Category Archives: The New Marketplace

Giving Thanks for The Law of Accelerating Returns

For the past few months, I’ve been diving into the world of show programming again, helping MediaPost put together the upcoming Email Insider Summit up in Park City. One of the keynotes for the Summit, delivered by Charles W. Swift, VP of Strategy and Marketing Operations for Hearst Magazines, is going to tackle a big question, “How do companies keep up with the ever accelerating rate of change of our culture?”

After an initial call with Swift, I did some homework and reacquainted myself with Ray Kurzweil’s Law of Accelerating Returns. Shortly after, I had to stop because my brain hurt. Now, I would like to pass that unique experience along to you.

In an interview that is now 12 years old, Kurzweil explained the concept, using biological evolution as an analogy. I’ll try to make this fast. Earth is about 4.6 billion years old. The very first life appeared about 3.8 billion years ago. It took another 1.7 billion years for multicellular life to appear. Then, about 1.2 billion years later, we had something called the Cambrian Explosion. This was really when the diversity of life we recognize today started. If you’ve been keeping track, you know that it took the earth 4.1 of it’s 4.6 billion year history, or about 90% of the time since the earth was formed, to produce complex life forms of any kind.

Things started to move much quicker at that point. Amphibians and reptiles appeared about 350 million years ago, dinosaurs appeared 225 million years ago, mammals 200 million years ago, dinosaurs disappeared about 70 million years ago, the first great apes appeared about 15 million years ago and we homo sapiens have only been around for 200,000 years or so. And, as a species, we really have only made much of dent in the world in the last 10,000 years of our history. In the entire history of the world, that represents a very tiny 0.00022% slice. But consider how much the world has changed in that 10,000 years.

Accelerating Returns

Kurzweil’s Law says that, like biology, technology also evolves exponentially. It took us a very long time to do much of anything at all. The wheel, stone tools and fire took us tens of thousands of years to figure out. But now, technological paradigms shifts happen in decades or less. And the pace keeps accelerating. The Law of Accelerating Returns states that in the first 20 years of the 21st century, we’ll have progressed as much as we did during the entire 20th century. Then we’ll double that progress again by 2034, and double it once more by 2041.

Let me put this in perspective. At this rate, if my youngest daughter – born in 1995 – lives to be 100 (not an unlikely forecast), she will see more technological change in her life than in previous 20,000 years of human history!

This is one of those things we probably don’t think about because, frankly, it’s really hard to wrap your head around this. The math shows why predictability is flying out the window and why we have to get comfortable reacting to the unexpected. It would also be easy to dismiss it, but Kurzweil’s concepts are sound. Evolution does accelerate exponentially, as has our rate of technological advancement. Unless the later showed a dramatic reversal or slowing down, the future will move much much faster than we can possibly imagine.

The reason change accelerates is that the technology we develop today builds the foundations required for the technological leaps that will happen tomorrow. Agriculture set the stage for industry. Industry enabled electricity. Electricity made digital technology possible. Digital technology enables nanotechnology. And so on. Each advancement sets the stage for the next, and we progress from stage to stage more rapidly each time.

So, for your extended long weekend, if you’re sitting in a turkey-induced tryptophan daze and there’s no game on, try wrapping your head around The Law of Accelerating Returns.

Happy Thanksgiving. You’re welcome.

The Required Conditions for Innovation

Statistically speaking, it appears that there’s a correlation between atheism and innovation. But my point in last week’s column was not to show that atheists are more innovative. My goal was to try to hypothesize what the underlying causation might be. I don’t really care if atheists, or Buddhists – or Seventh Day Adventists for that matter – are more innovative. What does interest me, however, is what is unique about an environment in which both atheism and innovation can flourish.

Why am I so focused on innovation? Because innovation drives economic growth. It is the force that unleashes Schumpeterian Gales of Creative Distruction. In any formula measuring economic performance, Innovation always equals N. It’s a very big deal. The biggest deal.

