Anupam Kundu and Maneesh Subherwal explain how to operate in a global, hyper-competitive world while avoiding risk-laden experiments and other "stupid" strategies.
"Smart may have the brains, but Stupid has the guts." Have you heard this before? Diesel used it recently (but with a word more crass than “guts”) as part of its “Be Stupid” marketing campaign, arguing that it is better to be stupid and bold than smart and creative. It’s a terrible, uninspiring attempt to match up to the essence of Steve Jobs’s "Stay Foolish, Stay Hungry" commencement address at Stanford University.
As business-technology consultants, we often meet bold, smart product managers who are willing to take risks to build and launch new products and services in the face of extreme uncertainties. However, we never advise these executives to stay "stupid" by continuing to run risk-laden experiments without having the "smarts" to review the results, distill the feedback gathered, and adapt by evolving their strategy. Staying stupid is not a smart option!
Responding to Change
Everything around us is changing rapidly, influenced by fast adoption of new products and services in a mobile, social, and distributed world. In one generation, we changed our preference from typewriters to computer keyboards to touch screen interfaces; increasing percentage of population are adopting mobile phones as the new vehicle for taking digital photos resulting in significant drop of market capital for large camera companies: Organizations across the globe, small and large, are struggling not only with change but also with innovating, adapting, and effectively reacting to the pace of change.
In an earlier article, Anupam provides examples of product managers in large organizations who follows ordered processes to improve efficiency and scale rapidly with pre-existing business models instead of looking out for new ones. These managers now struggle to ship new products and create innovative business ecosystems, while their counterparts in smaller organizations successfully foster new business models and product innovation. The same ordered processes and organizational structures that once helped these large organizations to scale efficiently and create specialized silos across the organization now inhibit them from creative innovation and discovery of new business models.
In the midst of such a dynamic business environment, we have seen multiple product divisions overwhelmed and even wiped out due both to sudden market downtrends in usage and adoption of their products and to product managers’ making blunders while scanning for possible escape routes. Most product managers (and, for that matter, others in leadership functions) are trained to work in ordered and predictable environments; they rely on stable intuition and experience to handle all kinds of situations, without an appreciation of how a particular business outcome (especially a negative one) is affected by complex, ambiguous, and unpredictable circumstances.
Product Managers, usually blame this lack of visibility into blinding, brisk, roller-coaster shifts in user demand and market preferences (sometimes correctly) on existing tools, structures, and processes for their apparent inability to analyze, predict, and provide insight into usage trends, patterns, and forecasts. However, over-reliance on cookie-cutter analysis and responses to deal with unforeseen situations increases the possibility of failure, and not all situations can be solved by a silver-bullet approach. Sadly, it's not only businesses but also social institutions such as universities, banks, and courts that function in an Industrial Age mindset, with order and operational efficiency as the primary goal without any appreciation for the flux that exists in the marketplace. They tend to fail in their attempts to handle the disruptive turbulence and ambiguity of our current times.
The following real-world examples further articulate the fallacies of experienced product teams using silver-bullet solutions with limited understanding of customer needs and wants and/or little analysis of unintended business consequences.
Example 1: Increase Top-line Revenue at the Expense of Debit Card Fees
Recently, Bank of America took a few weeks to respond and reverse its decision to charge customers fees for debit card usage. The bank undermined its customers by attempting to force them into a situation that may have been good for the bank's bottom line but was not attractive to its customers. This encouraged other banks like JPMorgan Chase, PNC Financial, and CitiGroup to stop—and in some cases reverse—their experiments with debit card usage fees and to offer incentives to customers to use debit cards more.The late reaction by the banks may be an example of their senior policy makers’ inability or unwillingness to quickly embrace customer feedback and change their course of action, resulting in substantial damage in brand value
It also resulted in a movement to transfer money from the “Big Six” banks to community banks and credit unions, as well as providing smaller online banks the opportunity to run aggressive pro-customer campaigns.
Introducing bold, stupid, and risky market changing shifts is necessary to analyze, understand, and reshape the tolerance limits of an existing consumer base. However, not building in sufficient risk mitigation within such experiments increases the probability of severely damaging outcomes if the experiments go wrong.
Example 2: Communicate Effectively While Streaming Video
The CEO of Netflix, Reed Hastings, tried to contain the public backlash against his decision to split the company’s streaming and DVD services into two separate, disjointed companies, but it was not enough to stop customers from exploring competitive options like Amazon Instant Video, and Netflix lost significant market share. Facing tremendous criticism from subscribers, investors, shareholders, and media, Hastings announced the decision to kill the separate DVD service concept in a blogpost: “I messed up. I owe everyone an explanation.” Twenty-seven thousand angry comments and 5,000 frustrated tweets by beleaguered customers resulted in 800,000 customers leaving Netflix for other alternatives. Before this incident, Netflix shares traded at a price-earnings ratio of about eighty, based on favorable earnings forecasts. However, after this blunder, Netlfix shares plunged 60 percent in 2011 and the company is expected to post losses in 2012, as well.
Not surprisingly, Netflix competitors like Hulu, Amazon, Flixster, Ultraviolet, and Cinema Nowjumped at this mass disenchantment with Netflix, doing everything they could to make it easier for consumers to get their video content any time, anywhere. Netflix was once the darling of the masses because of its quick action and bold experimentation to outwit older players (e.g., Blockbuster) in the video rental market. However, Netflix’s bad business decisions and inability to respond quickly in a hugely competitive market have led punters to speculate on the company’s future.
Customers look for innovation and bold experiments that have customer insight and experience at their core, but any business decision that betrays the interest of the customer is surely going to invite severely negative reactions.
Example 3: Disrupt the Retail Status Quo
JC Penney’s (JCP) new pricing strategy, formulated by CEO Ron Johnson (a former Apple executive) is an interesting example of a bold decision to disrupt the status quo of retail sales at their stores. He recently unveiled a simple, three-point pricing policy—“Every Day,” “Month-long Value” (theme sales), and “Best Prices” (clearance)—as one of his initiatives to transform the retail organization into a potential twenty-first-century market leader. This is very different from the more than 600 confusing price points the company used before to influence customers’ impulsive, deal-driven decisions rather than focus on product and brand quality.
Many analysts predict a gloom and doom scenario. They believe that JCP’s products are too generic and homogeneous for customers to buy the new pricing concept and that JCP lacks the value proposition and true differentiation required to make an impact with this. However, this and other changes Johnson has suggested are based on prior experiences and insight from similar experiments at Target and Apple. The market may not be satisfied with the short-term loss in customer base and early drop in revenue, but the goal is not to play market gains for the daily trader. The goal is to rebrand the company with innovative ideas based on experience and followed by measurable action. JCP now has a new logo, new pricing, new store layout, new products, and new marketing campaigns—all in two months! These are bold moves, backed by insightful analysis and an understanding of consumer behavior.
Bold Experimentation with Continuous Inspection
Having the guts to explore new business models or perform new experiments is a compelling argument these days. Technological innovations and rapid globalization of the economy have made it easier to conduct quick trials (A/B Testing, Usability Testing, etc.) to do customer validation of new ideas and concepts, early and often. Without a few bold changes, one can never truly find out what works and what doesn't. However, not having the organizational intelligence to comprehend properly the outputs from these trials and take appropriate actions could have serious consequences to the bottom line. There is an urgent need for product managers to balance the bold experiments with key insights into market trends and customer needs as they cater to varied business and customer demands. As we continue to operate in a global, hyper-competitive world, it’s imperative that we balance our experiments with the insight to make sense of them.