Friday, August 19, 2016

Customers and Fans

A marketer for a sports team spoke about the difference between fans and customers, which is critical to avoid misspending his budget.   A sports team has many fans, particularly when it is having a winning season, but fans are simply enthusiasts for a team who do not contribute significant revenue to the team.   Certainly, purchases of logo merchandise are a secondary stream of revenue, and watching games on television increases the advertising revenue, but his main concern is ticket sales – and in that regard, fans are not customers.   It struck me that this applies to many brands.

The most obvious example is luxury brands: there are many teenaged boys who are obsessive about sports cars, who study the brand and its products to the point that they are as knowledgeable as salesmen and who are otherwise highly obsessive about the brand – but who cannot purchase the car (though a very few may have that ability much later in life).   There’ a little revenue to be made from them through purchases of cheap logo merchandise, but little else.

I expect a more widespread problem is that of the fan who is the occasional customer – the enthusiast who roots for the team and buys a ticket once in a while.   But very often what prevents that fan from being a more frequent customer is something that marketing cannot fix: there is a functional barrier.   In his example, the functional barrier is that many games are held on weekdays, and it takes a die-hard fan to take time off of work on a regular basis to attend games.  The franchise could schedule more weekend games, at which ticket sales are higher, but this requires the cooperation of the league: the visiting teams want to benefit from weekend sales as well, so at best he could schedule half the weekend games at the home stadium.

Broadening the context, there are likely reasons that “fans” of consumer products who have functional barriers to purchasing it more often.  For example, if a product is not available in a convenient location, the die-hard fan will travel to obtain it, but the average fan will not: he will purchase it when it is convenient to do so, and may occasionally go out of his way to obtain it, but generally will not do so if it is significantly inconvenient.   The brand can open more retail locations or seek to place its product with general retailers, but there may be obstacles to doing so.

It’s also worth noting that entertainment is a luxury good for which there is no limitation on demand except the ability to devote time to leisure pursuits.   That is, it is possible for a fan to consume as much product as the entertainment venue can produce by attending every event.  When it comes to most consumer goods, there are more strict consumption limits: however enthusiastic a person is about a brand of gasoline, they will only purchase as much as they need, and it would be unreasonable to suggest that a fan would spend more time driving for the sake of being able to purchase more gasoline.

The ideal situation for any product is to have a large group of people who are both diehard fans and frequent customers – but the marketing department has little ability to create them.   In the sports example, it is the operations staff (coaches) who are able to improve the team’s performance and have winning seasons, which creates more fans.    In consumer goods, it is likewise departments such as manufacturing and design that make products better, hence deserving of fanaticism.   The marketer can advise operations on ways to improve the product, but in the short run is limited to the number of fans and customers that exist, and must seek them out.


Monday, August 15, 2016

Bad SWOT Analysis

If you use the right tool in the wrong way, you can do a lot of damage – and too often, I have seen SWOT analyses used the wrong way, and the output is a disastrous strategy that is pursued with great confidence.   I’m used to seeing this sort of foolishness from people who have no training or education in strategic planning – but recently, I was in a planning session with an MBA (granted, it was from a diploma mill) who did exactly the same thing, so it’s worth mulling over a bit.

Essentially, the SWOT analysis is a method for matching the strengths and weaknesses (SW) of a firm against opportunities and threats (OT) in the environment.   This identifies opportunities that can be seized immediately (because the company has the strength), opportunities for which the firm must gear up (because it is lacks the strength to pursue them), threats that the firm doesn’t need to worry about (because it already has strong defenses), and threats against which the firm must bolster its defenses (because it has a weakness).   It’s a very good tool when the analysis is done properly, and a very bad one when the analysis is poor.

The Wrong Way

The wrong way to SWOT is to begin by making a list of strengths and weaknesses and then considering what opportunities and threats may arise because of them.   This is the way untrained strategists approach the  task, because they are following the acronym in order: first S then W then O then T.  And apparently, it is the way SWOT analysis is taught in at least one specious “school” of business.

