I do not think that anybody can question or doubt the realities that most creative businesses face. The business environment for creative organizations is changing rapidly and presenting unique challenges to those charged with leading successfully. Specifically, our firms face issues of technology use and integration, team organization, process development, leadership and leadership transition, intense competitive realities (and increasingly global), and the commoditization and devaluing of our work. Many of these specific challenges have been discussed on Schneiderism already. I speak the obvious when I say that determination of success in the future is dependent not on navigating one or two of these challenges successfully, but all of them.

I had the opportunity to recently attend a presentation by Adrian Slywotzky, the author of “The Upside: The 7 Strategies for Turning Big Threats into Growth Breakthroughs“, at an event for YPO. It was especially good, and prescient regarding the challenges that many organizations face, but it seemed especially relevant to creative businesses (design, marketing, advertising, architecture). At a high level everything comes down to innovation, being innovative, and how you innovate. Easy to say, hard to do. But beyond those relative truisms, there was one all encompassing concept that I loved hearing about:

STRATEGIC RISK MANAGEMENT

The presentation began with the concept of business model design and that business models that remain static are destined for failure. The environments in which we all operate are changing and evolving in ways that were not possible 10, 15 and 20 years ago. This demands reinvestigation, in an ongoing manner, of a company’s business model and introduces the opportunity for business design innovation. Most industries have seen dramatic change, and those of us who anticipate change and evolve our companies as our markets change will be around to talk about. Adrian Slywotzky not only aligns with this thinking, he takes it much, much further.

“Our greatest growth opportunities are our greatest risks - reversed.”

Adrian Slywotzky

The strategic risk management piece is important in several ways. Obviously, this is hugely informative as we investigate the threats and opportunities of a given business model, and the proper identification and understanding of strategic risk is what ultimately determines a course of action. Elements of this is knowing the reality of where your center of gravity resides with respect to your customers and clients. To ensure prolonged success, that center of gravity needs to reside at the heart of your company, at the core of what you do and the value you create. Inevitably, though, it resides with the customers who have a range of relatively equal options from which to choose. The challenge is in retaking that center of gravity and subsequently reversing or inverting the value chain. A traditional value chain begins with assets and ends with a customer, inverting it creates a business model around the customer that results in assets. Think about that for a second and get back to me.

Getting into more detail about strategic risk management… it is the perpetual survey of your landscape for those things which will make you irrelevant, those things which can damage your business design. Things like:

• Misreading your customers
• Damaged reputation
• Commoditization of your product or service
• Technology
• Ownership/leadership transitions
• Global politics
• Currency fluctuations
• Supplier changes
• Factor of costs
• Talent deficits
• Changing customer demographics

Now, that list is by no means comprehensive and is pretty high level. So, stop for a second and reflect on your own business. What would your list look like? Can any of these strategic risks be turned into opportunities? To be successful, the answer needs to be a committed “Yes.” We live in an age of volatility and our lives, our businesses, are subjected to a diverse and evolving range of generators and catalysts of this volatility. What we do about this is also evolve our businesses in advance of these risks and in answer to the volatility. When these risks are unmanaged they will affect even the very best teams and the very best business models. No one is immune, and we are seeing this play out seemingly everywhere. There are innumerable case studies of companies not managing this risk:

• Contrast the S&P High-to-Low Quality ratio of A-ranked stocks to C-ranked stocks over the last 25 years. The A-ranked stocks have decreased from 31% to 14% of total value while C-ranked stocks have increased from 12% to 30%
• Why has Procter & Gamble taken 5 years to recover from the 2000 market value drop? Why did they suffer the drop in the first place?
• Other blue chips face the same fate… look at McDonald’s, Siemens, Merck and Deutsche Bank. Their performance lines are nearly identical.
• More specifically, why has Coca Cola lost market value while Pepsi has gained market value over the same time?
• Sony has lost while Samsung has won, Johnson & Johnson is winning while Merck is losing, and Maytag tanks while Whirlpool takes off. Each example, two companies in the same industry. One wins, the other is losing.

What is going on here? The winners sited properly assessed risk and realized that the time of maximum value is the time of maximum risk. This is really tough for most companies, but especially difficult for historically successful companies to address. Legacy thinking persists. This can be scary, and sometimes is not something anybody really wants to talk about or bring up in a meeting. Even worse, it just is not what management wants to hear… they can’t handle the truth. The reality is that strategic risk is the killer of business models. It is killing the US automotive industry, it is working its way through consumer electronics, and (getting back to the beginning) it is challenging creative enterprise.

