Friday, May 7, 2010

The Virtue Of Pessimism

We are told throughout our lives that optimism is superior to pessimism. Our parents tell us so. Our teachers. Our Coaches. Our bosses. The support for optimism is nearly universal. Nevertheless, pessimism has its advantages.

In business, most of what qualifies as “planning ahead” is simply optimism cloaked in jargon. It’s why virtually every business plan contains the infamous hockey stick charts, without rationale to explain the miraculous upswing. It’s also why so few managers are good at handling a crisis. They simply don’t contemplate the negative, and therefore don’t plan for it.

As Thomas Hardy once said, “Pessimism is, in brief, playing the sure game. You cannot lose at it; you may gain. It is the only view of life in which you can never be disappointed. Having reckoned what to do in the worst possible circumstances, when better arise, as they may, life becomes child’s play.”

Believing in something or wanting something doesn’t make it so. And blind optimism leaves managers ill prepared. So once in a while ask yourself, “If I worked for the competition, how would I destroy my current employer?” You might be amazed what a little negative thinking can do for your bottom line.

Saturday, April 3, 2010

Understanding Competency

Companies spend a disproportionate amount of time and money trying to improve their executional competencies (i.e. manufacturing) and comparatively little energy shoring up their less tangible competencies (i.e. consumer perceptions). However, it’s often times a company’s intangible competencies that control its destiny.

In 1997-98 Qualcomm wanted to enter the cell phone handset market. There was a lot of static in the category, with the established handset manufactures and wireless carriers investing significant sums marketing the same generic benefits: freedom, connectivity and clarity. It was a difficult environment to launch a new handset brand, but a great environment for understanding perceived competencies.

At the time, the technological fight over digital standards (CDMA vs. GSM) was just beginning. Yet despite the significant technological advancements being made, consumers were already starting to see cell phones as being somewhat mundane technology. In focus groups consumers would place cell phones near landline phones on a technological continuum (the continuum would obviously look different today). From a consumers’ perspective, once most people have something, its mystique wears off.
The receding technological stature of cell phones in the minds of consumers diminished the perceived competencies of the category. A prophetic piece of quantitative research done at the time showed that people were likely to consider non-cell phone brands over established cell phone brands when purchasing their next phone. (Again, remember that this was conducted in 1998). This demonstrated that broad inventive credentials trumped category specific credentials. Said another way, the more inventive a company is perceived to be, the more consumers believe that anything it makes will be really cool.
Having spent enormous effort designing, manufacturing and distributing a product, it is only natural for companies to want to market its features and benefits. Consumers, however, frequently take these efforts for granted. That’s not to say that the mousetrap doesn’t matter, just that consumers’ purchase decisions are often driven by criteria other than features and benefits.

Friday, March 5, 2010

The Competition Isn’t Who You Think It Is

Every industry has a tendency to become insular, with each company obsessing over the tactics of its category competitors. However, too much time staring inward tends to blind people. They start believing the dogma and worshiping the sacred cows, which leads to groupthink. Categories become more and more myopic. The competitors become more and more alike. And they all become more vulnerable.

For all of the energy expended wrestling for leadership within a category, it is usually an outsider who reinvents it. Honda moved into outboard motors with ease. Target jumped into grocery with minimal effort. Apple made a splash when it introduced the iPhone. And now Google wants to enter the telecommunications fray. None of them had category experience, yet all of them have left/will leave indelible marks on the categories they entered.

An internal point of view has two limitations. First, those with an internal focus tend to place a higher value on executional competencies, like making a phone, than on intangible competencies, like inventiveness. External threats reverse the priority. By definition, “outsiders” lack the executional competencies of the category. So, it’s an outsider’s intangible competencies that enable it to enter new markets. (Understanding Competency—a future post.) Second, those with an internal focus tend to value experience over objectivity. They hire from within the industry and select partners with category experience. The result: an increasingly limited point of view. It’s an outsider’s objectivity that enables it to reinvent categories.

Intangible competencies can trump executional competencies. Objectivity can cure stagnancy and uncover opportunity. Navel-gazing produces lint. So while you’re busy plotting against the competitors in your category, be advised to keep an eye on the periphery. A bully from another playground may be coming to eat your lunch.

Friday, February 5, 2010

Mediocrity Is Easy. Or is it?

There is a school of thought in business suggesting that managers should emulate others in their category. It’s called “best practices”. And “best practice” thinking has led to the commoditization of virtually every category.

Go into any consumer electronics store and you will see rows and rows of black boxes, each with a tag containing bullet-pointed features. Yet, what’s the point? The boxes and features are virtually identical. Consumers have no reason to gravitate toward one product or another. So in the end, we make our decision based on arbitrary and superficial criteria, like the way the remote feels in our hand.

Rather than try to stand out from the sea of sameness, the first instinct for most managers upon discovering the loss of a sale due to the hand-feel of its remote, is to copy the competitor’s remote. The inclination to follow is understandable; it feels safe. Mimicking something successful has a built-in justification. But all it leads to is more sameness. More mediocrity. Not necessarily safety.

Differentiation is difficult. It requires one to stand out. And standing out invites praise and condemnation alike. Yet, mediocrity has its own risks. If competitors in a category are all alike, most or all of them are expendable. Eventually, someone (typically from outside the category—a future post) will upset the cart. Apple broke the monotony of the cell phone market with its iPhone, and the “leaders” of the past became marginal players overnight. Ironically, the category has resorted back to its old ways and is now playing catch-up by emulating its new leader.

Stealing a good idea has its merit. Copying the competition doesn’t. Consumers don’t need five identical options—that isn’t choice. And redundancy creates vulnerability. Every animal in the herd derives comfort from the very thing that makes him expendable. He feels safe due to his sameness. That is, until the herd changes direction and he is the one being eaten.

Friday, January 8, 2010

Repositioning the Competition: The Art of War

Every strength can be a weakness and every weakness a strength. It’s all a matter of perspective. New companies can be perceived to be fresh and exciting, or experimental and unproven. Large companies can be perceived to be strong and stable, or staid and boring. Precision can be perceived to be rigid. Fast can seem careless. Creativity can seem undisciplined.

Opportunity is frequently found by viewing a competitor’s strength as his weakness. As Sun Tzu said, “If we wish to fight, the enemy can be forced to an engagement even though he be sheltered behind a high rampart and a deep ditch. All we need do is attack some other place that he will be obliged to relieve.” The stronger a competitor’s position, the more wisdom there is in attacking his flank.

Take for example the two tourist destinations discussed in previous blog entries, North Dakota and Disney. On the surface, Disney has all the advantage. Disney is well known and very good at creating a surreal and magical experience—an experience North Dakota could never believably deliver. Yet it is Disney’s strength that creates an opportunity for other destinations.

Because the Disney experience is as surreal and magical as it is, the experience can also be perceived to be benign and artificial. North Dakota could position itself as a more authentic experience by viewing a perceived weakness (cold and sparsely populated) as a strength (rugged and untamed). The more rugged and untamed the North Dakota experience came to be perceived, the more benign and artificial the Disney experience would seem by comparison.

Following the competition’s lead ensures only one thing…that you will always follow. A competitor’s strength is a strength for a reason. And direct assaults are usually futile. An indirect approach not only differentiates a company, it repositions the competition in the process. Simply promoting an alternative changes the way consumers view the competitors in a category. The more compelling the alternative, the more a company diminishes the strengths of its competition.