Reviewing the MRS Conference

By Ray Poynter, Managing Director, The Future Place

I thought this year’s MRS Annual Research Conference was a great improvement on previous conferences, possibly the best I have been to.

I think the credit for the improvement goes mostly to co-chairs Nick Coates and Simon Lidington who moved away from the ‘themed conference’ and more towards a festival of research (loosely inspired by memories of Glastonbury – a UK rock festival with New Age tendencies at its fringe). Credit must also go to the session chairs and the people running innovative events such as Marc Brenner’s Idea Rush, and of course the team from MRS.

I was particularly pleased that all three of the teams in the Pecha Kucha session were nominated for awards both singly (Neils for Best Presentation, and Jeff and the duo of Nathan and Monty for Best Newcomer) and collectively for Special Contribution – a just reward for their work and endeavour.

I have read several reviews and my favourite review came in three parts from Sweden’s globetrotting reporter (who also might be described as having New Age tendencies) Henrik Hall.

Henrik’s three part review can be found here, here, and here.

I think that Henrik’s most penetrating criticism was that the conference was too domestic in its ambition. The UK’s premier event should be able to draw a wider range of international visitors and contributors. Some of the events rooted in UK culture could have been better explained, for example Room 101 is a great concept, but not one that is understood by people not familiar with British TV.

I had to smile at Henrik’s back-handed compliment when he described me as “probably the best ‘ordinary’ presenter”, still that is much better than being the worst ordinary presenter!  However, I have to correct Henrik’s assumption that I pioneered the Pecha Kucha session. I may have been instrumental in bring it into the ‘official’ programme of UK Conferences, but Fiona Blades and the Research Liberation Front introduced it to the UK research conference scene in 2007 at their inaugural counter-culture event.

In terms of other coverage, I thought Research Live had some nice coverage, and I look forward to reading the full report in the next Research Magazine.

I was disappointed by some of the reporting by MRWeb, in particular I thought Phillis Vangelder (whose reporting and comments I normally like) was a little too fond of the old ways and not sufficiently open to the new. For example, I thought Mark Earl’s introduction of three external experts was great. Research needs to get back in the habit of looking outside our domain to see what we can learn from, adapt from, and steal from. I am not sure that I agree with Phyllis about the lack of real world applicability, I thought my case study with the Identity and Passport Service, the HSBC paper, and the piece by Continental Research into in-game advertising were all good examples on the first day, and I only saw some of the sessions.

However, Phyllis made exactly the same point as Henrik when she attacked the lack of an international dimension, and they were both right to identify this as the main weakness of the 2009 Conference, and the most important thing to get right in 2010.

My own suggestions for the future?

1. Make better use of the Monday, people from out of town (be that Glasgow or New York) have to arrive the day before, let’s make them feel welcome, let’s have a social in the evening, and perhaps some ‘fringe’ events during the day.
2. Improve the international aspect of the session, perhaps do what Australia and Singapore do and invite people who have made a great presentation somewhere else in the world to come and present it in London – let’s not be too proud, and insist everything has to be a ‘first night’ production.
3. Improve the description of the sessions to make it easier to decide which session to visit. But maybe increase the festival aspect and have three things. If it is going to be a festival, people have to accept that they will miss some great stuff in order to see other great stuff.
4. Use a venue where people can live-blog and live-twitter, that could mean free wi-fi, but it probably means somewhere with a good mobile phone signal (not too difficult these days surely).
5. Borrow more organisational and networking ideas from other conferences, for example the countdown screens used by ESOMAR keep speakers to time really well.
6. Keep pushing the boundaries. Yes, some of this year’s experiments can be nailed down for smoother ongoing use, but let’s keep the innovation flowing.

Sage social network for research methods

Sage social network for research methods 
Methodspace aims to bring together academic researchers

UK-- Academic publisher Sage has launched an online social network for discussing research methods.

Methodspace, which has been in private beta since last month, is now open to the public. Sage says the aim is to bring together researchers “from across the academic spectrum looking for support and advice on any aspect of methodology”.

Ziyad Marar, Sage’s publishing director said he was “thrilled” by the response to the beta launch. “The site has a growing community of international researchers, university lecturers and postgraduate students from around the world,” he said.

You can visit the site at www.methodspace.com.

• Meanwhile scientific publisher Elsevier has launched an online community of scientists with whom it hopes to interact to help it develop products and services. The site has been developed by social networks specialist Communispace.


Author: Robert Bain

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Published on the 26^th March 2009

Video Games Ethnography at Bridgewater College

For my Qualitative Research Methods in Communication class (comm 351) we were required to do a small 3week long ethnography. I chose to look at video games as a ritual in Wakeman hall. The following is a multimedia essay of my findings

Big brands in co-creation drive

NEW YORK: Major advertisers including PepsiCo, Hewlett Packard,Phillips and Visa are asking consumers to produce user-generated content based around their brands, with the best examples to be judged at the Cannes International Advertising Festival.

