by Rita McGrath
Another effect, which Christensen predicted, is that the “brands” of universities may well become less important than the “brands” of individual superstar professors. It may well matter more in the future that you have a credential attesting to the completion of Christensen’s course on disruption or Lynda Gratton’s course on organizational design than that you have a degree from Harvard or London Business School.
Similarly, we may well see rankings and accreditation drop to the level of individual course modules or programs. So rather than ranking the “best business schools” overall, journalists and observers may instead rank individual educational programs. The Thinkers50 biennial ranking of thought leaders in management has already demonstrated a version of this. The group identifies and ranks management thinkers whose ideas have had a major impact on the understanding of management and presents awards for distinguished achievement in specific categories. Notably, Thinkers50 salutes individuals, not the institutions from which they hail.
Making Sense of Weak Signals
This brief overview of the state of play in credentialing in higher education illustrates several of the major themes of this book. The first is that pending inflection points can often take a long time to have an impact. The second is that while observers often anticipate such a major change, it can take a while before a complete ecosystem is in place that fully disrupts the status quo in a meaningful way. And the third is that moving too early, as the ill-fated Fathom did, is tempting but often ends up badly.
What Won’t Change
With the mind-numbing pace of change that seems to be all around us, it is also worthwhile to consider what is highly unlikely to change as you consider your strategy.
To return to higher education for a moment, it is highly unlikely (and not actually desirable) for the university system as we know it to disappear. There is still a role for the liberal arts and the “coming of age” experience that so many college-educated people reflect on with great fondness. What is more likely to happen is that trusted alternatives to the degree will emerge, initially for easy-to-measure skills such as coding, but eventually for more advanced creative and communication skills. The optimist in me would like to think that this would open up opportunities for people who are perfectly prepared to make a contribution, but for whom a four-year commitment is unachievable or undesirable.
To quote Amazon’s Jeff Bezos, “It’s impossible to imagine a future 10 years from now where a customer comes up and says, ‘Jeff I love Amazon; I just wish the prices were a little higher,’ [or] ‘I love Amazon; I just wish you’d deliver a little more slowly.’ Impossible.” His point is that if you know something is going to be true over the long term, you can put your efforts into maintaining that truth.
We’ll return to this way of thinking in detail later in the book. To foreshadow briefly, the things that won’t change are what we call the customer “job to be done.” In other words, human needs and preferences are remarkably stable, even as the technologies for meeting those needs change. From smoke signals to the written letter to the pony express to the telegraph to the landline phone to today’s smartphone, the “job” of conveying information over long distances has hardly changed at all, even as our abilities to get that job done have completely transformed.
This is a powerful insight, one that is central to going through an inflection point and coming out the other end even stronger.
Key Takeaways
An inflection point happens when a 10X change alters the basic assumptions upon which a business is built. Because these are taken for granted, it is often hard for executives working in the here and now to see the implications of change.
In the early stages of an inflection point, it is difficult to see the potential impact because the possible solutions are invariably incomplete—the change affects only certain parts of the system. The big mistake is to make a huge investment at this point.
There are three kinds of indicators in any business. Lagging indicators provide information about what has already happened and cannot be changed. Current indicators provide information about what is going on, based on assumptions about how the business currently operates (which can create blind spots). Leading indicators are the most critical for spotting impending inflection points, but they are the most difficult to make sense of—they are often qualitative and emergent.
The quality of the information you have to work with is inversely proportional to your ability to do anything to change the story. A way of increasing your decision-making confidence is to create a time zero event that represents something important that might happen in the future. Then you can work backward in time to see what could anticipate this kind of event.
By using a simple juxtaposition of key uncertainties, you can articulate very different time zero events, which can become points of inquiry among your management team. Allocating the time to do this work is crucial yet often overlooked, which can lead to strategic blind spots.
3
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On the Lookout for Weak Signals: Defining Your Arena
[A company stalls] because the things they believed the longest or the things that they believe the most deeply are no longer valid. Basically, what they know is no longer true.
—Matthew Olson, Derek van Bever, and Seth Verry
This quote, from a study of negative inflection points, which Olson, van Bever, and Verry came to call “growth stalls,” identifies the single most significant reason that once-successful firms have sudden collapses in revenue. In other words, something in the environment has changed the assumptions that company leaders are making about the key elements of their strategy—their customers, the needs being met, the competitive set—and yet the organization hasn’t responded.
