Category Archives: Corporate Darwinism

Can Alphabet Spark Corporate Innovation?

As I was reading Walter Isaacson’s new book, The Innovators, which chronicles the rise of the digital revolution, something struck me. From Charles Babbage to Sergey Brin, the arc of digital innovation has gone through three very distinct stages.

In the beginning of the digital revolution, some 150 years ago, the innovator was the inventor and the gentleman scientist. They maintained and nurtured academic networks but often worked alone. The primary way they spread ideas was through publishing them in journals. If, as in the case of Charles Babbage and his Differential Engine, there was prototyping required, they would find a patron and then hire the people required to fabricate the prototype. They did this because they could. In this time, innovation was not a particularly resource-intensive endeavor.

But, as we moved into the 20th century, things changed. For the next 6 decades, Isaacson’s innovators tended to be found in one of three places: an university, a government funded lab or a corporate lab. Innovators were generally cogs in much bigger machines. Why? Because the scope of innovation had changed. It had become much more resource hungry. You needed the bulk of a Bell Labs in order to turn out a prototypical transistor.

One also gets the sense that many of the innovators Isaacson profiles were barely tolerated within these more corporate environments. Brilliance often comes coupled with abrasiveness as its dance partner. Many of the forebears of the digital revolution seem to be – not to put too fine a point on it – assholes. If you read between the lines you get the sense that both the innovator and their place of innovation would be immeasurably happier if their paths diverged. But, given the realities of the world at the time, they both needed each other.

Starting in the Sixties, a new breed of innovator emerged – the innovative entrepreneur. Almost without exception, they started within a larger organizational context, but soon found a way to break free and build a company around their innovativeness. Gordon Moore, Robert Noyce, Bill Hewlett, David Packard, Bill Gates, Paul Allen, Steve Jobs, Steve Wozniak, Larry Page and Sergey Brin – all took a new path to innovation. Thanks to the introduction of venture capital, innovation could become the road to riches.

This all becomes more than academically interesting in the light of Google’s announced corporate re-org. Essentially, they’re trying to buck the trend of innovative evolution. Page and Brin feel that innovation can still be contained within the boundaries of a corporate structure, as long as that structure is – well – innovative enough.

In theory, their logic looks sound. The biggest complaint I hear from current Googlers is their feeling of inconsequentiality within a massive organization. Breaking the big boat into a bunch of smaller life rafts could solve that problem. If you could somehow provide innovators with enough room to stretch their mental muscles and yet support them with the enormous resources Google/Alphabet has at their disposal, it seems like a no-lose scenario. Essentially, Alphabet should be able to provide a steroid powered incubator for innovation.

Yet, I remain skeptical. I suspect innovation may defy the best-laid corporate logic. You can sketch out an org-chart that seems like a stable platform for entrepreneurialism, but I think the entrepreneurs may still squeeze out through the cracks. Even if they’re not egotistical jerks, they are, by their very nature, individualistic. They defy authority. Their dreams are tough to contain. Where you see a supportive incubator, they see a restrictive cage. Corporations tend to excel at incremental innovation, but disruptive innovation comes from individuals who don’t play nice at company picnics. And that’s the type of innovation that Alphabet is betting on.

Alphabet is an interesting development in corporate structures. I hope it works. But I’m not sure you can harness entrepreneurialism because it, like information and the human spirit, yearns to be free.

Why Disruptive Change is Disruptive

There were a lot of responses to my last column, looking at why agencies and clients have hit the point of irreconcilable differences. Many of those responses were in agreement. In fact, none were in outright disagreement. This surprised me. A lot of Online Spin readers are people who work for very big agencies. I can only conclude that you elected to show your dissention through your silence.

But there were many that fell in the “Yeah-but” category:

Tiffany Lyman Otten wrote,

“This, like anything, is a sign simply that agencies must evolve – again.

Jill Montaigne adds,

“Yet, our own ongoing advertiser conversations confirm that rather than walking away from their traditional agency relationships, clients desperately need and want their agencies to evolve.”

David Vawter chimes in,

“As long as there is something to sell, people will be needed to create and produce the ideas that sell it.”

Agreed. But…

All of the above comments pointed to a new trend in the marketing ecosystem – that of a network of specialists, often in the form of micro-agencies, that appear to be finding niches to hang on to in the tidal wave of change that is sweeping over our industry.

I used to head one of these agencies. Our area of specialty was in user behavior with search interfaces. We did well in this niche. So well, in fact, that we were eventually acquired by a bigger agency. Bigger agencies are always vertically integrated. As such, they offer clients the one-stop shop model. They move to that model because that is the model they know. It is the model they are programmed to create. It is an organizational form that is dictated by their P&L targets. There is no operational wiggle-room here. They simply can’t become anything else.

Tiffany, Jill and several others all used the word evolve, like it is a magical formula for survival. But evolution is like a tree. Once your branch has been determined, you have to evolve outward from that branch. You can’t suddenly leap to another branch. If you’re a chimpanzee, you can’t suddenly decide one day to evolve into a budgie. You can evolve into a new type of chimpanzee, but you’re still a chimpanzee.

What does happen in evolution, however, is that the environment changes so drastically that the tree is dramatically pruned. Some branches are lopped off, so that new branches can sprout. This is called punctuated equilibrium, and, as I’ve said before, this is what I believe we’re going through right now in marketing. Yes, as David rightly notes, “As long as there is something to sell, people will be needed to create and produce the ideas that sell it.” It’s just that the form that takes may be dramatically different that what we currently know. It could be – correction – will be a marketing ecosystem that will be dominated by new species of marketers.

