Don't Panic

Strategic Development

“Innovation is the specific tool of entrepreneurs, the means by which they exploit change as an opportunity for a different business or a different service.  It is capable of being presented as a discipline, capable of being learned, capable of being practiced.”

Peter Drucker 1985

    Aside from my personal experience in business I've learned a good deal about innovation from Peter Drucker and Clayton Christensen and owe a nod of gratitude to them for much of what you'll read here as I've applied their concepts to media and publishing.
   

    In my AAN presentation, I emphasized innovation as the primary focus of an organization's efforts. Rarely is it a flash of genius or being kissed by the muses.  It's systematic hard work and over the past twenty years or so much has been learned about how to go about it.  The practice of innovation has to be built into the DNA of your organization.  If culture sets the stage for inculcating the value of innovation and to welcome it, strategic development starts the process of putting meat on the bones.
   

    First, I'll offer a couple of quick, super-compressed definitions of innovation and strategy development.
Innovation, whether applied to a product or process, i.e. a resource, changes the yield of that resource.  Meaning it increases the value obtained from that resource by a consumer or end-user.  For example, an innovation applied to an internal process creates a higher yield for the end-users, or internal consumers; something that enables them to better perform their job or derive greater satisfaction in some meaningful way to them.  The same applies to your external customers.  It warrants stating, innovations are more than just improvements.  Think of innovation as being super-improvements or bundles of improvements that fundamentally alter something.  (That being said, don't lose sleep over whether or not your improvements merit the name innovations.  Just keep aiming high and increasing value.)  Innovation starts with demand-side thinking—the consumer.
      

    Strategy development has two primary parts.  The creative ideas that respond to demand-side needs and create the supply-side solutions in the form of products and processes.  Secondly, the operations and ability to implement those ideas effectively, and routinely measure your efficacy.
   

    For the first part, two kinds of employees are critical.  You need real public-facing, market savvy people who have an intuitive sense of what consumers and advertisers want and need.  They are the visionaries.  They also know where to dig to substantiate their findings.  The second type is an inventor; someone who understands what the technology of any product or process requires and can think outside the box to create never before used concepts.  And by technology, I'm not just referring to high-tech, but to related techniques.  This is the person who discovers new possibilities.
   

    On the operations front, you need the ability to implement the best ideas in a coordinated fashion that everyone can grasp.  These are folks who know how to manage resources of the company and get the most out of them.  They can also set up accurate and timely measurements to reflect progress or lack of it and move to action to correct, abandon or strengthen accordingly.
   

    Depending on your culture, your approach to starting the strategy process will vary.  Since I advocate whole organization mobilization, I favor a process designed to include management and staff from the beginning.  There are two steps in preparation to get everyone on the same page.  Establishing a historical perspective on what your company has accomplished over the years, successes and failures, and where you are now informs everyone with the same knowledge—a common recorded history.  This is particularly helpful for newer employees who may have only a vague sense of connection to your past.
Next you have to define the scope of your plan by knowing your major objectives.  I think mission and values statements are important, but it's the objectives that make them actionable.  Where do you want be in two-to-three years?  Click on the image to get a list of important questions to ask at this stage of initiation.

    It's worth spending a moment on reconsidering what growth means, since that's usually the main objective that pops up in strategic development.  It has, after all, been the driving force in American economics and business.  "Grow or die" is the mantra.  Growth in that conventional sense means expansion, or getting bigger.
   

    This is the perfect time to reevaluate that standard.  Growth metrics for newspapers— circulation, pages, and sales income—are either slowing or declining.  (I'll suggest that net profit, operating cash flow and return on assets are more useful metrics in the post on financial thoughts).  The natural reflex is to spur growth again using those metrics, which means more or less revitalizing old strategies.  The problem is that the decline is driven by the demand side; meaning that growth (stated in the terms above) becomes increasingly more difficult and costly.
   

    Taking a whole organization view, what else could growth mean?  What new definitions of growth and new metrics would support innovation?
   

    Learning new things is an example of growth.  Of course your organization has to value learning in order for everyone to know it's encouraged.  It can't be confusing.  Experimenting with new ideas and making mistakes is a part of learning.  You have to dedicate time and resources.  If the pressing urgency of the 'old' (legacy products and processes) commands all the attention and learning and trying new things gets pushed aside, then learning is not really important and employees won't do it.  The more companies face financial tightening and job insecurity rises, the more employees will take their cues literally.
   