Taken-for-Granted Assumptions About Success Can Be Dangerous
The growing mismatch between what once made an organization successful and the environment it finds itself in now eventually leads it to dramatically lower performance, if not to its demise. And Olson, van Bever, and Verry found that the revenue drops were not gradual. Just as the theory we are exploring here suggests, a negative inflection point can lead to sudden and unfortunate declines in performance.
In my book The End of Competitive Advantage, I suggest several early-warning signs that an advantage is likely to be on the decline. How many of these do you think your organization’s leaders would be likely to agree with?
I don’t buy my own company’s products or services.
We are investing at the same levels or even more but not getting margins or growth in return.
Customers are finding cheaper or simpler solutions that are “good enough.”
Competition is emerging from places we didn’t expect.
Customers are no longer excited about what we have to offer.
We are not considered a top place to work by the people we would like to hire.
Some of our very best people are leaving.
Our stock is perpetually undervalued.
Our technical people (scientists and engineers, for instance) are predicting that a new technology will change our business.
We are not being targeted by headhunters for talent.
The growth trajectory has slowed or reversed.
Very few innovations have made it successfully to market in the last two years.
The company is cutting back on benefits or pushing more risk to employees.
Management is denying the importance of potential bad news.
Finally, we come to the capabilities deployed by organizations to deliver the attributes present at each link. Think of capabilities as being translated into attributes that can be perceived as relevant by different actors in the situation. These capabilities can be thought of in terms of traditional ideas such as the value chain, or the “set of activities that a firm operating in a specific industry performs in order to deliver a valuable product or service for the market.” Different value chains can produce very different at
tributes, and many traditional ideas in strategy come from that understanding.
Basic—attribute is taken for granted by all players
Discriminating—attribute distinguishes between solutions
Energizing—attribute has a powerful emotional effect on stakeholder
Stakeholder sees as positive
Non-negotiable—stakeholder expects it from all providers (a clean bed in a hotel room)
Differentiating—stakeholder sees differences among providers (hip music in a W hotel as opposed to a Marriott)
Exciting—stakeholder has an overwhelmingly positive reaction (original formulation of Courtyard by Marriott for business travelers)
Stakeholder sees as negative
Tolerable—stakeholder will put up with it to get the benefits (price)
Dissatisfying—stakeholder would prefer to do without it, and there are differences among players (time-consuming check out process)
Enraging—stakeholder would prefer never to do business with this entity again (lack of free Wi-Fi)
Stakeholder is neutral
Neutral—not all stakeholders care about this (television in the room)
Parallel—stakeholder may see something in the experience other than the actual service (loyalty card program)
Doesn’t exist
The goal of working through these elements is to open your eyes to the possibilities that might have a potentially important effect on your business, even if they are just out of sight. I also recommend that you take a page out of the design thinking handbook as you consider your strategy. Tim Brown and Roger Martin provide a really nice description of how you might do this in their article “Design for Action.” In particular, the idea of throwing out multiple possible strategies and consciously debating them rather than incrementally working from strategies that are already in place is excellent.
The Arena Map
Today’s Assumptions
Potential Shifts
Future Possibilities
Resource pool
Contestants
Stakeholders and their most important jobs to be done
The consumption chains that deliver these jobs
The attributes stakeholders experience
Organizational capabilities and assets
The process is meant to be used iteratively, in conjunction with your strategy development process.
The shifts that potentially lead to an inflection point can be described as follows:
They can change the pool of resources that are being contested.
They can change the parties trying to grab some of that pool of resources.
They can change the situation in which the contest takes place.
They can cause one job to squeeze another out of an actor’s consideration set or reduce the resources available to do that job.
They can meaningfully change the consumption experience.
They can lead to some attributes becoming more or less valued than others.
They can change the kinds of capabilities embedded in a value chain that are relevant.
They can change every element of the arena.
The Shrinking Shaving Business: A Negative Inflection
Let’s take a quick look at an example from the current state of the art with respect to men’s shaving behavior, written from the perspective of Procter & Gamble’s Gillette brand.
