Knowledge Is Power

Factory Tours Sweet for CI Professionals

The Jelly Belly factory tour at its facility in Fairfield, CA, although photography was prohibited, would provide nuggets of useful information to anyone seeking information on the company's manufacturing process or capacity. As we visited on the Saturday of Labor Day weekend, production was shut down although during the week, the factory runs 24 hours a day and visitors watch the action from overhead walkways. The tour guide revealed a few other tidbits: the plants uses 5 one-ton bags of corn starch, and 6,000 pounds of sugar each day to make 20 million Jelly Bellies. I am not researching any food companies, so this tour was a fun family outing. My kids went through the sample bar at least six times and the enjoyed the free samples handled out during the tour.

Many companies have removed the factory from their “factory tours” due to competitive concerns. Their tours show a subset or recreated factory operation. These still might be worthwhile to visit, especially if you could ask your tour guide a few good questions. A CI researcher could easily be lost in the crowds at factory tour based on the crowds at Jelly Belly and take the tour more than once. You could potentially see the manufacturer and model number of the equipment used. You could count the number of times per minute that the finishing tank revolved or an arm moved. You could count the number of packing machines in the packing area.

Combine the factory tour with a visit to the town or county’s real estate department to review any building permits and a drive around the facility to see if you can identify the third party shipper if the target company uses an outside shipping company. You can contain them later to ask about capacity if you have not obtained that from the plant.

Of course, if you are doing a manufacturing study, your client should have provided you with a tour of its facility so you would understand basic issues before examining the rival’s facility.

Jelly Belly’s website said about the factory tour, “Learn the secrets to how we create the legendary Jelly Belly jelly bean, and discover why it takes more than a week to make a single bean.” Jelly Belly needs training on CI, not how to do CI, but how to avoid giving valuable data to competitors.

These are just ideas, but if you do research jelly beans, my kids reported that the Dirt, Rotten Egg, Baby Wipes, and Boggers flavors are terrible. Don’t bother with them. These are not part of the official 50 flavors. Most of this category of Jelly Bellies were developed for the Harry Potter line.

Is your Source Lying to You?

Nearly all clients ask me how I can tell if people are lying to me when I am doing research. An article in the May 13, 2013 HBS Working Knowledge, “How to Spot a Liar,” suggests clues to watch for based on research on a variation of the ultimate game, a common research tool. The research was performed by Deepak Malhotra, the Eli Goldston Professor of Business Administration at Harvard Business School, with the paper with Associate Professor Lyn M. Van Swol and doctoral candidate Michael T. Braun, both from the University of Wisconsin—Madison.

The research showed that about 70% of the participants were honest. The remaining 30% were outright liars or deceivers by omission.

The article summarized the major findings:

“In terms of strategic cues, the researchers discovered the following:

• Bald-faced liars tended to use many more words during the ultimatum game than did truth tellers, presumably in an attempt to win over suspicious receivers. Van Swol dubbed this ‘the Pinocchio effect.’ ‘Just like Pinocchio's nose, the number of words grew along with the lie,’ she says.

• Allocators who engaged in deception by omission, on the other hand, used fewer words and shorter sentences than truth tellers. “Among the findings related to nonstrategic cues:

• On average, liars used more swear words than did truth tellers—especially in cases where the recipients voiced suspicion about the true amount of the endowment. ‘We think this may be due to the fact that it takes a lot of cognitive energy to lie,"’ Van Swol says. ‘Using so much of your brain to lie may make it hard to monitor yourself in other areas.’

• Liars used far more third-person pronouns than truth tellers or omitters. ‘This is a way of distancing themselves from and avoiding ownership of the lie,’ Van Swol explains.

• Liars spoke in more complex sentences than either omitters or truth tellers.

“The researchers also examined when and whether the receivers trusted the allocators—noting instances when receivers voiced doubts about the allocators' statements, and correlating the various linguistic cues with the accuracy of the receivers' suspicions. They also noted instances in which receivers showed no suspicion toward deceivers.

