Tag: strategy

Lessons from NYT on innovation

The Kindle New York TimesWhatever the circumstances that led someone at The New York Times to leak their report on Innovation, I am thankful. Published (internally) in March, it is the fruits of a six month long deep-dive into the business of journalism within a company that has been a leader in that industry for over a century, and provides an intimate and honest study into how an incumbent can be disrupted. It is 97 pages long, and worth reading for anyone who is interested in innovation or the future of media.

The report was leaked in full in May, and I’ve been reading bits of it in my spare time. Just recently I completed it, and felt it was worth summarising some of the lessons that are highlighted by the people at the Times. As it is with such things, my summary is going to be subjective and – by nature – highly selective, so if this piques your interest, I encourage you to read the whole thing.

(My summary ended up being longer than I’d originally intended, so apologies in advance.)

Organisational Division

Because of the principle of editorial independence, the Times has clear boundaries between the journalists in the newsroom and those who operate “the business” part of the newspaper, which has been traditionally about selling advertising. This separation is even known as “church and state” within the organisation, and affects everything from who is allowed to meet with whom (even during brown-bag lunch style meetings) to the language used to communicate concepts. This has worked well in the past, allowing the journalism to be kept at the highest quality, without fear of being compromised by commercial considerations.

However, the part of the organisation that has been developing new software tools and reader applications is within “the business” (not being journalists), and has hence been disconnected from the newsroom. Hence new software is not developed to support the changing style of journalism, and where it is, it is done as one-off projects. Other media organisations are utilising developers more strategically, resulting in better tools for the journalists and a better experience for the readers.

Lesson: Technology capability needs to be at the heart of an innovation organisation, rather than kept at arms-length.

Changing Customers

For a very long time, the main customer of the Times has been advertisers. However, print media is facing a future where advertisers will not pay enough to keep the organisation running. Online advertising pays less than print advertising, and mobile advertising even less again. Coupled with declining circulation due to increased digital readership, the advertising business looks pretty sick. But there’s a new type of customer for the digital editions that is growing in importance: the reader.

While advertising revenues had the potential to severely compromise journalism, it’s not so clear that the same threat exists from reader revenues. In theory there is a good alignment: high quality journalism results in more readers. But if consideration of attracting readers is explicitly kept away from the newsroom as part of the “church and state” division, readers may end up being attracted by other media organisations. In fact, this is what is happening at the Times, with declines in most online reader metrics, and none increasing.

In the print world, it was enough to produce a high quality newspaper and it would attract readers. However, in the digital world this strategy is not currently working. Digital readers don’t select a publication and then read the stories in it, they discover individual articles from a variety of sources and then select whether to read them or not. The authors of articles need to take a bigger role in ensuring those articles are discovered.

Lesson: When customers radically change, the business needs to radically change too (many true-isms may be true no longer).

Experimentation

The rules for success in digital are different from those of traditional print journalism, although no-one really knows what they are yet. That said, the Times newsroom has an ingrained dislike of risk-taking. Again this made sense for a newsroom that didn’t want to print an incorrect story, and so everything had to be checked before it went public. However, this culture inhibits innovation if applied outside of the news itself.

Not only does it a culture of avoiding risks prevent them from experimenting and slow the ability to launch new things, but smart people within the organisation risk getting good at the wrong things. A great quote from the report: “When it takes 20 months to build one thing, your skill set becomes less about innovation and more about navigating bureaucracy.”

Also, the newsroom lacks a dedicated strategy and operations team, so doesn’t know how well readers are responding to experiments, or what is working well for competitors. Given that competitors are no longer only other daily newspapers, it’s not enough to just read the morning’s papers to get insight into the competition. BuzzFeed reformatted stories from the Times and managed to get greater reader numbers than the Times was able to for the same stories.

Lesson: If experimentation is being avoided due to risk, then business risks are not being managed effectively.

Acquiring Talent

It turns out that people experienced in traditional journalism don’t automatically have all the skills to meet the requirements of digital readers. However, the Times has a bias for hiring and promoting people in digital roles based on their achievements as journalists. While this likely worked in the past to create a high quality newspaper, it isn’t working in digital. In general, the New York Times appears to be a print newspaper first, and a digital business second. The daily tempo of article submission and review is oriented around a daily publication to be read in the mornings, rather than supporting the release of stories digitally when they are ready to be published. Performance metrics are still oriented around the number of front page stories published – a measure declining in importance as digital readers cease to discover articles via the home page.