Knowing this, and anticipating risk at this level begins to tell you how to protect and grow your business. For creative enterprise it entails a concerted effort to identify what the true value is in the work we do. Really, do our clients VALUE the work that we provide on their behalf? Do we create value at all? Who in our space is being successful and why? What are they doing differently and what is setting them apart from the rest of the firms around them? This starts with shrewd competitive analysis, but it cannot stop there. What are the technology risks that we face and what are the event horizons for these risks? Where are we allocating capital to activities that give us no differentiation? Ultimately, after answering all of these questions (and many, many more) what are the business designs that take advantage of the fact that all of our competitors face the same questions, challenges and realities?

How do we turn our problems into our competitor’s problems?

A summary of the risks we face, and that successfully navigated will inform your business model design:

• Technology shift
• Industry economic squeeze
• Brand investment mix (advertising, design, PR, training, information…)
• Project risk
• Customer shift
• Stagnation risk

An ongoing area of interest for me is how we can innovate in the guidance and leadership of a creative enterprise, and thus sustain successful operations. This is centered around the challenges facing most professional services in the creative arena, something that it would seem all are struggling with, at least at some level. The core of this is the commodification of creative work, whether that be advertising, architecture or graphic design. Many firms have allowed themselves to become factories, to become production houses. In some ways, this is the result of our own devaluing of our efforts. In others, it is born out of an entirely different decision-making process that has been progressively gaining ground with the clients for creative services… the prevalence of value assignment based on time worked and not on value created.

I came across an article that was very insightful in relation to these realities by Avi Dan in Advertising Age. It succinctly lays it all out. His article is leveled squarely at advertising agencies, and why so many are facing the music as their business model is yanked out from under them. As I read his article I could not help but see strong similarities to the realities we face in architecture, and those I experienced in other creative businesses. Avi outlines five key areas that agencies, and by extension most creative enterprise, need to investigate:

• COMPENSATION
  Should be tied to value creation and not based solely on labor. Clients and creative firms need to work out a fairer compensation scheme recognizing the value of intellectual capital.
• OUTSOURCING
  Smart creative organizations should evolve into creative portals, outsourcing external creative talent in areas such as production, as well as in logistical operations.
• REVENUE STREAMS
  Firms need to explore ways to monetize new areas of involvement such as licensing, e-commerce applications and even the work itself.
• SPEED
  Creative enterprise must recognize that in a web-based world that moves at warp speed, speed itself is a strategic asset and those that can help their clients with speed-to-market executions will have an advantage.
• SOCIAL RESPONSIBILITY
  The firm model should recognize that social responsibility is at the core of the modern firm, hand in hand with its financial accountability to shareholders, and is essential for recruiting top talent.

Of special note are the ideas around outsourcing and revenue streams. There is a controlling mindset in most creative firms that they must own all waypoints in the project process. I cannot help but ask “why?” Outsourcing is a tremendous opportunity to not only diversify your talent, but to allow you to focus on what you are truly good at… and seek support from partners who are better at the other project roles than your team may be. Additionally, seeking complimentary and supplemental revenue streams is enormous. As creative businesses we are perpetually innovating with respect to our client’s businesses. Why is it that we cannot bring this same approach, this innovation, to benefit our own businesses? Over the course of a year there will be any number of revenue opportunities available to a firm that are outside of their traditional business model, but because of that model these ideas will make it scarcely farther than the whiteboard.

All of this to say, many companies face an environment of intense change and competition. Those that get it are focused on changing with the environment in which they operate. Some are changing fast, with a cultural premium on innovation and knowledge in the value created by their own people. Those that do not are not going to last. I feel it is that simple.

A colleague of mine has launched his blog at knowlesystem. His focus is honed and specific to the forces changing and shaping the world of architecture and design. Cool stuff. We have had an infinite number of incredible discussions and brainstorms on this topic, and this was suggested as a way to begin capturing this content, and involve others in the conversation. I highly suggest subscribing as there will be a proliferation of compelling content coming forthwith.

Congrats on the site, Stephen.

Another colleague introduced acmesiren a couple weeks ago, and I wanted to offer a more formal welcome and congrats to Nick as well. His blog is focused on finding and revealing what is new, cool and interesting in the world of experimental music. Also, very cool stuff. And a terrific resource.

Both blogs are featured in the schneiderism blogroll in the right column, which is naturally an incredibly high honor.

I was going through some old resources this evening and found this page of quotations related to design by Erik K. Antonsson, a professor at Caltech. Below are two of my favorites:

“If a major project is truly innovative, you cannot possibly know its exact cost and its exact schedule at the beginning. And if in fact you do know the exact cost and the exact schedule, chances are that the technology is obsolete.”
-Joseph G. Gavin, Jr., discussing the design of the lunar module that landed NASA astronauts on the moon.

“And let it be noted that there is no more delicate matter to take in hand, nor more dangerous to conduct, nor more doubtful in its success, than to set up as the leader in the introduction of changes. For he who innovates will have for his enemies all those who are well off under the existing order of things, and only lukewarm supporters in those who might be better off under the new.”
-Niccolò Machiavelli, “The Prince”

The first quote, by Joseph Gavin Jr., just nails it. It also covers well the ruts that teams fall into when they “think” they are being innovative, but really just operating on retread. The quote by Machiavelli kills me… I mean, how many times do we see this play out? I read The Prince back in high school. I think it is time to read that book again…

Machiavelli also said “Men ought either to be well treated or crushed… injury ought to be of such a kind that one does not fear revenge.” Right. Must remember to crush or injure people so badly so as to not fear retribution. Got it.

For so many industries, the competitive situation is perpetually morphing. There is more seemingly asymmetrical competition for the same customer, and that customer’s expectations are changing as they become more and better informed. Lately, I have been part of an ongoing discussion and effort to generate understanding on the way that the architecture industry has changed, and how to take advantage of this change. It seems strange to call a design enterprise like architecture an industry, but it is… and its history would seem to self-fulfill this type of description. Oddly, in some cases it seems that architecture functions more like manufacturing than like design, and that mindset is everywhere and unfortunately goes far in devaluing the work of architecture design. The opportunity for innovation in the process of architecture, in the ways we organize, problem solve and design for the built environment is huge, and only beginning to really be tapped.

There is no denying that the world of architecture has already begun to change rapidly, and on an international scale. It is actually humorous, and a little scary, to talk to architects who were practicing in the late 1980’s and ask them to contrast that to the present. I am sure this is not unique to architecture (reference my previous post on online publishing). In so many ways, this change is driven by a flattened competitive reality, one where small firms empowered by technology can leapfrog the decades of capabilities building invested by larger and more established firms. There are 5-10 person firms beating forty year old 100+ person firms for projects that in the past would require thirty person teams to complete, that only the large firms could have taken on. Small studio teams are able to accomplish incredible technical feats, and accomplish them quickly. This was rare if not impossible 10 years ago, and it is because technology had not caught up to the practice. Now, the obstacles to talented architects and designers starting their own firm are becoming more and more minor, and this is empowering as it allows them to eschew the politics and mind-numbing hierarchy of the legacy firms and get on with the creating and the making. They are fighting the commodification of architecture design by competing on the merits of their ideas, and the efficiencies with which they can deliver these ideas on behalf of their clients. Small is the new big, and all that phrase connotes.

These small studios are driven by innovation in their process, in the ways in which they leverage technology, and by the materials solutions they create in the name of both sustainability and cost effectiveness. At least, that is the hope. In some cases there is just a flooded competitive situation with an abundance of small firms and a shortage of work to support all of them, and the big ones too. There is something important here, though, and it warrants exploration by all in the field. There are opportunities for architecture firms to investigate the way in which they organize around their clients and their projects. Within this is the investigation into how process can change to meet new challenges and support innovation. The practice of architecture is damaged by every firm that looks at their work as production, and that fits the previously mentioned manufacturing analogy. There is a studio model, one that is cross-functional, multi-disciplinary, and with a flattened hierarchy that is gaining prominence and is being maximized by the successful smaller studio based firms. At the heart of this model is the drive to create value for the client, and to support design, and the reality that these are inextricably linked. That is a competitive differentiator.

What does all of this mean? It means that to stay in business a firm needs to deeply understand what it is to be competitive, what is the value to the client, and how to structure and organize itself around this. It means that the old methodologies need to be assessed, and potentially dispatched. It means that there is a powerful generation of empowered designers entering a capital intensive industry who are figuring out how to do things right, do them better, and are not afraid to take the risks to do so. Ultimately, it means that those controls that allowed so many firms to get where they are today may now be the obstacles to their success from this point forward, and that is a very difficult reality to acknowledge.