“On average, receivers tended to trust the bald-faced liars far more than they trusted the allocators who tried to deceive by omission. In short, relative silence garnered more suspicion than flat-out falsehoods. ‘It turns out that omission may be a terrible deception strategy,’ Van Swol says. ‘In terms of succeeding at the deception, it was more effective to outright lie. It's a more Machiavellian strategy, but it's more successful.’”

Perhaps we Americans have become practiced at recognizing deception by omission—it’s a favorite tool of many politicians. But I digress.

Many commenters pointed out the limitations of this study; it was interaction among people from the same culture and a fixed scenario. Other studies have shown that people think that they are better at recognizing liars than they actually are, both in terms of false positives and false negatives. That is, believing people are lying when they are not and believing that people are honest when they are not.

Bottom line: Researchers cannot depend on their perceived ability to recognize liars when performing research.

I, for one, do not think that I am great at spotting liars. My way of dealing with dishonesty in research is to talk to multiple sources, both inside and outside the organization. Individual sources may lie and companies put out false information which is a risky strategy if the firm is public. Much more common is the refusal to talk about the subject. Or people tell you what they think is true or makes them look good. An experienced researcher does look for subtle clues in words chosen, pauses, or changes in pitch of sources, but no one source is judged to have correct information unless supported by other sources.

How do you handle this issue in your research?

"When people talk, listen completely. Most people never listen." - Ernest Hemingway

Unfortunately, in today’s corporate world, most employees are being pressured to do more and listening carefully has fallen victim to the drive for efficiency. Frequently as a consultant, I can bring value to clients because I am concentrating solely on the competitors. I can gather together a number of secondary sources about a competitor and speak with industry experts. From these sources, I can note nuances and see patterns. Basically I am listening better because I am concentrating on the topic, not because I am a consultant.

As an employee, it is difficult to have this focus, but you can try by blocking out a half or full day on your calendar to really listen to these sources about your competitors. Create assumptions and try to determine if all the data points fit any of those assumptions. Use a simple framework such as Michael Porter’s Five Forces or a SWOT diagram to gain insights. Then you can apply your learnings to making your business better.

You do not need a consultant to help you if you really listen to what is being said about your competitors.

How Well Do You Listen to Competitors?

"When people talk, listen completely. Most people never listen." - Ernest Hemingway

Unfortunately, in today’s corporate world, most employees are being pressured to do more and listening carefully has fallen victim to the drive for efficiency. Frequently as a consultant, I can bring value to clients because I am concentrating solely on the competitors. I can gather together a number of secondary sources about a competitor and speak with industry experts. From these sources, I can note nuances and see patterns. Basically I am listening better because I am concentrating on the topic.

As an employee, it is difficult to have this focus, but you can try by blocking out a half or full day on your calendar to really listen to these sources about your competitors. Create assumptions and try to determine if all the data points fit any of those assumptions. Use a simple framework such as Michael Porter’s Five Forces or a SWOT diagram to gain insights. Then you can apply your learnings to making your business better.

You do not need a consultant to help you if you really listen to what is being said about your competitors.

Just Published: 101 Top Tips for Job Hunting During the Holidays (Two Tips are Mine!)

The ebook, “New Year, New Job! 101 Top Tips from Job-Hunt Experts for Your Holiday Job Search: How to Use the Holidays to Advance Your Job Search” has been put together by Susan Joyce of www.job-hunt.org fame. This site is full of useful information for job hunters, both those currently employed and those unemployed. A number of experts in different areas contribute articles to the site and have written tips for the book. The basic message is that the holiday period can be very productive for job hunters who keep focused on the goal of employment.

It is available from Amazon for Kindle users for only $0.99 and, in addition, may be “borrowed” for free from Amazon for anyone who is a member of the “Kindle Owners’ Lending Library.” These folks are Kindle owners who belong to the Amazon Prime program (~$80/year).

Better yet, the book will be FREE for four days this month. It will be priced at $0.00 from midnight on 11/22 (Thanksgiving Day in the USA) through midnight on 11/26. Download it then because Amazon only allows ebooks to be free once every 90 days.

