Thursday, June 22, 2017

Lessons from a troubled Unicorn

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Once upon a time, not long ago, there was a company called Enron.

In 2001, Fortune magazine ranked Enron at No. 7 with revenues of over $100 billion, profits of nearly a billion, and a market value of nearly $50 billion.

The “icing on the cake” for Enron was Fortune naming it (Enron) “America’s most innovative company” 6 years in a row.

Enron went on to innovate and grow. In 2017, it became the No.1 company in the world with revenues of over half a trillion and a market cap to match. Employing over 100,000 people, Enron represented the best in American entrepreneurship and innovation.

Well, you know that the last paragraph didn’t happen.

Fortune had to “red circle” Enron in its 500 lists. The company collapsed spectacularly after it was discovered that key top executives and Arthur Anderson (company’s auditors) had “managed” to keep huge debts off the balance sheets resulting in “fake earnings” of $1.7 billion.

Shareholders lost some $74 billion, thousands of employees lost their retirement accounts, and many lost their jobs. CEO Jeff Skilling and former CEO Ken Lay went to prison. Lay died before serving time. Skilling got 24 years in prison. Arthur Anderson was found guilty of fudging Enron’s accounts and was fined $7 million.
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How did the malfeasance become known?

Sherron Watkins thought something was fishy about the stock prices and turned whistleblower.

Fast forward to 2017.

Who could have predicted a few months back that the “poster boy” for Silicon Valley’s entrepreneurial spirit, Travis Kalanick, Co-founder and CEO of Uber would be stepping down?

The company has had a meteoric rise and earlier this month had a presumptive value of over $70 billion.

Please read the transcripts or watch the videos of Kalanick’s speeches at conferences, his inspirational addresses to students across the world, his numerous and unabashedly arrogant interviews. You would probably think that the next great leader has arrived.

Then hear Adam Lashinsky’s fascinating audio book on Kalanick (Wild Ride: Inside Uber’s Quest for World Domination; Penguin Audio; 2017).

I won’t spoil the fascinating (and often disturbing) account by revealing anything.

However, it is worth noting a few important lessons from the rise and (at least temporary) fall of Travis Kalanick:

Leadership matters – leading by example matters even more. Using expletives every other sentence may be “cool” but I would respectfully submit that behind the fa├žade is a probable realization that something could be terribly wrong.

Organizational culture matters – a toxic culture that is impervious to real problems and real issues is an almost guaranteed path to failure.

Rapid and constructive responses to crises matter – the more you try to push issues under the carpet, the more cancerous they become.

In the era of social media and instant “breaking news” negative publicity is probably a hundred times as potent as positive publicity. The ability of the latter to generate goodwill is incremental. The ability of the former to destroy a brand is a near certainty – quick and brutal.

A parallel to Enron is Susan Fowler whose blog on discrimination and sexual harassment triggered the present crisis, the appointment of a former Attorney General to investigate matters, and the forced resignation of Kalanick.

Which begs the question – have we lost the capacity to learn from history? More on this in a subsequent post.

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Friday, May 26, 2017

Transportation 2030

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Last week, Ford abruptly changed its CEO. Moody’s reported that the move reflects potentially negative developments inside the automaker. The credit-rating agency declared that the ascension of Jim Hackett is credit-negative for Ford.

Meanwhile, Tesla has overtaken both GM and Ford as the most valuable automaker in the US.

Let us try to place this in perspective. Last year (2016) GM sold 10 million cars and earned a profit of $9 billion.

Tesla sold 76,000 cars and suffered a loss of $776 million.

Investors seem to view Tesla more favorably than either GM or Ford.

Beyond the sensational headlines, it is worth noting that if we consider enterprise value instead of market capitalization, we get a different picture:

Tesla’s enterprise value (debt + equity – cash) is about $66 billion.

Ford’s enterprise value is about $238 billion.

GM’s enterprise value is about $216 billion.

One way to understand Tesla’s valuation is to realize that equity constitutes 74% of assets, while the corresponding figures for Ford and GM are 18% and 22% respectively.

A different, perhaps disturbing way of understanding the valuations is to look at the future of transportation.

Enter Tony Seba, Stanford University economist, and futurologist.

According to Seba, clean disruption projections, based on technology cost curves, business model innovation, and product innovation) show that by 2030 (that is right, just thirteen years away):

Solar or the wind will be the sources of all new energy.

All new mass-market vehicles will be electric.

All these vehicles will be autonomous (self-driving) or semi-autonomous (minimal human intervention).

The car market will shrink by 80%.

Gasolene will be obsolete. Natural gas and coal will be obsolete.

The concept of individual car ownership will be obsolete.

The taxi industry will be obsolete.

The car insurance industry will undergo massive disruption, with rates falling as much as 90%.

This scenario (that will make Tesla very happy and cause anxiety to others) rests on a fairly simple premise: electric vehicles (EVs) will be ten times cheaper to run than fossil fuel-based cars, with a near-zero marginal cost of fuel and an expected lifespan of 1 million miles (1.6 million kilometers).

Mr. Seba adds for good measure: “We are on the cusp of one of the fastest, deepest, and most consequential disruptions of transportation in history. Internal combustion engines will enter a vicious cycle of increasing costs.”
The next generation of vehicles will be "computers on wheels." Tesla, Google, Apple, and Foxconn have the disruptive edge and are going for the kill. Silicon Valley is where the future of transportation will take shape. Not in Detroit or Wolfsburg or Toyota City

The “tipping point” will likely occur in the next two to three years. EV battery ranges surpass 200 miles, and electric car prices in the US will drop to $30,000 with low-end models available at $20,000. The ensuing avalanche will sweep all before it.

What the cost curve says is that by 2025 all new vehicles will be electric. All new buses, all new cars, all new tractors, all new vans, anything that moves on wheels will be electric, globally.”

“Global oil demand will peak at 100 million barrels per day by 2020, dropping to 70 million by 2030. The long-term price of crude oil will be $25 per barrel, with fossil-based fuels in use only in certain chemical industries and aviation. Certain high-cost countries, companies, and fields will see their oil production entirely wiped out. Leading companies in the oil sector today will see 50% of their assets being useless.”

You may not agree with the dire predictions.

Other experts disagree not on the core message but on the timeline.

The trends are clear if one is willing to take the blinkers off.

China, the most populous country in the world, is aggressively pushing “new energy” vehicles, a euphemism for electric and hybrid vehicles.

Wang Chuanfu, the head of Chinese electric car maker BYD, backed by Warren Buffet’s Berkshire Hathaway, says “The Trend is irreversible.”

India, the second most populous country in the world, plans to phase out all petrol and diesel cars by 2032. The approach is a mix of subsidies for electric vehicles and car pooling, and a cap on fossil-based cars.

Global shipping rules are clamping down on dirty high-sulphur oil used in shipping, a move that may lead to the industry switching to liquefied natural gas.

Even the leading OPEC countries seem to believe the inevitability of it all. Why else would one of the largest state-funded oil companies in the world sell-off chunks of its equity to fund diversification away from oil?

At the heart of this unprecedented disruption is elegant simplicity.

The Tesla S has 18 moving parts, compared with nearly 2,000 for a traditional car.

Maintenance is nearly zero. No wonder Tesla is offering infinite-mile warranties.

EVs are four times more efficient than petrol or diesel cars, which lose 80 percent of their power in heat.

“What changes the equation is the advent of EV models with the acceleration and performance of a Ferrari costing ten times less to buy, and at least ten times less to run.”

The effect will not be confined to cars. Trucks will switch in tandem. Over 70 percent of US haulage routes are already within battery range, and batteries are getting better each year.

