Clash of Value (Disciplines)

Bradley Wamboldt, Hawk & Squirrel Innovation

Introduction

Value disciplines describe the bedrock strategy, processes, tools and skills sets a company needs to differentiate itself from its competitors and succeed in its industry

Innovation and technology development require a different value discipline than the one required to build and operate the assets that will embody it.

“What we’ve got here is failure to communicate.” -Strother Martin as Capitan in the 1967 movie classic, Cool Hand Luke -

This article explores the value disciplines involved and the necessity to recognize and resource both and to look for ways for them to thrive and integrate into a powerful force for deploying change.

The Discipline of Market Leaders

In their book, “The Discipline of Market Leaders”, Michael Treacy and Fred Wiersema describe three strategic approaches companies can use to differentiate themselves from their competitors.?These approaches, or value disciplines, provide the bedrock strategic context for a company operating in a particular field and, as such, are used to set mission, vision and objectives and focus and align activities.?Of primary importance in the context of this article, they also define the processes, tools and skill sets primarily used in the company.

These three value disciplines are Operational Excellence, Product Leadership and Customer Intimacy

Operational Excellence is focused on delivering quality products or services on time, safely and at the lowest total cost.?Standardized tools and processes seek to minimize overhead, maximize efficiency, reduce transaction costs and optimize business processes across functional and organizational boundaries.?This value discipline is particularly well suited to organizations delivering a non-differentiated product at the lowest possible cost to customers in a reliable and convenient way.?The classic example of an operationally excellent company is McDonalds.?Low cost, reliable, always the same.

Product Innovation seeks to bring innovative and superior products to market quickly.?Companies practicing this value discipline are constantly looking for products and services that offer new value to their customers.?Apple is a good example of a Product Innovation leader, often introducing products to consumers they do not even know they need yet.

Customer Intimacy focuses on personalization and customization to extract over-sized rents from customers.?These companies require detailed customer knowledge and operational flexibility to identify and meet unique customer needs.?Starbucks, selling $0.50 worth of coffee for $5.00 by crafting unique beverages for each customer, complete with your name on the cup, is an excellence example of a company that excels at Customer Intimacy

Treacy and Weirsema argue that organizations must excel at one of these value disciplines while remaining competent in the others.?Failure to commit to and focus on one of the value disciplines in a competitive business environment will decrease differentiation and negatively affect market share, sales and profits.

The Clash of Value Disciplines in Technology Development

A large part of the challenge in closing the gap between de-risked and competitive new technologies and the actual building of assets deploying these technologies is a clash between the Operational Excellence value discipline employed by entities needed to build and operate capital intensive facilities and the Product Leadership value discipline required to innovate and develop disruptive technologies in the first place.

Product Leadership requires agile, iterative processes, specific tools for de-risking and skill sets and mindsets to work within the ambiguous and often-intuitive space of innovation.?These are not the attributes that successfully bring a large, complex project in on-time and on-budget.

Operational Excellence, on the other hand, is well equipped for large project execution by deploying disciplined and precise processes and tools with people dedicated to attention to detail.

The reality is that both value disciplines are needed to progress a disruptive new technology to actual steel on the ground.?This requires a recognition of the value each discipline provides and a bridge between the two to facilitate integration.

A Greenhouse for the Product Leadership Value Discipline

For most large operating companies in mature commodity businesses, Operational Excellence is the core value discipline.?Safety, reliability, and cost are the key drivers for success.?However, this environment is not conducive to Product Leadership or disruptive innovation.

If a large incumbent company wishes to add Product Leadership to its overall strategy either to create new opportunities or respond to external pressure, it needs to provide an appropriate safe space for these activities to occur.?New adaptive processes, tools and skill sets need to be developed and accepted.?Resources, both capital and human, need to be provided and protected.?Given the timelines for the development of truly disruptive technologies, this commitment needs to be long term, not transitory.?Once developed, the skill set required for Product Leadership is difficult to redeploy into Operational Excellence so there needs to be specific career development for these people.?They need to feel valued and supported in the long term.

That is not to say that the overall organization should abandon the Operational Excellence value discipline that has made and will continue to make it successful.?This would not be desirable or sustainable.?The concept here is that a place in the organization for Product Leadership with its requisite processes, tools, skill sets and resources is identified and protected.

Alternately, Product Leadership activities could be outsourced to a third party specializing in innovation and technology development as a function (see Hawk & Squirrel Article #1, “Technology Development as a Function”)

Building Bridges to the Operational Excellence Value Discipline

Just as important as a safe space for Product Leadership activities are the connections back to the overall Operationally Excellent organization.?If these connections are not established, the Product Leadership sub-organization will lose credibility, influence, and the ability to impact the bottom line of the company.?This group runs the risk of being an irrelevant skunkworks doing low value “science projects”.

These connections are embodied in the integration of the business processes of the company.?Unique business processes will be required to support Product Leadership activities, such as a dedicated technology development management system designed to manage a portfolio of technology opportunities on a risk and risk reduction basis.?These process, however, need to be explicitly linked to upstream and downstream organization processes to effectively participate in the overall company.?How will budget be allocated??Human resource management? How are projects, identified and de-risked by technology development, introduced into the capital allocation and project management processes??The answers to these questions (and many others) and the thoughtful integration of Product Leadership and Operational Excellence processes recognizes the technology development function as a legitimate and equal partner in the success of the company.

These connections are equally important when the disruptive innovation is coming from outside the company.?Start-up companies often bemoan the risk-adverse and conservative nature of the companies they need to deploy their processes.?This view fails to recognize the realities of capital-intensive opportunities.?It should not be surprising that a certain level of conservatism is present when one is proposing to spend hundreds of millions of dollars.?It’s a big risk.?Also, it is important to realize that the processes, tools and skills needed to effectively and efficiently build and operate something of that size and complexity are both critical to a successful deployment and different from those needed to come up with the idea in the first place.

It is the duty of the proponent of a disruptive technology to translate the opportunity into terms a successful builder and operator can relate to and accept.?Being conservative is what they do, need to do and do well.?You need to figure out how to communicate with them.

Why does it Matter?

Finding common ground between the Operational Excellence and Product Leadership is critical if we are going to overcome the gap between new disruptive ideas and their embodiment in large capital-intensive projects.

Each party needs to appreciate the value the other brings and find ways to communicate and integrate their activities.

Wrap Up

This article explored the concept of value disciplines and how they relate to the actual deployment of disruptive technologies.?Product Leadership is required to identify, de-risk and develop new opportunities and Operational Excellence is required to build and operate their multi-million dollar embodiments.

In existing large companies, Operational Excellence is the de-facto value discipline.?To participate in disruptive innovation, these organizations need to find a way to facilitate Product Leadership either internally or externally.

Once Product Leadership has a place to thrive, it needs to pay particular attention to integrating back into the Operationally Excellent functions required to support as well as to build and operate new facilities.