Co-creation has been employed by a variety of brands seeking to generate new ideas and increase their level of engagement with consumers, withDoritos, one of the new scheme's participants, having used it for ads run during the Super Bowl.

Other brands taking part in the competition include Frito-Lay, Telstra and Kodak, and each of the participating organisations will submit two pieces of UGC of their choosing to the judging panel.

While none of the companies have said they will definitely use the resulting content in their marketing campaigns, all are optimistic they will be able to generate a range of new ideas, all at a much lower cost than normal than would normally be the case.

Frito-Lay's evp, marketing, Ann Mukherge, said that "creativity comes in all forms, and we're keeping our mind open to what you could find out there."

Jeffrey Merrihew, ceo of Accenture Marketing Sciences, also argued that the competition was a demonstration that the Cannes festival had "decided to join the conversation even though it could be uncomfortable for agencies."

Data sourced from AdAge.com; additional content by WARC staff, 24 March 2009

Mobilizing Generation 2.0: A Practical Guide to Using Web2.0 Technologies to Recruit, Organize and Engage Youth

Ben Rigby's presentation for California Association of Hospitals and Health Systems (CAHHS)

View more presentations from benrigby.

Innovating at Every Level

An interview with Erich Joachimsthaler, CEO, Vivaldi Partners. To innovate, companies need to circulate insights about consumers throughout the organization and think of ways to revolutionize consumers' everyday lives.

Ethnographic Segmentation in Market Research (III of III)

Toward Ethnographic (Contextual) Segments 

By Ken Erickson PhD - Paceth CEO

Too often, the client's segmentation scheme reflect normalized abstractions rather than the evolving needs, tastes, and practices of real people.

For our India mobile phone client we proposed a rather different model.

At the end of the day, we wanted more time in the field than the client was willing to support (at least this time). But we think it would have been time well spent.

We suggested that our team identify ethnographic segments, drawn from observed patterns of practice and meaning within a particular strategic domain--in this case, the strategic domain was “basic” phone users (people who are buying inexpensive phones). We use male or female gender as a major sub-segment because of the continued importance of gender in structuring consumption in India and elsewhere. 

Our ethnographic research--observation and secondary contextual research supporting user interviews and participant observation--was designed to identify patterns within a gendered basic-user target. Ethnographic segments would be identified on the ground, not pre-selected from a quantitatively derived market segment as is usually the case. (And as the client really seemed to want.) The contexts of use for both men and women within these segments would add a real-life dimension to our presentation to marketers and designers. 

Using ethnographic segmentation (it might be more clear to simply call it segmentation by contexts, but what the heck) would help product design and marketing by discovering patterns within segments that are not static but can be dynamic and context-sensitive. Strategic decisions in our proposal would have focused on two or three broad cultural contexts of use, or to might have included include additional fine-grained contexts. We provided our client with this visual model of what we were trying to convey (Figure 1, above).

(Our prior work in India had suggested that day-parts and days of the week might have been important. Thus, within general culturally recognized use contexts, we might have paid attention to day of the week and time of day, something like 'Taking and making a business call during the day on Saturday' or 'Hanging out with phone in hand at a teashop' might have been our fine-grained contexts. These were examples we gave to the client, but only the fieldwork could have determine how useful these--or others we might have discovered--might have been.) 

The moral(s) of all this is, or are:

• Design researchers don't sample only individual people. They sample contexts and people, both.

• Design researchers try to determine the range of contexts in which things are happening, in which products are used, or related needs or activities take place. Sample there.

Within these contexts, anthropologically-leaning design researchers find out what the meaningful sorts of people are who are part of the world in which these goings on are happening.

It makes sense, then to think about people after you have determined where you are going to go, which contexts you want to visit, and, in consultation with your client, which contexts will be the most strategic for the organization to understand and design around.

It isn't people alone. Its people and contexts that provide the meaning behind people's actions and desires.

Designers want meaningful scenarios that are rich in the local complexities of daily life, the complexities that people take into consideration when they decide to do this or that, to organize their lives or their thinking in one way or another, or even to buy a new ring-tone for their mobile phone or not.

Ethnographic Segmentation in Design Research (II of III)

Theoretical Sampling

By Ken Erickson PhD - Paceth CEO

Theoretical sampling often seeks maximum variation rather than a "representative" slice of reality (Miles and Huberman 1994).

In other words, anthropologists (or any ethnographers, really) are interested in the systematic study of the contexts surrounding a particular consumer product or business practice. They want to flesh out the real-life meanings behind product choice, purchase, and use. 

What is this meaning business, anyway?

Its more than words. Just ask a surrealist. (Or Foucault.)

Linguists, who are supposed to know something about meaning, are often asked to explain how one knows what a word means. Usually, their answer is that to understand what a word means, one should see how the word is used in ordinary speech (Ogden and Richards 1952). Understanding the context in which a word is used (and the contexts in which it may not be used) is the key to understanding its meaning(s). The same is true of IT products and services like mobile phones in India. Mobile phones are part of multiple contexts--home, work, family, street, train, and so on. And as they move from pre-sale to sale to delivery to use in a variety of contexts, and, finally, to disposal (or resale), what they mean and how they are used changes quite a bit. 

