Monday, August 31, 2009

How to Shut Down a Project Gracefully
by Rita Gunther McGrath

This is a great article pasted on to me by Mark Podwysocki.

We often discuss the need to make the hard portfolio decisions to ensure the organization has the budgetary headroom to fund the critical growth initiatives. Rita in her lectures talks about the need to kill the “the walking dead”, those projects that eat up resources with little chance of success. This is part of the overall process to “manage the cost of failure, not the rate of failure “which is essential for a sustainable innovation process. The article also discusses what they call a barebones NPV that assesses such factors as launch time, ramp-up time, competitive response, total investment, and projected annual costs and sales. That is covered in complete detail in their book Discovery Driven Planning (

"Project escalation often derives from the best of intentions. Researchers have identified three major sources of entrapment in a failed initiative: psychological entrapment, in which team members feel personally committed to staying the course; rationalized entrapment, in which team members feel that success is just around the corner; and social entrapment, in which team members are reluctant to withdraw from a project because of commitments they have made to one another and to outside parties. A simple way to determine if the team is trapped is to ask each person in the group to anonymously agree or disagree with a series of statements. These statements can explain why smart, successful people might consciously or unconsciously have continued committing their talent and resources to projects that reasonably should have been shut down. They could include:

• I feel we will lose the respect of others if this project is shut down.
• Stopping this project would have a negative effect on my career or that of other team members.
• We made a public commitment to this project, and it would look bad to break it.
• We’ve made commitments to outside parties (investors, suppliers, distributors, customers) and inside parties (directors, management, other divisions, employees), and we cannot or should not break them.
• We have had some good results and are at a turning point; it would be premature to stop now.
• At this point, it would cost us more to stop than it would to finish.
• People who want us to fail (rivals, competitors) will gloat.

If most of the group’s members agree with about a third or more of the statements, the team is at risk of escalated commitment. In that case, we suggest you have a frank discussion with team members about the various pressures that have little to do with the commercial promise of their project, and that may be clouding their judgment. You’ll have to tell them that some tough calls will be made about the project, but they will be made as thoughtfully and gracefully as possible.

To discontinue a project, develop a disengagement plan. It’s just as important as the business plan you created to set up your growth initiative. But perhaps because people are so averse to failure, the disengagement plan is often neglected, resulting in lost value and much more misery than necessary. The disengagement plan should be short (five pages at most) but well crafted, a document developed by the venture team in conjunction with senior managers. It should formally address two critical issues.

Monday, August 24, 2009

Changing Technologies and Business Models

The following article from the New York Times demonstrates a fascinating illustration of the impact of technology and then changing business models on an industry that most can relate to: Swan Songs?, by C.W. Blow, NYT, August 1, 2009. The visual says it all.

From 1978 to 1999, the prevailing business model was acquiring music albums from thriving retail outlets. What changed each decade was the media in which the albums were sold (the chart is in constant dollars so it is hard to compare growth rates of the overall industry during this period). In 1978, the vehicles were LP’s and to a lesser extent 8-track tapes; in 1988, cassette tapes dominated while in 1999, CD’s had nearly 100% of the volume. The principle challenge of the retail industry was adjusting to selling different technologies but the “Unit of Business” and business model remained the same – selling albums.

The internet changed all of that but maybe not in a way that you think that has resulted in an incredible decline in sales since 1999:
…..since music sales peaked in 1999, the value of those sales, after adjusting for inflation, has dropped by more than half.

Note, the download for a fee of music has not made up for the decline in CD sales as the changing technologies did in earlier decades—the overall revenue of the industry is declining rapidly:

“First, piracy punched a big hole in it. Now music streaming — music available on demand over the Internet, free and legal — is poised to seal the deal (Free music is available on the internet via web sites containing free “radio stations” with no or limited advertisements that categorize music in a host of categories. All you need is access to the net. The one I use that is Blackbery friendly is……
…..The problem is that if people can get the music they want for free, why would they ever buy it, or even steal it? They won’t. According to a March study by the NPD Group, a market research group for the entertainment industry, 13- to 17-year-olds “acquired 19 percent less music in 2008 than they did in 2007.” CD sales among these teenagers were down 26 percent and digital purchases were down 13 percent….
….Even if they choose to buy the music, the industry has handicapped its ability to capitalize on that purchase by allowing all songs to be bought individually, apart from their albums. This once seemed like a blessing. Now it looks more like a curse.”

Two fundamental things changed:
• The business model is changing from acquisition to one of access (music streaming); and,
• The Unit of Business has changed from the album to individual songs:

“….of the 13 million songs for sale online last year, 10 million never got a single buyer and 80 percent of all revenue came from about 52,000 songs. That’s less than one percent of the songs.”
The implications to the industry are significant:
“… In previous forms, you had to take the bad with the good. You may have only wanted two or three songs, but you had to buy the whole 8-track, cassette or CD to get them. So in a sense, these bad songs help finance the good ones. The resulting revenue provided a cushion for the artists and record companies to take chances and make mistakes. Single song downloads helped to kill that.”

”So it was no surprise that The Financial Times reported on Monday that Apple is working with the four largest labels to seduce people into buying more digital albums. It’s too little too late”

I do not have the answers to cure the industry –if any of you do, you could make a lot of money –but this example highlights the greater difficulty of adjusting to new business models vs. just changes to technology. In this case, the route to market, profit models and Units of Business changed dramatically. It also highlights how changes instituted to adjust to a changing environment –in this case selling individual songs vs. albums over the internet – can come back to bite you.

