There is no shortage of extremely successful companies with business models that critically depend upon a high degree of customer proximity and the ability to generate detailed insights into customers’ needs, wants and behaviors – those buying habits and attitudes pivotal in shaping and directing the whole organization. In other words, companies that are customer centric. Yet, there are also many successful companies that don’t go out of their way for customer proximity. By looking at companies that operate on both ends of the spectrum, it becomes clear that customer centricity is not a virtue.

It is well known that BMW delivers superb engineering. Perhaps less well known is the fact that BMW tightly controls the supply chain downstream by owning most wholesale operations and many of its retail outlets. By doing this, BMW enforces, and ensures, the uniformly high level of service befitting a top luxury brand. At the same time, this proximity to the consumer provides direct and timely insights into consumers’ shifting perceptions and tastes.

Nordstrom, a US department store chain, consistently ranks at the top in terms of customer satisfaction surveys. Shopping is made to be a rewarding experience. Nordstrom’s personnel is carefully selected and trained to help customers along the path of finding what they want or need and, in the process, identify and present new products they never knew they needed. Invariably, customers often leave a Nordstrom store with more than what they had planned on buying. The level of Nordstrom’s customer engagement is in line with the retailer’s sales strategy.

For the balance of the article, please click here.

Several years ago in a previous life, I worked with the CEO of a large Australian company that wanted to communicate to their customers that their service solution was “one touch”. The only problem was, it was actually ten touches. Imagine his customers disappointment when they bought the idea of “one touch” only to find out it was actually ten times more diffcult.

In a Service Design world, we believe Branding is the promise you make; Customer Experience is the promise you keep. By understanding what customers really value, you can help organisations keep their customer promises and maximise financial profitability….and at the end of the day, that is what we should all be about when developing world class Service Designed experiences.

Have you noticed how upbeat the ads for airlines and banks are?

Judging from the billboards and the newspaper ads, you might be led to believe that Delta is actually a better airline, one that cares. Or that your bank has flexible people eager to bend the rules to help you succeed.

At one level, this is good advertising, because it tells a story that resonates. We want Delta to be the airline it says it is, and so we give them a try.

The problem is this: ads like this actually decrease user satisfaction. If the ad leads to expect one thing and we don’t get it, we’re more disappointed than if we had gone in with no real expectations at all. Why this matters: if word of mouth is the real advertising, then what you’ve done is use old-school ad techniques to actually undercut any chance you have to generate new-school results.

So much better to invest that same money in delighting and embracing the customers you already have.

Over the past 12 months, the Chief Marketing Officer of American Express came out and said in effect they had been ignoring one of the strongest and most important branding tools at their disposal…the telephone. This isn’t an article about Amex, it is a guide to assist those sitting in organisations on how to turn a customer who is on the verge of leaving you and how to turn them around to becoming your most loyal advocate.

Taking a Service Design approach and getting closer to your existing customers so you can find out how to better serve them has to be one of the smartest investments for service providers. It sure beats spending millions on TV making more promises you are not structured to deliver upon(that is is another post altogether).

From Inc. Magazine, they have compiled eight expert tips for dealing with the toughest customers. Here’s how it’s done right.

Want some old advice? The customer is always right. Okay, now you can stick that in your pocket. Today’s best service entrepreneurs are looking beyond old axioms in relating to customers. That’s because today’s best customer service isn’t something that can be faked: it’s personalized and it has a personality. Do you have the certainty you can harness all the feedback customers will give your company, act on it, and keep your best customers coming back for more? We’ve compiled highlights of new expert tips from articles in Inc. and guides on Inc.com to help you take a fresh look at making your customers happier and your business better.

1. Ditch the formalities and break the rules.
The last thing unsatisfied customers want to hear is a recitation of your company’s return policies, Tali Yahalom writes on Inc.com. “Today’s customer expects to be treated as an individual, not as just another number who’s complaining,” Ann Thomas, a senior consultant at Performance Research Associates, a Minnesota consulting firm, says. Consider the case of a department store with a 90-day deadline for returning an item. If there’s a customer who just got married, returned from her honeymoon and, at day 100, realized that a gravy plate adorned with doves is actually not her style, it’s worth looking into alternative options rather than sending her home right away. Your company should know that occasionally bending the rules will ultimately cost less it than it would to lose the customer or, worse, if the customer leaves and relays a negative story about your company. Read more.

