Apr 6, 2022 | Change, Innovation
‘Go back to first principles’ is an often-heard expression. At least as often, those uttering it have no real idea of the meaning, beyond ‘think again’.
Twenty-six hundred years ago, Greek philosopher Aristotle defined it as: ‘The first basis from which a thing is known’
Application of ‘first principles thinking’ requires you to dig and dig into a situation until you are left with only a few foundational facts that cannot be disproved. You can then rebuild from the ground up.
Elon Musk is often cited as the current guru of this discipline, particularly as it related to the creation of what became SpaceX. Rather than buying a rocket at an astronomical price, he broke down the costs of the materials necessary, and set about assembling a team to do it for himself. The result was SpaceX, which reduced the costs of launching a rocket by 90%, while still making a profit. The same thinking was been used to create both Tesla cars and batteries, each relying on the other as a means to the end of replacing fossil fuels with renewables.
John ’40 second’ Boyd similarly broke the development and performance of fighter jets down to first principles, arriving at the OODA loop. He took it further with his thought experiment that led to the snowmobile.
These examples have something in common: they all combine ideas from different fields into a new solution to an old problem. How do you think the first suitcase with wheels came about? Engineer Bernard Sadow had a patent issued in 1972 after seeing the solution to his ‘luggage-lugging’ in an airport in 1970. However, real credit should go to a Croatian artist with a colourful background, Joseph Krupa, who stuck some wheels on a suitcase in 1954.
The key is to be able to see things from a functional perspective, rather than as a continuation and improvement of what you currently have. We have flying cars already, called aeroplanes, different form to what most might imagine, but the function is as we imagined, movement by air. The light bulb was not a result of continuous improvement of the candle, and the internet did not appear as just another significant improvement on Guttenberg’s printing press.
Thinking from first principles requires that you put aside all the accepted wisdoms, conventions, and forms in order to get back to the core truth. It is in effect another form of the lean ‘5 why’ tool, so useful in removing waste from processes.
The header photo is of Joseph Kruppa and his wheeled suitcase taken about 1954
Addition: This article by Michael Simmons has many more examples of situations which required the application of first principles to come to light, and the blindspots that prevent that happening..
Mar 31, 2022 | Change, Innovation, Strategy
Management over the last 50 years has been driven by strategic planning. Sometimes it has been done well. Often it is little better than a good chance to catch up with peers, have a few sherbets, and get away from the office for a few days.
After the session, the production of a new plan, and articulation of targets nobody really believes in, life gets back to normal.
Familiar?
The fundamental flaw is that we expect to be able to plan for a future we cannot predict.
This is in no way to ridicule the process of gathering information, generating ideas and views about the way forward, and the means to measure the success or otherwise of the efforts.
Those efforts are essential, they provide the intellectual fodder necessary to at least avoid some of the bigger potholes, and make informed and sensible decisions.
However, they miss the essential truth that planning for a future you cannot predict is bound to miss the mark.
The solution?
Instead of looking for the answers to questions thrown up by analysis of the data we can collect, look instead for questions that need an answer.
Setting out to answer a big question, go exploring the unknown, is way more powerful than figuring out how to change the status quo.
You do not have to be a Steve jobs or Elon Musk to see a big problem that needs solving, they are around us every day at a local level, we just have to see them.
A client of mine is busily solving the dual problems of poor acoustics and heat insulation of our windows and doors using European technology adapted to local environments. I watched a presentation last week by a local franchisee of ‘Bark Busters’. This is now an international business aimed at managing the behaviour of dogs, specifically dogs that bark. Perhaps neither are solutions to global problems like global warming, but both are big problems to those who are in contact with them.
Look for problems to solve, rather than extrapolating the present to a bigger version of itself.
Mar 21, 2022 | Innovation, Strategy
Just before Christmas, I was with my son and granddaughter at a ‘pantomime’ in a local park put on by a local group for the sheer fun of it.
All the usual characters of a pantomime, a wise old man, loving mother, young hero, an innocent victim, and a nasty villain in a black cape were there. The story made little logical sense, but that did not matter a whit. All the kids were deeply, deeply engaged as the young hero seemed to just fall into deliberately placed and progressively ensnaring traps placed by the villain, despite the advice of the wise old man, entreaties of his mother, and roared warnings of the toddler crowd, and their grandparents.