    Shedding or getting rid of things is another measure of growth.  Nearly every organization has systems and processes that either serve a purpose that no longer exists or are ineffective in getting that thing done the best way.  Take an example of getting rid of things in a room in your house.  That same room looks bigger and in most cases is more useful after you purge the things you don't really use that much.
   

    Intensifying is another.  The Japanese are wonderful at this.  The Chinese invented the fan and the Japanese pleated and folded it.  They did the same things with electronics through miniaturization.  Artists do this by combining inexpensive and common materials into creative expression that produce an end product worth many times its parts.  The aim of all this intensifying goes beyond efficiency—it's about quality and creating something of lasting value or beauty.  That fundamentally changes the value of resources.   

     Once you loosen the straps of a one-dimensional definition of growth—getting bigger—you're more likely to pursue strategies that contribute to your long-term success.  It's not a choice between growth or no-growth; it's more about redefining growth.

    The next two images (35, 36) underscore the importance of generating ideas for better serving customers and non-customers.  Check out the Newspaper Next website for some great tools in doing this.  They've worked closely with Clayton Christensen.  While they are focused on dailies, the tools and concepts are very helpful in understanding the process.  I use my own tools developed over the years, and really the main thing is to have a systematic process.

 

    I offer the example shown in the two images (37, 39) of a magazine client of mine that publishes an annual directory of resources for readers in which the advertisers buy enhanced listings and display ads.  An idea sprang from the sales department that they could create an online directory to complement print.  We defined how it would be useful and valuable to both sets of customers.  In that you'll find assumptions and risks that have to be sorted and resolved.  Then it has to meet financial criteria—is it worth allocating resources to this?  Using simple break-even analysis spreadsheet tools, we concluded it was and it's now in development.  This process doesn't have to be lengthy, complicated or costly.  But it does have to be methodical and thorough on the points important to the organization.

   

    These days strategy needs to be thought out in a relatively short period and measured, evaluated and adjusted in shorter cycles than is the convention of yearly.  I like quarters or using project management milestone cycles (more later in a post dedicated to project management).  My hope is that you grasp the importance of creativity and systematic process required for innovation, and that your strategic development harnesses innovation.

How we get things done

   

The diagram shows the main areas of concentration for developing your strategy.  Let's start with organizational culture and then move through the other areas.  The Alt-Weeklies (AW from here out) have usually shared the attitude that dailies are big dumb oafs because their organizations are sluggish and incapable of changing or innovating.  Like most mature businesses they do suffer from organizational lethargy.  And they are gradually awakening to this reality as they watch their profits slip away along with key parts of their business.  Some of them are making progress initiating new projects, some aren't.  But just because AW are younger and more vibrant in many ways doesn't mean they're immune from the same stagnation in organizational creativity and innovation.

    All the folks I know in the AW industry are mostly hard-working, earnest entrepreneurs.  The biggest failing I observe is that most AW organizations perform below standards of excellence when it comes to getting things done effectively. Often the price is undue wear and tear on staff and finances.  Organizational culture sets the pace for getting things done and how inspired you feel to get up every day and do it again.

    Your cultural habits and behaviors determine how you're going to respond to markets and changes.  You can have the best strategy possible and still fail to execute properly to reap the full benefits of the strategy.  The strategic development process itself is determined by the quality of culture.

The Three Management Structures for Organizations
   

This table describes the three ways that companies are governed: hierarchy, heterarchy and responsible autonomy.  While hierarchy has reined as the most common structure since human history has been recorded, heterarchal structures are emerging as more and more businesses recognize the benefits.  In truth, most companies are a blend with responsible autonomy as the smallest portion (largely in use in R&D driven environments).

    The main thing I want to emphasize about culture is that it both reflects and determines a lot about where an organization is going and how it will get there.  In order to create a strategy and execute it a business enterprise needs systems and levels of coordination (communication, leadership) that propel it towards success.

    The table below shows a distinction between two blends: 1) dominant hierarchy/aims at results over people concerns and 2) heterarchy/hierarchy blend/balances results with people concerns.  There are of course an infinite number of permutations and blends, but this is one example for contrast of two of the most common found in AW organizations.

    Culture itself is somewhat abstract and exists whether or not it is consciously developed.  Just as an individual has values and beliefs in what reality is, and that in turn determines his behavior, so is it true for an organization.  The dynamic is more complex because it's a collective of many individuals with different views of reality.  Leadership styles, use of power, delegation of authority and others (shown in the next table) define culture and the common ways employees behave to get things done.

