Business Best Practices
For many businesses, our current knowledge of computing technology, manufacturing processes, machine capabilities, and integrated information systems, will be outdated in a few years. “The only constant we face,” said an ancient philosopher, “is change.” For top management, success depends on more than merely being able to articulate a vision of where and what the organization needs to be. Top management must develop a solid approach and methodology that managers will use for fostering and implementing positive change throughout the organization. Process-oriented leadership is what organizations need today.
The clear delineation of a vision for the organization’s future is a key role for top management. But all too often, this vision has focused mainly on achieving certain financial results such as gaining market share, return on investment, and inventory to sales ratios. Envisioning what the business needs to be requires that the vision be aligned foremost with customer requirements and an assessment of the organization’s current status and overall ability to achieve its long term objectives. If top management is to successfully manage change, what needs to be developed is a description of issues such as:
- What the company will look like when working inventory turns are increased by 90%?
- What will be required of self-directed, small work groups to achieve throughput reduction targets?
- How will we interact differently with suppliers and distributors after integrating our information systems and business functions?
- How will management processes change?
- What skills will our workforce and managers need?
- How will people be measured and rewarded when goals are achieved?
Asking these kinds of questions will help top management better define the vision of what things the organization will need to do and how it will have to do them. This is the basis on which a solid methodology for managing change depends, and leadership rests.
Whether you are implementing Lean Operations, Six Sigma, Supply Chain Management (SCM), Enterprise Resource Planning (ERP), or some combination of these management philosophies, you are introducing a major change into your organization, and it must be consistent with—and support—the firm’s overall strategy. There are three steps–critical to achieving lasting performance improvements–that are preconditions to successfully bringing about any major change:
1) evaluate the environment
2) Develop the Organization’s mission
3) Originate a strategy
Southwest Airlines has followed the process, as described above. At its inception in 1971, Southwest surveyed its environment and targeted an underserved market segment: short hop flights in Texas.
Realizing that the firm had to keep its costs down to compete against its full service competitors, Southwest’s operations strategy included use of secondary airports and terminals, first come first serve seating, few fare options, smaller crews flying more hours, snack only or no-meal only fights and no downtown ticket offices.
As result of its experience in Texas, Southwest developed the capability to wring-out costs from its airline operations. This capability—competing on the basis of being the low cost provider—continued to fuel its growth. For example, Southwest designed a route structure that matched the capacity of the Boeing 737, the only aircraft in its fleet. The use of only one plane minimized the costs of pilot training and aircraft maintenance. Superior leadership, strategic planning and execution on the part of top management has enabled Southwest to be a consistent money maker while other airlines have lost billions.
Top management is ultimately responsible for the positive changes that can transform the organization. Regardless of the changes being undertaken, they ought to be understood clearly within the context of the organization’s strategy. In our next post, we will describe another ingredient that must be present for change to take root, namely, instituting a change management process.
In his book The Innovator’s Dilemma, Harvard Business School professor Clayton Christensen popularized the term “disruptive innovation.” Products that fall into this category bring different value propositions to the market than what is currently provided by existing market participants. Although disruptive technologies underperform existing products in mainstream markets, they possess other features that new customers value. In the near term, because a disruptive technology results in worse product performance, their initial sales volume is low.
This definition of a disruptive innovation is an apt description of Apple’s first iPhone. When it was launched in 2007, the iPhone underperformed against benchmarks that were standard in the smartphone industry. As a result, just 1.5 million units were sold in its first two quarters. Here is how the original iPhone stacked up against existing smartphone competitors, using measurements that were considered important at the time:
However, Steve Job’s creation was not just a cell phone; rather, it was the world’s first, handheld computer. Its data processing capabilities—not voice—are what disrupted the cell phone market. Although other smartphone manufacturers offered web browsers, they were clumsy and difficult to use. In contrast, Apple’s web browser made surfing the Internet easy. Compared to its rivals, the iPhone’s user interface was simple, intuitive and uncomplicated. At the swipe of a finger on touch sensitive glass, one could get access to e-mail, text messaging, video, photography, maps, books, music, games and mobile shopping. The iPhone was a game-changer, the industry’s Swiss Army knife.
