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

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.

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

Enterprise Architecture creating the engine for network-based business models

In a world where the network-based organizations are creating the new business models, Enterprise Architecture play the key role in making it all happen.
Value chains represent all activities performed to create the value experienced by a customer. Michael Porter has described this in his 5 Forces where the relative strength of each participant is reflected in the amount of profit they can extract from the value chain.
The business model is the engine in a firm's network-based strategy in how to cooperate with others to create value. The business model therefore plays a crucial role in determining how much profit a single firm can extract from the value chain.
In a value chain there are four sources of value creation; Novelty, Lock-In, Complementaries, and Efficiency.

Two questions that struck me are:

• How can a single firm control and steer its business model in a network-based value chain? 
• How can Enterprise Architecture enable the business model to become the engine through leveraging the four sources of value creation?

I think the answer to both questions can be found in using Enterprise Architecture, EA, to guide and steer successful execution enabling the four sources of value creation. Most transactions and interactions, if not most of the value, are created through IT systems. Enterprise Architecture will enable an organization to identify the most crucial parts of its IT system that creates the four sources of value creation. Once identified the organization can through Enterprise Architecture focus its effort on each of the four sources:

• Efficiency
• Integration with other partners done quickly and with no effort. Finding the best suited product with low search costs. Reliable lead-times and costs.
• EA focuses on the business processes and information exchanged. Thus it is possible to remove bottlenecks and based on which levels of efficiency creates the most value put the efforts there.
• Complementaries
• Flexibility in terms of vertical and horizontal integration. Offer additional services and products that complement the product. 
• EA will based on which types of vertical integration is available enable fast and smooth integration. Information necessary to provide data about available complementaries, especially those that change over time, is identified through EA.
• Lock-in
• Raising the switching costs through efficient loyalty activities. Recognizing me as a customer. Not just discounts but more importantly access to improved information, priority, customization, etc.
• EA identifies which information and business processes that drive the most customer loyalty. Providing that information through the different processes and through the value chain enables larger shares of profit to be extracted.
• Novelty
• Enable flexibility in terms of transaction structure, transaction content, offerings through network of partners and complementaries.
• EA does not only focus on the current state of affairs, but more importantly where the organization is heading. Areas where Novelty are important will be identified and necessary information, business process and IT system support is created.

I think you should ask yourself: What is you position within the value chain? How are we utilizing the four sources of value creation within our current business model? Which IT system support is needed?

Further reading:

• The Network Challenge: Strategy, Profit and Risk in an Interlinked World by Paul R. Kleindorfer
• TOGAF 9 A Pocket Guide by Andrew Josey

Designing experiments for succeeding or failing in a turbulent world

How to design experiments that surface flaws in your mental maps about what the future holds? Succeeding in turbulent times requires the commitment to action while knowing that your map of the future is flawed. Running experiments is the single most important activity singling out what will work and what doesn't. Based on the knowledge gained through the experiments and your increased understanding you can redesign your mental map and increase the likelihood of succeeding.

There are two domains we need to understand better to succeed. That is to identify deal killers and knowing what we are betting on.

• Identifying deal killers. Which events will kill your idea or business?
• Knowing what we are betting on. Which unique things are we dependent on to succeed? What will drive customers to our offering? Not the inverse from deal killers.

Getting the cold reality of flawed mental maps enables us to spot weaknesses and opportunities we didn't know beforehand. Experiments lets us under control and with limited bets get a better picture of how our mental map of the future actually fits with reality. Here are five ways of running experiments:

• Partial experiment. Test one attribute at a time. Test parts of a deal killer or bet.
• Design holistic experiments. Test multiple variables and the interactions between them on a small scale. Could also be a test launch before a larger roll-out.
• Explicitly consider trade-offs. Cheap Fast or Certain. But not all three at the same time. Limited budget? Go for cheap on the expense of certainty. Need it fast? Put in more money to match the speed and certainty needed.
• Stage your experiments. Start small and try out the major killers or bets early. Once decided - go all in for that variable and execute the experiment. In between experiments there are room for discussions - during execution it is focus on results. After each experiment evaluate and decide on next step based on results. Don't hesitate to change your mental map - after all that's what the experiment is all about. Validating and finding more/better facts for the mental map of the future.
• Avoid experiment creep. Stick to what you decided during an experiment. Don't let findings during the experiment let you deviate from the set experimentation plan.If the results are not as expected - don't interpret them in the most positive way. Change the mental map instead.

How are you running your experiments and what value do you get out of them to clear the fog of the future?

More to read:

• Don Sull: The Upside of Turbulence
• MIT Sloan: The 4 Ways IT is Driving Innovation. How IT helps drive experiments.
• HBR: How to design smart business experiments?
• Dan Ariely: Predictably Irrational

Has Enterprise Architecture reached its Plateau of Productivity?

