III Piloting

III Piloting

Enterprises of all kinds increasingly use all kinds of market research and customer research to limit, if not eliminate, the risks of change. But one cannot market research the truly new. But also

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nothing new is right the first time. Invariably, problems crop up that nobody even thought of. Invariably, problems that loom very large to the originator turn out to be trivial or not to exist at all. Above all, the way to do the job invariably turns out to be differ- ent from what is originally designed. It is almost a “law of nature” that anything that is truly new, whether product or service or technology, finds its major market and its major application not where the innovator and entrepreneur expected, and not for the use for which the innovator or entrepreneur has designed the product, service or technology. And that, no market or customer research can possibly discover.

The best example is an early one. The improved steam engine that James Watt (1736–1819)

designed and patented in 1776 is the event which, for most people, signifies the advent of the Industrial Revolution. Actually, Watt until his death saw only one use for the steam engine: to pump water out of coal mines. That was the use for which he had designed it. And he sold it only to coal mines. It was his partner Matthew Boulton (1728–1809) who is the real father of the Industrial Revolution. Boulton saw that the improved steam engine could be used in what was then England’s premier indus- try, textiles, and especially in the spinning and weaving of cotton. Within ten or fifteen years after Boulton had sold his first steam engine to a cotton mill, the price of cotton textiles had fallen by 70 percent. And this created both the first mass market and the first factory—and together mod- ern capitalism and the modern economy altogether.

Neither studies nor market research nor computer modeling are a substitute for the test of reality. Everything improved or new needs therefore first to be tested on a small scale, that is, it needs to be PILOTED.

The way to do this is to find somebody within the enter- prise who really wants the new. As said before, everything new gets into trouble. And then it needs a champion. It

88 Management Challenges for the 21st Century

needs somebody who says: “I am going to make this suc- ceed,” and who then goes to work on it. And this person needs to be somebody whom the organization respects. This need not even be somebody within the organization.

A good way to pilot a new product or new service is often to find a customer who really wants the new, and who is willing to work with the producer on making truly suc- cessful the new product or the new service.

If the pilot test is successful—if it finds the problems nobody anticipated but also finds the opportunities that nobody anticipat-

ed, whether in terms of design, of market, of service—the risk of change is usually quite small. And it is usually also quite clear where to introduce the change, and how to introduce it, that is, what entrepreneurial strategy to employ.

The Change Leader’s Two Budgets Finally, successful change leadership requires appropriate

accounting and budget policies. It requires TWO separate bud- gets.

In most enterprises—and again not just in businesses—there is only one budget, and it is adjusted to the business cycle. In good times expenditures are increased across the board. In bad times expenditures are cut across the board. This, however, prac- tically guarantees missing out on the future.

The change leader’s first budget is an operating budget that shows the expenditures to maintain the present business. This is normally 80 to 90 percent or so of all expenditures.

That budget should always be approached with the ques- tion: “What is the minimum we need to spend to keep oper- ations going?” And in poor times it should, indeed, be adjusted downward (though in good times most of it, prob- ably, should not be adjusted upward, and certainly no more than volume and/or revenues increase).

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And then the change leader has a second, separate budget for the future. This budget remains stable throughout good times and bad times. It rarely amounts to more than 10 or 12 percent of an enterprise’s total expenditures—and again this applies to non- businesses as well as to businesses.

Very few of the expenditures for the future produce results unless maintained at a stable level over substantial periods. This goes for work on new products, new services and new technologies; for the development of markets and cus- tomers and distribution channels, and above all, for the development of people.

The future budget should be approached with the question: “What is the maximum this activity can absorb to produce opti- mal results?” That amount should be maintained in good times or bad—unless times are so catastrophic that maintaining expendi- tures threatens the survival of the enterprise.

But the future budget also should include expenditures to exploit success. The most common, but also the most damaging, practice is to cut back on expenditures for successes, especially in poor times, so as to maintain expenditures for ongoing opera- tions, and especially expenditures to maintain the past. The argu- ment is always: “This product, service or technology is a success anyhow; it doesn’t need to have more money put into it.” But the right argument is: “This is a success, and therefore should be sup- ported to the maximum possible.” And it should be supported especially in bad times when the competition is likely to cut spending and therefore likely to create an opening.

We tend to manage according to the reports we receive and see. This explains why it is important for the change leader to have reports focusing on the areas in which the enterprise does better than expected, the areas of unexpected success, and there- fore the areas of potential opportunity. It also explains why it is crucially important for the change leader to have a budget that embodies the commitment to making the future and to be ahead of change.

90 Management Challenges for the 21st Century