To understand the range of meanings mobile phones may have for Indian people, or for any kind of people, you have to see them used in context.

If anthropologists find meaning in the contexts that surround what people do then why would the individual person be the unit of measurement around which to build a sampling design? Clients may ask, "How many people will you observe? What kinds of sampling frame will you design, and what kinds of people will fit into that frame?" Our answer is often "We don't know." That is hardly a satisfactory answer when one is trying to win a research contract.

Other Problems 

So there is trouble in the sort of means-based statistical clustering used for determining market segments and, likewise, trouble in many client's expectations around sampling. The first kind of trouble lies in the selection of questions or question categories for the initial segmentation questionnaire. How can you know that the questions the client used were the right questions to ask? How did the client determine which dimensions of taste or practice to include or exclude, and what did they overlook completely? 

The next trouble comes in selecting the factors for clustering. Which were the most significant? Usually they use those that are most significant in statistical teams but is a statistical norm--taken as a moment in time--the most strategic element to select from a moving target like the evolving use patterns surrounding mobile phones in India? Does the norm include the tail ends of the curve--the outliers, the users on the edges of the normal pattern? If the pattern is put into motion through time, the users at the edges--early adopters and adaptors--then the users--and contexts that surround--them who are at the edges of the normal curve most certainly should be included in design research.

Next: Toward Ethnographic (contextual) segmentation.

Works Cited Part II

Matthew B. Miles and A. Michael Huberman.

1994 Qualitative Data Analysis: An expanded Sourcebook. 2nd Edition. Thousand Oaks: Sage.

Ethnographic Segmentation in Design Research (I of III)

Sampling in Design Research: Toward Ethnographic Segments 

By Ken Erickson PhD - Paceth CEO

What people say and what they end up doing is different. It’s not just important to speak to them but you got to spend a day in the life of the customer and observe them.” For understanding the customer better, Jain suggests new methods such as ethnographic studies and tools like calculating customer lifecyclevalue. — Dipayan Baishya, THE ECONOMIC TIMES (India), July 2005. 

Anthropological research teams are more and more often called upon to produce research results for design teams. Usually, the team has to devise some sort of formal research plan for the client. And often, the client is working from a segmentation scheme derived from traditional, questionnaire-based quantitative research. These schemes are usually based on questions that make sense--strategic sense--to the client. Sometimes they reflect the ways that consumers or end-users actually organize themselves. But more often than not, they miss important kinds of variation.

We were working, recently, for a client like this. Actually, we were almost working for them. (They did not accept our bid.) They had a segmentation scheme that they used for their global mobile-phone marketing and design. They wanted to know more about the Indian market. And they wanted us to build our proposal around their segmentation scheme. While we not win the contract, we used the bidding opportunity to think a bit about why we were not happy with traditional segmentation schemes.

Traditional segmentation schemes are means-based, and like other means-based approaches (see Maltz 1994), they don't do a good job of providing the contextual data that help designers imagine design scenarios. And because they are based on what people say, they may be based on lies that people are telling, as Professor Jain suggests in the quotation above.

A psychologists might draw a sample of individual product users or buyers, and study patterns in individual desires, attitudes, values or behaviors about a product. An anthropologist would discover the range of contexts in which groups of people learn about, acquire, transport, store, exchange, use, and talk about a product. Its a significant different.

And more than that: an anthropologist would want to participate as much as possible in product use, and interview the people using it. That approach calls for a rather different kind of sampling. It calls for theoretical sampling.

Stay tuned!

Works Cited Part I

Maltz, Michael

1994 Deviating from the Mean: The Declining Significance of Significance. Journal of Research in Crime and Delinquency 31(4):434-463.

Making Meaning

15 meanings

What types of meaningful experiences do people value? In the course of helping companies develop products and services that suit their markets, every year we interview over 100,000 individuals from countries and cultures around the world. In these interviews, we’ve found commonalities among the meanings people feel strongly about, whether we’re studying the adoption of new software in Poland or the purchase of toothbrushes in Florida.

We’ve compiled a list of these meanings, but it is far from exhaustive. We’ve found potentially dozens of types of meaningful experiences and at least as many possible ways to characterize them. What we concentrate on here are 15 of the meanings that emerge most frequently in these interviews and appear to be universal among people’s values. While the relative importance of these meaningful experiences might vary and their interpretation could differ slightly, all cultures seem to recognize their significance. This is good news for businesses, because it means that there is a certain constancy among human needs that transcends the distinctions of culture and language.

(Since none of these meaningful experiences is more or less important than any other, we’ve presented them in alphabetical order)

1. Accomplishment

Achieving goals and making something of oneself; a sense of satisfaction that can result from productivity, focus, talent, or status. American Express has long benefited from transmitting a hint of this meaning to its card holders by establishing itself as a credit card intended for those who are successful. Nike relies on the essence of this meaning for many in its “Just Do It” campaign.