    I've used a management and staff training program called Management by Responsibility (MBR) for over twenty years.  It's the most effective way I've found to alter culture because it focuses on behavior and action.  Many companies have embraced the concept of mission and values statements to inform everyone about culture, but without action they are just lofty statements for wish fulfillment.  You change culture by changing the behavior of its members through what they do, how they do it and how it's coordinated.  The following tables show the MBR grid of management: seven dimensions of functioning and five levels that represent the orientation to those dimensions.  A similar grid exists for staff and individual functioning.

There are four slides which you can download and open in PDF.

PDF:Download MBRgrid4.pdf

    You'll notice two icons of the two most common levels of functioning.  Michael Scott, as portrayed in the TV series, The Office, is the typical conformist manager.  That's why we find it so damn funny.  We know him!  He works with us.  We're familiar with his style and while it's funny to watch from the safe distance of a TV program, it's not so funny to actually work with anyone in this mode.  Trump represents the achievement level.  A safe distance from this asshole is our aim in life.

    Most managers function at more than one level across the dimensions.  It's important to know where you and other managers in your organization fit and then set about making the changes to function at higher levels over time.  The MBR program defines a process for doing that.

    Organizational culture development is an ongoing process that takes years to establish and elevate.  As a matter of fact it's a continuous process of learning that really never ends, it just gets easier after a certain point of development.  It's accomplished in tandem with all the other things you have to get done in the course of running a business.  It's needed now more than ever if you hope to stimulate the highest level of innovation and entrepreneurship required to be successful.

Where Did The Money Go?

    This is one of a series of posts to lay out some ideas and perspectives on the state of the alt-weekly business as discussed during the 2007 AAN convention in Portland.  I gave a short presentation on creating context for decision-making in these rapidly changing times.  That will be broken up and presented in these posts.

    I think it's instructive to take a historical view of media and print in particular to better comprehend what is happening now.  [See an earlier post on the specifics.]  Newspapers and magazines were born and experienced explosive growth coincidental to the surge of the industrial revolution, primarily from 1873 to 1910.  Almost all of the innovations required to make this happen were around manufacturing and related technologies.  Other than those, mass literacy as a result of a rapidly growing education system and rapid population growth fueled the social condition to support mass circulation.  Joseph Pulitzer's innovation of mass advertising in the New York World added to economic power to support exponential growth.  Hearst's contribution of newspaper chain development leveraged the economic powers, and for good or bad it fueled even more systematic growth for newspapers and magazines.

Like most industries, the early and intermediate development stages exhibit fierce competition among a crowded field of competitors.  Grand successes and failures dot the landscape; as well do the mergers, acquisitions and consolidations.  Sound familiar to what's happening in the web world?

    Print remained the dominant advertising and audience medium for nearly a century.  That started changing after 1955.  The introduction of other forms of media, news and entertainment slowly eroded print's dominant stranglehold.  The great social divide of 1968—73 combined with advancing technologies of competing media, segmented database marketing and demographic impact of baby boomers introduced a new era.  Think of this as the information age emerging and the industrial age declining in influence.  Alt-weeklies exploited these changes to start and flourish.  Nevertheless, daily newspapers alone lost nearly $43 billion per year (2005 vs. 1955) in relative economic status in ad sales.  If the alt-weekly segment picked up $550 million (1.25%), where did the rest go?

The answer of course is that competing media, both within and without the print world, lapped it up like thirsty dogs.  Direct mail has surpassed newspaper's annual ad sales by 10% (it barely existed before the 1960's).  The impact of entertainment media, film and music, while feeding the ad coffers of news media, also fragmented audience attention to the long-term detriment of newspapers.

Think of everything before the late 1990's as Media 1.0.

In the Media 1.0 universe, audience attention was relatively cheap and abundant. Blockbuster movie and record sales are proof of this in entertainment media.  It was cheaper and easier to achieve economies of scale in production and distribution to invest into marketing to grow sales through acquisition of audience attention than it was to spend on quality (production link in value chain).  Alt-weeklies exploited cheap and abundant attention by using free circulation (distribution economies of scale) and clever guerilla marketing to get readers.  Demographic and psychographic segmentation (target trend-setting 18-34 year olds) exploited the trend toward consumer segmentation in marketing.  It was even evident in consumer products like toothpaste or cereal, where a new product could be launched and incredibly successful based solely on the quality of advertising and not on product quality.  (Captain Crunch was developed by an ad agency and then became a product.)

