What Future does your Technology Strategy Make Possible ?

a4-300x225What’s consuming your time and energy these days?

What’s harder, coming up with a plan or the planning? Today, numerous automation technologies make modeling and planning easier and more widely accessible . In fact, automation is just one of the many values upgrading to digital technology tools offer.

This is not why, John Hagel of Deloitte,  notably suggests organizations should look ten, if not twenty years out when  when developing digital strategies. He found that of the 2% of companies who say their thinking makes use of  truly long term horizon, they derive considerable benefit.

Yes, I swapped the word thinking for planning to be truer to Hagel’s observations. Technology changes’ inescapable link to organizations’ Financial Performance  forces everyone to keep up, and that’s both good and bad, he recently told the MIT Sloan Management Review: 

“[Hagel’s] sense that the old approaches are just not sustainable, and some senior executives have seen the need for fundamental change driven by this technology. The big issue for them is how to get that change to happen in a large traditional organization.”

Wait, he’s not talking about scenario planning, a worthy tool in the strategic tool box that proved advantage to Royal Dutch Shell with lengthy timelines for oil discovery and extraction. This contrasts with Digital technologies timetables, stuff that changes faster than anyone has been able to imagine.

This short term focused impact thinking Hagel and others suggest proves self-limiting and injurious to organizations.Particularly because both changing culture and enabling learning are time intensive activities and rarely get priority, and arguably leads to performance failures in too many organizations.

Thinking through a technology change

Global Positioning systems (GPS) technology, for example, everyone now recognizes removes the pain and uncertainty of time, distance and routing. The tools also deliver greater efficiency and optimize resource utilization. In 1973, when the US launched its first GPS satellite project, few organizations began to imagine how geolocation capabilities  could enhance their business.

What did they have to understand? What were they waiting for? When did it become obvious and inevitable that Geolocation was an imperative in every business?  I imagine thinking through this change might go something like this.

Built in navigation tools became available in the first mobile phones and improvement has been continuous; however the new opportunities and new businesses they have created were described as disruptive. The number of people who fully  know or understand how these navigation tools work may be limited but didn’t stop them from successfully scaling and spreading. Geolocation has become so embedded in our lives that many of us feel lost without them.  Likewise businesses  like UPS, UBER or your local coffee shop depend on them to drive revenue, though only one may have incorporated the development and evolution in their long term planning.

Not everyone recognized how to turn the possibilities Geolocation enabled into successful business opportunities. The questions and issues associated with longer term technology changes were the focus of the January  Chicago Booth Strategic Management practices discussion.  The following summarizes some of the conversation exploring  the merits of planning with exceedingly long horizons, such as 10-20 years versus the common place three to five years.

A few caveats.

The discussion did not reference methods for engaging in really long term planning, and all acknowledged that predicting the future was not really the point. Instead we relied on a few articles (see bottom of the post), participants previewed in advance, to set up the conversation that focused on the necessity and benefits of formulating digital strategy.

We discussed the relevance of the horizon itself, and its power to dictate the frame of reference , “fix” the focus of  planning  that misses the ripple effects.  As one member explained, planning that focuses on the future, should also consider and think through how the choice and change in capabilities that your methods, processes and market dynamics preserve or inhibit your advantage.

In summary, we uncovered several strategic advantaged capabilities enjoyed by  only a handful of organizations who do indulge in a holistic long term digital strategy planning.  Take a look at what we discussed and tell us what you think.

Value of Subsystems

If we use the example of automated on the ground navigation systems , in hindsight, it’s easy to  imagine how many different industries and benefits would benefit from this capability. For example, the benefits to Triple AAA differ than those that would accrue to UPS. Imagine the steps in the plan that the former might have initiated.  Digitize the original triptik and triple AAA could distribute route maps cheaper, better and faster, right?  Nice plan, but much harder to execute.

The steps we can imagine might have been something like these.

  1. Digitize maps by converting the physical visual information into searchable and thus manipulative format. Note, the task simplified by adopting pre-existing map making standards coordinates for longitude and latitude, as well as specifications for road type, elevation, distance, population density, geographic features, infrastructure etc.
  2. Working in the address system, which varies in consistency within an area and across areas. For example, Chicago’s grid system makes it easy to pin down an address, than the numbering in New York city. Naturally, these numbers need to be linked to the map longitude and latitude coordinates.
  3. Determine the accuracy of a given map and then keep them up to date. Roads are constantly undergoing improvement, and construction often adds or removes existing buildings changing addresses in the process.

Did you notice the subsystems that make this one idea easier to realize?  There are many more than I’ve mentioned, and consideration for each of them expresses why planning takes so long and can easily get very complicated.

Value of Experience and Re-use

Re-use, that was one of the first lessons I learned when I began to code (or write the instructions that allowed the computers to read/write different inputs to generate specific outputs. use, change data into output. To code from scratch was just plain silly. Chances were exceptionally high, that someone before me had code that worked and could accomplish at least part of what I was trying to accomplish.  It’s a simple lesson in systems too.  Systems, like problems, when broken down into smaller parts become easier to manage when you see and understand how they work.

The plan, or the idea may be inspiring but as Dwight Eisenhower remarked, it’s nothing, as planning is everything.

The value of planning often exceeds the plan because the experience of thinking through the subsystems can be re-used. The experience when shared also builds trust in the method and in your people.

Too often the focus is placed on generating a plan, and then backing out the projects that when successful will produce the results desired.  In a rapidly changing and dynamic environment, creating opportunities to challenge and improve our judgement coincide with opportunities to practice and strengthen competitive advantage by strengthening and promoting behaviors such as responsiveness, adaptiveness and risk taking.

