Design to Handle the Exception, Not for the Exception

While going through security at the airport the other day, I was reminded of an important design and innovation concept.

Things were going smoothly until a bag was flagged during the X-ray procedure. The luggage was held on the conveyor until an authority could conduct a manual inspection. At the same time, a similar problem arose on another line. Everything ground to a complete halt. Although it took only 5 minutes to get the lines moving again, during rush hour that was all it took for the queues to grow out of control.

Many years back, a supervisor shared with me a design principle I still use 25 years later: design to handle the exception, not for the exception. That is, don’t design your business model around the most complicated case. Instead, design it so that the exceptions can be addressed, even if their efficiency is impacted.

When designers try to make one process cover every situation, no matter how rare or unusual, the result is usually greatly increased complexity and diminishing returns for everyone.

Using my supervisor’s mantra, this airport dilemma differently would be solved by pulling off the bags that need manual inspections (the exceptions) into a separate area. Even if those bags would have to wait longer to be processed, they wouldn’t impact the bulk of the customers and would significantly speed up average wait times. Those travelers with the exception bags may be more inconvenienced than they are today, but perhaps knowing that you will be significantly slowed may encourage people to be more careful with what they put in their luggage.

How can this be applied elsewhere?

A major life insurance company found that its claims handling was slow and expensive. What they discovered was that every claim was being processed using the same rigorous procedures.

But all claims did not need to be treated equally.

To improve efficiency, they scaled down the process and segmented claims according to their level of complexity. A simple version was used for straightforward cases. More robust versions were used for more complicated cases, while the full process was reserved only for the most difficult and time-consuming cases.  The most skilled and expensive specialists would resolve these complex claims while generalists handled the easiest ones.

What they found was that 60 percent of their cases could be handled using the simplest process with the least expensive resources. Thirty percent received the mid-level procedure, while only 10 percent needed the original full treatment. The result? Processing costs were reduced by 40 percent while average processing time was greatly reduced. Service levels also increased.

So how does this apply to your business?

Look at your customers. Which customers account for the bulk of your business? Which customers account for the bulk of your profits? Design your business to meet their needs. If you have other, less frequent needs, find a way of handling them outside of your standard processes, even if the cost is greater (to you or the customer) and the convenience is lower.

If you run a restaurant and 80 percent of your customers order the same five menu items, make sure you can inexpensively and efficiently cook those meals. For patrons who want items less frequently ordered, maybe they can pay a premium or wait a bit longer. Additionally, instead of keeping perishable ingredients in house for those rarely ordered meals, maybe you can find a nearby store where you can buy them just-in-time when needed.

If you run a call center…

Read the rest of this article on the American Express OPEN Forum

What It Means to Really Listen

…and guess what, you don’t really listen.  In fact, while reading this article, you are not really reading what I intended it to mean…

Last month, I was on a flight from Orlando to Boston that had a bit of a problem.

An hour before our scheduled landing in Boston, the pilot announced the main braking system was not functioning properly. Although the backup system would most likely work fine, the pilot and flight attendants were preparing us for the worst.

They carefully described the emergency procedures. They were very similar to the ones frequent travelers have heard many times before. But this time, you could hear a pin drop as they walked us through what would happen.  Everyone was paying attention.

Although I am on nearly 100 flights a year, I was listening in a way I never had before. The truth is, I rarely pay attention to the emergency procedures when we are not in an emergency situation.

This got me thinking: Do I ever really listen?

The answer is no. And regrettably, I am not alone.

Unfortunately even when you are trying to listen, you are still likely not really hearing properly.

Psychologists call this “confirmation bias.” We are naturally wired to filter and interpret information to conform to our underlying belief structures. And very simply put, these beliefs cloud how we hear. We only take in those pieces of information that align with our beliefs, and we disregard anything that contradicts them.

Understanding confirmation bias can have a significant impact on your ability to have effective relationships. And as a small business owner, it can have a profound impact on your success if you’re not hearing the true meaning of what your customers and colleagues are saying.

