If You Want to Outsmart Competitors, Make it Policy for Employees to Use Their Products

In a talk earlier this year to employees, Nokia CEO Stephen Elop asked a question that many were probably afraid to answer truthfully, given how Nokia is struggling to combat the iPhone. As BusinessWeek described it:

When he asks how many people in the crowd use an iPhone or Android device, few hands go up. “That upsets me, not because some of you are using iPhones, but because only a small number of people are using iPhones. I’d rather people have the intellectual curiosity to understand what we’re up against.”

This is refreshing statement; many executives would have berated their employees for not keeping the faith while a company faced its biggest crisis.

Don’t Enforce a Monoculture

One of the surest ways of losing touch with real customers’ needs and getting outsmarted by competitors is to enforce a monoculture in your organization, where competitive products are banned and employees only come into contact with your own offerings.

My first job out of college was at Sun Microsystems, and in those days (early 90’s) it was forbidden to have any competitive products, whether they were from Microsoft, Silicon Graphics, Apple, or Dell. Since Sun made hardware and software, only Sun machines running the Sun operating system were allowed. (In the design group we did have a couple of Macs as the software we needed wasn’t available for Sun’s OS, but they had to be kept hidden away and bought and maintained clandestinely.)

As a result, every Sun employee lived in a Sun monoculture. This was unlike the environment most Sun customers inhabited, where there was a mix of hardware, software, and platforms from a variety of different vendors. Customers had to deal with integration issues that were never felt by Sun staff. Furthermore, Sun employees were “shielded” from understanding what competitive products could really do, or from gaining insights into how they might be falling short, or actually meeting customer needs better in some ways than Sun’s products.

I remember when we were starting a new project that we had to visit the nearby Oracle headquarters (ironically, now Sun’s owner) to get our hands on a wide variety of competitive hardware, as Oracle had to test its software on all platforms and manufacturers. We learned more in those few hours of hands-on tire-kicking than we would have been able to in weeks of desk research.

Encourage Competitive Use, Don’t Punish It

Too often, buying and trying competitive products is frowned upon and even seen as a moral weakness. As I wrote about in Innovation X, when the team developing the second-generation Ford Taurus bought a Toyota Camry (with great difficulty) to try it out, it brought to light critical quality factors that significantly changed how the team approached its work. In her exhaustive book about this project, Mary Walton describes how buying competitive cars, especially Japanese ones, was seen as practically treasonous at Ford in the 1980’s.

This attitude is not healthy. You should encourage people at all levels — starting at the top — to be immersed in your competitors’ offerings, just as they should be immersed in understanding your customers’ lives. Without a clear-eyed, honest perspective about how you are superior and where you are falling short, you will fall into a falsely narrow view of the world.

Walton also noted how Ford executives (as is the case at most car companies) were regularly given new cars, and all servicing was handled by in-house technicians. They never had to deal with oil changes, indifferent dealerships, older cars starting to wear out (since they got replaced so frequently), or any of the other annoyances that can come from car ownership. They lived in a perfect bubble that hid the quality advances their Japanese competitors were making in strides.

Go Further

Don’t just encourage competitive usage, but make it policy. It’s not always easy to do in some B2B cases, but for almost any consumer product or service there’s really no reason why this can’t become a regular practice.

Pay for products and services out of the company purse. Don’t rely on people to pay it for themselves (because many won’t, or will resent having to). Invest in paying for dummy or shadow service accounts, such as wireless or entertainment subscriptions, even insurance policies. Just because you may offer employees a discount on your own products or services doesn’t mean that they can’t also be encouraged to try out the competition.

Think like a library and make sure competitive offerings get passed around to different employees, and aren’t just used by one person. Maximize the exposure and therefore the learning.

Hire curious people who seek out competitors and venture to the edges of your business to find the potential disruptors, trying out products and services that you may not see as current competitors but who may become ones in the future.

Have people formally or informally report on what they find so that others can gain the insights even if they didn’t use the competitors firsthand (this becomes a type of pre-emptive knowledge management).

Backed up by concrete actions such as these, you can establish a culture where trying competitive products is not seen as the height of treason, but as loyalty.

(This article originally appeared at Harvard Business Review Online, and was re-posted at Business Insider.)

New GM vs. Old GM

New GM Culture, as stated by CEO Fritz Henderson yesterday, in a press conference after GM comes out of bankruptcy in a blistering 40 days:

“We recognize that we’ve been given a rare second chance at GM, and we are very grateful for that. And we appreciate the fact that we now have the tools to get the job done.”

The new company will focus on three top priorities, customers, cars and culture, Henderson said.

“If we don’t get this right, nothing else is going to work,” he said during a morning news conference at GM’s Downtown Detroit headquarters. “Business as usual is over at General Motors.”

Old GM Culture, as stated later that same day, by veteran car exec Bob Lutz, who has been “un-retired” and given responsibility for GM’s new #1 priority, customer focus:

The problem we have right now is getting the breadth of the American public to realize the transformation that has taken place in GM’s quality, design, fuel efficiency and so forth, and to expunge some of these hoary old conventional wisdoms that GM builds gas guzzlers, has sloppy interiors, and so on.

[This is a slight paraphrase, listen to the actual quote here.]

Hmm, as a partial GM owner, I have to say that Bob Lutz is going in the wrong direction. Customer focus doesn’t mean telling potential customers why they are idiots for not seeing the value in your products. It means understanding their needs, and building products to suit, and doing it so well that they will have no choice to sit up and pay attention. 1-way push advertising to cram a message down people’s throats is so 20th century.

