Piloting Change

Neither studies nor market research nor computer modeling is a substitute for the test of reality.

Everything improved or new needs first to be tested on a small scale; that is, it needs to be piloted.  The way to do this is to find somebody within the enterprise who really wants the new.  Everything new gets into trouble.  And then it needs a champion.  It needs somebody who says, “I am going to make this succeed,” and who then goes to work on it.  And this person needs to be somebody whom the organization respects.  This need not even be somebody within the organization.

Often a good way to pilot a new product or new service is to find a customer who really wants the new, and who is willing to work with the producer on making truly successful the new product or the new service.  If the pilot test is successful-it finds the problems nobody anticipated, whether in terms of design, of market, of service-the risk of change is usually quite small.

ACTION POINT: Make sure the best ideas in your organizations have fierce advocates to see them through a test in the marketplace.

Being Strategic

being "strategic" largely means being less myopic than your undeliberative self.

Being strategic is being less myopic--less shortsighted--than others.  You must perceive and take into account what others do not, be they colleagues or rivals.  Being less myopic is not the same as pretending you can see the future.  You must work with the facts on the ground, not the vague outlines of the distant future.  

Whether it is insight into industry trends, anticipating the actions and reactions of competitors, insight into your own competencies and resources, or stretching your own thinking to cover more of the bases and resist your own biases, being "strategic" largely means being less myopic than your undeliberative self.

ACTION POINT: Work with the facts on the ground to perceive and take into account what others do not.

Myopia

 there is a more fundamental challenge common to all contexts.

Making a list is a basic tool for overcoming our own cognitive limitations.  The list itself counters forgetfulness.  The act of making a list forces us to reflect on the relative urgency and importance of issues.  And making a list of "things to do, now", rather than "things to worry about" forces us to resolve concerns into actions.

Today, we are offered a bewildering variety of tools and concepts to aid in analysis and the construction of strategies.  Each of these tools envisions the challenge slightly differently.  For some it is recognizing advantage; for others it is understanding industry structure.  For some it is identifying important trends; for others it is erecting barriers to imitation.  Yet, there is a more fundamental challenge common to all contexts.  That is the challenge of working around one's own cognitive limitations and biases--one's own myopia.  Our own myopia is the obstacle common to all strategic situations.

ACTION POINT: Be ever aware of your own myopia.

Make a List

...think through the intersection between what was important and what was actionable.  

Making a list is baby-steps management.  Pick up any book on self help, on organizing yourself, or on the nuts and bolts of running an office or organization, and it will proffer this advice: "make a list."  Carnegie's benefit was not from the list itself.  It came from actually constructing the list.  The idea that people have goals and automatically chase after them like some kind of homing missile is plain wrong.  The human mind s finite, its cognitive resources limited.  Attention, like a flashlight beam, illuminates one subject only to darken another.  Given Fredrick Taylor's assignment, some people might have listed the bills they had to pay or the people they needed to see.  One can only guess at Carnegie's list.

Taken seriously, Taylor's injunction was not simply to make a list of important issues.  It was not simply to make a list of things to do.  And it wasn't to make a list of what might be important.  Taylor's assignment was to think through the intersection between what was important and what was actionable.  Carnegie paid because Taylor's list-making exercise forced him to reflect upon his more fundamental purposes and, in turn, to devise ways of advancing them.

ACTION POINT: Reflect upon the important and actionable issues that will advance your business. 

Andrew Carnegie meets Fredrick Taylor

 "if you can tell me something about management that is worth hearing, I will send you a check for ten thousand dollars."

It was 1890, and there was a cocktail party in Pittsburgh.  All of the movers and shakers were there including Andrew Carnegie.  He held court in a corner of the room smoking a cigar.  He was introduced to Fredrick Taylor, the man who was becoming famous as an expert on organizing work.

"Young man," said Carnegie,  "if you can tell me something about management that is worth hearing, I will send you a check for ten thousand dollars."  Now, ten thousand dollars was a great deal of money in 1890.  Conversation stopped as people nearby turned to hear what Taylor would say.

"Mr. Carnegie," Taylor said, "I would advise you to make a list of the ten most important things you can do.  And then, start doing number one."  And, the story goes a week later Taylor received a check for ten thousand dollars.  

ACTION POINT:  Make a list of the the 10 most important things you can do and start with number one.

The Process of Learning

After hundreds of iterations, the original hypothesis has long since vanished, replaced by a myriad of new hypotheses, each covering some aspect of the growing, evolving business.