2. Don’t give customers too much choice.
What happens when you give customers too much say in how you make what they buy? “Quite simply, overly-demanding customers can undercut your ability to grow a valuable business,” writes John Warrillow, serial entrepreneur, author, and Inc. contributor. He explains that when trying to scale up a subscription research offering similar to a Bloomberg or Forrester research program using a model by which a customer subscribes to a pre-set number of reports provided to all, things started to derail. His company was customizing each report for the 17 subscribers, meaning an annual 102 reports based on six studies, which was untenable for the company’s 20 employees. Warrillow shut down the program. The lesson? “In hindsight, I realize a big part of the problem was my involvement in the selling. I’m just too tempted to make a sale at just about any cost. Next time, I’ll know better than to let my sales instincts undermine my entire business model.” Read more.

3. Monitor your reputation online. All the time.
“Facebook, Twitter, and Yelp have become essential components of many companies’ online marketing strategies, but there are countless other sites on which customers rant and rave about their experiences,” writes Inc. reporter April Joyner. When customers rant online, it has the potential to tarnish a company’s brand—and scare away prospective buyers.  There is a host of new tools to monitor what’s been said about them online. “Eighty percent of companies do fine with Google Alerts,” says Andy Beal, founder of Trackur, an online monitoring software company. “But once you have 30 different keywords to monitor, you’ll outgrow it very quickly.” Companies such as Trackur, Radian6, and Viralheat offer Web-based dashboards specifically designed to monitor multiple brands. Though the most expensive of these can cost more than $6,000 a year to use, many services offer less expensive packages for small businesses, Joyner reports. Read more. 

4. Shut up and listen.
It sounds simple, and it sounds easy, but it’s often not. When a customer starts ranting, just listen.  Tali Yahalom writes on Inc.com: “Often customers feel the needs to vent frustration with a product or service before even considering a proactive solution.” And Thomas told her: “Acknowledge the customer’s emotional state,” Thomas says. And don’t get defensive. Remember that a good empathy statement does not imply ownership of the problem. Another key communication tip involves asking open-ended questions that involve the customer, Thomas says. This technique will not only divert focus from emotional frustration but also generate copious information about the problem at hand and help you arrive at the appropriate solution. “Rather than getting defensive … I need to simply listen to the customer, accept the feedback, thank the person, and then decide what to do,” she adds. As a bonus, the customer might feel appreciated and cared about, alleviating some of their emotional frustration. Read more.

5. Collect lots and lots of customer feedback.
Several companies offer tools that let customers submit feedback and vote on suggestions. Although all of these services offer some basic features for free, they typically require business owners to pony up for paid versions in order to moderate customer comments and integrate the tools into their company websites. With Get Satisfaction, customers can report problems, ask questions, submit ideas, and offer compliments. The most popular package for small businesses, priced at $89 a month, includes design customization and an analytics dashboard. Other options, such as IdeaScale, UserVoice, and UserEcho, are priced from $15 to $589 a month. Read more.

For all 8 tips click here

Featured Guest: Rita McGrath, Columbia Business School professor and coauthor of Discovery-Driven Growth. Her interview, When Your Business Model Is in Trouble, appears in the January-February issue of HBR.

Anyway, like Apple has Steve Jobs, we have Steve Ridgeway, our CEO. He was quoted last year – I think it was in the Sunday Times – as saying that Virgin Atlantic doesn’t have the right to exist. Great. It exists because it’s been successful by being different, and I suppose that’s where I come into it, really, because we exist by having product and service differentiation. Essentially, if we’re competing with an airline on a route, they’re probably flying the same aircraft as us, they’re flying to the same destination and price is very competitive. So the thing that separates us – because we don’t have a massive route network – is our product and service, and design is a big element of that.

You can link to the full interview here where he talks about how as head of Service & product Design for Virgin Atlantic, they use their investment in Design to create an outstanding service experience for their customers.

We get so caught up in the process of what we do sometimes , that I find it valuable to step back sometimes and just remember why we do what we do. Sourced from 31 Volts One line of Service Design, which Marc Fonteijn and the team launched over 12 months ago, so nothing new here, just a nice simple reminder, one more theory based, the other, the end result.

Nick Marsh from Sidekick Service Design said : ‘Good service design is the process of deliberately crafting our experience and delivery of services, to make them more valuable for the people that use and provide them.’

