Strategy in the media

Citation

Henry, C. (2011), "Strategy in the media", Strategy & Leadership, Vol. 39 No. 1. https://doi.org/10.1108/sl.2011.26139aaf.002

Strategy in the media

Article Type: CEO advisory From: Strategy & Leadership, Volume 39, Issue 1

Capitalism’s new chapter

Capitalism is a book of many chapters – and we are beginning a new one. Every century or so, fundamental changes in the nature of consumption create new demand patterns that existing enterprises can’t meet. When a majority of people want things that remain priced at a premium under the old institutional regime – a condition I call the “premium puzzle” – the ground becomes extremely fertile for wholly new classes of competitors that can fulfill the new demands at an affordable price. A premium puzzle existed in the auto industry before Henry Ford and the Model T and in the music industry before Steve Jobs and the iPod.

The consumption shift in Ford’s time was from the elite to the masses; today, we are moving from an era of mass consumption to one focused on the individual. Sharp increases in higher education, standards of living, social complexity, and longevity over the past century gave rise to a new desire for individual self-determination: having control over what matters, having one’s voice heard, and having social connections on one’s own terms. The leading edge of consumption is now moving from products and services to tools and relationships enabled by interactive technologies. Amazon.com, Apple, eBay, and YouTube are familiar examples of companies solving today’s premium puzzle

It would be easy to construe these as isolated cases of innovation and industry change, but I believe they represent much more: a mutation in capitalism itself. What’s the difference? Innovations improve the framework in which enterprises produce and deliver goods and services. Mutations create new frameworks; they are not simply new technologies, though they do leverage technologies to do new things …

In the same way that mass production moved the locus of industry from small shops to huge factories, today’s mutations have the potential to shift us away from business models based on economies of scale, asset intensification, concentration, and central control … And for many goods and services, new business frameworks are emerging: federations of enterprises – from a variety of sectors –that share collaborative values and goals are increasingly capable of distributing valued assets directly to individuals, enabling them to determine exactly what they will consume, as well as when and how. This shift not only changes the basis of competition for companies but also blurs – and even removes – the boundaries between entire industries, along with those that have existed between producers and consumers. The music and newspaper industries ignored this shift, to their great detriment. I believe all businesses will have to find ways to adapt to this new world if they want to grow.

Shoshana Zuboff, “Creating value in the age of distributed capitalism,” McKinsey Quarterly, September 2010.

Leading edge HR metrics that can move the bottom line

Leading-edge companies are increasingly adopting sophisticated methods of analyzing employee data to enhance their competitive advantage. Google, Best Buy, Sysco, and others are beginning to understand exactly how to ensure the highest productivity, engagement, and retention of top talent, and then replicating their successes …

Harrah’s Entertainment is well-known for employing analytics to select customers with the greatest profit potential and to refine pricing and promotions for targeted segments. Harrah’s has also extended this approach to people decisions, using insights derived from data to put the right employees in the right jobs and creating models that calculate the optimal number of staff members to deal with customers at the front desk and other service points. Today the company uses analytics to hold itself accountable for the things that matter most to its staff, knowing that happier and healthier employees create better-satisfied guests.

For example, Harrah’s used metrics to evaluate the effects of its health and wellness programs on employee engagement and the bottom line. Preventive-care visits to its on-site clinics have increased, lowering urgent-care costs by millions of dollars over the past 12 months. And because Harrah’s understands the relationship between employee engagement and top-line revenue, it can evaluate the program according to revenue contribution as well.

Here’s how other organizations use analytics to improve their management of human capital:

• •

  Almost every company we’ve studied says it values employee engagement, but some – including Starbucks, Limited Brands, and Best Buy – can precisely identify the value of a 0.1% increase in engagement among employees at a particular store. At Best Buy, for example, that value is more than $100,000 in the store’s annual operating income.

• •

  Many companies favor job candidates with stellar academic records from prestigious schools – but AT&T and Google have established through quantitative analysis that a demonstrated ability to take initiative is a far better predictor of high performance on the job.