To be fair, GM has indeed been significantly improving the quality of its products in the last few years, such as the Chevy Malibu. Cadillac is a success story (though not one suited to the current economic/environmental circumstances), the Camaro has been well received but again suffering poor luck of timing, and Buick has been doing well, especially in Asia. But things are still too spotty. In the same interview, Lutz states that GM took its eye off the ball (i.e. customer needs, design, product quality) for, oh, almost thirty years (though hastens to add that none of the current management were there during that period…). That’s a big hole to dig out of, and a lot of squandered good will.

Unfortunately, the cars that GM has to make its case in the next 2-3 years are already baked. It’s not like they can whip up a new product line at the drop of a hat. Let’s hope Bob Lutz figures out that “customer relations” is a 2-way conversation before that, so that he can actually start gathering customer inputs in time to inform the vehicles yet to be designed.

Can I Interest You in a Quality GM Automobile?

OK, so now what?

Saving the Car Companies is a Giant Triple-Bottom Line Experiment

Despite car czar Steve Rattner’s protestations that saving GM and Chrysler is simply an investment decision, it seems to me that we are actually witnessing one of the largest triple-bottom line pushes ever made at major corporations. And not of their own volition.

Bottom Line 1: Financial. Obviously the goal is to get the GM and Chrysler back into stable fiscal shape if at all possible. The Obama administration doesn’t want to be in the car business, and would prefer to back out as quickly as possible, which means getting the companies back on their feet, financially.

Bottom Line 2: Environmental. The administration has made producing hybrid and more fuel-efficient cars a string attached to the investment

Bottom Line 3: Social. While there are no requirements, so my knowledge, to dictate social responsibility in the way that it is usually thought of (worker rights and pay, community investment, etc.), in a sense GM and Chrysler are both beholden to the American people, and have a responsibility to help get the economy back in shape, given their large economic footprint. Many workers would love to have the salaries and job protections that auto workers enjoy, so that’s not the issue, but more the larger social ramifications if the companies were to collapse. And because of the massive taxpayer investment, the companies need to do good, be good and act good, in order to show good return faith to the public.

The Sorry State of the Car Industry

I’ve been mulling for a few days about writing a post about the current crappy state of the US car industry, thinking about the $25 Billion proposed “bail-out”, the crashing sales, and even the crazy proposed merger of GM and Chrysler. But Thomas Friedman has pretty much written it for me, so go ahead and read it.

How could these companies be so bad for so long? Clearly the combination of a very un-innovative business culture, visionless management and overly generous labor contracts explains a lot of it. It led to a situation whereby General Motors could make money only by selling big, gas-guzzling S.U.V.’s and trucks. Therefore, instead of focusing on making money by innovating around fuel efficiency, productivity and design, G.M. threw way too much energy into lobbying and maneuvering to protect its gas guzzlers.

I’ll just add a few things.

Toyota will become number one

My prediction is that Toyota will move up from it’s #2 slot to be the #1 manufacturer by the end of 2009. Their sales have been impacted by the current economic crisis, just like everyone else, but not nearly to the same degree as GM.

And Toyota’s product portfolio is much more diverse and better protected against parsimonious spending. GM’s is far too heavily skewed toward large, expensive gas guzzling trucks and SUVs, and its small and inexpensive cars are fewer in number and not as good as Toyota’s (with a couple of notable exceptions such as the well-received Chevy Malibu and Cobalt). That doesn’t bode well for riding out a combination of tight consumer spending and credit, and still relatively high gas prices.

GM and Chrysler merger: Huh?

In what universe does the merger of GM and Chrysler make sense? Both companies are in terrible financial shape with the same combination of huge cost structures and poor sales. In fact, Chrysler’s product portfolio is even worse than GM’s: even more skewed to SUVs and big trucks, and its lower end and smaller cars have received universally terrible reviews (Chrysler Sebring, Dodge Caliber).

All of Chrysler’s hot cars are largely irrelevant in a spending-constrained environment: Viper, Ram pick-up, 300, Challenger. Its bread-and-butter minivan has been eclipsed by offerings from Honda and Toyota.

And a merger would certainly result in large numbers of lay-offs as the companies have massive duplication of product lines, production capacity, vendors, and staff. Unless the unions force them to keep the manufacturing workforce, which would just compound the fixed costs problem. Speaking of which…

Plenty of blame to go around

The prospect of a bailout, whether it’s for banks or car companies, makes me queasy. I’m no laissez-fair free marketer, far from it. But the disparity between the logic of bailing out companies that are “too big to fail” and not helping people with comparatively tiny mortgages (or small businesses) who are “too small to care about” is just too disturbing in its hypocrisy. The management of car companies have squandered innovation for decades in favor of lobbying favors, as Friedman points out, putting them in their now perilous position.

But the unions have played their part too, providing a level of cushion for their workers that no other industries have, and in the process helping drive the hand the feeds them into the ground by forcing massive cost structures (health care, retirement benefits, endless unemployment support). A bailout would just encourage that co-dependency and let everyone off the hook rather than calling them to the carpet for it and forcing them to change. Undoubtedly a reset of the compact between automakers and unions would cause massive pain for the near term, but in the long run it would get the industry back on its feet. And without it, they’ll just be back in this same position in 5-10 years.