The Telegraph of London quotes Mark Carney, the Governor of the Bank of England and Chairman of Basel’s Financial Stability Board:

Fossil energy companies are booking assets that can never be burnt under the Paris agreement. The energy revolution is moving so fast that it may precipitate a global financial crisis. It took a small shift in demand for coal to bankrupt three of the four largest coal-mining companies in short order. There will be losers. Whole countries will spin into crisis. The global geopolitical order will be reshaped almost overnight.”

It is worth remembering that the Stone Age did not end because we ran out of stones. It ended because a disruptive technology ushered in the Bronze Age.

In the last two decades, we have seen the complete disruption of entire industries – mainframe computing, publishing, landline telephony, and information access.

The forthcoming disruption will be quick and brutal.
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Monday, May 22, 2017

Capitalism's Dilemma

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Addressing shareholders recently, Warren Buffet defended 3G Capital’s method of cutting costs and shoring up short-term profits. The comments came in the aftermath of 3G’s $143 billion failed bid for Unilever.

It is worth examining the two models of capitalism that 3G and Unilever represent.

3G’s last success was with Kraft Heinz. Kraft Heinz today is notable for its clock-like efficiency. The company has closed many of its plants, sold off non-productive assets and has waged war on costs. Fortune magazine has reported that the company has been able to shrink overhead costs from 18% to 11% in two years.

As noted by Professor Julian Birkinshaw of London Business School, the executives at Kraft Heinz (mostly planted by 3G) have transplanted the performance culture of an investment bank to the world of fast-moving consumer goods. The culture transformation is nothing short of breathtaking. If you perform well, rewards and bonuses await you. If you are sloppy, you lose your job. Period. There is no scope for emotions or empathy. 3G’s overarching mission is the maximization of shareholder wealth. Although not explicitly stated, but evident from its actions, other stakeholders simply do not matter.

It is possible to argue that 3G’s approach is perfectly consistent with the core principles of capitalism. After all, “Capitalism demands the best of every man – his rationality – and rewards him accordingly. It leaves every man to choose the work he likes, to specialize in it, to trade his product for the products of others, and to go as far on the road of achievement as his ability and ambition will carry him.” (Ayn Rand: Capitalism: The Unknown Ideal, PP20).
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Unilever is at the other end of the spectrum. Unilever’s mission is to “make sustainable living commonplace.” Paul Polman is at the forefront of “pro-social” goals and wants to double Unilever’s revenues while reducing its environmental footprint and increasing social impact. Unilever extolls performance but in a much more nuanced way. Integrity and impact mean a lot more than hard numbers. Unilever’s executives may not earn as much as their counterparts at Kraft Heinz, but they do have a more relaxed work setting, devoid of relentless pressure to deliver quarterly results.

We have these two companies, both in the consumer goods space, trying hard to push their brand of capitalism. 3G capital controls Kraft Heinz and has become a force to reckon with notwithstanding the fact that some of its methods are open to debate. Unilever has become the poster-company for “conscious capitalism.” When you think of corporate social responsibility, you cannot but think of Unilever. The notion that corporations exist to serve all stakeholders and not just shareholders is equally debatable.

Jorge Paulo Lemann (3G) is not accustomed to failure. His strategy is simple – slash costs and merge. 3G’s ruthlessness emanates from the fact that thousands of workers have lost their jobs in the target companies. That does not seem to deter either Lemann or 3G. After all, investors are happy (at least in the short term) and should owners (shareholders) worry if people lose jobs in the process of wealth creation? This is one end of capitalism where inequalities will increase, jobs will be disrupted, and people who do not or cannot acquire new skills just won’t survive. The whole idea may make you squirm, but you cannot wish it away. After all, 3G represents what textbooks advocate and very few firms can pull off – managers who act like owners (and are rewarded accordingly). It is worth noting that Kraft Heinz’s sales have fallen in four of the six quarters since the two companies combined, placing a big question mark on whether cutting costs relentlessly is compatible with growth.