2. Beauty

The appreciation of qualities that give pleasure to the senses or spirit. Of course beauty is in the eye of the beholder and thus highly subjective, but our desire for it is ubiquitous. We aspire to beauty in all that surrounds us, from architecture and fine furnishing to clothing and cars. Enormous industries thrive on the promise of beauty stemming from shinier hair, whiter teeth, and clearer skin. Beauty can also be more than mere appearance. For some, it is a sense that something is created “correctly” or efficiently with an elegance of purpose and use. Companies such as Bang & Olufsen audio equipment and Jaguar automobiles distinguish themselves through the beauty of their design.

3. Community

A sense of unity with others around us and a general connection with other human beings. Religious communities, unions, fraternities, clubs, and sewing circles are all expressions of a desire for belonging. The promise and delivery of community underlies the offerings of several successful organizations including NASCAR with its centralizing focus on car racing and leagues of loyal fans that follow the race circuit, Harley-Davidson motorcycles and their Harley Owners Group (HOG), and Jimmy Buffet with his dedicated Parrotheads. These businesses attract and support user communities who embody specific values tied to their products and services.

4. Creation

The sense of having produced something new and original, and in so doing, to have made a lasting contribution. Besides driving our species to propagate, we enjoy this experience through our hobbies, the way we decorate our home, in telling our stories, and in anything else that reflects our personal choices. Creation is what makes “customizable” seem like a desirable attribute, rather than more work for the buyer, for example, making the salad bar a pleasure rather than a chore.

5. Duty

The willing application of oneself to a responsibility. The military in any country counts on the power of this meaning, as do most employers. Duty can also relate to responsibilities to oneself or family, such as reading the daily paper to stay abreast of the news. Commercially, anything regarded as “good for you,” including vitamins, medications, Cross-Your-Heart bras, and cushioned insoles relays some sense of duty and the satisfaction it brings.

6. Enlightenment

Clear understanding through logic or inspiration. This experience is not limited to those who meditate and fast, it is a core expectation of offerings from Fox News, which promises “fair and balanced” reporting, the Wall Street Journal, which many consider the ultimate authority for business news, and the Sierra Club, which provides perspective on environmental threats and conservation.

7. Freedom

The sense of living without unwanted constraints. This experience often plays tug-of-war with the desire for security; more of one tends to decrease the other. Nevertheless, freedom is enticing, whether it’s freedom from dictators, or in the case of Google, the freedom to quickly search the Web learning and interacting with millions of people and resources.

8. Harmony

The balanced and pleasing relationship of parts to a whole, whether in nature, society, or an individual. When we seek a work/life balance, we are in pursuit of harmony. Likewise, when we shop at Target for a toaster that matches our mixer, we are in pursuit of harmony. Much of the aesthetic appeal of design depends on our personal desire for the visual experience of harmony.

9. Justice

The assurance of equitable and unbiased treatment. This is the sense of fairness and equality that underlies our concept of “everyman” or Average Joe. It helps explain the immense popularity of the Taurus and the Camry, the ranch house, Levi jeans, and white cotton T-shirts—all products with a simple, impartial appeal to a very broad audience.

10. Oneness

A sense of unity with everything around us. It is what some seek from the practice of spirituality and what others expect from a good tequila. Although we don’t normally think of them as a company, the Grateful Dead sustained its revenues for decades building an experience that connected with its fans’ desire for oneness. Similarly, organizations that connects their members into nature or a broader sense of the world, like the Monterey Bay Aquarium or the United Nations, are capable of evoking a meaning of oneness.

11. Redemption

Atonement or deliverance from past failure or decline. Though this might seem to stem from negative experiences, the impact of the redemptive experience is highly positive. Like community and enlightenment, redemption has a basis in religion, but it also attracts customers to Weight Watchers, Bliss spas, and the grocery store candy aisle. Any sensation that delivers us from a less desirable condition to a more pleasing another one can be redemptive.

12. Security

The freedom from worry about loss. This experience has been a cornerstone of civilization but in the U.S. in particular, acquired increased meaning and relevance after 9/11. On the commercial side, the desire for this experience created the insurance business, and it continues to sell a wide range of products from automatic rifles to Depends undergarments to credit cards that offer protection from identity theft.

13. Truth

A commitment to honesty and integrity. This experience plays an important role in most personal relationships, but it also is a key component of companies like Whole Foods, Volkswagen, and Newman’s Own, all of which portray themselves as simple, upright, and candid.

14. Validation

The recognition of oneself as a valued individual worthy of respect. Every externally branded piece of clothing counts on the attraction of this meaningful experience whether it’s Ralph Lauren Polo or Old Navy, as does Mercedes Benz, the Four Seasons hotel chain, and any other brand with status identification as a core value.

15. Wonder

Awe in the presence of a creation beyond one’s understanding. While this might sound mystical and unattainable, consider the wonder that Las Vegas hotels create simply through plaster and lights. Disney has been a master of this experience for decades, and technology companies routinely evoke awe as they enable their users to do what seemed impossible the year before.

