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I cannot tell you how many times I’ve been asked one question and received off-target responses. The question: Can you tell me about your market?

The question and the answers lie in a lack of understanding of what a market is. On a high level, a market is the sum total of interactions of sellers and buyers. Markets and market structures shift in terms of overall share, product share, product positioning and other aspects based on the interaction of what sellers do (i.e., promote products, position products, price products) and how customers react (i.e., choose one alternative over another, or choose neither or a substitute).

The reason that this question is answered unsatisfactorily, so often, is multi-fold:

1. Middle-market companies tend to define their markets in terms of their offerings and not the overall market. Substitute products are most certainly part of the market landscape, yet they are rarely considered. A well-known example is a company that produced oats. It defined the market as the “oats market,” not as the transportation fuel (for horses) market. Had the company fully understood that it was in the transportation fuel market, it might have taken a different tack and either developed other products (oil) to satisfy its market or relented on the market as it shrank.
2. Assuming that a company has a starting point from which to understand a market, which is not really a good assumption at all, it would need to have the ability to detect whatever it can in the market. Then, based on what it learns, and on what it knows that it doesn’t know, it develops a sense of how the market has changed and is likely to change. Middle-market companies rarely invest in updating their intelligence; even if they do, they might not have the skill to interpret what combinations of market factors’ movements are relevant in forecasting how a market structure might change. Ignoring market shifts is usually the default position.

A sophisticated, comprehensive approach to understanding markets can be approached through reading Michael Porter’s classic book, Competitive Strategy. However, it might not be practical for most busy executives to read it. A much simpler version of the same notion rolled off the tongue of Michael Corleone in The Godfather II: “Keep your friends close and your enemies closer.”

Many potential clients approach me too late, long after detectable market changes were either unnoticed or ignored. They react much later, after the changes have had substantive negative effects on the bottom line. Many times, it is too late, and companies simply “run out of runway” to turn things around.

When companies want to establish a “Brand”, it conjures up the advertising-driven practice of brute-force, repetitive, mind-drilling messages.  However, a brand is not limited to an image that a company wants to project, but in the mind of the customer, it is a subjective view of the combination of all direct and indirect interactions that a customer has with the company. Also, while a company may assign branding to a marketing department, a brand is actually established by a broader range of interactions with customers. A brand is subjective because a customer may be influenced not only by company-driven activity like advertising, brochures, websites and salespeople, but also by recommendations, casual observation of the product, experience with the product and a host of other conscious and subconscious factors. In fact, some of the interactions with the company might have profound influence and some will be ignored.  A customer’s impression of a brand therefore is much less controllable and could be much closer to a minor/insignificant influence as a result of company promotion. Not only is the marketing-driven approach to branding a weak strategy for establishing a brand, but a company actually needs to examine all of its potential direct and indirect influences and determine if they are consistent with the brand.  In his compelling book Brand Harmony, Steve Yastrow describes how companies can successfully create a singular reinforcing image of themselves, that is, the entire organization needs to think of itself as “being the brand”, in order to create comprehensive, company-wide, reinforcing image that customers will understand and believe.  This means that a company should state what its brand is, and then against that standard, consider if a company activity is consistent or inconsistent with the desired projected image. While this does not guarantee that a desired image will be generated in the mind of customers, it increases the chances. Brand is very difficult to establish and it is very perishable.  Think about how a company’s image might have cost significant dollars to establish, only to be branded negatively by a single rude interaction with a company employee.  Or for example, McDonald’s advertising could all be wasted on one customer if the rest rooms were not clean. Take away idea: A brand is subjective for each potential and existing customer. Companies need to craft a comprehensive, multi-faceted approach to influence individuals across a wide range of interactions.  At the very least, every controllable market interaction and operational touch with customers should be considered as an opportunity to reinforce the brand.  Though not foolproof, it is an approach that makes a lot more business sense than asking a marketing department to establish a brand, independent of everything else a company does.

 

Working for many years in the commercial aviation industry, I witnessed profound changes in automation at almost every level. Ticketing counters gave way to self-service check-in kiosks. Passport control is dominated by document scanning, rather than human observation. Pilots manually control aircraft for only a few minutes at the beginning and end of a flight.

What will be the impact of the accelerated and the accelerating pace of automation across all sectors of the economy? Should we expect vast improvements in productivity and freedom from boring work, or should we fear threats to jobs, disruptions to organizations, and a strain on the social fabric?