Thomas H. Davenport, Jeanne Harris, and Jeremy Shapiro, “Competing on talent analytics,” Harvard Business Review, October 2010.

Understanding innovation by studying rituals

Far too often, we in the innovation space are interested in creating a really interesting new product, rather than thinking about the product in the context of its use or experience. It was during a car trip with some new friends at Pure Insight when we were talking about daily rituals that I realized what a powerful “lens” rituals could be for focusing on new innovation opportunities …

Now, many of us see the ads on TV for new razors. The recent “innovations” in men’s razors have been to add three, no four, no five! blades to the razor for an ever closer shave. You’ll notice that regardless of the number of blades in the razor, the ritual hasn’t changed. Whether it’s three or four or five blades, we are still scraping our chins in the same way as we have for years, and our own learned, invented or inherited rituals around shaving don’t change.

I suspect that the last two major changes to shaving rituals happened with the advent of packaged foams and creams for shaving and the electric razor. Before that time you actually mixed up your own cream. I can remember on my father’s countertop a “shaving” mug, but you certainly don’t see that anymore. The electric razor changes how one shaves, to a certain extent, but more importantly WHERE one shaves. If private detective shows are any indication, every self-respecting PI uses his electric razor behind the wheel …

Rituals are important for another reason as well. They are developed behavior and often learned or taught, so they can be studied through ethnography. We need to understand the entire ritual of an experience, whether that is shaving, or car repair, or eating a meal, to truly understand the problem solved or opportunity addressed. Improving or radically changing one small step of the ritual, or one tool of the ritual, may not impact the overall ritual at all.

Rituals are an important and undervalued tool for innovators to study, understand and deconstruct. They form a significant portion of what we do, and why we do what we do, and we ignore them at our own peril.

Jeffrey Phillips, “Innovation can require changing rituals,” Innovate on Purpose, September 25, 2010, http://innovateonpurpose.blogspot.com/2010/09/rituals-as-innovation-lens.html

Is more inflation the right prescription for the US economy?

In the two years since Lehman Brothers went under, the Federal Reserve has taken extraordinary measures to get the economy moving again. It has bailed out huge financial institutions, slashed interest rates almost to zero, lent hundreds of billions of dollars to American companies, and bought piles of dodgy assets. This pulled us back from the brink of disaster, but, as the fifteen million Americans out of work can testify, it hasn’t been enough to get the economy out of neutral. And so a surprising number of high-profile economists, on both the left and the right, think that it’s time for the Fed to try one more extraordinary measure: injecting the economy with a healthy dose of inflation …

Unfortunately, when the Fed meets this week, it’s unlikely to be talking up the merits of an inflation boost. Central bankers are congenitally obsessed with the dangers of inflation and are more concerned with stable prices than with lost jobs. Also, the Fed, by its nature, looks after the interests of lenders, for whom inflation is generally bad news. But there’s a more basic reason, too: people really, really hate inflation. In polls, voters regularly cite high prices as one of their biggest concerns, even when inflation is low. A 2001 study that looked at the “macroeconomics of happiness” found that higher inflation put a severe dent in how happy people reported themselves to be …

This intuitive prejudice against inflation may not be purely rational, but in normal times it’s beneficial: it encourages sober habits and discourages quick fixes. But, in times of crisis, other policies may succeed where pure rectitude can’t. After the Second World War, when the US was struggling beneath a huge pile of debt, higher inflation helped shrink the real national debt to manageable proportions. And, in times when people are reluctant to take risks, a little inflation can help grease the skids. In doing this, though, inflation helps debtors and spenders at the expense of creditors and savers. It’s easy to see why this makes us uncomfortable. It seems to reward those who have behaved recklessly, and to punish those who played by the rules, saving their money and living frugally. But the economy doesn’t exist, in the end, to reward virtue and punish vice. It exists to maximize our well-being, and, currently, doing that may require helping the undeserving and irresponsible, if only because there are so many of them. Boosting inflation isn’t the right policy, but it may just be the correct one.

James Surowiecki “In praise of inflation,” New Yorker, September 27, 2010.

