Monday, April 26, 2021

One constant and one big change to consider in your business

 David Bowie sang a song about change called Changes.  He spoke about the need to change - to "face the strange"  - and find a new reality.  Another band - Rush - talked about change as well.  In their song Tom Sawyer, they wrote that "changes aren't permanent, but change is".  What these rock stars and others help us realize is that change is constantly confronting us, as people, as society and as institutions.

For some of us, change is welcome, creating new opportunities and new realities.  For others, change is threatening, upsetting the established order, forcing people and institutions to learn new ways of working or operating.  Whether you are interested or motivated by change, or feel threatened by it, change provokes a response.

So the questions we should be asking ourselves about our businesses are: are we ready for change?  What change are we anticipating?  What change will blindside us and impact our business?  What, if anything, should stay the same about our business in light of all this change?  What should change, and what is permanent?

The reality

In reality, most businesses do not want to change.  Operating on past principles we can more easily predict how the business will perform.  We can more easily control costs and operations if we assume the present and near future will look a lot like the recent past.  In addition, there is organizational inertia to contend with and culture reinforces the way things are done, so change is almost always viewed as a threat to current operations and efficiency.

Yet, as Bowie and Rush remind us, we are constantly bombarded with change, and the pace of change is only increasing and becoming more volatile and uncertain.  

This is NOT a blog about change per se, but about one factor that should not change without strategic consideration, and one factor that absolutely should change but often doesn't. There are many corollaries that we could spend hours on, but we ought to look at two key ideas in particular:

  1. What are the only things that should not change about a business in the midst of all the external change?
  2. What factors or components are more likely to need to change given the acceleration of change?

 The theory of the business

Lawyers have what they call the "theory of the case".  That is, the story they tell themselves, a judge and a jury about the case - how it happened, how it unfolded, the perspectives you need to know and accept in order to understand the case from their perspective, and why their take on the case is the right one.

Similarly, companies need to have a theory of the case about their business.  This is the strategic through line.  What does the business stand for?  Whom does it serve?  What are its differentiators?  Why does it exist?  When I talk to small and medium sized businesses about their business I call this the "through line" - other things may change but this stays constant.

If your business is struggling, it could be because you lack a through line or a theory of the business.  When you lack a theory or through line, you pursue any path at any point in time that seems to promise revenue and profits, abandoning any strategic thinking or purpose, pursuing any promising lead or opportunity.  You are like a dog in a field full of squirrels, chasing one up a tree only to notice another on the ground a short distance away, and then responding by chasing the next squirrel.  There's an awful lot of activity but very little progress.  People feel exhausted, constantly chasing a new shiny object, but it is clear the business is simply spinning its wheels.

This is not to say that businesses should not rethink their strategies or operations, that they should not pivot when pivoting is important.  Of course it makes sense to refocus and pivot when necessary, but only after careful consideration and the creation of a new theory of the business.  For example, look at Instagram.  

Few people remember that Instagram was originally a community focused on sharing information and photos about bourbon.  When the founders realized that the only portion of the software that was attracting customers was the photo sharing, they pivoted to become a general photo sharing application and dropped the focus on bourbon.  They did so in light of reality and with a new intent.

What is the theory of your business?  Does your leadership team know it and agree amongst themselves as to what is core to the business?  Can your employees tell you what is critical to the success of the business, what the unchangeable through line of the business is?  This theory of the business is what doesn't change, and everything else should be built around it.  That is, until a pivot is required and a new theory is developed and communicated.

Business Models

And now for part two - what probably needs to change more than anything else in your business.

We place far too much faith in our thinking and understanding of business models, and as the songs I quoted early on suggest, we probably need to change them.  Business schools do a good job of teaching students about business schools, but I think they convey the idea that business models once defined are permanent and unchangeable.  Given all the change businesses face, perhaps one of the first places they should start to think about change is in the business model.  How and where do we make money?  

Business models are rapidly adapting to new realities.  A good example is the increasing focus on "as a service" where you can obtain products not by purchasing them but by renting them or receiving the product as a service.  This change of course has huge implications on a business model.

If your original business model was to sell a large piece of capital equipment, and now your business model is to provide the piece of capital equipment as a service, you are solving the same problem for a customer (theory of the business or through line) but your business model (how you make money) changes.  A one time sale provides a lot of revenue at once, whereas an as a service model provides recurring revenue over time.  These are two different business models solving the same customer problem.

Business schools have taught, and experience has shown, that business models are somewhat fixed.  But that understanding reflects a time when change was a bit slower and more predictable, when there were still silos of information, when the web was less ubiquitous, when we did not have readily accessible connectivity.  If you are basing your theory of the business or your business model on conditions of the past, or even conditions that exist today, you'll likely find you need to rethink one or both very soon.

An impermanence problem

The problem with business models is that we treat them as if they were permanent, immutable and unchangeable, when in reality it could be that the business model is the only thing that needs to change in order to adapt to new conditions.  GE proved that with their aircraft engines - and in fact will likely be more profitable selling uptime than engines, because they have better information on maintenance, operational issues and also get to collect and analyze all of the data associated with the use of the engine.