In its November 2015 issue, McKinsey Quarterly presented a preliminary report on an ongoing study of automation in the workplace and reached two key conclusions:

• Very few occupations will be automated in their entirety in the short- and medium-term.
• However, certain activities are more likely to be automated, requiring entire business processes to be transformed and the jobs performed by people to be redefined – much like the bank teller’s role was redefined with the advent of ATMs 30 years ago.

The Magnitude and Impact of Automation

The study analyzed work activities for which current technologies could be deployed, and concluded that if automation were deployed in place of labor, its value in wages could amount for $2 trillion. Although we often think of automation as affecting primarily low-skill, low-wage roles, the analysis noted that even some of the highest-paid occupations (such as financial managers, physicians, and senior executives) perform a significant amount of activity that can be automated. The organizational and leadership implications of this conclusion suggest that organizations planning to take advantage of automation must implement significant process changes and even reengineer themselves – from the most senior positions to positons far down on the organizational chart.

Benefits of automation include labor savings, increased output, higher quality, improved reliability, and performing some tasks at speeds and at quality levels humans cannot. However, automation costs between three to 10 times what current manual processes do. The magnitude of the benefits and the costs required to attain the benefits of automation suggest that the ability to staff, manage, and lead increasingly automated organizations will become an important competitive differentiator.

This isn’t all-good or all-bad. Automation is our friend – think of E-ZPass at crowded highway tool booths. Automation is our bane – think of being chased through the maze of automated phone-answering systems, only to be looped back to the main menu.

According to the study,

• Approximately 45 percent of work activity could be automated to some extent, using current technology.
• Additionally, 13 percent of work activities could be automated, if we include emerging technologies that reliably understand natural language.
• Fewer than 5 percent of occupations can be entirely automated through current technology.
• However, approximately 60 percent of occupations could have 30 percent, or more, of their activities automated.

This means that automation is so far-reaching that it simply cannot be ignored. On another level, the rapid introduction of technologies based on artificial intelligence are challenging assumptions about what can really be automated. It is no longer the case that only routine, codifiable activities can be automated, and that activities requiring tacit knowledge or experience are difficult to translate into task specifications and so are immune from automation.

But beware. Automation is frequently oversold regarding achievable value and ease of implementation. It is almost always harder and takes more time than automation peddlers let on, and some \ expected benefits may be sacrificed in the process.  There is also the potential for “blow back,” where automation actually makes things worse. Sometimes, staff even passively sabotages automation efforts to avoid the need to adapt.

Bottom Line

Company leadership must monitor the speed and direction of automation and determine when and how much to invest in automation. Making these determinations will require leaders who understand the economics of automation and the trade-offs between augmenting versus replacing some activities with intelligent machines. Growing in a competitive environment frequently requires leveraging automation to innovate, and fully understanding the implications for human-skills development. In our technological world, choices about automation can both sharpen and cause the loss of a competitive edge.

I favor companies’ analyzing whether, and how, automation can create a competitive advantage. I also see this analysis as vital to a company’s overall strategy. In developing strategies and plans for clients I typically ask clients to think about “looking around the corner” to see what is coming in the future – and automation is one of the first places I probe.

Those who have worked with me have undoubtedly heard me say that “a business plan is good for only the first 10 minutes.” The reason is that once execution starts, business leaders learn new things that cause them to consider deviating from the original plan. The reason for planning is not necessarily only to attain an outcome, but to launch a process. Formulating a plan establishes a framework to assimilate new information, which then might lead us to alter the plan.

Recently, a brief posting on Harvard Business Review’s HBR Weekly Hotlist (“Building a Flexible Business Plan,” April 4) addressed this very issue. The posting stated that in planning, business leaders need to take parallel paths of both doing and thinking: not blindly executing the plan and not ignoring facts on the ground. The posting raised the following key points:

1. Think big, start small, scale fast: Determine how big the business can realistically be, but don’t assume that it will get there quickly. Invest in a limited way until you see indications that the business has legs, and then have a plan to aggressively scale up.
2. Have a framework that includes these four elements: people, a business idea, a business model and a market. Understand the key tradeoffs between these four elements, and keep considering how tradeoffs are working. In my experience, people trump everything else. Attempting to implement good business ideas without good people to execute them is a recipe for disaster. Good people with the right business skills and experience, even if they are executing a mediocre idea, are a better bet than the reverse.
3. Keep the plan iterative: Continue to think and rethink the plan as execution commences. Adopt flexible thinking that will enable the organization to adapt and pivot at the appropriate time.