In 1987, Schultz bought out the Starbucks' retail operations and adopted the Starbucks name.  The new firm combined the old Starbucks business of selling dark-roasted arabica coffee beans with the new one of operating espresso bars. 

By 2001, Starbucks had become an American icon, with 4,700 worldwide outlets and $2.6 billion in revenue.   The bulk of its revenues came from selling coffee drinks--the company called them handcrafted beverages.  The rest came from the sale of coffee beans, some other food items in its coffee bars, and licensing agreements with food-service firms.  Only a few years before "coffee" had been seventy-five cents and came in a plastic foam cup.  Now the urban landscape is peppered with Starbucks outlets, and the sight of young professionals sipping pin-sized three-dollar takeout lattes has become commonplace.

Howard Schultz envisioned an Italian espresso bar in Seattle.  he tested this hypothesis and found it wanting.  But the test produced additional information, so he modified his hypothesis and retested.  After hundreds of iterations, the original hypothesis has long since vanished, replaced by a myriad of new hypotheses, each covering some aspect of the growing, evolving business.

ACTION POINT: This process of learning--hypothesis, data, anomaly, new hypothesis, data, and so on--is called scientific induction and is a critical element of every successful business.

Privileged Information

As knowledge accumulated, he altered policies. 

One of the most important resources a business can have is valuable privileged information--that is, knowing something that others do not.  There is nothing arcane or illicit about such information--it is generated every day in every operating business.  All alert businesspeople can know more about their own customers, their own products, and their own production technology than anyone else in the world.  Thus, once Schultz initiated business operations, he began to accumulate privileged information.

As knowledge accumulated, he altered policies.  He took the Italian off the menu, then eliminated the operate music.  He knew the baristas were central, but he did away with their vests and bow ties.  He departed from the Milanese model and put in chairs for the sit-down trade.  Over more time, Schultz discovered that Americans wanted takeout coffee so he introduced paper cups.  Americans wanted nonfat milk in the lattes, so, after a great deal of soul searching, he allowed nonfat milk.  In the technical jargon of international business he gradually "localized" the Italian espresso bar to American tastes.

ACTION POINT: As you accumulate knowledge about your customers tastes, alter your policy where needed to localize the customers experience. 

Living Experiement

Schultz and his team were alert to customer response.

Schultz's proprietary information was only a glimmer in his mind, a mood, a feeling.  Others, exposed to exactly the same information and experiences, did not have this insight or feeling.  The privacy of his insight was both blessing and curse.  Were it easily shared with other, Schultz himself would have been irrelevant.  But because it could not be fully shared, it was difficult to convince others to back the project. 

Schultz left Starbucks to start his own shop (Il Giornale).  The new shop was a direct copy of an Italian espresso bar.  In it, he "didn't want anything to dilute the integrity of the espresso ad the Italian coffee experience."  Italian decor, shots served in small porcelain cups and Opera music in the background were all part of the shop.  

Had Schultz stuck to this initial concept, Il Giornale would have remained a single small espresso bar.  But, like a good scientist who carefully studies the results of experiments, Schultz and his team were alert to customer response.  Il Giornale, once started, became a living experiment.

ACTION POINT:  Take chances and test your hunches, then study the results.

Searching for Change

A change is something people do; a fad is something people talk about.

Entrepreneurs see change as the norm and as healthy.  Usually they do not bring about the change themselves. But-and this defines the entrepreneur and entrepreneurship-the entrepreneur always searches for change, responds to it, and exploits it as an opportunity.

Look at every change, look out every window. And ask: “Could this be an opportunity?”  “Is this new thing a genuine change or simply a fad?”  The difference is very simple: A change is something people do, and a fad is something people talk about.  An enormous amount of talk is fad. You must also ask yourself if these transitions, these changes, are an opportunity or a threat.  If you start out by looking at change as threat, you will never innovate.  Don’t dismiss something because this is not what you had planned.  The unexpected is often the best source of innovation.

ACTION POINT: Take a half an hour to discuss with a colleague the changes sweeping your industry and identify the biggest genuine changes.  Ignore the fads; figure out how to capitalize on the genuine changes.

Testing the Hypothesis

To expect to make money from a new business, the entrepreneur should know something that others do not, or have control of a scarce and valuable resource. 

A deep problem Shcultz faced was that his vision required a radical change in consumer tastes and habits.  What he observed in Milan was not just a different business model but the result of several hundred years of divergent social history.  In the United States, coffee had emerged as a bland tea substitute to be drunk both at meals and at breaks throughout the day.