We tend to equate evolution with change – but evolution is a very specific kind of change. It’s change in response to environmental pressures. And while individual species can evolve, so can entire ecosystems. In that bigger picture, some species will emerge and thrive and others will disappear. What is happening to agencies now is just a ripple effect from a much bigger environmental change – analogous to a planet size asteroid slamming into the business and marketing ecosystem that evolved over the past two centuries.

Big agencies are the result of corporate evolution in the previous ecosystem. We are quick to take them to task for being slow, or dumb, or oblivious to client needs. And perhaps, in the new ecosystem, those things are true. But those are the characteristics of the species. No agency intends to be dumb or unresponsive. It’s just an evolutionary mismatch caused by massive disruption in the environment.

These things happen. It’s actually a good thing. Joseph Schumpeter called it Creative Destruction. But, as the name implies, it’s a zero sum game. For something to be created, something has to be destroyed.

Why Agencies and Clients are Calling It Quits

“Love on the Rocks – ain’t no surprise.”

Neil Diamond

In yesterday’s Online Spin, Maarten Albarda signaled the imminent break up of agencies and clients. Communication is close to zero. Fingers are being pointed. The whisper campaign has turned into outright hostility.

When relationships end, it can be because one of the parties is just not trying. But that isn’t the case here. I believe agencies are truly trying to patch things up. They are trying to understand their one-time life partner. They are desperately gobbling up niche shops and investing in technology in order to respark the flame. And the same is true, I believe, on the client side. They want to feel loved again by their agency of record.

I think what’s happening here is more akin to a break up that happens because circumstances have changed and the respective parties haven’t been able to keep up. This is more like high school sweethearts looking at each other 20 years hence and realizing that what once bonded them is long gone. And, if that’s true, it might be helpful to look back and see what happened.

The problem here is that the agency is a child of a marketplace that is rapidly disappearing. It is the result of the creation of the “Visible Hand” market. In his book of the same name, Alfred Chandler went to great lengths (over 600 pages) to chronicle the rise of the modern organization. The modern concept of an advertising agency was a by-product of that. Vertically integrated organizations came about to overcome some inherent inefficiencies in the market – notably the problem of geography and the lack of a functional marketplace network that came with rapid expansions in production and transportation capabilities. Essentially, markets grew too rapidly for Adam Smith’s “Invisible Hand” to be able to effectively balance through market dynamics. Organizations grew to mammoth size in order to provide internal efficiencies that allowed for greater profitability. You had to be big to be competitive. Agents of all types filled the gaps that were inevitable in a rapidly expanding market place. Essentially an agent bridged the gap between two or more separate nodes in a market network. They were the business equivalent of Mark Granovetter’s “weak tie.”

Through the 20th century advertising agents evolved into creative houses – which is where they hit their golden period. But why was this creativity needed? Essentially, agencies evolved when advances in production and distribution technologies weren’t enough to expand markets anymore. Suddenly, companies needed agencies to create demand in existing and identified markets through the sparking desire. This was the final hurray of the “visible hand” marketplace.

But the explosion of networking technologies and the reduction of transactional friction is turning the “visible hand” market back into the “invisible hand” market of Adam Smith – driven by the natural laws of marketplaces. The networks of the marketplace are becoming more connected than ever.

This is a highly dynamic, cyclical market. Straight line strategic planning doesn’t work here. And straight line strategic planning is a fundamental requirement of an agency relationship. That level of stasis is needed to overcome the inherent gaps in a third party relationship. Even under the best of circumstances, an arm’s length relationship can’t effectively “make sense” of the market environment and react quickly enough to maneuver in this marketplace. And, as Albarda points out, the client-agency relationship is far from healthy.

The ironic part is all of this is that what was once an agency’s strength – its position as a bridge between existing networks, has turned into its greatest vulnerability. Technology has essential removed the gaps in the market itself, allowing clients to become more effectively linked to natural networks of customers through emerging channels that are also increasingly mediated by technology. Middlemen are no longer needed. Those gaps have disappeared. But the gap that has always been there, between the agent and the client, not only still exists, but is widening with the breakdown of the relationship. Agencies are like bridges without a river to span.

If you read the common complaints from both sides in the presentations Albarda references , they all come from the ever-widening schism that has come from a drastic change in the market itself. Simply put, the market has evolved to the point where agency relationships are no longer tenable. We on the agency side keep saying we need to reinvent ourselves, but that’s like saying that a dog has to reinvent itself to become a fish – it’s just not in our DNA.

The Rhythm of Strategy

I confess – I poked the bear a little last week. Not too much. Just a little. I purposely oversimplified one side of an argument to set up a debate. I knew there would be those that would swing to the other side in defense of strategy. I initiated an action, for which I knew there would be an equal and opposite reaction. I sometimes do that, because I believe in waves, or oscillations, or rhythms. Call it what you want – I believe in them because they always beat stasis or straight lines. Nature doesn’t move in straight lines.

You didn’t disappoint. You very ably defended strategy. And you did it in an intelligent and nuanced manner – unlike, say – Donald Trump. From a post in response by Rick Liebling: “I would … argue that the “seizing of opportunities” is not the antithesis of strategic thinking, but rather the result of it.  A strong brand strategy helps a company understand what it should, and just as importantly, shouldn’t do. This type of discipline is what allows a company to seize those very opportunities.”