Behavioral change, learning and knowledge acquisition take time and improve with practice. Notably it’s difficult to plan for disruptions, but we all accommodate and assimilate changes, the challenge is how to leverage this inevitability at an organizational level.

The obsession for clear return on resource investments compromises organizations’ long range planning or fully work through the possibilities of disruption and its effects. Similarly, few firms create the capacity and preserve time and talent permission for open experimentation and playing out multiple possibilities, such as Google’s Moonshot or Amazon’s generative experimentation. At the other end of the organizational spectrum, start-ups  do  take considerable risk to prove out their ideas only to change their focus and curtail their experimental capacity once they begin to scale.

So why do organizations continue to engage leadership in near horizon planning and even make use of social network technologies to broaden the input to include customers, employees and/or investors? Perhaps it’s a coping mechanism for the inevitability of change and a response to the dynamics of the marketplace while also garnering investor confidence, customer loyalty and employee engagement.  The tools that permit prioritization or even selection are more often based on the ability of the organizations to cope as well as adapt to the suggestions.

Leadership obviously plays a role. Perspective and ability to manage, versus address, the continuum of known possibilities limits their risks and accountability to short term while excusing their failings.

If timing is everything, then dealing with the here and now, and near, minimizes risks and costs necessary for survival but fails to secure competitive advantage.

This folly of short term thinking preserves alternatives over pursuit of a specific scenario of indeterminate future.

It was hard to explain whether the size of the organization determined its immunity from the dangers of failing to engage in planning with a longer horizon. No one had any experience that suggested larger organizations feel the pains of change sooner, or prove more or less resilient, adaptive to long term planning.

All agreed that understanding ecosystems, the dynamics of change warrant every organization to think through how these forces affect their organization not just in the near term but also long term.  More over leadership produces benefits when they increase adaptiveness and open mindedness.

Below are the articles we reviewed as the basis of our conversation.  Got anything to add, or suggestions for where we might find cases or evidence of the impact of long term planning would be most welcome.

Articles

Predicting the future, how to engage in really long-term strategic digital planning
http://sloanreview.mit.edu/article/predicting-the-future-how-to-engage-in-really-long-term-strategic

In the age of Autonomous cars, can your organization also be driverless
http://www.strategy-business.com/blog/In-the-Age-of-Autonomous-Cars-Can-Your-Organization-also-Be-Dr

AI, Self-driving cars and cyberwar, the technologies to watch for in 2017
https://www.theguardian.com/technology/2016/dec/25/ai-self-driving-cars-and-cyberwar-the-tech-trends

Transformation Readiness, is it the strategy of necessity or opportunity?

Bruno relative changeChange is something we live with, in large part because when it happens we tend not to notice.

In the 16th century, a philosopher of diverse interests astutely observed change as a relative concept which as an observer in motion makes it difficult to observe.  Change, when observed ultimately tests our understanding of time and I suggest adds meaning to much of our actions.

Change we make happen feels different than change that merely happens independent of our actions. What we make possible now becomes different than what’s expected and predictable.

Notable Change

Ever intentionally stare at something that over time gets closer or farther away?  You know the object travels distance, yet it’s difficult to perceive or notice its movement.  We perceive and understand change similarly, once we notice a difference we know change happened but unable to sense as it happens.

Traveling relative to moving fascinated Einstein too.  December marked the 100th anniversary of Einstein’s publication of his theory of general relativity. Naming, and then expressing the idea, requires different capabilities than understanding or theorizing the concept.

Ever try to make someone else understand something you know? Did you only use language? Or did you also use pictures, gestures? Analogy,  metaphor and  story all help others understand what you know, but until you actually do what you describe your understanding won’t be sufficient.

Scientists experiment in order to test out an idea they think works. In business, customers test the worthiness, or value of what the business offers. In both Science and business, it takes more than knowledge to be willing to test the idea. That extra ingredient I lump into a category I call readiness and its inextricably linked to change.

Perceivable change

Change, often defined as the difference between one point and another.

Point A                    Point B

  •                                X

Take a look, how do you perceive change? General relativity explains that space and time both move, not exactly together, but relatively which like change makes the concept difficult to grasp, let alone measure.

Time keeping, now standardized, makes everything we do on earth measurable by contrasting it to the standard of time. Knowing the amount of waiting time helps us manage our attention by creating an expectation.  Standardizing time, allows us to plan and coordinate what we do for ourselves and with others.

For example, few people literally watch while waiting for a kettle of water to boil. The temperature of the water begins to change in the presence of heat. Reaching the boiling point proves to be a relative and meaningful change. Conversely, if the boiled water was used to brew tea or coffee,  knowing that without sustained heat, the same water will cool.

We experience waiting, not as the transitional changes in the water’s temperature, but the time difference between the thresholds. Placing a thermometer in the water allows us to observe  moment-to moment change in temperature but does little to change what we do while waiting. Similarly, the increasing number of installed sensors in the physical world  make it possible to observe the invisible moment-to-moment changes occurring around us.  Smart meters measure the amount of energy being consumed in a location, smart phones track distance traveled in greater detail than a car’s odometer.

Making change

What value does additional tracking offer?  Traveling, or consuming energy doesn’t happen because we measure them, nor does the rate in which change happens once measured.

Ever smile? This change we make in our outward expression isn’t always a conscious action and yet we may first discover by observing the reaction chain our smile produces in others.

If you want to understand change, try thinking about it with respect to time.  Actively trying to make a change happen helps us focus and notice the amount of time needed before the desired effect happens. Ever notice how long before others react to your smile, or until you feel water getting cold or getting warm?  Feeling the change in sensation doesn’t require quantification, or precision. Time too seems irrelevant, beyond our ability to recall.