In the corporate environment, I’ve seen brilliant ideas proposed by recent college graduates that were completely dismissed by more senior people. But when those senior people said the exact same things, others thought they were geniuses.

A friend of mine recently attended a weeklong training class. When asked about the class, he responded that he was less than impressed with the instructor. When I asked why, he said, “It’s hard to listen to him. He’s dressed like a slob. His hair was a mess and his shirt was never properly tucked in.” The instructor’s appearance impacted how he was heard. Amusingly, on the last day of the class, his perspective changed. When pressed to understand why, I discovered the instructor had gotten a haircut and was wearing a stylish suit and tie. The change in appearance impacted how my friend heard the instructor. He claimed the instructor now “sounded more intelligent.”

As you read this article, I can assure you that your judgments are impacting how you receive what you are reading. If you want to actually absorb the value of what someone is saying, you need to know your natural biases.  This will impact your ability to innovate.

Listen better

The first step to listening better is to recognize the fact that you don’t. Ask yourself the following questions:

• Are you really hearing what others are saying?  Or are you only passively listening?
• Are you focused on their words?  Or are you thinking about what you will say next?
• Are you putting yourself in the shoes of the other person?  Or are you only interested in meeting your own objectives?
• Do you ask a lot of questions?  Or are you doing all of the talking?
• Are you hearing what they are really saying?  Or are you too colored by your own perceptions, judgments and filters?

This last question is critical. If you are honest, you will most likely begin to see that your filters are getting in the way of communication. By recognizing that you even possess these filters, you can become more aware when they begin to color your interpretations. This allows you the choice to set them aside so you can create an effective opening to listen.

Think about what your customers try to tell you…

Read the rest of this article (and comment) on the American Express OPEN Forum

Reframe the Framework to Generate More Cash

This article originally appeared on the American Express OPEN Forum

The way we frame our business world can significantly impact our success. Frameworks are useful, but they can also be limiting. Perhaps it’s time to rethink the way things have been done in the past.

One useful framework is often called the product funnel or the accelerant curve. This framework typically refers to speakers, consultants, Internet businesses and those who create “intellectual property.” But the concept can be applied to any business, especially small businesses.

The general philosophy of the product funnel is to have products and services that increase in value so that you can continue to up-sell over time.

In this framework, customers enter your pipeline to buy a low- or no-cost item. This helps you to build trust, which in turn, lets you provide more robust solutions to your customers and put more money in your pocket.

I work with a lot of professional speakers. They would probably draw the curve as it is depicted to the right.

Most speakers offer a $25 product, typically a book. This is the low end of their curve. And, at the high end, they deliver a speech for which they charge $25,000.

Given this framework, the natural tendency is to fill in the curve with products priced in between. This might include CDs, DVDs, membership sites or coaching. They create a $250 product, a $750 offering and a $2,500 service.

The boundaries established by this framework—$25 and $25,000—delineate how you think about innovation.

While this tends to be the practice of most people who offer such services, looking at the curve this way may limit your true growth potential. Instead of $25,000 being at the top of the curve, what if it were actually near the bottom?

What if the top of the curve is closer to $1,000,000, or higher? If that is the case, you need to create products that are more than $25,000, not less. These could include assessments and diagnostics, consulting arrangements, sustainability programs that bring a speech to life over an extended period of time, or anything else that adds value.

From this example, you can see how the framework you create dictates your production. A small framework produces only the results that fit within that structure. Expanding your view opens up possibilities for greater value and financial gain.

This concept can apply to any business.

Are you a plumber? Maybe your typical project generates around $2,000. You may be tempted to offer a lower-cost option, perhaps a do-it-yourself kit, for only $200, which is valuable.

But what if, instead of $2,000 being the high-water mark for your services, you created a $200,000 offering? This would certainly get your creative juices flowing. Maybe, instead of selling your services to individuals, you target condominium associations, selling them an all-inclusive deal for every unit. It would challenge you to think bigger than you have thought before.

Are you a restaurateur? So many businesses offer their customers low-cost meals through Groupon or Restaurant.com. These may be reasonable entry points for your product funnel and are effective for driving new traffic.

