - How to use data creating novel business models

Organizations will in the future be far more responsive, far more innovative, far more analytics-minded. Experiments drive the data collection necessary to create and develop new novel business models based on customer behavior.
Which practices and methods do you use to collect real world data when creating, developing and refining you business models? The basic foundation is that in order to develop new and more valuable business models we need to collect better data. And data that are based on real behavior, not just surveys. The problem is usually where to find that data, how to analyse it and based on that knowledge draw conclusions. Here are some thoughts on how to use experiments to collect more and better data that drives innovation and novel business models.

• Go to the source. Don't let the IT department alone decide on which data and where to collect it. It is usually at the point of sophistication within the organization where the need is defined. The IT department can provide technical knowledge and tools. However, it's important that those tools are flexible and open enough to allow a wide variety of business needs to utilize them in many different settings.
• Experiment on experiments. Don't plan your experiments, rather experiment on which experiments to run. Be agile and have an environment of short turn around times. How fast can I define an experiment, execute it and collect the data? Even more important - how fast can I make changes to running experiments to counteract abnormalities. Be open, and re-evaluate your experiments often making sure you get the quality and data sets needed to see your customers need and develop business models fulfilling some of it.
• Visualize data. Make data available to everyone. It has been invested quite some money into your experiments. Others may see value in the data that you don't need. When visualizing the data new patterns and conclusions might be apparent. 
• Culture of experiments. Will your corporate culture allow experiments or will it preserve current processes? It is crucial when succeeding with experiments that there is a wide-spread support within the organization for experimentation - and for failure. In some cases failure is the best outcome since a lot of effort into otherwise doomed ideas are saved.

New business models in the future are based on thorough data collected through frequent experimentation. Organizations will no longer be able to just "think" new business models - they need to collect the data necessary to draw those conclusions. Which tools do your organization provide to do frequent experimentation?

More to read:

• MIT Sloan Management Review Fall 2010: 10 Data Points
• Dan Ariely in HBR April 2010: Why Business Don't Experiment

Crowdsourced innovation strategy through collaborative IT tools

Crowdsourcing your innovation strategy within the organization sounds like the perfect idea generation mechanism. When Whirlpool started to use IT collaboration tools in the mid-2000's to collect, share and collaborate on innovation projects it not only increased the likelihood of serendipity. A side effect was that you could track which ideas were hot - aka which topics people across the global organization were working on. Was it design, pricing or sustainability? By counting the number of projects and ideas within each domain and topic a bottom-up innovation strategy was built. Those hot topics set the innovation agenda. Crowdsourcing the innovation strategy has several novel advantages:

• Don't bother spending time and energy on what to focus on - let your people across the globe decide implicitly through how they spend their time 
• Don't think on how to engage employees and changing the innovation agenda - it's changed by engaged employees in real time responding to changes in requirements and the context where you do business
• Don't have special activities to connect people and organizations - they will find and connect with themselves were it makes sense 

Serendipity and prioritizations happens by themselves through bringing smart people together sharing ideas. Using a structured IT tool fostering collaboration will not just connect people from far away. Such an IT tool will also enable progress tracking, KPI collection and idea repository. Choosing the right IT based collaboration tool requires you evaluate and decide on:

• Who will use it? Will it be a smaller or larger set of people inside the organization? How will you engage external parties such as universities and startups?
• How will you track progress? How long will you track the progress of an idea? Will you use it as a repository to store ideas or will it be more of a project management tool as well?
• What external material will be available through the site? Who will manage it and update it? Should it be only links or will you store it locally as well?

The answer to these questions sets the foundation on what kind of IT collaboration tool you should use when enabling your employees to define the innovation strategy from the bottom and up.