And from Nick Schiavone: “I believe that Principles, Vision and Execution are more critical to “success & satisfaction” than strategies, ideations and systems when it comes to launching, building and sustaining brands.  The end result is really an ongoing, experiential relationship between a special “customer” (i.e., a person of need or desire) and the product or service provided under the auspices of a special “preparer.”(i.e.,  a person of art & science). “

Here’s the thing. When I said much of a businesses performance comes down to luck, that sounded disparaging. But it’s far from it. Luck could also be defined as the circumstances of our environment. They are the factors that lie beyond our control. And they tend to be rhythmic in nature. Sometimes they’re good, sometimes they’re bad. Sometimes they’re huge swings in either direction – what Nassam Nicholas Taleb calls “Black Swans.” And if you look as strategy as Rick Liebling does, then strategy is simply being very good at detecting these rhythms and responding to them.

But that’s not how we typically look at strategy. In fact, our entire mythology and methodology around strategy tends to run in decidedly straight lines. Strategy should be decided on high and be disseminated down to the front line masses. In the case of brand strategy, it may be determined by an agent working on your behalf and delivered in the guise of branding guidelines and polished ads. It should be decisive and unerring. It should plough forward, despite circumstance. Phil Rosenweig’s point in The Halo Effect was not that we should just surrender to the whims of fate, but that we shouldn’t kid ourselves about the importance of fate and our ability to control it. There is no single, “straight line,” universally applicable recipe for dealing with fate.

The problem with strategy, as it is practiced in most organizations, is that it blinds us to fate. We tend to execute in spite of circumstance, rather than in response to it. Rather, strategy in the new marketplace should perhaps be renamed “sense-making.” It should embrace the rhythms and oscillations of fate rather than dampen them in the name of strategic thinking. Organizations should become one massive sensory and experimental organ, constantly monitoring the environment and responding in a rational and opportunistic way.

Finally, let’s not discount the impact of effective leadership and management practices. I said last week that leadership, when isolated from other variables, only accounted for 4% of an organization’s performance. Management practices accounted for another 10%. That sounds ridiculously low, but only because we tend to excessively canonize those things in our business mythologies. Let’s approach it in a more rational way. Let’s imagine that two companies, A & B, both launched this year with $10 million in sales. Over the next 20 years, both companies were subject to the same rhythms – positive and negative – of the marketplace. But, because of superior leadership and management, Company A was able to more effectively capitalize on opportunity, giving it a 14% advantage over Company B. In 2035, what would be the impact of that 14% edge? It’s not insignificant. Company B would have grown in sales to $21 million, growth of just over 100%. But Company A would have sales of almost $290 million. It would be almost 14 times the size of Company B!

It’s not that I don’t believe in strategy. It’s just that it’s time to rethink what we do in the name of strategy.

Is Brand Strategy a Myth?

BrandStrategyThemeOn one side of the bookshelf, you have an ever growing pile of historic business best sellers, with promising titles like In Search of Excellence, 4 +2: What Really Works, Good to Great and Built to Last. Essentially, they’re all recipes for building a highly effective company. They are strategic blueprints for success.

On the other side of the bookshelf, you have books like Phil Rosenweig’s “The Halo Effect.” He trots out a couple of sobering facts: In a rigorous study conducted by Marianne Bertrand at the University of Chicago and Antoinette Schoar at MIT, they isolated and quantified the impact of a leader on the performance of a company. The answer, as it turned out, was 4%. That’s right, on the average, even if you have a Jack Welch at the helm, it will only make about 4% difference to the performance of your company. Four percent is not insignificant, but it’s hardly the earth shaking importance we tend to credit to leadership.

The other fact? What if you followed the instructions of a Jim Collins or Tom Peters? What if you transformed your company’s management practices to emulate those of the winning case studies in these books? Surely, that would make a difference? Well, yes – kind of. Here, the number is 10. In a study done by Nick Bloom of the London School of Economics and Stephen Dorgan at McKinsey, the goal was the test the association between specific management practices and company performance. There was an association. In fact, it explained about 10% of the total variation in company performance.

These are hard numbers for me to swallow. I’ve always been a huge believer in strategy. But I’m also a big believer in good research. Rosenweig’s entire book is dedicated to poking holes in much of the “exhaustive” research we’ve come to rely on as the canonical collection of sound business practices. He doesn’t disagree with many of the resulting findings. He goes as far as saying they “seem to make sense.” But he stops short of given them a scientific stamp of endorsement. The reality is, much of what we endorse as sound strategic thinking comes down to luck and the seizing of opportunities. Business is not conducted in a vacuum. It’s conducted in a highly dynamic, competitive environment. In such an environments, there are few absolutes. Everything is relative. And it’s these relative advantages that dictate success or failure.

Rosenweig’s other point is this: Saying that we just got lucky doesn’t make a very good corporate success story. Humans hate unknowns. We crave identifiable agents for outcomes. We like to assign credit or blame to something we understand. So, we make up stories. We create heroes. We identify villains. We rewrite history to fit into narrative arcs we can identify with. It doesn’t seem right to say that 90% of company performance is due to factors we have no control over. It’s much better to say it came from a well-executed strategy. This is the story that is told by business best sellers.

So, it caught my eye the other day when I saw that ad agencies might not be very good at creating and executing on brand strategies.