 Paul Polman of Unilever is one of the most ardent exemplars of responsible capitalism. In his worldview, products that meet the highest standards of social and environmental sustainability perform better than products that don’t. Polman’s assertion appears to hold in the long-term but not in the short term, as the graphs above and below show.
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At the heart of capitalism’s dilemma is the ultimate goal of the corporation. Agency theory suggests that managers are “agents” and hence “maximizing shareholder value” is the primary responsibility of managers.

Professors Joseph Bower and Lynn Paine of Harvard Business School point out in their illuminating article “The Error at the Heart of Corporate Leadership” (HBR May-June 2017) how flawed the agency theory is. “The idea that shareholders are owners of the corporation is at best confusing and at worst incorrect.”

Come to think of it; shareholders have absolutely no incentives to think like owners. Therefore, the agency theory produces a moral hazard. Shareholders are not worried about the morality of decisions nor do they have a clearly defined responsibility as to the consequences. It is unrealistic to assume that all shareholders have a common purpose or an overarching vision. Managers feel constrained in their ability to perform due to the constant pressure from over-zealous shareholders.

What is the way out? Which “brand” of capitalism do you espouse? Why?

Thursday, May 11, 2017

Design Thinking For A Better Life

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Design Thinking is a problem-solving approach that uses a combination of empathy, creativity, and analysis to tackle unique problems. At a macro level, the approach can be used by governments and organizations. An emerging economy launching a hundred smart cities project or an organization looking for the next big business idea can both use design thinking.

Design Thinking can be applied equally well at a personal level.

Bill Burnett is an adjunct professor at Stanford and leads the Design Thinking program. In a distinguished career spanning decades, Bill has used the principles to generate dramatic new designs in a variety of domains. In the last decade, he has also pioneered the “Design Your Life” course at Stanford. The course, among the most popular at Stanford, is now offered at the freshman, graduate, and doctoral levels. Bill is the co-author (with Dave Evans) of the book “Designing Your Life: How to Build a Well-lived, Joyful Life.” (Knopf, 2016).

Most of us have faced the question “What do you want to be when you grow up?” multiple times over our lives.

Bill Burnett argues that this is a wrong question to ask.

Suppose we reframe the question:

What can I do to keep exploring throughout life?”

In other words, how to we nurture the curiosity of a five-year-old over a lifetime?

Psychologists and behavioral scientists (and employers) try to find out what our passion is.

Bill and Dave propose this is the wrong approach. It appears that only 20% of any population can identify a single passion. For the overwhelming majority (80%), there simply is no single passion. Most of us are passionate about many different things, and these may vary from the time of day to particular days of the week all the way to different stages of life.

The challenge is to apply the principles of Design Thinking to the “wicked problem” of life – be it managing one’s career, pursuing one’s heart, or realize one’s true potential.

A “wicked problem” is a large, ambiguous problem that is poorly defined, and even more poorly bounded. You will agree that life fits this definition.

First, the principles of Design Thinking:

1.    Empathize: Design Thinking places people and their needs at the center. What does the end user want? What is the “job to be done”? This step requires observation, engagement, and conversation. Most market research studies fail this first step. It should not come as a surprise that most products and services fail.

2.    Define: Once we identify the real “job to be done” from the perspective of the end user, we need to define the “problem” or “challenge” in a meaningful way. Defining the problem right is half the solution.

3.    Ideate: Use your creative mind to generate as many “solutions” as possible. Never mind whether the solutions make sense. Don’t try to figure out the “right” answer. Just allow your mind to come up with solutions that do not exist at present. Brainswarming (not brainstorming), mind mapping, and doodling are some of the useful tools for this stage.

4.    Prototype: Design Thinking is all about “learning by doing.” Convert as many solutions as you can into working prototypes. The essence of this step is speed. Don’t aim for the perfect solution. Look for a tangible solution that the end user is likely to be pleased with. Remember: it is better to fail and cheaply at this stage than to fail spectacularly later.