In southern Europe, coffee was an alcohol substitute, taken in small strong doses at lively "bars."  Whether he knew it or not, Schultz wanted to do more than just open a coffee shop; he wanted to change American tastes and habits.

Schultz's second problem was that there seemed nothing new about coffee, espresso, coffee bars, or espresso shops.  Millions of other Americans had traveled to Italy and experienced Italian espresso bars.  Knowledge about these businesses was hardly privileged.  To expect to make money from a new business, the entrepreneur should know something that others do not, or have control of a scarce and valuable resource. 

ACTION POINT: What do you know about your industry or business that others do not?

The unanimous Declaration of the thirteen united States of America

We hold these truths to be self-evident,

When in the Course of human events, it becomes necessary for one people to dissolve the political bands which have connected them with another, and to assume among the powers of the earth, the separate and equal station to which the Laws of Nature and of Nature's God entitle them, a decent respect to the opinions of mankind requires that they should declare the causes which impel them to the separation.
We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness.--That to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed, --That whenever any Form of Government becomes destructive of these ends, it is the Right of the People to alter or to abolish it, and to institute new Government, laying its foundation on such principles and organizing its powers in such form, as to them shall seem most likely to effect their Safety and Happiness. Prudence, indeed, will dictate that Governments long established should not be changed for light and transient causes; and accordingly all experience hath shewn, that mankind are more disposed to suffer, while evils are sufferable, than to right themselves by abolishing the forms to which they are accustomed. But when a long train of abuses and usurpations, pursuing invariably the same Object evinces a design to reduce them under absolute Despotism, it is their right, it is their duty, to throw off such Government, and to provide new Guards for their future security.--Such has been the patient sufferance of these Colonies; and such is now the necessity which constrains them to alter their former Systems of Government. The history of the present King of Great Britain is a history of repeated injuries and usurpations, all having in direct object the establishment of an absolute Tyranny over these States. To prove this, let Facts be submitted to a candid world.

He has refused his Assent to Laws, the most wholesome and necessary for the public good.
He has forbidden his Governors to pass Laws of immediate and pressing importance, unless suspended in their operation till his Assent should be obtained; and when so suspended, he has utterly neglected to attend to them.
He has refused to pass other Laws for the accommodation of large districts of people, unless those people would relinquish the right of Representation in the Legislature, a right inestimable to them and formidable to tyrants only.
He has called together legislative bodies at places unusual, uncomfortable, and distant from the depository of their public Records, for the sole purpose of fatiguing them into compliance with his measures.
He has dissolved Representative Houses repeatedly, for opposing with manly firmness his invasions on the rights of the people.
He has refused for a long time, after such dissolutions, to cause others to be elected; whereby the Legislative powers, incapable of Annihilation, have returned to the People at large for their exercise; the State remaining in the mean time exposed to all the dangers of invasion from without, and convulsions within.
He has endeavoured to prevent the population of these States; for that purpose obstructing the Laws for Naturalization of Foreigners; refusing to pass others to encourage their migrations hither, and raising the conditions of new Appropriations of Lands.
He has obstructed the Administration of Justice, by refusing his Assent to Laws for establishing Judiciary powers.
He has made Judges dependent on his Will alone, for the tenure of their offices, and the amount and payment of their salaries.
He has erected a multitude of New Offices, and sent hither swarms of Officers to harrass our people, and eat out their substance.
He has kept among us, in times of peace, Standing Armies without the Consent of our legislatures.
He has affected to render the Military independent of and superior to the Civil power.
He has combined with others to subject us to a jurisdiction foreign to our constitution, and unacknowledged by our laws; giving his Assent to their Acts of pretended Legislation:
For Quartering large bodies of armed troops among us:
For protecting them, by a mock Trial, from punishment for any Murders which they should commit on the Inhabitants of these States:
For cutting off our Trade with all parts of the world:
For imposing Taxes on us without our Consent:
For depriving us in many cases, of the benefits of Trial by Jury:
For transporting us beyond Seas to be tried for pretended offences
For abolishing the free System of English Laws in a neighbouring Province, establishing therein an Arbitrary government, and enlarging its Boundaries so as to render it at once an example and fit instrument for introducing the same absolute rule into these Colonies:
For taking away our Charters, abolishing our most valuable Laws, and altering fundamentally the Forms of our Governments:
For suspending our own Legislatures, and declaring themselves invested with power to legislate for us in all cases whatsoever.
He has abdicated Government here, by declaring us out of his Protection and waging War against us.
He has plundered our seas, ravaged our Coasts, burnt our towns, and destroyed the lives of our people.
He is at this time transporting large Armies of foreign Mercenaries to compleat the works of death, desolation and tyranny, already begun with circumstances of Cruelty & perfidy scarcely paralleled in the most barbarous ages, and totally unworthy the Head of a civilized nation.
He has constrained our fellow Citizens taken Captive on the high Seas to bear Arms against their Country, to become the executioners of their friends and Brethren, or to fall themselves by their Hands.
He has excited domestic insurrections amongst us, and has endeavoured to bring on the inhabitants of our frontiers, the merciless Indian Savages, whose known rule of warfare, is an undistinguished destruction of all ages, sexes and conditions.

