Using The Past To Discover What The Customer Will Want Next

I loved the article What’s your best innovation bet? by Melissa Schilling in this summer issue of the Harvard Business Review, as it has always been very hard to guess the future:

Image from Magda Kochanowicz

Melissa Schilling says that “By mapping a technology’s past, you can predict what future customers will want.”  For that she explains her method:

  • 1 – Identify the key dimensions

What she means here is to examine/analyse/determine the different aspects in which the technology has evolved, like on processing speed or on precision just to mention some typical dimensions, and to relate them to the need of users: how much has the technology satisfied that need? She gives a clear example with the recording industry, where the basic dimension for many years was the audio fidelity:

By the mid-1990s, both industries were eager to introduce a next-generation audio format. In 1996 Toshiba, Hitachi, Time Warner, and others formed a consortium to back a new technology, called DVD-Audio, that offered superior fidelity and surround sound. They hoped to do an end run around Sony and Philips, which owned the compact disc standard and extracted a licensing fee for every CD and player sold.

Sony and Philips, however, were not going to go down without a fight. They counterattacked with a new format they had jointly developed, Super Audio CD. Those in the music industry gave a collective groan; manufacturers, distributors, and consumers all stood to lose big if they bet on the wrong format. Nonetheless, Sony launched the first Super Audio players in late 1999; DVD-Audio players hit the market in mid-2000. A costly format war seemed inevitable.

You may be scratching your head at this point, wondering why you’ve never heard about this format war. What happened? MP3 happened. While the consumer electronics giants were pursuing new heights in audio fidelity, an algorithm that slightly depressed fidelity in exchange for reduced audio file size was taking off. Soon after the file-sharing platform Napster launched in 1999, consumers were downloading free music files by the millions, and Napster-like services were sprouting up like weeds.

If you wonder: ”who could have predicted the disruptive arrival of MP3? How could the consumer electronics giants have known that a format on a trajectory of ever-increasing fidelity would be overtaken by a technology with less fidelity?” Well, that’s just the method she’s presenting in this article, which first step is identifying the different dimensions at play.

For example, computers became faster and smaller in tandem; speed was one dimension, size another. Developments in any dimension come with specific costs and benefits and have measurable and changing utility for customers. Identifying the key dimensions of a technology’s progression is the first step in predicting its future.

To determine these dimensions, trace the technology’s evolution to date, starting as far back as possible. Consider what need the technology originally fulfilled, and then for each major change in its form and function, think about what fundamental elements were affected.

Tracing its [the recording industry] history reveals six dimensions that have been central to its development: desynchronization, cost, fidelity, music selection, portability, and customizability. Before the invention of the phonograph, people could hear music or a speech only when and where it was performed. When Thomas Edison and Alexander Graham Bell began working on their phonographs in the late 1800s, their primary objective was to desynchronize the time and place of a performance so that it could be heard anytime, anywhere. Edison’s device—a rotating cylinder covered in foil—was a remarkable achievement, but it was cumbersome, and making copies was difficult. Bell’s wax-covered cardboard cylinders, followed by Emile Berliner’s flat, disc-shaped records and, later, the development of magnetic tape, made it significantly easier to mass-produce recordings, lowering their cost while increasing the fidelity and selection of music available.

For decades, however, players were bulky and not particularly portable. It was not until the 1960s that eight-track tape cartridges dramatically increased the portability of recorded music, as players became common in automobiles. Cassette tapes rose to dominance in the 1970s, further enhancing portability but also offering, for the first time, customizability—the ability to create personalized playlists. Then, in 1982, Sony and Philips introduced the compact disc standard, which offered greater fidelity than cassette tapes and rapidly became the dominant format.

[…] I usually ask teams to agree on three to six key dimensions for their technology.

The recurring dimensions across industries are: ease of use, durability and cost.  To foresee the future, it is worth also to imagine new  dimensions worth exploring. A good tip to come up with those new aspects is to think big, no constraints, what could the customer want in an ideal world.

Folklore has it that Henry Ford once said, “If I had asked people what they wanted, they would have said faster horses.” If any car maker at the time had really probed people about exactly what their dream conveyance would provide, they probably would have said “instantaneous transportation.” Both consumer responses highlight that speed is a high-level dimension valued in transportation, but the latter helps us think more broadly about how it can be achieved. There are only limited ways to make horses go faster—but there are many ways to speed up transportation

  • 2 – Locate your position

For each dimension, examine the value consumers are receiving for actual technology

This will help reveal where the greatest opportunity for improvement lies.

