Reading time: 4 – 6 minutes

The subject of pricing makes most people uncomfortable – including those involved with new products. No surprise there since many organizations keep the responsibility for pricing in either finance or product management. But not including pricing strategy as a key, early element of your new product process is a serious mistake that leaves money on the table at best. And what’s worse – it can squander your constrained R&D resources. Quite simply, the best time to get pricing right is at the start – sometimes it’s the only chance you get.

The first question I ask B2B or industrial companies is whether they price for value or for margin – Note: We’ll cover consumer markets in a later article. I find that the majority of industrial companies price for margin. That’s unfortunate because pricing for margin is all about you instead of the customer. It starts with estimating your cost to manufacture; it finishes with setting a price to deliver either your target or minimum acceptable margin. The process isn’t quite as slavish as it sounds though. Some companies look at the competitive situation and tweak the price up if they can. Others start somewhere above their target margin in order to provide themselves a cushion.

On the other hand, pricing for value is all about what’s in it for the customer. Starting with the value created for the customer you can then determine whether there is anything in it for you. Pricing for value means starts with spending the time to understand what the customer’s problem is costing them and how much your solution will help them. The best way to quantify value is to estimate the impact in terms of increasing their sales Throughput (cash flow), reducing their Investment in working capital or reducing their Operating Expense. Those familiar with Goldratt’s Theory of Constraints will recognize this as ∆T, I, & OE.

But pricing for value is not a selfless act of charity. Once you understand the value created, your next step is to determine what percentage of that value you can expect to share in. The best way I’ve found to do this is from the customers’ perspective. Pretend you’re the customer and evaluate the new product based on the financial gain it’s going to give you. That usually means doing a cost in use analysis and then calculating either a payback period or a return on investment (ROI). Most companies expect to see a fast payback – 12 to 18 months – before they’ll buy. With a little trial and error, you can quickly determine the highest price that gives customers the payback they require. Of course, now that you know what’s in it for them, you can estimate the margin and ROI that’s in it for you.

Pricing for value helps better exploit your constrained new products development resources. Doing the upfront work to understand the value created and what price delivers an attractive payback for the customer defines commercial feasibility. It also helps you to evaluate, beforehand, whether the new product project is a good investment. If that works shows the value created also generates a margin at or above your target and a return on development resources that is equal to or better than your other opportunities, then the project deserves a place in your new product pipeline.

The argument for simplicity. Doing up front value work is an investment in itself. So, some will argue that pricing for margin is simpler and that you can still plug your price into a customer value in use model to see if it is attractive. But pricing for margin doesn’t include the customer’s perspective so it can leave margin on the table. Why settle for a 35% target margin, when your value work shows a 65% margin would give the customer a 12-month payback? Furthermore, pricing for margin fails to evaluate feasibility and weed out the products that will ultimately fail to deliver the margins you desire.

So what’s your pricing strategy? Join the conversation and let us know what you think.

This article appears by permission of the author and was originally published on his Simplifying Innovation blog.

Mike Dalton is the author of Simplifying Innovation: Doubling speed to market and new product profits – with your existing resources

Mike Dalton is also the founder of Guided Innovation Group, whose simple mission is helping companies turn their new product innovation into bottom-line impact. His innovation improvement framework was sharpened over 24 years of product development, marketing and executive leadership at the multi-billion dollar SC Johnson family of companies.

Reading time: 3 – 4 minutes

Critical thinking skills can make or break your career. It is an essential skill for anyone performing analysis, rising managers and organization leaders.

Being quick to judgment or being judged quickly affects people’s lives and is not necessary seen as a sign of good leadership. The quality of the decision outweighs the speed of decision-making. One has to wonder if that is what happened to Shirley Sherrod and the Agriculture Department’s decision to ask for her resignation.

One of the first steps to being an effective thinker is to recognize if biases or emotions play apart in the person making a decision.