Marc’s says service design is: ‘When you have two coffee shops right next to each other, that each sell the exact same coffee at the exact same price. Service Design is what make you walk into the one and not the other.’

Simple stuff and but never the less, very useful.

I thought it relevant and compelling for any Service Business with Customers (that would be everyone except startups) because instead of holing in up in your apartment like a entrepreneur, organisations display similar behaviours. They write marketing plans, spend advertising money and all the time with expensive segmentation studies under their arms, they seek to connect with their most important customers.

The issue with that is that customers never act or respond in the way you expect them to. They are ungrateful for the things they will be appreciative of and the smallest thing which you almost didn’t implement receives rave reviews.

Why is this? Because humans are complex and most people structuring the interactions with their customers live nothing like them. They earn more, live in different suburbs, are probably more educated and make too many assumptions about how easy or simple their service is.

That’s why the advice in the following article is so important for not only start-ups, but for more established companies too.

That’s where using a Service Design approach whereby you first spend time really listening and understanding customers is so important. The value isn’t in the hours spend listening and writing (most research firms can do that) to your customers, its in the ability to not only synthesize that information, but then design a better way(s) to deliver it so it makes sense for customers (desirable), operations (feasible ) and Shareholders (financially viable).
Enjoy.

For more information on how to embrace customer contact, give Proto Partners, Australia’s leading  Service Design consultancy a call.

No campaign plan survives first contact with the enemy
Field Marshall Helmuth Graf von Moltke

I was catching up with an ex-graduate student at Café Borrone, my favorite coffee place in Menlo Park. This was the second of three “office hours” I was holding that morning for ex students. He and his co-founder were both PhD’s in applied math who believe they can make some serious inroads on next generation search. Over coffee he said, “I need some cheering up.  I think my startup is going to fail even before I get funded.” Now he had my attention. I thought his technology was was potentially a killer app. I put down my coffee and listened.

He said, “After we graduated we took our great idea, holed up in my apartment and spent months researching and writing a business plan. We even entered it in the business plan competition. When were done we followed your advice and got out of the building and started talking to potential users and customers.” Ok, I said, “What’s the problem?” He replied, “Well the customers are not acting like we predicted in our plan!  There must be something really wrong with our business. We thought we’d take our plan and go raise seed money. We can’t raise money knowing our plan is wrong.”

I said, “Congratulations, you’re not failing, you just took a three and a half month detour.”

Here’s why.

No Plan Survives First Contact With Customers
These guys had spent 4 months writing a 60-page plan with 12 pages of spreadsheets. They collected information that justified their assumptions about the problem, opportunity, market size, their solution and competitors and the their team, They rolled up a 5-year sales forecast with assumptions about their revenue model, pricing, sales, marketing, customer acquisition cost, etc. Then they had a five-year P&L statement, balance sheet, cash flow and cap table. It was an exquisitely crafted plan. Finally, they took the plan and boiled it down to 15 of the prettiest slides you ever saw.

The problem was that two weeks after they got out of the building talking to potential customers and users, they realized that at least 1/2 of their key assumptions in their wonderfully well crafted plan were wrong.

Why a business plan is different than a business model
As I listened, I thought about the other startup I had met an hour earlier. They also had been hard at work for the last 3½ months. But they spent their time differently. Instead of writing a full-fledged business plan, they had focused on building and testing a business model.

A business model describes how your company creates, delivers and captures value. It’s best understood as a diagram that shows all the flows between the different parts of your company. This includes how the product gets distributed to your customers and how money flows back into your company. And it shows your company’s cost structures, how each department interacts with the others and where your company can work with other companies or partners to implement your business.

This team had spent their first two weeks laying out their hypotheses about sales, marketing, pricing, solution, competitors, etc. and put in their first-pass financial assumptions. It took just five PowerPoint slides to capture their assumptions and top line financials.

This team didn’t spend a lot of time justifying their assumptions because they knew facts would change their assumptions. Instead of writing a formal business plan they took their business model and got out of the building to gather feedback on their critical hypotheses (revenue model, pricing, sales, marketing, customer acquisition cost, etc.) They even mocked up their application and tested landing pages, keywords, customer acquisition cost and other critical assumptions. After three months they felt they had enough preliminary customer and user data to go back and write a PowerPoint presentation that summarized their findings.

This team had wanted to have coffee to chat about which of the four seed round offers they had received they should accept.