It struck me that the whole engagement of the kids, driven by the innocent victim being progressively drawn into the villain’s web, was a metaphor for successful marketing. This is especially the case for a small outfit going up against a larger and powerful incumbent.
Make the incumbent the villain, demonstrate that the gorilla is not solving problems that nobody may have even thought about to date, but once articulated, can become a cause celebre.
One of my clients is a small company delivering double glazed uPVC windows and doors to residential clients. The benefits of double-glazed uPVC are significant. The reductions in power bills and noise by increasing thermal and acoustic insulation via sealed double-glazed windows and doors are enormous.
uPVC is relatively new to the Australian market, but increasingly making ground, as the huge benefits become known. However, the incumbent aluminium and wood window and door suppliers still control 98% of installations, flogging products with little thermal or acoustic insulation at all to unsuspecting ‘victims’.
Our villain is those producers who continue to deliver substandard product, simply through momentum and lack of regulatory standards.
Who or what is yours?
Feb 9, 2022 | Innovation, Marketing
There is a reallocation of capital from advertising to R&D evolving. Elon Musk may be the typifier. Tesla spends nothing on advertising, relying on Elon and social media, plus all the commentary he generates. Meanwhile, Tesla put $1.5 billion (in 2020) into R&D, representing triple the amount spent/car of the next biggest spenders, Ford, and Toyota.
R&D is the new differentiator, replacing the confected differentiators of the age of ‘mass marketing’
This is a sea-change, the old model was to make mediocre products, and use money to drive mass distribution, and big advertising budgets on TV to drive volumes. The amount of R&D was small, advertising budgets big.
The Korean vehicle maker Hyundai announced in December 2021, that it will close the internal combustion engines R&D group, and redirect funds to Electric development. All carmakers currently reliant on internal combustion will be thinking along the same lines, although to date they seem to have hedged their bets. They must look longingly at the market cap of Tesla, hovering over $1,000 a share, with a PE ratio in the stratosphere. Tesla is worth more than the next ten biggest carmakers in the world combined, astonishing, and unsustainable in my view. Even the second and third US pure EV plays, Rivian (101 billion), and Lucid (72 billion) start-ups who sell almost nothing, are worth more than all but the top 3 carmakers we all know of, Toyota, Volkswagen and General Motors.
This capital reallocation is happening all around us; vehicles are just a convenient metaphor for the trend across economies.
Telcos have been busy spending money on mobile infrastructure over the last 20 years. Coverage has been the competitive differentiator. What happens when technology takes over, as is happening, and you can run a 5G network via an AWS type server farm? Suddenly physical infrastructure becomes redundant, and the location of competitive advantage moves dramatically.
FMCG suppliers used to be major contributors to media profitability via TV advertising. Now, as a result of supermarket chains exercising their power over the point of sale, consumers have a vastly reduced brand choice as the margin pool shifts towards retailers. On the other side of the equation, retailers are themselves facing aggressive competition for the customers attention and orders, a trend evident before 2020, but turbocharged by covid.
I ask myself where can technology drive innovation in FMCG that cannot easily be copied, so the investment by the supplier has a chance to pay dividends?
Plant based packaged meat substitute foods may be one answer. As we learn how to edit genes to produce the enzymes that generate flavour and texture, capital and technology can be applied to intensive farming, replacing low tech and land intensive meat production. The evolution of some produce types in capital intensive glasshouses and aquaculture combinations may be the thin edge of the wedge.
The marketing differentiator in the future will be the leverage technology and intellectual capital offers to the smart marketers, not a line extension or modest evolution of current products backed by mass advertising. Put more simply, ideas, and the intellectual capital that generate them are the new competitive differentiators.
Jan 31, 2022 | Change, Innovation, retail
Life in FMCG world is, almost unbelievably, becoming more competitive than it has ever been. However, the nature of competition has changed radically over the last 25 years.
Performance measures that we have relied on in the past no longer serve as well, we need a rethink.
The business model, while retaining the foundations that had delivered such success to supermarket chains in the past, has morphed.
No longer do big brands hold sway.
I suggest ‘Net Distribution Gain’ should be a standard measure in the FMCG marketer’s toolbox.