At every stage of the critical thinking process, the integrity of the person making the decision and what tools or methodologies being used will affect the outcome.

Take a moment to think about two situations where you have made decisions – one where it was a good decision and another where you wished you had done something differently.

Use these situations to analyze what where your critical thinking skill might have been faulty. When you become a critic of your thinking, you will become a better thinker.

Situation Assessment- How well do you perform a situational analysis?

• Have you defined the problem accurately or are you trying to solve the symptom?
• Are you raising additional questions to be answered or simply focusing on the problem?
• How many sources are you using to get information?
• Is your information checked for accuracy and completeness with independent sources?
• Are documents read carefully to ascertain intent?
• Have you uncovered what is not obvious?
• Do you gather all the relevant information and facts before rushing to judgment?

Problem Solving – Are you an exceptional problem solver?

• Do you have hard data?
• Are you relying on one problem solving methodology?
• Have you defined the criteria or standard to test your theories?
• Are you drawing upon personal experiences? Are those experiences broad and deep?
• Has there been time to reflect and find new insights?
• Is inductive or deductive logic and reasoning being used?
• Is the problem being solved in a vacuum?
• Do others opinions influence the outcome unduly?
• Have you interpreted the information correctly?
• Is my conclusion justifiable?
• Have you debated the problem with anyone?
• Are you testing a conclusion or drawing one?
• Are you using a quality process that improves the way you reason?

Analyzing, reasoning and communicating effectively will improve your decision.  Collaborating with others to think critically will enable you to tackle situations with confidence and fairness. Learn where you make missteps – it will help in making your next big decision.

Lynn Dessert owns Leadership Breakthrough, improving personal communication and influence one-step at a time. Post your thoughts or email me!

Reading time: 2 – 3 minutes

The H1N1 Flu (first known as Swine Flu) is causing lots of ill will, no pun intended. The distribution issues of the vaccine are akin to leaders trying to manage their employees. Here’s why.

Cries of unfair treatment are abound. This morning, I heard about how Goldman Sachs is receiving similar allocations of vaccines as doctors. Evidently, the medical community is in an outrage because they have patients who are considered high risk and they are unable to help them. They do not understand how an organization can be at the front of the line with them.

Is this a case of the distribution system taking over human decision making? Alternatively, maybe no one wants to step into the limelight and make the call on who gets it, who does not or when he or she get it.

Who wants to be put into the position of making those kinds of calls – where someone’s life may be affected? Sometimes it is easier to let the system or a non-partial methodology make the decision for you.

Either way, someone loses.

It is an emotional topic for many people; and when emotions are riding high, things get personal. The reality is decision makers are so far removed from you, it is improbable that it is a personal attack.

Does your CEO or leader when faced with a major decision let the system do its thing or do they get more involved in the effects of their decisions on individual lives?

It does not mean the tough decision does not have to be made. It reflects the level of engagement they have in understanding the implications and making adjustments that that system cannot expect to anticipate.

Lynn Dessert owns Leadership Breakthrough, improving personal communication and influence one-step at a time. Post your thoughts or email me!

Reading time: 6 – 9 minutes

At some point, your organization may realize they need an outside expert to help them with a particular problem or to build a core group of skills internally.

There are several approaches to consider; decide which one works best for your particular situation. A permanent solution is to hire an individual for a particular job or role, especially if the work can sustain additional headcount over time.

A more flexible approach is to use transitional or temporary resources, such as consultants to fill gaps in skills, knowledge and work force requirements. While it may seem expensive initially, over the long term, it can be a more cost effective approach.

Why Use a Consultant?

Using a consultant allows companies to buy expertise when they need it without the burden of carrying additional overhead for years to come. Expect to pay a premium for acquiring skills just in time.

Consultants are responsible for investing, developing and keeping current their professional skills. If you had to cultivate and retain those same skills in your own organization, consider the investment it would take in people, time and expense.

