Monthly Archives: March 2016

The Case for Bringing Marketing Inhouse

“We were just writing a lot of checks to agencies, but digital marketing is now in our brand DNA.”
Blake Cahill – Philips Global Head of Digital

When we talk about disruptions in marketing, one of the elephants in the room is the increasing demand to bring marketing in house. Companies like Phillips are bringing more and more marketing functions in-house. As an ex-agency guy, this will sound either blasphemous or disingenuous, but I suspect that it might be the right way to go. I’ll tell you why. It has a lot to do with the evolution of strategy.

In the past, we did two things when we planned strategy. We planned in relatively straight lines and we planned over long time frames – a minimum of 5 years was not unusual.

Here’s how it would play out. Executives would go through their strategic planning exercise, which may or may not include getting input from the internal and external marketers. Strategic plans would be formed and this would then be broken down into departmental directives. Department heads – including marketing – would then execute against the plan, with periodic progress reviews scheduled. The entire loop, from input to executional plans, could easily span several months or even a year or more.

The extended timeline is just one of the issues with this approach to strategy. The other problem is that this assumes that strategic planning is only something executives can do. The strategic frame is only set at the highest levels of the organization. And it’s the executive’s prerogative to either consider or completely ignore any input from their direct reports. Even if they do consider it, this feedback is likely several steps removed from the source – namely – the market.

I’ve written before about the concept of Bayesian Strategy. There are three basic foundations to this approach:

  • Strategic planning is a continuous and iterative process
  • Strategic plans are nothing more than hypotheses that are then subject to validation through empirical data
  • The span of the loop between the setting of the strategic frame and the data that validates it should be kept as short as possible.

With Bayesian strategy, the corporation needs to maintain a number of acutely aware “sensing” interfaces that provide constant data about the corporation’s current “reality”:

  • The internal “reality” – especially in more qualitative areas that might fall outside typical KPI’s – like moral, satisfaction, communication effectiveness, etc.
  • The external “reality” – What’s happening in the market? What are customer’s perceptions? What is the competition doing?

These “sensing” interfaces create the frame for the organization. As such, they’re integral to the setting and updating of strategy. Just as our brain depends on our senses to define our sense of what’s real, the organization depends on these interfaces. And when it comes to the “external” reality, no department is in a better position to make sense of the world than marketing. The span of distance between marketing and the management of the company should be as short as possible. This is very difficult to achieve when you rely on external partners for that marketing.

When a company like Phillips brings marketing in-house, it’s more than just a cost-saving or consolidation effort. It’s bringing the function of marketing as close as possible to the core brand. It’s not only giving it a seat at the strategic table but making it one of the key contributors to that strategy. Like I said, it’s a move that makes a lot of sense.

But there is another side to this story, and that has to do with perspective. I’ll look at the flip side of this argument next Tuesday.

 

The Future of the Workplace

I noticed a post a few weeks back that said many companies are abandoning their sprawling suburban campuses and are moving back to the city. I found this interesting, because where we work, like so many things in our lives, seems to be in the midst of disruption.

Frederick_Winslow_Taylor_crop

Frederick Winslow Taylor

 

The psychology of the workplace is now a thing. It never used to be. In fact, my youngest daughter is focusing on exactly that as she pursues her post-grad thesis. In the Frederick Winslow Taylor induced hangover that most of corporate America has been trying to get over in the past several decades, workers were considered machinery. Which was a step forward. Prior to that, they were considered grist for the mill. At least Taylor recognized that well maintained machinery worked better than neglected machinery.

But there have been a significant number of studies looking at how the psychology of the individual contributes to the corporate bottom line. And some interesting paradoxes are emerging. Many of these deal with the nature of the workplace.

We used to think of all workplaces as factories. They were built where land was relatively cheap. This led to the whole concept of the suburban campus. But we spend a lot of time at work. We should be happy there. And our work life should not be out of sync with the rest of our lives. So being exiled to the corporate hinterlands of Blandeville, Connecticut or Nondescript, New Jersey may not fit very well with our life plans anymore. We want workplaces that are close to where we choose to live. We want an integrated work-life balance, not an artificially divided one.

The location of our office isn’t the only thing being disrupted. Should we even go to the office at all? Telecommuting has been explored as a viable option by a number of companies.