When describing invention, as in the mother of necessity, what does this imply about our needs and our existing capabilities?

Possibility, are you asking how or what?

Polarity, the idea of opposites, turns thoughts and possibilities around like  a pendulum  always moving from one extreme to the other. That is until the thought runs out of energy or momentum and stops. It rests until some force displaces it.

Recently, a client asked for help explaining the difference between planning for a transition and planning a transformation. Since Transformation seems to be one of the buzz words of the moment, I began to wonder what made the two thinking processes different, and what did they really mean. My polarity thinking friend suggested that transitions plan for certainty, or near certainty and transformation plan for uncertainty.  I disagreed.

I think of a transition as the pause between takes, what happens between two clearly defined states.  It’s when we assess, evaluate or figure out our position, how close or far. Transformation, that’s the feeling we have on arrival, we made it so now what.

In other words, if the client has a clear objective as in to take a specific distant hill, then transition plans incorporate the certainty that elevations will be changing on route and insures the team’s prepared for the journey. When it knows  what changes to expect along the way, then it’s transition ready. Transformation focuses on arrival, different conditions and challenges it doesn’t know, but can imagine arrival makes possible.  After all, isn’t that why the objective was to take the hill?  Wasn’t it about the advantage that being on top offers?

Put another way, imagine what you want to do is known, like traveling to another location.  Transitions focus on the journey, how long will it take, buying tickets or planning the route. Transformation planning asks how the change in location affects your current activities.  Transitions are more whole body time shifts, where as transformation puts your head in the future while the rest of your physical body remains grounded in the present.

November’s topic for the monthly strategy discussion focused on Transformation Readiness. Before I managed to summarize the conversation and post notes,news about the sale of Mariano’s to Kroger caught my eye. and then I also spotted  an interview with CEO, Bob Mariano on the Chicago Booth website.

If you are not familiar with Chicago, then let me explain that Mariano’s was a new entry into the grocery store business. By coincident, just as they had opened a few stores one of Chicago’s main competitors –Safeway decided to close all of its Dominick’s stores. This meant Mariano’s acquired 10 of the closed stores and their debt fueled expansion took off.  That’s when Kroger came calling.

Since I had already been thinking about  transformation questions , as in how do you get transformation ready, I thought it worth sharing these responses.  Take a peek, and let me know what you think, are the example transitions or evidence of transformation readiness?

Scenario A: I think that Mariano’s namesake, CEO and founder, Bob nailed it when he said:

“At Mariano’s, we tried to push further. We continue to push.  What I mean by push is to expose the customer to different and unique things and allow them the opportunity to tell you, ‘No, I don’t like that,’ or ‘Yes, I like that.’”

Scenario B: Or maybe you prefer the spin by CEO of Shazam when asked about the increasing gap between growth in the amount of information and its utilization. ” …How do you improve data intelligence?”

“That’s definitely the case [that there is a data knowledge gap] and for years we have been talking about data warehousing, or capturing that data, but turning information into data intelligence is a new journey for many companies…”

Or, how about the Gambling industry insiders view who characterizes difference between digitizing or converting your industry to the reality post conversion this way:

Advancements in technology has brought about a rapid digitization of gambling and almost every other industry. Some have managed to exploit these developments more than others and I think that the gambling industry is at the forefront of how well technology can be applied to a domain.

As an industry we must be open to change and pro-actively look at how we can exploit such technologies to provide a better and more entertaining experience to our customers. For example, the progress in Touch ID has enabled us to allow LeoVegas iPhone app customers to log in to the casino using only their fingerprint.

Are you wondering why distinguishing between transitions and transformations matter? Or, even better, how your business can take greater advantage of the widespread availability, access and flexibility that a fully digitized world creates?

Great, now you are thinking strategically.

How Old Metrics may strand you strategically

Ever stIMG_0267op to consider how the ever present changes going on around you make your own transformation easier?

John Hagel relatively recent blog post describes the opposite.

In a world of accelerating change, one of our greatest imperatives is to “unlearn” – to challenge and ultimately abandon some of our most basic beliefs about how the world works and what is required for success.

Accenture a few years ago noticed that many different companies had shifted their approach to strategy. Perhaps, the availability of cheap, powerful computing capacity and Big Data are responsible for driving changes in strategy development as more organizations using technology find it easier to build consideration of the future into their present planning.   Hagel, a long time fan of scenario planning would applaud these efforts too.

With the rise of automated business processes, analytics too get incorporated automatically to enhance decision making and may be simultaneously compromising management capabilities to internalize all of these changes or understand the underlying dynamics traditional measures mask. Several articles provided case studies in different industries provided the basis of discussion around transformation (see the bottom of the post for specific article links).

how to lie with staticsSuccessful organizations rely on their strategy to put forward action plans, realize new ideas while averting risk. Statesmen and management alike find themselves in precarious places when they assume a trend will continue without change. Many statistical methods and decision-makers use of data remain unchanged from 1954 when Daniel Huff first published How to Lie with Statistics. His timeless book describes very simply the perils of improper use of methods that were designed to capture and explain if not contextualize the significance of singular observations, or data.   The current transformations enabled by technology have done more to alter behavior than organizations seem to recognize. That’s the path our discussion took.

The capability for insight

Prospective vs retrospective cohort analysis  and data mining techniques are far from new. Though the volume and speed of available data to digest and process with ever The increasingly sophisticated tools and the ease with which volume and speed of available can be processed may help as well as hinder their digestion. Sure the time to test alternative scenarios may be faster, but how do you choose the model?