A different business model for electric cars

Ever since it was founded by Shai Agassi in 2007, Better Place has taken a different approach to making a world full of electric vehicles a reality. Rather than focus on building cars, Better Place has plans to build an entire infrastructure of charge points around the world.

To tackle one of the most significant hurdles to adoption, it’s developed an innovative business model that separates ownership of the car from its battery. As soon as the owner of the vehicle doesn’t own the battery, battery swapping stations become possible, sidestepping the question of long charge times. A pilot program using a fleet of Japanese taxis has brought down the average battery-swapping time to 59 seconds. The first markets for Better Place will be Israel and Denmark, starting with 100,000 switchable battery EVs by 2016. But what about America?

Better Place has laid a bit of groundwork in Hawaii and the San Francisco Bay Area, collaborating with local officials there. But given Agassi’s grand ambition – he wants to reach the guy who was about to buy a Jeep Cherokee, not the one who already owned a Prius – is he confident that he can reach the American mainstream, and mainland, with his unique model? “I think battery-switching is relevant in any country and in the US especially relevant,” Agassi tells Fast Company. America is, after all, the land of the road-trip and the cross-country truck haul: “Try and charge your car on a large trip, if you have to stop every 100 miles,” he says. And though batteries’ energy density will inevitably improve, the laws of physics – not just the constraints of R&D budgets – dictate that to fill a 200-mile battery inside of four minutes would take a cable big enough to feed electricity to the entire Empire State Building. “Now imagine, with your wife and kids in the back, how comfortable you’ll feel with that,” he says.

The real challenge in the American market, says Agassi, can be summed up in a few words: “$3 per gallon. You look at the US, and the elephant in the room is tax on gasoline. We’re pricing gasoline at the cheapest price of anyone in the world.” Europe prices gas at about $7 per gallon–more in some countries. “If you moved the needle on the price of gasoline,” Agassi says, “you would move the needle on the next big opportunity in the US And instead of doing that, we’re basically waiting and looking at Europe and China running away with the next big industry – electric cars.”

David Zax “Shai Agassi has an EV vision, can he make America a better place?” Fast Company, September 24, 2010.

Five keys to getting things done

Getting ideas off the ground can require a power surge. In years of detailed observation of successful leaders across sectors and fields, I’ve seen that getting the credibility to reach important goals comes from uplifting actions that increase five personal and organizational powers:

1. 1.

   Showing up: the power of presence. There’s a well-known saying that 90% of success in life comes from just showing up. It’s a cliché because it’s true. Digital and other remote communications are efficient and helpful, but there’s much to be said for being there, face-to-face with others.

2. 2.

   Speaking up: the power of voice. It doesn’t matter who runs the meeting; the de facto leader is the one who frames the debate and articulates the consensus. The power of voice is not mere noise; it comes from the ability to put into words what might be only embryonic, thus shaping the direction for action. Memorable themes provide meaning out of a mass of verbiage. They echo and are repeated, providing a guidance system for companies or countries. Great speeches make great leaders.

3. 3.

   Teaming up: the power of partnering. Most things worth achieving can’t be done alone. Entrepreneurs need a founding team. Innovators in established companies need a coalition of backers and supporters.

4. 4.

   Looking up: the power of values. Higher principles help people transcend the conflicts and concerns of the moment. Standing for something larger than mere self-interest gives leaders moral grounding and provides a basis for inspiring and motivating the work. Those who are honored as great leaders are not merely good at getting results efficiently, they are able to find grander goals that help people look up to see the big picture and set their sights higher.

5. 5.

   Not giving up: the power of persistence. Remember Kanter’s Law and repeat often: Everything can look like a failure in the middle. CEOs and elected officials in the middle of controversial changes have told me that they feel comforted by this idea – if it’s still the middle, there’s always hope. Keep at it, make mid-course adjustments, and surprise the naysayers. Change agents in companies sometimes get approval after repeated turndowns just because they wear out their critics, who run out of arguments.

Achieving goals is always a matter of hard work, and success is never guaranteed. Still, cultivating these 5 powers can shift the odds in your favor.