In every stage of these Oppressions We have Petitioned for Redress in the most humble terms: Our repeated Petitions have been answered only by repeated injury. A Prince whose character is thus marked by every act which may define a Tyrant, is unfit to be the ruler of a free people.
Nor have We been wanting in attentions to our Brittish brethren. We have warned them from time to time of attempts by their legislature to extend an unwarrantable jurisdiction over us. We have reminded them of the circumstances of our emigration and settlement here. We have appealed to their native justice and magnanimity, and we have conjured them by the ties of our common kindred to disavow these usurpations, which, would inevitably interrupt our connections and correspondence. They too have been deaf to the voice of justice and of consanguinity. We must, therefore, acquiesce in the necessity, which denounces our Separation, and hold them, as we hold the rest of mankind, Enemies in War, in Peace Friends.
We, therefore, the Representatives of the united States of America, in General Congress, Assembled, appealing to the Supreme Judge of the world for the rectitude of our intentions, do, in the Name, and by Authority of the good People of these Colonies, solemnly publish and declare, That these United Colonies are, and of Right ought to be Free and Independent States; that they are Absolved from all Allegiance to the British Crown, and that all political connection between them and the State of Great Britain, is and ought to be totally dissolved; and that as Free and Independent States, they have full Power to levy War, conclude Peace, contract Alliances, establish Commerce, and to do all other Acts and Things which Independent States may of right do. And for the support of this Declaration, with a firm reliance on the protection of divine Providence, we mutually pledge to each other our Lives, our Fortunes and our sacred Honor.

Anomalies II

the Italian expresso experience could be re-created in American and the public would embrace it.

For Schultz, the experience in Milan was an anomaly.  In Seattle, the market of dark-roasted arabica beans was a niche, populated by a small but growing group of especially discerning buyers.  But the vast majority f people in Seattle, and in America--even the feel-to-do-drank cheap, bland coffee.

In Milan, expensive high-quality coffee was not a niche product but the mass-market product.  and there was a further anomaly: in the United States, fast food meant cheap food and plastic surroundings. In Milan he saw "fast coffee" that was expensive and served in a lively social atmosphere, so different form that of an American Main Street diner or coffee shop.

Schultz formed a strategic hypothesis--the Italian expresso experience could be re-created in American and the public would embrace it.

ACTION POINT: Are there anomalies in your business or markets that can lead to opportunities?

Anomalies

Each one had is own unique character, but here was one common thread: the camaraderie between the customers, who knew each other well, and the barista, who was performing with flair."

An anomaly is a fact that doesn't fit received wisdom.  To a certain kid of mind, an anomaly is an annoying blemish on the perfect skin of explanation.  But to others, an anomaly marks an opportunity to learn something, perhaps something very valuable.

In 1983, Howard Schultz noticed an anomaly and from that insight a fascinating new business was eventually born.  At that time, Schultz was the marketing and retails operations manager for a tiny chain of Seattle stores selling dark-roasted coffee beans.  On a visit to Italy, Schultz discovered the Italian expresso experience.  He recalled his first vista to an expression bar in Milan:

"A tall thin man greeted me cheerfully, "Buon giorno!" as he pressed down on a metal bar and a huge hiss of steam escaped.  He handed a tiny porcelain demitasse of espresso to one of  the three people who were standing elbow to elbow at the counter.   Next came a handcrafted cappuccino, topped with a head of perfect white foam.  The barista moved so gracefully that it looked as though he were grinding coffee beans, pulling shots of expresso, and steaming milk all at the same time, all while conversing merrily with his customers.  It was great theater...

It was on that day I discovered the ritual and romance of coffee bars in Italy.  I saw how popular they were, and how vibrant.  Each one had is own unique character, but here was one common thread: the camaraderie between the customers, who knew each other well, and the barista, who was performing with flair."

ACTION POINT:  Learn from anomalies and look for the opportunities in them.