This is the second blog drawn from Steve Denning’s Forbes.com articles and his forthcoming book, The Age of Agile (Amacom: February 2018). Read the first blog here. Find out more about Steve Denning’s full day workshops in March and June, his keynote role at AgileAus18, and his participation in The Deep Dive 2018.
While most large organisations are still learning how to master operational agility, the main financial benefits from Agile management will flow from the next Agile frontier: achieving strategic agility. Operational agility is still a good thing – but it is not enough. Firms need to master strategic agility.
This article explores the four keys you need to systematically achieve strategic agility.
Four Keys To Creating Market-Creating Value Propositions
A helpful playbook for developing a market-creating value proposition was pioneered by Curt Carlson and his colleagues at the Silicon Valley icon, SRI International, where Carlson was president and CEO from 1999 to 2014. It is described in his book, Innovation: The Five Disciplines for Creating What Customers Want. (Crown Business, 2006) and summarised by an illuminating article by Anand Venkataraman, who worked with Carlson at SRI: “Can innovation be learned or taught?”
The playbook is called the Innovation-for-Impact Playbook (i4i Playbook) and describes an organisational design and value-creation process for creating major breakthroughs, like SRI did with HDTV, Intuitive Surgical, and Siri, among many others.
Among the i4i Playbook components is a concise but complete definition for a value proposition. It has four parts — Need, Approach, Benefits per costs and Competition — that are summarised in the mnemonic, NABC. “They are the fundamentals,” says Carlson. “It doesn’t make sense to write up a big report until you can first explain the new innovation’s value proposition in simple language to a knowledgeable person. Once those fundamentals are in place, the full business plan is much more efficiently developed.”
KEY 1: Identify The Need
It begins with a focus on outcomes and the potential customer’s need, not the firm’s need as an innovator, or a shareholder’s need for financial returns.“Does the customer have a need for something?” writes Anand Venkataraman. “How acute is this need? Would a solution be a lifesaver, a painkiller or a supplement? Furthermore, how can you quantify the need? Is the need relevant to one person, a few people, or an entire demographic? … The first thing you do is to record the need as you see it and determine just how big the scope is. If it’s not large enough (doesn’t impact a significant number of people) can it be made to? These questions can’t be answered and refined until after you’ve quantified the need. So as a first step, write down a tentative number on how big you think this need is.”
Understand non-customers: “Obviously, the first port of call should be the customers,” write the authors of Blue Ocean Strategy. “But you should not stop there. You should also go after non-customers. And when the customer is not the same as the user, you need to extend your observations to the users…. You should not only talk to these people but also watch them in action. Identifying the array of complementary products and services that are consumed alongside your own may give you insight into bundling opportunities. Finally, you need to look at how customers might find alternative ways of fulfilling the need that your product or service satisfies.”
Study markets: Although there is a lot of attention on global markets, for example in smartphones, most markets are fragmented in narrow segments. It can be a mistake to chase a single narrow market niche. What you need is a product or service that addresses a collection of narrower market segments. Market-creating innovation implies moving into markets that are bigger than the firm’s current market.
Operating at scale: A firm also needs to have the capabilities to operate at scale. When Apple made its move into mobile phones, suddenly they had to have an enormous transaction engine capable of dealing with billions of transactions in a year. These organisations have to make an organisational transformation and execute on it, not just talk about it as organisational change.
Think big: Innovation pioneer Peter Thiel in his book, Zero to One, sees the principal task of business as essentially one of creating an enduring monopoly through breakthrough technology. The technology has the capacity to generate a very large future cash flow. LinkedIn and Twitter are valued highly, not because of any profits today, but because they are perceived as having the capacity to generate massive cash flow over the coming decades. “The overwhelming importance of future profits is counter-intuitive even in Silicon Valley. For a company to be valuable it must grow and endure, but many entrepreneurs focus only on short-term growth. They have an excuse: growth is easy to measure, but durability isn’t.”
Think big but proceed incrementally: “Don’t worry if you don’t have an approach completely nailed down at the outset,” counsels Venkataraman, because “by the time you’re done with this process, you will have one, sure as day follows night.”