When I was CEO of my own company we tried our own telecommuting experiment. The rationale is pretty compelling: if you just need a computer and a connection to work, why bear the expense of all the trappings of a formal office? Additionally, it allowed us to recruit in cities where we didn’t have an office. Finally, there was little doubt the majority of our telecommuting employees were happier with the new arrangement.

For us as employers, however, the results were mixed. When our company was acquired, the new owners ended the telecommuting experiment. It was not a popular decision with our employees. I initially fought against it, but eventually, I came around and supported the requirement to share a physical space. This was a few years before Marissa Mayer brought the same hammer down on the telecommuting employees of Yahoo. The infamous memo was sent at Mayer’s behest by Yahoo’s Head of HR, Jackie Reses on February 22, 2013. Here is an excerpt that provides context for the decision:

“That is why it is critical that we are all present in our offices. Some of the best decisions and insights come from hallway and cafeteria discussions, meeting new people, and impromptu team meetings. Speed and quality are often sacrificed when we work from home.”

We found the same thing. While employees loved telecommuting and were generally disciplined in ensuring we got full value from them, we missed the collaboration and creativity that comes from chance encounters and serendipitous discussions. One could make a strong argument that telecommuting might be more efficient in terms of productivity, but an increasing number of studies show that effectiveness is often sacrificed.

Like most things in the sphere of human behavior, I think the disruption of the workplace is subject to the pendulum effect. The starting point was the faceless beige cubicle satirized in Dilbert. As this started to change, we swung too far over to the other side, embracing the geographically unlimited possibilities of a connected workplace. But we found that something was sacrificed in the transition. The best answer likely falls somewhere between these two extremes.

I have talked before about the research done by MIT’s Alex “Sandy” Pentland. He found that the most effective teams have two distinct phases they go through – exploration and engagement. Innovation and creativity comes from exploration. Productivity comes from engagement. I suspect that telecommuting might work well for engagement. But exploration requires some type of common ground – literally. For example, Pentland found something as simple as all employees taking coffee breaks at the same time lead to a significant increase in team effectiveness.

However the workplace may evolve in the future, I believe we’re learning that some essential element of teamwork still requires us being in the same place at the same time, or, as John F. Kennedy once said, “breathing the same air.”

 

 

 

Disruption 101

We Online Spinners are talking a lot about disruption. Dave Morgan has been talking about disruption in the Advertising and Marketing Technology space. I’ve been looking at disruption in other areas, including academia. Cory Treffiletti, Kaila Colbin, Maarten Albarda have all looked at various aspects of disruption. A quick look back at the past few months’ Spin columns show that well over half of them deal with disruption in one way or another.

Maybe it’s time we did a primer on the idea of disruption.

Disruption is what happens when something stable becomes unstable. That’s kind of a “duh..obviously” statement, but there are some very important concepts lurking in there.

When an environment is stable, it allows for the development of extensive but fragile ecosystems. In a corporate sense, this allows for the development of very complicated supply chains, with several “value niches” emerging along that chain. The more complicated the chain, the higher the potential for profit. Each link adds another level of complication, allowing for someone to be squeezing a little more profit from the end consumer.

In addition to extensive ecosystems, stable environments also allow some members of those ecosystems to achieve significant scale. Things are predictable and this allows organizations to grow, embed processes and systems, thereby improving efficiency and profitability. Often, one organization can establish itself at several levels along the supply chain, maximizing its profit potential.

In our physical world, stability is generally a by-product of friction. The higher the degree of friction – or what economist Ronald Coase called “transactional costs” – the more stable the market becomes. Barriers to entry are higher. Competitive factors are dampened. Capital becomes the main predictor of success.

Then – everything changes. We get hit with instability.

In our current case, we got hit with a double whammy: The disruption we’re experiencing is caused by the removal of friction. Technology is reducing transactional costs in a huge swath of industries.

Technology is an interesting catalyst. We think that technology changes behaviors. I don’t believe so. I think technology enables behaviors to change, in that it allows its users to do something they already wanted to do, but couldn’t because of some obstacle. It allows for an attractive alternative that didn’t previously exist. That technology is usually offered to the broadest base of users available and this triggers the disruption, which starts from the ground up. Typically, technology also removes the friction that enables those delicate hierarchal supply chains to form and flourish.

When the disruption begins and the incumbent ecosystem is threatened, the first casualties are the most fragile members of that ecosystem. These are usually the smaller niche players that rely on the bigger hosts that make up the ecosystem. The bigger hosts can survive longer and often swallow up the first casualties in an attempt to shore up their defenses. They will also often make a half-hearted attempt to respond to the disruption by adopting the technology and going after the disruptors. This never works. Disruption is not in their genetic make up. Their priority is always protecting the status quo, because that’s where their profit lies.

As disruption forever alters the environment, eventually the previous ecosystem withers and dies. A new (temporary) stability emerges – along with a new ecosystem – built on the foundation of the previous disruption and the entire cycle starts again.

The Collateral Damage of Disruption

Not all the stories of disruption are of the “David vs. Goliath” variety. Sometimes they are more of the “David vs. Goliath vs. Innocent Bystanders” ilk.

Stewart Wills reminded me of this last week when I was writing about Alexandra Elbakyan and the Elsevier vs. Sci-Hub case. It’s easy to take aim at Elsevier. After all, they’re a very big 4.2 billion dollar target. It’s just too easy to demonize them. But they’re not the only academic publisher in the world.

“Siding with this particular self-styled “Robin Hood” may seem like a no-brainer (and a good, easy-to-tell story), but everyone seems so interested in focusing on big bad Elsevier that they miss a lot of important other affected parties in the picture.”

Wills pointed me to a posting from Caldera Publishing Solutions, a consulting firm that caters to smaller academic publishers. This post refutes my statement of last week that Elsevier is the only one being harmed by the actions of pirates like Elbakyan. In fact, there is an extended chain of bystanders that threaten to be washed away by the tsunami of disruption that’s bearing down on the academic world. For example, there are “dozens and dozens” of society journals who use huge publishers like Elsevier as a clearinghouse. Behind much of the research in the Sci-Hub library, you’ll find non-profit societies, which means that this is “less of a story of Robin Hood robbing from the town’s greedy sheriff, and more a story of Robin Hood stealing from the town’s hospitals and charities.”

The post draws an analogy to a disruptive wave that first broke 17 years ago now: Napster and illegal file sharing. Given that we now have close to two decades of hindsight in this particular case, it might be useful to do a post-mortem on Napster’s impact on the music industry.

I’m not sure if you happened to watch the Grammys, but if you did, you saw Neil Portnow, president of the National Academy of Recording Arts and Sciences, deliver a plea against streaming music services. The problem, said Mr. Portnow, is these services have commoditized music to the degree that royalties amount to fractions of a cent for each play of a song. That may be fine if you’re Rihanna or Sam Smith, but not great if you’re a struggling independent artist.

The problem with the plea is the same tactical error the Academy has made since the first such sermon, delivered by then president Michael Greene at the 2002 Grammies – it was delivered in the wrong church. It’s very hard to feel sorry for the music industry when the most obvious examples – the artists in the audience – are all multi-millionaires drowning under the weight of their own bling. Portnow might be right when he says music may no longer be a viable career, but it’s hard to swallow that message when delivered in the midst of such excess.

But did Napster, and the subsequent removal of friction from the music industry, truly wreak the damage that NARAS keeps warning us about? The fact is, we now have access to far more music than we did in 1990. We can discover new music more readily. Artists can now self produce and distribute. They can even use Songkick to launch their own tours, or Kickstarter to fund a new album. Will they all get rich? No. But they have a better chance than they did two decades ago, when the only path to stardom led directly through the big (and cutthroat) business of music publishing. Napster, and its technological descendants, did what disruption is supposed to do. They cleaned up the market, creating direction connections between the producers and the consumers.

As Stewart Wills reminded me, there are unintended consequences of disruption. One of them is that when the supply chain begins to be violently shaken from below, as was the case with the music industry, the earliest victims are typically small and fragile members of the ecosystem that depend on a bigger host. These tend to either fall of or become absorbed into the more robust survivors. That’s why you don’t find many corner record stores any more.

But then again, good blacksmiths or door-to-door milkmen are also damned hard to find.