Business Strategy Meets the Lean Startup: Staying Aligned with Customers in Strategic Planning

A version of this post first appeared on Techbeacon.com.

What is business strategy? Michael Porter presented a succinct definition in his seminal 1996 article in the Harvard Business Review:

“The essence of strategy is choosing to perform activities differently than rivals do.”

Strategy is how a company wins against the competition. A well formulated strategy clearly communicates what it means for the company to win, states where the company should invest in solving problems for customers, and maps how they’ll solve these problems with solutions drawn from their competitive core.

Choosing to perform the right activities

The key words in Porter’s definition are “choosing” and “activities.” First and foremost, strategy is about choosing what to do and what not to do. In today’s world of compressed schedules and limited resources, making good choices can make the difference between owning the market and going out of business.

Second, vision without execution is just hallucination. Once the destination has been set, there must be a clear plan to take the company from here to there. There are many frameworks that help people marry vision with execution. My favorite is A.G. Lafley and Roger L. Martin’s Playing to Win framework, which is a great read for anyone interested in strategic planning.

“Hallucinating about the future”

Given the critical role strategy plays in helping a business succeed, how effective is strategic planning in an average technical organization?

As an engineering executive with copious experience contributing to business strategy development, I had to laugh when I saw what Wally had to say in a 2014 Dilbert comic strip:

“You basically hallucinate about the future, and then something different happens.”

All too often, a strategic planning exercise looks something like this:

  • Senior staff get together in a two-day, off-site workshop. We present the current status of our respective departments.
  • We then lock ourselves in a room and talk about where the company should go next.
  • We come out with a general direction, and spend the next few months fleshing it out.
  • We present this plan to the Board of Directors. We get the green light to proceed.

At this point, one of two things may happen:

  • We are swept away with what we were doing before the off-site, and forget all about the strategy.
  • We plunge into a multi-year implementation plan, and don’t look up until major deliverable X is ready for the market—and falls far short of expectations.

Borrowing a page from Lean Startup

In the first scenario, we have just wasted several months on a paper exercise. Perhaps the strategy would have worked—perhaps not. We’ll never find out.  But at least it’s not harmful.

In the second scenario, we rashly made major investments without going out of the building and validating our hypotheses. This is much worse.  We could be taking the whole company down a rabbit hole, expending tremendous resources to pursue a multi-year plan that can quickly become irrelevant in the time it takes to write them up and get them approved.

How can we avoid the trap of over-investing in an untested idea, and ending up with an irrelevant strategy? There is another way: we can borrow principles from Lean Startup to modernize strategic planning.

Lean Startup is built on several key tenets, including engaging in continuous customer development, avoiding waste by validating assumptions, and building minimum viable products (MVPs) with which build-measure-learn experiments can be conducted with real customers in the field.

Build-Measure-Learn

The build-measure-learn loop in Lean Startup. Image Credit: Ash Maurya, 2009.

The main thing that makes this work is rapid iterations in the field, with real customers.  This involves finding creative ways to bring parts of the strategy out to test in the market with real customers. Instead of spending months perfecting a business strategy inside the building, we spend days scoping out the situation, coming up with a first pass thesis, and then immediately go into the market to these hypotheses.

With the feedback we receive, we can iterate the strategy and go out to test it again with customers.  We would be able to keep ourselves honest, and respond rapidly to market changes over time.  This can help us make sure the strategy stays current and relevant, from corporate strategy development to product strategy development, all the way to the implementation of a specific product release in a multi-year product roadmap.

A case study: GE’s Monogram Refrigerator

The Lean Startup movement had deep roots in software development.  It is easy to do build-measure-learn loops with a software product.  What if you are developing products that have a long prototyping cycle?  What if you were developing a large appliance like a refrigerator?