A plan is static, a model is dynamic
Entrepreneurs treat a business plan, once written as a final collection of facts. Once completed you don’t often hear about people rewriting their plan. Instead it is treated as the culmination of everything they know and believe.  It’s static.

In contrast, a business model is designed to be rapidly changed to reflect what you find outside the building in talking to customers.  It’s dynamic.

“So do you mean I should never have written a business plan?” asked the founder who had spent the time crafting the perfect plan. “On the contrary,” I said. “Business plans are quite useful. The writing exercise forces you to think through all parts of your business. Putting together the financial model forces you to think about how to build a profitable business. But you just discovered that as smart as you and your team are, there were no facts inside your apartment. Unless you have tested the assumptions in your business model first, outside the building, your business plan is just creative writing.”

A good article by Smart Company and tapping one of the best minds in the business. I recently completed some work for a financial services firm and post GFC, the perspective of customers of independence vis a vis established and connected businesses has transformed in the last two years. Customers in Australia whether materially affected by the GFC or not have a different view of the service businesses they interact with and these businesses would do well to better understand this new mindset and what it now means to deliver outstanding service.

Of course using Service Design in Australia to address this is new, but hey our goal is to improve the service experience of all Australian customers, one service business at a time. Here are 8 rules to do just that.

The Australian economy might have sailed through the recession relatively unscathed, but don’t think that customers haven’t been changed by the GFC.

That’s the message from international marketing guru Paul Bennett, the managing partner of global design consultancy IDEO, which organisations including Nokia, Intel, Bank of America and the Bill & Melinda Gates Foundation go to for inspiration and business ideas.

Bennett’s recent trip to Australia saw him add to his growing fan base after a series of cheeky, insightful, clever presentations on the future consumer. SmartCompany caught up with him at the L’Oreal Melbourne Fashion Festival (LMFF) and couldn’t resist asking Bennett to help create a take-home version of his keynote for those who missed out.

Bennett, who heads up IDEO’s European bureau and is its chief creative officer, highlighted how well Australia has come through the GFC, but described “apocalyptic” market conditions in Europe and the Americas over the past three years.

“For everyone else it sucked royally,” says Bennett in his take-no-prisoners style. “Consumer sentiment has radically shifted.”

This period of crisis has been much more than an economic crisis for consumers, according to Bennett. He says it has been a moral crisis, with the economic decline being a symptom of deeper problems.

“People were spending and borrowing like there was no tomorrow. Then tomorrow came and the shit hit the fan,” says Bennett.

Here are is eight new rules of customer services:

Rule 1: Consumers are really thinking about what they need, why they need it and if they need it.

There is a new morality among many consumers, Bennett says: “People are acting less like traditional ‘consumers’ and more like citizens who are expressing their values through what they consume.”

Ideo holds regular Facebook “conversations” to gather intelligence from around the world. When IDEO posed the question – where is consumerism going? – a major trend through this IDEO Facebook conversation was a focus on health, learning and knowledge. People in London, Dubai and everywhere in between were talking about fresh air, drinking water, education, equality and quality experiences.

If these respondents are the new consumer, then clearly businesses with a real sense of purpose have a competitive advantage.

Rule 2: It’s back to basics. Simplicity is what the world needs now. Embrace it.

Bennett cites psychologist Barry Schwartz’s theories in his book The Paradox of Choice: Why More is Less where Schwartz rejects the idea that freedom of choice in Western society is a sign of modern progress. Schwartz describes “an explosion” of choice for consumers that has paralysed rather than liberated them.

For example, in his supermarket aisle there are 175 salad dressings to choose from. At his local entertainment store, it is possible to construct 6.5 million different stereo systems from products on offer. (It’s well worth watching Schwartz in action on www.ted.com.

Rule 3: Have a meaningful purpose.

Ikea was on to this idea early with a series of commercials in 2007. Ikea’s “purpose” is what matters in these ads, rather than showcasing a range of flat-packed furniture, we see homes from around the world and the tagline: “Home. The most Important Place in the World.”

Rule 4: Forget about selling products, deliver service.

In March 2010, Bennett went to the Apple flagship store on Fifth Avenue to have his computer fixed during a New York trip. The Manhattan store is right by Central Park, with a glass, shrine-like box out front. Beyond the theatrics, Bennett was blown away by the service. For starters the store is open 24/7, his laptop was fixed for free, it was even polished.