The problem with this approach is that it presumes the firm is unchangeable: its strengths and weaknesses are natural qualities that cannot be overcome.   It may be possible to recognize that the firm lacks the strength to advance on an opportunity, then to consider what changes can be made to gather the resources needed – but this is seldom done.  Instead, the conclusion is “we cannot pursue that opportunity” and no thought is given to making strategic changes to strengthen the firm where it is currently weak.

A second and more serious problem is that once strengths and weaknesses have been discussed and documented, this becomes a cognitive filter for the identification of opportunities and threats.   Any opportunity that does not correspond to an identified strength is simply ignored because the analyst’s mind has been primed to consider only opportunities that align with existing capabilities.

When SWOT is done the wrong way, it leads inexorably to the conclusion that the firm should remain exactly the way it is and keep doing exactly what it is doing – to capitalize on its strengths and ignore its weaknesses – meanwhile ignoring most of what is going on in the industry and the market.  This effectively prevents innovation, or even reaction to obvious problems.

The Right Way

The right way to SWOT is to begin with a list of opportunities and threats in the external environment, and then to recognize whether the firm is strong or weak in regard to those environmental factors.  From there, the analyst might recognize threats that can be ignored and opportunities that can be seized due to existing positions of strength – but he also recognizes the need to make strategic changes so that the firm can move in a different direction to seize opportunities or defend against looming threats for which the firm is not currently prepared.

Ideally, an independent researcher conducts the analysis of opportunities and threats in the environment.   This is critical because the analysis must be objective rather than being biased according to the current capabilities of the firm, or by any insider’s agenda to take actions that are motivated by personal ambitions.   It is only in this way that a firm can have a comprehensive and realistic perspective of the opportunities and threats it is facing.

It is only after the environmental scan that the strengths and weaknesses of the firm can be considered: a firm can have significant capabilities at something that is completely irrelevant to the market, which means that those capabilities are not a strength (and the resources consumed to maintain that power can and should be redirected).   This is a task for insiders who know the firm’s capabilities – through one must take care to avoid including those who are complacent or happy with the way things are: such people are averse to change and will make whatever distortions are necessary to defend the status quo and carry on with business as usual, even when it does not make sense.

Done correctly, the SWOT analysis will highlight the need to make strategic changes: opportunities and threats have been identified for which the firm does not have sufficient strength - but rather than abandon the opportunities and ignore the threats, this analysis will quickly identify ways in which the company can gain strength by taking action (build or reorganize a department, acquire or partner with a firm who can supply the necessary strength).   It can also identify areas in which the firm can divest itself of unnecessary and unprofitable operations that drain its resources by finding strengths and weaknesses that have no relevance to any threat or opportunity.

Conclusion


While the right tool can generate substantial benefits if it is used in the right way, it can do significant damage if used incorrectly, and this is the fundamental problem of improper SWOT analysis.   Moreover, because decision-makers feel that due diligence has been done and their plans are informed by intense research and analysis, it gives them great confidence to charge off in exactly the wrong direction.   This dangerous blend of ignorance and confidence is the ideal recipe for disaster.

Wednesday, August 10, 2016

Storytelling Basics for Customer Experience

Customer experience strategies are often conceived and described using the techniques of storytelling: we consider the needs of our customers and the actions they may take to discover plausible scenarios in which he might purchase and use our products.   If we write a convincing story, in which the details are carefully considered, this yields a strategy that has a better chance of success than a story that is unconvincing, poorly thought out, and highly implausible.

However, man customer experience stories are quite bad: “a person walks into a store and buys our product” is a hope, but many questions remain unanswered, such as “Who is this person?” and “Why does he need our product?” and without knowing those and other details, the stories are unsatisfactory – they don’t make much sense, seem highly unlikely, and do not provide much direction or inspiration.