Do you begin with the intended outcome? The scientific method and numerous models from multiple disciplines make it possible to isolate factors, determine their significance, and estimate alternative scenarios and assess how these variations produce changes in impact.

Similarly, the cross pollination of data modeling from one discipline into multiple industries and use cases continue to shift management beliefs regarding the importance of specific factors and interactions in their processes. The perennial blind spot denies many organizations and their leadership the insight necessary to transform both their internal strategic thinking process and business operating models. Last month’s discussion of McDonald’s and Coca-Cola illustrated how easily leadership misinterpreted fluctuating performance as temporal issues versus recognizing structural factors. It’s one thing to balance efficiency and effectiveness, quality and satisfaction and another to manage awareness of change and insights necessary to your continued survival.

What else thinking

“…both the digital world and the physical one are indispensable parts of life and of business. The real transformation taking place today isn’t the replacement of the one by the other, it’s the marriage of the two into combinations that create wholly new sources of value.  “

The sudden availability of online data tracking provided many organizations with the proper capability to understand user behavior differently. A whole new industry arose to focus on interpretation while creating of new measures while also introducing new thinking about effectiveness in sales, customer service, training etc.  Metrics, once created to prove out a strategy or an idea, now leave many organizations vulnerable until they build up the capacity to understand this new thinking let alone make corresponding operational changes necessary to sustain their business.

This is not the story of companies who fail to adapt such as Kodak who invented digital cameras only to retain their focus on film; but maybe it is.

http://www.cognoise.com/index.php?topic=17598.0Computerized reporting dashboards summarize specific indicators or activity associated with managing process or business relevant factors. The time and reporting cost savings that result from the automatic generation and ready access to information by managers and executives reinforce existing thinking and leave little room for understanding wider changes that may be impacting their business. It wasn’t long ago that analysts, and teams of them, spent their entire day pulling data and then calculating critical statistics detailing the effectiveness and efficiency of organizational activities to create reports for senior management. These efforts also made them accountable by insuring the data was clean, verifying whether outliers were real or indicative of a model failing to fully capture the wider dynamics. I was once one of those managers.  Today, automated reporting has eliminated many of the people capable of deeper data exploration and who chose what data, which statistics and the context necessary to understand the situation. The second problem is that data shared graphically or in tables never tell the whole story, though infographics do try.

A good analyst is taught to review the data and results, double-check whether the model or calculated results makes sense. Sure managers and executives may be quicker to detect aberrations and then raise questions but , how many of them have the time, patience or skills to test their ideas or intuitions? I imagine very few if any. Where are these available resources and how widely known are they to questioning executives?   How might the dashboard provide additional information to help frame the results executives see as they too seek to understand or make sense of the results?

Outside in thinking

Established data flow processes and automated reporting do deliver great advantages but they may also explain why outsiders find it easier than insiders to create new business models.   Where’s the out of the box thinking? And how can different data help?

Sure, it’s easy to blame regulatory requirements or compensation structures incentivized to focus on effectiveness and efficiency that leave little latitude to notice opportunity. For example, in the airline industry route fares were once set by regulations. The minimum fares were intended to cover airlines operating expenses that both insured passenger safety and access to air travel in more locations where market forces may lead airlines to cut corners. Deregulation may have given airlines additional freedom but many manage their business using the same metrics that they report to the Department of Transportation. Likewise in Healthcare, the imposition of new regulatory requirements came with new metrics that forced hospitals to focus on patient outcomes not just their costs.

When executives bottom line focus limits their thinking as an exercise in how making corrections in operation may maximize that number they overlook other contexts. Data quality issues should surface quickly in most organizations, but what if another factor created the data issue? A misplaced data point, or inconsistent treatment of the content of a data field rarely explain all aberrations in the results.   Weather, for example exemplifies a ubiquitous, exogenous variable. Observable data fluctuations may be directly or indirectly responsible by affecting other more directly connected factors, such as a snowstorms that change people’s activity plans. I’m not familiar with any automated reporting system that will automatically create a footnote to the data point associated with the arrival of a snowstorm. The reviewer is forced to remember or manually if possible add the footnote for others.

Bigger transformations to come

Bain believes there are significant implications for every organization that result from this digital and physical combination of innovations , they call Digical. It’s not easy to keep up with the corresponding behavioral shifts that result from these rapidly changing technological capabilities.

Focusing exclusively on efficiency and cost data helped management measure impact in the old era, though still necessary today they may no longer suffice. Do you know how social behaviors of your customers impact your bottom line? The technologies to support your business, such as your website or your cash register misses out on the social behaviors evident on sites like Facebook, Twitter, Yelp or even their bank. Mapping the ecosystem and then aligning the digital tracking data can now be supplemented with sensor data that may be anonymous to specific customers but can inform movement and actions relevant to your engagement.http://intronetworks.com/making-amazing-connections-siggraph-asia/

Naturally, as mentioned earlier bias plays a role in our inability to notice the significance of new data. The more we automate and configure systems to measure what we always knew mattered, the less likely we are to be able to recognize new data and its significance. What should you the analyst and you the executive do to counteract these factors?

Takeaways

Monitor the activity of smaller companies as they experiment to learn what’s most relevant.

Don’t make assumptions, exercise strategic intentions to become more open receptive and curious about anomalies and be more creativity and persistent in identifying the drivers or possible factors.

Historically, metrics were an output designed to assess the validity of your strategy –did it work and/or deliver value. Not it’s time for strategic thinking to view metrics as an input. The use of statistics enabling analysis tools partnered with business knowledge and acumen must be part of communicating to higher levels in the business.

Often we measure the wrong things because the incentives are misaligned. Am I paid based on my proven ability to produce widgets at specific levels , or to produce effective, sustainable results for the business, not just my business unit?