Rosabeth Moss Kanter, “Five powers that get ideas off the ground,” HBR blogs, September 20, 2010, http://blogs.hbr.org/kanter/2010/09/the-five-powers-that-bring-upl.html

Rethinking product development to compete for the bottom of the pyramid

A cell phone that makes phone calls – and does little else; a portable refrigerator the size of a small cooler; a car that sells for about US$2,200 (100,000 rupees). These are some of the results of “frugal engineering,” a powerful and ultimately essential approach to developing products and services in emerging markets.

To get a handle on what frugal engineering is, it helps to understand what it is not. Frugal engineering is not simply low-cost engineering. It is not a scheme to boost profit margins by squeezing the marrow out of suppliers’ bones. It is not simply the latest take on the decades-long focus on cost cutting.

Instead, frugal engineering is an overarching philosophy that enables a true “clean sheet” approach to product development. Cost discipline is an intrinsic part of the process, but rather than simply cutting existing costs, frugal engineering seeks to avoid needless costs in the first place. It recognizes that merely removing features from existing products to sell them cheaper in emerging markets is a losing game. That’s because emerging-market customers have unique needs that usually aren’t addressed by mature-market products, and because the cost base of developed world products, even when stripped down, remains too high to allow competitive prices and reasonable profits in the developing world.

Frugal engineering recalls an approach common in the early days of US assembly-line manufacturing: Henry Ford’s Model T is a prime example. But as industries grew and matured over the decades, and as consumers prospered to levels few would have predicted a century ago, product development processes became hardwired and standard operating procedures worked against frugality.

In addition, the profit structure in mature markets reduced incentives for major change. Constant expansion of features available to consumers in the developed world, frivolous or not, has provided many businesses with their richest profit margins. Mature-market customers continue to accept price premiums for new features, leading companies to over-engineer their product lines – at least from the point of view of emerging-market customers. The virtual extinction of manual car windows in the United States is just one example.

Frugal engineering, by contrast, addresses the billions of consumers at the bottom of the pyramid who are quickly moving out of poverty in China, India, Brazil, and other emerging nations. They are enjoying their first tastes of modern prosperity, and are shopping for the basics, not for fancy features. According to C.K. Prahalad, author of The Fortune at the Bottom of the Pyramid, these potential customers, “unserved or underserved by the large organized private sector, including multinational firms,” total 4 to 5 billion of the 6.7 billion people on Earth. Although the purchasing power of any of these new consumers as an individual is only a fraction of a consumer’s purchasing power in mature markets, in aggregate they represent a market nearly as large as that of the developed world.

Vikas Sehgal, Kevin Dehoff, and Ganesh Panneer, “The importance of frugal engineering,” strategy+business, Summer 2010.

Is this a golden age for creativity?

The most important thing to understand about America’s “crisis of creativity” is that there isn’t one. The notion that American business creativity is either at risk or in decline is laughable. Arguments that “Yankee ingenuity” is ebbing into oxymoron are ludicrous. They invite ridicule. So here it comes.

Yes, America’s economy is awful. But so what? Hard times haven’t nicked, dented or damaged this country’s creative core competence. To the contrary, they’ve made more people more interested in being more creative. Spend serious time at research university labs. Or sit in on 10K business plan competitions. Or wander through Silicon Valley incubators and Texas industrial parks. Or listen to top-tier venture capitalists. You’ll be impressed. There’s no shortage of creativity and ingenuity here.

The evidence overwhelmingly suggests the only measurable “creativity crisis” America faces is an embarrassment of riches. We’re spoiled for choice.

America has a creativity glut. Over two decades, I’ve not heard a single venture capitalist suggest any perceptible decline in the creative quality and content of the business proposals they see. If anything, their innovation buffet has expanded. Aspiring pundits shouldn’t confuse macroeconomic malaise with creative constipation.

From software to telecommunications to bioinformatics to ecotech to health care, transforming novel concepts to prototype, demo or beta version has never been faster and cheaper. The pervasive rise of interoperability further assures a growing reservoir of creative options. The costs and complexity of creatively linking seeming disparate technical disciplines – microbiology and materials science, behavioral finance and computational fluid dynamics, biomedical engineering and traffic analysis – to solve problems are shrinking. These new economics of creative expression have demolished traditional barriers of entry to early-stage innovation.