Know Your Problem

Some companies are not sure of what their problem is and try to use consultants to gain clarity. Do not expect a seasoned consultant to spend a lot of time helping you to define and solve your problem without an engagement.

If you do not know the problem, commission a consultant to help you figure it out otherwise you may miss the opportunity to work with a top-notch consultant who thinks you are just fishing for a free solution.

To Generalize or Specialize

There are consultants who are generalists – they use broad businesses practices and have general knowledge in several disciplines. Companies who believe they can save a few dollars by using a generalist in place of a specialist are sadly mistaken and often spend more money by the time the project is done.

Generalists can assist you with large-scale systematic problems that cut across different functions. They often understand the big picture and can serve as translators between different businesses or functions.

Specialists possess a high level of expertise in techniques or have in-depth knowledge on a particular subject or topic. It is more common for companies to engage specialists because they recognize the specific skills that are missing and want to bring it in-house.

Ask yourself these questions:

• Does your problem require a broad based, general business approach?
• Are there requirements for specific training or specialized knowledge to understand and/or solve the problem?
• Are there parts of the solution that may require you to work with both types of consultants?

Test Ride or Experience

New consultants sometimes wait a long time for their first assignment because companies may not want to take the risk of engaging them on a project without a record of accomplishment.

Consultants will often provide services at a discount rate until they are established or have some testimonials behind their work. This may be an opportunity to engage a high quality individual at the beginning stages of their business.

Use some caution, as not all consultants are exceptional. The first few years are the “weeding out” period for them.

Questions to consider:

• Is the problem solvable by a new consultant who may be on a learning curve?
• What degree of skill is required to be successful?
• Is the project small enough to test the new consultant without overwhelming them?
• Is there a benefit to having someone who has seen it/done it many times and in different situations?
• Are the consequences of not getting it right or done on time significant?
• Does the consultant have the right level of resources in place to get the work done?
• Has the consultant worked with limited resources?
• Can the consultant work independently?

Working under the umbrella of a corporation and working solo are very different scenarios. Determine if you are a training ground for the consultant or if they are ready to do business with you.

Qualifying the Consultant

Recommendations and referrals play a key role in determining if you have a quality consultant. Ask people in your company who may have used similar services, network within your industry or with an outside professional organization for a referral.

How serious are they about their business? What kind of legal structure do they use? Are they incorporated, in a partnership or do they operate under a DBA? Some major companies require a legal entity with accompanying proof of insurance.

Conduct due diligence on how they represent their business through written or oral communication.

• Do they have a website or blog?
• Are they social network savvy?
• How do they present their value proposition?
• Does their approach resonate with you?
• What companies have they worked with?
• Is there an easy way to contact them?
• Do they have endorsements from some of their clients?
• Is the process clear?
• Do they demonstrate or discuss outcomes that are similar to what you are looking for?
• Do they work with the type or level of clients who are similar to you?
• Do they have time to work with you?
• Is there chemistry?
• Do their fees reflect the value you will receive?

What professional training and accreditation have they acquired over their career? There are a number of cottage industry accreditation programs, ask questions to see if the certifications meet the standards you have personally established.

Transferring of Knowledge & Skills

If the consultant is working on a project that builds skills in your workforce, determine if their process addresses transfer of knowledge. A consultant’s goal is to help your organization, not become apart of the organization. They recognize building capabilities internally is essential to client satisfaction.

Questions to ask:

• Who needs to build their skills?
• How will the consultant teach the skills?
• How will the company test the knowledge and application of the skills?
• What future projects can we begin to use these skills over the next six months?
• Do we need additional training or a refresher?

Ignoring skill transfer will cost you more in the end. Invest in the extra steps to embed those skills in your workforce.

Once you have selected a few consultants to consider, the next step is to know what questions to ask them.

Lynn Dessert owns Leadership Breakthrough, improving personal communication and influence one-step at a time. Post your thoughts or email me!