“The experience was a lot nicer than those luxury stores down the street,” he says. This service, rather than the laptop, is what cements a consumer relationship. The stores have tribes of concierges that help customers find their way to the right service area, rather than just having various departments that customers must find.

In order to do this, the staff needs to be really engaged in making the customer’s experience great and they have to really understand the product. Bennett’s way of describing the right kind of staff is that “their eyeballs are burning, they have passion-filled eyes”.

Rule 5: Play well and collaborate.

Brand partnerships are also an important trend Bennett has been observing. Brand sponsorship has been around for at least a century (Coca-Cola has been sponsoring New York’s Madison Square Garden for 100 years), but these partnerships are different. On March 26, Retailer Gap Inc announced a strategic partnership with Brand Republic, a subsidiary of Busby Holdings (that operates Aldo and Guess stores) to open up to 15 Gap stores in Australia. Woolworths is in partnership with HSBC bank to offer credit cards.

This trend is about big brands sharing the stage, rather than the brands fighting each other for their slice of the market.

“Innovation isn’t a one-man band,” says Bennett. “Build networks, coalitions, partnerships and alliances that add to the business, add to the whole pie, not just your slice.”

Rule 6: Have a dialogue with customers, not a monologue.

Listening to customers, really listening, sparking a conversation can lead to new business ideas. IDEO doesn’t just do its market research on Facebook. It is still a fan of wine and pizza market research nights. Its session with baby boomer mums across the US resulted in the idea for a Keep The Change account for client Bank of America, with every purchase from this special savings account, being rounded up to the next dollar, channelling extra money into the savings account.

According to IDEO, this campaign has led to more than 12 million new customers for the bank, proving that savings really is the new black. Bennett’s tip: “Keep listening to customers, keep the conversation going and constantly look for feedback; that’s where great new business ideas (and revenue streams) can emerge.”

Rule 7: One click and you are out.

Acknowledge the power of the internet, especially the immediacy of tweeting, and manage the risk. Bennett’s favourite example at the moment is the filmmaker Kevin Smith who claims he was kicked off a Southwest Airline for being too fat in March 2010. He tweeted his plight and the story went international within hours. Southwest has since apologised but the damage was done. Bad customer service travels really, really fast. It’s not about your website, it’s about the web and how people use it.

Rule 8: Small is the new big.

From little things, big things grow. A little idea from a series of dinners about a new type of savings account can gain incredible momentum if it is allowed to develop.

“Stop waiting around for the big idea and build on the small ideas,” Bennett says.

It just means that those of us who work to improve the customers experience for the the purpose of increasing customer retention and hence revenue, need to work harder to communicate the message.

This is an excellent article and a proof that increasing focus on Customer experience through Service Design is not only valuable, but a requirement for leaders of businesses if they are to deliver on their mandate to increase shareholder wealth.

Lets keep spreading the news, in the “tipping point we trust”.

Yes, Virginia, There Is A Return On Customer Experience Investments

In some business circles, getting people to believe in a return on customer experience investments is a lot like getting them to acknowledge the existence of Santa Claus.

Admittedly, it can be difficult to quantify a specific profit or revenue impact from some types of experience enhancers—more robust “voice of the customer” programs, more polished customer statements, better trained front-line personnel, streamlined customer touchpoints, a more user-friendly website, etc. The financials surrounding such initiatives are much less precise than those of hard-dollar initiatives, like the renegotiation of real estate leases or the consolidation of corporate functions.

Of course, that doesn’t mean customer experience investments have any less of a compelling return than these other endeavors. It just takes a little more work to quantify it. And, frankly, in some cases, it requires a leap of faith.

Leap of Faith?

I know what you’re thinking. Most Chief Financial Officers won’t look kindly on a business case grounded in a leap of faith.

The fact of the matter is, though, there are plenty of big business decisions that are routinely made with limited quantification and a healthy leap of faith. Corporate re-brandings, advertising programs, synergistic mergers, and even the hiring of highly compensated, star CEOs—these are all examples of initiatives that bring with them a good deal of risk and expense, yet must be green lit without the benefit of a precise, quantifiable business case.

…there are plenty of big business decisions that are routinely made with limited quantification and a healthy leap of faith.

How does a senior executive, CFO or Board member give their assent under such circumstances? They complement what limited hard data may be available with gut instinct. They get comfortable taking a leap of faith because they simply believe in the concept behind the investment, whether it’s the power of a reinvigorated brand, the potential unlocked by an acquisition, or some other venture.