Computers are useless they can only give you answers. For strategy, validating the questions may be important but so too is taking the time and effort needed to determine even better questions.

ARTICLES

Alternative case examples

Bain’s study and understanding of the state of “digical” transformation:
http://www.bain.com/publications/articles/leading-a-digical-transformation.aspx#sidebar
Fast Food
http://www.qsrmagazine.com/reports/drive-thru-performance-study-2014
Wireless
http://www.rcrwireless.com/20140812/opinion/reality-check-new-metrics-for-a-changing-industry-tag10
Television
http://fortune.com/2014/10/23/adobe-nielsen-tv-ratings-system/
Gaming
http://www.gamesindustry.biz/articles/2014-03-10-social-currency-has-real-value

What strategy will help Coca Cola and McDonald’s continue to Grow?

Publié le 25/03/2010 à 23:33 par papillondereveMcDonald’s and Coca-Cola, two of America’s most iconic brands were the focus of the January 2015 discussion.  Why pick on them?

  1. The market has been digesting repeated disappointments over quarterly earnings and fueling speculations about their future.
  2. The availability of ample data and a broad set of analyses serve up a perfect opportunity to further our own understanding of the strategic challenges related to sustaining growth.

Typically, most organizations begin a strategic assessment with a simple SWOT analysis.  Instead,  we followed the Chicago Booth tradition and began with a look at available data.  We reviewed a  series of articles before discussing these two companies’ prospects for future growth. (Click here for the links and discussion preview.)

Both companies offer evidence demonstrating how their history and initial value proposition continues to dictate their forward strategic paths. Or as Michael Porter would say,

“Strategy 101 is about choices, you can’t be all things to all people.”

Once you decide whether your organization will be a cost or benefit leader, aligning your resources and messaging becomes simpler. Price doesn’t fully substitute for quality, and consumer preferences are not always consistent. An organization’s successful growth demonstrates it’s priorities and reflects its consistency to deliver on its commitments to customers and their preferences centered around price or quality.

McDonald’s and Coca-Cola sensibilities and capabilities embody the management principles of post war industrialization. The hallmarks of efficiency embodied by these two brands commanding distribution networks reflect their unwavering commitment to quality, consistency and convenience. Each however has defined value differently in the eyes of their customer which further enabled their brand’s rapid, organic growth.

McDonald’s initial automation and efficiency enabled it to deliver meals affordably, conveniently,consistently in an atmosphere that maintained a high standard of cleanliness equal or better than its competition. In 1953, these standards proved themselves effective differentiators.

Coca-Cola chose to deliver on the benefit side, historically limiting its physical assets and focusing on relationships, advertising and consistency around quality.

Operating within the boundaries of these original value proposition, both brands performance over time demonstrates how their responsiveness and sensitivity to regional differences and changing customer sensibilities allowed them to continuously add value and grow. Each brand’s commitment to experimentation and innovation proved central to fueling organic growth. Further,  their individual strengths allowed them to leverage new ideas, even when introduced by competitors.

TaB adIn 1963, Coke’s introduction of TaB followed the success of Diet Rite Cola, a first entrant in the sugarless soda category. In 1962, McDonald’s introduced the Filet-o-Fish as a meatless alternative for observant Catholics following the suggestion of an Ohio Franchisee responding to local competition

Eww Arch Deluxe ad For each, their share of successes also included colossal failures. Who can forget New Coke, or McDonald’s Arch Deluxe? Per Daily Finance.com these two were the #1 and #4 biggest product flops of all time. Both however learned from these experiences and were quick to renew the good faith of their customers and keep growing.

That is until now.

The value defined by their strengths, brand status advantages and considerable market dominance delivered significant success, but now cloud their vision and impede their path to future growth. After all, what’s really left for them to tweak? What haven’t they tried and learned?

Beyond Strength

Both companies continue to demonstrate long term value for their shareholders.  Each provide great capital returns and margins.

  • Coca-Cola has paid a rising dividend since 1963 and has a current yield of 2.88%.
  • McDonald’s has paid a dividend since 1976 and has a current yield of 3.72%.

Each holds the leadership position in their category, continue to show signs of forward thinking and planning at levels of coordination and integration that few companies achieve. Their initiatives, irrespective of success rates are also lessons and templates offering competitors a looking glass into the future.

According to data from the National Restaurant Association, fast food accounted for about 28% of the $683.4 billion in overall U.S. restaurant sales in 2014. The Palo Alto Medical Foundation reports that 25% of Americans eat at fast food restaurants every day.  . Quick Service Restaurant (QSR) magazine identified McDonald’s as the world’s biggest restaurant chain by revenue-$36B in US sales in 2014.  This equates to an estimated 18.6 percent market share of the entire fast-food industry. (Per IBISWorld market research 2014 as reported by franchise chatter.)

“McDonald’s stands for value, consistency and convenience,” says Darren Tristano at Technomic,”and it needs to stay true to this. Most diners want a Big Mac or a Quarter Pounder at a good price, served quickly. And, as company executives now acknowledge, its strategy of reeling in diners with a “Dollar Menu” then trying to tempt them with pricier dishes is not working.”

Just as McDonald’s typifies the fast food industry, Coke is the soda industry, or as Mike Weinstein, a former president of A&W Brands told Business Week,

  “Whatever Coke does, it’s seen as what the soda industry does. What happens to Coke eventually happens to everyone.”

And So?