These innovation infrastructures to support creative interaction have never been more accessible or more robust. They effectively invite innovators to take a chance. Just as important, individuals and institutions increasingly recognize that interdisciplinary collaboration, not just personal genius, is essential to breakthrough. Digital media now facilitate mass collaborations between thousands with the same ease and fluency that intimate collaborators – Watson & Crick, the Wright brothers, Braque & Picasso, the Curies – who depended on physical media would envy.

This point is vital: genuine creativity isn’t about ideas. It’s about translating ideas into ingenious products, services and solutions. Ideas are the seeds, not the substance, of creativity. Getting them to take root is easier than it’s ever been.

Michael Schrage, “The creativity crisis? What creativity crisis?”, HBR blogs, August 25, 2010, http://blogs.hbr.org/schrage/2010/08/the-most-important-thing-to.html

How GM missed the lessons of its own experiments

New United Motor Manufacturing, Inc. was developed jointly by General Motors and Toyota in 1984. The NUMMI vision was that Toyota would share with GM the production secrets that resulted in higher quality cars at lower costs, and GM would teach Toyota how to operate from a US base, which would help the company reduce import fees …

NUMMI worked, but its lessons proved nearly impossible to transfer. Teamwork and trust couldn’t be rolled out to other GM plants. Workers and managers at other GM plants were resistant to changes that would do away with seniority and executive parking spots.

Jeffrey Liker, author of “The Toyota Way,”, says that GM couldn’t figure out how to absorb company-wide the positive cultural lessons it was learning in Freemont.

“I remember one of the GM managers was ordered from a very senior level, a vice-president, to make a GM plant look like NUMMI,” says Liker in the radio story. “He said, ‘I want you to go there with cameras, and take a picture of every square inch, and whatever you take a picture of, I want it to look like that in our plant. There should be no excuse for why we’re different than NUMMI, why our quality is lower, why our productivity isn’t as high, because you’re going to copy everything you see.’ Immediately this guy knew that was crazy. We can’t copy and play motivation, we can’t copy good relationships between the union and management. That’s not something you can copy. You can’t take a photograph of it.”

“RIP NUMMI & elevator pitches,” Improvisations/Sloan Management Review, August 31, 2010, http://sloanreview.mit.edu/improvisations/2010/08/31/rip-nummi-elevator-pitches/

How UPS balances innovation and caution

UPS is no stranger to change. The company has reinvented itself many times over the years. It began in 1907, when 19-year-old James E. Casey hopped on his bicycle and started a business delivering packages and messages around downtown Seattle, Wash. “When the telephone came along, our business became obsolete,” Davis noted during a presentation at the recent Wharton Leadership Conference. A telephone in every office meant that there was no longer a need to hand-carry messages between businesses. Instead, the company, then known as American Messenger, invested in new technology to stay competitive. Casey bought a fleet of motorcycles and a Model T Ford so that the business could shift its focus away from messages and specialize in package delivery. A corporate name change – to Merchants Parcel Delivery – made the transformation complete. The company continued to grow even as new challenges came along in the form of the United States parcel post system in 1913, and eventually the use of e-mail for business communication in the 1990s.

“We’ve continued to transform our business every time there was a new technology challenge,” Davis pointed out. The company will reinvent itself when necessary, he added, but suggested that right now, strong leadership and a steady focus on long-term goals will help his corporation – and others – weather the economic storm.

Because UPS is the world’s largest package delivery company, every blip in the global retail market affects the company. According to Davis, on any given day, approximately 6% of US GDP and 2% of global GDP moves around the world in UPS trucks and airplanes. Retail composes the largest percentage of this volume …

Under his leadership, UPS has expanded into new lines of business that complement the company’s global package delivery operations, including multi-modal transportation services, new logistics technologies, international trade management, supply-chain consulting and financial services.

