Chapter 1.4: Gathering the Inputs - Taking Action

BRINGING IT ALL TOGETHER

This is perhaps the most difficult step in the playbook, and many business articles are written on the myths of implementation of strategy and execution failures (1, 2). Exhibit 4 visualizes the operational cadences based on concepts from Hoshin Kanri (3), modified for software companies implementing agile development practices: 1) 3-5 year strategy, 2) yearly operating plan, 3) quarterly goals and roadmaps, 4) monthly report-outs, and 5) bi-weekly demos and retrospectives to practice continual improvement.

Operational cadences at 3-5 year, 1-year, quarterly, monthly, and bi-weekly time horizons.

Operational cadences at 3-5 year, 1-year, quarterly, monthly, and bi-weekly time horizons.

I especially appreciate the work of Sull, Homkes, & Sull (2015) on this topic as it highlights an opportunity to combine the approaches practiced in design (collaborative ideation and execution), leadership (individual behaviors), and organizational design (team behaviors) at the top levels of business management and across the entire firm.

Design Thinking

Beyond the buzzwords and hype, the point of design thinking is that the approach is methodological, scientific, and collaborative. Design thinking proposes understanding our assumptions, conducting research to uncover new or refute current hypotheses, deriving insights, ideating concepts, and creating prototypes and strategies for evaluating ideas (4). In the field of design, we bring teams together to uncover these assumptions and insights, conduct research, design concepts, and test them through prototypes. We work with product and engineering or service development partners to create a vision, and continuously refine our ideas, throwing out what does not work and adding only where necessary. In 101 Design Methods: A Structured Approach for Driving Innovation in Your Organization, Kumar provides a breadth of methodological approaches to innovation, market sensing, and ideation, all of which are conducted as workshops with cross-functional peers (5).

I approach strategic, operational, and execution planning from the designer’s perspective: as a facilitator of the generation of the best ideas, rather than the sole proprietor of strategy and direction. With the information from phases 2 and 3, a team can come together to generate ideas, formulate hypotheses, and establish a clear vision and strategy for the firm.

Leadership Practices

In my experience, the design thinking approach models to others how I expect them to behave, establishes a shared vision with the team, enables them to act with the same information shared across the individuals, provides opportunities to challenge the process, and gives rise to opportunities to encourage and celebrate learning. These also happen to be the top five leadership behaviors identified by Kouzes & Posner in their research for the book Leadership Challenge: How to Make Extraordinary Things Happen in Organizations (2012) (6). Effective leaders don’t try to do everything on their own, and according to Kouzes & Posner, employee engagement is correlated strongly to these five leadership behaviors. But for a leader to be effective, they need a strong team that is focused on results.

Organizational Design

Design thinking approaches and effective leadership are only as good as the teams we are leading. The final piece of enabling people to execute a strategy is ensuring they are effective teams. In Five Dysfunctions of a Team (2006) (7), Lencioni identifies five elements of teamwork that lead to a results-oriented organization. First, the team must have established enough trust to admit to errors and weaknesses. This important step establishes the vulnerability needed to enable critical debate. Like any good movie, conflict is the driver of progress. Trusting each other enables us to have healthy conflict around process and approach and avoid the distraction and political maneuvering of interpersonal conflict. For strategy and execution, conflict arises when we differ on our understanding of the data and are vulnerable enough to bring our perspective to the table without fear of reprisal.

Healthy conflict leads to commitment. A team that feels they have been heard and participated in decision-making is more likely to commit to a goal than a team that is told what to do without a voice. A committed team can then hold each other accountable, both to team norms and team goals. A team that feels they have been heard raises fewer show-stopping questions along the way, is more confident in their understanding, and can make decisions in the face of uncertainty because they have the information needed to make a call and know that if they make a mistake, the team will celebrate learning, adjust course, and move on.

Finally, a team that trusts each other, has healthy conflict, is committed, and holds each other accountable, can focus on results. These are what we think of as high-performing teams. A mistake I have made along the way is focusing on results without first taking a team through the stages of team development. Another mistake is forgetting that every time the team changes, someone new joins, or someone leaves, we need to reset, rebuild trust, and enable conflict and commitment.