The basic story in the shaving business is that for years, P&G’s Gillette brand had a dominant position in the market. The company poured resources into R&D to develop better, premium-priced products. Typically, they sold razors with multiple blades, claiming that this produced a better shave. Because razors are expensive (I call them catnip for shoplifters), many retail outlets keep them under lock and key, meaning that consumers have to find a retail worker to unlock the case (what I call the razor fortress). It’s also easy to forget to buy razors.
In the 2010–2011 time frame, an explosion of new competition, informed by both digital possibilities (YouTube, Facebook, Amazon Web Services) and a changing attitude toward the necessity of being clean-shaven among a new generation of customers, sent shock waves through the Gillette business model. Upstarts such as the Dollar Shave Club and Harry’s explored a direct-to-consumer model with less expensive blades offered on a subscription basis. Gillette’s market share went from roughly 70 percent of the men’s shaving market to around 54 percent. Stunningly, the entire category seems destined to shrink as attitudes toward hair removal and its importance decline.
How might an analysis of this arena look using the framework described in the previous section? Let’s try it.
Today’s Assumptions
Potential Shifts
Future Possibilities
Resource pool
Men’s spending on personal grooming, in particular on shaving.
Social shifts to make daily shaving less essential to younger generation; willingness to grow beards
Greater price sensitivity
Resources devoted to entire category might be in decline
Contestants
Gillette 70% share
Schick 20% share
Others very small
Digital enables creation of direct-to-consumer market
Explosion of competition even in a shrinking market
Stakeholders and their most important jobs to be done
Three types of shavers:
Ritualistic—get the job done at high quality
Begrudging—get the job done quickly and cheaply
Aesthetic—focus on the look and emotion
Shaving itself losing relevance to many men in favor of a different look—the job is shrinking in importance
Consider running a smaller business more efficiently
Find ways to open the market to more demand
The consumption chains that deliver these jobs (awareness, search, selection, contracting payment, etc.)
Sales through retail channels
Digitally enabled platforms make other channels possible
Direct-to-consumer becomes popular
The attributes stakeholders experience
+ Decent shave
– “Razor fortress”
– Expense
? Differentiation
? More blades = better
Sources of differentiation have eroded for Gillette
Men are finding other razors good enough
Global supply made by few manufacturers
Adding more blades is not going to be differentiating; may require a really disruptive strategy
Organizational capabilities and assets
Huge spending on both R&D and marketing
Relationships mediated by retail channels
Probably need to change the mix
Be a controlled cost player
Gillette has responded to the post–inflection point world partly by going on the defensive and partly by moving toward developing direct relationships with end users with its Gillette On Demand. Defensively, it’s lowered the price of its razors to be more competitive with the upstarts’. Offensively, it’s introduced the Razor Maker project, which allows users to personalize their shaving devices with 3-D printed handles. The company is also exploring ways of making the shaving consumption chain less irritating. For instance, you can now order blades by sending a text message, and the company will deliver them straight to your home. Notwithstanding all of this, it doesn’t seem likely that the comfortable days of Gillette’s dominance in the shaving business are likely to return.
When One Job in an Arena Squeezes Out Another: The Case of Apparel
Pity the purveyor of clothing for teenagers in this hypersocial and hyperconnected age. This population in particular is so keen to connect with one another digitally that virtually nothing else has a similar allure. Indeed, concerned psychologists, observers, and marketers have called the devotion to digital devices “addictive.”
The pool of resources being contes
ted is, in this case, discretionary household spending among teens in the United States. The situation generally involves those in charge of household budgets (a combination of teens and their parents) deciding what to spend money on over the course of a period of time. The job to be done is anything that might prompt a trip to the mall or a visit to a website—the need for clothing for work or play, the need to update a wardrobe, the need for an outfit for a special occasion, whatever. The consumption chains assembled to address these needs consist of both online and offline merchants who supply apparel to their customers in a variety of settings. The attributes most stakeholders care about are related to the products, represented in styles and trends, not customers’ entire experience. And the capabilities required to participate in this marketplace are those that have been assembled over several decades by retailers of all kinds, often based on traditional constraints (such as how long it takes to redesign a style or supply a store).