For many people in business, the “experience curve” has become an artifact of the manufacturing age. While it explained a lot about market supremacy when huge, stable producers like General Motors and Caterpillar led the economy, it is less useful as a predictor of dominance in the digital world.
The concept is simple: The more a company does of something, the more it learns and the better it should get at doing it. The resulting efficiency becomes a major competitive advantage, which only increases as the company gets bigger and gains more experience. In modern industries characterized by turbulence and technological disruption, however, a feisty insurgent can very quickly render a company’s accumulated experience irrelevant. And with the global shift to services, where unit costs are less an issue, the relationship between experience and efficiency is not so clear.
So does that mean experience or learning are any less important? Hardly. Learning as you grow is the one benefit of scale that comes without all the negative baggage. Adding people, customers, systems and channels all creates complexity. But building the appropriate learning systems only improves the company’s speed, efficiency and responsiveness, helping it beat back complexity and maintain the insurgency even as it scales. Despite this, too many companies have shifted their focus to other priorities as the explanatory power of the experience curve has waned. But in our meetings with founders, we’ve been encouraged to see that many are rediscovering the value of building robust learning systems. Here are six things we’ve learned about doing it effectively:
1. Amplify the voices of the customer and the front line. Companies with a strong Founder’s MentalitySM obsess over the front line and the customer. But as we’ve noted in our discussions of the westward and southward winds, these voices are all too frequently drowned out as the company grows. The front line is no longer around the table at senior meetings. The customer’s experience with your company is fragmented across too many touchpoints. Learning from these all-important voices requires amplifying them. That starts with realigning the organization so that the kings’ agenda is preeminent and the court is charged with supporting it (see Step 2). But it also requires proactive exercises like starting meetings with lessons from real customers (not reports on average customers’ views) and getting away from the desk and back into the field. The best way to know what’s going on in your market is to learn from your customers and the frontline people that serve them. So turn up the volume.
2. Make the idea of “continuous improvement” a cultural norm. To learn, you need to care about improving. You need to constantly be searching for new ideas and striking up conversations with those around you to understand how your company can improve. A company without a cultural expectation for continuous improvement is almost never a learning company. You and your people need to care passionately about doing what you do a little better every day.
3. For each major capability required by your strategy, build the right feedback loops. In Step 1 of the Journey North, we talked about your “strategy on a hand,” where the thumb represents the insurgent mission and the fingers represent the three or four crucial capabilities in which you must excel. But knowing whether you are, indeed, excelling requires creating the right feedback loops for each capability. A few years back, the leader of a large technology company related this remarkable story about a flaw in the company’s strategy, which was centered on cost leadership. “When we wrote our strategy we did a massive benchmarking exercise to establish our relative cost position—and we were the leader,” he said. “But we never again looked to see if we were still leading—and gradually we weren’t! We never built in a feedback loop to check our position over time.” This floored me. We are so used to thinking about feedback loops as something for customers only. But this example made it clear: If your strategy demands you are world class at something, then put in the right feedback mechanism to monitor how you’re doing over time so you can stay ahead.
4. Build a common language for best-practice sharing. As we’ve talked to companies about feedback loops, it becomes immediately clear that you must also create a common language to encourage the sharing of best practices. If you want your people to learn about how best to work with customers, for instance, you will need to create a common vocabulary to discuss different customer segments. If you want to compare lessons from different levels of service, you will need to codify and define those service levels. While this has the whiff of complexity, what we’ve learned is that absent a common syntax and set of measures for the few things that really matter, it is very difficult for the organization to share information and learn from it.
5. Encourage peer-to-peer learning. At first, you don’t notice, but if you ask the right questions you eventually discover that in most large organizations, the learning systems are “hub-and-spoke.” Someone is appointed to a hub position and sends emails out in a 360-degree arc to people at the end of all the spokes (those doing stuff). Gradually, he or she emerges with a rulebook or set of best practices. On the face of it, there’s nothing wrong with that—without a focal point, how do you create a center of excellence, where spoke learning can be collected? But if you probe deeper, many hub-and-spoke systems don’t encourage the spokes to talk to each other. Too often, the hub becomes the oracle, the fountain of wisdom, the holder of the “way things get done.”
Consider the marketing departments at many companies. Typically, they have a fixed way of doing things and the marketing heads see it as their job to tell those lower down (read, closer to customer) how things should be done. One company we worked closely with to restore a sense of insurgency recognized this as a major problem. The leaders had a simple strategy and a set of “nonnegotiables,” co-created by the kings. But several aspects of the strategy demanded a huge jump start in learning. Initially, they relied on their old hub-and-spoke system but didn’t get much traction. Then they brought the kings together to discuss how to crack one of the nonnegotiables. Various hub executives like the heads of marketing and sales were invited, but the meeting was for the kings, by the kings. As the kings began to compare notes, there was suddenly a powerful new energy. What leadership realized was that the hub loses the ability over time to ask the right questions—the spokes need to chat amongst themselves.
6. Role-model the importance of seeking customer insight and don’t give marketing the monopoly. The last lesson is that everyone owns customer insight; it is not the purview of one department or hub. Again, this can be subtle. Large organizations tend to assign managing “customer insights” to marketing. Marketing is then meant to gather feedback from customers so the rest of the organization can use it. But marketing is made up of fallible human beings and, more often than not, they gather insight for their own purposes—i.e., how to market existing products and come up with new features to excite customers. What gets lost is any customer insights around the delivery of the product, the use of the product, repurchase decisions, etc.
We often argue that you have to liberate the customer from marketing and return him or her to the kings. We recently helped a founder-led consumer technology company identify its kings—in this case, the top engineers charged with designing the latest product. One false move could break the company, yet these engineers had almost no customer feedback. They never met with customers; they never watched customer purchase decisions. Several tried to attend a focus group run by marketing but were told they weren’t needed. Our first recommendation was to reorient customer feedback around these kings to ensure they had clear information on how they were doing. It is also important to recognize that this is not an organizational issue per se—it is a leadership issue. As a leader, you need to create a learning organization and you must make it clear through role modeling that everyone is responsible for listening to the customer. One department might “hold the microphone,” but it is everyone’s job to listen to what is being said.
Whether the experience curve describes your business or not, there is no arguing that learning is one of the few unquestionable benefits of scaling. As you grow and accumulate experience, you should get better. But learning doesn’t just happen because you say so—the leader must create a learning system and culture.
Learn more about The Journey North and its steps: