Rethinking First Principles

Rethink what you never think about

Richard Gottlieb -- Gifts and Dec, 12/10/2010 12:44:18 AM

Dear Carol,
     Have you ever thought about how many mistakes are made in business because the first principles on which people make decisions are either wrong or outmoded? In fact, most businesspeople don't even know what first principles are.
     Just so we are on the same page, I define a first, or organizing, principle, as a generalization that a community of people accepts as true and on which they make decisions. Most people never think about first principles because, most of the time, they are invisible.
     Consider driving a car in the United States: A first principle is that we all drive on the right-hand side of the road. No one thinks about that, they just take it for granted. The only time they become aware of the first principle of driving on the right-hand side of the road is when they leave the United States and go to a place like England. In that country, people drive on the left-hand side of the road and the first principle no longer works. In fact, not seeing this change in the first principle can get you arrested or even killed.
     In the consumer products industry, we have our own set of first principles. For example, how we designate departments.
     Departments as we know them did not actually exist prior to the rise of the aptly named department store in the 19th century. These 19th century businessmen essentially determined where and how we designate product categories and merchandise our stores in the 21st century. You can thank them for dividing products by gender, separating soft goods from hard goods and making sure that the hardware department was not near ladies' dresses but adjacent to housewares.
     It's been a long time since 1839 when Aristide Boucicaut founded what is believed to be the world's first department store, Bon Marche, in Paris. In the past 179 years there have been massive changes in how race, gender and longevity are perceived, in technology, communication and a host of other factors. Don't you think it's time we take a step back and reconsider whether these ancient department designations constrain or even prevent the flow of new and innovative products to the consumer? After all, if there is no place to put a product, no retail buyer will list it.
     A number of years ago, I was with a toy company that decided to bring games for senior citizens to market. The idea was that seniors would respond to products that had oversized pieces, large print rules, etc. The challenge was that toy departments were deemed to be children's departments. There was a place for girls' toys and one for boys' toys, but no place for seniors. We failed because there was simply no place i n the store for a game or toy designed for senior citizens.
     Imagine what would happen if we were to change this first principle from "the toy department is for children" to "the toy department is for families?" New products would be developed, new companies would come into existence and retailers would increase their sales.
     Do you agree that some first principles are outdated? If so, can you tell me if you see similar cases where our first principles no longer apply?

Sincerely,
Richard Gottlieb

 

Dear Richard,
      Thank you for giving this all-too-prevalent concept a name and for creating awareness around the history of "departmentalism" in retail!
      Many retail "truths" are held to be self-evident when, in fact, they are false or only partially true. Even the most brilliant ideas are doomed to mediocrity or failure when they are layered onto these shaky foundations. That's why it is so important to question fundamental assumptions.
      I love your example of the department system within retail - something that has largely remained unquestioned even as shopper marketing insights, multi-channel connectivity, and store format efficiencies have become much more sophisticated.
      In my experience, retail suppliers and solutions providers actually have more faith in the department system than retailers do. Suppliers assume that "everything has its place" and that the department based system would naturally evolve to accommodate and encourage innovation. Instead, the department system of the past has remained largely in place, and the gray area voids have widened as a result.
      Here's where the disconnect begins: Suppliers seek the "decision-maker" for their particular products when there may not be one. Or there may be several potential trigger-pullers at retailer HQ, but stepping out into the gray in order to grab onto a non-core opportunity would be an act of daring instead of a natural outcome of pursuing innovation.
      Working off of your example, let's say that a company designed an amazing toy geared toward adults, and the product also featured gaming and Web-based attributes. Who at retailer HQ would "claim" it? The toy buyer? Probably not. It wouldn't really work next to kid-focused Barbie or Tonka. Consumer electronics or gaming? It doesn't really fit into the game display, does it? How about dot com? Would anyone find it there when awareness hadn't been established in the stores? The velvet rope thickens and innovation is thwarted. And, far from changing the system, existing suppliers and brands thrive by innovating within the existing departmental structure rather than bucking it.
      Exacerbating the problem is the intentional position- turnover within retailer organizations. Gone are the days when a buyer retired in the same category that launched their post-internship career. Retailers no longer expect, or even want, their employees to become category experts; instead, they are invested in keeping everyone moving and steeped in process. That's why the electronics buyer sitting across the table may have just come over from the infants' department. If a decision-maker is only going to be working within a given category for a few months, it's even less likely that they will step out and take risks. What's in it for them? Particularly when any failures could result in the worst situation of all: staying put!
      I have also worked with companies that have argued for, and been denied, multiple placement within a given retailer under the same system. Retailers still err on the side of picking a spot or moving that spot and, once one category decision- maker claims a product, it more or less becomes off limits to other departments.

Don't you think it's time we reconsider whether department designations constrain or prevent the flow of new products to the consumer? -Richard Gottlieb

     This puts the shopper in the position of having to get into the retailer's head versus the other way around (another first principle!). How many times have you found yourself in a store aisle, puzzled, thinking "Shouldn't (product) be right here?" If you're like me, your next thought is, "Where else would (fill in retailer) put this?" From there, you either go exploring, cross the item off of your list, or ask for help. Taking the latter option invariably creates a bit of discomfort as the associate says, "Oh, we keep those over in hardware." (Thought to self: "Silly me" or "That makes no sense whatsoever" and "yikes, that's all the way over there.") Maybe the item was in a particular place in the past, but the retailer decided that it should go somewhere else for any number of reasons. Even if it was based on the majority of shoppers' expectations, why wouldn't the retailer capture the opportunity to have the item in both locations? One reason is the department system!

      In all fairness, retailers are becoming more open to placing items such as batteries in several logical locations throughout the store. However, I still see the department-based claim-it system as the dominant model.
      So, "It'll never work" becomes a self-fulfilling prophecy, which isn't necessarily based on consumer demand. Instead, it's based on the existing departmental gate-keeping structure.
     Your examples created so many possibilities that I barely strayed! Perhaps various first principles warrant further discussion? What are your ideas for creating a new framework that will foster innovation without wreaking havoc?