So when executives push back on customer experience investments, citing the absence of an iron clad, quantifiable business case, their reservations may actually reflect a deeper skepticism about the true value of customer experiences strategies.

One way to address such underlying skepticism is to elevate the dialogue, getting executives—even for just a moment—to focus less on project-by-project justifications and more on the macro impact of experience-oriented business strategies.

Is The Market Rewarding Customer Experience Leaders?

To that end, Watermark Consulting recently conducted an analysis of stock market performance for customer experience leaders and laggards over the past three years, a time period encompassing the market’s run up to its all-time high in late 2007, to its Great Recession-induced nadir in early 2009, to its more recent bounce back.

To identify the leaders and laggards, we used Forrester Research’s 2007 Customer Experience Index study, picking the top ten and bottom ten publicly traded companies from Forrester’s rankings. Then we compared the total return from investing in an equally-weighted portfolio of customer experience leaders to that for customer experience laggards and the broader market (as reflected by the S&P 500 index).

The results were quite revealing:

From 2007 through 2009, through the best and worst of times, the customer experience Leader portfolio outperformed the broader stock market, generating cumulative total returns that were 41% better than the S&P 500 Index and 145% better than the customer experience Laggard portfolio.

During each of the three years, the Leader portfolio always outperformed the index and the Laggard portfolio always underperformed the index. Looking at these data points, it certainly appears that customer delight and customer misery have very different influences on company stock performance.

In addition, while the Leaders portfolio declined in value during the depths of the recession, the decline was less pronounced than that for the broader market. As the recession abated in 2009, the Leaders portfolio also proved quite resilient, more than doubling the return of the S&P 500.

This performance profile supports the notion that customer experience leaders are somewhat cushioned from the most severe impacts of economic downturns, because they represent one of the last places consumers cut back and one of the first places to which they return.

What The Numbers Really Mean

There are plenty of criticisms that could be lobbed at this analysis: the three-year time period is too short, the Leader and Laggard sample sizes are too small, the Forrester study isn’t a good measure of customer experience excellence, stock market returns aren’t good indicators of long-term company performance, etc.

No analysis is perfect and this one is hardly meant to suggest that any company embracing a strategy of customer experience differentiation will outperform the S&P by over 40%. There are many variables at play, not the least among them pure execution (embracing a strategy and actually implementing it are two very different things).

Companies that successfully bring great, end-to-end customer experiences to the marketplace are rewarded—by consumers and investors.

These results are also not meant to preclude attempts to cost justify customer experience improvement efforts on a project-by-project basis. That rigor must remain; this data merely provides some much-needed air cover.

What this analysis does suggest is this: Companies that successfully bring great, end-to-end customer experiences to the marketplace are rewarded—by consumers and investors. Their operational excellence and attention to detail, their simple and straightforward communication, their well-equipped and genuinely helpful front-line staff—the sum of these parts pays off in the end, even if the precise impact of individual components is uncertain at best.

Hopefully, by framing the return on customer experience excellence in terms executives can easily understand (stock price and market value), this analysis will begin chipping away at the lingering doubts that some of them harbor towards experience-oriented investments.

And with that target of skepticism removed, all that’s left to figure out is who eats the milk and cookies on Christmas Eve.

He tells us about the value of Stories in effectively communicating complex pieces of information, a lesson anyone in Service Design would benefit from reading. Its amazing, recently we have undertaken weeks and weeks of research for one of our clients and despite the rigour and ideas we developed, the most powerful and most effective way of demonstrating our grasp of their business was telling them a story about a particular interaction that occurs time and time again when potential customers try to engage with our client.

You can source the original post from John here at his blog Edge Perspectives or read it below. Either way, take ten minutes to have a read and think about the implications and opportunities for helping communicate and deliver change in your organisation.

From Research Monographs to Story-Telling: New Forms of Communication in the Big Shift

The Big Shift cascades through all dimensions of our life.  The Big Shift will also transform how we communicate with each other. We are moving from a world of deep analysis communicating explicit knowledge to a world of rich, personal narratives communicating tacit knowledge. Narratives powerfully help to shift perception from static objects to dynamic relationships (the focus of my previous posting).

