BUSINESS/MANAGEMENT SPECIAL...The Business of Behaviour Space

The Business of Behaviour Space

When strategic intent — where we are going and why — is at odds with strategic action — what are we doing and how — the organisation is in a state of strategic dissonance 

On January 9, 2007 the world woke up to a memorable headline: 'Apple Reinvents the Phone with iPhone'1. In a battery of announcements, Steve Jobs introduced a new device that combined three products — a mobile phone, a widescreen iPod with touch controls, and a breakthrough Internet communications device with desktop-class e-mail, Web browsing, searching and maps -into one small and lightweight handheld device. This was both a software and a hardware feat and announced a new era in the interaction between user and display-based devices.
    "iPhone is a revolutionary and magical product that is literally five years ahead of any other mobile phone," said Jobs. "We are all born with the ultimate pointing deviceour fingers-and iPhone uses them to create the most revolutionary user interface since the mouse."
    On the date of the announcement, Nokia was the market leader in the smartphone space, holding 53% market share, with RIM (Research in Motion) in second place at around 40% of the US market. Apple held 0% of the market. By the fourth quarter of 2007, Nokia had 52.9% , RIM 11.4% and Apple 6.5%. By September 2011, the market share picture was almost reversed: RIM was at 11.7% (10.6 million units sold) and Apple wat at 18.2% (20 million units sold).
    Jim Balsillie, then co-CEO of RIM, said in an interview that he was "not losing any sleep" over Apple's efforts to disrupt the wireless market, and he could not confirm whether anyone at RIM had got their hands on an iPhone. "I haven't seen one."
    Is it remarkable that the co-CEO of a publicly-traded corporation could have read so little risk into the launch of a competitor's product? Or is it more remarkable that the analyst community didn't ask any questions about the iPhone or RIM's leadership in the earnings call of April 2007, the first such occasion after the announcement of the iPhone was made?
    There are many remarkable misses in this story, and they are not relegated to RIM. Nokia, the market leader at the time and presumably the company with the most to lose, also failed to see the threat the iPhone represented. All in all, this was a classic case of missed opportunity. The fact is, this was no mere product launch on January 9, 2007: it was the launch of a new ecosystem in the mobile device category, an ecosystem inclusive of new behaviours, new places to play in, and new devices to play on. In short, it was the launch of a new behaviour space.
    It is common for companies to miss shifts in their business landscape: Microsoft did it with the advent of the Internet, and famously IBM, after the introduction of the PC. Sam Palmisano, former CEO of IBM, declared candidly: "We invented the PC but viewed it incorrectly. We saw it as a gadget, a personal productivity tool. Unlike Intel and Microsoft, we didn't see it as a platform. We missed the shift. So the lesson to me is you cannot miss the shifts. You have to move to the future."
    Indeed. But how? And along what coordinates? It all starts with understanding the nature of the shifts taking place -- not in product development terms, but in strategic terms. In this case, the path for the incumbents might have included the following elements.

1. UNDERSTAND THE BUSINESS OF BEHAVIOUR SPACE
    Shifts in behaviour context occur every time a new behaviour space is introduced. Apple's press release precisely outlined a new behaviour space - a space made possible by the device itself, as well as by the ecosystem that includes the App Store, the SDK (Software Developer Kit), the third party applications, and a large developer community. Apple defined the blueprint for a space in which devices and their users could behave in a new way. For any competitor, the challenge was not that of competing with a device, but that of competing with Apple's behaviour space strategy.
    In strategic terms, the introduction of the iPhone was a disruption of existing behaviour spaces — mobile phone calls, push/pull e-mail messages, Web browsing, and music and other media on hand held devices. Each of the announced features of the iPhone expanded the footprint of the mobile phone's behaviour space, thus creating a new behavior space. Apple introduced an operating system built specifically for the mobile experience, and as soon as the device became popular, they revealed the next level of the strategy: the App Store. The device was now a mobile computing platform, capable of being customized with any number of free or affordable applications.
    Importantly, each of these applications represented a different behaviour: the touch screen invited interaction, the music store invited contemplation, the e-mail messenger invited communication, the Huffington Post invited up-to-date news commentary, and so on. The platform that allows all of these behaviours to take place was the iPhone device, which has to be understood as a platform for behaviour: a behavior space.
    Was the competition up for this challenge? The answer is no. While the iPhone behaviour space strategy was transparent from the beginning, the competition failed to understand its characteristics as any different than what they were competing with already. They looked at the iPhone as being just another device. Most disturbing for a public company was the complacency of the market incumbents after the introduction of the iPhone in June of 2007. The incumbents focused wrongly on the volume of sets sold, and on the number of subscriptions signed each month, as measures of success in a market that by now was valuing different metrics: product desirability, ease of use, fun, and pleasure while in use. In other words, the depth of engagement with the behaviour space.
    Nokia and RIM simply didn't 'get' the iPhone, and had a sense of exemption from competing with it. The iPhone was below them, a singular product from a new entrant in the market, and one that had no previous experience in the telecommunications industry. How could you feel threaten by this little toy? Yes, it looked clean and well designed, but it didn't look like a 'business device'. So, for the first two years of the iPhone, 2007-2009, both companies forgot about it. When visiting one of the incumbents in September 2009, I was stunned to realize that no one I spoke to - developers, product managers, UI specialists, strategists - had ever used either the iPhone or the iTouch. These products - a worldwide phenomenon by the time of my visit - were no more than a theory to them.