CONCLUSION

There is no silver bullet for effective teams, organizations, firms, or strategies. This playbook combines my experience with psychological science, leadership, design, and strategy to provide a methodological, scientific approach to strategic analysis and organizational leadership. The nuances of individuals, teams, cultures, and environments create uncertainty, and the key principle of design is to draw upon uncertainty to inspire insights, concepts, and strategies through a scientific approach to establish a shared vision and enable others to act.

SECTIONS IN THIS CHAPTER

REFERENCES

  1.  Sull, D., Homkes, R., & Sull, C. (2015). Why strategy execution unravels—and what to do about it. Harvard Business Review, 93(3), 57-66.

  2.  Kaplan, S., & Beinhocker, E. D. (2003). The real value of strategic planning. MIT Sloan Management Review, 44(2), 71.

  3.  Zairi, M., & Erskine, A. (2011). Excellence is Born out of Effective Strategic Deployment: The Impact of Hoshin Planning,". International Journal of Applied Strategic Management, 2(2), 1-28.

  4.  Blevis, E., & Siegel, M. (2005). The explanation for design explanations. In 11th international conference on human-computer interaction: Interaction design education and research: Current and future trends.

  5.  Kumar, V. (2012). 101 design methods: A structured approach for driving innovation in your organization. John Wiley & Sons.

  6.  Kouzes, J. M., & Posner, B. Z. (2012). The leadership challenge: How to make extraordinary things happen in organizations. Panarchy, the collapse of the Canadian health care system, 124.

  7.  Lencioni, P. (2006). The five dysfunctions of a team. John Wiley & Sons.

Chapter 1.3: Gathering the Inputs - Deep Strategic Analysis

Phase 3: Strategic Analysis

Phase 3 is the most data-rich phase and sets up the organization's leaders to have prepared minds for bringing everything together. In this phase, I lead teams to conduct a thorough external, competitive, and firm analysis. The details of the analysis can be found in Walker & Madsen’s Modern Competitive Strategy (1), but I will provide a summary here. It is important to note that this analysis will take time upfront, and rely on regular research to stay up-to-date. In some cases, it may be difficult to identify a single industry, so the analysis must be conducted on multiple industries. This can be the case for innovative organizations creating new markets, for example, Netflix originally competed with Blockbuster for the rental market then cable and network TV for the on-demand market, and finally created the on-demand streaming market. 

The strategic analysis phase consists of external and competitive analysis and internal firm analysis. Exhibit 5 is a strategic analysis canvas designed to help guide the collaborative approach to this structured analysis.

Exhibit 5: Strategic Analysis Canvas

Exhibit 5: Strategic Analysis Canvas

External analysis

The first step of the external analysis is to identify the industries the firm is operating in and examine in detail the industry conditions. Porter’s forces analysis framework is a helpful tool for this, reviewing the barriers to entry, the threat of rivalry, the threat of substitutes, the power of complementors, and the power of suppliers and buyers to deeply understand industry dynamics (2). In addition to the forces, we also review technological, social, ethical, and economic trends in the industry to form a complete picture of the landscape.

Competitive analysis

In phase 2, we identified the main competitors for our product or service. In the competitive analysis, we go deeper to identify and examine the resources and capabilities of competing firms. I use tools such as VRIO, Value-Cost (V-C) (3) and value chain analyses (4) to understand how the competitors are playing the game. The goal is to identify competitive advantages and differentiate the firm advantages from those of its competitors.

Firm analysis

In conducting the firm analysis, we compare the same information as the competitors: VRIO, value chain, operating models, etc., to determine how the firm compares and competes strategically in the industries and markets it operates in. In this step, we also examine the organizational structures and identify strengths and weaknesses of the current operating and business models. The firm analysis also includes a structured and thorough analysis of the company’s financial situation, identifying key financial ratios and metrics, and their significance to the firm.

