Learning from Steve Jobs

Steve Jobs' fashion choices over the years

Understandably, technology news over the past week has been dominated by Steve Jobs’ resignation as Chief Executive from Apple. While he will stay on as Chairman, Tim Cook – former Chief Operating Officer – will take the helm.

There have been many wonderful pieces on Jobs (though some do read like obituaries) – these from Josh Bernoff and John Gruber being but two – which cover many angles – whether personal, professional, industry or other. I’m neither placed nor qualified to add anything new but I have enjoyed synthesising the various perspectives. Yet invariably, the person saying it the best was Jobs himself:

  • He knew what he wanted – “Your work is going to fill a large part of your life, and the only way to be truly satisfied is to do what you believe is great work. And the only way to do great work is to love what you do. If you haven’t found it yet, keep looking” (Stanford commencement speech)
  • He felt he knew better than anyone else – “The only problem with Microsoft is they just have no taste. They have absolutely no taste. And I don’t mean that in a small way, I mean that in a big way, in the sense that they don’t think of original ideas, and they don’t bring much culture into their products.” (Triumph of the Nerds)
  • He, along with empowered colleagues, relentlessly pursued this – “You have to trust in something — your gut, destiny, life, karma, whatever. This approach has never let me down, and it has made all the difference in my life.”(Stanford commencement speech)
  • He was a perfectionist – “When you’re a carpenter making a beautiful chest of drawers, you’re not going to use a piece of plywood on the back, even though it faces the wall and nobody will ever see it. You’ll know it’s there, so you’re going to use a beautiful piece of wood on the back. For you to sleep well at night, the aesthetic, the quality, has to be carried all the way through.2 (Playboy)

NB: The quotes above were taken from this Wall Street Journal article.

In Gruber’s words “Jobs’s greatest creation isn’t any Apple product. It is Apple itself.”

In 14 years he took Apple from near-bankruptcy to – briefly – the biggest company in the world by market capitalisation. He has been enormously successful. And while possibly unique – his methods run counter to textbook advice on how to run an organisation – a lot can be learned from him.

The thing I have taken most from this is Jobs’ uncompromising nature. If people weren’t on board with him, then to hell with them. This of course led to his dismissal from Apple in 1985. And his dogged focus on his preferences has informed his fashion choices over the years, as the above picture illustrates.

It might seem strange for a market researcher to take this away, particularly since research is stereotyped as decision-making by committee – something which Jobs despised:

  • “We think the Mac will sell zillions, but we didn’t build the Mac for anybody else. We built it for ourselves. We were the group of people who were going to judge whether it was great or not. We weren’t going to go out and do market research. We just wanted to build the best thing we could build.” (Playboy)
  • “For something this complicated, it’s really hard to design products by focus groups. A lot of times, people don’t know what they want until you show it to them.” (BusinessWeek)

Unfortunately, this stereotype is often true, and I have been guilty of perpetuating it on occasion.

One example was when trying to get a project up and running (on a far smaller scale than rescuing Apple admittedly). With a lot of stakeholders, I tried to include as many of their wishes and requests is possible. The end result was bloated, incoherent, unfocused and over-deadline. It wasn’t one of my finer moments.

Rather than bolt everything on, I should have appraised all the input and only included that which remained pertinent to the core objective. I lost authorship of the project, and it suffered.

While there will be counter-arguments, many public failures do seem to be the result of committee-made decisions. Two bloated, incoherent examples that immediately spring to mind are Microsoft Office 2003 and the Nokia N96. Conversely, there are many examples of visionary micro-managing leaders that have driven a company to success – Walt Disney, Ralph Lauren and Ron Dennis to name but three.

I am a researcher rather than a consultant, and so don’t intend to fully adopt this approach. However, it appears that there is a greater chance of success when primary research or stakeholder input informs, rather than dictates, the final decision.

Steve Jobs knew this. His flagship products weren’t revolutionary (IBM, Microsoft, Nokia and the like were the primary innovators). But his genius was in refining a variety of inputs and stimulus, and moulding them into an expertly designed final product.

And that is something to aspire to.

sk

Overhauling the agency pricing model

Agencies are potentially losing out on beneficial and worthwhile commissions due to a fundamentally flawed approach to pricing their work.

(Note: My experience with pricing is almost exclusively tied to research agencies but I think this is broadly applicable to all industries).

Projects are commissioned when there is agreement between what an agency is willing to offer, and what a client is willing to pay.

My issue is that both of these components are based on cost.

Instead, they should be based on value.

£1 price tag

The agency side

The current model

Looking at the agency side first, it is clear that the focus upon cost makes the process far more transactional than it should be.

Using a dodgy equation (channelling John. V Willshire, who does this sort of thing far better).

P = d + αi + βt + p where P =< B

In English, Price =direct costs + a proportion of indirect costs/overheads + an estimate of the time spent + profit, where price is less than or equal to the client budget

(The alpha sign has arbitrarily been assigned to meaning a proportion, and beta an estimate)

d + αi + βt can be simplified to C for costs. Thus:

P = C + p where P =< B

Explaining the equation (this can be skipped if you trust me)

Of course, this is an oversimplification (though if agencies don’t use timesheets then the equation will lose the time segment and become even simpler) but it does explain the majority of the considerations.

Competitor pricing will be a factor. Market rates are to an extent set by those that have offered the service – an agency will seek to match, undercut or add to a premium to this depending on the relative positioning. This is reflected in the equation through time (premium agencies will generally spend longer on the delivery) and in desired profit.

An agency’s price will miraculously match the stated client budget (or in some instances, come in £500 under which I don’t understand since a) I thought psychological pricing had been phased out b) that spare £500 is not going to be able to cover any contingencies, expenses or VAT that aren’t included in the cost).

