value insights

Selecting the Option- Valutrics

The business that remains at one stage in the knowledge funnel fails to capitalize on the option created when knowledge is advanced quickly through the funnel. It misses the opportunity to delve into the next mystery and push that mystery through the funnel ahead of the competition. To exploit that opportunity, a company can choose to redeploy the personnel who successfully tackled the last mystery and advanced knowledge along the funnel. By putting these resources to work on new mysteries, the company both defends its current position and goes on the offensive by exploring new opportunities.

McDonald’s more recent history provides a useful illustration. After its transition from the drive-in heuristic to the quick-service restaurant algorithm, McDonald’s grew big and strong exploiting that algorithm with burgers, fries, and shakes. But by the 1990s, it had lost touch with its consumers and what they wanted in the way of fast food; its original solution to that mystery had grown stale with time. The company’s management was so busy running its algorithm that it failed to grasp that many consumers wanted the fast turnaround that is McDonald’s byword, but with menu offerings that were healthier or more diverse than pressure-cooked beef, deep-fried potatoes, and sugared milk. Many other chains, from Taco Bell to Subway, explored the mystery of what those consumers wanted, and their solutions drove McDonald’s into a tailspin.

Playing defense is essential because there are multiple paths out of virtually any mystery. McDonald’s chose one route out of the mystery and drove it to an algorithm. But when it settled at that algorithm, it gave its rivals an opening to develop alternative solutions to the mystery. Subway, for example, retained the quickservice component, but replaced burgers and fries with submarine sandwiches and fresh, healthful ingredients.

In doing so, Subway took advantage of the blind spot created on McDonald’s path through the knowledge funnel. Remember that as an idea moves through the funnel, information is shaved away. Some of that seemingly extraneous information can in fact prove crucial to the solution of the next mystery. Early on, McDonald’s left health issues by the wayside. Subway made healthy eating the centerpiece of its value proposition, touting its fresh ingredients and low-fat specialties in response to consumers’ increasing concerns about unhealthy fast food. McDonald’s has subsequently made halting progress toward a healthier menu, but its struggles point to the difficulty that companies have in doubling back along the knowledge funnel.

Other companies can spare themselves similar anguish by using the cost savings generated from pushing their current activities through the knowledge funnel to revisit the mystery whose initial solution drove its original business model. By reengaging with the mystery and considering information sliced away during the previous trip through the funnel, a company can avoid being blindsided, as McDonald’s was by Subway. Only when McDonald’s began to explore new approaches to satisfying the consumers’ changing desires did it start to climb out of its trough.

The company that gains efficiencies by pushing current knowledge through the funnel also gains an offensive advantage. It can redeploy the savings and redirect its freed-up personnel toward consideration of entirely new mysteries. Procter & Gamble realized enormous efficiencies by refining its knowledge of household cleaning products. The equity generated by those efficiencies was deployed toward the mystery of baby diapering. The result: Pampers, now one of P&G’s biggest businesses. Only fifty years ago it was a complete mystery. In other words, P&G used the equity realized by becoming more efficient to pursue innovation. It exploited the gains of previous advances to fund its exploration of new mysteries.

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