To be successful in customer experience design, it’s necessary first to be able to write a good customer story, and to write a good story requires a little bit of skill and a fair amount of knowledge about what a story is and what it must include.  To that end, let’s explore what a “story” is as a whole, and explore each of its components.

Story Structure


To begin, “a person walks into a store and buys our product” is not a story, it’s just a narrative – and not all narratives are stories.   A narrative is a description of any sequence of events, whether or not there is any flow or logical connection among the activities that are described.   To be a story, a narrative must “go” somewhere – the sequence of events culminate in the achievement of a goal.  There is a standard pattern that is followed by virtually every story, and it is this:

Once upon a time, there was a person whose life was going along very well until the day he discovered that he wanted something.  He strived to overcome obstacles that prevented him from having it until he achieved the goal and lived happily even after.

The reason I say “virtually every” story is that the pattern has been used for thousands of years and some writers seek to do something a little different by deviating from the pattern.  They tell stories about a person who wanders about aimlessly, or who abandons their goal, or for whom the achievement of the goal does not produce happiness.   While such accounts can have novelty appeal, they are not very satisfying to the audience.  They may hold attention and seem a bit unusual, but there is generally a sense of disappointment when the “story” comes to a weak ending.

Since our goal is to satisfy rather than disappoint the customer, the deviations will be set aside to focus on the basic, successful, and satisfying pattern.  This pattern is generally successful if it is well executed; and good execution requires attention to details, particularly the ones highlighted above.

There Was a Person


First of all, a story is about a person, called “the protagonist” in literary terms.    Granted, in the age of mass markets we generally seek to serve a mass of customers, but even then we analyze the market, determine what kind of person we are marketing, and devise a persona so that we can understand the customer and consider common qualities that enable us to serve many people as if they were a single person.

Importance and value are significant qualities of a good protagonist.  As far back as Aristotle, it was recognized that stories about people who were unimportant and unlikable were generally unsuccessful.   You have to care about the protagonist to care what happens to him, just as you have to care about the customer in order to be diligent and attentive in designing to serve his needs.

Most stories start with at least a little background information about the protagonist so that the audience comes to know him, to understand his motivations, and to be favorably disposed toward him.  And again, the same is true of design strategies: the more you know about someone, the more effective you can be in designing for them because you understand and respect them.

So when writing your customer story, begin with a description of customer you are serving – which is generally the person who purchases and uses the good or service (though sometimes, those are two different people).  Be as specific and detailed as necessary to present a complete picture of someone who is worthy of being served by your effort.

Life was going along very well

The “real” action of a story doesn’t begin until something interesting happens, but it is a mistake to attempt to start the story at that very moment because the audience doesn’t know the character (as mentioned in the previous section) or his situation.   This part of the story, called “exposition” is generally done in the first chapter – though sometimes it is disclosed to the audience later in the story, that always seems contrived, as if the writer forgot to do it and is making up details as he goes along.

And so, a story begins before things go awry, as knowing what the protagonist’s life is like before the action begins is necessary to understand the goals of the character.  This is particularly true of disaster stories, where the entire point of the story is to restore the happy life that the protagonist had before something went wrong.   In order for the audience to see restoring the status quo as a worthy goal, they must know what the “status quo” actually is.   But it is also true of growth stories, in which the point of the story is to achieve something, because appreciating the change means comparing the final situation to that which existed before the change was made.

The exposition answers many questions that will distract the audience later.  If you tell the story about someone travelling through the wilderness, the audience wants to know why they are making such an arduous journey.   They will interrupt the story to ask this question, and lose interest if they do not receive a satisfactory answer – so while it can be argued that exposition is just “fluff,” it is the kind of detail that makes a story interesting and compelling, and helps the audience to accept that what the author describes is both necessary and plausible.

When writing customer stories, consider the exposition as part of the profile so that the “why” is clear to the audience.   If your customer’s task is to buy a good or use a service, it’s important to know the reason, given their situation, that the purchase is necessary as well as to consider whether there might be a better way to accomplish their goal.   It is often in considering these alternate methods and imagining better ways that innovative solutions are discovered.