[..] For example, the history of audio formats suggests that the selection of music available has a concave parabolic utility curve: Utility increases as selection expands, but at a decreasing rate, and not indefinitely. When there’s little music to choose from, even a small increase in selection significantly enhances utility. Consider that when the first phonographs appeared, there were few recordings to play on them. As more became available, customers eagerly bought them, and the appeal of owning a player grew. Increasing selection even a little had a powerful impact on utility. Over the ensuing decades, selection grew exponentially, and the utility curve ultimately began to flatten; people still valued new releases, but each new recording added less additional value. Today digital music services like iTunes, Amazon Prime Music, and Spotify offer tens of millions of songs. With this virtually unlimited selection, most customers’ appetites are sated—and we are probably approaching the top of the curve.

Many dimensions have S-shaped curves: Below some threshold of performance there is no utility, but utility increases quickly above that threshold and then maxes out somewhere beyond that.

  • 3 – Determine your focus

Once you know the dimensions along which your firm’s technology has (or can be) improved and where you are on the utility curves for those dimensions, it should be straightforward to identify where the most room for improvement exists. But it’s not enough to know that performance on a given dimension can be enhanced; you need to decide whether it should be. So first assess which of the dimensions you’ve identified are most important to customers. Then assess the cost and difficulty of addressing each dimension.

For example, of the four dimensions that have been central to automobile development—speed, cost, comfort, and safety—which do customers value most, and which are easiest or most cost-effective to address?

[..] Tata Motors’ experience with the Nano is instructive. The Nano was designed as an affordable car for drivers in India, so it needed to be cheap enough to compete with two-wheeled scooters. The manufacturer cut costs in several ways: The Nano had only a two-cylinder engine and few amenities—no radio, electric windows or locks, antilock brakes, power steering, or airbags. Its seats had a simple three-position recline, the windshield had a single wiper, and there was only one rearview mirror. In 2014, after the Nano received zero stars for safety in crash tests, analysts pointed out that adding airbags and making simple adjustments to the frame could significantly improve the car’s safety for less than $100 per vehicle. Tata took this under advisement—and placed its bets on comfort. All 2017 models include air-conditioning and power steering but not airbags.

Once you have identified the dimensions, the author suggests scoring these criteria to help you prioritize where to put the effort of innovation: how much users care about the dimension, room for improvement of the technology, and the cost involved in developing a new product on that dimension.  See this example for blood-sugar monitoring devices:

DIMENSION IMPORTANCE TO
CUSTOMERS (1–5 SCALE)
ROOM FOR
IMPROVEMENT (1–5 SCALE)
EASE OF
IMPROVEMENT (1–5 SCALE)
TOTAL
SCORE
RELIABILITY 5 1 1 7
COMFORT 4 4 3 11
COST 4 2 2 8
EASE OF USE 3 2 3 8

This matrix is very helpful to explicit the need to change a company’s traditional strategy:

It can also help overcome the bias and inertia that tend to keep an organization’s attention locked on technology dimensions that are less important to consumers than they once were.

Depending on your company’s situation (lack of cash, strong market position,..) you can weight some of the scoring to get your ‘personalised score. You can also use this method to analyse your competitors positioning and expected future products.  Knowing their actual market strength and their potential future directions will make you see the best ‘bet’ for your company in an ever evolving industry.

The technology assessment exercise can help companies anticipate competitors’ moves. Because competitors may differ in their capabilities (making particular technology dimensions harder or easier for them to address), or because they may focus on different segments (influencing which dimensions seem most important or have the most room for improvement), they are likely to come up with different rankings for a given set of dimensions.

The great insight of the method presented in this article is not on getting the innovation idea, but more at a strategic level, on where it will be better to put the effort for Your company considering its Actual circumstances at this Present market (evolution of the industry and existing competence).

Perhaps more valuable is the big-picture perspective it can give managers—shedding new light on market dynamics and the larger-scale or longer-term opportunities before them. Only then will they be able to lead innovation in their industries rather than scramble to respond to it.

Visual tool for Systems Thinking


Thanks to @PascalMestdach for presenting the visual systems modelling method at the #LeanCampBxl Unconference.

This is a very easy management technique to help visualising a complex organisation, and reflect on the dynamics at work when aiming for a particular goal.  A full model of an organisation with all the different perspectives is very hard to do, and anyway, any model is only an approximation to reality and never perfect. But you can construct a model focusing on a particular sector or aspect of your business: it will help you grasp what’s going on, how things impact one another, and share that same information with your team.

A model allows you to reflect on it: you get a deeper understanding and that can provoke insight. You can see how external changes could influence your system, and you can use it to test new ideas, simulating the impact of a particular change.