KEY 2: Clarify The Approach
“It’s all about how you solve this particular need of the customer,” writes Venkataraman. “Here is where you’ll ask yourself what your secret sauce is. It’s important to have a secret sauce because that’s what tells you how innovative your original idea is. Besides, a secret sauce is your entry barrier. A successful company needs an entry barrier to give it an opportunity and a kind of monopoly and incentive to develop its idea to its fullest. Without an entry barrier, rather than focusing on refining the core of the idea at a time when it’s needed most, you would be expending all your energy on deterring others from eating your lunch. Instead of simplifying your idea, which is the key to success, you’ll end up making it more complex which spells certain doom.” Carlson notes that the approach must also contain a working hypothesis for the new innovation’s business model — how it will generate revenue and make a profit. Many companies fail because they don’t have one and disruptive innovations often have disruptive ones (e.g., Uber, Amazon, Space-X, etc.)
Think platforms: “What happens with companies that have successfully externalised,” says Haydn Shaughnessy, “is that they manage to lay off a lot of the burden of change onto their ecosystem. That frees management to make decisions without having to think about all the issues of scaling the base. If you think about Apple, they were able to grow an ecosystem of somewhere in the order of 500,000 developers. This meant that management wasn’t faced with the administrative burden of investing in growing an army of internal developers that made apps. This kind of externalisation relieves the burden of managing scale and enables very rapid scaling.”
“The race is now on to develop and expand the platform ecosystems to deliver such outcomes for many different sectors,” writes Schwieters. “Amazon already provides a platform for sellers to use. Leading companies are strengthening their positions as platform providers in a wide range of industries. GE and Siemens, for example, have each developed a cloud-based system for connecting machines and devices from a variety of companies, facilitating transactions, operations and logistics, and collecting and analyzing data.”
Acquire digital competency: Traditionally, adjacent moves were perceived as risky and firms were advised to stick to their core business. Once firms acquire competency in handling very large amounts of data, and operate in a network fashion, they become able to make quite radical adjacency moves, as at Amazon. As a result, the idea of a core business itself is no longer static and fixed. Instead, a fluid core enables moves into new sectors, growing competency very quickly.
A bias for action: “I used to attend conferences in Europe where Nokia people would talk about the digitisation of everyday life,” says Shaughnessy. “It was fascinating because this was 2005. They were talking about how we would end up digitising absolutely everything. The problem is that it was Facebook that captured that. It was Google who sold the ads on the Web and Apple that sold the smartphone. So for all its knowledge about the future, Nokia didn’t execute. It comes back to the business of managing adjacencies. What Nokia needed to do in 2005 was to launch something like Facebook and the smartphone and really commit to its vision of the world. It had a fabulous vision. But all it did with its vision was to carry on making phones with keyboards.”
The indirect approach: Separating customers and end-users is often key. Thus Google search is free to end-users, yet huge financial gains accrue to Google from data-focused advertising. The search service provided to users feels costless. And having the monetisation happening in the background creates a seemingly frictionless experience for the user.
Create the secret sauce from an existing strength: John Hagel, Director of Deloitte’s Center for the Edge, gives the example of State Street Bank. It “started as a very conventional retail bank. It was founded in 1793. In the 1970s, it faced increasing pressure in its core business. A C-suite executive realised that they needed to find a different way of doing business and came up with the idea of renting out some of their transaction processing capabilities to other banks, who were facing similar pressure. It met a need in the marketplace and they scaled that very rapidly. Over time, they walked away from their traditional core business. It gave them a new way to define their business, their processes and operations, their approaches, and their culture. It served them well.”
KEY 3: The Benefits Per Costs (for both the customer and the producer)
The Benefit per Costs part of the value proposition “tells you not only what a difference for the better your solution will make in the life of the customer,” says Venkataraman, “but also how much of a difference. It’s important to understand that almost every significant benefit can be quantified, even if only by proxy. Sometimes we may consider benefits that seem vague and think that it’s impossible to quantify them, but that’s only because we haven’t yet got the discipline to look at them closely enough – We give in to the euphoria of having identified a need and run with it without critically examining it. Or we give in to the fear that if we looked at it too closely it might turn out there wasn’t really a need after all. Discipline gives us the courage to transcend the fear and the willpower to resist this premature euphoria.”
“With patience, perseverance and practice we will learn to identify things in a customer’s life that are inherently valuable. It doesn’t always (rarely, in fact) boil down to the number of dollars a person would save by using an invention. Often the quantification of a benefit may be in terms of intangible but yet quantifiable things – for example, increasing the number of hours of their free time that they would spend with family and friends or on their hobbies, the number of words they have to use to communicate a particular idea, the amount of effort expended (in footsteps or calories, for instance) to get to a certain place, or the number of minutes one could be continuously immersed and engaged in an entertaining or other valuable experience. It may even be some combination or collection of multiple benefits, each of which has its own quantification cell. The important thing is to get this down, and not worry about putting down something incorrect because you will get numerous chances to go back and revise it. Remember that NABC [Need, Approach, Benefits per costs and Competition] is an iterative framework.”