That means the conditions that lead to innovation are worth noting. And I started on the national scale for a reason. Sometimes, it helps to change our perspective if we’re exploring the “why” of a question. Either pulling back to the macro or zooming in to the micro allows us to see things we may not see when we remain stuck in our current context. So, what can we learn about the conditions of innovation from the world’s most innovative countries?

Atheism = Innovation?

Let’s look at the atheist factor. How might a lack of religion lead to a surfeit of innovation? I think it may have something to do with belief – or rather – the lack of belief. When we believe something, we usually don’t go out of our way to prove it true. That also means we never find out it’s false. But nations that have a lot of atheists are not a very trusting lot, at least when it comes to things like government and other institutions. There was a moderately negative correlation (r=-0.4425). They are skeptics. And when it comes to innovation, skepticism is very healthy.

If we looked back to Alex Pentland’s ideas about Social Physics, we need two types of social interactions: exploration and engagement. The first of these is where innovation comes from. And skeptics are more exploratory than the trustful. They probe the unknown rather than rely on their beliefs. As Pentland says in his book Social Physics, “If you can find many such independent thinkers and discover that there is a consensus among a large subset of them, then a really, really good trading strategy is to follow the contrarian consensus.”

Ideological Diversity

It’s not just skepticism, however, that drives innovation. It’s also ideological diversity. You need a social network that encompasses a lot of different experiences and points of view. The broader the spectrum of ideas, the more likely that you’ve captured something that approximates the truth somewhere in that spectrum. If you can trade monolithic beliefs for a healthy respect for ideas that may not mirror your own in your own organization, you’ve probably laid the groundwork for innovation.

Going Rogue

Not so many years ago, an organization I was part of called for a rather rushed retreat of all the executive management. We gathered in a posh ski resort for a brainstorming session. All the top managerial talent was present. The CEO took the stage and called on us to be innovative. But he, like most managers, did not encourage diversity. Rather, he believed unity was the way to innovate.

“No one can go rogue!” he preached from the corporate pulpit. In other words, “No one can disagree with me.”

If this CEO (who has since stepped down) had looked at countries like Sweden, or Japan, or South Korea, he might have realized that sometimes, “going rogue” is exactly what you need to come up with a new idea.

Are Atheists More Innovative?

A few columns back, I talked about the most innovative countries in the world, according to INSEAD, Johnson School of Management and WIPO. Switzerland, of all places, topped the list. At the time, I mentioned diversity as possibly being one of the factors. But for some reason, I just couldn’t let it lie there.

Last Friday afternoon, it being pretty miserable outside, I dusted off my Stats 101 prowess and decided to look for correlations. The next thing I knew, 3 hours had passed and I was earlobe deep in data tables and spreadsheets.

Yeah..that’s how I roll. That’s wassup.

But I digress. What initially sent me down this path was a new study out of the University of Kansas by Tien-Tsung lee and co-authors Masahiro Yamamoto and Weina Ran. Working with data from Japan, they found that the amount of trust you have in media depends on the diversity of the community you live in. The more diverse the population, the lower the degree of trust in media.

This caught my attention – a negative correlation between trust and diversity. I wondered how those two things might triangulate with innovation. Was there a three-way link here?

So, I started compiling the data. First, I wanted to broaden the definition of innovation. Originally, I had cited the INSEAD Global Innovation Index. Bloomberg also has a ranking of innovation by country that uses a few different criteria. I decided to take an average, normalized score of the two together. In case you’re wondering, Switzerland scored much lower in the Bloomberg ranking, which had South Korea, Japan and Germany in the top three spots.

With my new innovation ranking, I then started to look for correlations. What part, for example, did trust play? According to Edelman, the global marketing giant, who publishes an annual trust barometer, it plays a massive role: “Building trust is essential to successfully bringing new products and services to market.” Their trust barometer measures trust in the infrastructural institutions of the respective countries. So I added Edelman’s indexed trust scores to my spreadsheet and used a quick and dirty Pearson r-value test to look for significant correlations. For those as rusty as I when it comes to stats, a perfect correlation would be 1.0. Strong relationships show up in the 0.6 and above range. Moderate relationships are in the 0.3 to 0.6 range. Weak relationships are 0.3 and below. Zero values indicate no relationship. Inverse relationships follow the same scale but with negative values.

