It’s been months since I’ve written here. I’ve been on a sabbatical of sorts helping my wife with her business (www.wholewoman.com). Things are perking along well over there now so I can get back to my own business.
Besides, I’m sick of looking at Blankfein’s smarmy expression from my last post.￼
Why Change Matters
Things have gone pretty nonlinear in many markets and a lot of business people are scratching their heads trying to figure out how to survive, much less prosper. From my point of view, there is only one thing to really focus on, as illustrated by the chart, to the right.
The message in this chart is simple: one line is your company and the other is your customer(s) that you cannot afford to lose. What matters here is which line is which.
If your customer is changing faster than you are, it’s only a matter of time before the gap between￼ what they need and what you are capable of delivering will become large enough that it will break your relationship with that customer.
It’s not a question of if, it’s a question of when.
Even if somewhere along the way you get the message that you’re behind the power curve, look at the slope of change you will have to hit to come into alignment.
Think for a moment about the disruption and cost this kind of revolutionary change entails, if it’s doable at all without breaking the company.
If on the other hand, your company is the green line and your customer is the red, you will find yourself pushing your customer forward. They will either appreciate it and it will make you a preferred vendor, or they won’t. If they don’t appreciate your pushing them into the future, your enhanced capabilities will be opening new markets and new opportunities for you so it won’t matter. At some point you’ll probably need to fire that customer or the market will punish that customer to the point where they won’t be important for you any more anyway.
The thing to keep in mind is that cultural change is at best a 2-3 year process. So if you get significantly behind your customers and can’t revolutionize your company without breaking it, you have to ask the question, “Is my customer going to give me 2-3 years to demonstrate that I’m getting my act together?”
A Tale of Tools
I love technology. I’ve been very actively involved with it for thirty years.
In my pre-technology days, I owned a fine jewelry manufacturing company. Every industry has its info tidbits. In the jewelry business, one of the many involved the diamond cutting industry in Antwerp, Belgium. Diamond cutting is the process by which the little glassy lumps of raw diamond are turned into the remarkable sparklers that made them “a girl’s best friend”. In the early days of diamonds, Antwerp was the diamond cutting center. Later on, the high end cutting went to New York and the low end to India, but the tidbit is that the richest guy in Antwerp was the guy who sold tools for the diamond cutters.
What people who work with their hands understand is that tools extend and expand their capability, which allows them to do more work which allows them to make more money. Tradespeople understand implicitly that they can only earn what they can produce. As a result, they tend to be quick to pick up new tools. Anyone who has ever used a cordless drill will never go back to one with a wire.
Interestingly, knowledge workers do not have the same tangible feedback mechanism. For the tradesperson, the deck is either complete or it isn’t. The engine rebuild is complete or it isn’t, the duct work is hung or it isn’t. A person who can do the job in 2 hours is going to make more than the person who takes three to do the same job.
Because what knowledge workers (like CEOs) do is so much more intangible, new tools don’t have the same immediacy and impact. For the tradesperson, it is a given that new tools require changes in behavior. Using a pneumatic lug wrench is a different process than using a manual lug wrench.
What most business people don’t seem to realize is that information tools extend and expand the capabilities of employees. But using them requires a change in behavior.
Let’s look for a minute how tools develop.￼
The first figure shows a company that is learning how to do thing in new ways. The curve is the classic adoption curve. In this case it reflects a company that is experimenting with new and better ways to do things.
To facilitate this, they need new tools. Either they build their own or they attract the attention of a developer who sees an opportunity. But the tool development is out of phase to a greater or lesser degree with the demand of the company that needs it, illustrated in the second drawing.￼
￼As the tool becomes mature and commercialized, other companies get on the bandwagon, the third drawing. Chances are the third drawing is or has been your company.
You hope your competitors are somewhere to the right of you.
What’s interesting is look at the gap between the first line and the third. That gap represents the competitive distance between you and the company on the left. ￼
There are lots of assumptions here, to be sure.
Once could make the case that customers don’t innovate, vendors do. No one knew they needed a photocopier until they saw one in action. I suspect that’s more true of tangible product businesses than software. There will certainly be exceptions, but we’re exploring broad principles here.
The adoption curves are not necessarily congruent either. Some companies take much longer to adapt than others.
The critical point I want to make here is that adopting any tool, whether it’s a cordless drill or a new information technology requires changes in behavior. In my experience, few business leaders really understand this. Nor do they understand how far behind the adoption curve they are, not necessarily in spending the money on new software, which is easy — write a check — but in driving behavioral and cultural change the tools require in their companies.
Enterprise Resource Planning (ERP) has emerged in the past 10-20 years as the platform of choice for companies. It is very expensive software (can easily run into the millions for larger companies). But it does something that has never been possible before in business.
Think for a moment how many decisions, large or small, are made every day in your company. It’s a big number. People make decisions based on lots of things, many of which aren’t very rational, but by in large, they make decisions to optimize what they can see in their local environment. If I’m a supervisor and have an employee who needs something to do, I’ll have her make up widget parts to help get ahead a bit on widget production. This is called local optimization. The problem is that local optimization may actually suboptimize the functioning of the organization as a whole. To go back to our example, having an employee create more inventory, may be more expensive to the company than having the employee do nothing at all.
Employees generally make a good faith effort to make locally optimized decisions, because that is all they have ever been able to do. With ERP, where every part of the business is driven off one database, employees for the first time in history can make globally optimized decisions because all the data is (or should be) available to them.
I haven’t seen any research on this, but I would guess that if you studied a hundred companies that are five years into an ERP implementation, you would see relatively little behavioral change. The data are there, but to what extent are they being used to make globally optimized decisions?
The point is this: technology is not about tools. Technology is about behavior. If you use a wired drill, you either bring the work to be drilled to it, or you never go anywhere without a long extension cord. The drill sits on the floor or table waiting for you to pick it up because it’s tethered to the wall outlet. If you use a cordless drill, you take it to the work. In fact, you never put it down because you wear it in a holster on your hip.
If you don’t change your behavior, you cannot get full value out of the tool. If you aren’t getting the full value out of the tool as a result of changed behavior, you are falling farther and farther behind the change curve, becoming increasingly irrelevant in the marketplace and your company is wandering down and evolutionary dead end, a box canyon from which you may or may not be able to extricate yourself from when the light dawns that you need to change your ways.