First of all, I’ve never believed that branding should be handled by an agency. Brands are the embodiment of the business. They have to live and breathe at the core of that business.

Secondly, brands are not “created” unilaterally – they emerge from that intersection point where the company and the market meet. We as marketers may go in with a predetermined idea of that brand, but ultimately the brand will become whatever the market interprets it to be. Like business in general, this is a highly dynamic and unpredictable environment.

I suspect that if we ever found a way to quantify the impact of brand strategy on the ultimate performance of the brand, we’d find that the number would be a lot lower than we thought it would be. Most of brand success, I suspect, will come down to luck and the seizing of opportunities when they arise.

I know. That’s probably not the story you wanted to hear.

The Mother of All Disruption

Once again fellow Online Spin author Tom Goodwin has piqued my interest. He starts to unwrap a tremendously thorny problem in his column of last Thursday – Time to Think about Regulation for Disruption. Today, I’d like to take this question up one level – do we have to rethink government entirely?

Government is almost entirely a reactionary business. Even far sighted, historic documents such as the Constitution of the United States and the Magna Carta were reactions to the untenable circumstances that preceded them. And these are the exceptions. The vast majority of governing involves a highly bureaucratic and excruciatingly slow process that attempts to respond to emerging breaches in the unspoken code of fairness that our society tries to live by. Realistically, from the time the need for a new law is recognized to the time a bill is passed, months or even years can pass.

Months or years were, practically speaking, adequate in the world we once knew. But today, that is no longer the case. In that time, complex ecosystems can establish around the breach in question, and, as Tom points out, entire industries may have been decimated in the process. This is the reality of disruption.

In a world that seeks order and governance, this is a bad thing. But, now that we have unleashed the technological Kraken, is that a world we can reasonably expect? Slowly but surely we are dismantling every aspect of our hierarchical society and replacing it with a horizontal network. Hierarchies can’t work horizontally. Something has to give.

Disruptions are a characteristic of networked structures. In order for networks to work, each component of that network has to be given the freedom to act. If the action of an individual resonates with other parts of the network, the actions are picked up and amplified. Each individual act has the potential to become a disruption – with corresponding consequences. Everything becomes accelerated in a network.

Government is built on the ideological foundation of a hierarchy. The word “government” means “to steer.” The assumption is that our society is capable of being steered. This, in turn, assumes that our society all wants to go in the same direction. But if we enforce these restrictions on a network, networks cease to work. Yes, we quell the negative disruptions, but we also eliminate the positive ones.

The United States of America is one of the least restrictive societies on the planet. The founding fathers drafted their articles to enshrine that freedom. You (as a Canadian, I have to say “you”) have managed to balance the practical necessities of government with the lack of restrictions typical of a market economy. Markets naturally emerge from networks. Because the U.S. treasures freedom and innovation, it was inevitable that it would emerge as the testing ground for the impacts of technological advances. You are the canary in the coalmine of massive disruption.

Tom urges lawmakers to become more proactive. But historically speaking, that’s just not the way government works. It’s like riding a cow in the Kentucky Derby and wondering why you can’t keep up. I just don’t think that our current hierarchical system of government is up to the job. It’s a great system, with a ton of democratic checks and balances, but it was built for a different era – one built along vertical lines.

The final issue is one of enforcement. Even if laws are passed to deal with emerging disruptions, it’s becoming almost impossible to enforce them. If lawmakers are scrambling to keep up with society, law enforcers have capitulated entirely. We just can’t afford to enforce the laws we already have on the books.

So, if this is the problem, what is the answer? I think, perhaps, it lies in the very same properties of networks. Government and laws became necessary to avoid abuses of power. Power comes from hierarchies. As societies level out the old dictates of fairness become increasingly relevant. We all have universal concepts of fairness. Abuses of what we consider to be fair are generally dealt with quickly and effectively at the network level. Networks tend to police themselves, as long as there is a common understanding of what is acceptable and what is not. In short, we have to think of regulation in terms of market and network dynamics, not hierarchical governance.

I admit this is tough to wrap your head around. In a world of disruptions, this is the Mother of all Disruption. But symptomatically speaking, it appears that our historic notion of government is ailing. As frightening as it may be to contemplate, we should start thinking about what may replace it.

Can A Public Company Keep a Start Up Attitude?

google-glass1

Google is possibly the most interesting company in the world right now. But being interesting does not necessarily equate with being successful. And therein lies the rub.

Case in point. Google is taking another crack at Google Glass. Glass has the potential to be a disruptive technology. And the way Google approached it was very much in the Google way of doing things. They put a beta version out there and asked for feedback from the public. Some of that feedback was positive, but much of it was negative. That is natural. It’s the negative feedback you’re looking for, because it shows what has to be changed. The problem is that Glass V 0.9 is now pegged as a failure. So as Laurie Sullivan reported, Google is trying a different approach, which appears to be taken from Apple’s playbook. They’re developing under wraps, with a new product lead, and you probably won’t see another version of Glass until it’s ready to ship as a viable market-ready product.

The problem here is that Google may have lost too much time. As Sullivan points out, Intel, Epson and Microsoft are all working on consumer versions of wearable visual interfaces. And they’re not alone. A handful of aggressive start-ups are also going after Glass, including Meta, Vuzix, Optinvent, Glassup and Recon. And none of them will attract the attention of Google, simply because they’re not Google.