5.    Test: Go into the real world and test your solution/s. Don’t expect the smell of sweet success. Expect end users to trash your solution. Learn from their feedback. Iteration is at the heart of Design Thinking. Don’t ever think that your first solution is indeed the best. More often than not, your first solution is likely to be your worst – from the end user’s perspective.

Applying Design Thinking to Your Life

Use the core principles of Design Thinking. Find out what is working and what is not. Experiment. Dare to challenge the status quo. Applying Design Thinking to life involves “improvisation” and “wayfinding.”

1.    Maintain a “Good Time” Journal.

Assumption one: We find something missing in life. How do we improve this situation?

Start with a “Good Time” Journal. Keep a record (hour to hour) of all of your daily activities for a week.

Check the activities that you find most fulfilling.

When are you completely immersed in what you do? Why?

Which activities make you happy? Which ones make you unhappy?

Which activities help you to be calm and poised? Which ones create anxiety, fear, and anger?

When do you feel that life is a smooth flow? When do you find it turbulent?

What are you doing when you are most alive, present, and animated?

This is the critical step. The more insights you gather in this step, the better off you will be. Use the Design Thinking process to reinforce the activities that make you happy, and relegate or do away with activities that are not fulfilling. Iterate.

For the rest of your life.

2.    Track Your Energy.

You will find from the Journal that some activities energize you. And some activities just drain you. Maintain the Journal for a few weeks. You will have a clear idea of activities that energize you and activities that drain you. Merely knowing how each activity affects you propels you to do more of what energizes you and less of what drains you.

3.    Create Three Odyssey Plans.

Think of the next five years. Identify three paths or scenarios which you can pursue realistically.

The first scenario is a continuation of your current state. Status-quo.

The second scenario is what you would do if your current situation suddenly changes. What if you lose your job? What if you have a quarrel with your boss? What if there is a natural disaster in your area?

The third scenario is a hypothetical “wish list” of all that you might want to do over a life time. Sell off everything and walk or bike across the world? Become a chef? Go para-gliding or bungee-jumping? Go ahead. Create the most preposterous list that you can imagine. The point of the third scenario is to explore many different paths – most of which you might not have thought of consciously till now. Remember it is never too late to learn. Ten hours a day for three years can get you to the magical 10,000 hours to master anything.

4.    Define Your Problem.

Use the first three steps to generate a template.

What makes me happy and how can I do more of it?

What makes me unhappy and how can I do less of it?

What do I want to do next?

What skills do I need to move in a different direction?

Honestly, how much room do I have to maneuver?

Now that I have examined my situation, how can I make it better?

How do I create the next version of myself?

What do I need to change the most?

How do I reinvent myself?

5.    Ideate.

Please understand the difference between navigating and wayfinding.

You can navigate when you know exactly where you want to go.

Life does not afford the simplicity.

We know we want to go somewhere, but we are not sure exactly where.

Wayfinding is the answer.

Wayfinding is the method hunters use to identify their target.

Look for clues. Come up with alternatives. Brainswarm. Doodle. Draw mental maps. Once you have what you think will make you happy, start prototyping and testing your ideas.

6.    Prototype and Test.

When it comes to life, a prototype is a quick and inexpensive way to determine whether a certain idea will make you happy or not.

As an example, let us say you want to run a marathon in three years.

Ask a runner what it takes to do a marathon.

Start running short distances.

Increase the distance gradually.

Do you feel energized?

If yes, continue.

Taken to its logical conclusion, one day you might indeed run a marathon.

Or at some point, you may realize that running itself is more beneficial than running a marathon.

You may find that running two miles every day makes you healthier and more full of energy.

Make these course corrections and iterations again and again.

Do you want to learn a language? There are many portals that allow you to learn languages for free. Try one for a week. Feel excited? Continue. Feel drained? Think of another language, or music, or an MOOC. Experiment.

Don’t be afraid of failing.

Failures are the stepping stones to success.

What are you waiting for?

Use Design Thinking to create a new future – and a new YOU.
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Thursday, April 27, 2017

The CX Challenge

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80% of CEOs surveyed recently claimed that their organizations delivered an exceptional customer experience.

8% of customers of the said organizations agreed.

This chasm between what service providers think and what their customers think has a new name – the experience gap.

Mature customer experience programs have five principal objectives:

1.    Improve customer retention and loyalty.

2.    Increase customer share of wallet and lifetime value.

3.    Optimize customer acquisition.

4.    Reduce cost to serve.

5.    Improve brand awareness and equity.



Why do customers desert and defect?

How many organizations can you think of that have high retention rates rooted in great customer experiences?

The fact remains that no matter what, some customers will defect. Any organization that claims to have zero or near-zero defections is living in a delusionary world.

The best organizations are happy to have single-digit defection rates.
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According to the TEMKIN Group:

Apostles have 6 – 12x more customer lifetime value than defectors, hostages, and mercenaries.

A Bain and Company study shows that 86% of customers are willing to pay more for a better customer experience.

What is holding back organizations from providing the “better customer experience”?

It appears that the tools we use to measure customer satisfaction are flawed.

Consider a typical Likert Scale of 1 – 5 where one is “very dissatisfied” and 5 is “very satisfied.”

Most organizations would consider a score of 4 to be good and acceptable.

And they would be wrong.

A Forrester Study shows that customers who rate their experience at 5 are 6x times more likely to recommend the product or service to others compared to those who rate their experience at 4.

Further, customers who rate their experience at 5 are 4.5x times more willing to pay a higher price than customers who rate their experience at 4.

The problem is that customer satisfaction surveys are lagging indicators. The more the interval between the experience and the feedback, the more distorted is the result.

What is the solution?

Instant feedback. Even-numbered scales that force customers to take a position and avoid ambivalence (neither satisfied nor dissatisfied).

One change that I see in the great organizations is the speed with which they gather feedback. For example, all the Ivy League institutions implore you to provide feedback the moment a Webinar is over. And consciously work to avoid the pitfalls that you may point out.

To quote the Wallet Allocation Rule:

“Customers may be satisfied with your brand and happily recommend it to others – but if they like your competitors just as much (or more), you are losing sales.”

In fact, recent studies show that Customer Effort Score (CES) is a better predictor of the propensity to repurchase as well as increased spending than either Net Promoter Score (NPS) or Customer Satisfaction Score (CSAT).

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Swiss Re, a leading global reinsurer made the painful decision to jettison unprofitable segments (it is still true that 80% of revenues emanate from 20% of customers), measured the cost of customer acquisition (both visible and invisible costs), captured instant feedback, adjusted strategic initiatives and improved its market share by 3% in just six months in a highly competitive market.


In hyper-competitive industries and markets, the difference between the winners and the also-rans is often the cost to serve. Creative organizations incentivize performance that matters (customer loyalty and higher spend) and are quite ruthless in punishing underperformers. It is vital to track costs in real time. Since accounting tends to be historical in nature, organizations may find themselves out of their depths by the time they realize something is amiss. The key drivers of marketing efficiency and the corresponding costs are best measured synchronously so as to derive the best ROI on every dollar spent.

Cross-industry research by the Temkin Group shows that happy customers are:

5x times as likely to repurchase.

6x times as likely to forgive.

8x times as likely to try the organization’s other offerings.

3x times as likely to spread positive WOM.


Customer experience programs seek to change brand detractors to promoters and promoters to evangelists or apostles. Mature CX companies combine analytics and comparative assessments to understand customer behavior and brand performance in the context of competing options (Source: QUALTRICS).

Customer centricity is not a project.

Customer focus is not a program.

Placing the customer at the focal point at every level in the organization is critical to success. In the words of Chris Fisher of Allianz, “True customer-centricity is a culture and a way of doing business that will help us grow and be successful for decades.”

