Sunday, October 28, 2007

Strategic Insight in Three Circles

Sometimes the simplest tools are the most powerful.  In this month’s Harvard Business Review, Joel Urbany and James Davis of Notre Dame’s Mendoza College of Business suggest that critical strategic insights can be gained from populating a template involving just three circles.
Although most executives can recite the truism that a company must build a distinct competitive advantage in order to grow and be profitable over the long term, many have only the fuzziest idea what that really means. . .We often encounter these executives in our consulting work and in our classrooms. We tell them to draw three circles. Those circles, placed in the proper relationship to one another, provide a good visual representation of what strategy—both internal and external—means. 
Here’s how it works.

1. Draw a circle and fill it with the things that customers value and why—that is, Customers’ Needs. Depending on the complexity and breadth of your offering, you may need to focus on a specific customer segment. Note that this exercise, when done in a group, may reveal brand new or emerging opportunities for value creation. Urbany and Davis explain, “The first circle thus represents the consensus view of everything the most important customers or customer segments want or need.”

2. Now draw a second circle. You’ll fill this one with how customers perceive Company Offerings. This one could be especially tricky in a group exercise, because (short of good, hard analysis), there may be plenty of opinions about how customers perceive your product and brand.

3. Now “slide” the two circles together so that your specific set of offerings overlap with customers' needs. Let’s hope that the overlap “feels” good and solid, so that there’s a high comfort level that you are providing some significant benefit or set of benefits that the customer requires. Urbany and Davis tell us, “Even in very mature industries customers don’t articulate all their wants or problems in conversations with companies. ..Customers’ unexpressed problems can often become a source of relationship building and growth opportunity.”

At this point, you can probably see a number of areas where further investigation may be required—even though you think about this stuff everyday.

4. Now it’s time for the last circle, which represents how customers perceive the offerings of your competitors. This third circle slides up to overlap the first two in a variety of interesting ways, as follows:

Each area within the circles is strategically important, but A, B, and C are critical to building competitive advantage. You should ask questions about each.

For A: How big and sustainable are our advantages? Are they based on distinctive capabilities? (Urbany and Davis note: “But the biggest surprise is often that area A, envisioned as huge by the company, turns out to be minuscule in the eyes of the customer.”)

For B: Are we delivering effectively in the area of parity?

For C: How can we counter our competitors’ advantages?

You should form hypotheses about the company’s competitive advantages and test them by asking customers. The process can yield surprising insights, such as how much opportunity for growth exists in the white space (E).

Another insight might be what value the company or its competitors create that customers don’t need (D, F, or G). This plays, by the way, to Christensen’s Innovator’s Dilemma: Where have you pushed the technology or offering so far that folks stopped seeing value in it?

Perhaps the greatest insight will be how much opinion and conjecture there are behind your "analysis," instead of data-based knowledge. That alone—knowing what you don’t know—may be one of the most useful outcomes of the exercise.

Wednesday, September 5, 2007

America in the Gilded Age: Thomas Edison

Most of us know a little bit about Thomas Edison.  He was awarded over one thousand patents, for example.  He was hero and mentor to Henry Ford.  He was also a great exponent of hard work, saying things like "opportunity shows up in dungarees" and "genius is 99 percent perspiration."

In America in the Gilded Age, Sean Dennis Cashman writes that Edison, along with Alexander Graham Bell, “were, perhaps, the only authentic heroes of the age."  Then Cashman adds a little more color to the story, including a few items about Edison that were new to me:
1. Edison had a healthy ego.  The American humor magazine Puck wrote: “Edison is the type of man common enough in this country—a smart, persevering, sanguine, ignorant show-off American. He can do a great deal and he thinks he can do everything.”

2. Edison knew what he didn't know.  His first notable invention was the Edison Universal Stock Printer (1871), an automatic machine capable of transmitting 200-300 words per minute and far superior to any in use.  With the backing of investors, the 24-year-old set himself up as an independent maker of stock tickers in Newark, New Jersey.  Then he hired English immigrant Charles Batchelor and Swiss immigrant John Kruesi, both of whom had the scientific training Edison lacked. Edison would conceive, Batchelor would draw, and Kruesi would model.

3. In 1873 Edison devised the diplex and quadruplex, allowing two signals to be sent in each direction on the same telegraph line. The quadruplex was sold to entrepreneur Jay Gould, but it was the court battle over the invention, between Western Union and its rival, Atlantic and Pacific, that made Edison famous.

4. In 1876 Edison established the world’s first industrial research lab at Menlo Park, a prototype for company labs of the future. That year he worked on the electromotograph, acoustic telegraph, autographic telegraph, speaking telegraph, electric pen, mimeograph, electrical dental drill and electric sewing machine. In 1887 he established a research facility ten-times bigger in West Orange, New Jersey, employing 120 research assistants and surrounded by 5,000 people making goods from his inventions.

5. Edison invented the phonograph in 1877. He tested it with racy rhymes like:

Mary has a new sheath gown,
It is too tight by half.
Who cares a damn for Mary’s lamb,
When they can see her calf!

When the new invention was presented in Washington, President Rutherford B. Hayes woke his wife in the middle of the night so that she could hear it.

6. John Pierpont Morgan and other New York financiers subsidized Edison’s newly-formed Edison Electric Light Company, believing he could improve on the electric arc lamp, which used enormous amounts of power. Edison discovered that carbon remained stable in a vacuum; Charles Batchelor thought to shape the wire like a horseshoe, and the first viable incandescent lamp burned for sixteen hours on November 17, 1879. To gain support, Edison worked to get his light accepted in New York, Paris, and London.  By 1883 Edison had 246 plants making electricity for 61,000 lamps.

7. Edison was a better inventor than entrepreneur, making and losing several fortunes. He trusted nobody, and his ruthlessness was so ill concealed that he was forced out of his own company. In 1892, when the General Edison Electric Company merged with its great rival, Thomas-Houston, it became General Electric. It took on a new president, Charles Coffin, and it excluded Edison’s name from the company’s title.