Did Google screw up with the first release of Google Glass? Probably not. In fact, if you read Eric Ries’s The Lean Start Up, they did a lot of things right. They got a minimally viable product in front of a market to test it and see what to improve. No, Google’s problem wasn’t with their strategy; it was with their speed. As Ries states,

“The goal of a startup is to figure out the right thing to build—the thing customers want and will pay for—as quickly as possible.”

Google didn’t move fast enough with Glass. And I suspect it was because Google isn’t a start up, so it can’t act like one. Again, from Ries,

“The problem isn’t with the teams or the entrepreneurs. They love the chance to quickly get their baby out into the market. They love the chance to have the customer vote instead of the suits voting. The real issue is with the leaders and the middle managers.”

Google isn’t the only company to feel the constricting bonds of being a public company. There is a long list of world changing technologies that were pioneered at places like Xerox and Microsoft and were tagged as corporate failures, only to eventually change the world in someone else’s hands.

I suspect the days are many when Larry Page and Sergey Brin are sorry they ever decided to take Google public. Back then, they probably thought that the vast economic resources that would become available, combined with their vision, would make an unbeatable combination. But in the process of going public, they were forced to compromise on the very spirit that was defined by that vision. They want to do great things, but they still need to hit their quarterly targets and keep shareholders happy. The two things shouldn’t be mutually exclusive, but sadly they almost always are.

It’s probably no accident that Apple does their development in stealth mode. Apple has much more experience than Google in being a public company. They have probably realized that it’s not the buying public that you keep in the dark, it’s the analysts and shareholders. Otherwise, they’ll look at the early betas, an essential step in the development process, and pass judgment, tagging them as failures long before such judgments are justified. It would be like condemning a newborn baby as hopeless because they can’t drive a car yet.

Google is dreaming big dreams. I admire that. I just worry that the structure of Google might not be the right vehicle in which to pursue those dreams.

The Virtuous Cycle and the End of Arm’s Length Marketing

brandstewardshipLast week I wrote what should have been an open and shut column – looking at why SEO never really lived up to the potential of the business opportunity. Then my friend Scott Brinker had to respond with this comment:

“Seems like Google has long been focused on making SEO a “result” of companies doing good things, rather than a search-specific optimization “cause” to generate good rankings. They seem to have gotten what they wanted. Now as Google starts to do that with paid search, the world gets interesting for those agencies too..”

Steven Aresenault jumped on the bandwagon with this:

“Companies are going to wake up to the reality that part of their marketing is really about creating content. Content is everywhere and everything. Reality is I believe that it is a new way of thinking.”

As they both point out, SEO should be a natural result of a company doing good things, not the outcome of artificial manipulations practiced by a third party. It has to be baked into and permeate through the operating DNA of a company. But, as I started this column, I realized that this doesn’t stop at SEO. This is just the tip of a much bigger iceberg. Marketing, at least the way it’s been done up to now, is fundamentally broken. And it’s because many companies still rely on what I would call “Arm’s Length Marketing.”

Brand Stewardship = B.S.

Here is a quote lifted directly from the Ogilvy Mather website:

We believe our role as 360 Degree Brand Stewards is this: Creating attention-getting messages that make a promise consistent and true to the brand’s image and identity. And guiding actions, both big and small, that deliver on that brand promise. To every audience that brand has. At every brand intersection point. At all times.

Now, Ogilvy is very good at crafting messages and this one is no exception. Who could possibly argue with their view of brand stewardship? The problem comes when you look at what “stewardship” means. Here’s the Merriam Webster definition:

the conducting, supervising, or managing of something; especially :  the careful and responsible management of something entrusted to one’s care

The last five words are the key – “something entrusted to one’s care”. This implies that the agency has functional control of the brand, and with due apologies to David Ogilvy and his cultural legacy, that is simply bullshit.

Brands = Experience

Hmmm - coincidence?

Hmmm – coincidence?

Maybe Arm’s Length Brand Stewardship was possible in the era of David Ogilvy, Don Draper and Darrin Stephens (now, there’s a pop culture trifecta for you) – where brand messaging defined the brand, but that era is long gone. Brands used to be crafted from exposure, but now they’re created through experience, amplified through the resonant network of the online community. And an arm’s length third party cannot, nor should they, control that experience. It has to live at the heart of the company. For decades, companies abdicated the responsibility of brand stewardship to the communication experts – or, to do a little word crafting – they “entrusted (it) to (their) care.” That has to change. Marketing has to come back home.

The Virtuous Marketing Cycle

Scott talked about the SEO rewards that come from doing good things. Steven talked about authentic content creation being one of those good things. But this is a much bigger deal. This is about forcefully moving marketing’s place in the strategic chain. Currently, the order is this: Management > Strategy > Marketing > Revenue. Marketing’s current job is to execute on strategy, which comes from management. And, in that scenario, it’s plausible to execute at arm’s length. Also, things like SEO and content management fall well down the chain, typically beneath the threshold of senior management awareness. By the way, usability and other user-centric practices typically suffer the same fate.

But what if we moved our thinking from a chain to a cycle: Marketing > Management > Strategy > Marketing > Revenue > Marketing (and repeat)? Let me explain. To begin with, Marketing is perfectly situated to become the “sensemaking” interface with the market. This goes beyond market research, which very seldom truly informs strategy. Market research in its current form is typically intended to optimize the marketing program.

