The Playbook For Today's Market Volatility -- "Do More With Less"

Jun 16, 2022

"The true creator is necessity, who is the mother of our invention."
— Jowett’s 1894 translation of Plato’s Republic1

We are all aware of and impacted by our inflation, supply chain disruptions, political unrest, the war in Ukraine, and the investing market volatility. None of these will pass quickly. There are no easy answers. And The Digital Leader Newsletter can’t offer many insights. Except this…

Do More With Less

Constraints

Your supply prices are rising, your employee wages are increasing, transportation is getting more expensive, and key components (like chips) might be in short supply. Your COGS and your P&L are a mess. What do we do?

“Let’s cut our way to greatness!”

While thorough rationalization of your discretionary spending is healthy and appropriate, these cuts are typically short-term, unsustainable, and defensive in nature.

I believe in offense.

The “offensive” playbook uses constraints to invent our way into a better situation — often one that pays dividends short-term and long-term. As Peter Drucker stated:

Because the purpose of business is to create a customer, the business enterprise has two--and only two--basic functions: marketing and innovation. Marketing and innovation produce results; all the rest are costs. Marketing is the distinguishing, unique function of the business.

Instead of crawling into a figurative fetal position and just accepting the difficult circumstances, put your “invention” hat on and double down on finding immediate ROI opportunities to improve operational effectiveness, and cost of goods sold, delivering more efficiently to today’s customers by making a better and more efficient product or service.

So the master constraint is “do more with less”. Don’t confuse this with “do less with less” which is often how non-innovators act.

Proof Points

In the HBR article Why Constraints Are Good for Innovation2, Harvard professors found that “We reviewed 145 empirical studies on the effects of constraints on creativity and innovation, and found that individuals, teams, and organizations alike benefit from a healthy dose of constraints. It is only when the constraints become too high that they stifle creativity and innovation.”

They cite the example of GE Healthcare’s 400 Electrocardiograph which was developed for the constraints of a rural environment market that could not bear the weight, operational complexity, or costs of typical electrocardiographs. The team was given these constraints: “develop an ECG device that boasts the latest technology, costs no more than $1 per scan, is ultra-portable to reach rural communities (i.e, should be lightweight and fit into a backpack), and is battery operated. The engineers were given just 18 months and a budget of $500,000 – a very modest budget by GE’s standards, given that development of its predecessor cost $5.4 million.” Constraints like this force a team to “start with the customer and work backward” stripping away previous assumptions, features, policies, or business-model limitations.

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I know a staff computer software engineer for a SaaS company that has extremely high cloud computing and logging software bills every month. These expenses are, of course, consumption-driven. His team has been re-architecting and challenging the value of many approaches which were implemented without an eye toward “unit costs” or scaling efficiency. They were given the constraints of reducing per-unit consumption by 15% while keeping performance SLAs constant. They are finding huge success at stripping away legacy architecture, dropping cloud infrastructure, and logging software savings straight to the bottom line.

And as so often happens, when they started rationalizing bloated and unconstrained products, services, and operations, their SaaS product actually ran better! The product is faster and easier for the engineering team to support. Their customers are getting a benefit from this stripped-down architecture! Pure magic.

Reflect back on the early days of the pandemic. Two industries, in particular, demonstrated what teams with a sense of urgency, in a crisis, can accomplish.

Healthcare providers had to quickly adapt to a radical set of constraints. For example, “a team at Warrington and Halton Teaching Hospitalsf invented the “Black Box” to treat COVID-19 patients – a life-changing innovation that literally saved people’s lives. Experiencing an international acute shortage of ventilators, the small team of consultants, nurses, physiotherapists, and physiologists at the NHS Foundation Trust, knew they needed to try something different. The Warrington team adapted breathing machines normally used for sleep apnoea, a disorder that stops breathing during sleep, which became known as “black boxes”. These have been so successful that Warrington hospital continues to have the lowest number of COVID-19 related deaths in the northwest of England – half that of some local hospitals.”3

So the master constraint is “do more with less”. Don’t confuse this with “do less with less”

The second industry is the quick-serve restaurant industry which adapted menus, ordering, service, infrastructure, workforce management, and most parts of their value chain. And they didn’t suffer from “paralysis from analysis”. They quickly assessed, picked their approaches, implemented, and iterated until they got it right. They showed how quickly we actually can transform… when we have constraints.

Market Volatility

During times of market volatility, the advice I give is to consider shortening up the investment horizon for your innovations (shoot for immediate to twelve months positive ROI) but increase your focus (and perhaps your resource allocation, spending, and certainly executive focus) on this part of your innovation portfolio.

You can control your inputs, resulting in better business outputs and long-term competitive advantage. The market volatility will sort its way out.

Never waste a good crisis! We’ve got a good one right now. Innovate on!

Onward,

John

The Digital Leader Newsletter -- By John Rossman

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