The result? Not only was there no positive correlation, there was actually a moderately significant negative correlation! For those interested, the r-value was -0.4224. Based on this admittedly amateur analysis, trust in national institutions and innovation do not seem to go hand-in-hand. Some of the most innovative countries are the least trusting and vice-versa. It certainly wasn’t the neat supposed linear relationship that Edelman referred to in their press releases for their barometer.

Next, I turned to the obvious – the wealth of the respective nations. I added GDP per capita as a data point. Predictably, there was a strong positive correlation here – I came up with an r-value of .793. Rich countries are more innovative. Duh.

Now comes the really interesting part. What was the relationship between cultural diversity and innovation? If my original hypothesis was correct, there should be at least a moderate correlation here. The problem was trying to find an accurate measure of cultural diversity. I ended up using three measures from Alesina et al: Ethnic Fractionalization, Linguistic Fractionalization and Religious Fractionalization. I averaged these out and indexed them to give me a single score of cultural diversity. To my surprise, my hypothesis appeared to be significantly flawed – my r value was -0.2488.

But then I started analyzing the individual measures of diversity. Ethnic Diversity and Innovation showed a moderate negative correlation: -0.5738. Linguistic Diversity and Innovation showed a less significant negative correlation: -0.3886. But Religious Diversity and Innovation came up as a moderate positive correlation: 0.4129! Of the three, religion is the only measure of diversity that’s directly ideological, at least to some extent.

This seemed to be promising, so I pushed it to the extreme. If religious diversity shows to be correlated with innovation, I wonder how the prevalence of atheists would relate? After all, this should be the ultimate measure of religious ideological freedom. So, using a combination of results from a worldwide Gallup survey and a study from Phil Zuckerman, I added an indexed “atheism” score. Sure enough, the r-value was 0.7461! This was almost as significant as the correlation between national wealth and innovation! Based on my combined innovation scores, some of the least religious countries in the world (Japan, Sweden and Switzerland) are the most innovative.

So – ignoring for a moment the barn-door sized holes in my impromptu methodology and a whack of confounding factors – what might this hypothetically mean? I’ll come back to this intriguing question in next week’s Online Spin.

Innovating Along the Edges

If you want innovation, go to Switzerland. According to the Global Innovation Index, those Swiss are the most innovative people on the planet. Next is the UK, then Sweden. The Dutch are pretty damn innovative too, coming in at number four. Then you have the good old USA rounding up the top 5.

My fellow Canadians? Less innovative, apparently. We’re at #16. Those damn Luxembourgians and Icelanders even beat us (ranking 9th and 13th respectively). But hey, we beat the Japanese (19) and we’re miles ahead of China (29), Russia (48) and India (81).

Pillars of Innovation

So, what makes a country innovative? And, by extension, what lessons can we learn about encouraging innovation generally? The publishers of the index look at five pillars of innovation: Institutions, Human Capital and Research, Infrastructure, Market Sophistication and Business Sophistication.

If you look at these, it makes sense that the better off the country, the more innovative it will be. These are the countries that can invest in education and the infrastructure needed to support innovation. I would also add risk taking to the prerequisites of innovation. I suspect that may be why my fellow Canadians are less innovative on average than Americans.

But, if you talk to Sandy Pentland, there is another factor to consider: Physics. Specifically, Social Physics.

The Physics of Innovation

If we look at innovative environments, the most successful example is a city. Cities, especially some cities, are hot beds of innovation. New York, for example, or San Francisco, or Boston, continually crank out more innovative ideas per person than most places you could name. Why are cities more innovative, per capita, than rural regions? Sure, there are aspects of the five pillars there: good universities, lots of smart people, sophisticated marketers. But the main reason may come down to the nature of networks you find in a city.

Alex “Sandy” Pentland just happens to live in an innovative city – Boston. And he works at MIT, one of the most innovative institutions in the world. There he heads up perhaps the single most innovative department, the Entreneurship Program at MIT’s Media Lab. So, it’s fair to say that Pentland knows a thing or two about innovation. But what really fascinates Pentland is the way people connect and, by doing so, spread ideas. This is what he refers to as “Social Physics.”