The previous business model used to be big add budgets splashed on TV, an OK product that appealed to the general average consumer, drove weight of distribution and shelf offtake.
That has all changed.
Most brands have disappeared, for those remaining, the name of the game is shelf space and position.
Where there used to be 5 or 6 brands competing in a decent sized category, there is now one, sometimes two, or at most three proprietary brands in big categories competing with house brands under various guises. These remaining brands have eroded their position by allowing retailers to convert their marketing budgets from brand building into price promotion, shelf position, and retailer margin enhancement.
Gaining distribution these days is a matter of buying it, and for a new product, if you are successful, there will be a copy house brand coming very quickly.
The outcome of all this is that innovation is at an all-time low, and the cycle just accelerates.
Retailers practise the one in one out method, it has become a standard procedure across supermarket retailers. It recognises their inelastic store sides and imposes minimum sales discipline on the suppliers.
For a supplier, having one of your competitors products deleted to make room for yours is a win, but for the retailer, it makes little difference which SKU is sold beyond any differences in the delivered margin. However, genuinely new products, ones that warrant net new space in a category, are where the real category gains and marketing success lie hidden.
NDG should be a standard measure to use by suppliers considering the planning and KPI of product launch strategies. There are several choices, which could become very complex with the addition of a weighting index based on shelf position:
One in one out of your range
Yours in, competitor SKU out
New space for the category.
Clearly in the last case the retailer is making choices elsewhere in the category mix, and the ripples widen, but for the category marketer, a NDG would be an indicator of a successful genuinely new product as distinct from a line extension of a successful competitive SKU.
Dec 6, 2021 | Change, Innovation, Leadership
The old way of thinking and working in silos, based on organisation charts, is gone.
The key commercial question now is how to develop and commercialise innovative solutions to problems faced by individuals, and the wider community, faster and more efficiently than others.
We all know that we work better in small groups, differently but better, more productively. The problem is we have had imposed on us the structures originally conceived to enable scaling from cottage industries to mass manufacturing, where the benefits of scale outweighed the transaction costs incurred.
We have now reached a point where the worm has turned.
The transaction costs are greater than the scaling benefits, because of the transparency enabled by digital.
The nasty covid pandemic has accelerated the process of digitisation to the extent that we have consumed a decade or more of change in a year or so. Some have not made the change, and long for the return of the ‘normal’ way before covid. However, the truth is that we must go forward, we need to accommodate the new world as it is now by the way we collaborate.
For the last 30 years we have struggled with the growing inefficiency and resulting lack of engagement of employees down the organisation chart, driven by the remoteness from decision making.
We tried to fix it with various forms of matrix organisation, but we approached it from the old mindset of accountability and responsibility. ‘How can I be responsible for something over which I have no control????’ This question has loomed large on many occasions.
Matrix organisations with a silo management mentality do not work.
We need to embrace not just the ‘radical transparency‘ espoused by the likes of Ray Dalio, and Atlassian where it is a core value, but ‘radical adaptability’ to prosper.
Giving control and accountability for outcomes over individual workplaces to the people in them is the new way. Finding ways to speed up the process of change, to be able to adapt and innovate has become the path to commercial survival. We have been talking about it for ages, but trying to build it from a siloed mentality starting point will go nowhere.
The ‘radical transparency’ of Dalio will not suit everyone. You need to be a resilient personality to take and grow from the negative feedback. Recognising this, Dalio only hires what he calls ‘arseholes’, those who are resilient enough to take the feedback and learn from it.
A business with a culture of being ‘nice’, polite, keeping ideas and views to yourself, and not articulating those views and ideas to others, leads to the politics we see in most organisations. Things that are thought, and said privately, that will not be said publicly are corrosive of trust and collaboration.
Radical transparency needs an entirely different mindset.
That different mindset can lead to ‘radical adaptability’, as any idea is a good one until it is taken down by a better one, or by finding some flaw in the argument. By another name, in other circumstances, this is ‘Evolution’ or ‘Survival of the fittest’, and John Boyd’s OODA Loop at work.
Accountability & candour lead to collaboration, and collaboration is the key to growth in this new, digitised world, as it compounds effort and outcomes.
Header cartoon credit: WWW.Gapingvoid.com Highlights the challenges of enabling transparency. It is usually great for others, and in principle, but not for me!
