There are four core processes you must execute effectively in order to succeed in any uncertain and rapidly changing external environment. These four core processes are the foundation of agile maneuver:
NOTE: These interrelated processes are called the Boyd Cycle; more on this later
The ability to effectively OBSERVE - ORIENT - DECIDE- ACT is critical for any organization that must adapt to the rapidly changing customer needs, priorities, and criteria. The current economic environment is just part of the challenge. The uncertainty and fear we're experiencing in the economy must be multiplied by the high levels of technological, demographic, social, and global competitive changes we've seen over the past few years. Any organization that relies on an outdated set of beliefs about customer is more likely to accelerate their irrelevance than ensure their success.
Many organizations are already dangerously disconnected from their customers. One of the indicators that this disconnect is Bain's research that found 80% of companies believed they were delivering a superior experience while only 8% of their customers thought they were receiving a superior experience. This disconnect will continue to grow as the rate of change in customers' priorities exceeds the rate of change of managements' beliefs about customers. Across the industry situations we've seen, there are four urgent issues that most organizations must OBSERVE - ORIENT- DECIDE - ACT on:
The question is... can you do this faster and more effectively than your competitors?
The winner of any business competition is determined by THE CUSTOMER
In any competitive situation, it's a race to see which of the competitors can effectively re-orient themselves to the rapidly changing customer priorities and, in doing so, outmaneuver their competitors. An organization that can OBSERVE - ORIENT - DECIDE - ACT faster and more effectively than their competitors will be able to remain relevant, retain and grow their business, and build the strongest customer relationships.
There are many great examples of this. One classic is the Honda - Yamaha "war." Honda learned that Yamaha was planning to build a large factory to ramp up production of motorcycles. However, rather than responding to this competitive threat by building another factory of their own, they out maneuvered Yamaha by concentrating on business processes that allowed them to quickly release a flood of new models aimed at the rapidly changing concept of what customers would find compelling. Customers responded positively and Honda emerged with the advantage and additional market share.
There are numerous other outstanding examples, including the way we've seen Dell outmaneuver many of the other PC manufacturers in the late '90s. We've seen WalMart outmaneuver just about every other mass market retailer over the past 20 years. We've also seen Toyota outmaneuver GM and Ford, Southwest outmaneuver Delta and American, Best Buy outmaneuver Circuit City, and we're currently seeing Google and Apple outmaneuver Microsoft today. In each of these cases, the prevailing organization has done a better job of OBSERVE - ORIENT - DECIDE - ACT... and the winner has been determined by the customer.
We've applied the core principles of agile maneuver in our work with clients over the last decade. The high level roadmap we've followed is:
The overarching goal is to keep the value proposition and customer experience relevant, compelling, and differentiated. In order to sustain differentiation and even move the market in a new direction, you must offer customers something new; a product, a service, or an experience that both fits with... and influences... the way they think, feel, or act.
However, we frequently come across organizations that have beliefs about customers and their own capabilities that range from simply arrogant to downright delusional. This can include inaccurate beliefs regarding who the company's best customers are, what customers really want, and how differentiated the company's products, services, and capabilities really are in the customers' eyes. If this is true, it's only a matter of time before the business becomes irrelevant and its customers increasingly go elsewhere.
My post, titled "Rapid Revenue Retention: A "Swarming" Approach to Keeping Customers During Recessionary Conditions," provides a specific application of agile maneuver focused on customer retention. The Rapid Revenue Retention approach is structured like an OODA loop. The approach quickly Observes and Orients around the experience customers are having and uncovers the experience elements that create frustration, confusion, annoyance that contribute to attrition and missed additional opportunities. The approach then focuses on Deciding and Acting on the highest priority interventions required to reduce attrition. We've seen companies realize benefits from these efforts ranging from $20-100 million in incremental revenue.
The Boyd Cycle and Agile Maneuver
The Boyd Cycle: OBSERVE, ORIENT, DECIDE, and ACT was developed by and named after Colonel John Boyd, an exceptional US Air Force fighter pilot engaged in the tail end of the Korean conflict. After the war was over, Boyd was intrigued by the fact that the Americans achieved as high as a 10-to-1 kill ratio in air-to-air combat, despite the technical superiority of the Russian MiG 15's flown by the North Koreans compared to the American F-86 Sabres. The MiGs had a higher ceiling, superior climbing rate, faster acceleration, a tighter high-altitude turning radius, as well as, more powerful weaponry. When Boyd studied this, he found that F-86s had two distinguishing features that allowed the American pilots to better observe the situation unfolding around them and respond more quickly than their adversaries. Those two features were a canopy design that allowed better 360o visibility and hydraulic controls along with an all-moving tailplane that enabled pilots to respond more quickly.
Boyd concluded that these two capabilities contributed to the American pilots' ability to OBSERVE, ORIENT, DECIDE, and ACT more quickly than their adversaries. The result was that the American pilots could outmaneuver the North Koreans despite superior raw capabilities of their technology. Boyd described an ability called "fast transients" that allow one entity to operate "inside the OODA loop" of their adversaries. When this happens, adversaries' actions become increasing irrelevant because they are reacting to an environment that has already changed. Eventually the adversary gets so confused that they can no longer stay on top of the changing situation.