Enterprise Architects pride themselves with driving IT from a business perspective. Are they doing that or is it just another case of technology driven IT? This time with structure and control as underlying forces.

What shall Enterprise Architects do to really benefit their organization and add value?
There are two main drivers that you as a business leader have to balance between; Exploitation and Innovation.

• Exploitation. Exploit any given opportunity to the maximum. Be as efficient and operate with low cost. The IT delivery itself should of course be Lean. But more importantly it should enable other departments to be lean in their processes and operations. Embrace possibilities. Don't be too reliant on standards, especially IT standards. Let each business area decide what is best for them in terms of functionality, not in which system to use. 
• Innovation. Innovate within the IT delivery. How can we help the business being more efficient? Have IT drive Innovation, from idea generation to replication of new products, services and business models across geographies. Enable exploitation of new innovations through effective and efficient IT solutions. What should they look like? Well, be close to the business and listen, invest in agile IT support systems that are evolving over time. Calculate at least 25% of IT costs to be spent on new development, not just IT operations and roll-out.

The aim for an Enterprise Architect is to enable, guide and steer the IT delivery between these two extremes. Pushing Exploitation to be as efficient and extract as much profits out of any given opportunity. Driving Innovation to create new opportunities and being agile enabling new sources of revenue.

The most important things to get right are then:

• Interfaces. Let interfaces drive the enterprise integration, not standard systems. Service Bus is a technological solution to a business problem. Get the business solution right then the technology will solve itself. Having interfaces, common data models and master data drive integration will definitely drive integration across business domains in large enterprises.
• Collaboration. Share ideas, solutions and experiences across all silos. Collaborate physically and digitally. Use video, IM, YouTube, Twitter, etc to share and discuss across the entire enterprise. "If Xerox knew what Xerox knows" is a famous quotation from an organization inventing everything but not exploiting anything to their benefit.

Plateau of Productivity? Yes, unless we focus on interfaces and collaboration instead of steering and controlling Enterprise Architects have definitely reached the Plateau of Productivity. What do you think are the constraints for enterprises making more usage of Enterprise Architects to avoid the Success Trap of staying in the Exploitation domain and getting stuck?

Organizational rust and cholesterol

Organizational rust and cholesterol develops in every successful organization over time. In the book "In search for excellence" Peters and Waterman identified the 43 most successful companies in the US in 1980. Out of those 48 companies that were outperforming all other US companies only three would make the list today. What happened to the others?

It's an easy question to ask and much harder to answer. The background issues can quite easily be identified, the cure is much harder to prescribe.
A successful organization develops over time one or more of the following:

• Misuse of resources. The once successful departments get the majority of resources out of old habits.
• Misaligned strategy. What was once a great strategy and market position is today just stubborn actions.
• Leadership dissonance. Blame and backstabbing is spreading throughout the leadership team on different levels.
• Organizational immobility. Misalignment and inability within the different organizational units to move forward. It's one step here and one step there but never synchronized and at the right time.

How can this situation be fixed or even avoided?

In a recent HBR article on the theme "Change for Change's Sake" the authors argument that organizations should practice small and larger regular changes to practice the change organizational muscle. They propose a questionnaire that can easily help identify when it is time to initiate a small or larger change in order to avoid rust and cholesterol. 

An interesting thought is to measure the number of ongoing changes in an organization. How well are we at actually change? Do we have an ongoing readiness for change? What different types of changes do we have ready to apply if and when we need them?

What level of rust do you have in your organization and which changes of different size can you make use of?

How to manage several business models at once?

Facing stiff competition from new business models, regardless if it's new or incumbent organizations, is a challenge for any company. Customer loyalty is jeopardized, profits and cost structures are under at risk and careers can go overboard. Developing new business models is a challenge of its own, but how should my organization respond to the challenge of a disrupting business model in conjunction with our existing way of doing business?


Netflix is an excellent example of a disruptive business model. It works in two ways; first it operates over the internet avoiding fixed costs and local administration, secondly it uses the collective intelligence of its customers to make recommendations based on past rentals. Combined Netflix offers their customers simple and easy movie rentals with much higher viewing experience. How to combat that for an existing video rental business?
Should we:

• Focus on the segment that wants local video rentals taking the risk that they eventually will switch over to the Netflix model?
• Setting up a new business that competes head-on with Netflix taking the risk that we never will be able to do it better than Netflix?
• Creating a completely new business that disrupts Netflix and thus puts us ahead of Netflix taking the risk that our current business will cease to exist?

The text book guide is to either focus on a smaller segments that are not interested in the Netflix model (Porter) or setup a completely separate business with its own value-chain attacking the disruptor (Christensen). 

My take on this problem is to analyse the basic need that the current business model caters for. Can we continue serving these customers so well that they will never switch? If that is the case then change the existing business into clearly market that value and let the other customers leave for the disruptor. Then we have a healthy business that clearly provides a stable customer value that will continue to be there. If not doing this radical step quickly you risk loosing so much money and credibility that there is no business worth restructuring.