But instead of focusing your efforts on smaller “transactions,” what if you shift your view to incorporate a higher-value, higher-dollar, relationship-driven option? How can you create a $10,000 meal?

Think big. Consider catering or developing an annual diet program that delivers meals to your customers to meet their dietary needs. Who knows what you will think of? But it is time to think big.

When you think small, you produce small.

You could even sabotage the business that you already have. I recently purchased a Groupon deal for a cleaning service. The owner’s hope was that Groupon would help her acquire new customers. She has been in business for seven years, but this low-price mindset might have killed her company. So many people subscribed that she could not adequately service her regular customers, let alone the new ones, and she risked losing them.

No matter what your business, avoid the “transactional” mindset. Find ways of engaging with your customers by providing both lower- and higher-priced offerings that will ultimately create a long-term relationship. But even more importantly, think big. Find ways of creating massive value, beyond anything you have considered before. Redraw your funnel or your curve by blowing the top off it.

How will you rethink your business?

Please comment on this article on the American Express OPEN Forum

Extra added bonus content:

When I originally posted this article on my Facebook page, someone commented that,

“The assumption that you are even worth $25,000 is a stretch for many folks. And for product companies, like shoes, for example, why spend hours thinking about a $200,000 shoe? Certainly that time would be better spent figuring out how to lower costs or enter new markets.”

Great point!  Here was my response:

“The usefulness of this concept depends on the evolution of your company. Regardless, it is a useful thought exercise. Most small businesses get stuck with a mental model which limits their thinking. I have this product, so this is what I sell. Just asking the question, ‘What product/service could I offer that is 10x what I offer today?’ can get a mature and established business thinking about bigger opportunities with greater leverage.

“And sometimes it is not about a bigger product.  For example, with my self published book, it is easier for me to sell 500 books to one client than it is to sell 500 books to 500 individuals. There is no leverage in the latter. Instead of a $15 sale, I discount and sell 500 in bulk for about $4,000.

“The question isn’t necessarily even new products but maybe different sales channels/methods for increasing $$ per sale.”

The Three-Step Formula for Innovation Success

A lot of theories circulate on how organizations make innovation a reality. Over the past 20 years, I have found a very simple formula that helps a company transform the way it innovates.

Here’s the key: Ask the right question, the right way, of the right people. Let’s break that down into the three core components. Each component involves powerful questions to ponder.

1. Ask the right question

Issue: An internal focus is sometimes the enemy of innovation.

Many organizations have become overly enamored with idea-management programs. They ask employees for their opinions and suggestions. But having a large number of ideas does not mean you have a useful innovation program.

Einstein reputedly said, “If I had an hour to save the world, I would spend 59 minutes defining the problem and one minute finding solutions.” Most organizations are spending 60 minutes working on things that don’t matter.

The first step in the innovation process is to make sure you’re working on something of strategic importance. You have to leave the four walls of your company and see what is going on outside. Here are some questions to consider.

• Do you know what your competitors are doing? How do you differentiate yourself in the marketplace? Innovate where you differentiate.
• Have you articulated a clear business strategy that drives your innovation strategy? Most business strategies are too fluffy and give little direction.
• Have you connected with your customers to understand their wants and needs? Have you done ethnographic studies to identify latent needs? Don’t rely on focus groups and surveys, which are notoriously inaccurate.
• Are you addressing your customers’ pains? People are wired to want their pain eased before seeking “gains.”
• Are you focused on simplification? Too often we over-innovate. But sometimes the best innovation simply reduces complexity and provides accessibility.

2. Ask the question the right way

Issue: A lack of rigor is sometimes the enemy of innovation.

Once you know the right question to ask, the next step is to ask it in the right way. This takes effort and discipline. Individuals and organizations often don’t invest the time framing better questions that lead to better information.

Use the Goldilocks Principle. Make sure you don’t ask questions that are too broad or abstract that lead to fluffy and irrelevant solutions. And don’t ask questions that are too specific, as this reduces the possible areas where you can find solutions. You want to frame questions that are “just right. Consider these useful factors when framing questions.