20th century communication – research monographs rule

The 20th century was an era of research monographs, slicing into the complex reality we all confronted, seeking to simplify it and focus us on the elements that really mattered.  We pursued research and explored many new frontiers but we did not rest until we had the knowledge stocks appropriately codified and reduced to writing in iron clad patents and copyrights. We knew that the real work and wealth creation did not start until we had protected stocks of explicit knowledge and reduced the knowledge to routine tasks that could be efficiently scaled.

Serious research required large data sets that could yield statistically significant results.  It would be even better if the results could be reduced to a simple yet universal formula that could be reliably applied to yield predictable results across as many situations as possible.  The more universal the results, the more scalable the activity could become.

Stories, on the other hand, were for kids. As early as possible in school, children were brought into the world of abstract concepts and scientific analysis. Stories at best were ghettoized into literature classes. Literature and arts were nice to have, budget permitting and as long as these programs did not conflict too much with the real work of bringing children to a level of “maturity” that would allow them to enter the workforce and become productive employees, able to handle the basics of explicit knowledge, literacy and numeracy.

This message was reinforced in a variety of subtle and not so subtle ways.  Virtually everyone in their academic careers has encountered the ultimate put-down: “The plural of anecdote is not data.” Get serious. Forget the stories, even if there are many of them, and focus on hard, raw data that can be massaged into real knowledge.

When we entered the workforce, this message was reinforced time and time again.  “Don’t tell me stories, bring me data” could be emblazoned above the door of every conference room in the large corporations that drive our economy. Spreadsheets and PowerPoint charts ruled while memos summarized the findings and made the case for action. Stories could be read for entertainment and relaxation in our leisure time, but they had no respectable role in the workplace. Workers furtively gathered at the water cooler to tell stories, but quickly disbanded when their bosses showed up to check in on them.

The impact of the Big Shift

But here’s the thing. Knowledge stocks in general diminish in value as the changing world renders more and more of this knowledge obsolete.  This increases the need to generate new knowledge. New knowledge inevitably has a higher proportion of tacit knowledge in its early development. Tacit knowledge is the knowledge that is the most difficult to express, either because it is so new and so unfamiliar or because it is so deeply embedded in our practices that we are not even aware of it.

As tacit knowledge grows in value, we need different ways of communicating it. When we first encounter new and unexpected events or results, we often have a hard time even expressing what happened, much less reducing it to the abstract, conceptual language that explicit knowledge pulls us toward. We need different ways of communicating what we encountered.  What do we tend to fall back on?  Stories.

Pick any area that is just emerging.  It could be some new technology frontier like cloud computing or a new set of practices like open source courseware.  One key indicator of these emerging areas is a rapid growth in the number of conferences. What are people doing at these conferences? They are telling stories to each other, sharing experiences, seeking advice and input regarding those experiences and learning from each other.

The unique value of stories

Stories emerge as an increasingly central form of communication in times of rapid change because they so richly reflect the needs of the time. In particular, they help us to shift our perception from static objects to dynamic relationships.

Stories by their very nature are dynamic rather than static. Stories are ultimately about movement and development.  They engage because they immerse listeners in changing circumstances and the challenges and opportunities created by change.  Stories focus on sequences of events and highlighting the causal forces shaping these events. They are far more “true” than snapshots.

Stories are about relationships at multiple levels. Stories situate their protagonists in context – they help the listener to understand a complex set of relationships that shape the choices and movement of the protagonist. In a story everything is related. Stories integrate apparently disparate elements and make their relationships visible. They take people and things and focus on relationships rather than objects.
There’s another set of relationships developed by stories – the relationship between listeners and the protagonists as well as between the story-teller and listeners.  Even more generally, as PJ Manney reminds us, stories help to cultivate empathy, encouraging listeners to understand the perceptions and motivations of others.  This empathy extends far beyond the story at hand and helps listeners to be empathetic in all aspects of their lives. Thus, in many ways, stories help to build new relationships, rather than just describe existing relationships.

Stories powerfully illuminate tacit knowledge. By focusing attention on the motivations and practices of the protagonists they help us to gain insight into tacit knowledge that cannot be reduced to explicit knowledge.  We indirectly access the tacit knowledge through a deeper understanding of context, choices and practices of specific individuals.