Some cities promote innovation because they promote a certain type of network connectivity. In order for innovative ideas to spread, there needs to be two types of connection: exploration and engagement. The first offers a clue to why cities may be particularly innovative. Sparks of creativity tend to come from interface areas, or the edges of social groups, where different ideas and viewpoints come into contact with each other. If you’re surrounded by people who look, speak and think the same way you do, you get an “echo chamber.” There is no diversity in your exploration. But if you’re in an environment that lends itself to encountering diverse ideas and points of view, your exploratory connections become “mash-ups” of innovation. As Steve Jobs said, “Creativity is just connecting things. When you ask creative people how they did something, they feel a little guilty because they didn’t really do it, they just saw something. It seemed obvious to them after a while. That’s because they were able to connect experiences they’ve had and synthesize new things.” But you can only see that “something” if you’re in an environment that allows connections.

Back to those Swiss

So, the five pillars of innovation aside, perhaps the Swiss advantage in innovation comes from the fact that it’s a pretty small country that has 8 million people and 4 official languages. Also, 74% of those people live in a city. That mean’s that there are lots of social “edges” coming into contact with each other.

Once they settle on a language, I’m guessing the Swiss have some pretty interesting conversations.

The Messy Part of Marketing

messymarketingMarketing is hard. It’s hard because marketing reflects real life. And real life is hard. But here’s the thing – it’s just going to get harder. It’s messy and squishy and filled with nasty little organic things like emotions and human beings.

For the past several weeks, I’ve been filing things away as possible topics for this column. For instance, I’ve got a pretty big file of contradicting research on what works in B2B marketing. Videos work. They don’t work. Referrals are the bomb. No, it’s content. Okay, maybe it’s both. Hmmm..pretty sure it’s not Facebook though.

The integration of marketing technology was another promising avenue. Companies are struggling with data. They’re drowning in data. They have no idea what to do with all the data that’s pouring in from smart watches and smart phones and smart bracelets and smart bangles and smart suppositories and – okay, maybe not suppositories, but that’s just because no one thought of it till I just mentioned it.

Then there’s the new Google tool that predicts the path to purchase. That sounds pretty cool. Marketers love things that predict things. That would make life easier. But life isn’t easy. So marketing isn’t easy. Marketing is all about trying to decipher the mangled mess of living just long enough to shoehorn in a message that maybe, just maybe that will catch the right person at the right time. And that mangled mess is just getting messier.

Personally, the thing that attracted me to marketing was its messiness. I love organic, gritty problems with no clear-cut solutions. Scientists call these ill-defined problems. And that’s why marketing is hard. It’s an ill-defined problem. It defies programmatic solutions. You can’t write an algorithm that will spit out perfect marketing. You can attack little slivers of marketing that lend themselves to clearer solutions, which is why you have the current explosion of ad-tech tools. But the challenge is trying to bring all these solutions together into some type of cohesive package that actually helps you relate to a living, breathing human.

One of the things that has always amazed me is how blissfully ignorant most marketers are about concepts that I think should be fundamental to understanding customer behaviors: things like bounded rationality, cognitive biases, decision theory and sense-making. Mention any of these things in a conference room full of marketers and watch eyes glaze over as fingers nervously thumb through the conference program, looking for any session that has “Top Ten” or “Surefire” in it’s title.

Take Information Foraging Theory, for instance. Anytime I speak about a topic that touches on how humans find information (which is almost always), I ask my audience of marketers if they’ve ever heard of I.F.T. Generally, not one hand goes up. Sometimes I think Jakob Nielsen and I are the only two people in the world that recognize I.F.T. for what it is: “the most important concept to emerge from Human-Computer Interaction research since 1993.” (Jakob’s words). If you take the time to understand this one concept I promise it will fundamentally and forever change how you look at web design, search marketing, creative and ad placement. Web marketers should be building a shrine to Peter Pirolli and Stuart Card. Their names should be on the tips of every marketer’s tongue. But I venture to guess that most of you reading this column never heard of them until today.