I’m talking about a much bigger role – Marketing would define the “outside in” view of the company which would form the context within which strategy would be determined by Management. Sensemaking as it applies to corporate strategy is a huge topic, but for brevity’s sake, let’s suppose that Marketing fills the role of the corporation’s five senses, defining what reality looks (and smells and sounds and tastes and feels) like . Then, when strategy is defined within that context, Marketing is well positioned to execute on it. Finally, execution is not the end – it is the beginning of another cycle. Sense making is an iterative process. Marketing then redefines what reality looks like and the cycle starts over again.

Bringing stewardship of marketing back to the very heart of the organization fundamentally changes things like arm’s length agency partnerships. It creates a virtuous cycle that runs through length and breadth of a company’s activities. Things like SEO, content creation and usability naturally fall into place.

Strategic Planning as though the Future Matters – Strategy and Leadership

Note from Gord

Up to now, Out Of My Gord has never had guest posts. It’s not really an editorial policy or anything like that. It’s just that the right person never asked. Then I chatted with Doug Randall of Monitor 360. I’m currently working on a new book and it deals with sense making as it applies to corporate strategy. I had written a column called the Pros and Cons of a Fuel Efficient Brain and Daniel Beckerman from Monitor 360 reached out to see if I’d like to chat with Doug. We had a fascinating discussion which resulted in a follow up post. I particularly liked how Monitor 360 uses a narrative framework to help humans deal with data. Last month, Monitor 360 CMO Kevin Rockmael asked if I’d be interested in guest posts. I said probably. So, here is the first guest post. It was previously published by Monitor 360 but I think it would be of interest to my audience. In particular, it covers use of scenarios to avoid market surprises that could have been anticipated (key in sense making). Monitor 360 is currently working on some new posts as well.

G

By Doug Randall

chesspiecesWhy do organizations get blindsided by market transformations that could have been anticipated? It may not be because their planning methods are flawed, but rather that they undertake strategic planning processes like scenario development without seeing them as a unique opportunity for learning about and exploring the future.

To help planners avoid strategic surprise, Monitor 360 has created a five-step strategic planning process that has been tested in interactions with leaders in the military, intelligence community, and corporations. This paper guides you through a systematic process for incorporating plausible but challenging future scenarios into your organization’s learning processes, to help mitigate risk and decrease the likelihood of being unprepared for discontinuities.

The PDF is available for download.

Why do organizations get blindsided by market transformations that could have been anticipated? After all, scenario planning has been a widely used strategic planning tool for decades and most managers are familiar with the process of considering how they would operate in alternative futures. The reason most organizations get surprised by game-changing events, in my experience, is not that their planning methods are bad. The problem is that they undertake strategic planning processes like scenario development without seeing them as a unique opportunity for learning about and exploring the future. In some cases this is because management lacks sufficient appreciation for the uncertainty and ambiguity their organizations face. More often, however, management is fully aware of the uncertainty of their situation but is seemingly powerless to prepare to adapt to new business realities, especially unpleasant ones.

To help planners avoid strategic surprise, Monitor 360 has created a five-step strategic planning process that has been tested in interactions with leaders in the military, intelligence community, and corporations. By systematically incorporating plausible but challenging future scenarios into their learning processes, decision makers can both mitigate risk and decrease the likelihood of not being prepared for discontinuities. This approach overcomes the paralysis that sometimes happens when people see all the uncertainty their organization faces, as well as the denial that happens when they don’t.

Multiple futures

When thinking about the future, many strategic planners make the mistake of asking, “What will the future be?” Because the future is the net result of so many complex and interdependent issues the question is daunting, and perhaps unanswerable.

A more realistic question is, “What are the possible challenging futures?” Exploring multiple possible ways the future could unfold in ways that would require the organization to radically adapt enables leaders to better prepare for a wide range of contingencies, and to manage the consequences more effectively when surprises do occur.

Scenario analysis can provide planners with a systematic way of imaging the future and identifying winning long-term strategies that respond to the many ways the future could play out. It helps individuals and their organizations identify and challenge their entrenched mental models and assumptions about what the future might hold, while helping bound the uncertainties they face.

Instead of attempting to predict what’s going to happen, the scenario methodology offers a way to see the forces as they are taking shape and not be blindsided when they lead to major changes. Anticipating the future gives decision-makers the ability to look in the right place for game-changing events, to rehearse the appropriate responses and to systematically tack indicators of change.

Five Mindsets for Managing Uncertainty

Scenario thinking is the foundation of our five-step toolkit because of the unique ways it allows leaders to explore and exploit the unknown, and because it offers managers a methodology to consider alternatives in the face of uncertainty. To make scenario planning more effective, we’ve identified five discrete steps in the process, each of which should be undertaken with a distinct mindset. It is important to take these steps one at a time and in order, rather than skipping right away to decision-making.

Create Scenarios — Unleash your Imagination

Scenarios are plausible narratives about futures that are distinctly different from the present. If they are well prepared, they allow for a thorough exploration of future risks and opportunities. Scenario thinkers begin at the same place as traditional risk managers, skillfully making an inventory of what is known about the future. After exploring issues such as demographics as well as aspects of industry structure and customer behavior, scenario thinkers turn to the unknown, the unknowable, and the perceptions that should be challenged. Following a rigorous analytical process aimed at articulating the range of uncertainties an organization could face and all of the relevant outcomes, scenario thinkers design a number of cogent narratives about relevant futures.

Scenarios are written as plausible stories — not probable ones. Traditional risk management is based on probabilities, actuary tables, and other known and measurable quantities. But scenarios are intended to provoke the imagination and provide a more comprehensive view of risk, so that the results can shed light on critical strategic decisions.

