Balance Continuity and Change

Precisely because change is a constant, the foundations have to be extra strong.

The more an institution is organized to be a change leader, the more it will need to establish continuity internally and externally; the more it will need to balance rapid change and continuity.  One way is to make partnership in change the basis of continuing relationships.  Balancing change and continuity requires continuous work on information.  Nothing disrupts continuity and corrupts relationships more than poor or unreliable information.  It has to become routine for any enterprise to ask at any change, even the most minor one: “who needs to be informed of this?”  And this will become more and more important as more enterprises come to relay on people working together without actually working together – that is, one people using the new technologies of information.  Above all, there is need for continuity in respect to the fundamentals of the enterprise: its mission, its values, its definition of performance and results.

Finally, the balance between change and continuity has to be built into compensation, recognition, and rewards. We will have to learn, similarly, that an organization will have to reward continuity – for instance, by considering people who deliver continuing improvement to be as valuable to the organization, and as deserving of recognition and reward, as the genuine innovator.

ACTION POINT: When you make a decision or a change, ask yourself “Who needs to be informed of this?”

Broadening the Extent of Advantage

Extending a competitive advantage requires... looking instead at the special skills and resources that underlie a competitive advantage.

Extending an existing competitive advantage brings it into new fields and new competitions.  For example, cell phone banking is a goring phenomenon outside of the United States, especially in the less developed countries.  EBay holds substantial skills in payment systems embedded in its PayPal business.  If EBay could build on these to create a competitive advantage in cell phone payment systems, it would be extending a competitive advantage.

Extending a competitive advantage requires looking away from products, buyers, and competitors and looking instead at the special skills and resources that underlie a competitive advantage.  In other words, "Build on your strengths."

ACTION POINT: Identify your strengths and build on them.

Deepening Advantage

They develop a special empathy for customers and anticipate problems before they occur.

The same issues that arise in improving work processes also arise in the improvement of products, except that observing buyers is more difficult that examining one's own systems.  Companies that excel at product development and improvement carefully study the attitudes, decisions, and feelings of buyers.  They develop a special empathy for customers and anticipate problems before they occur.

The second reason firms may fail to engage in a process of improvement occurs when isolating mechanisms surrounding important methods are weak.  Companies in such situations sensibly hope to catch a free ride on the improvements of others.  To benefit from investments in improvement, the improvements must either be protected or embedded in a business that is sufficiently special that its methods are of little use to rivals. 

ACTION POINT:  Study the attitudes, decisions, and feelings of your buyers. 

Deepening Advantage

...the underlying principle is that improvements come from reexamining the details of how work is done, not just from cost controls of incentives.

Start by defining advantage in terms of surplus--the gap between buyer value and cost.  Deepening an advantage means widening this gap by either increasing value to buyers, reducing costs, or both. 

It would be foolish to attempt to summarize the vast variety of methods and approaches that can be used to make improvements in cost and/or value.  It is more useful to highlight the two main reasons this process stalls.

First, management may mistakenly believe that improvement is a "natural" process or that it can be accomplished by pressure or incentives alone.  As Frank Gilbreth pointed out in 1909, bricklayers had been laying bricks for thousands of years with essentially no improvement in tools and technique.  By carefully studying the process, Gilbreth was able to more than double productivity without increasing any one's workload.  By moving the supply pallets of bricks and mortar to chest height, hundreds or thousands of separate lifting movements per day by each bricklayer were avoided.  By using a movable scaffold, skilled masons did not have to waste time carrying bricks up ladders.  By making sure that mortar was the right consistency, masons could set and level a brick with a simple press of the hand instead of the time-honored multiple taps with a trowel.  Gilbreth's lesson, still fresh today, is that incentives alone are not enough.  One must reexamine each aspect of product and process, casting aside the comfortable assumption that everyone  knows what they are doing. 

Today, this approach to information flaws and business processes is sometimes called "re engineering" or "business -process transformation."  Whatever it is called, the underlying principle is that improvements come from reexamining the details of how work is done, not just from cost controls of incentives.

ACTION POINT: Reexamine the details of your product and process to make improvements.

Value-Creating Changes

...increasing value requires a strategy for process on at least one of four different fronts:

Many strategy experts have equated competitive advantage with high profitability.  Despite all the emphasis on "competitive advantage" in the world of business strategy, you cannot expect to make money--to get wealthier--by simply having, owning, buying, or selling a competitive advantages. 

The truth is that the connection between competitive advantage and wealth is dynamic.  that is, wealth increases when competitive advantage increases or when the demand for the resources underlying it increases.   In particular, increasing value requires a strategy for process on at least one of four different fronts:

• deepening advantages,
• broadening the extent of advantages, 
• creating higher demand for advantaged products or services, or
• strengthening the isolating mechanisms that block easy replication and imitation by competitors.

ACTION POINT: Understand the four fronts for applying strategy to increase your value.