After having introduced a product that was revolutionary in some respects, but lacking in others, Apple began a structured process of enhancing features—and adding functionality—that satisfied customer needs. This is the essence of continuous improvement. For example, in 2008, iTunes was introduced, which solidified the iPhone’s role as a multi-function device that could seamlessly provide music and video on demand.
Unveiled on September 12, 2012, the iPhone 5 is the current iteration of the iPhone. In his Wall Street Journal column All Things Digital, Walt Mossberg describes the differences between the iPhone 5 and its predecessor model, the 4S, which was introduced a year ago:
The incremental improvements described in the previous table are not radically new. In fact, some commentators have described the iPhone 5 as a catch-up device, adding features that are already resident on the leading Android and Windows phones. For example, many of the Android phones already feature larger screens.
In conclusion, Apple’s product development strategy does not involve releasing breakthrough technologies, year after year. Rather, disruptive innovations—such as the iPod, iTunes, iPad, and the iPhone—are unleashed, upending entrenched market competitors. Then, the worlds’ most innovative company improves upon its breakthrough product by implementing stable releases, adding features and functionality that delight its customers.
I need to bring this blog post to an end, because I have to go down my local store, and place my order for an iPhone 5. The current backlog is 4 weeks, and I don’t want to wait any longer than that!
Stephen Covey (1932-2012), the business self-improvement master of our times, died last week. He authored The 7 Habits of Highly Successful People, a book that has sold over 6 million copies.
In addition to having read several of Covey’s books, I saw him present at a Lessons of Leadership conference. Here are the two most important take-always from his body of work:
Lesson 1: Point Your Compass Towards True North
In his book First Things First, he differentiated between the clock and the compass. The clock represents our commitments, appointments and activities. In contrast, the compass represents our vision, values and direction. Angst occurs when there is a gap between what we do, and what is most important in our lives.
This distinction painfully struck home. Once, I was scheduled to attend a Board meeting during a day when my 4-year old son had to undergo major surgery. I elected to attend the Board meeting, rationalizing my decision by telling myself that my wife and father-in-law were at the hospital.
Although the surgery was successful, I regret my decision, realizing that I did not put First Things First, which is to be there for my son. Had I spoken up, the Board meeting could have been delayed.
Lesson 2: Invest in the Goose That Lays the Golden Egg
This lesson is based on one of Aesop’s fables. A farmer and his wife had a goose that laid a golden egg every day. They assumed that the goose had a great nugget of gold in its inside, so they killed it. They discovered that the goose was no different from other geese. Instead of becoming rich, the coupled deprived themselves of the gain of which they were assured day by day.
Covey argued that we must invest energy in increasing our productivity. Using the metaphor of a saw, he suggested that we must sharpen the saw, otherwise the blade becomes dull. And a dull blade results in reduced output.
There are many ways of nurturing the goose. In a previous post, I described how playing bridge enhances one’s memory and mathematical skills. Is it surprising that Warren Buffet and Bill Gates are avid players? In tennis, I know that if I fail to do strengthening exercises, pulled muscles are the end result. My physical therapist can attest to that!
In terms of business, at Frito Lay’s Orlando, Florida plant , the largest inventory investment is not in the potatoes, corn oil and salt seasonings that are needed to make the company’s snack products. Rather, the biggest inventory item is in parts that are required to maintain the expensive machinery. Management knows that the costs of production downtime far outweigh the investments in inventory that are necessary to keep the machines in good condition.
Conclusion
Some of Covey’s notions are commonsensical—they will not put him at the table with the pantheon of self-improvement thought-leaders. For example, his 7 habits include advocating “being proactive; begin with the end in mind; think win-win, etc.”
But the ideas of nurturing the Goose That Lays the Golden Egg, and setting ones compass on true north, will stand the test of time.
The winters in Rochester, NY can be long and harsh. I know. My son attends college there. Situated on the southern shores of Lake Ontario, the yearly snowfall averages 92 inches. But the harshness that I am referring to relates to the demise of Kodak, which was born in Rochester in 1889, and died there on January 19, 2012, falling into bankruptcy.