Discovered that he wanted something


The is moment at which the drama of the story begins: the protagonist recognizes that something is wrong or lacking with his current situation, and that he must undertake some action to rectify this problem to restore or improve the status quo.   Called the “inciting incident,” the recognition of the difference between the present situation and the desired state must cause the protagonist sufficient irritation that he is incited to action.

The irritation factor is significant to the story.  A screwball comedy might tell the story of a protagonist who goes to inordinate lengths to swat a fly, and the humor is from the recognition that his problem is small and the effort he undertakes is grossly disproportionate, but most serious stories are about people with serious problems that merit the level of effort they must expend to solve them.

Ideally, the protagonist knows exactly what must be done and has the resources to perform the necessary actions – but in many stories the protagonist must undertake a quest of discovery to learn how to solve his problem, then another quest to get some item he needs to do the job.   This is common in novels and sagas, as having prerequisites to action helps to make the story longer and keeps the audience engaged in these mini-plots that take place before the main line of the story can be pursued.

When writing customer stories, consider the inciting incident.  At what exact moment does your customer discover his need?  Does he know what is necessary and does he have the means to do it?   Does he consider solving the problem to be worth the cost (money and effort) to solve it?   Each of these questions must be satisfactorily answered to have a compelling story – and to avoid writing a story that fizzles because the customer later discovers he is on the wrong path or lacks the necessary resources to solve his problem.

Strived to overcome obstacles


Conflict is what makes stories dramatic, and this conflict primarily arises from discovering and struggling to overcome obstacles that occur while the protagonist is attempting to solve his problem.   Called the “rising action,” this sequence of events often involves a number of failed attempts and setbacks before success is finally achieved.

If the story is engaging, each failure or setback brings the protagonist a little closer to the goal, or builds the emotional tension as he becomes more passionate about the task because of the resistance he encounters.  Any setback or failure that does not provide at least a little progress becomes “fluff,” an interesting side-trip that is essentially unnecessary and is likely to be cut out by a good editor.

While a good story involves a sequence of obstacles, a good customer experience attempts to solve a problem with as little effort as possible and there are no unexpected obstacles that arise.  In marketing terms, a simple story with an easy solution describes the qualities of a generic mass-market product.  The more obstacles a customer faces, the greater his need for a specialized product that is differentiated, hence the greater opportunity to gain competitive advantage by providing a product that is designed to overcome obstacles that a generic product does not – resulting in a smaller number of customers who will pay more for the product and become more loyal to the brand.

Where the obstacles are arbitrary and setbacks seem to pop up out of nowhere, the story seems contrived and the audience is disappointed at the teller’s lack of imagination.  Good obstacles arise out of the character and the situation, and make the story more compelling.   Audiences are far more captivated by the story of a character with some physical impediment accomplishing something that their impediment would seem to make impossible (a person born without hands becoming a sculptor) or whose situation makes a the problem more difficult to solve (fetching a drink of water at a lake is less interesting than fetching water in the desert).

When writing customer stories, consider the obstacles that the customer might face in completing a task.  If the course of action is simple, then so should be the solution – and in fact there is likely already a product available to solve it.   Also consider what obstacles might arise along the way as well as any special needs that might exist because of the limitations of the customer or his situation.

He achieved the goal


A story reaches its apex at the moment in which the main character takes the action that resolves the conflict, achieves their objective, and establishes themselves in the new and better situation that they had hoped to achieve.  It is the reason that the story exists, and the reason that the audience has given it any attention.

However, the climax of the story is given far too much attention, and is often stressed to the detriment of the other parts of the plot.  A well-conceived climax has little power if the audience does not understand and sympathize with a character and is not emotionally engaged in the drama of the story, nor if the climax fails to produce a satisfactory resolution.  It is a critical moment, but it must work in the context of the rest of the story: a poorly told story with a dramatic climax is still a poorly told story.