• What are the leverage points for finding a solution? What is the one thing that has the greatest impact in delivering the desired result?
• Does your question imply a solution? What are you really looking to achieve? Frame the question so you consider other approaches.
• Does your question require a particular expertise? If so, re-frame it so that other domains of expertise offer solutions.
• Is your question overly complex? Find ways to deconstruct it into smaller and more solvable parts.
• Have you researched the facts your question involves? Too many questions are formulated on conjecture rather than on real data.

3. Ask the question of the right people

Issue: Expertise is sometimes the enemy of innovation.

Experts find solutions quickly, but the odds are they’re not new, different or innovative. Studies show that people from a differing area of expertise tend to find breakthroughs. As Will Rogers once said, “There is nothing so stupid as an educated man, if you get him off the thing that he was educated in.”

Read the rest of this article on the American Express OPEN Forum

Goals Are Stupid

NOTE: This article is on the American Express OPEN Forum with the title “How to Make Goal-Setting Work for You.”  But the title I really wanted was “Goals Are Stupid.”  I’ll let you decide if they are or not.

We are a society obsessed with goals. Nearly everyone sets them. In fact, we just finished the most popular goal-setting day of the year: New Year’s Eve. This is when we establish our annual objectives, called resolutions.

Even though goal-setting is in vogue, is it good for us? Maybe, but not necessarily.

After studying goals for nearly 10 years, I have seen that for many, this ritual can lead to both failure and disappointment. Why? Goal-gurus often use words like “achievement,” “success” and “potential.” They position these concepts in a way that sounds appealing. “Get a better job.” “Make more money.” “Find the perfect partner.” Although our culture has placed a high value on success, money, status and fame, none of these are what we really want. I believe the ultimate goal for human beings is “happiness.”

So, what is it that makes people happy?

A few years ago, I commissioned a statistically valid study that uncovered some startling figures:

• 58 percent of people admit to willingly sacrificing their happiness today in the belief that when they achieve their goals they will be happier. This means that over half of all goal-setters believe that happiness only exists in the future when they achieve their goals.

• Sadly, according to the same study, 92 percent of people fail to achieve their annual goal—their New Year’s resolution. And it appears that this failure rate applies to all goal-setting.

But what about the 8 percent who achieved their goals? Clearly they must be happy with the results. But surprisingly, 41 percent of those who achieved their goals found that the accomplishment did little to improve their happiness. In fact, they were left disillusioned, dissatisfied and worse afterwards. Why? Many realized they inadvertently set the “wrong” goal. What’s the response? Set yet another goal, and allow the vicious cycle to continue.

If you do the math, this means that only about 5 percent of goal-setters both achieve their goals and are happy as a result. And many of those “successful” 5 percent become acclimated to the fruits of their labor and the happiness wears off. The more money you make, the more money you want. The bigger your house, the more space you desire. The more successes you obtain, the more success you want.

This acclimation perspective is supported by Daniel Gilbert, author of Stumbling on Happiness, in an interview in the January/February 2012 Harvard Business Review. He says:

“A recent study showed that very few experiences affect us for more than three months. When good things happen, we celebrate for a while and then sober up. When bad things happen, we weep and whine for a while and then pick ourselves up and get on with it.”

He contends that happiness is not linked to achievement. In fact, he provides striking examples of people who had experienced “horrible” circumstances yet were ultimately happier in the long run. Apparently, we are good at finding the “silver lining.” On a lighter note, he quotes Pete Best, the drummer in the Beatles who was replaced by Ringo Starr before the band became big. He is now a session drummer and said, “I am happier than I would have been with the Beatles.”

Achievement does not necessarily drive happiness—nor does having “more” or “less.” To be clear, I am not advocating that people sit idly while eating bonbons and watching Jerry Springer. A life like this is neither juicy nor exciting and will most likely lead to hedonistic tendencies and a feeling of being lost. You still need to have something pulling you forward; something that gets you energized.

So here is what I am suggesting…

Read my four counterintuitive tips for goal-setting and the #1 fallacy of goal-setting on the American Express OPEN Forum

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