E11: Deeper Dive into Differentiation

What if all problems are equal, yet some are more equal than others? Welcome to Invisible Solutions. I'm your host, Steven Shapiro. Each week we tackle your most complex problems using the lenses from my book, Invisible Solutions. If you need the lenses, go to getthelenses.com and with that, let's get started with today's episode. Today we are going to explore why we need to prioritize our innovation investments. We're going to need to determine what are our most important problems? What are our biggest opportunities. In his book Animal Farm, George Orwell wrote, all animals are equal, but some animals are more equal than others. This is an important mantra to remember when creating an innovation program. All problems are equal, but some are more equal than others. You don't innovate the same way for every opportunity in your business. In episode nine, I talked about why you want to innovate, where you differentiate. So what's most important to your business? Why do customers do business with you and not someone else? When I ask this question of CEOs, top executives, employees and others, there's typically a very long, uncomfortable silence. Most people do not think of their business in these terms. But clearly defining your focus will help you allocate your innovation investments much more effectively. But most people don't think of their business in these terms. Clearly defining your focus will help you allocate your innovation investments. So let's talk about how do you prioritize your investments in time and money? Once you identify your differentiator, the reason why people do business with you and not someone else, you can then use this information to develop your operating strategy. This is the way you run your business. This is how you prioritize your investments. And I created a super simple framework called the Innovation Targeting Matrix that I use to help organizations identify the right strategies for their business. Now, although it is simple, it has had a profound impact on the work my clients do. Now, although I don't talk about the Innovation Targeting Matrix in Invisible Solutions, I did talk about it in my previous book, Best Practices are Stupid. But I felt it would be good to talk about it because it's an important part of problem solving. You don't want to solve every problem the same way. You want to use different strategies depending on how important the problem is. So within the Innovation Targeting Matrix, I want you just to visualize this for a moment. There are three categories, three different levels of strategic importance, from least to most. There is support, core and differentiating. So let's tackle each of these three in order. So let's start off with the what I would call the least important. These are support capabilities, and these are necessary for running your business, but they are not core to your business. Now here's something which is really important. This is not a department or a function or a job. In any department, in any job, there will be people performing support activities. Basically, a support activity is something that does not create value for your customers. Although you might think of support as hr, IT or finance, it is not. Because even within those functions, there are activities that are core. And differentiating it is something which, if your customer knew you were doing it, they wouldn't be willing to pay for it. An example of a support capability might be payroll. Now, you need to pay the people in your organization. It is important to make sure that you do that. But having the world's best payroll system, unless that is your business, having the world's best payroll system is not going to be a great place for you to focus your energies. So what you want to do, your operating strategy for anything that is support in nature, is you want to minimize it. You want to eliminate it if possible. And if you can't do that, you want to outsource it. So your primary objective with anything that does not create value for others is cost containment. You want to have high quality, but it has to be done as efficiently and effectively as possible. The second category of activities are core. These core activities are important. You have to get them right. They are critical to your business, but they are not your source of competitive advantage. They do create value for your customer. But here's an important distinction. A core activity is not a reason why someone will do business with you, but it will be a reason why someone doesn't do business with you. These are the table stakes. These are the expectations of your customers. So if you are running a restaurant, your food better be hot, it better be without hairs in it, and your service must be at least somewhat speedy. So that's important. Those are going to be core. They're critical. But it's somebody's not going to go to a restaurant just because you don't have hair in your food. But if you have hair in your food, you got a big problem. These are very important to have, right? You want to do them well, but you don't have to be the best at them. You just have to be really good at them. So your operating strategy, the way you want to think about these, is anything at its core should be simplified, automated, streamlined. So if you're a company that's into Six Sigma or Lean, that's a great place to focus, get them working like a well oiled machine. I would also argue that best practices, although the book is called Best Practices are stupid for something at its core, a best practice could be a good strategy. You don't need to be the best, but you should be as good as everyone else. And I also find a great strategy for anything that is core is to partner with others. And this is a little different than outsourcing that you might do with something that is support in nature, something that's core. You really want to make sure it's done well. So you create a partnership, you make that other partner integral to the way that you deliver your work. So efficiency is going to be your main strategy. You want to get it right, you want to do it well, but you want to do it as cost effectively as you can. This takes us to the third level, which are differentiating activities. And these are the ones that set you apart from the competition. These are the most important ones. These are the ones you have to get right. Because if you get it wrong, you're not going to have your customers. Now in Invisible Solutions, I talk extensively about the concept of identifying your differentiator and I'm not going to go into that here. But the key is to recognize that your differentiator has to really set you apart. It has to be something which is distinctive, it has to be durable and that will stand the test of time. And it also has to be something that is desirable, that people are willing to pay for. And there's other aspects to it. In the book I talk about 5D's distinctive, durable, disruption proof, which means that you're not going to be subject to disruption. I talk extensively about that in the book desirable, which means people are willing to pay for it, and