SECTIONS IN THIS CHAPTER

REFERENCES

  1.  Madsen, T. L., & Walker, G. (2015). Modern competitive strategy. McGraw Hill.

  2.  Porter, M. (1979). E.(1979). How competitive forces shape strategy. Harvard Business Review, 57(2), 137-145.

  3.  Barney, J. (1991). Firm resources and sustained competitive advantage. Journal of management, 17(1), 99-120.

  4.  Porter, M. E. (1985). Creating and sustaining superior performance. Competitive advantage, 167, 167-206.



Chapter 1.2: Gathering the Inputs - Market & Firm Analysis

Phase 2: Market & Firm Analysis

Phase 2 is the start of a thorough market and firm analysis. In phase 2 I identify the customers and segments, positioning and products, and examine the operational processes of the firm to make recommendations for improvement. Projects launched from these recommendations are often: 1) segmentation studies, 2) product satisfaction & usability studies, or 3) customer retention & engagement analyses. Much of this is done regularly in consumer packaged goods and other larger firms with higher levels of managerial sophistication. Bringing these frameworks together for software firms gives us an advantage over those firms that only loosely understand their customers and how to position themselves to their needs and provide the best products or services.

Phase 2 relies on classic marketing frameworks, “5Cs”, “STP”, and “4Ps” to provide scaffolding for the analysis and recommendations. The 5Cs are customer, context, competition, collaborators, and company. STP stands for segments, targeting, and positioning. The 4Ps, or marketing mix, are product, price, promotion, and place. Plenty has been written about these frameworks (Marketing Management (5e), Iacobucci, 2018) so I won’t go in-depth here but will talk about integrating them and my approach.

Exhibit 1: Visualization of phases.

Exhibit 1: Visualization of phases.

Exhibit 1 shows my flow through these frameworks. Note that I start with the customer, move to segmentation and positioning, then to the products for those customer segments before examining the competition, context, collaborators, and company. The choice of customer and customer need is core to the success of a company; without knowing what value you’re providing to whom, the rest of the analysis is moot. 

Customer

In my experience, many companies have either an ill-defined target customer or ill-defined understanding of their needs - often, it’s both. In the absence of these, identifying the target customer and unmet needs are the first projects that I kick-off. I work with the leadership team to articulate the key variables they believe make a good fit for their customer base. I then conduct a needs-finding study. This takes the form of jobs-to-be-done (JTBD) research. JTBD, or job theory, comes from the work of many innovation practitioners, most notably Clayton Christiansen.

While JTBD is relatively new to software companies, it is very similar to the goal-oriented interaction design practices first described by Alan Cooper, a thought leader in human-computer interaction, in his 1995 book About Face: The Essentials of Interaction Design, now in its fourth edition. This seminal work transformed how interaction designers approach problem-solving by starting with the user and unmet needs in the form of customer goals. Customers have tasks they do to accomplish those goals, and interaction designers look for ways to remove, reduce, or make those tasks easier. While examining the tasks is relevant to the product and design teams, from a business perspective we can use the jobs to help determine customer segments and opportunities to innovate or disrupt a market.

Segmentation, Targeting, & Positioning

In 2005 Tony Ulwick published What Customers Want: Using Outcome-Driven Innovation to Create Breakthrough Products and Services, introducing outcome-driven innovation (ODI), which adds an additional level of analysis by looking at what customers are hiring a product or service for, how important it is to get that job done, and how satisfied with getting it done they are. His form of gap analysis provides a way of articulating user needs and the biggest opportunities to solve.

In order to surface key underserved target markets, firms can combine the top-down approach of identifying key attributes of customers the firm would like to serve with a cluster analysis on the results of a JTBD survey. The approach can also help redefine an industry. While at Electronic Arts, and later Raptr, I conducted a form of this research that helped re-segment the gaming population. Game companies identified certain customers as ‘hard-core gamers’, a group generally comprised of young men who play skills-intensive games, such as first-person shooters, real-time strategy games, or MMOs. However, that articulation failed to see similar behaviors and goals in casual games players, leaving out a huge untapped market. Identifying similar behaviors among different groups, including their need to be the best at the game by spending time on forums and reverse-engineering the game mechanics, led to the identification of a new gamer segment we called the ‘avid gamer’, which in turn led to rethinking how we targeted and positioned our products to those markets.

We can use these segments to determine the market size and select the most valuable groups for whom to create solutions. Because we know what the jobs customers are hiring a product for, we can use the language discovered through JTBD research to position our products. With these data we can formulate hypotheses: We can position our current product for new audiences, we can improve our current products to better meet the needs of our target customers and, if we want to innovate, we can look for new underserved needs with large enough markets for which to build products.