Rush may have said it best - but I'll paraphrase it here - business models aren't permanent.  We need to stop treating them as if they are.  A theory of the business is permanent, until another well conceived and well communicated one is necessary as part of a pivot.  

Perhaps rather than think about products or companies, we need to think about needs.  Needs are permanent.  People need food, water, shelter, clothing, entertainment, access to data and so on.  These needs, once established, are ongoing.  Until we can learn to gain sustenance from the air, our needs for food and water are permanent needs.  How companies go about fulfilling those needs, extracting value for serving those needs is not permanent.  Why it does so, and the strategies and theory of the business should be relatively permanent, until a pivot requires a new approach.


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posted by Jeffrey Phillips at 11:42 AM 0 comments

Thursday, April 15, 2021

What shapes your thinking?

There's a famous saying, attributed to Marshall McLuhan, who is reported to have said - we shape our tools, and then our tools shape us.  Supposedly Churchill said something similar, only about buildings.

I think what was attributed to McLuhan is true - we shape our tools, and then they shape us.  From the earliest stone axes that were crafted by hand, to the latest software on the web, we create our tools, and then those tools shape who we become.

If the artifacts around you - like tools (McLuhan) and buildings (Churchill) can shape you, how you live, what you do, who you are - then what does the culture of the organization you are in do?  How does a corporate culture shape you, expand or contract your thinking, constrain or promote your actions?  If tools and buildings can shape us, then certainly corporate culture can shape us - at least at work.

What shapes your thinking?

So, when you think about creating a new product or service to deliver to customers or consumers, are you aware of what is influencing or shaping your thinking?  There are several facets to consider:

  1. Fixedness or anchors - we humans tend to prefer what we are already familiar with or what we already know, so somewhat ingrained in us is the desire to stick with existing capabilities or designs.  This is most famously illustrated in Henry Ford's apocryphal saying - if I gave people what they wanted, it would have been a faster horse.   We have this bias innately, and find it difficult to escape.
  2. What my company or capabilities will support - we are guided by what we believe the company or its capabilities can do.  I cannot tell you the number of times I've worked with a hardware company to discover that a small bit of software will make a big difference in consumer acceptance and the hardware company cannot understand how they'd get the software they need - that's not our business is what they will say.
  3. Risk - how much risk tolerance and acceptance of potential failure the corporation or culture is willing to bear.  Typically, the risk tolerance in most corporations is low, which impedes thinking.
  4. Time - we are often so busy with what is urgent RIGHT NOW that we are constantly falling behind on things that would be easily addressed if we simply planned for them.  Good thinking, creative thinking, requires time, yet we create automatons of our people, chaining them to a rapidly moving treadmill that does not allow them to catch up or to look ahead.
  5. Congestion - most organizations have far too much congestion - they are too busy working on too many products and projects that have too little value, and they reinvest in products that are far past their due dates rather than cull the product line and introduce new products and services.  We could think of this as a crowding out feature - new ideas simply cannot find traction because they are crowded out by all the other stuff that is going on.
  6. Momentum - the previous congestion issue raises a corollary - it is easier to keep something moving that is already fully fleshed out and active than to create something new that has no momentum.

There are other factors, certainly, but you don't have time to read an exhaustive list.

Overcoming thinking obstacles

We are all somewhat aware that these (and certainly other) factors exist, but are we as aware how these factors seep into our thinking?  And, more importantly, are we aware and cognizant about how these factors influence and shape our thinking?

There are several ways to approach this, to become more aware of what is limiting your thinking and to hopefully open up your mind to better thoughts and ideas.

The first is to follow Steve Jobs and others, who pull on themes from Zen Buddhism.  This is the clearing of your mind and using the technique called "beginner's eyes".  In other words, how would an entirely uninformed, uninfluenced person look at an opportunity or problem, a person who does not have the blinders or thinking constraints that you do?  Could you put aside all of your "but what about" statements and simply look at an opportunity or problem with a fresh perspective to get better thinking or ideas?

Edward de Bono created a different approach to this, but it really requires more than one person.  His "thinking hats" approach asks each person to take on one perspective - a financial perspective, a management perspective and so on - to see how different people with different biases would look at a problem.  Frankly, it can be a good approach but it requires a good moderator to hold people accountable to 1) stay in their roles and 2) not bring past barriers or experience to the table.

 Another approach is what I call partial constraints.  It is often difficult for people to release all of their thinking constraints and inhibitions.  What can often work is to have them remove just one or two of these at a time, to think laterally or in adjacent spaces.  For example, we can have people continue with their acknowledged (and unacknowledged) constraints and biases, but then ask them what would happen if we removed all financial constraints or if we removed all concerns about risk.  I've often found this approach helpful but it can be time consuming and it requires people to be flexible and creative.

Revert to childish thinking

It's a truism that all kids are wildly creative, and that our educational system, reward system and other factors limit creativity and freedom of thinking as we grow up.  What we need more than ever are people who are far more creative, far better at the art of thinking, than automatons who process paperwork.

We may not be able to escape all of the constraints we live with, acknowledged and unacknowledged barriers, but if we can recognize them and address them, through techniques like Beginner's Mind or the Six Thinking Hats or the partial release methods, we can definitely help people think better and more creatively.

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posted by Jeffrey Phillips at 7:42 AM 0 comments