Boyd went on to develop extensions to this theory that have become the central tenets of modern maneuver warfare and is considered to be one of the most influential military strategists of the late 20th century. (See: Robert Coram's Boyd: The Fighter Pilot Who Changed the Art of War). In addition, Boyd is credited with the design of the F-16 Viper light weight fighter that put the principles of agile maneuver and fast transients into practice.
By the way, Boyd offered an elegant proof of why there is always on "orientation gap" between an entity's beliefs and the realities of that entity's external environment. He showed that it's impossible to fully understand the performance of any complex system while operating inside that system. His proof used a combination of Gödel's Incompleteness Theorem, Heisenberg's Uncertainty Principle, and the Second Law of Thermodynamics (see Boyd' paper titled: "Destruction and Creation"). The key learning is that, in order to maintain an accurate or effective grasp of reality, one must undergo a continuous cycle of interaction with the environment in an effort to continually close a gap that is always growing. This has profound implications for competitive business situations.
OBSERVATION: Getting Past an Arm's Length Understanding of Customers
The first issue that must be addressed is the gap between the customer who is "out there" and the decision makers who are "in here." Many companies have a very arms length way of trying to understand their customers. As Wharton Marketing Professor, Peter Fader, observed, "Our understanding of customers is about where it was 40 years ago. We can store every customer transaction in our database, but we need to find a way to use this to understand what makes them tick."
Most companies tend to hire market researchers to go "out there" and conduct interviews, surveys, and focus groups in an attempt to find out what those customers really want. The researchers bring back what they've learned and, in most cases, deliver a presentation or write a report. In some cases, the group of decision makers actually attempts to get their head around these findings and try to guess what new products and services might work for those customers.
I've always felt that trying to understand customers based solely on arms length quantitative analysis feels a lot like trying to determine how the furniture upstairs is arranged... by tapping on the ceiling! But the ceiling is a little like the barrier between the company and its customers. Obviously, you'd get a much clearer picture if you just went and took a look... rather than trying to infer what's going on through indirect and limited data sources. In addition, inferences drawn from arms length approaches are prone to interpretation errors. Without an adequate visceral context for understanding the data, we've seen many organizations draw conclusions akin to "Our customers in South Florida are born Hispanic and die Jewish."
In the more boundariless, Wikinomics view of the world, there are a growing number of examples of organizations bringing the customer inside. This Next Generation Experience is "always on" listening to, observing, and interacting with customers. It includes organizations that are starting providing platforms for collaborating with customers on the development and improvement of the products, services, and experiences. This includes great examples from Dell's IdeaStorm and My Starbucks.com. It also includes companies like Peugeot, engaging customers in the design of its vehicles. It also includes platforms for connecting customers with other customers in order to have them share experiences and provide each other support.
ORIENTATION: The Destruction and Recreation of Beliefs
Of the four processes ORIENT may be the most pivotal. The way we ORIENT filters and biases the way we OBSERVE. It also influences and constrains what we DECIDE to do and how we ACT. In essence, ORIENT is all about accurately understanding how the environment you're in is unfolding. This is very difficult for people to pull off. The issues is that to some extent, we all hold onto beliefs about the world that significantly bias the way we perceive and interpret what happens to us. Our beliefs also have a profound impact on the way we perceive, interpret, and evaluate what we OBSERVE in our environment.
We don't see the world the way it is... we see the world the way we are.
Although our beliefs are never fully accurate representations of the way things actually are, they become a real problem if the environment around us is changing rapidly. Very often we just see what we expect to see. Dr. Leonard Orr said this succinctly as, "What the thinker thinks, the prover proves."
In addition, our beliefs limit and enable what's possible by influencing the alternatives we consider and the actions we take. George Bernard Shaw once said,
Our lives are shaped not as much by our experience as by our expectations.
Our beliefs limit and enable what's possible for each of us in our lives. Regardless of what we're willing to admit... our behavior is always fully aligned with our core beliefs. In fact, we cannot activate, maintain, decide about, prefer, plan for, or pursue any goal which is not grounded (implicitly or explicitly) on a set of underlying beliefs.
In any situation where the external environment is changing faster than our beliefs, we run the risk of taking actions that are not only irrelevant but, in many cases, accelerate our own demise. In order to close that gap, the trick is to uncover and master beliefs rather than belimited by them. These can include the beliefs about what's important, as well as, the unwritten rules that drive the real behavior of the organization. This is both critically important and easier said than done. Your beliefs are so much a part of how you think that it can be difficult to recognize them. It's like a fish being unaware of the water it's swimming in.
In a fascinating CIA paper titled "The Psychology of Intelligence Analysis" Richard Hauer describes not only the issues surrounding the perception and interpretation of information but also outlines an approach to overcoming this bias. The approach, called the "Analysis of Competing Hypotheses" forces analysts to more deliberately evaluate evidence for alternative conclusions rather than searching for evidence to confirm a pre-existing hypothesis. I've found that following a simplified version of this approach to be invaluable on a personal level. It avoids the tendency we all have to just look for and see the evidence that supports our pre-existing beliefs. The basic steps of this approach are to:
It's important to recognize that customers' needs, priorities, and choices are different today than they were just 6 months ago. Any organization that relies on an outdated set of beliefs about customer is more likely to accelerate their irrelevance than ensure their success. In order to overcome this tendency it's critical to follow the Boyd Cycle:
I'd love to hear from you with comments and questions... Cheers, Frank