Reading time: 4 – 6 minutes

There are times when leaders do not believe their teams are taking a trip to Abilene. The tall tale signs are “we just all get along or we go with the flow”.

Take a hard look if this describes your situation. The trip is brutal in more ways than one.

The Abilene Paradox and Other Meditations on Management by Jerry B. Harvey highlights how faulty decisions may arise within a group. It occurs when everyone assumes other members of the group are in agreement with a particular outcome, yet on an individual basis they do not agree.

The story is set in Texas. It is about a family who takes a car trip to Abilene on a hot 107° summer day without any air conditioning. After driving 51 miles each way; four plus hours later they return home. Exhausted, each of them reflect on how they did not want to take the trip in the first place, but did so because they thought everyone else wanted to go.

The group was not in conflict, they simply failed to manage agreement effectively. And for that reason, they suffered.

Groups and organizations take the trip to Abilene every day. Today, a group I was working with began to realize just how many trips they were taking to Abilene. How to you recognize it, why does it happen and how do you prevent it?

Are you getting ready to take a trip to Abilene?

Ask some simple questions to see if your group is loading up the car to Abilene. The ideal situation is for someone outside of your group to facilitate this process. In steps 1 and 2, speak to each person separately, away from the group.

Step 1 – Ask if they agree on the problem.

Step 2 – Ask what steps they will take to deal with the problem.

If individuals answer differently, move the final step. Bring the group together.

Step 3 – Observe how the group decides how to solve the problem.. Do individuals in the group communicate openly about their ideas and beliefs with each other?

If not, pack your bags, it appears your group is on the way to Abilene.

What are the signs of being on a trip to Abilene?

You may have already determined your group is enroute. If so, clear signs include, the lack of employee involvement, missing project deadlines, decreasing profitability and errors due to miscommunication. The group or organization will witness rising levels of blaming and scapegoating, leading to frustration. This cycle continues to repeat itself until the group learns to communicate their opinions more effectively with each other.

Why don’t people speak up?

There are many reasons why group members do not speak up. Some of them include:

Action Anxiety

There is anxiety in expressing your real beliefs for fear that someone else will think judge you harshly.

Negative Fantasies

We often think about the worse case scenario, believing if we carry something, it will cause pain or harm.

Our negative fantasy only reinforces our action anxiety. Ultimately, it provides us an excuse for not taking action.

Fear of Separation

A person fears separation, such as termination or shunned by the group for taking a risky action.

Real Risk

Risk is unavoidable; every day we face it. Understanding the real threat of risk is a tougher question to answer. Is risk possible – the answer will always be “yes”. The more appropriate question is to ask is – is it probable.

Psychological Reversal of risk and certainty

The irony is – if we let the threat of risk and negative fantasies get in our way of speaking up in the decision process, our inaction may lead to the negative outcomes we are trying to avoid.

Ways to prevent a trip to Abilene

Make sure you have the right people in the group, if not, invite them in. It is important to have the right skills, knowledge and understand the stakeholder’s expected outcomes to make a good decision.

Allow for plenty of discussion time. If people feel pressure to make a decision quickly, they may decide to hold back their point of view.

Identify the decision and results are expected.

Get the facts ahead of time. Develop options and analyze the impact of your decision.

Share your experiences with taking or getting off the road to Abilene. If your group is continually making the trip, give me a call.

Lynn Dessert owns Leadership Breakthrough, improving personal communication and influence one step at a time. Post your thoughts or email me!

Reading time: 3 – 5 minutes

Have you ever felt that your boss, co-worker, friend or spouse just did not understand what you were trying to communicate? Both of you seem to be approaching the problem from two radically different places? You want to chalk it up to them not listening; chances are they just are processing the information much differently than how you prefer to do it.

One of the ways I help to explain why you feel frustrated with some individual communications styles is with the Whole Brain Model. Based on the work of Ned Herrmann, the model is central to explaining the results from receiving a personal Herrmann Brain Dominance Instrument (HBDI) profile.