The lack of appreciation for the digital world and digital people in general has resulted in the departure of a number of skilled employees, according to the report. Hiring digital talent is also difficult to justify to management given that demand has pushed salaries higher for skilled people even if those people are relatively young. What could be a virtuous circle, with talent attracting talent, is working in the opposite direction with what appears to be a cultural bias against the very talent that would help the Times.

Lesson: An organisation pays for the talent either by paying market rates for capable people or paying the cost in lost opportunities.

Final words

When I first came across the NYT Innovation report, I expected to read about another example of the innovators’ dilemma, where rational business decisions kept them from moving into a new market. Instead, the report is the tale of how the organisation structure, culture and processes that made The New York Times great in the past are actively inhibiting its success in the present. Some of these seem to have become sacred cows and it is difficult for the organisation to get rid of them. It will require courage – and a dedication to innovation – to change the organisation into one that is able to compete effectively.

Book Review – Good to Great

I’d been aware of this book for a while, but it still seems to be available only in expensive hardback format, so I was waiting until it got cheaper. Recently I found it for $15 (still hardback) and this was enough for me to give it a go.

Good to Great

Research-based guidance for established companies to excel in their markets.

I came to this book by Jim Collins with some interest in reading about a new research-based attempt to find a winning corporate formula, but also scepticism due to the unsuccessful attempts that have come before. Perhaps the most infamous was In Search of Excellence which purported to find the recipe for excellence, but gave Atari (had to sell key assets in 1984) and Wang Labs (filed for bankruptcy in 1992) as examples of excellent corporations. Although, that book identified 43 “excellent” companies, so it’s probably not too bad for only a couple of bad apples to end up in their list.

Collins improves his odds by identifying only 11 “good to great” companies. But this is perhaps an uncharitable comparison, as his team appears to have done an extensive job in analysing these companies, and there are only 11 because only 11 companies out of the 1,435 US-based “Fortune 500” companies from 1965-1995 met their criteria. Then to identify the features that relate to being “good to great”, these had to be possessed by all “good to great” companies and lacked by all 17 close-but-not-quite-good-to-great companies also identified by the team.

The book explains the basis for these features, and is engaging and well-written. For me, the most surprising was the feature of “first who.. then what” which is basically the idea that hiring well becomes foundation for all corporate strategy, and not, say an analysis of competitors, technology, financials, or other market fundamentals. I do like this idea, despite its fuzziness, as it says that people aren’t fungible and that they can make a big difference. There are five other features, making six in all, but none were as counter-intuitive as this one. In any case, I will now be paying attention to these features in my workplace and future employers.

However, I can’t bring myself to adopt them as fundamental tenets since despite the rigorous research, the conclusions remain essentially unproven. From my point of view, there are three weaknesses in the research: the set of “good to great” companies is arbitrary, the set is small, and the conclusions are untested.

Taking the first problem, “good to great” companies were defined as having a transition to “great” performance of at least three times the general market (from a point of transition). If, instead of three times, it had been five times or even two times, a different set of companies would’ve been found. Since the features needed to be possessed by all “good to great” companies, a different set would’ve produced a different set of features, e.g. potentially larger or smaller. Hence, perhaps the features found are sufficient for a good-to-great transition but some weren’t actually necessary.

The problem of a small sample is tackled in the book, referencing “two leading professors” who think the sample of 11 companies wasn’t small. Unfortunately, this is not convincing. For example, one professor says that the 11 companies wasn’t a sample as it was 100% of companies that met the criteria – although I would respond that the book promises that these principles are universal, so there will be more such companies in the US-market in the future, and they should also apply to non-US-based companies, hence the 11 companies don’t represent 100% of all possible “good to great” companies.

Lastly, the conclusions are untested. The research team could’ve, say, looked for a couple of companies outside the US that met their “good to great” criteria and then checked that those companies possessed all of the six features. Except they didn’t. The only companies examined as part of the study were those that informed the conclusion. The use of comparison companies gives me a level of faith in the conclusions, but these can’t be validly re-used in testing that conclusion. So, really the conclusion remains a hypothesis for now.