Obviously, there is not a checklist or formula for a foolproof business plan. However, starting with leaders who are good at perceiving and acting on opportunities and challenges during the execution phase is a key factor in developing a successful business.

It is obvious that there are marked differences in how companies manage or mismanage customers’ experiences. A once-intimate customer experience can get “lost in the sauce” as the company becomes larger and more complex.

Take the task of returning a product. Some companies force customers to go through so many cumbersome steps, like recovering documentation that the company already has, and generally discourage returns by making it a “jumping through hoops” contest. To some extent, I get it: Especially in low-margin businesses, returns cost money both by reducing revenue and incurring the expense that the company may not be able to recoup. Other companies make returns easier, and assume the additional expense as a cost of doing business.

I once had a problem with a Moen sink faucet that carried a lifetime warranty. I called the service department, expecting difficulties in obtaining a replacement faucet, but when I explained that the faucet hose was leaking, the employee actually consoled me as if I’d suffered a death in the family. Taken aback, I responded that it was just a faucet. Imagine that: I, the customer, had to limit the perceived severity of the problem due to an overly empathetic customer service staff person! Clearly, the company was paying attention to the whole customer experience.

Such positive experiences, clearly, are important factors in landing follow-on business, either directly from the satisfied customer or from others influenced by that customer. Though marketing departments and operations departments are typically managed separately, they should have joint influence in shaping the customer experience. “Customer experience,” in fact, can be defined as “the sum of all interactions a customer has with a company.” The challenge is that individuals within a company, in practice, operate with a narrower view dictated by organizational structure and division of labor. For example:

• Employees in a company’s operations department might understand their scope of responsibility as being limited to customer service or service excellence, without recognizing that all individual touches that could be categorized as “service” are only one element of the entire experience.
• Employees in the marketing department might understand their scope of responsibility as being limited to communications and promotional activities used to attract and retain customers. Again, these activities represent only a fraction of the interactions between customer and company — and as observers have said time and again, what an organization says in its advertising has far less impact on customer perceptions than what it does in reality.
Data can be misleading in measuring the customer experience.
Even with the correct, complete view of customer experience, it’s still possible for companies to mismanage it because they lack the proper tools to help design and manage their approach.

The most common mistake in trying to manage the customer experience is starting with customer sales data alone. Using data and analytics as a starting point fails to recognize the importance of coherence between customer experience and brand identity. (By brand identity, I mean the defining values and attributes that distinguish a brand from other brands.) Delivering on the brand promise, expressing the brand personality and bringing the brand attributes to life should be the primary objectives when designing the customer experience. Some companies drive their customer experience with conversion-rate and customer-lifetime-value targets, then end up delivering experiences that are unmemorable and indistinguishable.

Other common tools, like journey maps (an illustration or diagram of all the places, known as touchpoints, your customers come into contact with your company), are also incomplete because multiple customer journeys usually exist for a single organization. Most companies target more than one customer segment with more than one need or driver, and today’s customers engage in more than one channel or sequence of channels.

Process to Design the Full Customer Experience

A more thorough approach to designing and managing the customer experience is to use customer-experience architecture. This is a framework for designing and delivering the optimal experiences to different customer segments, in different business segments, with different business objectives. To develop a customer-experience architecture, follow these steps, in order:

1. The brand platform – State the overarching ideas that represent the brand. What is the promise of the brand to the customer?

2. Customer experience strategy – Describe the desired customer feelings and perceptions of the brand across all interactions with the organization.

3. Business segmentation – Break down the business into discrete units, such as traffic versus trial versus transition. The objective is to identify the different experiences the organization delivers as a customer moves through the company and to articulate the requirements and objectives of each.

4. Customer segmentation – Different customer segments have different needs. Some customers may be price-driven, others may be convenience- or value-driven, others may want a specific experience or to avoid a specific experience. Simply put, customers’ desired experiences vary. Describe each segment with a profile and a needs inventory, including key drivers of purchase decisions and brand perceptions. A way to think about this is that each segment has different needs and a different journey map.

5. Prioritization – Create a grid, with the business segments as columns and customer segments as rows. Each business-customer intersection represents a discrete experience to design and deliver. They should be prioritized to focus design and management. Prioritization criteria include profit potential, fit with long-term strategy, competitive advantage and differentiation, resource requirements and how the experience affects and/or reinforces brand values and brand position.