Change is hard - status quo is painful

Change is hard for many reasons and for most people. First and foremost any action that gains a reward will be repeated. Secondly, only practical actions will lead to actual change. While you think of a change needed, nothing will happen until you actually act upon that need.
So what are we doing right and how can we enforce that behavior?
Marshall Goldsmith has in his The Success Delusion shown that humans, and in fact any animal, reinforce successful behavior. The more successful we become, the more positive reinforcement we get - the more likely we are to experience the success delusion: I behave this way. I am successful. Therefore, I must be successful because I behave this way. The chain of conclusions is just plain wrong. We all hear what we want to hear. We want to believe those great things that everyone is telling about ourselves. That belief in ourselves is what helps us become successful. It is also what makes it very hard for most of us to change.
You are successful! You are doing a lot of things right! Why do you need to change? Humans, society and the world are constantly changing. You current behavior that is contributing to your success needs to change in order to stay successful. If you don't change then you will eventually find yourself in a situation where people will consider you less successful. Or current successful behavior that helped getting us to our current level can very easily block us from going to the next level of performance. So change is needed to stay put and to develop further. Status quo will eventually deteriorate our performance and not lead us to develop our skills and performance any further.
How do you then change?
Analyzing what actions need to change might be easy. However, it is very easy to fall into a problem focusing exercise where you end up emphasizing on problems instead of what is working. Start identifying what is working today and what you are really good at. What new behavior should you add? By doing more of what is working and what will improve your future performance you will do less and less of what is not part of the new you.
So what about the how?
Now it becomes harder in my own experience. It's easy to say that I want to behave in this or that way, much harder to actually change the behavior. Here are some real world examples of turning insight into action:

• Start acting. Just do it to borrow a catch phrase from Nike. When Toyota incurs change in their own organization they follow a very simple 3 step model. Identify change needed, start acting, explain and conclude what actually happened. The importance here is the action before explaining why. Just do it!
• Make action steps concrete. Make them possible to act upon. "Listening to customers" is not possible to do here and now (unless you actually go out and ask them questions ...). Turn it into concrete actions; what does it mean here and now to listen to customers? If the customers are saying they don't want to wait by the checkout, then have the cashiers call for help anytime more than one person was waiting. That is possible to act upon.
• Make a goal hierarchy. Break down your overall goals into actionable goals. Connect actions and people to each of the goals. Follow up you actions that leads to the higher level goals.

This way you turn insights into action. Action into new behavior. New behavior into further success.

More to read:
Marshall Goldsmith Library: The Success Delusion
Fast Company September 2010: Tase the Haze
MIT Sloan Management Review Winter 2010: How to change a culture: Lessons from Nummi

Innovation governance while user innovation flourishes

Letting a thousand flowers bloom when enabling your user community to innovate sounds promising. Eventually there must come something good and novel out of such a process, mustn't it?
While having your user base innovate for you is hard in itself, collecting and actually producing real products and services out of that is the real hard nut to crack.
Look at Lego who invited their users to innovate new sets out of the basic building blocks. A tremendous amount of creativity and energy went into coming up with new designs. From those designs Lego collected the most popular ones and turned them into retail products. The rest remains on the web-page for everyone to download and find the pieces themselves.
The main difference here compared to most organizations is that the main activity in playing with Lego is to build things from scratch. The most exciting creation is already today seen with much envy and heavily copied. So the DNA of the product is to create new designs.
How do you translate this into other products?
You need to clearly govern your innovation work making sure you capture the most innovative ideas from your users. How can I govern my innovation process?
We have found that the following areas are helpful in identifying where to focus your efforts when dealing with customer interaction:

• Involve the Lead users
• Who are your most innovate users? In which environment does the most creative new ways of using your product thrive? Identify where innovation is most likely to occur and watch users closely. Invite yourself to watch, talk and co-create new uses. Give them specific tools like Lego did when creating special software to design and store new sets to be posted and shared on the Lego web-site.
• Define goals and measure effects
• When executing innovation projects, what are the goals? New products, new usages, new segments, lowering production costs, or something else? Establish measuring and visualization on a daily level so that progress can be viewed and measured with short feedback loops. Why everyday, isn't that too often? Most of the tasks in an innovation project are repetitive and trackable. Involving users means that you probably have hundreds or thousands of users involved in all kinds of experimentation and design. That activity needs to be measured and visualized to enable progress and not turn it into chaos where you don't know what is actually going on.
• Resource allocation
• How do you assign resources to new projects? On which parameters are new initiatives weighted and prioritized? Having  resource fluidity where resources are flexibly assigned to projects regardless of their home turf of the resource owner is one of the most important ways to create strategic agility. When a user comes up with a new usage it should not be up to that specific organizational unit to decide on how to explore it. Resources has to flow between units and organizations to enable fast leverage of the opportunity.

Govern your innovation efforts through flexible resource allocation based on clear set goals and effect tracking in collaboration with your lead-users. This will maximize your return on innovation where early and close user involvement and customer interaction secures clear user benefits. Your innovation employees will combine their product insights with users everyday knowledge of how to apply the product.

Everyday Hacker - everyone's not a designer

Participation is the new brand loyalty. What is better for participation than inviting your customers to do the personal customization themselves? Designing stuff for people to like and hope for their loyalty in return is not going to work anymore. Troed Troedsson, a future researcher, has found that up until the mid-eighties the key differentiator was knowledge. Nowadays it is understanding. Understanding what your customer wants and desires. Who is better on understanding their needs than the customer herself?

There are several very good examples on how to engage the customer in participation and designing according to their own desires and understanding on who they are:

• Make your own chair. Buy a cubic formed chair with a hammer. Use the hammer to form it as you like.
• Hacking IKEA. Make a children's chair out of a normal chair buy sawing a hole in the seat.
• Fan popcorn popper. When buying a popcorn popper, get it with your favorite team logo on it.
• Amazon Webservices. Build your own Amazon bookstore using the backend features of Amazon.
• Cookies and cakes. Buy a cookie mix and add eggs (Dan Ariely showed that without the eggs there is too little participation).
• Scion car designed by you and manufactured by Toyota together with a backbone of 1000's of partners.
• Threadless combines custom T-shirt designs with easy to shop for those who don't know what to design.

What should you think of when entering the mass-participation era?

• Design for different levels of customer participation. The occasional customer, the regular and the hard-core.
• Make it easy to switch between levels of participation. Make the customer a success regardless of participation.
• Enable your IT systems and supply-chain to handle great flexibility. How to plug-and-play in the back-end towards partners? Can you be as flexible as Toyota with Scion where the the car is manufactured and then pimped by one or more partners through an advanced supply-chain?

Then of course there are always those who don't know what they want. Be sure not to confuse them with alternatives. Make it easy to participate and co-create or you will loose everyone except the most hard-core fans.

Finally you will get many more ideas on how to develop your future products through the understanding gained from your customers.

More to read:
March 2010 article in Wired: Destroy is the new DIY
Dan Ariely in The upside of Irrationality

How may we help? Increasing loyalty by reducing effort.

Customer loyalty comes not first and foremost from satisfying your customers - it comes from reducing the effort of dealing with you. CES or Customer Effort Scores is a new predictable way of measuring loyalty from the customer base that have been in contact with you. CES predicts the future loyalty and revenue levels. CES can be used to measure direct effects from customer service interactions - in terms of ease of effort which increases loyalty and contact levels which lowers customer support costs.

Meeting customer expectations and reducing effort during customer interactions requires you think of the following:

• Head off the need for follow-up calls and interactions - anticipate the future
• Normally you measure the First call resolution level which indicates how good you are at solving customer problems in the first call. Measure return calls on a slightly longer horizon, 1 or 2 weeks, and you will see that certain types of calls generate subsequent calls for other related problems. Measuring and analyzing these downstream calls will improve your service quality and remove the necessity of future calls. Saving both your resources and lowering the effort of being a customer to you.
• Address the emotional side of interactions - who is at the other side?
• Sometimes we give the same answer and motivation to all customers. Try to balance the emotional mode they're at and their personality. Based on wording the customer uses and how they say things, give slightly different responses. To some your empathy matters, to others exact date for when a replacement will arrive is most important. What will the customer's feeling be after the interaction has finished? That will determine both additional calls, their view about you and the effort of interacting with you.
• Learn from disgruntled customers - how do you continuously improve?
• Disgruntled customers are disgruntled for a reason. They had some expectations that you have not been able to live up to, right or wrong. What can you do to improve your delivery and communication to further improve your delivery?
• Empower the front line to deliver a low-effort experience - what policies are blocking them?
• Measure things like "Ask once" and "Capturing the no's" enables you to identify when your front-line is not empowered to service a customer request. Having a front-line that can handle the entire interaction shows that you care about your customer by trusting the ones handling customer contacts. They're not just a filter to turn away customer requests - they are there for me as a customer.

CES, Customer Effort Scores, captures the customer impressions at the transactional level, negative and positive. It is at the transactional level that you build real loyalty - not on the brand level. Ask the question "How much effort did you personally have to put forth to handle your request?".

High levels of CES affects your internal delivery costs as well in terms of repeat calls, call transfers and channel switching. Performing a CES finally enables you to catch customers at risk of defecting and thus you get a last chance of keeping them.

More on this subject can be found in this HBR article: Stop trying to delight your customers

Front line service innovation

Front line workers are the ones who delivers real customer value in a service organization. Drive value creation and innovation through front line employees is the way to improved efficiency and new services. How do you efficiently innovate through the front line? After all they are not hired to be innovative, their task is to deliver service and support customers.

First of all you must define the questions you are trying to answer through front line innovation.

• Innovation of new services?
• Improving the efficiency of service delivery (deliver it the right way)?
• Improving the effectiveness of service delivery (deliver the right service)?
• Empowering the employee?
• Collaborating and involving the customer?

Front line service innovation leverages the direct customer experience, knowledge and quick round-trip time that enables experimentation. The trick is to empower, engage and motivate your front line people to take care of new ideas that comes flowing while working.

Kaiser Permanente, a Health care provider, has introduced a small team of special trained innovators called Innovation Consultants. These innovators can be design specialists, anthropologists or psychologists. They work according to a "human centered design"  principle where they involve the front line and their customers in improving efficiency and effectiveness at the same time as they innovate new services.

• Uncovering the untold story. Since most innovation and efficiency increase comes in the interface between the front line employee and the customer it is important to uncover the untold story. Things that get neglected because they have always been that way. Or you don't see them consciously where drawing a picture of how you feel when interacting in that situation will reveal you inner feelings. This leads to more sharply defined problems ready to be solved. 
• Packaging change. Every innovation results in some kind of change being executed. The innovation starts somewhere and then it all starts. How should it be replicated throughout the organization? How to measure its effectiveness? Applying the 5 Implementation principles enables an organization to quickly and successfully roll out a new service and still build upon employee engagement.

By working and empowering front line employees an organization can significantly increase both their innovation power as well as collaborating more closely with their customers. This leads to increased revenues through new services and rising profits through increased efficiency.

More to read on Kaiser Permanente's Front line innovation

When price isn't enough: Experiment

When your customers behave as though your products are commodities and focusing on price only, what should you do? No one want their products to become commodities. We strive for differentiation in both brand and features. Then we expect the customer to pay a premium and become loyal to our superior products.
Well, unfortunately customers are more lazy than that. They see switching costs as more important than premium. Low expectations on products actual and usable features combined with routinized behavior is commonplace. Researchers call this a psychological state of mind that drives commoditization. It is no longer the actual features, or lack thereof, it is the mental map of the customer that drives their behavior.

What should we then do to circumvent this behavior? Experiment on price! Use differentiation of price as one way of getting your customers to notice the difference in offerings. You don't know what your customers prefer and how you actually compare to the competition. Instead of guessing, experiment with pricing and products.

In several different experiments (one referred to in Dan Ariely's excellent book Predictably Irrational) customers get two similar products with different price (the more expensive has some additional features). Roughly 60% goes for the cheapest and 40% for the more expensive one. Adding a third product priced well above the previous expensive product shows interesting customer behavior. Now 10% goes for the new most expensive, 60% goes for the middle (previous most expensive) and 30% for the cheapest. By having an expensive alternative to compare against customers tend to go for the middle priced product. Viola, we have moved 30% of customers upwards just by introducing a product we don't want them to buy - just compare against.

Could we know this ahead of the experiment? No, just guess. A simple experiment helped us gain more knowledge. Will it work for you? Don't know, try it out in a smaller test market or segment.

Here's some more strategies to try out to circumvent commoditization:

• Use price structure to clarify your advantage
• As you could see in the example above, a pricing structure forced your customers to closer investigate the features of each individual alternative in the structure.This is taken to the extreme in Chris Anderson's Free where one model is called Freemium which starts at the price of 0 and goes upwards.
• Willfully overprice to stimulate curiosity
• When customers are faced with a product priced higher than their mental expectation they actually do investigate it further. What additional features does this have that I may have overlooked before? Beware that you better have some valuable features, otherwise they will dismiss you without further consideration in the future.
• Partition prices to highlight overlooked benefits
• Break bundles into their components and itemize the bill. That forces customers to investigate what they are paying for and start valuing what they are buying. Beware that this can only be done on products and services that they potentially value.Don't list the price of screws in your package.
• Equalize price points to crystallize personal relevance
• With many alternatives targeted towards different tastes, use same price to force the customer to see what they value rather than price. Then we get the customer to put focus on something else than price when comparing.

Experiment to see which of these strategies work for you and what the actual price should be. And gone are the days of commoditization in the eyes of the customer.

More to read:

• HBR May 2010: How to stop customers from fixating on price

RUSH-data enabled through Enterprise Architecture

In a turbulent market an agile organization requires RUSH-data. RUSH-data stands for Realtime, Unfiltered, Shared and Holistic data. An organization with access to RUSH-data has the building blocks to become agile and act upon market changes with unprecedented speed. It does not, however, guarantee that it moves faster and more vigorously than others.

• How do you enable RUSH-data? 
• Which parameters to tune? 
• How can Enterprise Architecture help setting the level for where to extract the data and when? 

First an example to get the thoughts flowing. Zara, the Spanish fast-fashion retailer, co-locate staff from design, manufacturing, supply-chain and store operations in units of 240 people per cohort. That enables the people to share unfiltered data in realtime enabling them to get an holistic view of the current state. That enables them to respond much quicker to market demand and get new designs in stores within 3 weeks instead of 3 months for competitors. The cumulative effect over the years has led Zara to outpace their competition in growth and profitability.

Where does Enterprise Architecture come into play? Isn't this a case for not using Enterprise Architecture and trust oral word-of-mouth instead of complicated ERP systems? Well, it could be if you don't succeed. But we've done communication for thousands of years and still only Zara manages to leverage human communications. So how can Enterprise Architecture help here?

First of all you must have a culture of information sharing and thirst for more data. Otherwise no system in the world can save you. Prepare for a funeral ...

Then I believe Enterprise Architecture can help in these ways for each element of RUSH-data:

• Realtime
• EA sets the non-functional requirements for gathering data. Is it set for real-time or only providing snapshots? How does the snapshots accumulate across IT systems? Will it distort data accuracy and age?
• Which data needs to be available in real-time to enable RUSH-data?Aggregation of data across systems often leads to distortion disabling real-time attributes. When designing the EA design for RUSH-data.
• Unfiltered
• Is data available from its sources or only aggregated in reports with conclusions drawn? Can anomalies be traced or is it averaged and crunched to nonrecognition? Trends are important - however trends indicate strong movements. Developments grow from small significant anomalies that needs to be traced and identified. 
• Shared
• Collaboration and sharing of information is crucial in todays turbulent markets. A large component is to have a culture of sharing. Assuming a sharing culture, then how can EA drive sharing? Through assigning roles and ownership of data it will be much easier to decide upon how and to whom information should be available and in which format. Through an SOA information can be both unfiltered and shared in the right format to each person.
• Holistic
• EA is very good at identifying information ownership throughout an organization. Which master data combined with realtime information from the source will give a holistic view of how we're doing right now? Work on reducing the information size to craft the data-set needed to get the holistic view. Then create services that supply that information in a dynamic manner. Through the SOA the information can be shared, unfiltered access to raw data in realtime. RUSH-data made real through Enterprise Artchitecture.

Next thing to do is how to visualize RUSH-data. What's your opinion on the best ways to make visualization simple, fast and collaborative?

More reading:

• Don Sull's blog on RUSH-data: http://blogs.ft.com/donsullblog/category/rush-data/
• Matthias Scholander on the CIO Perspective of RUSH-data: http://www.matthiasscholander.com/2010/08/strategic-agility-the-cio-perspective/