Also, understanding how the system works and what is our role in it let us be more effective and proactive.

Here is how to begin: you will need many post-its, a whiteboard and a marker.

  1. Prepare beforehand some basic post-its, writing already on them an element at play for the part of the business you want to analyse. You can mention inputs, activities, events, stakeholders, processes, behaviours, business objectives, personal goals, external influences…
  2. Then, present the process to construct the model of your business system: the idea is to identify the relationships between the presented elements that are at work on your company.To begin with, focus on 2 types of relationships: either it is a positive one where one activity goes on the same direction of another one (the more defects in a product, the more time spent fixing defects), or a negative relationship where it goes the opposite way (e.g. the more defects in a product, the less happy is the customer).  Here is how to represent those links:
    You see there mentioned a third notation to indicate ‘Delay’. This reflects the dynamic aspect on the two types of relationships (positive or negative) that is the delayed effect on time of an action. When the effect of an action is almost immediate, we see the relationship (like if you hear a horn waiting at a red light, you know the person has lost patience, and he horned because of a long timing of the red light), but the longer the delay between cause and effect, the increased complexity of the model because it’s more difficult to see its influence (like the returns of a marketing campaign).
  3. Don’t forget to give indications on the mindset needed to accomplish this!

    The objective is to construct a model where participants agree that it reflects their reality. That will allow them to clearly understand the issues at play. Managers may be surprised to discover how some activities are perceived by the team, the knowledge (or lack of) of objectives or of parts of the process, and even by what motivates the different participants (if they label a relationship as positive or negative).As every organisation needs everybody to work together for the whole to function successfully, this gained insight is very valuable. New post-its can be added if the participants feel there is an element to be captured.
  4. Validating the Model: once there is a consensus on the resulting model, put it to test using the technique of an ‘Ideal world’.Imagine our goal is: ‘Customer satisfaction’, write then ‘100%’ on top of that post-it. Then propagate this value to any post-it that is linked with a positive link.  So all of them have 100%.  Then follow the opposite links, and instead of labeling them ‘100%’ you write ‘0%’.  Are there any conflicts? Could you propagate the values and keep the model consistent?  Well done then!If not, open a discussion on possible changes to make this model work ?

You may notice that if you maximise a particular goal, like for example ‘customer satisfaction’, you may end up minimizing another potential goal (like ‘employee satisfaction’, or ‘minimal investment’). Nothing is 100% or 0% in our real world, but this ‘Ideal world’ propagation strategy makes you see what are the important factors to achieve a particular goal, and where are its negative impacts.

With this new insight, you are better prepared to decide on how to realign your goals, and you also have a visual representation of your business to communicate the objectives to the team.

Managing techniques to improve employee’s engagement: build a culture of trust

In a very interesting article in last Harvard Business Review “The neuroscience of trust” by Paul J. Zak. describes how trust works, and its relationship with employee engagement. Then presents eight management behaviors that create a culture of trust as the base to improve productivity through employee engagement.

Gallup’s meta-analysis […] shows that high engagement—defined largely as having a strong connection with one’s work and colleagues, feeling like a real contributor, and enjoying ample chances to learn—consistently leads to positive outcomes for both individuals and organizations. The rewards include higher productivity, better-quality products, and increased profitability.

[…]In my research I’ve found that building a culture of trust is what makes a meaningful difference. Employees in high-trust organizations are more productive, have more energy at work, collaborate better with their colleagues, and stay with their employers longer than people working at low-trust companies. They also suffer less chronic stress and are happier with their lives, and these factors fuel stronger performance.

Leaders understand the stakes[… but] they aren’t sure where to start. In this article I provide a science-based framework that will help them.

Paul Zak is a professor of economics, psychology  and management, and founder of the Center for Neuroeconomics Studies. He knew that a brain chemical called oxytocin was responsible in rodents to signal that another animal was safe to approach, and he wonder if it was the same for humans. He initiated a long term research to verify if the same neurological signal was also indicating us that we can trust someone. His  experiments proved that:

Oxytocin appeared to do just one thing—reduce the fear of trusting a stranger.

My group then spent the next 10 years running additional experiments to identify the promoters and inhibitors of oxytocin. This research told us why trust varies across individuals and situations. For example, high stress is a potent oxytocin inhibitor. (Most people intuitively know this: When they are stressed out, they do not interact with others effectively.) We also discovered that oxytocin increases a person’s empathy, a useful trait for social creatures trying to work together. We were starting to develop insights that could be used to design high-trust cultures, but to confirm them, we had to get out of the lab.

So he developed safe experiments to measure oxytoxin and stress levels of employees, and also measured their productivity and creativity.