Product

Of the 4Ps of the marketing mix, I first focus on product, leaving price, promotion, and place for another time. The product is the solution to the target customer needs, and the other elements of the marketing mix will rely on market and economic research best tackled in partnership with other teams in the organization. Products and services are what we offer to serve the needs of the segments we are targeting. When I go through this analysis, I tend to start with relatively straightforward approaches to understanding the product, then dig in deeper to uncover areas for improvement and ensure accountable ownership of the product across the product and service teams. The goal is to determine what to measure and provide a baseline. 

The first thing I look for is customer satisfaction (CSAT) measures to determine how well the product or service is meeting customer needs. There are many ways to determine CSAT, and I don’t intend to wade into the politics of satisfaction tools here. Any CSAT tool that provides a robust enough understanding of the customer’s perspective on your products or services is good. I combine the CSAT with a customer-only version of the JTBD analysis to get a sense of how well the product meets the needs of the targeted segments. 

I also look at more qualitative measures, such as usability findings, to determine the key pain points in the product or service experience. There are many user research tools for this, and much is written about it, so I won’t go into depth here. As part of this research, I look at the competition component of the 5Cs to understand what direction competitors are taking their products or services and start to get a sense of their strategic approach.

Finally, I work with data teams to identify key marketing, product, and service metrics, such as growth, engagement, retention, and feature adoption. Exhibit 2 shows an example of what types of metrics I look for in subscription-based companies with annual or monthly recurring revenue (ARR or MRR) as the core revenue metric. I’ve published a separate article on how to identify and use these metrics, drawing on the work of folks from Google and the Venture Capital community. I use this opportunity to identify the key marketing funnel metrics because I consider these all part of the product measurement process. The number of customers that make it from the marketing material into the product experience and become retained customers is an indication of product-market fit as well as effective targeting and positioning.

Exhibit 2: Cascading Metrics

Exhibit 2: Cascading Metrics

The result of phase 2 is the information necessary to lead teams to identify short and medium-term marketing, product, and service improvements and is often enough to fill product and marketing roadmaps for a year or more. At this point I work with teams to identify five possible areas for product roadmaps: 1) Quality of life improvements, 2) feature enhancements, 3) new product features, 4) new products, or 5) new business opportunities. At this stage, I use data collected from customer, market, and product research to provide recommendations for quality of life improvements, feature enhancements, and new product features, but leave new products and businesses for after phase 3.

Company

While the research efforts for the market and product are underway, I begin an analysis of the company. At this point, I assess the current practices and identify any opportunities for minor improvements; I will spend more time on operations and leadership later in the Bringing It All Together section. Exhibit 3 shows a business maturity model developed by Jeff Cobb and Celisa Steele of Tagoras that I consult to give a rough idea of the maturity of a business's leadership, culture, strategy, capacity, portfolio, and marketing practices. While every business has its own needs and approach to implementing, these elements serve as a guidepost for what mature practices look like to set expectations across the operating teams.

Exhibit 3: Business Maturity model

Exhibit 3: Business Maturity model

In phase 2, I also review basic financial information for the firm to get a picture of the health of the business and urgency for transformation. Revenue, growth, and runway are important to review. I look at the percentages of revenue for headcount for each division to get a sense of where the company invests. A software company may want to invest heavily in engineering, but those are expensive resources and overzealous investment can lead to spending the firm out of business instead of focusing resources on scope appropriate team sizes.

SECTIONS IN THIS CHAPTER

References

  1. Iacobucci, D. (2014). Marketing management. Cengage Learning.

  2. Christensen, C., & Raynor, M. (2013). The innovator's solution: Creating and sustaining successful growth. Harvard Business Review Press.

  3. Cooper, A., Reimann, R., & Cronin, D. (2007). About face 3: the essentials of interaction design. John Wiley & Sons.

  4. Ulwick, A. (2005). What customers want. McGraw-Hill Professional Publishing.

  5. Cobb, J. & Steele, C. Learning Business Maturity Model. https://www.tagoras.com/maturity-model/




From Data to Strategy

Who is this for?