Stories inspire the imagination, rather than simply communicating existing knowledge.  By pulling us into a new and often unfamiliar context and helping us to see this context through the eyes of someone else, stories help us to break out of our existing frames of reference and inspire us to see things in very different ways.  As a result, stories can generate sparks of new insight that, properly nurtured, can lead to fundamentally new knowledge about complex and rapidly evolving situations. In the end, stories are not just powerful ways to communicate existing tacit knowledge; they help to catalyze the creation of new knowledge.

Stories are catalysts. One story often pulls out other stories from other people. Stories can begin to build upon each other and draw other people in.  They spark broader conversations and begin to establish a common ground for shared understanding, helping to build trust based relationships.

Stories provide powerful filters that help us to orient ourselves in complex and rapidly changing worlds.  On a daily basis, we are bombarded by an ever expanding array of stimuli that spread our attention ever more thinly and risk disorienting us in terms of a sense of what matters and what is simply noise.  Stories help to focus our attention.  The task of the story teller is to reduce a complex situation to its essence, making difficult decisions about what matters and what is simply extraneous while still preserving the relationships and textures that drive forward movement.  The result can be very helpful to listeners in terms of communicating what is really important in a world that distracts and diminishes our ability to focus. At the same time, stories also encourage listeners to use their own imagination to enrich the context of the story – they pull listeners in and invite them to co-create the world at hand.

Stories focus on agency. Stories highlight the role of individuals and groups in acting upon challenges and opportunities.  They give listeners a sense of the possibility and importance of action, rather than simply passively absorbing what is going on around them.  They motivate listeners to make choices and act.  They also show the potential to reflect on and to learn from action, as the listeners are encouraged to do when they hear stories about others.

Stories help develop a questing disposition and passion. Stories are often about protagonists who are curious and seeking something that is difficult to attain.  By helping us to put ourselves in the situations of these protagonists and experiencing the questing disposition in a very personal way, they inspire us to pursue similar quests. Passion is about pursuit and stories can similarly ignite passion as we experience in a deeply personal way the satisfaction and rewards of pursuits. The potential for passion is enhanced by the passion that successful story-tellers bring to their craft.  The stories that engage the most are the ones where the story-tellers communicate their own passion as well as the passion of their protagonists.

For all of these reasons, stories will become an increasingly central form of communication in the Big Shift.  Stories help us to make sense and to make progress in complex and rapidly changing times in ways that more conventional forms of communication simply cannot.

Bottom line

So, what does this mean for corporate executives? Executives have generally viewed stories as somewhat suspect distractions from the focus and data required to run the business.  As we move from a world where scalable efficiency is the source of wealth creation and capture to a world where scalable peer learning becomes a much more powerful source, stories assume a much more central role in the communication arsenal of executives.

The ultimate task of leaders is to help the people around them make sense and to make progress.  In a world where performance pressures are mounting and the old assumptions no longer have as much validity, stories can be a powerful means for leaders to accomplish their mission. Stories become critical to build shared understanding among employees, but they also become increasingly powerful in helping to orient and engage third parties and customers.

Leadership is about pulling people out of their current situation and helping them to see the potential and opportunities that exist around them.  Leadership is ultimately about helping people to pull out of themselves their potential, helping them to see and achieve the potential that lies latent within all of us. By pulling people into a different context and building connections with other people, stories can help leaders to be more effective.

For those who are intrigued by the increasing importance of stories, Steve Denning represents one of the most thoughtful proponents of narrative as a way to strengthen leadership.  In particular, his book, “Squirrel, Inc.” explores a broad array of story-telling genres and analyzes their importance for leaders.

On a personal level, stories help to integrate our own experiences into an overall personal narrative. Personal narratives help to provide us with context and orientation in our own lives. Daniel Siegel in his important new book Mindsight makes the case that integrated personal narratives are an important marker of psychological health.

Stories matter.  Analysis and explicit knowledge still have a major role to play.  But stories and the tacit knowledge they convey are essential if we want to venture out to the edge, build a deep understanding of what is happing out there and help to communicate that understanding back to our colleagues in the core.

We have a choice. We can stay closeted in the core, hiding behind patents, research monographs and charts of compelling data, and staying well in the comfort zone of the forms of communication that have contributed to our success to date.  But the complacency that breeds can be very dangerous in the Big Shift.  Far better to venture beyond our comfort zone and master new forms of communication that will help us to make sense and to make progress in an increasingly complex and challenging world.

And, yes, I am aware of the profound irony that I wrote this entire blog posting without telling a single story. I am a prisoner of my 20th century education and still struggling to master the art of story telling.