I found this cartoon over the weekend over at gapingvoid, Hugh McLeod’s notoriously compelling blog. He only posted the cartoon, but it made me stop and think. We live and work in a time when we are inundated with change. Our customer’s are changing, our processes are changing, markets are changing… we operate in a very fluid environment. This is driven by both technology and our insatiable appetite for information, but it is also driven by a competitive environment that is smarter and faster, and by customers who have intense expectations. Those individuals who stay on the curve of change, who inform themselves, and who adapt are ensuring their value as participants in the collaborative nature of business. Look around you at work, you will see these people. You will also see those who choose to be complacent, who avoid change or attempt to inhibit it. Ten years from now who is going to be relevant? Who is going to be creating value for your enterprise? We are at a crucial point where people who resist the speed of business are going to be left behind simply because they have become useless. Look at all of the industries that have found themselves in this situation and are either gone or a mere shell of their former organization… and on their way to obsolescence. Look at other companies in your industry and I bet you can identify which one’s are creating the change, which are following that change, and which one’s are clueless. Where would you want to work?

Last month I took my team on a three day innovation tour, the goal of which was to spend time with and survey a diversity of businesses that had overcome significant challenges. The commonality between them is that they achieved this by creating and supporting a culture of innovation, by thinking far beyond their typical model. The results in each case was that these unrelated companies had accomplished incredible change in relatively short periods of time, and these changes were game changing events within their respective industries. With all of the companies we were fortunate to spend generous time with senior leadership and really begin to understand what it took to ideate, support and execute such significant reinvention. We visited a total of six companies, but there are two that I want to focus on as their stories are especially compelling, and this is the first in a two part series. This was our messiest stop, and we had to go to Iowa to see it:

Robotic Brickworks
Bricks just aren’t that sexy anymore. They are still desirable as a building material and various designers have come up with some cool and innovative applications of the brick, but really… a brick is a brick. Historically, they were made at smallish family-run brickworks that were distributed around the country and served the brick laying needs of an immediate area or region. Like many other manufacturing industries, brickworks have been disappearing altogether or have been bought up and merged into larger industrial conglomerates. This has become an incredibly competitive business, and brickworks located in the southeast, northeast and midwest vie for the same customers all of the time. Typically, because a brick is in fact a brick, this comes down to a competition on price.

United Brick decided to get aggressive and dig into what it really means to be competitive in their industry. Business as usual in the brick business did not bode well for their future. They knew that they had to continue to manage costs effectively, but their approach needed to be innovative as compared to the labor management solutions of their competitors. The leadership of United Brick trekked to Europe and toured manufacturing operations looking for opportunities to innovate. They landed on one immediately. Robots. This is a significant opportunity, as serious contributors to the cost of manufacturing brick is labor and the rate of flaws in the manufacturing process (and how those two are linked…). Typically, a brickworks with a traditional human manufacturing line will have a failure rate between 10 and 20%. They believed that with a robotic production line they could shrink this failure/flaw rate to well under 10%, which would be a significant reduction, and reduce labor costs dramatically in the process. The second opportunity they found was by accident while visiting a factory facility in Spain looking at fuel alternatives for firing their gigantic kilns. Traditionally, the kilns had been fired by coal or natural gas… both very expensive and coal obviously being incredibly damaging to the environment. A factory manager at this facility in Spain mentioned in passing that they should explore petcoke as a fuel alternative. Petcoke is a waste product from the petroleum industry and it is typically dumped in landfills. This idea had serious promise.

The team returned from Europe and set about investigating the options they had uncovered. They partnered with a French robotics company, after intensely interviewing several from around the world, for designing both a fully robotic brick manufacturing facility and in creating the world’s first petcoke fired brick kiln. The United Brick facility in Iowa would be the test case for the technologies they created together. The French robotics company dispatched a team to Iowa to begin what would become an intense and valuable partnership. At the same time they began intense research into creating the world’s first petcoke fired kiln, and again partnered with the French robotics company to both fully automate the firing process AND provide this alternative, efficient, cost effective, and more environmentally friendly fuel alternative. The plant opened this last spring, and to great success. First, the plant is achieving its production goals with one shift, though the robots would not complain if they were asked to work more. Second, the failure rate for the bricks produced has dropped below 10%. Lastly, the prototype petcoke fired kiln is working incredibly well, and the cost savings here alone contributes significantly to United Brick’s competitive edge.

A former colleague, now working in publishing, and I have been trading emails on the future of print publishing and the implication of hesitating to actively engage an online publishing strategy.

That’s just how we roll.