The Media 2.0 world inverts the value chain equation.  Audience attention, which translates into circulation/readership for newspapers and engagement with readers, is rapidly becoming scarce and thus more expensive and elusive.  The web enables pure play competitors to leverage relatively cheap and abundant production and distribution (scarce in Media 1.0) to snag these attention fragments.  The effect ripples across all media and disrupts the economics for traditional media companies.  Dominant media players in Media 1.0 who were in the fat head of the audience reach scale are now pushed into the long tail with millions of other competitors for attention and ad dollars.

So, what's a newspaper to do?

Several folks at the recent convention have asked me what I think about Hal Smith's presentation in which he advocated greater focus on newspapering and less on the consumer web application.  He mentioned that the disruptive effect of the web has forced publishers to ask what business they are in, to which the common refrain has been, "“we are in information content business".  His answer is "we're in the newspaper business".

I guess I view it as a false dichotomy.  Of course you're in the newspaper business if you publish a newspaper from which you derive the majority of your income and so you damn well better do it well and pay attention to the details.  But the second question you have to ask yourself is "what is it that a newspaper does?"  The answer to that resembles the other choice, "we gather and organize information about community news and events, cultural and lifestyle issues, etc. fashion it into a stylized content presentation which we give to consumers and sell their attention to advertisers".

The biggest problem I have with the framing is that it's a supply-side question, which means there's hardly a wrong answer to it.  The implication in the subtle difference between the two choices is that you may be spending too much time on non-core business function and too little on your newspapers.  The two ways to prove that is to ask demand-side questions first and to accurately measure your performance in operations against the best success standards.  The latter is important under any circumstance and the former is the new question of the day and where the disruption is occurring.

I'll address the performance standards in a subsequent post, but for now let's stick with the demand-side questioning.  Here's the short list for consumers.

• What information do consumers want?
• What does that information accomplish for them, i.e. how do they derive value from it?
• How do they get it, i.e. what is their favorite way of obtaining it?
• Are their preferences for what they want and how they get it changing, and if so in what ways?

    The knowledge you derive from the answers to those questions is critical to the supply-side questions and answers.  In other words, if you start with supply-side questions and answers that merely point out the obvious by picking gnat shit out of pepper, you'll have the false sense of actually having done something important.  What you'll miss is where you really need to allocate resources based on demand-side reality.

    Remember, media operates in a two-sided market as shown in the chart below.

    The reality for newspapers as pointed out in the first part of this post is that consumer demand has been shifting for over fifty years, both in what they want and how they want to get it.  Fundamentally, they still do many of the same things as before, but new generations have different preferences and thanks to expanded choices introduced by electronic media including the web and mobile, older generations are shifting too.

Just in the ways that print dominated in the heyday of the industrial age, electronic media dominates in the information age.  As a matter of fact, a recent Universal McCann study revealed that among 18-34 year olds who are heavy web users that the medium they would most miss if taken away was television (web and email followed).  My guess is they're not talking about the major networks, but about cable.  Newspapers and magazines were fifth on the list below radio.  For the 35-49 year old crowd, newspapers tied for fourth place with radio.

    You could certainly pursue a newspaper-only strategy even in light of the changes and decreasing demand.  After all, it's probable that given the legacy of print and the largess of current ad spending in print that there are a good many years left for clever publishers.  The newspaper that focuses and perfects that product by exploiting other links in the value chain could perhaps pick up market share relinquished by the number of failures likely to occur in the next decade.  The product(s) better be remarkable though, and it probably will barely resemble what you're publishing now.  As a TV metaphor, think HBO quality programming versus CBS, NBC, ABC or Fox.  For folks who love print, are able to passionately innovate and don't have a taste for web or mobile, this might be the best route.  Additionally, your organizational management better be exceptional too.

    The risks assumptions with the single-dominant print strategy are that:

1. Consumers will want what you offer.
2. There is growth potential greater than inflationary gains.
3. You can achieve impeccable business management.
4. Advertisers will want what you have to offer and be willing to pay more than what it costs you to produce it.

    If you pursue a web strategy in tandem with a print strategy, the print strategy has to be the same as described above—aimed at leadership in the field.  The same for web although the development curve can be much longer and incremental.  By that I mean start with simple and single-minded focus on key areas that you can establish leadership in your market with customers and non-customers and grow upstream from there.  More on that later...