Often people will try to guess their own or someone’s profile; which is marginally helpful. We are prone to blinders and miss cues. There is no substitute for knowing actual profile results and to work with a certified practitioner who provides accurate interpretation.

Establishing a non-threatening common language is important for everyone trying to understand what is going on with the situation and not the person. The HBDI will relay a person’s preferences for thinking styles. It is possible for someone to have strong preferences in all quadrants, though most the majority of people have strong preferences in two quadrants. When we understand how people think, we can begin to understand how they communicate with another. We can also begin to figure out where common ground exists.

When working with people who struggle with communicating effectively, a trend occurs – individuals who have strong preferences in opposing quadrants (“A” vs. “C” or “B” vs. “D”) have higher levels of difficulty with one another. Why? Individuals who prefer the “A” quadrant are more likely to communicate with facts, data, numbers and logic. They are more likely to want to lively debate an issue, often leaving others feeling personally attacked. The person, who prefers to communicate from the “C” quadrant, tends to go more with their gut feelings, pay attention to how people might perceive their message or seek consensus in a decision. The “A” quadrant will fail to see the logic in their style, believing their approach may be too soft or touchy-feely.

Let’s look at how individuals with strong preferences in the “B” quadrant might begin their conversation. It would be important to know the details, have an agenda (because we know the path or decision) and follow a defined procedure. They shun risky ventures and revel in keeping things in the safe zone. Conversely, someone with a strong preference in the “D” quadrant, is more likely to want to start with the big picture and ignore details, embrace brainstorming to get more ideas (after all there are always lots of options), and ultimately want to throw out what is not working and start all over again.

Think back to a conversation that did not go so well. Looking at the Whole Brain Model, do you find their approach may have been opposite from yours? If so, then either you will have to learn to adjust to their preferences or figure out if one of the other quadrants might be a better place to start your next conversation. With out having any actual results, it might be hit and miss until you figure it out.

Lynn Dessert owns Leadership Breakthrough and is a certified HBDI practitioner,  improving personal communication and influence one-step at a time. Post your thoughts or email me!

Reading time: 3 – 5 minutes

Is the silver bullet the only answer your manager or organization wants to hear from you?

Is there wasted productivity and leadership misses along the way because of an overwhelming need to have a home run?

Is your management behind closed doors deciding how to cut costs and resources; yet their mantra is “we are going to beat our competition, not matter how long it takes!”

The organization may be close….just a few more milestones to hit. As we are pushing to find that perfect solution, our competition beats us to the punch.

Ouch. If only we had were satisfied with incremental change, instead of demanding step change improvement or in some cases the silver bullet.

Here are some key discussion points to consider if your organization is trying to work on a silver bullet answer:

• Is this the project of du’jour? Is there a commitment to riding out the project bumps and alternatively, shelving the next great idea until this one is done?

• Expect a higher level of involvement with human resources – as commitment and urgency increases, the number of people and talent for the project goes up exponentially. The scarcer the talent, the more you pay for it. The impact extends beyond the immediate team. The rest of the organization must make the project a top priority to expedite decisions; often at the expense of their own goals. To punish other parts of the organization for declining productivity may reinforce the wrong behaviors.

• Initial project cost estimates are rarely accurate; assume an overrun. Optimism rides high during the first half of the project, for good reason. No one wants to return to the money well too soon. Project suicide occurs if there is not enough traction with the company or management team before requesting more resources. If you don’t have the funds to throw at the project; don’t start it.

• Avoid falling into the trap of moving to action too soon; it may be the source of delays in the long run. Give the project the “think time” it needs with careful consideration for mapping out alternatives and reaching a solid conclusion. The main objective is not marking things off your to do list – that only gives a false sense of accomplishment. Getting to the finish line with the least amount of reworks is the answer.