6. Experience design – Determine how to meet the segment-specific needs in each business segment, either by improving existing approaches based on new insights from the architecture or by developing entirely new ones. All the levers of the customer experience — product, service, content, channels, touchpoints, pricing, facilities, sensory engagement, etc. — should be considered and described in the design.

7. Assessment and integration – Now that the architecture is ready to be inspected for integrity and coherence, consider these key points: Is the brand platform expressed throughout every experience? Do the discrete experiences contribute to the overall customer experience strategy? Do experiences complement and enhance each other, or do they conflict and detract from each other? Are there some business segments or customer segments to be abandoned because it is too difficult to serve them?

Developing a customer-experience architecture isn’t that complex, but it requires accepting a broader, fuller definition of customer experience and committing to a robust planning tool and process. Developing such an architecture will enable the breaking down of organizational silos, especially marketing and operations and addressing the diversity of customers and their needs – and it can produce unique and compelling experiences for customers.

These concepts and the customer-service architecture are from the Harvard Business Review Weekly hotlist, 7 Steps to Deliver Better Customer Experiences, by Denise Lee Yohn, February 2015.

Congratulations! You conceived of a business, started it and grew it. The business is continuing to grow in size and complexity.

Question: Are you still the appropriate person to lead it?

Leadership skills can grow with a business, or not, and in dealing with growing companies, this is one of the most personally difficult challenges that I help clients face. While this topic is important, broad and deep, I will point out a few aspects of leadership that repeatedly come up with growing middle-market businesses.

The tendency is for a leader to assume that he or she can continue to lead a growing company, even though the skills required might be very different from those required to start or initially grow the business. In trying to summarize some of the behavioral factors that relate to being an effective leader, I came across a very insightful, recent article that presents four factors in effective leadership for companies that are growing and becoming more complex:

• Solving problems effectively. The process that precedes decision making is problem solving, which is when information is gathered, analyzed and considered. This is difficult to get right, as companies grow and the scope of responsibilities of managers narrows, yet leaders’ scopes remain broad. Resisting being over-influenced by a manager with a narrower scope by putting decision making into a larger company context requires discipline.
• Operating with a strong orientation toward attaining results. Leadership is not only about developing and communicating a vision and setting objectives, but also following through to achieve results. Leaders with a strong orientation toward attaining results tend to emphasize the importance of efficiency and productivity and to prioritize the highest-value work. Simply put, if an approach does not affect results over the short or long term, get it off the leader’s agenda.
• Seeking different perspectives. This trait is conspicuous in managers who monitor trends affecting organizations, grasp changes in the environment, encourage employees to contribute ideas that could improve performance, accurately differentiate between important and unimportant issues and give the appropriate weight to stakeholders’ concerns. Leaders who do well on this dimension typically base their decisions on sound analysis and avoid the many biases to which decision-making is prone.
• Supporting others. Leaders who are supportive understand, even sense, how colleagues feel. By showing authenticity and a sincere interest in those around them, they build trust and inspire and help colleagues to overcome challenges. They intervene in the group’s work not to meddle but to promote organizational efficiency, allay unwarranted fears about external threats and prevent the energy of employees from dissipating into internal conflict.

This is not to say that different business situations don’t require different styles of leadership, but core leadership behavior that will be relevant for most growing companies include the four factors listed above. These four are not the be-all and end-all, but if you want to cultivate leadership skills, these four are a good place to start.

It May Not Be You!

More than once, I have hinted to a company that its leaders might be ill-suited to lead in the evolving organization. I then delicately suggested that different leadership would be needed for the greater good of the company. Sometimes, the hint was taken; sometimes, it was not taken until I very explicitly uttered these words or a variation thereof: “Leadership is required but is lacking – and you suck at it.” That did the job of impressing upon clients that they were the problem. There is nothing to be embarrassed or ashamed about; not everyone is good at everything,  and very few people are good at leading an evolving organization. Once they accept that they are inadequate to lead, leaders may need to get some training or must step aside in favor of someone with the temperament and skills to lead the organization.

Besides the direct benefits of improved leadership, a secondary benefit is that this change would allow the former leaders to focus on areas where they are skilled and experienced and their value to the organization is greatest. Leadership training generally has mixed results unless it is taken seriously. My experience is that leaders almost always knew this already deep down, but needed someone to be blunt to consider making a change.

Some content for this article was taken from “Decoding Leadership: What Really Matters,” McKinsey Quarterly, January 2015.