The strengths of these two brands and value propositions sound good for McDonald’s and Coca-Cola. Their future growth however depends on just how they renew their efforts and focus and capitalize on their key strengths. The forward position challenges you to see and respond to changes  in your business environment faster. Their sheer size and market share visibility also make both more vulnerable to wider market pressures.  Especially in the U.S., where both companies current experiences and declining sales volume indicate they somehow misread the significance of changing American attitudes  around nutrition and choice.  For example,  the 3% decline  in 2013 of the entire carbonated drink market in the U.S. hurt both companies’ sales.

For Coca-Cola, the emergent energy drink category displacing their sales creates challenges for which they  have not had an effective response.Similarly, the alternative fast growing Fast Casual category represents McDonald’s biggest threat. Further growth in this category limits further expansion in the corresponding Fast Food category, and McDonald’s too has yet to effectively compete.

In addition, both new categories prove highly appealing to millennials whose behavior and preferences some analysts contend prove influential to other segments. No wonder both brands chose to leverage their considerable resources around what they know. Each reportedly are investing $1bilion in advertising in efforts to re-establish awareness among this key market segment.

Holding the value of your brand

Interbrand’s 2014 Best Global Brands
2014 RANK 2013 RANK BRAND SECTOR 2014 BRAND VALUE (USD $billion) % CHANGE IN BRAND VALUE
1 1 Apple Technology 118.863 21%
2 2 Google Technology 107.439 15%
3 3 Coca-Cola Beverages 81.563 3%
 ….   ….
24 22 Pepsi Beverages 19.119 7%
38 37 Nescafe Beverages 11.406 7%
72 69 Sprite Beverages 5.646 -3%
….   ….
9 7 McDonald’s Restaurants 42.254 1%
68 66 KFC Restaurants 6.059 -2%
76 91 Starbucks Restaurants 5.382 22%

Source: Business Wire, Oct, 9, 2014

As shown above, in 2014 Coca-Cola’s increased its estimated brand value of $81.56 billion 3% from 2013 permitting it to hold it’s #3 position a second year in a row. This is after losing the #1 spot it held in 2012 and a decade long decline of American soda sales. Their continued brand dominance reflects the impact of their recent marketing, acquisition and diversification strategies.  Business Week explains it this way:

“In 2007, Coke found that 20 percent of the sales and 50 percent of the growth in the $120 billion beverage industry came from small, independently owned brands, a third of which hadn’t existed five years before. That year, Coke launched its Venturing & Emerging Brands (VEB) division to cultivate relationships with and ultimately purchase some smaller startups.”

In Contrast, McDonalds estimated brand value of  $42.2 billion increased only 1% over 2013 reflected its slowing growth and dropped it to #9,  down from #7 position it held in both 2013 and 2012. (Note the distance between these icons and their nearest category competitors shown for comparison).

The marketplace loves a good story of failed leadership. When the mighty fall the press and public are quick to pounce and in some ways, fresh eyes and alternative experiences and optimism may prove more than beneficial. Will activist investors get their way?

Then again, in taking a close look at the fundamentals of size and respective asset valuations our disccusants were reminded of the difficulties around sustaining organic growth.

Below you’ll find the participants takeaways following our most recent discussion. Read the articles, see if you agree. After our usual wrap-up, you will also find a series of simple questions we plan to raise with a few folks with deeper knowledge and a more intimate understanding of McDonald’s.  We will post their responses when they arrive.

TAKEAWAYS

  • The one size fits all notions that produced cookie cutter efficiency and passed on volume savings to maintain quality suited the growing quick service restaurant category, when there were few comparable alternatives. Today, the US market especially its urban centers, reflects far greater diversity in the category. The growing variation along the price value continuum illustrates the market’s response to changing attitudes, palates and preferences of consumers as well as differentiating  perceptions. Use your strengths to build alternative restaurants, maybe tailoring them  to regional preferences and further diversify your portfolio holdings.
  • Separate the brand from the occasional value meal inspiration.  Sure everyone appreciates getting the best value for the lowest price, but it’s difficult if not impossible to deliver differential value messages within the same location as in the value meal combination vs. purchasing off the dollar menu. Turn your attention to differentiate your value relative to your competitors at similar price points.
  • The strengths that prove appealing to shareholders don’t indicate your understanding of individual customers.  Declining customer counts along with infrequency of return visits suggests the absence of resonating experiences necessary to meet the demands of the increasing segmentation within your broader competitive category. How can you continue to benefit from your existing strengths? Pare down your menu further to deliver the essentials of what your core customers want, assuming you really understand who that is.  Once you do, use a loyalty program to reward them and keep closer tabs on their responses as you continue to test.
  • If increasing customer price points is key to your growth equation then you also need to offer higher value for the price in order to avoid losing the core brand identity.  Obviously in rural areas where the choices are fewer, you retain a firm grip on the market and can delay changes. Unless the $1 menu, or $1 menu plus offers acceptable margins you may need to find alternatives to pass your volume discounts on to consumers.
  • Separate supply and demand functions as you manage the business going forward.  The benefits from your superb asset management capabilities on real estate, currency risk and supply chain have been impeccable and thus puzzling to watch your miss on the demand side. Are there lessons in creativity and management that could prove helpful?
  • The proliferation of segmentation in the marketplace let alone in your customer base requires a more innovative approach than mere brand building activities offer. In focusing on the customer experience you may miss aligning around your core identity. Another reason it may pay to try an alternative diversification strategy through new restaurants, concepts that don’t compromise but complement the existing franchise.
  • One of the problems of being so big and maintaining a healthy distance from your nearest competitor means you were insulated from the small ripples of changing sentiment that others were quicker to seize upon.  Your crumbs became their meal and growth ticket.  In order to get out front again, you may need to get much closer to your customers, and surprise them, delight them or even choose to get cozier with your competitors again to find a way to grow the category together.

Concluding remarks:  We know we didn’t discuss Big Data or social media or even mobile so there’s plenty of things we missed in 90 minutes. Please, share your suggestions or comments on what you find to be effective growth strategies for market leaders who seem to have hit the end of their runway.  We’d love to hear from you.

Taking Aim at Corporate Leadership–

Jamie Dimon, Hugh McCall were just a few exemplary CEOs that were discussed this morning in our discussion around Leadership.  Their ability to deliver, tough minded interactions with their boards, zero tolerance for non-performers and vision for their organization suggested that we seem to recognize good leadership when we see it.  Characteristics or the actual qualities that define leadership, however prove more difficult to understand, identify or measure for impact.

lessons-from-ducks If you invoke the simple rule of followship, then you may end up in a precarious position.  Ducklings naturally follow their mothers and the mother duck in this example shields her offspring from danger but does she really lead?

Our perceptions of leaders and the realities of effective leadership are not always in synch. Robin Hood the hero captures our attention and appears to have attracted quite a following or at least that’s the legend as it’s often told.  Reality illustrates that he was far more enabling and was probably an amazingly talented lieutenant under King John who really had the skills and experiences to inspire and train and command a team. (See Suggested articles at the bottom of this post).

Likewise today’s army does an astonishing effective job of command and control style leadership by focusing on developing people by instilling the philosophy of Be Know and Do.  The trust within a unit and the capabilities of individual members are as critical as the leaders’ vision.  The clarity of rules for succession to command are both important and immediately visible.  Every individual is responsible for every one else on your team.  Effective units require individuals to be both emotionally committed to the task as well as each other.  The army exemplifies meritocracy and demonstrates what it means to instill the construct of success from the imperative that failure is just not an option. Which means every soldier needs to help the other soldiers excel.

How exactly does the US military achieve this level of functionality and effective leadership capability?  They also use scenario planning, simulation and constantly are challenging the relationship and perception of leadership.  But does it effectively translate into business settings, or other situations where the consequences from failure are not life threatening?

One take suggests that leadership gets people to do things they wouldn’t do under their own volition.  Leadership in this frame, inspires providing mutual psychic rewards to those leading as well as those being tasked to perform. In the context of the military it’s easier to imagine how the threat and danger elements are put to effective use, but the problem is translating them into everyday work situations.

Vision obviously matters and mercurial leaders like Steve Jobs or Richard Branson who changed the rules when they entered the business are rare. For those organizations that inherit leaders, or for whom a board replaces the leaders the embedded base may prove difficult if not impossible to move or motivate.  What are the basis or selection criteria that a board uses to choose its next leader?

Alan Mulally was brought into Ford and made big bets with expectations of long-term payoffs.  Not every leadership situation fits every leader.  Situations also change over time as is illustrated by Dov Charney who may have been great at building, growing and even scaling American Apparel until his behavior no longer suited a bigger organization.

In other words, context alone isn’t the only consideration, but boards misjudge the situation or their market or their issues ore than 80% of the time.  Which explains why the failure rate of placed leaders is so high.

when does situational vs. industry competency matter?  Not clear that many people posses capabilities in both.  The ability to adapt, flexibility and even the awareness of the rate or pace of change in an industry can be difficult to assess.  This is why succession planning and preparing your team with the discipline and transparency the military uses may prove invaluable, both as a motivator as well.

Take Aways:

Leadership to be effective must be situational:

  • offensive vs. Defensive
  • Political vs. independent
  • Short term vs. Long Term
  • Intrinsic rewards vs. monetary rewards.

The Be, Kind and Do paradigm useful and instills a discipline of Respect, Flexibility, collaboration, knowledge and courage.

We tell too many war stories that may or may not be enough on point. In Business, the importance of boards hiring, managing and changing leadership process increasingly critical.  Question is how effective are they at choosing the criteria that fits the situation the company faces?

Leadership traits are also complicated and thus vary by context, industry, “charter” etc, this variety of dimensions make it difficult to codify into one description.  This is why there are so many books on the topic!

Leadership–we need to change the paradigm, understand its situational dependence and clearly evident when they plant trees!

Situation specific, leaders good in one may not transfer/translate well in another.  Parameters worth considering include:  the business life cycle, rate of change in the industry, customers, type of business (e.g. retail, government contractor etc), growth or mature or crisis?

Under different conditions, different attributes matter.  need to assess the situation accurately in order to effectively make the call of what type is needed.

Never one set of attributes that make a leader, the context really matters!

Suggested Articles

The following links to articles were merely suggested as background reading to inspire participants thinking:

US Military’s leadership development strategy

Mobile Strategy–an imperative for your future

Note to readers: The graphic to the left was found After the  October 18, 2013 discussion, inspired by articles listed at the bottom of this post.   

Does your near term performance hinge on your understanding of mobile  technology, and if so, how critical a role does it play?

Infographic-2013-Mobile-Growth-Statistics-MediumToday mobile platform adoption rates outpace the technology’s downward pricing.  The dual benefits of convenience and constant connectivity offer irresistible value and overwhelm the initial cost bumps associated with implementation.  It’s not merely the anytime anywhere connectivity with your social network that makes mobile valuable. Mobile technologies offers direct access to increasing varieties of information at the tip of your finger anytime and every where (if there’s wifi).

Questions that used to leave us uncertain, can be easily answered.  For example:  How soon until the next bus arrives?  What’s the best route to any intended destination?  What can I make for dinner? Who has the best price? What’s the name of this song playing right now?

Short message services–SMS, Geo Positioning software – GPS, Google search, untold numbers of product and service applications and internet browser capability are now built into multiple mobile devices.  They allow everyone to travel lighter and access the information needed at the right time.