General Electric faced this problem when they decided to embrace Lean Startup.  In 2008, GE decided to spend $1 billion dollars to redesign everything in their $5.6 billion kitchen, laundry and home appliances business.  The Monogram series, a high end refrigerator with French doors, was the first appliance developed under GE’s FastWorks initiative, a program collaboratively developed by GE and Eric Ries (author of “The Lean Startup”) to incorporate Lean Startup principles to the GE product development process.

In the traditional approach at GE, they would have employed what amounted to the waterfall development process.  Lengthy requirements documents would be generated by product managers.  Then product designers and engineers would develop the product and drive the process through mass production under conditions of utmost secrecy.  This process could span 3-4 years from start to finish.  Customers would be minimally involved during product definition and product development.

With the FastWorks initiative, the team received a personal challenge from Chip Blankenship, CEO of GE Applicances:

“You’re going to change every part the customer sees. You won’t have a lot of money. There will be a very small team. There will be a working product in 3 months. And you will have a production product in 11 or 12 months.”

The journey for the cross-functional team became one of listening and learning from the customers.  Rather than unveiling a finished product after years of development, the team brought out their first prototype in January 2013.  They received harsh feedback from customers on issues like lighting and color.  This was hard to hear.  But the team embraced the data, and modified the design to incorporate the feedback.

They created and tested another prototype with customers, then another.  By January 2014 they were on to Version 6, and things were converging. All in all, the product went through 18 iterations before going to production.

The Monogram refrigerator is a great example where a high level strategy, married with the Lean Startup discipline of testing prototypes with customers, helped the product team develop a better product in record time.

  • There was a high level, multi-year corporate strategy: Invest $1B over the next few years to refresh the $5.6B GE Appliances business.
  • This corporate strategy was translated into an implementation strategy that drove specific programs, including the initiative to design a new, high end refrigerator.
  • The requirements were sketched out roughly, then a prototype was quickly built to enable the team to test it with customers.
  • The feedback was incorporated and a new prototype was quickly created and tested with customers. This process was repeated until the requirements converged.
  • The final product that went to production met customers’ needs and wants through continuous customer development.

There were other, more profound organizational changes at GE that enabled the team to run fast, like a startup.  Various departments modified their processes to accommodate the team’s pace of experimentation. However, the key to this process remained the focus on frequent testing with customers.  Showing customers a rough, incomplete prototype means the team is not afraid to be vulnerable.  Only by being open to receiving feedback can the product team build a deep understanding of customer expectations.  They can then use this knowledge to build a product that solves problems and delights their customers.

Of course, the million dollar question is whether this new approach worked for GE? According to the Harvard Business Review article that chronicled this effort, the results were outstanding: “Half the program cost, twice the program speed, and currently selling over two times the normal sales rate”.  Staying close to the customer worked for GE, and it can work for other large corporations too.

Staying close to customer needs with strategic planning

With this example, we can see how strategic planning can take the long view, and still stay tightly integrated with market and customer needs. When we take this approach, we invariably invalidate many early assumptions in the first few iterations. This can feel terrible. But it’s far more wasteful if we don’t invalidate these foundational assumptions early on.

As we progress through the implementation of a new strategy, continuous conversations with customers provide a mechanism for the company to stay aligned with market and customer needs.  This alignment provides checks and balances, and enables the company to adjust and adapt to changing conditions over a long period of time.

Strategy gets a bad reputation because it’s often crafted by people who have no access to customers. If we inject the discipline of Lean Startup, and make time for integrating customer insights into the process, it will dramatically improve the probability of success. Give it a try—you might find that you end up saving your company a lot of money.

 

About the Author

Elaine is a startup veteran and innovation and entrepreneurship consultant who has brought numerous hardware and software products to market. As Founder and Managing Director of ConceptSpring, she works with executives and leaders of innovative teams to create product strategies, and to formulate aggressive but achievable program plans to implement the company’s vision. She is also a Senior Lecturer at the MIT Sloan School of Management. Follow her at @chenelaine.

 

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