You are a team, division, or business leader who recognizes you could be doing more with data and strategy to lead your teams to the outcomes you seek. You know there’s more to customer research than focus groups, more to business metrics than revenue, and more to understanding your employees’ experience than engagement surveys. And you know strategy is one of many tools in your toolbelt to help your organization stay focused, excited, and engaged in continuous improvement. You haven’t been able to connect the dots between the data insights you gather and the strategy you need. If this sounds like your experience, this series is for you. 

Learning to ground your strategy in data insights takes time and energy. Often, the steps will feel easy - a bit of homework, a sticky note exercise or two, some exciting debate over ideas, more workshops, and lots of presentations. As with any discipline--language, singing, martial arts--it only feels easy once you’ve practiced well and for a long time. I will lean on over two decades of experience with firms of many types and sizes, from Google to five-person fintech startups and from the U.S. Navy to international non-profit organizations. As reflected in the works referenced throughout this series, I draw from the fields of finance, strategy, marketing, statistics, psychology, organizational behavior, computer science, human-computer interaction design, and even acting, improvisation, filmmaking, and music. I don’t expect everyone to engage with every reference; they are here for your further exploration and to ground this series in the work of established thought leaders in these fields.

Chapter 1 is a deep dive into my own evolving approach to gathering the necessary inputs to develop effective strategies. Chapter 2 covers translating strategy into objectives for teams and delivering results through continuous discovery. Finally, Chapter 3 tackles engaging management and employees in the ongoing process of sharing, iterating on, and putting into practice the strategy the first two chapters guide you to develop.

The Strategy Discipline

Strategy is often one of the more challenging disciplines for organizational leaders. It’s difficult to prioritize the time away from day-to-day operations and ongoing projects to slow down and think deeply. There is always a fire to fight, an emergency to solve, or an important customer meeting to take. It’s overwhelming to think about making sense of the unending streams of data at our fingertips. However, if you are disciplined in your approach to strategy, you will prepare your mind and the minds of your employees to reduce the number of emergencies, to handle the fires with ease, and to make the data sing to a tune everyone can carry.

I view strategy as the hypothesis or set of hypotheses management believes will add value for the customer and to the business and I consider four inputs into the strategic planning process:

Input Owners Example data
Customer insights Design, CX, Product Needs analysis (jobs-to-be-done), behavioral analysis, interests trends, segmentation analysis
Industry/Market insights Marketing, Product, Engineering Porter’s Five Forces analysis, Industry trends, market sizing, country and global trends, technology trends
Competitive insights Marketing, Product Product comparative analysis, VRIO analysis, V-C analysis
Business insights Finance, Marketing, People Ops Vision & mission statement, brand assessment, financial reports & forecasting, budget requests, employee engagement analysis

That’s a lot of inputs. A common issue confronting many firms is how to incorporate all these insights into the corporate and product strategy process, especially customer research insights. Assuming you are generating customer insights, and methodological sophistication aside, there are two categories of customer data we need as inputs to strategy: how users behave (quantitative) and why they behave that way (qualitative). As a firm matures, the sophistication of the inputs improves. Financial inputs upgrade from basic cash flow analysis and forward-looking estimates to statistical modeling and forecasting. Customer insights move from simple customer interviews and surveys to observational research and behavioral data analysis.

Once we have the inputs available, we need a process to incorporate the inputs into our thinking, generate ideas, refine those ideas, and engage employees and customers in bringing the strategy to life. I typically aim for a 3-5 year strategy, yearly reviews and updates, and quarterly objectives and key results. I use a five-step approach that can take a day, or a week, depending on how much time the strategy team needs.

  1. Synthesize: Review in-depth analyses of the customer and business needs, market/industry context, and current business capabilities to prepare for generating ideas

  2. Generate: Ideation sessions in small groups, individually, and large groups to generate as many ideas for solving the customer needs as possible

  3. Refine: Select the ideas with the most potential impact for the customers and business

  4. Hypothesize: Articulate selected ideas into hypotheses that can be measured and tested

  5. Engage: Present the hypotheses in approachable language as strategic initiatives and engage management and individual contributors in creating execution plans

In the next several posts we will go deeper into each stage. Next up is a strategy and operations playbook: a deep dive into gathering the inputs and putting them to use.

Coming soon: