Monthly Archives: September 2013

The 80:20 rule in times of uncertainty

 

As many of you have certainly experienced already, there are a lot of managers who expect to have a plan thought to the end – including a business plan. Especially when it is about presenting to a Board of Directors for budget approval. There is nothing wrong about this. I would just like to highlight some caveats that this approach might bear.

Uncertainty

During my business strategy lectures @HEC we have worked on several cases like Dell, Patagonia or the Cola Wars case. Those cases sound “logic” and looking backwards all pieces come together in a meaningful way. We then talked about gaming theory, aka how to anticipate moves of competition and understand the impact of psychology on own decisions. We looked at the Ryainair case for that. In many examples we could literally compute the changes in willingness to pay (WTP) by looking at the numbers given in the cases. But if you go beyond airlines and apparel and enter the space of digital, this becomes more and more difficult. And still: the Professor was talking about such things as “intuition” when thinking about strategy. And finally there is the time factor, typically decision makers don´t have infinite time to come up with conclusions. The more uncertain predictions are the more blurry is the future. Many executives react with the task to try harder to come to a concrete case.

80:20

Everyone knows the Pareto rule with 80% of the effort  needed to get to the last 20% of the result. This perfectly applies to our context. Instead of insisting on getting the last 20% right, there must be a clear decision on how much time and effort to invest to get more certainty. Given the dynamics of the markets and the role of technology there might be the moment to listen more to those who have a good intuition.

Intuition

Right brainers are intuitive, left brainers aren´t. Left brainers even instinctively fear intuition because it makes them feel uncomfortable. Most companies are managed by left brainers. So you can imagine what role intuition is playing when deciding issues. This results in lengthy planning processes and a lot of discussions. This hurts the 80:20 rules and doesn´t always give an adequate answer to current challenges. But – what is much worse – intuitive people don´t feel appreciated in this kind of environments. Going 80:20 means listening to them. Are you really sure to want to invest 80 % of your time to get to an anyway blurry 100% before making your decision? Your stakeholders might have an opinion on this…

 

Bridging the gap between the CxO Suite & Product Development

 

A challenging role for Chief Digital Officers

Three steps towards successful digital transformation

To successfully respond to the (digital) challenges, there are three simple steps: Have a clear picture on where to go, understand the current situation of your business and ensure the transformation.

The challenge

Having a clear picture of the future is all about understanding what products will be successful looking forward. Already now it is clear that those products will be based on user interactions (“big data”, “social”, “sensored” context, etc.) and therefore will have to be very close to the behavior and needs of customers. The ways how companies will deliver services to their customers will be increasingly digitally driven. Even the pretty much innovative CVS Extra Care only gives an indication on what will be possible in the future. (So far) other companies like LinkedIn or XING are purely digital. XING have started with the vision to manage your professional network digitally and have become very successful with this. Starting from real life groups, its services have evolved into virtual ones. At the same time, XING isn’t limited to online networking only. It is all about a seamless integration of both worlds – with focus on building superior solutions and services for customers.

How to address the challenge

In other words, there is a strong need for a concrete product vision and strategy. If a CDO is not a strong Product Manager, he/she won´t be able to come up with it. And yet this won´t be enough. This strategy needs to be embedded into an overarching corporate strategy – and the entire CxO suite is responsible for that. The CDO needs to apply state of the art Design Thinking tools. The CEO might be that strong Product Manager, in this case a CDO might not be necessary. But how many CEOs of larger companies are good at defining a product vision and a product strategy? And even if they are, a CDO might be a good facilitator of the CxO suite discussions on behalf of the CEO. There is a successful role model for that already: supply chain management. A Supply Chain Manager doesn´t necessarily make the final decisions but is having the whole value chain in mind and facilitates the process. This person makes sure, all decisions are aligned to the supply chain strategy. The CDO needs to do the same: ensuring all decisions are in line with the product strategy of the company.

Understanding the current situation seems to be obvious, but isn’t trivial. The biggest challenge will be to “make the boat leave the harbor” and not to think too incrementally. A CDO will have to be the tireless warner to be more bold while acknowledging reality (e.g. business modeling, the skills available, the time it will take etc.).

Last, the transformation needs to happen in reasonable steps to get to the clear product vision of the CDO. The biggest risk that the steps are mixed up with the final vision. Even the CVS Extra Card is just a first step towards a vision. What will come next? There should be ONE answer, and then it can be broken down into the responsibility areas of the functional experts.

Benefit for companies

The CDO must pave the path into the (digital) future. As Product Manager she/he needs to come up with answers. Building the right products will be decisive for the (digital) future of companies.