It is important to note that scenario developers create multiple futures, rather than just one. This allows for a more complete exploration of the future, thus avoiding getting wedded to specific set of assumptions about how uncertainties will unfold. The process of developing multiple scenarios helps to increase the possibility that leaders will not be surprised, because it allows them to rehearse multiple unique futures. Importantly, it also grounds decision-makers in the reality that, in most circumstances, they cannot accurately predict the future. Rathe than falsely assuming one outcome will happen, leaders learn that they must make decisions in light of the true uncertainty they face.

As an example of this process, the U.S. Navy developed a set of scenarios that would help guide the development of the first unified strategy of all the country’s maritime forces in the “A Cooperative Strategy for 21st Century Seapower” released October 2007. The first step was to develop four working scenarios. These were discussed and refined in a series of eight working sessions around the country with people from the business, government, and academic sectors who could provide valuable insight about issues the Navy needed to address in the future. The participation of these experts, and their feedback, helped to test the validity of scenarios, which were then refined for publication and dissemination.

The scenarios had a significant impact on the future strategy of the Navy. For example, the scenarios helped to provide a new mission for the Navy in its response to humanitarian crises. the report concluded: “Building on relationships forged in times of calm, we will continue to mitigate human suffering as the vanguard of interagency and multinational efforts, both in a deliberate, proactive fashion and in response to crises. Human suffering moves us to act, and the expeditionary character of maritime forces uniquely positions them to provide assistance.”

Determine Required Capabilities for each Scenario — Give your Creativity Free Rein

The second step of the process is to identify what it takes to be successful in each of the futures identified. After the scenario process has imagined distinctly different future worlds that the organization’s leaders have acknowledge are plausible, relevant, and important, what would a high-performing organization look like in each of these worlds? That is, if an organization were dealt the card of one scenario, what would it need to do in order to be successful?

To answer this question, planners need to make a list of key success factors and capabilities. Key capabilities for militaries or intelligence agencies might be the ability to project force rapidly abroad or the ability to collect and process open-source information. Capabilities often start with “the ability to….” For companies these might be the ability to build brands that address customer needs and inspire loyalty as well as the ability to launch products quickly.

As a case in point, a major software company needed to determine where to invest its limited resources to succeed in a market roiled by new competitors. In one scenario, the company needed good relationships with its value-added resellers and excellent customer service. In another scenario, it needed an entirely different set of capabilities, including low cost, operating system integration.

It’s important to address the capabilities question as if it were a set of independent problems: what it would take to be a winner in a given scenario? Doing so encourages bold, creative thinking, and avoids the trap of limiting the alternatives to those that are doable with current capabilities and resources. By keeping this step separate from the next one, assessing current capabilities, planners are not hobbled by only thinking about what they are good at today or nor do they have struggle with imagining themselves in four different worlds at the same time.

It is often a wrenching experience for leaders to simply look for the absolutely best strategic posture for their organization in each scenario. This is one measure of how hard it is for them to imagine doing business in any future that has totally different success factors from the current environment.

Assess Current Capabilities — Be Painfully Realistic

Separate from the critical examination of the capabilities needed for success in each scenario, planners must ask: What are we good at right now? The answers could be human capital, relationship, or operational efficiency. These capabilities are generally described as competitive assets that cannot be bought and sold on the free market. Organizations can’t just say, “We’ll invest $100 million next month, and then we’ll have that ability” or “We want to do that.” They have to build the capability over time.

Often outside perspective — for example, based on detailed discussions with customers — can be helpful in getting in unbiased evaluation of what capabilities an organization excels in.

Identify Gaps — Provide Honest Analysis

Next organization should compare its own capabilities with the capabilities needed to succeed in the scenarios. Such capability maps will not only highlight what capabilities it needs to develop — the capability gaps — but also what capabilities it has already invested in that may become redundant.

Make Choices — Consider your Options

Once organizations have analyzed the gap between their strengths and the capabilities needed in each scenario, they face some big decisions. There could be capabilities that they need in all the scenarios imagined but that they don’t currently have. As a first step, an organization might safely develop these. We call those “no-regrets moves.”

Others move are what we call “big bets.”  These are capabilities needed in a particular scenario or a small number of scenarios, but not in others. Organizations make bets consciously after systematically thinking through the types of capabilities, their relationship to the environment around them, or the futures that they feel are likely to occur. They can adjust their decision when more data is collected or events unfold in the world. This process is based on the theory of real options, which suggests an organization can gain an advantage by making many small bets, and as information accumulates, start to increase or decrease those bets accordingly.

The crucial questions for organizations to ask when making choices are: What would be the risk if a scenario happened and we didn’t have this capability? And what would be the risk if a scenario didn’t happen and we did have it?

What’s Clouding the Future?

It’s painfully difficult for individual leaders to keep their minds open to multiple futures and to follow a systematic process like the one described above. IBM”s famous story illustrates this all-to-common tendency.

In 1980, the personal computer represented a tiny niche market. When IBM was considering developing a computer for the masses it convened a working group to forecast its potential market. The team projected that the market for PCs would total a mere 241,683 units over the next five years, and that demand would peak after two years and then trend downward. They believed that since existing computers had such a small amount of processing power, people would not want to purchase a second one.

