Innovation Reconsidered

Clay Christensen is one of the world’s leading writers on innovation.  I recently read his book The Innovator’s Solution, which was actually a follow-up to his previous book, The Innovator’s Dilemma.  The hardwood lumber business is often not on the cutting edge of innovation, so the book caught my attention.

The basic idea underlying Christensen’s books is that real value, over the long term, is created only by innovation.  If you’re not innovating, eventually your competitors will commoditize you, your margins will shrink, and your business will be worth less.

The whole book is worth reading, but I thought the most interesting part of the book was in Chapter 3.  In this chapter, Christensen explores the best way to pursue innovation.  He rejects the traditional wisdom that innovators should focus their analysis primarily on the customer, but instead says that the focus should be on how and when the customer uses your product or service.  This probably sounds a little vague, so let me share with you the example that Christensen gives.

A quick service restaurant chain wanted to improve its milkshake sales and profits.  Two sets of researchers came in to study the situation.  The first focused on the customer and the product itself (milkshakes), and asked a group of customers whether they wanted thicker, chocolatier, cheaper, chunkier, etc. milkshakes.  These researchers got feedback from the customers, and then used it to make some changes in the milkshakes.  However, despite these changes, the restaurant got no substantial increase in sales or profits.

The second set of researchers took a different approach.  They focused on what the customers were trying to get done when they “hired” the milkshake, and this gave the company’s managers new insights.  The researchers spent an 18 hour day in the store and recorded the time of each milkshake purchase, what other products the customer bought, and whether the milkshake was consumed on or off premises.

Interestingly enough, nearly half the milkshakes were bought in the morning.  People who bought in the morning often faced a long, boring commute, and wanted something to eat or drink in their car that would last a long time, wouldn’t be messy, and would satisfy them past 10 AM.  By way of contrast, people who bought milkshakes at other times of the day were most often parents trying to placate their children after a long, hard day.  Unlike the morning folks, parents wanted their kids to finish the milkshakes quickly and not have to struggle to suck a thick milkshake through a thin straw.  As a result of these findings, the restaurant created a thick, chunky shake for the morning customers (so it would last longer), and a thinner, “quick drinking” kids shake for later in the day.

The second group of researchers focused on the job the product was being “hired” to do, and ended up designing different types of milkshakes based on what the different groups of customers were trying to accomplish.  It wasn’t just about the customer and the product, but rather was about the circumstances in which the product was being used.

In the hardwood lumber business, it’s sometimes challenging to think about what real innovation means.  And when we do think about it, we tend to think about the product we sell and how we can change that product.  However, for me, taking Christensen’s advice would probably mean more focus on the circumstances surrounding how my customer uses my lumber and less on the lumber itself.

Christensen’s book certainly challenged me to think about innovation differently

It Was the Best of Times and the Worst of Times

“It was the best of times, it was the worst of times.”  The first sentence from Charles Dickens’ famous novel A Tale of Two Cities captures well the state of the hardwood lumber industry over the last five years.  For most hardwood lumber producers, the last six months have been among the best times that they’ve ever experienced.  And yet, the pain of much of the previous five years remains seared in our memories.  So how do we handle these two radically different images at war in our minds?  As I’ve thought about this, I’ve come up with some advice for myself.  Maybe some of this will work for you.

 

  • There’s an old stockbroker’s saying that goes something like this:  “Don’t confuse brains with a bull market.”  So, in our context, enjoy the good times while they last, but don’t let them convince you that you’re suddenly a lot smarter than you were a year or two ago.  The current runaway market will end sooner or later, and it isn’t our smarts that has created it.  We need to enjoy it while we can, but be ready for it to return to normal.
  • Don’t let rising prices and increasing margins cover up sloppy operations and sales practices.  It’s easy to be lulled to sleep by increasing sales and margins, and not look hard enough at what’s “underneath the covers.”  We need to keep pushing just as hard for the half percent efficiency increase, or the 1% gross margin increase, as we did in the depths of the recession.  It’s just as important now in good times as it was in poor times.
  • Keep investing.  When business is good, there’s a temptation to think that it’s not as important for us to keep investing in our business.  I’m not just talking about equipment, but also about investments in IT and other areas that make our businesses more efficient and cost effective.  Continuing to invest will give us a cost advantage when things turn back to normal.
  • Work harder than ever at getting close to our customers.  The temptation in times like these can be to think “we’re in the drivers’ seat.”  At all cost, don’t give into this temptation.  Suppliers and customers need each other and the pendulum swings back and forth.  Don’t be afraid or embarrassed to raise prices, but travel and work hard to keep strong personal connections and relationships, and don’t present a “take it or leave it” attitude.
  • Proactively look for talent that we can add to our team, whether it’s in production, operations, sales or support functions.  Don’t wait until someone leaves to try to fill a spot.  With our business growing again, we will need more and better talented people.  Try to get ahead of the curve in hiring these people in advance, even if we don’t have a position open for them right now.

 

These are a few thoughts that I remind myself of these days.  Hopefully one or two of them will help you.

Give and Take

At the end of last year I read the book Give and Take by Adam Grant.  Quite simply, it was the best book I’ve read in the last year.  Adam is an interesting guy.  He’s the youngest tenured professor at the University of Pennsylvania Wharton School of Business, and has done research on some really interesting aspects of business.

The book identifies three different kinds of people: Givers, Takers and Matchers.  The definition of each of these groups is what you might expect.  Givers naturally give more than they get, and instinctively act in the interest of others.  Takers like to get more than they give.  And Matchers strive to preserve an equal balance between giving and getting.

The fundamental premise of Grant’s book is that while it takes some time for Givers to build up goodwill and trust, eventually they establish a reputation and relationships that enhance their success.  In fact, research shows that people who help and regularly give their time to their colleagues actually earn more and get more promotions than Takers or Matchers in the long run.  Studies also show that the most productive people are people who give often.

In the middle of the book, things get really interesting.  Grant makes a distinction between “Selfless Givers” and “Otherish Givers”.  He says that when you really analyze Givers you find that they tend to fall at both the top and the bottom of the success ladder, while Takers and Matchers tend to land more in the middle.  So, what’s the difference between Givers who succeed and Givers don’t?  According to Grant, it’s whether or not they can look out for themselves at the same time as they give.

“Selfless Givers” don’t think enough about themselves.  They think only of others, and are prone to end up as doormats.  People take advantage of them.  On the other hand, “Otherish Givers” are both others-oriented and self-oriented.  For me, the most fascinating point Grant makes is that self-interest and others-interest are completely independent motivations; a person can have both at the same time.  These two characteristics are not opposites such that you need to choose one or the other.  In fact, they can complement one another.  Successful Givers care about benefitting others, but they also have ambitious goals for advancing their own interests.  Givers who do both of these things end up being more successful than Takers or Matchers.

Grant’s ideas were very helpful to me personally.  Our stated purpose in our hardwood lumber business at Baillie is “To Help Others Succeed.”  We occasionally get into discussions about whether or not one can take this too far.  In other words, is it possible to be so exclusively focused on others that it hurts your performance?  Grant’s idea that focusing on helping others and advancing your own self-interest are not opposite things, but are actually separate motivations that can both be present at the same time and can actually complement each other, really helped me as I think about our purpose.

If you are able, read this book.  I’m interested in your opinion of Grant’s ideas.