However, there are (at least) two things that aren’t yet factored in:

  • Opportunity cost – the cost in terms of alternatives foregone. This isn’t included since the only time you can really be sure that new requests for proposals appear is at the end of the financial year. Otherwise – for ad-hoc project work at least – there is no way to accurately predict the flow of work.
  • Competitive bidding – where profit is multiplied with expected success rate to give expected profit. While guesses can be informed by previous success rates, I don’t rate it as a) closed bidding processes mean competitor bidding strategies are unknown and b) perceived favourites are just that – perceptions (for instance, an incumbent may be secretly detested)

So what does this mean?

Ultimately, an agency will only submit a proposal if they think the profit they will make is worthwhile. The above equation can be reframed to reflect this:

p = P – C where P =< B

Or profit is price minus cost.

And this is where my main problem is with agency pricing. Profit is expressed purely financially.

Undoubtedly, finance is crucial. An agency requires cashflow to operate, it cannot survive solely on kudos. But it shouldn’t be the sole consideration

What I think should be included

Value should be added to the equation.

An agency should think not only about the financial margin, but about the business margin.

In addition to revenue, an agency can receive:

  • Knowledge – will the project increase knowledge of markets, industries, processes or methodologies that can be applied to other projects in future? This can be used to improve the relevance of business proposals, or be incorporated into frameworks of implementation
  • Skills – is the process repeatable, which can create future efficiencies? Does the project offer opportunities for junior staff to train on the job? If so, savings in training and innovation can be made
  • Reputation – will the results of the project be shared publicly – in testimonials, trade press, conference circuit or otherwise. If the agency is fully credited, there is PR value in terms of profile and attracting new business
  • Follow-up sales – will the project lead to additional work, either repeating the process for another aspect of the business or in up-selling follow-on work? Again, this can save on business development and can offer some future financial assurances (which will influence the amount of money borrowed and subsequent interest paid)
  • Social good – perhaps not as relevant for those in commercial sectors, but will the project create real and tangible benefits for a community – referencing Michael Porter’s concept of shared value

Thus, project gains are far more than financial. These intangible benefits should be applied as a discount to financial profit

Dodgy algebra (this can be skipped unless you want to pick holes in my logic)

Because while net gain would be:

N = p + β(k+s+r+f+g)

The net gains from a project are profit plus estimated gains in knowledge, skills, reputation, follow-up sales and social good (note that these factors can be negative or zero as well as positive). These can be simplified as intangibles:

N = p + I

These intangibles offer alternatives to financial profit. Increasing the amount can be gained effectively increases the budget:

P = C + p where P =< B + I

Assuming that an agency won’t offer psychological pricing, we can assume that P = B. This makes the equation

B + I = C + p

Substituting budget back in for price, and rearranging gives:

P = C + p – I

However, this assumes that the entire surplus is passed onto the client. Obviously, this shouldn’t be the case but equally the agency shouldn’t keep all of this surplus. Instead, I propose a proportion of the benefit is passed onto the client via a discount (in order to make the agency more competitive and improve chances of success).

Value is therefore a function of profit and discounted intangible gain:

V = fn(p – ɣI) where gamma is a discounted proportion

What this means – the conclusions bit

All of this long-winded (and probably incorrect) algebra effectively changes to equation

P = C + p

becomes

P = C + V

Financial profit is substituted for value.

I believe that the price an agency charges should be a reflection of their costs and the overall value that is received from the profit – both in tangible revenue and intangible benefits. Some of these benefits should be passed on to the client in the form of a price reduction, in order to make the bid more competitive and improve chances of success.

This also works in the converse. If there is a project that an agency isn’t enthusiastic about – it might be laborious or for an undesirable client – then the intangibles are negative and so profit needs to increase in order to make the project worth undertaking (in a purely financial equation, this means costs will need to fall within a fixed price/budget).

I should also make it explicit that I am not advocating a purely price-driven approach to bidding. Other factors – communicable skills and expertise, vision and so forth – are still vital. The reality is that markets are highly competitive, and price (or more accurately, the volume of work that can be delivered within a fixed budget) will be a large factor on scorecards used to rate bids.

The client side

This section doesn’t require algebra (fortunately).

My main issue with client budgeting is that it only concentrates on purchasing outputs. While these are tangible, these outputs (at least in research) are a means to an end. A client may want eight groups and transcripts, or a survey and a set of data tables, but the client doesn’t want these for the sake of it. They are purchased to provide evidence to validate or iterate a business process.

Therefore, I believe the client budget should be split into two.

  • The project budget – the amount that a client is willing to pay for the tangibles – the process required to complete the delivery of the project. These outputs are outcome-independent.
  • The implementation budget – which is outcome-dependent. The complexity or implications of a project are often unknown until completion. A project could close immediately, or it could impact critical business decisions in nuanced ways. If the latter, additional resource should be assigned to ensure the business can best face any challenges identified.

The majority of costs are incurred in the project, but the real value to the client comes in the implementation. This needs to be properly reflected; it currently isn’t.

Effectively, I propose a client should commission an “agency” to manage the project and a “consultancy” to manage the implementation. These could be the same organisation, they could not.

Wrapping up

There are undoubtedly things I have overlooked, and I’m pretty sure my algebra is faulty.

However, I believe my underlying hypothesis is valid. The current agency pricing model is flawed and needs overhauling because

  • Agencies ignore non-financial benefits
  • Clients ignore implementation requirements
Both of these are easily correctable, and these corrections can only improve the process.

sk

Image credit: http://www.flickr.com/photos/chrisinplymouth/3222190781