Given that its name was once synonymous with photography, a Kodak moment, the disintegration of this iconic corporation is particularly poignant. As recently as 1976, the company held a 90% market share of film sales and 85% of camera sales. It was the Google of its day, attracting the best technical talent from across the country. During lunch, the company played movies for its employees.
©Kodak used with permission
A disruptive technology—the digital camera—killed off the film business. Ironically, Steve Sasson, a 25 year-old Kodak electrical engineer, invented the first digital camera in 1975. This fact begs the question: how could a great company like Kodak, flush in the 1970’s with abundant resources and some of the most talented people on the planet, fail to take advantage of a product that was invented in its laboratories?
A failed business strategy and management myopia both contributed to Kodak’s downfall.
Kodak’s Failed Business Strategy
When there is a disruptive technology, firms are often unable to capitalize on the invention for fear of cannibalizing existing product sales. Kodak’s primary strategy was to sell high margin film. Known as the razor blade strategy, the company developed inexpensive cameras as a means to an end: their purpose was to facilitate lucrative film sales. In summary, its digital camera invention was held back because of management’s concerns about the negative impact on film sales.
When Sony launched a filmless digital camera in 1981, fear permeated Kodak’s executive suite. Specifically, over the next decade, Kodak invested approximately “$5 billion—or 45% of its R&D budget—in digital imaging,” according to a 2005 Harvard Business School case study. Unfortunately, with disruptive technologies such as digital cameras, the first-mover advantage is too great for late entrants to overcome. By the time Kodak realized that their razor-blade business model was dead, the horses were already out of the barn. The company was unable to catch-up to the competition.
Earlier this month, Kodak’s announced that it was exiting the film and digital camera business altogether. Sadly, all that remains of this once august corporation is the intellectual value of its patents, resulting from decades of belated investments in digital technologies.
Management Myopia
Not only was the first digital camera unwieldy—it weighed over 8 lbs.—but it didn’t even save images. Instead, they were projected onto a TV screen. It is difficult to imagine how Kodak’s mainstream customers—Mr. and Mrs. Jones from Kansas—would have bought that first, clunky digital camera.
Conventional wisdom suggests that good management involves staying close to your customers. And that is what management at Kodak did. Rather than allocating resources towards the internal development of a risky, digital camera that their mainstream customers had little interest in, the company funded projects that enhanced its position within the lucrative film market. Management at Kodak was constrained by the needs of their established customers. That is fine when making incremental improvements to existing products, but it is fatal when dealing with disruptive technologies.
In retrospect, management ought to have spun off its digital camera business to an independent subsidiary. The small business unit could have focused on meeting the needs of the customers who would have embraced it, such as hobbyists and leading-edge photographers. Apple followed this strategy with its first, Apple computer. I remember buying mine from a Chicago-based, electronics shop that catered to technical enthusiasts (techies) who were far removed from the mainstream, consumer marketplace. Over time, Apple developed its product offerings, introducing features and functionality—such as the mouse and Graphical User Interface (GUI)—that made it attractive to Mr. and Mrs. Jones from Kansas.
In his book The Innovator’s Dilemma, Clayton Christensen describes numerous instances where companies have failed at internally developing disruptive technologies. In contrast, firms that set up separate subsidiaries have been able to grow game-changing innovations into full-fledged businesses. HP did this with the invention of the ink jet printer in the 1980s. It set up an autonomous subsidiary in Vancouver, Washington, far removed from the influence of corporate headquarters in Palo Alto, California. Initially, the ink jet printer market was small and limited; over time, the company turned it into a significant business.
Small is Beautiful
I worked as a product manager at a small company that manufactured food-processing machinery for the beverage industry. New product development was the key to its success. In 1980, a large conglomerate acquired it. Within 7 years, innovation, the life-blood of the firm, dried up, and the conglomerate sold off the business.
When it comes to winning the new product development race, small entrepreneurial-driven firms will usually beat the behemoth corporation, especially when dealing with disruptive technologies.
Occasionally, a new technology is introduced that disrupts the natural order of things. Apple’s iPad represents just such an innovation. The touchscreen display and navigation options make this computer a radical departure from the PC. [In this context, I am broadly defining the PC as either a desktop or laptop computer.]
With the iPad, you don’t have to use a trackpad—or mouse—to move a cursor around a screen. Instead, you use your fingers to touch and swipe the screen. In addition, the iPad is very light, weighing only 1.5 lbs (680 grams), and has a battery life of 9-10 hours, which is far greater than the battery life of the typical laptop computer. Combined, all of these features provide the user with a more direct and immediate relationship to computing: all cables, mice and other devices are gone. The iPad facilitates a “magical” experience, according to Steve Jobs. Certainly, it makes life easier for the customer.
Ease-of-use is one of the many reasons that the iPad has caught on like wildfire, becoming the biggest selling device in Apple’s history. For the quarter ending Dec 31st2011, the Cupertino-based juggernaut sold 15.4 million tablets, accounting for $9.1 billion in revenues or about 20% of the company’s total revenue. Compared with last year’s holiday quarter, tablet sales doubled.
We are witnessing what Harvard Business School’s Clayton Christensen calls a disruptive innovation. Typically, inventions that fall into this category have characteristics that are radically different from existing products; however, initially, they offer lower performance in areas that are important to mainstream customers. For example, compared to a laptop or PC, the original iPad’s processor was slow; storage space was limited; and it wasn’t equipped with a keyboard. But over the past couple of years, Apple has significantly improved the performance of its tablet computer. Here are some of the features contained within the new IPad, which was released today:
- High resolution retina display–2048×1536 pixels more than on an HD TV
- A dual core CPU twice as powerful as the A5 found in the iPad 2
- A rear iSight camera with 5MP sensor and advanced optics, including IR filter, autofocus, face detection, and white balance
- HD video recording (1080p resolution)
- Voice dictation (there’s a new key on the keyboard for speaking into the iPad)
- 4G LTE support: HSPA+ for up to 21Mbps or dual-carrier HSDPA for up to 42Mbps or LTE for a max of 72Mbps connectivity
- Battery life is 10 hours (9 for the 4G models)
Regarding the future, Steve Jobs used the metaphor of the PC as a truck, and the iPad–or tablet–as a car. America was originally an agrarian economy. Then, the truck was used for all tasks done on the farm. But as we developed into an urban economy, the car replaced the truck for many jobs.
The tablet will be increasingly used for consuming digital data—viewing videos and photos; reading news websites, feeds, and books; checking on e-mail & social media; and listening to music. In contrast, the PC will be used for heavy-duty tasks. One of you said it well: “typing a large document or programming a 1,000 lines of code is much easier with a full size, qwerty keyboard.” A PC with a blazingly fast processor, which is hooked up to a large display—including multi-monitor arrangements—can facilitate multitasking and productivity. Developers, professional photographers, graphic artists and hardcore gamers will probably continue to use the PC, at least in the near future. But to quote Jobs once again, “as we move away from the farm, the car started taking over.”
And the data appear to substantiate Job’s prediction. During 2010, when the iPad was introduced, sales of PC’s outnumbered sales of tablet computers by a ratio of 20 to one. In 2011, PC’s outsold iPads by a ratio of only six to one. Horace Dediu, an analyst with Asymco in Finland, predicts that tablet sales will surpass PC sales in 2013.
In conclusion, the iPad symbolizes much more than just simply an incremental improvement in technology. It is evolving to become a PC replacement for many applications. The PC will survive, but its market share will continue to decline vis-à-vis tablet computers. This is no different than what occurred 60 years ago when televisions were invented. As a result, the audience of people who listened to radio shows declined greatly. Although the radio has endured, its share of the overall listening audience is small in comparison to TV’s market share.
Here are other instances where new technologies displaced existing technologies:
How do you weigh in on this issue? Will Apple’s improvement of features and functionality enable the tablet computer to become a PC replacement?