KEY 4: Identifying The Competition and Alternatives
The final section of the Value Proposition — Competition — concerns “what others are and could be doing to address the same need you have identified,” says Venkataraman. “Many times young innovators are bound to think that their idea is so radical that there exists no competition. But that’s a mistake. Every idea and proposal has competition if we look at it closely enough. I appreciate that an empty slate is hard to get started on, so here’s at least one source of competition you can write down for any possible idea… your first competitor is the prospect that users would simply continue to do whatever they’ve been doing in the past to address that need. The number one competitor to your invention is the alternative of not having it.”
Netflix CEO Reed Hastings made this clear when recently asked by legendary venture capitalist John Doerr who Netflix was competing against. “Really we compete with everything you do to relax,” was his reply according to Christensen in Competing Against Luck. “We compete with video games. We compete with drinking a bottle of wine. That’s a particularly tough one! We compete with other video networks. Playing board games.”
“The source of the difficulty that most people have in identifying competition,” says Venkataraman, “is that they always think of their approach and not the need when trying to find competitors. It’s understandable that the approach takes centre stage, of course, because that’s where your secret sauce is—the thing of value you bring to the table, and naturally the thing you feel the greatest affinity for. But to really understand your competition, the NABC framework teaches you to step back and give up being intoxicated by the coolness of your approach for a bit. Think of the need and try to make a list of everything anyone is or could be doing to address the need. Don’t think “Who else is using the same or similar approach as mine to meet that need?” but think “What have people done or could do to meet this need?” If you came up with the idea of sticky tape as a way to fix notices to doors, don’t only think of glue as your competitor. Think of thumbtacks, chalk, email, Facebook, Twitter, Trump and why, even gossip, fake news, and word-of-mouth propagandisation as competition.”
“Once you identify and make a list of the competitive approaches as exhaustively as you can, you’ll find it to be a list of approaches to solve the original need. Your own approach will now be one of those in the long list. You can now start enumerating the pros and cons of each approach quantitatively. Does a particular competitor reach the same users (market) as your idea will? Does it offer the same benefits? Is it cheaper or more expensive to make? And so on. If the answer to any of these is questions is unfavourable, this is your chance to go back and see if either the need or the approach can be adjusted to accommodate this shortcoming. Feel fortunate that you found this issue now, before investing thousands, if not millions, of dollars into productising your originally short-sighted idea.”
The Need to Continue to Iterate
“When you’ve looked at all four components of the NABC once,” says Venkataraman, “you get to go back and revisit the Need again, repeating the whole process as many times as needed. Chances are that your original thoughts on what you believed to be the need has changed. So you revise it. Just like a Scientific Theory… you start with the original need, and after having gone through one cycle of analysis, you come back and augment it to account for its shortcomings. You may patch it up here and there, or make fundamental changes. But the bottom line is that as long as the customer’s need is genuine… it would have survived numerous attempts at falsification. Every failed attempt to take it down would only have made it stronger by fortifying it at all its weak spots. So even if nothing else, the NABC practice promises to at least strengthen your value proposition thus.”
Siri on the iPhone exemplified these development steps. It was a spin-out company developed by SRI and then almost immediately bought by Steve Jobs at Apple. An early version of Siri’s NABC value proposition is given here along with a short history of its development.
For most organisations, implementing NABC propositions will be an important shift in the organisational culture. As Carlson notes, “NABC value propositions apply to every position in a company. The framework is simple and fundamental. Just having every conversation in the company start with the customer’s needs is transformational.” To get an idea of what this involves, you can read Curt Carlson’s account of his sixteen-year stint as president and CEO of the SRI and the culture change that he led.
©Stephen Denning 2017: The content of these articles was first published in Forbes.com and is reproduced here with permission from Stephen Denning. All rights reserved. Some of the material in this article will appear in a different form in Steve’s forthcoming book, The Age of Agile (Amacom: February 2018).
This article appeared in Edition #17 of AgileTODAY – a free quarterly magazine that offers insights into new Agile principles and perspectives and a glimpse into the world of Agile. To keep up with the community and to subscribe, please visit the website.
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