“Solving a ‘wicked problem’: UPS CEO Scott Davis on surviving a shaky economy,” Knowledge@Wharton, August 18, 2010, http://knowledge.wharton.upenn.edu/article.cfm?articleid=2571

Killer products, consumption chains, and the total customer experience

It is always instructive to examine how successful firms can go wrong, even in markets that they think they understand well. The market failure of the Michelin run-flat PAX tire illustrates the common mistake of failing to realize that even a groundbreaking product has to create a complete consumption chain. Broken links in the chain mean a broken customer experience, which can lead to new-product-launch heartbreak.

The PAX innovation was a tire that could be driven damaged, at highway speeds, for a hundred miles or more. Such tire offers safety benefits, obviously. But it also meant that cars could be designed without having to accommodate space for a spare tire. This advantage so captured the imaginations of Michelin customers at Honda that the PAX was issued as standard on its 2005 Odyssey mini-van models, which boasted that they had room for both people and luggage since they didn’t have to store a spare tire in the luggage area. Things were looking mighty good. Michelin hoped that the PAX initiative would be the Second Coming of steel-belted radial tires, the technology that had put the company in an industry leading position.

But then clouds started to appear on the horizon. It turned out that to use the flat-run tires, the underbody of the cars had to be redesigned, and cash-squeezed auto makers proved reluctant to make the necessary investment. Also, replacing the tires required special equipment that most mechanic’s shops didn’t have and didn’t invest in. Say you had a flat-run tired and it failed, You’d have to go on a bit of a treasure-hunt to find someone who could replace it. Finally, if you did find a new PAX tire, it could cost upward of $1,200, about twice what customers expected to pay for a performance product.

By failing to see the product through the lens of the customers’ total experience, Michelin’s hoped-for killer competitive advantage limped along until April, 2008, when the company announced that it would discontinue the line.

Rita McGrath, “Anatomy of a failed launch – the Michelin PAX Tire,” August 13, 2010, http://blogs.hbr.org/hbr/mcgrath/2010/08/anatomy-of-a-failed-launch-the.html

Finding actionable information in customer generated data

Marketing managers are often challenged by the difficulty and expense of collecting meaningful data about consumers using traditional methods such as surveys and focus groups. At the same time, today’s marketing managers confront an almost limitless bounty of data generated by consumers via online sources such as consumer forums, chat rooms, blogs, and product review sites. While these platforms provide large amounts of rich, qualitative information directly from consumers, the data is not easily quantified or analyzed.

Professor Oded Netzer worked with Ronen Feldman and Jacob Goldenberg of Hebrew University in Jerusalem to create a two-part approach to capture and analyze online data generated by consumers. First, they created a text mining tool that converts unstructured online data – including correcting abbreviations or misspellings of keywords like brand names and product attributes – into structured, quantifiable data. The second part of their method employs semantic network analysis and mapping techniques, derived in part from psychology theory that posits that the brain has an associative network that groups together and recalls items and concepts that are closely associated in memory. The method allowed the researchers to create visualizations of large-scale data by assessing how frequently keywords – such as brand names or product attributes – occurred together in the text, and treating the keywords and co-occurrences as nodes in the semantic network.

The researchers tested the accuracy of these techniques on an online consumer car forum. The analysis allowed the researchers to assess similarities between different cars in the discussion and the derived market structure. They found that their analysis correlated very closely to actual sales and results generated by traditional survey-based techniques. The analysis also revealed less obvious aspects of market structure. For example, the Cadillac brand was more closely associated with higher-end European brands than with other American brands, which may reflect General Motors’ efforts to reposition the Cadillac brand over the past few years. The tools allow for tracking such market position trends over time.

“Mine your own business: market structure surveillance through text mining”, Ideas@workhttp://www.4.gsb.columbia.edu/ideasatwork/researchbriefs/7215071/Mine+ Your+Own+Business%3A+ Market+Structure+Surveillance+ Through+Text+Mining

Craig HenryStrategy & Leadership’s intrepid media explorer, collected these sightings of strategic management in the news. A marketing and strategy consultant based in Carlisle, Pennsylvania, he welcomes your contributions and suggestions (Craighenry@aol.com).