According to Forrester Research:

84% of firms aspire to be a CX leader.

Only 1 in 5 ultimately succeed.

Where are you on this journey?

For an extensive discussion of CX Maturity Levels, please read the White Paper by QUALTRICS.

Friday, April 14, 2017

Jobs to be Done

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For five decades, marketing has focused on the principles of segmentation, marketing, and positioning (STP).

Segmentation of consumer products is generally along demographic, psychographic, and behavioral dimensions. B2B segmentation includes firmographics.

Of the more than 20,000 new products evaluated in Nielsen’s 2012 – 2016 Breakthrough Innovation Report, only 92 (0.46%) had sales of more than $50 million in year one and sustained sales in year two (Source: HBR).

What is wrong with STP as we know it?

Practically all the data (including big data) on customers focus on correlations such as 70% of customers prefer product A to product B. Correlations do not necessarily show causality. Managers find it comfortable to use correlations because it is very difficult to understand causal mechanisms.

Understanding causal mechanisms (what causes us to do something?) is possible if we use Professor Clayton Christensen’sJobs to be done” construct.
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A fast food chain introduces a milkshake. The milkshake has customers only in the morning. No one understands the reason. A team of researchers is called in to investigate the anomaly.

After painstaking observation and interviews with everyone who buys a milkshake, the following become apparent:

1.   Commuters driving to work buy the milkshakes typically between 0630 and 0700 hours.

2.   The commuters have a 30 – 40-minute drive ahead of them.

3.   They want something to eat or drink throughout their commute.

4.   They have tried everything possible – fruits, doughnuts, chocolates, protein bars, yogurt, and sandwiches.

5.   All the alternatives fail because (a) they don’t last 30 minutes and (b) they are messy to handle while you are driving.

6.   The milkshake is preferred because it lasts 30 minutes, gives the person a filled feeling, and is easy to use.

In other words, customers buy the milkshake not based on any demographic or psychographic characteristics. Rather, they have a “job” – having something to drink for 30 minutes and they “hire” the milkshake to do the “job.”

The same milkshake does not sell at other times because the “job” is different. For example, parents collecting their children from school in the afternoon and stopping by for a quick snack don’t want a thick milkshake – instead, they want a drink that a child can finish quickly. Make the milkshake thinner, add an exotic flavor and you have another solution to anotherjob.”

A similar approach is visible in the spectacular success of American Girl dolls.

Why would anyone pay over a hundred dollars for a doll? And why would anyone pay hundreds more for the doll’s apparel and accessories?

American Girl has sold 29 million dolls and has revenues of over $500 million a year. The firm has remained the undisputed leader in its category for 30 years. Competitors including Walmart and Disney have tried to replicate but without success.

What is the secret of American Girl?

It turns out that American Girl does not sell dolls. The firm provides an unforgettable experience. Each doll has a history and a story to tell. The doll is an instrument for communicating values, customs, and traditions from one generation to another. Every little detail, from the custom made clothing to the packing, is meant to provide an uplifting experience. American Girl stores have “hospitals” that can fix tangled hair or fix broken parts.

Marketers should ask and answer some critical questions:

1.  What “jobs” do customers wish to be done and how can we help them address their problems?

2.  What obstacles or inconveniences might customers face and how can we remove them?

3.  What are the functional, social, and emotional dimensions of the job?

4.  How can we integrate the dimensions into an experience that customers will cherish and come back to us?
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Organizations have two choices:

1.   They can rely on data-rich models and continue with the hit-or-miss innovation and marketing.

2.   They can look through the “joblens and figure out how they can innovate specifically to get the “job” done better than the competition.

One choice relies on luck.

The other starts and ends with the customer, leaving luck to the competition.

Take your pick.

For more on the concept, please read:

Christensen, Clayton M, Taddy Hall, Karon Dillon, and David Duncan: Competing Against Luck: The Story of Innovation and Customer Choice; Harper Business; Harper Collins; 2016.