Another common problem with climactic moments is that they are often unsatisfactory: the action that is taken, which the author means to be the resolution of the crisis, is not something that actually resolves the crisis.  When the dragon is slain, the village still remains a charred ruin – its death ensures that the village will not be attacked again, but the villagers are still left with a significant problem: their crops and homes are destroyed and winter is still coming.

It probably is not necessary to suggest that it’s important to have a clear and well-defined climax when writing customer stories – as it’s well known that achieving the goal is what a story is all about.  But it is worth stressing that in order to be compelling and plausible, the peak of the story is supported by all the other factors, and must make sense in their context.   Very often, a writer’s revision process consists of fixing problems that are detrimental to the climax that is good unto itself but disappointing in context.

Lived happily ever after


A well-told story does not end the moment that the main objective is accomplished: the foe is vanquished, fade to black.   The audience must be satisfied that the climactic action actually resolved the problem or achieved the objective that the protagonist sought after.   The writer must provide an ending to the story, rather than leave the audience to “make up their own ending” – that is the hallmark of a weak storyteller who cannot craft a good ending for his story.

This part of the story, called the “denouement,” depicts the events that occur after the problem-solving action has taken place to prove that it was actually effective.   Going back to the previous example, this is why dragons have treasure-troves: when the beast is slain and the village is still in ruins, the hero brings home a huge pile of gold to buy provisions for the winter and rebuild what has been destroyed.

Particularly when marketing tells a story, it often ends with “and the customer bought our product,” because that is the moment that they get what they want (money) – but it is not the moment at which the customer gets what he wants, as he may have purchased a product that doesn’t really solve his problem.  And since the customer is (or ought to be) the hero of the story, the story fails: it seems pointless and futile.

When writing customer stories, don’t neglect the denouement. Refer back to the exposition and the problem that the protagonist was trying to solve.  Provide proof that it has actually been solved in a satisfactory manner, and show that the user did indeed live happily ever after for having undertaken his ordeal, made his purchase, and put the product to good use.   If the customer is not satisfied, he does not become an advocate and a regular customer, but instead becomes a disgruntled critic of the brand – and that story is a tragedy.

Conclusion


So there you have it, the structure and components of storytelling.  To make some practical use of this, simply apply it to your customers’ situation.   Seek to learn about who they are and how they live, when they might discover problems for which your product may be a solution, understand what they might try to do to solve their problems, help them to discover and make use of your product to achieve a solution.

Unlike writing a fiction story, customer stories don’t require a fanciful imagination – in fact, fanciful imagination is often detrimental.  The details of your story should be drawn from marketing research, so that your story is a plausible account that people can believe in.   The stakeholders in your organization should say “this could possibly happen” and work to make it happen for the customer.   The customer should say “this could possibly happen to me” and work to emulate the hero of your story – who buys your product, solves his problem, and lives happily ever after.

Friday, August 5, 2016

Change is Still the Same

It’s been my position that change is not as rapid or dramatic as many would like us to believe.  While it would be foolish to deny that change is occurring and that more changes are coming in future, it’s equally foolish to constantly speak of rapid and dramatic change that will sweep the globe.  Changes tends to be small, and even when it is revolutionary (the emergence of the Internet and mobile), it takes quite a bit of time to occur. 

While the last twenty years or so have been transformative, all of this hubbub has been based on three basic premises that have not changed – and all the plausible prophesies of change for the foreseeable future are still based on the same three basic forces: technology, globalization, and changing consumer behaviors.

Technology

Technology is by far the greatest force of enthusiasm about change, and a force of actual change in far fewer situations than the enthusiastic will let on.  Computer technology has driven change for the past fifty years – between databases and networks, the internet, and mobile.   The devices we use to communicate with one another have expanded to provide more access to more people in more situations.  