Source: http://www.makingmeaning.org/meanings.html

Book.

Por qué pensar más allá de las cateogorías tipo Nielsen.

How to Win by Changing the Game

by Cesare Mainardi, Paul Leinwand, and Steffen Lauster


Investing in a capabilities-driven strategy will equip your company for growth in uncertain times.
Illustration by Lars Leetaru

The Wm. Wrigley Jr. Company stuck to its gums for more than a century. The company, founded in 1891, specialized in chewing gum; it did not branch out into mints, candies, or breath strips until 1999. Over the years, Wrigley built up its core capabilities in a way that few other companies could match: It focused innovation on new flavors and developed a consistent ability to in­fluence retailers to display its products prominently on the candy racks. Thus, by the early 1980s, Wrigley had achieved operating margins twice those of competitors more than 15 times its size. This was quite an accomplishment, especially in an industry (consumer packaged goods) that has historically relied on scale, in both manufacturing and marketing, for its profitability.

Wrigley, in effect, was one of the few consumer packaged goods enterprises that prospered on its own terms, instead of adapting its plans to mimic its competitors. This paid off handsomely for the com­pany’s shareholders in April 2008, when chocolate giant Mars Inc. swept in with a rich US$23 billion all-cash offer. So irresistible was the lure of this deal that investing sage Warren Buffett committed $4.4 billion of the purchase price and a further $2.1 billion to purchase a stake in the Wrigley division.

The key to Wrigley’s enviable position was not its single line of products — there are many single-category companies that are less successful — but rather its distinctive ca­pabilities. One bit of evidence for this was Mars’s decision to leave Wrigley as a stand-alone business after the deal, indicating that the acquisition was motivated primarily by the leverage that capabilities can offer. Mars knows chocolate and candy. Wrigley knows gums and candy. Together, the combined company knows how to launch and market confectionary products. Mars then transferred its non­chocolate brands, Starburst and Skittles, to Wrigley’s portfolio to consolidate and leverage these differentiating capabilities. Mars CEO Paul Michaels summed it up best when he said the deal was “not about being bigger — it’s about being the best.”

When most corporate leaders hear about using capabilities as a strategic advantage, they tend to think internally. They assume that building capabilities is a job for their human resources, training, or R&D departments. Or they squander their efforts on a variety of unrelated skill- and technology-building initiatives that don’t fit well together and don’t address the real needs of customers or reflect the company’s overall direction. By contrast, the Wrigley story — and similar examples in financial services, automobiles, transportation, health care, and many other industries — suggests that an effective capabilities-driven strategy is outward-looking. It starts and ends with customers. It involves building up a portfolio of ideas, skills, and competencies that, when put together, enable the company to consistently attract its primary customers.

A portfolio of capabilities might include intellectual capital — ideas, patents, products, and distinctive practices — but those elements are not enough. Patents expire. Premium products become commoditized. However, a distinctive combination of skills, tools, or processes, deployed in day-to-day business, will tend to get better over time, at a pace that prevents competitors from catching up. Wal-Mart’s supply management prowess, Southwest Airlines’ asset utilization expertise, Toyota’s mastery of the automotive production system, and Procter & Gamble’s ability to leverage innovation across product categories have all benefited from continuous improvement. Honed and strengthened over years (or sometimes decades), these focused bundles of capabilities confer and support a “right to win” in their companies’ respective industries.

A true capabilities-driven strat­egy is the most reliable way for a company to thrive when the rules of the game for its industry are in flux. Instead of looking inward at the capabilities you already have and trying to discern your strengths, start by looking outward at the capabilities you need. What must you be able to do to reach the customers you fundamentally want to attract? By designing a portfolio of skills and tools needed to win customers, you can end up changing the game instead of playing by the rules.

The Case for Capabilities

As we write this article, in October 2008, much of the global financial-services industry is in crisis, and it is not clear how wide or deep the economic fallout will be. At the same time, many economic fundamentals remain unchanged. Emerging markets are still growing; an enormous amount of financial capital is still looking for investment vehicles; and productivity in many parts of the world continues to increase. Some industries, such as energy and heavy construction, are doing very well right now; even in the most “difficult” industries, such as manufacturing and financial ser­vices, some companies are thriving even as others collapse.

As the crisis unfolds, it is becoming more important to dis­tinguish the companies that are managed effectively from those that have just managed to get by in good times. Those that seem positioned to win — P&G, Toyota, Wal-Mart, and Southwest, along with other well-regarded companies — have spent the past years explicitly building up a coherent portfolio of capabilities as the center of their strategy. When situated in a well-designed portfolio, capabilities naturally drive value for a company; they also drive decisions about mergers, acquisitions, high-level executive talent, divestitures, alliances, and other strategic concerns.