Here’s the book’s URL: http://www.amazon.com/dp/B00A93TBXA

IBM Follows the KISS Principle while Developing Strategy

Much of the time, simple beats sophisticated (AKA complex) because simple processes can be implemented more quickly and successfully. Lou Gerstner (Harvard MBA 1965) adopted this concept with a streamlined, focused, and simple strategy development process. IBM’s transition from a hardware supplier to a services firm is unique in business; no other organization that large has changed its strategy that dramatically.

Brad Hall discussed IBM’s approach in an 8/30/12 article on thestreet.com, “Reinventing Your Strategy Development.”

After joining IBM, Gerstner asked division heads how they implemented strategic plans developed for IBM by top consulting firms. To summarize the answer: “We haven’t.” So he banned outside strategy firms in favor of an internal approach called the IBM Business Leadership Model (BLM). All IBM executives use this model so they have a common process.

Each business unit’s strategy is developed during a week long session referred to as the Strategic Leadership Forum (SLF). Each forum has 10-15 members from four to six business units which join together for presentations on topics such as strategy and market insight, then separate into individual business unit teams to work on their unique issues.

Each team meets one month prior to the session to define what information is needed for the session. With only one month to gather the data, the emphasis is obviously on using just key pieces of information, not doing a data dump.

The teams start on Sunday evening by defining the one most important performance gap. Gerstner believed that addressing multiple gaps could not be done quickly.

By Friday noon, the teams have completed the seven parts of the strategic plan and return to their business units ready to implement. Over time, all the critical performance gaps will be resolved either through revised strategic plans or by addressing the one most important issue.

Compared to IBM, how does your organization do strategic planning? You as a CI professional should be involved in it to provide market insight. You might even be in the strategic planning department and can suggest streamlining the process as IBM did to produce plans faster.

How do your competitors’ handle strategic planning? Do they follow the IBM model or are haphazard about strategy? Either way allows you to take advantage of an unexpected event if you can react faster than your competitor can.

Does Hiring Stars from Outside Make an Organization More Competitive?

Two studies by Harvard Business School professors suggest that the answer depends on the similarity of the corporate environment, if the stars can bring his/her support team to the new firm, and the size of the organizations.

Boris Groysberg’s book, Chasing Stars: The Myth of Talent and the Portability of Performance, based in part on earlier research with Ashish Nanda, Andrew McLean, and Nitin Nohria, explores the question and is discussed in 11/8/10 HBS Working Knowledge newsletter.

The first research effort studied “top investment analysts (as identified annually by Institutional Investor magazine) and the organizations that develop and hire them away from each other. Their analysis is based on a large base of data for 1988 through 1996. It includes ratings before and after an analyst's transfer from one investment bank to another as well as the results of extensive interviews over several years of study.”

The results showed that "star analysts who switched employers paid a high price (in performance, not compensation) for jumping ship relative to comparable stars who stayed put."

However, these findings apply only to men who switched firms; women who moved to a new employer did not show a drop in performance. One can debate why: are women, by nature or nurture, more sensitive to the nuances of their environments and more able to build relationships in the new environment, or to be a successful female star takes such talent that portability is relatively easy? Or perhaps another reason exists.

“For those hiring stars, Groysberg says the evidence ‘strongly suggests the wisdom of hiring from firms with similar orientations … and lesser or equivalent quality’ that are less ‘resource-rich’ than one's own, with every effort made to redress the asymmetry in information and inadequate due diligence that almost always accompanies hiring from outside. He suggests that every effort should be made to avoid the ‘winner's curse’ of overbidding to get talent without a clear picture of how they fit into a longer-term strategy.”

“Groysberg, along with Andrew McLean and Nitin Nohria, extended the inquiry to 20 General Electric top executives who moved to high positions in other companies. They concluded that those who ‘took over, built, or implemented management systems that resembled GE's were more successful,’ while ‘those who went to different industries, those who moved solo (rather than with a team), and those who joined companies whose needs (exploiting existing business opportunities as opposed to exploring new business opportunities) called for different skills performed poorly.’"