Then launch a series of separate businesses as experimentation. You don't know if the disruptor will eventually succeed or if it will create new opportunity and need for other business models. These experiments should both compete head-on and disrupt the disruptor. What's important is that each of these businesses operate separately from the others with its own culture and value-chain where it is necessary according to the business model (customer value, revenue model, cost structure, partnerships and profits). Cooperate with the rest of the organization realizing economy-of-scale where the business model does not mandate it. 

When facing disruptive business models one must be clear that the disruptor is starting small and moves fast. When the disruptor becomes large enough to threaten your existing business it is generally too late. The best prescription against this is to continuously run business experiments in small scale in different locations involving parts of the organization. Then you will try out market opportunities, find better cost structures and be ready for disruption yourself.

Inspiration for the post is from MIT Sloan Management Review article What to do against disruptive business models?

IT driven innovation

IT becomes a major driver behind increased speed and results from innovation. With manufacturing becoming a commodity and marketing increasingly hard and expensive many organizations are turning to innovation as the new revenue source. Innovation can create higher valued products from existing manufacturing capacity and simplifies marketing through improved experience.

IT greatly speeds up innovation and increases the effect in four areas:

• Measurement. How do you measure the current state of affairs?
• Experimentation. What is the value of this idea?
• Sharing. Who can benefit from my new knowledge?
• Replication. How to scale the new innovation throughout the organization?

These areas are important as separate activities and most organizations do one or several of them. They reinforce each other further magnifying the effect from each area. Improving measurements gives you better data easier and cheaper. Experimentation thrives on faster and cheaper measurements. Sharing those results further increases the value across the organization. Replicating successful business innovation enables faster scale ups and shorter time to market.

Measurements is radically improving the way we collect data and sort it. Nano data from click streams, emails, discussion boards, web trends, CRM, supply-chain, etc. Business intelligence is tapping into this area; needs to tap into the very bits and pieces of the nano data and make it available to the organization.

Experimentation through IT tools based on improved measurements. Measurement both to feed into the idea generation and to evaluate the effect from different ideas. Retailers can use IT to efficiently instruct different displays and then use improved nano measurements to follow up sales and profitability. New business models can use IT to track the consumption of goods and services through RFID tags on individual levels.

Sharing the results of experiments and the measures improves others to innovate. They don't have to invent the wheel again, can get the exact data measure setup, sharing ideas that for some reason failed (sometimes the most important aspect as failures seldom gets documented and less often shared).

Replication of innovations once they've been evaluated and proven is the key to successfully reap the benefits. The first three areas help organizations find and nurture new innovations. IT makes it possible to take that innovation and roll it out quickly and seamlessly. IT drives replication of business processes themselves. An example is how a bank is replicating a new loan process across all branches, a new customer return policy, displaying new food products in a retail store. Measurements enable the follow up of how well replicated the innovation is.

Collection of nano-level data is the foundation for IT driven innovation and replicating the innovation across the organization enables fast time to market.

Watch your extreme customers

Your extreme customers are leading you into the future - explicitly - if you just care to watch.

The Chinese appliance manufacturer Haier uses their maintenance and repair guys to watch what customers are doing with the appliances. Where are they used, in what environment, who is using them and for what purpose. When a lot of washing machines got clogged with dirt they did not just assume the customers were stupid - they investigated the root cause. What did they find? That their customers were cleaning vegetables in them - can you clean clothes you should be able to clean vegetables seems to be the logic. Did they put big warning signs on the appliance - DON'T WASH VEGETABLES? Did they sue them or tell their customers it was their own fault?

No they changed the design to enable washing of vegetables as well as clothes. They watched what their customers were using their products for, listened to why they wanted to use it that way and then changed their behavior and designed a machine meeting the needs. Did customers notice what Haier did? Were they happy? The answer was loud and clear - market share in rural China went from single digits to 24% in 3 months in a market growing exponentially.

How do you start listening to your extreme customers?
First of all, in an article in Harvard Business Review April 2010 issue (Behold your extreme customers) researchers found that only 8% of managers cater to the needs of extreme consumers - so you will be pretty alone. Your extreme consumers can be engaged through for example:

• Let customers take ownership. Let the customers form communities, groups and influence/control product development. Lego took a whole new route after gathering their most devoted users and developed Lego NXT, the Robot Lego.
• Ask customers for help. Involve extreme customers in focus groups, ask them to test products to the extreme or suggest new designs.
• Sponsor events. Extreme events targeting the extreme customer. Costume dressing parties, all-you-can-eat festivals or invitation only parties where you must prove you're an extreme customer.
• Share consumers’ stories. Share in papers, advertising or on the web the most extreme usage of your products. Let your extreme customer become the hero.

How can you let your extreme customers drive your product development, marketing and brandbuilding?