Next-Generation Best Practices for Consumer Product Companies

By Geoffrey Moore

Author – The Infinite Staircase: What the Universe Tells Us About Life, Ethics, and Mortality

EY and Sloan MIT have recently published an article on how Consumer Product (CP) companies must evolve their business and operating models to cope with a more dynamic marketplace.?They net out their recommendations around six best practices (see below).?Every one of these makes sense, but I want to challenge each and every one of them, just to make sure we honor the complexity of the forces at work.

Here goes.

1.?Integrated networks rather than functional silos.?A piecemeal transformation that makes incremental changes to discrete parts of the organization will be too slow and too narrow to deliver on what’s needed. Future operating models should be built around integrated, collaborative interactions within companies and their external partners, rather than in functional silos. That represents a systemic shift.

This is awfully general and pretty abstract—a kind of academic business language that I am generally opposed to—but I’ll let it stand for now.?What bothers me more is the dismissal of functional silos as no longer appropriate to modern operating models.?This is just baloney.?Silos are how you get stuff done.?Leave me alone and let me produce my deliverables.?Yes, they are terrible when it comes to dealing with disruptive change, but man, are they great when it comes to running the table when the wind is at your back.?So, please, don’t dis the silos—just don’t let them imprison you.

2. Multiple business models rather than a single business model.?It’s no longer enough to create and support just one winning business model. Instead, future-oriented operating models should enable organizations to explore, test, and scale a range of different business models simultaneously. That capability solves what we call the “plurality dilemma”: the challenge organizations face in rapidly adapting to a future that will keep changing at unprecedented rates while optimizing how they operate today.

This one is harder to let stand as is.?When we talk about multiple business models, understand that implies multiple operating models to execute them, which in turn implies multiple infrastructure models to enable them.?How much complexity can one enterprise embrace??For starters, it is critical to honor the divide between the two great categories of business models—Volume Operations (the model that underlies all consumer goods and services, as well as component manufacturing and a host of other commodity efforts) and Complex Systems (the model that underlies all B2B businesses that sell industrial products, systems, and integrated services).?These two models are anti-synergistic, meaning no enterprise should ever commit to both models as core (see Harvard Business Review, December, 2005, “Strategy and Your Stronger Hand”).?

3. Dynamic internal and external relationships rather than rigid functional capabilities.?This element involves reframing the capabilities you’ll need and how you manage them. The future operating model provides the right mix of deep expertise and cross-functional generalists. Depending upon where a company’s future value proposition lies, it may be better to outsource some skills that traditionally have been handled in-house.

This one I can support wholeheartedly.?The framework I would advocate for making these calls is the core/context model, in which core stands for any function or process that differentiates your enterprise’s offerings, and context stands for all the other stuff that is necessary to compete, but not differentiate.?You want to outsource your context in order to devote more resources to the core.?The challenge is how best to cope with mission-critical context, stuff that does not differentiate, but if you get it wrong, you are toast.?You really would like to outsource this a) because it ties up high-value resources in order to handle them properly, and b) because it would transfer the liability to another organization, but often the risk, or at least the perceived risk, is too great to allow it.?Managing an external relationship that optimizes each organization’s core competence while minimizing the risk of a failed execution is an incredibly valuable addition to any enterprise playbook.

4. Adaptive and expandable scale rather than slow and big.?To succeed in the future, CP companies must be able to experiment, pilot, test, and scale new products, services, and experiences much faster than they do today. The future operating model?cedes some control, meaning you can move at the speed of the market. That approach — which is vastly different than the traditional model — involves managing product life cycles from rapidly developing and launching new offerings tailored for specific markets all the way to the end of those products’ lives. In many ways, CP companies need to think and act more like software companies.

The key idea here is a good one.?In a digitally transformed economy, CP enterprises are normally better off spending money to save time than to spend time to save money.?The shorter the offering’s life cycle, the more this is the case.?To do this, they need to get better at the kind of “moderate-risk-low-data” decision-making that is at the core of the Agile operating model, and not just at the fuzzy front end of innovation, but all the way along the line as they systematically scale the offer.?This is possible because digitally enabled supply and delivery chains can detect market signals far faster than in prior eras, but only if a) they are deployed, and b) they are employed.?A culture that has a low tolerance for risk or failure is a much greater liability today than in the past.

5. A growth mindset rather than a fixed mindset.?In today’s challenging and very fluid environment, the mounting pressures to avoid mistakes can create a culture of “safe” incrementalism at best, and toxic risk-aversion at worst. A growth mindset, as described by Stanford University psychology professor Carol Dweck, is nurtured by creating a supportive environment where employees are encouraged to take thoughtful risks, make mistakes, and learn from them. Such an environment is necessary to shift a company’s culture from a fixed “what-is” to a “what’s-possible” mindset. Don’t let your company’s culture inhibit employees from developing growth mindsets; after all, a truly agile organization is made up of individuals who are adept at thinking and behaving in agile ways.

This is easier said than done, and more applicable to software than to consumer goods, so let’s step back and check the boundary lines.?First of all, “safe” and “incremental” are good words when it comes to being the steward of an iconic brand with a loyal customer base.?Such brands have a lot of inertia behind them, and that is what makes them attractive as investments (just ask Warren Buffett).?Secondly, a “growth mindset” is good if, and only if, there is category or market expansion to support it.?Disruptive innovations have the power to create these conditions, but as the venture community will testify, they are not easy to get to the finish line.?Overall, the application of zone management (said the author of Zone to Win, plugging his own book) is designed to let enterprises have their cake and eat it too, the Performance and Productivity Zones designed to support inertial momentum in the core, the Incubation and Transformation Zones designed to capitalize on disruption.?In short, it does not do to take an all-or-nothing approach to agile operations, nor to advocate agility everywhere.?This is a horses-for-courses situation.

6. Agile innovation rather than waterfall innovation.?Genuine innovation involves more than just product R&D; it also involves innovating business models, processes, ecosystem partnerships, and more. The future operating model allows the whole organism of the business to change — and to?keep?changing — so it can continually innovate at speed and scale.

I wholeheartedly agree with this point.?Yes, there are situations where the waterfall is still the right model—opening a new factory or entering a new geography come to mind—but as time displaces money as the scarcest ingredient in the economic equation, agile must come to the fore.?To help the culture embrace this principle, enterprises need to make “time data” much more visible in their OKRs, dashboards, monthly reports, and quarterly reviews.?Latency is the cholesterol that hardens our operational arteries, so taking time out of our processes as opposed to taking money out needs to be our first (although not our only) priority.

That’s what I think.?What do you think?

Follow Geoff on LinkedIn | Geoffrey Moore Main Mailing List | Infinite Staircase Mailing List

__________________________________________________________________________

Geoffrey Moore | Infinite Staircase Site | Geoffrey Moore Twitter | Infinite Staircase Twitter | Facebook | YouTube