But at heart, the functions of technology are still the same – connecting people to one another and providing rapid access to information. The emergence of mobile computing put access in the hands of most people in most locations – this happened around the turn of the century, and nothing that “big” has happened since. The technological changes in the past two decades have simply been more of the same.  

Aside of “more of the same” there are still a few unfulfilled promises that have been lingering: artificial intelligence and big data are the most cited.   But these ideas are not new.  In the 1980s, the idea of an omniscient AI with access to global information was the topic of books and movies, and science fiction writers probably stumbled across the notion forty or fifty years before that.  

And should these two things finally be delivered, what will be the dramatic change that will occur?  Better search results?   Is that really something that will change the world, or something that will be marginally better, faster, and more intuitive than we already have?  Given that the majority of people have access to the majority of information that is of practical value, I don’t see this as a world-shaking change.

Globalization

Speaking of “the world” (as it’s the scale of grandiose claims), the second major force of change for the past few decades has been globalization.   This has been happening gradually since the end of the Second World War.   Arguably, it’s been happening since the time that the wooden ships of the British Empire connected economies around the world, or even when the Silk Road of the Mongolian Empire connected the civilizations of the east and west.

For the most part, globalization has been an economic phenomenon: it has given companies easier access to customers and suppliers in foreign markets at the cost of facing competition from other firms that would normally have been kept at bay by distance.  Its effect on consumers, however, has been largely positive: a wider array of suppliers grants consumers access to a broader selection of goods and advantageous pricing.

And again, there is no future change from globalization other than “more of the same.”  As world economies develop and additional resources become available to buyers in the commercial and residential markets, there will be even more things and price competition will become even more acute.   This is nothing new, merely the continuation of a trend.

There is also a similar force of deregulation, which does for domestic markets what is done for the world market on a smaller scale – but because markets were not regulated until regulations were passed, deregulation is not a change to something different, but a return to a previous state.   It is certainly advantageous for an industry to be deregulated, but this is not revolutionary.

Consumer Behaviors

The final force of enthusiasm about change are the differences in consumer behavior – but my sense is that this is not much different to the effect of globalization.   A great deal of attention is paid to the subtle differences between Boomers, Generation X, and the Millennial – but this is strictly in reference to the American market, which is neither the largest nor the most important market in the world.  

Overseas, similar changes have been taking place for years as younger generations depart from tradition to join the global market.  There was a great deal of buzz about the “shin jin rui” or “Japanese Generation X” about four decades ago, the emergence of the Russian capitalist a decade later, and similar phenomena in nations the world over as they become industrialized and join the global marketplace.

But again, it is a “more of the same” phenomenon – the growth in consumer income that results from industrialization creates a growth in demand for consumer goods (primarily luxury goods) and a shift toward greater individual choice due to the increased variety that is brought by globalization.    As more locations industrialize, it is predictable their consumption will follow this pattern rather than taking on a new and unheard of shape.

***


In the end, there is little consideration of any force of change that is really new – it is merely a continuation of trends that are twenty, fifty, or even more years old – so the “change” is more evolutionary than revolutionary, and there’s very little insight into anything truly different than has already been witnessed.    This is not to say that some sweeping and revolutionary factor will suddenly emerge, simply that none has for quite some time, nor seems likely given that the world is still taking time to adjust and mature into the three factors listed above.

Friday, July 29, 2016

When is Innovation Harmful?

Businesses and the people who work at them tend to go to extremes.  Rationally, an objective should be pursued only when it makes sense to pursue it – but emotionally, an objective becomes and end-all-be-all.  In particular, I’ve been thinking about the topic of innovation and the way in which firms seek to “always innovate” rather than focusing their time and resources for innovation in areas where it makes sense to be innovative.  Nothing – including innovation - is a categorical proposition.  It does not always make sense, and it is not always productive.   There are a number of instances in which innovation is pointless or counterproductive.  Here are a few examples:

Innovation Yields No Market Advantage

The main reason to innovate is to gain a competitive advantage in the market – so investing excessive effort in an innovation program that has no impact to market performance is wasteful and can be counterproductive.   A good litmus test is to ask whether the customer can witness and appreciate the results of innovation.  If the answer is “no” then your R&D dollars are likely better spent elsewhere.