None of these fundamental concepts about human behavior are easy to grasp. Like all great ideas, they are simple to state but difficult to understand. They cover a lot of territory – much of it ill defined. I’ve spent most of my professional life trying to spread awareness of things like Information Foraging Theory. Can I always predict human behavior? Not by a long shot. But I hope that by taking the time to learn more about the classic theories of how we humans tick, I have also learned a little more about marketing. It’s not easy. It’s not perfect. It’s a lot like being human. But I’ve always believed that to be an effective marketer, you first need to understand humans.

Are We Guilty of “Numbed” Marketing?

BombsightA few years ago, I was moderating a panel on mobile advertising. The room was full of marketers. After much discussion about targeting and the ability to track consumers both geographically and behaviorally, one audience member lamented, “Why don’t the carriers just share the subscriber information? They know who they are. They know addresses, family status, credit history, demographics – they have all that information. Then we could really pinpoint our market.”

I had to jump in. I asked this room full of marketers to indicate who would like to have access to that information by raising their hand. The entire room answered in the affirmative. Then I added a twist…

“Okay. Everyone in this room has a mobile phone. Who, as subscribers, would want your carrier sharing that information with anyone who wanted to target you? Keep your hands up.”

Hands wavered. You could almost hear the switch clicking in their brains. Every hand slowly went down.

That story came to mind last week when I read the following passage in a book by Arthur J. Dyck called “Rethinking Rights and Responsibilities: The Moral Bonds of Community,”

“In his study, (Robert Jay) Lifton takes note of a phenomenon he calls “numbed warfare,” a mode of combat in which participants have psychological contacts only with their military cohorts and their own equipment…. Lifton describes research that found a striking correlation between altitude and potential for guilt:

‘B-52 pilots and crews bombing at high altitudes saw nothing of their victims and spoke exclusively of professional skill and performance…’

Lifton calls these B-52 pilots “numbed warriors.” What have been numbed are their empathic emotions: ‘lacking emotional relations with his victims, the numbed warrior receives from them very little of the kind of feedback that could permit at least one layer of his mind to perceive them as human.’”

That may seem like a horrific parallel to draw with marketing, but the similarities are striking. One of the ways warriors have always desensitized themselves is by thinking of the enemy in non-human terms, either as a faceless, monolithic group, or by assigning a dehumanizing (and usually derogatory) label to them. We marketers have been doing this for years. What is more dehumanizing than taking a thinking, feeling person and calling them a “consumer?” Someone once described consumers as “mindless wallets eating shit and crapping cash.”

Warriors have to clearly delineate the concepts of “us” and “them” in order to do what they have to do. But as my room full of marketers realized, when it comes to marketing – “them” is “us.” In a recent PEW study, 80% of social network users were worried that their data would be accessed by advertisers. That means 4 out of 5 people don’t trust you, Ms. or Mr. Marker. They’d rather you didn’t know who they were. If you knocked on their door, they wouldn’t answer. Maybe it’s because you keep calling them a consumer or a target market. I’m also betting that if you were asked that question, you’d answer the same way. Because even though you’re a marketer, you don’t trust other marketers.

In a recent interview, I was asked what one piece of advice I would pass on to other marketers. I said, “Be an empathic marketer.” Or, in plainer terms, don’t numb yourself to your market. I’m not alone in saying we can be better. Fellow Spinner Cory Treffileti talked about the importance of emotion in ad messages. And Katie Meier recently asked the question, “What if data wasn’t about numbers, but instead we made it about the people the numbers represent?”

Technology has put us at a crossroads. We could use it to further distance and dehumanize our market, turning real people into digital data points. We could become “high-altitude” marketers, never coming face to face with the humans we’re trying to connect with.

Or, we could use it to create, as my friend Scott Brinker likes to say, “markets of one.” But before we do that, we have to make them want to listen to us. They have to answer their door if we knock. And that will take some work. We have to start treating them the way we want to be treated, when we’re not wearing our “marketing” hats.

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.”