disseminated, which means that it is actually shared internally and externally. Because if your differentiator is your best kept secret, well, it's not going to really make that much of a difference. So your goal here, your operating strategy is to innovate. Your goal is to create the greatest distinctive service that you possibly can. The greatest product, the greatest relationship, whatever it might be, whatever reason people do business with you today and will continue to do business with you tomorrow. You want to get these right. Now there are a few important points I just want to make around this whole concept of differentiation and the innovation targeting matrix. The first one is innovation is a sexy word. It's something which everybody's talking about. We need to innovate. We need to innovate. But here's the thing is if your core is not working, if you have a problem with just the main part of your business, for example, if you are a company that manufactures a really cool, distinctive product, yet you can't deliver it on time, or there are high manufacturing error rates, well, having a great product that everybody's going to be returning or it's not going to get to your customers in time is not going to work. So if you have a limited amount of money, make sure that your core is working first. Put your energy there because that's really important to make sure that it is efficient, it has low error rates, it has high service levels, then you can start worrying about your differentiator. The other thing about this model which is really useful is to recognize that it doesn't need to be done just at an enterprise level, but within each part of your business. So even something which is perceived as support, for example, hr, or let's go even deeper within HR training, we can use this model within training. So for example, when I was working for a big consulting firm, one of the things that was done was to reevaluate the corporate training curriculum. And this model was actually used to help prioritize the strategy used for each of the courses. So they first determined which classes were going to provide the necessary skills, the things that are going to really help them beat the competition. They're differentiators. And for those, they created in house custom courses that were developed with the help of leading universities and thought leaders. But it was basically theirs and they owned it. It was their intellectual property. The key was to take what they knew best, their methodologies and their strategies and their approaches and make sure that those were delivered to people and get them right, but get them in a way that no one else had it. Then there were going to be courses that were a little more on the core side, core consulting skills. Well, they partnered with world class training organizations to provide tailored versions of these. But if you're talking about sales, sales might not be their differentiator, but they need to do sales well. So let's work with a sales organization that has great sales training and let's get that right. And then there were some other skills which might be very, very tactical, like how can you use an Excel spreadsheet? Well, those you just buy something off the shelf. It wasn't that important to make large investments. So you can see how within even a department we can use this model. Within a job we can use this model. One of the things which I always find fascinating is If I look at a sales organization and we look at the work that salespeople do, well, the differentiating work, the important work, the thing that creates value is selling. But getting on a plane, that's probably not going to be critical. Timekeeping, time reporting, making sure that you know your travel expenses, those aren't going to be differentiating. So you don't necessarily want to have the world's best time tracking and expense reporting software in your company. Buy it from someone else, don't develop it. But that's what companies do, is we get so enamored with having the best at everything. And if you try to be the best at everything, you'll be the best at nothing. And the other thing which I'll close with is that what is differentiating today may become core tomorrow. We will expect more and more and more as time goes on. So for example, Amazon with Prime, we have two day free delivery. Well, yeah, that's a differentiator, but it's now becoming expected by everyone. So if you said yes, we can deliver in two days, well, that's not really a differentiator anymore. That's core, that's expected. Everybody's going to be upping their game. And what was a differentiator in the past might become core in the future. And the key thing with that is to recognize that if what you choose as your differentiator becomes core quickly, then that it's easy for someone else to replicate. That's not necessarily a differentiator. What you want to make sure is you want to make sure that whatever your differentiator is can stand the test of time to at least some level of duration. Because if you're constantly on a treadmill trying to differentiate and differentiate and what you create as a differentiator becomes core and everybody else replicates it, well, that's not very powerful. We need to be thinking about our differentiators, how we leverage them and how we use this to determine our investments. So when it comes to problem solving, when it comes to innovation, when it comes to identifying which opportunities to invest in this innovation, targeting matrix is a great way to think about it. Anything that is support cost containment is your primary strategy. You just want to do it as cheaply and efficiently as possible. So you want to outsource, eliminate it, or at least minimize it. Anything that is core in nature, well, you have to deliver it well. So it is high quality, yet efficient. You have to get it right. But you don't want to be investing a lot of money to get it right. You don't have to be the world's best, just be really good at it. And then again, innovate where you differentiate. So hopefully these three levels, although very, very simple, will help you start to think about your innovation portfolio, get you to think about how you're making your investments. And when it comes to problem solving, hopefully it will help you determine which problems are more important to solve than others. Not all problems are equally important, although I did say at the beginning all problems are equal, but some are more equal than others. And let's make sure we're putting our energies in the areas of the business that will have the greatest impact. And with that, we come to the end of this episode of Invisible Solutions. It's been great being with you here. If you have a problem you would like me to solve on the podcast, Please go to invisiblesolutionspodcast.com invisiblesolutionspodcast.com there's an opportunity for you to submit a problem you would like me to solve real time on this podcast. And if you want to get the lenses from the book Invisible solutions, go to getthelenses.com get the lenses.com it is free and I look forward to being with you next week. Until then, happy problem solving.