My grumblings notwithstanding, I was impressed with the analysis in the book and the methodology that used comparison companies to filter out features that were shared by both the “good to great” companies and also those that didn’t perform so well. It has shifted my thinking about what a successful business can look like.

Rating by andrew: 3.5 stars
***1/2

A rort by any other name

Collection of modern safety razors: Gillette F...
Image via Wikipedia

I seem to have lost my collection of shaving instruments in the recent move. I’m not sure where they went. Perhaps wherever all the biros, sunglasses and good TV shows have all disappeared off to.

When it came to replacing my razors I was amazed at the prices. There’s something known as the “razor and blades” strategy and I think there’s a lot of evidence that it needs a new name.

The basic idea is that the razor is sold cheap, i.e. at a loss, but the single loss is more than made up for by the series of blade purchases over the life of the razor. Of course, blades are designed to work with only one type of razor, so if you switched, you’d need to buy a new razor.

The concept is well known in business, and a number of other industries have apparently copied the strategy pioneered by the razor. For example, there was Polaroid cameras and their film cartridges, games consoles and their games cartridges (now discs) and Printers with their ink cartridges.

However, what amazed me about the recent prices was that the price of the razor was massive compared to the price of the blades. That’s not how it’s meant to work in the razor and blades model.

According to figures gleaned this very evening from Coles Online, razors and blades don’t appear to be following the razor and blades strategy…

Razors

  • Schick Quattro Freestyle Kit – $16.34
  • Schick Quattro Razor Kit Titanium – $14.16
  • Gillette Fusion Razor Kit – $13.72
  • Gillette Fusion Phenom Razor – $13.72
  • Gillette Mach 3 Razor Kit – $13.07
  • Schick Quattro Razor Kit – $13.07
  • Gillette Sensor Excel Razor Kit – $7.95
  • Schick Xtreme 3 Razor Kit – $7.62
These all typically include 2 blades also. Median price = $13.40

Blades

  • Gillette Fusion Razor Catridges 6 pack – $32.37 ($5.40 ea)
  • Schick Quattro Razor Catridges Titanium 4 pack – $17.10 ($4.28 ea)
  • Gillette Mach 3 Razor Cartridges 8 pack – $26.65 ($3.33 ea)
  • Schick Quattro Razor Catridges 8 pack – $25.06 ($3.13 ea)
  • Schick Xtreme 3 Razor Cartridges 4 pack – $11.43 ($2.86 ea)
  • Gilette Sensor Excel Razor Blade Cartridges 10 pack – $27.46 ($2.75 ea)
  • Schick Ultra Plus Razor Cartridges 5 pack – $8.70 ($1.74 ea)
Median price = $3.13

Disposables

  • Schick Quattro Razor Disposable with Aloe & Vitamin E 3 pack – $9.80 ($3.27 ea)
  • Gillette Mach 3 Disposable Sensitive 5 pack – $16.01 ($3.20 ea)
  • Gillette Sensor 3 Disposable Razor 8 pack – $11.99 ($1.50 ea)
  • Schick Xtreme 3 Razor Disposable Sensitive with Aloe 8 pack – $11.98 ($1.50 ea)
  • Gillette Blue II Plus Sensitive Pivot Head Disposable Razors 16 pack – $14.16 ($0.89 ea)
  • Schick Extra II Razor Disposable Sensitive with Vitamin E 18 pack – $11.98 ($0.67 ea)

Note that the cost of a disposable (razor + blade) is less than the corresponding razor or blade. Even if you accept that the quality of the disposable will be lower than the ordinary razor, it’s hard to believe that the quality of, say, the Gillette Mach 3 Razor Kit ($13.07 with two blades) is four times the quality of the Gillette Mach 3 Disposable ($3.20 with one blade).

Although I know nothing about it, I would guess that Gillette and Schick are making out like bandits selling the razors. As a comparison, Catch of the Day recently sold a pedestal fan for $13.95, and selling something out of plastic with fewer materials, no moving parts, and no electronics for a similar price cannot be making a loss.

So, if the razor and blades strategy is no longer following the razor and blades strategy, what should we be calling it?

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