As a result, IBM determined that there was no potential in the marketplace and effectively killed its effort to dominate the personal computer market, ceding the operating system to Microsoft and the processor to Intel. IBM lost out on a $240 billion market, one in which nearly every household in the developed world would eventually want one or more of the machines and then would want to upgrade them every few years.

But what if someone in the room had asked, “What if people want a PC on every desktop?” What if individuals start carrying PC’s in their pockets? What if PCs develop a communications capability?What if they are widely used to play games? Maybe we should think of a different scenario where the market would be more like 20 million units?” These would have been completely off-the-wall, outrageous ideas at the time, but if just one person in the room had explored such different lines of thought, the futures of Microsoft, Intel and IBM might have evolved differently.

The Benefits of a Systematic, Disciplined Approach

Anticipating the future isn’t just about avoiding strategic surprise or minimizing the downside risk. There’s also a huge upside: You are creating the future that you want and making sense of how the world may play out. Understanding your choices can be an empowering process.

When planners follow a process that systematically cuts through the barriers to effective group learning and decision-making, and combine that process with principles that give discipline and robustness to the entire endeavor, the future, and our place in it, comes into a much sharper focus.

The Metaphysical Corporation and The Death of Capitalism?

Something strange is happening to companies. More and more, their business is being conducted in non-physical markets. Businesses used to produce stuff. Now, they produce ideas. A recent op-ed piece from Wharton speculated that companies are working their way up Maslow’s Hierarchy. The traditional business produced things that met the needs of the lowest levels of the pyramid – shelter, food, warmth, security. As consumerism spread, companies worked their way up to next levels: entertainment, attainment and enjoyment.  Now, the things that companies sell sit at the top of the pyramid – fulfillment, creativity, self-actualization.

ComponentsSP500_2010The post also talks about another significant shift that’s happening on the balance sheets of Corporate America. Not only are the things that corporations sell changing, but the things that make up the value of the company itself are also changing.  According to research by Ocean Tomo, a merchant bank that specializes in intellectual property, the asset mix of companies has shifted dramatically in the past 40 years. In 1975, tangible assets (buildings, land, equipment, inventory) made up 83% of the market value of the S&P 500 companies. By 2010, that had flipped – Intangible assets (patents, trademarks, goodwill and brand) made up 80% of the market value of the S & P 500.

Chains vs Networks and the Removal of Friction

Barry Libert, Jerry Wind and Megan Beck Finley, the authors of the Wharton piece, focus mainly on the financial aspects of this shift. They point out that general accounting principles (GAAP) are quickly falling behind this corporate evolution. For example, employees are still classified as an expense, rather than an asset. I’m personally more interested in what this shift means for the very structure of a corporation.

If you built stuff, you needed a supply chain. Vertical integration was the way to remove physical transactional friction from the manufacturing process. Vertical integration bred hierarchal management styles. Over time, technology would remove some of the friction and some parts of the chain may evolve into open markets. The automotive industry is a good example. Many of the components of your 2015 Fusion are supplied to Ford by independent vendors. Despite this, makers of “stuff” still want to control the entire chain through centralized management.

But if you sell ideas, you need to have a network. Intangible products don’t have any physical friction, so supply chains are not required. And if you try to control a network with a centralized hierarchy, branches of your network soon wither and die.

The New Real Thing

coca-cola-freestyle-machineCoke has not been a maker of stuff for quite some time now. Sure, they make beverages, so technically they’re quenching our thirst, but the true value of Coke lies in its brand and our connection to that brand. The “Real Thing” is, ironically and quite literally, a figment of our imagination. If you were to place Coke on Maslow’s Hierarchy – it wouldn’t sit on the bottom level (physiological) but on the third (Love/Belonging) or even the fourth (Esteem).

Coke is very aware of its personal connection with it’s customers and the intangibles that come with it. That’s why the Coca-Cola Freestyle Vending Machine comes with the marketing tag line: “So many options. Thirst isn’t one of them.” You can customize your own formulation from over 100 choices, and if you have the Freestyle app, you can reorder your brand at any Coke Freestyle machine in the world. Of course, Coke is quietly gathering all this customer data that’s generated, including consumption patterns and regional preferences. Again, this intimate customer insight is just one of the intangibles that is becoming increasing valuable.

Coke is not only changing how it distributes its product. It’s also grappling with changing its very structure. In a recent conversation I had with CMO Joe Tripodi, he talked a lot about Coke’s move towards becoming a networked corporation. Essentially, Coke wants to make sure that worldwide innovation isn’t choked off by commands coming from Atlanta.

The Turning Point of Capitalism

As corporate America moves away from the making of physical stuff and towards the creation of concepts that it shares with customers, what does that mean for capital markets? If you believe Jeremy Rifkin, in his new book The Zero Marginal Cost Society, he contends that capitalism is dying a slow death. Eventually, it will be replaced by a new collaborative common market made possible by the increasing shrinkage of marginal costs. As we move from the physical to the metaphysical, the cost of producing consumable services or digital concept-based products (books, music, video, software) drops dramatically. Capital was required to overcome physical transactional friction. If that friction disappears, so does the need for capital.   Rifkin doesn’t believe the death of capitalism will be any time soon, but he does see an inevitable trend towards a new type of market he calls the Collaborative Commons.

Get Intimate

My last takeaway is this – if future business depends on connecting with customers and their conceptual needs, it becomes essential to know those customers on a deeply intimate level.  Throw away any preconceptions from the days of mass marketing and start thinking about how to connect with the “Market of One.”