These studies suggest that an analysis of the potential for success for new top executives at competitors must include the following factors:

1. Similarity of environments

2. Ability to bring his/her team along

3. Relative size or resource availability of the prior and new organizations

4. Expectation for the performance of the new executive relative to his/her demonstrated successes at the previous employer

Hewlett-Packard has chosen three CEOs in a row from outside the company. The first, Carly Fiorina, failed at providing new vision for the company. Of course, her former employers, AT&T and its spin-off Lucent Technologies, were process companies, not vision organizations. The second, Mark Hurd, had a reputation of being an excellent process manager and excelled at imposing new processes on HP—until he tripped up over inaccurate expense reports. The board then decided on a new strategy for HP emphasizing software, and hired a leader Leo Apotheker from the software industry to make a statement to the world (and the employees) about the company’s future direction.

Of course, other large technology firms have done well with outsiders; Gerstener at IBM, for example. But you should consider the listed factors carefully whenever a competitor hires from outside. Prior success is no guarantee of future performance.

More Notes from SCIP10: Using CI for Corporate Strategy

Using Competitive Insights to Help Develop Corporate Strategy; facilitated by Dale Fehringer, former head of CI at Visa

Dale introduced the topic by asking why we should examine this issue now?

• Economic situation

• Survey showed 81% of organizations will develop or adjust their strategies within 12 months

• CI can help with this process

• Being involved will give CI person visibility

The successful process that he used in his job in the corporate world included four phases:

1. Environmental scanning; one to twelve months

2. Strategy formulation; two weeks to two months

3. Strategy implementation; two weeks to two months

4. Evaluation and control; including collecting data on how competitors are responding

CI should be involved in all four phases. He asked the audience if anyone had worked in all four phases: no one had. About one-third were involved in at least one step.

In his first year at Visa, Dale was not involved in strategy development so the second year, he sent the strategists information. “It worked; the third year, they got me involved.”

How CI can help:

• Early warning

• Gap analysis

• Trend analysis

• Landscape; can be chart or bubble chart, but should include current and emerging competitors

• Recent reports

• Market position

• Identify new market segments; for example, new geographies.

Four Case Studies:

Visa: Identify and Evaluate New Entrant Threats

“Technology companies were claiming that they would replace credit cards and my CEO wanted information. Over a nine month period, I put team together from across the country. We got together a list of 50 potential new entrants, which we winnowed down to ten. We then ranked them. We brought Ken’s organization to help develop four scenarios ranging from destroying Visa to failing totally. We developed plans for each scenario. The CEO was so impressed that he gave the CI group more resources.”

IBM: “Deep Dive” Strategy Process

IBM’s deep dive process started in 1996. The process consist of picking a strategic issue, forming a team, including CI, doing a deep dive over one to three months, and presenting to the CEO. After three years, IBM abolished its annual strategy planning process and increased the number of deep dives.

ABB: Define Competitor Core Capabilities

The task was to define competitor core capabilities. This was done for the board which thought the work was a masterpiece; good visibility for CI team.

L&T: New Market Analysis

The group did a new market analysis of Sweden including a market share analysis and competitive landscape. L&T entered Swedish market and succeeded.

The strategy process is an opportunity for visibility and good work for CI professionals:

• Get involved

• Identify needs

• Insert yourself

• Develop a cross-company team

• Deliver results

• Follow up; ask “Did the work help you?”

• Leverage the work in your annual review

Ad-Sponsored Entrants Increase Competition

Powerful web-based technologies and increased acceptance of online businesses have lowered the barriers to entry for companies which base their strategy on ad-revenue based business models. These intruders compete in industries including newspapers, software applications, television programs, and online search. How should an existing market participant with a subscription-based business model react to the new entrant(s)?

Business school professors Ramon Casadesus-Masanell (Harvard Business School) and Feng Zhu (University of Southern California) explain an analytic framework to analyze that question in an article, “Strategies to Fight Ad-sponsored Rivals,” in the Oct 26, 2009 HBS Working Knowledge (http://hbswk.hbs.edu/item/6298.html).

First, they defined four business models found in these markets:

1. Subscription only: 100% of revenue comes from subscriptions or user fees
2. Ad-sponsored only: content is free and all revenue is generated by ads
3. Mixed single-product: the majority of revenue is received via subscriptions and/or fees for access to a single product/service and a limited number of ads are seen by subscribers
4. Mixed product line extension: a new product line is supported by advertising while the original product line is maintained as subscription only

What should an incumbent with a subscription only business model do if a new firm enters the market with an ad-sponsored business model? Incumbents prefer to maintain their subscription only model. Think Apple iTunes vs. free sites. This is especially true if advertising rates are low since the intruder will have less opportunity to generate revenue and the incumbent less incentive to switch to or add an ad-based revenue model to the organization. The incumbent and the new entrant may co-exist in the marketplace.

However, when advertising rates are high, the incumbent may want to establish its own ad-based offering to compete directly with the intruder. This option is most likely to kill the competing ad-based entrant, but with lower profits in the meantime as some of its customers switch from the subscription service to the lower-quality ad-based offering.

The potential path for the incumbent is less clear when: 1. Users’ reaction to advertising is highly negative 2. Advertising rates are low 3. The cost of a product line extension is high

In these cases, the dynamics of the industry and the participants must be carefully analyzed to determine the optimal action. The authors point out that extending the product line is often not optimal because of the increasing likelihood of conflicting marketing messages and the inefficiencies of maintaining multiple product lines.

How does their theoretical model work in the real world? The authors cited two examples from the newspaper industry to illustrate what happens when incumbents operating under a paid subscription model adopted a mixed product-line extension to drive competitors out of their markets:

“By taking a significant stake in Metro Boston in 2006, The Boston Globe effectively switched from a mixed-single-product model to a mixed-product-line-extension model. This strategy helped The Globe push BostonNow, a free ad-sponsored entrant launched in 2007, out of the market in less than a year.”

“We observed a similar pattern in Spain. While Metro in Spain was successfully launched in 2001 and by 2004 had achieved profitability, the competition with Que!, an ad-sponsored paper launched in 2005 by Recoletos (a large media group), forced it to shut down its operations in 2009 (http://spanishnews.es/20090201-free-metro-newspaper-ceases-to-exist-in-spain/id=195/, accessed April 2009).”

How do this theoretical framework and examples apply to your industry, especially real world competitive landscapes are much more complex than this framework?

If you are an incumbent, you must examine how negatively your users would view advertising in your subscription product, how expensive would a product line extension be, and what is the sweet spot for profits, not revenue. You may choose to lose some customers to ad-supported competitors because the maximum profit potential lies in adhering to a pure model.

If you are an ad-sponsored entrant, analyze the incumbents’ likely responses to your presence and determine the trade-offs between maximizing advertising revenue and customers, and profitability.

There may be room in the marketplace for both a pure subscription model and a pure ad-sponsored model, because, as the authors note, organizations do best when they focus their strategies and do not try to be all things to all people.

Managers or Leaders?

HBS professor emeritus Abraham Zaleznik authored the 1977 Harvard Business Review article titled "Managers and Leaders: Are They Different?"

According to an article published Aug 13, 2008 in Harvard Business School's online Working Knowledge, Zaleznick still believes that,"Managers are oriented to process, while leaders are attuned to substance. Process is concerned with establishing procedures for solving problems, while substance deals directly with the problems at hand. Process is soon related to obsessive thinking and depressive emotional states, while substance energizes and draws on imaginative thinking. Managers tend instinctively to delegate; leaders like to get involved in working toward solutions to substantive problems."

Actually, I believe that establishing processes and delegating responsibilities are essential to growth of organizations while getting involved in problem solving can limit the growth of organizations.

Part of the issue here is the question of appropriate leadership style for different stages in organizations' existence. Managers, as Zaleznik defined them, are not entrepreneurs. They depend on leaders, as Zaleznik defined them, to found and nourish entities to a size which requires managers.

The issue for CI professionals is defining which competitors are run by leaders and which by managers and what are the implications for the stability of those firms and the predictability of their behavior.

Of course, these categories are useful tools for first passes at analyses; they force us to ask the questions to obtain more information and gain more understanding. They are not sufficient, but are useful.