2. UNDERSTAND AND RESPOND TO THE EMERGING BEHAVIOUR CONTEXT
    The dynamics of behaviour form a system in permanent change and adaptation. A new behaviour space changes the dynamic, due to the evolving nature of the people using it, and also with the evolving nature of the device itself. The user and the device are involved in a behaviour cycle; the cycle once completed by the satisfaction of a user's goals, the user is now looking for more goals to be satisfied by the device. It is in this 'looking for more' goals to satisfy that the economic impact of a behavior space is felt.
    The smartphone behaviour space market shifted again as soon as the Apple introduced the App Store, which allowed users to interact with the company in brand new ways, and for new reasons. Suddenly, more behaviour was possible through applications, more satisfaction was gained by users, and there was more monetization potential for Apple and third-party application developers.
    None of this was yet possible on the Blackberry. RIM responded with BlackBerry devices that felt like overcooked vegetable dishes, with too many ingredients that didn't work together. To the original secure email device, it added lots of new media applications the operating platform was not designed for. It is as if someone at RIM took a look at the iPhone and said 'we can do that! We can add applications on our products just like you have'. Problem is that the applications of the iPhone were designed from the inside out, while the BlackBerry developers added them from the outside in.
    Designing from the inside would have been RIM's measure of agility, which is an organization's ability in 4 domains: the ability to act on intelligence received from the field; the ability to unlearn legacy processes; the ability to reshape legacy supply chains; and the ability to reframe tools and metrics.
    When behaviour spaces shift, it is critical that competitors shift with them. Kodak invented digital cameras, but tried to defend the film business and lost the new market to Japanese competitors. Whenever the executive suite tries to defend and extend an old success formula after a market shifts, only bad things happen.

3. MAKE FORESIGHT A CORE CAPABILITY AND TRANSFORMATION A DAILY PASSION
    This is not about about natural science but about human science. The choices people make have much more weight on the shape of the future than any technology will by itself. Foresight scenarios could have been constructed — stories in which the engagement between people and technology could have been imaginatively explored. Such scenarios can push the limits of what is possible, can reveal limitations, and allow for value judgments that inform a foresight strategy.
    Emergent behaviour patterns - the seeds announcing the presence of a new behaviour space - start with very simple acts that get multiplied on a collective scale. The capability to map a signal in its earliest stages accelerates our understanding of the possibilities that reside within it, and allows for the appropriate course of action to be chosen. An appropriate course of action will maximize the opportunity - or minimize the threat - for both the individual and the organization.
    To maximize the resident opportunity, we must first recognize the different nature of a new variable. What is different between this cell phone and my old device? Not in the device itself, but in my attitude, goals and expectations from it? What is different in me, and how will THIS change MY nature?
    The failure to understand the meaning and implications of new behaviour spaces is not solely intellectual, but also requires courage, sensitivity and imagination as preconditions for those who want to explore the necessary strategic transformation. Robert Burgelman and Andrew Grove have called this understanding 'strategic recognition': identifying the importance of emerging practices and approaches after they arise, but before unequivocal environmental feedback is available to make their significance obvious. "Companies tend to develop strategies which lead them to rely on certain kinds of competencies and to engage in certain kinds of product-market areas," says Burgelman. "They learn what they can do well and find it difficult to deal with new possibilities that come along unplanned."
    The new possibilities are the result of an emerging context, the development of which is not necessarily of our choosing, but rather a convergence of multiple agents, sometimes unrelated, working toward the same goals, and in the same technology spaces. Once the context has changed - no matter how imperceptible at first - an organization's strategic intent needs to change as well. When strategic intent - where are we going and why - is at odds with strategic action - what are we doing and how — the organization is in a state of 'strategic dissonance'.
    Burgelman and Grove proposed four strategic questions that frame the challenges and opportunities faced by an organization in this dynamic. The questions are formulated around the tension between two opposing sets of data: The New Context vs. The Organization's Distinctive Capabilities, and New Sources of Value vs. Business Models.
    To understand the New Context ask: How is the Landscape Changing?
    To understand the New Sources of Value ask: Wha t needs can be met, problems solved or desires ful filled?
    To understand the New Distinctive Competencies ask: What new capabilities are needed to succeed?
    To understand the New Business Models ask: How are we presently structured to capture value?
    Asking these questions in early 2007 would have allowed the incumbents to fully understand the new landscape, have the right ambition for their possibility, and build a competent strategy toward transformation.

IN CLOSING
    The characteristics that compel user engagement with a value space time and time again are characteristics we find in play behaviour: fun, curiosity, discovery, challenges and rewards. Products and services that are economically sustainable, profitable, desired, and create vast economic benefits, are rooted in play behaviour, and specifically in the concept of Play Value.
    By intentionally incorporating play value, user engagement becomes a 'compelling experience' while at the same time, the process for developing such outcomes is no longer the traditional development process, but the more complex process of experience design.
    I will end with a bold proposition: organizations must stop designing products and services and instead focus on designing behaviour spaces. The product or service is simply the disruptor that enables a new behaviour space to emerge. The size of the behaviour space footprint represents the potential value a product or service offers; the greater the value potential, the greater the monetization potential.

ALEXANDER MANU ..The author teaches at the Rotman School of Management, is a Professor at OCAD University in Toronto and a visiting lecturer at the Wallace McCain Institute for Entrepreneurship.

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