Anyway, this dialog is motivated by conversations I have had recently with a couple people intimately ensconced in the traditional print world and who are struggling with how they might begin changing their model. They know that there are quality opportunities for them by engaging an online strategy, they are just profoundly unsure on where to start and what to do. Generally, I think it is safe to say that most people in print publishing accept that online communications are increasingly dominant over printed communications. This may scare them, but it is being increasingly accepted as the way things are going. There is an exponential effect at play here. For traditionally print based organizations, the transition from a print model to an online model is incredibly difficult, despite the potentially massive opportunity. The difficulty is largely from the perceived threat of online publishing within these organizations as those whose entire career has been based on print, despite most probably having a place in a company that also pursues an online strategy, will resist change, progress and the future. This can be said for so, so many industries. My colleague pointed out what we have all seen before, that when people feel threatened they do funny and irrational things… And this is the situation the two people I mentioned before are faced with. They know they need to change. They know that the future of their organization lies with a smart online strategy. They are prevented from the first steps of even investigating their options by the legacy notions of what print publishing is all about. They are being held back by the inability of their own people to grasp the importance, and the inevitability, of this future. Perhaps the internet is just a fad.

My friend also correctly states that if print publications are not smart enough to adapt on their own they will eventually be forced to adapt through the demands of their advertisers. We’re already seeing this as requests for online advertising opportunities begin to out pace an organization’s ability to deliver them. The big question is… Will these companies be irrelevant by the time they catch up with demand? Will they be beaten to their audiences by somebody faster and more nimble? It can be very difficult to teach an old dog new tricks, but audiences increasingly want to control when and how they access content. And all of this, sadly, doesn’t even touch on the opportunities related to social networks, user generated content, etc… This is especially threatening to an organization that has always maintained total control of its communications. The thought of giving power back to the people is enough to cause seizures among many a management group.

It is easy to see how legacy issues anchor publishing based organizations in a 1980’s mindset, it’s happening everywhere and old habits die very, very hard. The future is inevitable, though, and I surmise those publications that are at the vanguard of merging their online and offline editorial (think about BusinessWeek, Fast Company, Forbes etc.) in a COMPLIMENTARY way are the ones that are still going to be around in 15-20 years. Outside of the infrastructure limitations of print, there is the whole access to customer/audience quotient that newstands and subscriptions just cannot touch. Also, proportionally leveraging the web and interactive marketing opportunities potentially far surpasses the traditional arcane reliance on direct marketing for subscriptions.

In orgs that predate the advent of the internet I suppose one way of bending the corporate agenda is to be non-threatening. Approaching the re-purposing of content, the marketing via the web, and the creation of interactive channels that give customers the information they want, when and how they want it, is something that can be proffered as an “enhancement” of traditional business practices. Over time, though, the results will be a vastly changed situation.

At some time or another most companies struggle. They face challenges related to a changed competitive environment, or they face the daunting task of re-engineering business processes. We’ve all been there, we’ve all seen it. Years of success seem to culminate in seemingly insurmountable threats to the organizations very survival. These are decisive situations, and they require sound, considered leadership… but leadership not afraid to commit, to make decisions, and to act with an urgency that has at its core the future of the enterprise.

Such was the reality that Porsche found itself in a little less than 15 years ago. They were in serious trouble. Despite the storied history they had lost sight of their audience, of their relevance, and were watching worldwide sales numbers dip dangerously close to 10,000 vehicles (from a high of 53,000 in 1986). In 1992 an engineer named Wendelin Weideking was brought on at Porsche to head their materials and production group. He immediately traveled to Japan to survey the Japanese automotive industry, and what he saw both inspired and terrified him. He realized that Porsche could never survive with current processes and methodologies. He returned from Japan determined to pull the Porsche manufacturing mindset into modernity. He promised a 30% reduction in production costs and brought in a team of Japanese consultants from Toyota to dissect the Porsche process. He then cut the number of managers by 35% and fired 95% of the sales and marketing managers. He knew that change needed to start at the top, and that Porsche as a company needed to change its culture, its leadership and its vision. The traditional Porsche way was incorrect. That meant those who had managed Porsche into the present challenges had to get out of the way for new ways of thinking, of executing. I’ll let you read the full story through the link below, but suffice it to say that Porsche asked Weideking to take over as CEO in 1993 at the age of 39. He immediately went to work setting in motion a plan that not only turned Porsche around, but reclaimed their position as a high performance engineering company AND recast the company as the most profitable automotive manufacturer, per vehicle, in the world. A fascinating story.

original story via Cool Hunter