Through the experiments and the surveys, I identified eight management behaviors that foster trust. These behaviors are measurable and can be managed to improve performance.

  1. Recognize excellence.
    The neuroscience shows that recognition has the largest effect on trust when it occurs immediately after a goal has been met, when it comes from peers, and when it’s tangible, unexpected, personal, and public. Public recognition not only uses the power of the crowd to celebrate successes, but also inspires others to aim for excellence. And it gives top performers a forum for sharing best practices, so others can learn from them.
  2. Induce “challenge stress.”
    When a manager assigns a team a difficult but achievable job, the moderate stress of the task releases neurochemicals, including oxytocin and adrenocorticotropin, that intensify people’s focus and strengthen social connections. When team members need to work together to reach a goal, brain activity coordinates their behaviors efficiently. But this works only if challenges are attainable and have a concrete end point; vague or impossible goals cause people to give up before they even start. Leaders should check in frequently to assess progress and adjust goals that are too easy or out of reach.
    76% of people reported that their best days involved making progress toward goals.
  3. Give people discretion in how they do their work.
    Once employees have been trained, allow them, whenever possible, to manage people and execute projects in their own way. […]
    Autonomy also promotes innovation, because different people try different approaches. Oversight and risk management procedures can help minimize negative deviations while people experiment. And postproject debriefs allow teams to share how positive deviations came about so that others can build on their success.
    […]
  4. Enable job crafting.
    When companies trust employees to choose which projects they’ll work on, people focus their energies on what they care about most.
    […]
  5. Share information broadly.
    Only 40% of employees report that they are well informed about their company’s goals, strategies, and tactics. This uncertainty about the company’s direction leads to chronic stress, which inhibits the release of oxytocin and undermines teamwork. […] Ongoing communication is key: A 2015 study of 2.5 million manager-led teams in 195 countries found that workforce engagement improved when supervisors had some form of daily communication with direct reports.
    […]
  6. Intentionally build relationships.
    […] at work we often get the message that we should focus on completing tasks, not on making friends. Neuroscience experiments by my lab show that when people intentionally build social ties at work, their performance improves. A Google study similarly found that managers who “express interest in and concern for team members’ success and personal well-being” outperform others in the quality and quantity of their work.Yes, even engineers need to socialize. A study of software engineers in Silicon Valley found that those who connected with others and helped them with their projects not only earned the respect and trust of their peers but were also more productive themselves. You can help people build social connections by sponsoring lunches, after-work parties, and team-building activities. It may sound like forced fun, but when people care about one another, they perform better because they don’t want to let their teammates down.
    […]
  7. Facilitate whole-person growth.
    High-trust workplaces help people develop personally as well as professionally. Numerous studies show that acquiring new work skills isn’t enough; if you’re not growing as a human being, your performance will suffer. […]
    Investing in the whole person has a powerful effect on engagement and retention.
  8. Show vulnerability.
    Leaders in high-trust workplaces ask for help from colleagues instead of just telling them to do things. My research team has found that this stimulates oxytocin production in others, increasing their trust and cooperation. Asking for help is a sign of a secure leader—one who engages everyone to reach goals. Jim Whitehurst, CEO of open-source software maker Red Hat, has said, “I found that being very open about the things I did not know actually had the opposite effect than I would have thought. It helped me build credibility.” Asking for help is effective because it taps into the natural human impulse to cooperate with others.

The effect of trust on self-reported work performance was powerful. Respondents whose companies were in the top quartile indicated they had 106% more energy and were 76% more engaged at work than respondents whose firms were in the bottom quartile. They also reported being 50% more productive—which is consistent with our objective measures of productivity from studies we have done with employees at work. Trust had a major impact on employee loyalty as well: Compared with employees at low-trust companies, 50% more of those working at high-trust organizations planned to stay with their employer over the next year, and 88% more said they would recommend their company to family and friends as a place to work.

My team also found that those working in high-trust companies enjoyed their jobs 60% more, were 70% more aligned with their companies’ purpose, and felt 66% closer to their colleagues.

Looking at his conclusions, I see the same values that we foster on Agile/SCRUM management methodology.

[…] you cultivate trust by setting a clear direction, giving people what they need to see it through, and getting out of their way.

It’s not about being easy on your employees or expecting less from them. High-trust companies hold people accountable but without micromanaging them. They treat people like responsible adults.

His research proved that these techniques work, and also that a culture of trust accounts for more joy: “joy on the job comes from doing purpose-driven work with a trusted team”.

Embrace the movement for a happier society raising awareness on the benefits of stopping micro-management and  of trusting people to do their jobs.