• Redefining a project is common as teams gain new insights into the first few phases. It may be the customer applications or needs change, production or material requirements shift or the cost-benefit analysis bears different results. Being flexible to assess the goal and its path is essential to meeting the challenge at hand. If you are wedded to one idea and solution, chances are your blinders are on.

• Have a realistic project time line. Placing pressure on a team to find the finish line will stifle creativity. Alternatively, managing the prima donnas or individuals who get stuck in the product and design phase of inventing presents a different set of challenges. Defining the trade-off of speed to market with the silver bullet answer requires skill and little luck.

Issues to discuss? Stories to Share? Post your thoughts or email me.

Reading time: 2 – 4 minutes

If you had to rate your boss today on how well they make decisions in the best interest of the company, consumer and employee, what would be their score on a scale of 1-10? Independent of our economic situation, management may be making decisions that are short sighted; there is too much emphasis on immediate cost savings. Unfortunately, as those same decisions play out over time, management’s intentions to save money actually end up costing us all more.

Take this example from a contractor who works in the nuclear power plant industry. A plant will schedule a planned outage for maintenance every year or two years. During this time, depending on the level of preventative maintenance, the employment for the company swells with additional outside contractors to expedite the job getting done; reducing downtime. The contractors range from skilled trades to planners – basically anyone who supports the project. Typically, a shutdown can run anywhere from 30-60 days. During this time, the plant has to 1) pay for regular employees and contractors and 2) purchase alternative electricity to keep their customers “in the light”.

Management in their wisdom decides to forgo working through the Easter holiday. The company is approaching the project end date at month’s end. Many of the skilled contractors are union workers or have contracts with more lucrative pay tied to working holidays. It seems like a good decision, let’s save some money and make a stronger push when they return from the three day weekend.

The contractor shakes his head. He’s seen this before in other plants. His prediction is that many of the skilled tradesmen will not return after the holiday. Why should they? Many of them have traveled between states to come to work on this project and the likelihood they will remain in a hotel over a holiday weekend is bleak. Once home, they have plenty of time to reflect on their choices. Do I return for a couple of weeks to finish up this project with a company who avoids paying double or triple time pay or do I lock and load myself into the next longer term job. It seems like an easy decision for a high demand skill set in this industry.

After the holiday weekend, to no surprise, the returning workforce was much lighter. Management has already pushed out the completion date beyond the project deadline. They have lost economies of scale with a cohesive work group, will likely struggle with resource allocation and must purchase more electricity to supply to their customers. A bit short sighted for all parties, if you ask me.

Issues to discuss? Stories to Share? Post your thoughts or email me!

Reading time: 2 – 3 minutes

You think or you know you have a wimpy or intolerable boss. Frustrated and at your breaking point; what do you do? There are a number of different options available to someone facing this situation.

1. Find another job and quit
2. Quit on the spot without another job
3. Transfer to another location or department and leave the problem for someone else
4. Cope with the situation by venting to your colleagues
5. Pretend the problem doesn’t exist and continue working (doing nothing is an option)
6. Appease the boss; avoid doing things that upset them
7. Round up your last bit of courage and approach the boss on your own
8. Raise the issue to your boss’s boss or the Human Resources department
9. Seek out a facilitator or coach to assist you in resolving the conflict

Each option may have positive or negative implications on your career, work and personal relationships. Ask yourself these questions to think through your decision before putting it into action:

• Am I making a decision from an objective or emotional state of mind?
• What are the potential outcomes of my decision?
• Is this option an improvement over my current situation?
• Does the work environment or culture support my option?
• Who will my decision affect?
• Do I have a support system (family, friends etc.) to help me? Have I discussed it with them?
• Can I live with the consequences of my decision?
• Are there any other resources I should consider?

Flawless execution of the your option will determine the level of success of your decision.

Issues to discuss? Stories to Share? Post your thoughts or email me!