Monday, August 17, 2009

In the quest for uniqueness
Mon, 2009-07-27 14:02 — Sat Duggal

I have discussed the concept of competitive separation – creating separation from your competition in the eyes of your customer. First, you must understand who your target customers are and then define the key attributes/features of their buying decision. Next is to build your total offering in that context. This is the only way to separate yourself from thre pack:

"I was recently in the market for a digital camera. While this is my 3rd camera in the last 5 years (don’t ask!), what surprised me the most in this latest shopping cycle is the sharp increase in bewildering choices available to buyers. From the arcane language of focal this and aperture that and zooms and shutter speeds, I was soon swimming in unknown seas. What bothered me the most was how much more difficult the choice set had become and how difficult it was to differentiate one choice from another.

Differentiation (competitive separation) is a key driver and a leading indicator of brand strength. Virtually every model and every management tome evangelizes the cause for meaningful distinction. But in today’s world, how can one achieve differentiation (competitive separation)? Most features are easily copied, everyone is getting more design-conscious and manufacturing strategies are replicable in most industries. Not only that, most manufacturer’s, in their quest for differentiation, have over-engineered their products to only watch low-priced, “good-enough” competitors run away with market share. How can one build meaningful differentiation that can serve the brand over a period of time?

Most manufacturers, like most of our camera makers, focus on the bottom part of the hierarchy of needs.

While it is important for a camera to deliver on the latest attributes (megapixels, zoom options), the land of differentiation is often found at the higher rungs of the hierarchy of needs. It is in functional benefits (picture quality, easy to use) or even better in emotional benefits (sense of achievement, trust, security) that brands can find lasting uniqueness. This does not mean that product attributes are not important. They are absolutely critical. But the right set of attributes, consistently delivered over a period of time help a brand build equity in a benefit area and therefore help it stand for something unique in the marketplace."

We use a similar model in our work of defining a Value Proposition for the target customer. A critical component of this model is that each level in the pyramid must meet the basic needs of the customer before going higher. So, the product attributes must be there before you can focus on the Functional Benefits and they must be acceptable before you have a chance of creating the emotional link, thetrue driver your brand. Of course you can create competitive separation all along the pyramid but the usual trap is you stop too soon.

Monday, August 10, 2009

Leading Out of the Downturn
by Rob Norton


I found this to be an intriguing article on the challenges leaders face when confronted with the current business environment. I strongly urge reading this interview with Steve Zaffron, the co-author of "The Three Laws of Performance: Rewriting the Future of Your Organization and Your Life" …..

"The most important task for corporate leaders, says consultant and author Steve Zaffron, is to reorient the minds of their employees toward a positive vision of the future. The last 18 months have been the most trying in decades for corporate leaders. The conditions that normally make running a company, a business unit, or a team rewarding — market expansion, revenue growth, rising pay, and incentives — have been absent for most, replaced by the unrelenting tasks of survival, retrenchment, and cost cutting……

…….The main task, they argue, is to recognize that people normally have an unconscious, gut-level idea of where they — and their company — are at, and where they’re likely to go. Zaffron and Logan call this “the default future” and show how it is deeply rooted in people’s assumptions, hopes, fears, and past experiences. The first task of leadership, they argue, is to identify the default future, discuss it, and analyze it, and then go about reimagining — and, in effect, rewriting — the future……

……EXAMPLE QUESTION: The three laws of performance in your book deal with understanding — and changing — the way people think about that default future. How does following your advice change the way a leader would react in the situation we’re discussing?
ZAFFRON: Instead of this fear — “I’m cutting my budget and what’s going to happen” and so forth — I could look at the same situation and see that this is a great opportunity to create a new business model, or to cut away things that haven’t worked but that keep going on, and to actually design something new. So two people can look at the same situation and see different realities: They see opportunities or the lack of them, possibilities or the lack of them."

Monday, August 03, 2009

Best Buy vs. Better Buys
WSJ, July 21, 2009

This tidbit highlights the unintended consequences of competitor actions, in this case bankruptcy. In the U.S., Best Buy and Circuit City were national retail chains that focused on selling electronics and were bitter competitors in almost every region of the country. About a year ago, Circuit City went bankrupt. The immediate expectation was that Best Buy would benefit.

I raise this issue because in my experience, both as a practitioner and consultant/teacher, I found when a business person firmly stated they knew what their competition (and for that matter, their customers) were going to do in reaction to one of their moves, they were inevitably wrong. In planning, you must force the organization to do a version of Scenario Planning (1 to 3 year time horizon) to try to appreciate all the possible outcomes of any change in the market—the idea of managing assumptions is critical.

"With fierce corporate rivalries, a competitor's bankruptcy represents the ultimate triumph. Or does it?
..........It took years for Best Buy to overtake Circuit City Stores, once the dominant specialty-electronics chain but now bust......
But Circuit City may have been pushing shoppers into Best Buy's arms......electronics usually are expensive enough that consumers want to shop around.
When Circuit City was in business, shoppers could compare prices easily, what with the two retailers often operating in nearby locations. Without Circuit City, many shoppers need to venture online.
Take televisions., which often undercuts Best Buy's prices, gained 2.5 percentage points of market share for flat panels in the first quarter, compared with a year earlier. Meanwhile, Best Buy lost 0.7 percentage point...... Recent data suggest ....... for Best Buy, virtual challengers look likely to be harder to snuff out."