Capabilities have been ignored by many companies over the years, because many leaders don’t have experience in building them and because they are often regarded as nonessential. Strategies based on scale used to be sufficient in most operations-oriented enter­prises. As a senior executive, if you gained enough heft in your industry (through aggressive M&A or cost cutting to drop prices), you could capitalize on economies of scale that ensured both production efficiencies and market clout. Leverage over retailers gave you better access to customers; leverage over advertising agencies gave you enhanced access to marketing media; and a larger amount of innovation investment gave you (or so it seemed) a greater likelihood of developing breakthrough products.

But the ability to establish competitive differentiation through scale has begun to erode. The rise of outsourcing and offshoring, along with more sophisticated telecommuni­cations and the use of strategic alliances, allows smaller and newer firms to punch beyond their weight, competing with larger or more es­tablished companies. In marketing, one-on-one customer processes and more differentiated digital media have similarly leveled the playing field. And in many larger companies, economies of scale are often undermined by higher overhead costs or entrenched bureaucracy.

There’s no such thing as free ca­pabilities; they require concerted in­vestment. But they become far more cost-effective when they help corporate leaders decide where to expand and where to cut back. For example, Honda Motor Company has built much of its profitable growth around expertise in designing and manufacturing small high-performance en­gines. From motorcycles and lawn mowers, the company moved up to automobiles and light sport-utility vehicles. But it has drawn the line at larger V-8 engines that it believes lie outside its core business. “We kept asking ourselves what value Honda would bring to the customer [in] that category [of engine]. There was just no benefit for us,” noted Dan Bonawitz, head of corporate planning in the United States, in an August 2008 New York Times article.

As a result of this focus, combined with the public’s increasing demand for fuel efficiency, Honda has emerged as the only car com­pany to register sales gains in the U.S. in 2008. Through the first seven months of the year, Honda’s revenues were up 3 percent in a market that had fallen 11 percent. In addition, whereas its American counterparts have hemorrhaged billions of dollars, Honda’s bottom line has never been stronger; it reported record profits of nearly $1.7 billion during the first quarter of FY08.

Portfolio Coherence

Will a capabilities-driven strategy yield similar results for any com­pany? That depends on many factors — and the largest is probably the coherence of the company’s capabilities portfolio. Many corporations maintain a portfolio of complementary businesses. But few understand how to build a portfolio of mutually reinforcing capabilities that cross business unit lines, and that distinguish the company as a whole.

Kimberly-Clark Corporation’s customer im­mersion and design center represents one leading-edge example. Re­tailers visiting the center can walk into a virtual version of their store and interact with products on the shelf just as consumers would. Using 3-D virtual-reality technologies, Kimberly-Clark can mock up a typical Target store, for instance, complete with the red bull’s-eye logo and signage, and experiment with different merchandising, as­sortment, pricing, shelving, and execution options. The center allows all consumer-oriented Kimberly-Clark business units and product lines, including diapers, paper towels, and feminine care products, to benefit from its capabilities in retail-based consumer insight. Staffers can learn directly from retail customers and thus improve many subtle but high-leverage aspects of product innovation and marketing: design and packaging, in-store locations and displays, product differentiation, and more. Other parts of the company also benefit; for example, as Information Week reported in September 2007, Kimberly-Clark’s in­ternal R&D staff bring in their specs and watch the products they are building come to life.

Other companies that build coherent portfolios of capabilities enjoy similar advantages. Procter & Gamble’s “open innovation” program, Connect + Develop, allows the company to exploit the product, packaging, and cost innovation ca­pabilities of external firms along with its own — and the program coherently fits with its human capital and expansion strategies. (See “P&G’s Innovation Culture,” by A.G. Lafley, with Ram Charan, s+b, Autumn 2008.) Unilever’s distribution network incorporates its strong global supply chain capabilities in the developing world, where, ac­cording to the Economist in January 2008, the company generates 44 percent of its annual revenues.

Building a portfolio of an enduring, unified set of capabilities means making a variety of decisions — including those regarding ac­quisitions, divestitures, human capital investments, recruiting, IT and other technologies, and alliances — in terms of how well they fit with the company’s other efforts to ex­pand its skill and prowess. If those decisions are managed well, then a portfolio coherence strategy need not result in a substantial increase in a company’s overall investment. In fact, it can be a major source of cost savings, because it eliminates investments that do not help position the company for long-term advantage.

Perhaps that’s why research suggests that companies that have de­fined and leveraged their capability coherence typically enjoy higher operating margins. That correlation, at least, held true in a recent Booz & Company study of consumer packaged goods companies. (See Exhibit 1.) The clear relationship between portfolio coherence and operating margin performance — regardless of revenues — suggests that capability coherence will increasingly drive corporate strategy over the next five to 10 years.

Identify, Build, Divest

How, then, do you institute a capabilities-driven portfolio? You articulate those capabilities that could help you succeed in your key markets, and then deliberately allocate the bulk of your support to them. Your thinking might unfold through a step-by-step process.