A common misuse of innovation is on transforming internal services such as logistics and accounting.   These operations rarely have an impact on the customer and innovations seldom yield any noticeable improvement.   Efficient operations can improve financial performance and should definitely be considered, but unless logistics or accounting is a core service of the firm, innovation in these areas will likely be negligible in terms of market advantage.  The firm would be better off wither seeking to optimize (rather than innovate) or outsourcing these operations to a more efficient provider than attempting to improve its own internal services.

Market Demand Supports a Basic Good and/or Service

There are instances in which there is sufficient demand for a product that does one thing well and customers see no benefit in enhanced or ancillary services.  This can be tested through market research that asks the customer what they value in a product – where it is unrealistically believed that the customer would learn to want something if only they could get their hands on it, then test marketing will uncover a bad decision.

There are shopworn examples of the Swiss Army Knife, a tool that does many things poorly and nothing particularly well, or the Internet-enabled toaster that offers functionality that no-one wants enough to pay for.  There is plenty of demand for a toaster that just makes toast well.  It doesn’t need additional capabilities or new uses – it just needs to do one thing well.   Here, innovation is unnecessary and fruitless, and development resources are better directed to making the product better, cheaper, and easier for its existing purpose.

Time and Money are Needed to Innovate

Quick-and-dirty innovation is seldom fruitful, and while the innovation cheerleaders are constantly using fear of obsolescence to push half-baked ideas to market prematurely, it takes time to innovate well: to explore a problem, evaluate solutions, and set up operations to provide them requires a firm to move at a more deliberate pace, and a bread-and-butter product that is not innovative may still generate sufficient revenue for the firm to stay afloat. 

When this occurs, the current (and soon-to-be-obsolete) product is needed to provide the life-blood of the firm while it seeks to make significant changes in its core operations.  The basic product and its performance can be marginally improved by optimization and efficiency improvement rather than innovation.  Particularly when this product is scheduled to be phased out when its successor is sufficiently mature, investing in innovation on that line is not merely beating a dead horse, but trying to feed one.

We Don’t Know Why Our Competitors are Winning

In some instances, insiders at a firm have no idea why its competitors are winning – they may seek to imitate the practices of other firms (aka “industry standard best practices”) without knowing why other firms are doing these things.   This is a very bad practice because the company will eventually be doomed – but it is a very common one and a situation in which innovation is impossible because the firm does not understand the market.  Hence, any attempt at innovation would be a shot in the dark, more likely likely to waste scarce resources than save the firm.

This situation is entirely similar to the firm that needs time and money to innovate, but is different in that a firm in this position doesn’t know how to innovate at all – and if it can admit that, then it is a rational decision to stop innovation efforts and retrench until a strategic approach can be discovered and implemented.   Happy accidents occasionally occur when an ignorant person stumbles on a viable solution – but this is the exception rather than the rule.

The Firm is Stable and Profitable 

Perhaps the best reason not to innovate is that innovation is unnecessary: the firm has a commanding position in its target markets and is entirely capable of sustaining itself on its revenue and there is no plausible evidence to suggest that the competitive landscape will change.  Or more importantly, when there is no sign that customers are dissatisfied with the product, and change would decrease satisfaction and loyalty rather than increase it.  The best example of a firm that shot itself in the foot by innovating where it was utterly unwanted by the market can be summed up in two words:  New Coke.

This brings us back to the original consideration: that the extremists who feel that innovation is always necessary lack and understanding or appreciation of stability and success by current methods.   There are many firms whose operations are successful and who can maximize performance by maintaining their present operations.   There is always room for improvement, or so it is said, but in this situation efficiency improvements that do not jeopardize the firm’s position in the market and the financial sustainability of existing operations are better than innovating with wild abandon.