For business, if you don’t have a mobile strategy yet,  best make it a priority.  At least that’s what the discussion participants concluded.  Skeptical of consumers ability to fully integrate many of these technology opportunities into their daily routine or modify their existing habits and behavior,  companies who have yet to play in this space will find it harder and harder to catch up.

The strategic opportunities continue to evolve in tandem with the spreading  uses for assistive mobile technologies.  For example, a prudent strategy  in consumer marketing might be to incorporate  the technologies to enhance the user experience—especially as no clear killer sales application that deploys these technologies exist.

·         Amazon with all its technology savvy and leadership in the online sales market leveraging its platform hasn’t found a way to fully leverage mobile capabilities to increase sales.  Mobile assistive technologies, like Google maps represent a hybrid.

·         Twitter, hot off its successful IPO has yet to grow actual sales for any business.

·         Facebook’s use of GPS allows business to learn more identifiable information about the consumers as they become proximate to their store,  but have yet to prove predictable in driving retail sales.

Advantage

What advantage then can mobile technologies really deliver?

There seems no limit to the additional utility Search Engines provide.  Mobile technologies allow roving users access to  public, private or personal sources that the engines verify and validate boost both their value and help build loyalty incentive programs.  Increasing numbers of gamification applications also exemplify how mobile technologies drive growth opportunities  by enabling repeat sales through mutual identification of merchants and existing customers.

More interesting,  mobile technologies helping to optimize each stage in the sales cycle sequence.  Applications that make use of two way transmission—driving traffic both by or to customers is just the beginning.  Efforts that allow discovery and exploit more stages in the cycle help determine when, where and how the transmission proves itself  more efficient and effective.  Should your business deploy mobile to simplify checkout? Or simplify merchandise location and availability?

In the ongoing evolution of technology, strategy that focuses on deploying tools for competitive advantage or advancement isn’t enough.  Strategy needs to consider how the new technology influences your revenue flow.

Possessing mobile technology isn’t merely a lower cost play. Strategic opportunities increase when it’s used intentionally to offer stakeholders learning opportunities.  Can you give your sales people the most up to date information on the customer’s past purchases, or your customers’ suggestions for product use, installation or enrichment?   Present technology capabilities and big data offer business opportunity to accumulate metadata and create richer customer profiles.  Mobile brings them together by putting the specific customer into the present transaction equation.

15 years ago, business wondered how, what and when E-Commerce would change their reality.  Today, forward planning organizations recognize mobile technologies as a similar force of permanent change.  Advantage will flow to those organizations who get out to test and experience for themselves the many features mobile technologies offer them directly.  These options offer unique understandings and help them translate mobile technologies’ anytime, anywhere access options into business value.

Strategy that activates customer and supplier value goes beyond capturing attention and offering incentives to drive traffic.  The strategy must consider the fuller customer experience and increase the odds of success by investing in developing future capabilities such as cross training staff and directing resources that  effect cross-promotion , understanding  both crowdsourcing and influence peddling opportunities.

Walmart’s recent experience demonstrates the shifting control customers now possess.  A computer glitch with  the Federal WIC program’s system communications prevented enforcement of  purchase limits at Walmart’s Point of Sale.  A customer tweet  flooded Walmart with these customers who exploited the system failure to their advantage and  Walmart received the short term benefits.

Summary of take aways

  1.  Confirmation that organizations must be actively trying to understand the technology, otherwise they may never get the benefits.  For now, obvious value is limited to facilitating adaptions to  marketing .  Eventually both seller and buyer will reach the same understanding but the advantage will continue to flow to those who worked hard out front and made it easier for their customers to both benefit and settle in as they who to trust and where to be.  Switching costs are always serious and so it pays to be out front.
  2.  Best to think through how you deploy these technologies carefully.  What opportunities will make things easier for you consumers, and then work to simplify the individual steps and actual transactions.  For example, Millenials view mobile as an essential service and continue to need and expect universal Wifi and battery charging wherever they go.  Are you helping them?  If not, your access to this key demographic will be limited.
  3. Balance the cost/benefit of information and investment.  Mobile is a work in progress like any technology, don’t put all your eggs in one basket.
  4. Opening up of information transmission in more places and with more transactions suggests that additional paths to capitalize on this phenomenon.  Your strategy should seek to know and learn, as in where you can produce added convenience, respond and simplify steps in your own or your customers’ process, find out more about customer behavior and your ability to learn with  them  in order to  gain strategic advantage.
  5.  Continue to seek out pockets of advantage—customer  loyalty is easy, instant access, centralize connections for your customer to one place is another.
  6. Transparency too is key. Mobile comes with real time imperatives and be sure your back up plans work.  Open Table app for example failed to deliver real time answers or reservations, which diminished its value and its opportunity to build customer loyalty.

ARTICLES:

Mobile Now—Strategy +Business June 2013

http://www.strategy-business.com/media/file/00196_Mobile_Now.pdf

The 6 Biggest Mistakes Made on Enterprise Mobile Strategy

Posted by Adam Bookman in Wired on August 5, 2013 at 10:30am

 http://insights.wired.com/profiles/blogs/6-biggest-mistakes-mobile-strategy#ixzz2glZMCXXu

 Global mobile statistics 2013 Home

http://mobithinking.com/mobile-marketing-tools/latest-mobile-stats

And, an Optional  case Illustration.

A look At Quiri- Retail Intelligence using mobile crowd workers

http://techcrunch.com/2013/10/02/quri-a-retail-intelligence-platform-using-mobile-crowdworkers-scores-10-million-from-matrix-others/