• Identify the capabilities you need to build. Start by identifying the drivers of demand in your market — those that will most help you deliver the products and services that people need and want. How engaged are the customers of this category? How diverse are the product or service segments? How large is the potential market, and what is its core interest? For a basic food staple like milk or bread, for example — a highly commoditized product with relatively low consumer en­gagement — investing in small-scale innovation capabilities will not generate enough returns, but retail placement capabilities could. So could significant innovation capabilities that could break the commodity barrier.

Wrigley has long understood that adults and children respond to different flavors, but the ability to innovate in particular domains (such as sugar-free gum or the use of candy coatings) is important to both audiences. Wrigley wisely built up that capability to meet its customers’ demands. So did Jeep. This division of Chrysler LLC, with highly engaged customers who un­derstand a lot about the special qualities of its vehicles, has kept up its innovation in off-road travel. No matter what other features Jeep offers, every car must be Rubicon Trail–rated: that is, capable of navigating a well-known and difficult off-road vehicle trail near Lake Tahoe, Calif.

Sometimes lack of market demand makes a capability less valuable. Disposable-diaper manufacturers in some emerging countries built their capabilities for low-cost production and product expansion, hoping to lower the price of diapers and thus expand their markets. But gradually they discovered that, for most diaper-purchasing parents, it was cheaper to hire someone to clean up the baby’s messes than to buy a disposable diaper at any price.

Once you have articulated your highest-potential markets, identify the few enterprise-wide capabilities that could, in combination, enable you to satisfy customers in all your key businesses. Focus on capabilities that would characterize your entire company, not just one business unit. General Electric Company, for example, is best known for its approach to leadership development and Six Sigma, not for its approach to turbine manufacturing or television scheduling. Spell out the ways in which these capabilities would distinguish your company. Don’t simply say that you want to develop more innovation or channel expansion capabilities; stipulate precisely what tools or processes will enable superior performance.

On the innovation front, for instance, is your objective to un­leash rapid innovation in product attributes (such as food flavors, automobile cupholders, and credit card benefits)? Do you hope to establish more fundamental technological innovation, to lead the next wave of telecommunications or in­dustrial manufacturing? Or are you seeking business model innovation — new ways of cooking, driving, spending — that will influence how customers fundamentally use your product?

Most likely, you already have some of the capabilities you need; otherwise, you wouldn’t be in business. But you are probably not deploying them effectively in every part of your organization, and there are probably other natural opportunities that you are overlooking. For example, if you have a highly skilled procurement and outsourcing function, this might help you begin developing an overseas innovation footprint. (See “Beyond Borders: The Global Innovation 1000,” by Barry Jaruzelski and Kevin Dehoff, s+b, Winter 2008.)

In the early 2000s, leaders in Pfizer Inc.’s consumer health-care unit engaged in the exercise of capabilities identification. At the time, the unit was the producer of Listerine, Nicorette, and several other household-name brands, but it did not have the kind of growth that these brands would suggest. The leaders undertook a capabilities-driven strategy, focused on combining capabilities for clinical testing with deep consumer insight. This allowed them to make the kind of differentiated product claims that would matter most to their customers. For example, Pfizer advertised that Listerine, when added to brushing and flossing, reduced plaque. Backed up by innovations that in turn had been made possible by investments in R&D capability, this approach brought Listerine (and several other Pfizer products) to large new groups of customers.

Other parts of the company were also guided by this capabilities-driven strategy. For example, professional recommendations often play an important part in consumers’ decisions about over-the-counter products. Pfizer used its scientifi­cally backed claims to gain professional support to include in consumer marketing campaigns. This pursuit also meant developing a capability to license some of its products to health-care practitioners around the world, rapidly screening and prioritizing candidates on the basis of both commercial and technological considerations.

The strategy was dramatically successful. Business expanded fivefold in five years; then, in 2006, Pfizer’s consumer health-care unit was sold to Johnson & Johnson for $16.6 billion (more than 20 times earnings).

• Fill in the gaps. The second step in the process of instituting a capabilities-driven portfolio is to focus on the product development investments and business acquisitions that would give you the ca­pabilities you need most, while complementing the capabilities you already have. Along the way, in­crease your own capacity to learn and execute.

In the financial-services arena, Bank of America Corporation has spent years building up a massive, omnipresent retail banking footprint throughout the country. Now that it has an ex­tensive capability for attracting retail customers, it is developing a complementary ability to create new financial-services products for them. In 2005, Bank of America acquired MBNA, making it one of the world’s largest credit card is­suers; in the summer of 2008, it stepped in to purchase Countrywide Financial (the largest originator and servicer of housing loans in the U.S.); and in September, it agreed to purchase Merrill Lynch & Company (probably the major investment bank most known for promoting its services to “mass affluent” consumers). The latter two acquisitions were made as a response to the financial crisis, but both were wholly consistent with the bank’s focus on consumer banking capabilities. Indeed, in his early statements about the Merrill Lynch purchase, Bank of America CEO Kenneth D. Lewis indicated that Bank of America was most interested in gaining retail brokerage capabilities.

In our experience, those companies that do not build a portfolio of complementary, reinforcing capabilities often lose to those companies that do. Accordingly, Bank of America beat analysts’ forecasts for the second quarter of 2008 and an­nounced that Countrywide was ex­pected to turn a profit for the year. (Few banks could have achieved the same synergy with Countrywide, because they would not have built up the same prowess at retail banking.) On July 22, 2008, Lewis was quoted in the New York Times as saying, “We are actually having great success in the marketplace given that others are so inwardly focused.”

• Divest businesses that don’t fit. This final step in building a capabilities-driven strategy is where you save money. Streamline or sell those businesses that do not exploit or further the development of your highest-priority capabilities. The challenge for most management teams is marshaling the confidence to focus — to disproportionately invest in the few capability areas that make a difference, rather than spreading your selling, general, and administrative expenses across all possible bets.

Most of the companies mentioned in this article have visibly (and sometimes painfully) let go of businesses that did not fit their capabilities portfolio. Bank of America’s retrenchment from its institutional businesses provides one example. In 2008, the bank sold its prime brokerage operations on the heels of extensive layoffs in its investment banking operations. P&G has similarly been selling its food businesses — Sunny Delight, Jif, and, most recently, Folgers — as it focuses its portfolio on health and beauty and consumer health care, where it has built distinctive innovation capabilities that are not applicable to the food categories.

Thinking outside the Cave

As many senior executives will confirm, this focus on capabilities is easy to write about but surprisingly difficult to execute, especially in highly turbulent times. But the al­ternative is worse. This is not the time to find a cave and hibernate until the economic storm passes — for it’s unlikely the storm will pass anytime soon, and a capabilities-driven strategy is the only way to remain equipped for perpetually stormy weather.

Take care to build those capabilities you genuinely need, rather than those that do not serve your customers — even if some of the latter feel important or mattered in the past. Remember that capabilities do not manifest themselves over­night; they take time to grow. That’s why foresight — particularly the ability to anticipate future industry dynamics and customer needs — is so crucial.

As you look for ways to foster growth, consider every move through the lens of your ultimate aspiration: your ability to thrive by consistently attracting customers. To achieve that goal in today’s global business environment, it’s not only what you do that matters — it’s how well you are equipped for it.

Reprint No. 08401

Author Profiles: 

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Cesare Mainardi is the managing director of Booz & Company’s North American business and a member of the firm’s executive committee. He works with companies in the consumer products industry to help them achieve major business transformations.

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Paul Leinwand is a partner with Booz & Company based in Chicago. His primary area of focus is developing strategy and growth programs in the consumer packaged goods and retail sectors. He chairs the firm’s marketing advisory council.

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Steffen Lauster is a partner with Booz & Company in Cleveland who focuses on strategy development and revenue management initiatives for consumer products clients in the U.S. and Europe.

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Also contributing to this article were Booz & Company Partners Leslie Moeller and J. Neely, Principals Jaya Pandrangi and Juan Carlos Webster, and Consulting Editor Tara Owen.

Ethnographic Research: A Key to Strategy (Via Harvard Business Review )

 by Ken Anderson

Corporate ethnography isn’t just for innovation anymore. It’s central to gaining a full understanding of your customers and the business itself. The ethnographic work at my company, Intel, and other firms now informs functions such as strategy and long-range planning.

Ethnography is the branch of anthropology that involves trying to understand how people live their lives. Unlike traditional market researchers, who ask specific, highly practical questions, anthropological researchers visit consumers in their homes or offices to observe and listen in a nondirected way. Our goal is to see people’s behavior on their terms, not ours. While this observational method may appear inefficient, it enlightens us about the context in which customers would use a new product and the meaning that product might hold in their lives.

Ethnography at Intel initially focused on new markets. The company had provided products only for the workplace, but in 1995 managers wondered whether users at home would become a distinct market. Ethnographic research showed so much potential that Intel set up a business unit to concentrate on processors and platforms for home use.

Recently, Intel ethnographers have veered into strategic questions. Like many high-tech companies, Intel makes long-term bets on how markets will play out. Will television and PC technology converge? Are baby boomers retaining their PC and TV habits as they age, or are they comfortable shifting to new media? Will smartphones take over most of the functions of personal computers?

Intel can analyze the latest buying patterns and customer surveys for useful data. But people often can’t articulate what they’re looking for in products or services. By understanding how people live, researchers discover otherwise elusive trends that inform the company’s future strategies. With smartphones, for example, we can contrast the technology perspectives of teenagers, who have used cell phones since they were in elementary school, with those of older generations, who came to them only after becoming proficient with PCs.

Our job as anthropologists is to understand the perspective of one tribe, consumers, and communicate it to another, the people at Intel. Our experiences in both worlds make this translation possible. Ethnography has proved so valuable at Intel that the company now employs two dozen anthropologists and other trained ethnographers, probably the biggest such corporate staff in the world.

High-tech companies have to date employed the lion’s share of corporate ethnographers. But I believe that ethnography is so beneficial that it will spread widely, helping firms in every industry truly understand customers and adapt to fast-changing markets.

Via: Harvard Business Review