Once in a lifetime... more on the financial crisis

I'd love to write about innovation, growing new markets, etc., but for the moment I'm preoccupied, like many others, with the financial crisis, especially a feeling that I can only express in the words of David Byrne from "Once In A Lifetime":



How did we get here?

To that end, Harvard University held a panel discussion last week, nicely summarized at the Working Knowledge web site, that helps to illuminate the situation. Lots of wisdom and perspective here, including this sobering (but perhaps welcome) observation, from another summary of the conference by Andrew O'Connell of the HBR Editors' Blog (the post at Editors' blog also contains a link to a video of the entire event.):

As management professor Robert Kaplan pointed out early in the discussion, Americans' ability to tap into their home equity had for years masked a fundamental deterioration in their ability to pay for goods and services with their wages. And as we all can see too clearly now, what's under that mask isn't a pretty sight.

I imagine many bankers feel like the besieged, buffeted, sweating, stunned character Byrne plays in the video. Do they say to themselves, "My God, what have I done?"

finance, credit crisis, leverage, equity, banking, mortgages

A lucid description and debate on the current banking crisis and proposed intervention

You may be burned out reading about the banking crisis and the prolonged efforts at agreeing on a "rescue" or "bailout" package (depending on your viewpoint). But this post and the comments at A VC blog do a great job of looking at the plan from an investor's viewpoint.

And that, after all, is what all we taxpayers will be if the package goes through. We will be the proud owners of hundreds of billions of dollars of lousy mortgages. If we pay little enough, it could be a good investment. If we pay too much, it'll cost us big time.

Corporate change #5 - role of consultants in "bringing the outside in"

In earlier segments of this thread, we discussed how "bringing the outside in" is imperative for companies to keep aware and humble enough to avoid complacency and drive their organizations forward successfully. By contrast, companies in which the context inside the company drowns out voices from the outside tend to attribute their successes to their internal competencies, blame their failures on outside entities, and stagnate their way to failure.

I was talking to an old customer earlier in the month about working to help companies learn about the world outside. "Exactly!" he said. "Companies need people like you to come in and help them learn about what customers think."

To a point, yes. Having an outside perspective that is less invested in the company's culture or politics is valuable. But not at the expense of a broad, internal effort to understand and make sense of the outside world.

Referring to the business complexity literature we've touched on a few times in this blog, the world outside is a complex, messy place. It's constantly changing. So old information, and limited sources, are not very useful. To gain the best, most supple understanding of the outside, a company needs lots of eyes and ears, a diverse group gathering and interpreting information, and creating stories about it. Consultants should be among that group, but not the only or the most credible source for outside information.

Management's job is to enable that story-creation, create systems for capturing and making sense of it, and above all to honor and use it to create strategy, spur innovation, and otherwise enable Kotter's "sense of urgency."

That's a job that even McKinsey might hesitate to take on.

Prior posts in this series:
Part 1 Part 2 Part 3 Part 4

Reading list:
Gary Hamel, "The Future of Management"
John Kotter, "A Sense of Urgency"
Charlene Li & Josh Bernoff, "Groundswell"
Dave Snowden & Mary Boone, "A Leader's Guide to Decisionmaking," Harvard Business Review, November 2007.

Related post:
Complex business problems need diagnosis

Tags:
change, innovation, leadership, management, communication

Boards CAN give the CEO a proper performance appraisal

The CEO is an island. His/her boss, the board, meets infrequently, has many unrelated obligations, and possesses a fraction of the corporate knowledge the CEO has. The result is CEOs who operate with little oversight--until things go horribly wrong. After which the bluntest performance appraisal is applied: "You are fired."

There is an alternative. In the October Harvard Business Review (link), Stephen Kaufman, former CEO of Arrow Industries, describes the effort his company made to create a review process that was more like the one applied to his direct reports. It involved numerous board members interviewing executives throughout the company and was intended to provide a window into Kaufman's needed development areas--and to complement the financial and business objectives he was judged on.

I wonder how other CEOs would view this type of process. Would they see it as an intrusion into their space? Or as a yearly checkup that could prevent the root canal of a surprise firing?

Customer complaints as a source of business insight

We're taking a brief detour from the corporate change series to discuss customer complaints (every businessperson's favorite subject) though in truth it is very much in sync with the "letting the outside in" philosophy we've been discussing in those other posts. The Wall Street Journal's occasional Business Insight section prompted the thoughts with today's article, "Making the Most Of Customer Complaints," by Stefan Michel and David Bowen of the Thunderbird School of Global Management and Robert Johnston of Warwick Business School.

"Making the Most..." focuses on the relationship between the customer, the front-line rep, and service management, and correctly describes how to manage a complaint to minimize damage to customer satisfaction without "giving away the store," and to incent behaviors that will result in customers leaving the interactions feeling good (or at least not badly) about their vendor. It's particularly insightful when describing the conflicts the front-line reps feel when trying to deal with a difficult customer situation:

These workers have the difficult task of dealing with customers who hold them responsible even when the failures in question are completely out of their control. The attitudes of customer-service workers, positive and negative, spill over onto customers.

Yet companies do surprisingly little to support them.

To be successful, these workers need to feel that management is providing the means to deliver successful service recovery on a continuing basis. Alternatively, when employees believe management doesn't support them, they tend to feel they are being unfairly treated and so treat customers unfairly. They display passive, maladaptive behaviors and can even sabotage service.

This alienation is compounded when the workers believe that management is not improving the service-delivery process, which keeps employees in recurring failure situations. Even though complaining customers represent an opportunity to fix problems and improve satisfaction, alienated employees often see them as the enemy.

In addition to the sound advice to repair the processes, provide appropriate guidance to employees and management, and incent customer-delighting behaviors, there's a broader value that I see to studying these interactions.

Customer complaints are a window into the customer's use of the product and perception of the company. Virtually all satisfied customers are silent. Many dissatisfied customers are silent as well--calling customer service is time-consuming and frustrating. The fact that many problems aren't resolved compounds people's feeling that engaging with the company is simply not worth the trouble.

This means that any customer complaint reported to the company is a very important piece of data. Taken together, complaints can illuminate patterns pointing to product over-complexity, poor usability, underservicing, poor expectation-setting. The patterns might tell you that the customer-service approach you are so proud of is not working as well as it should. Or that customers are using a product differently from how you expected them to. The patterns serve as marching orders to product management, marketing and customer service for important value-adding projects.

But... you have to collect and sort through the data. It can't be resigned to the bit bucket because it's unpleasant or tells you things you'd prefer not to hear. I have started to work with clients to learn from customer-service interactions--the raw material, not just the statistics. And, not surprisingly, we are always surprised by what we learn.

Related posts:
Time to start listening to front-line employees

Tags:
narrative, learning, customer relationships, customer service, knowledge

Corporate Change #4 - don't leave engaging with the outside to marketing/PR

In the prior post in this series, I talked about galvanizing the will to change through "bringing the outside in"--learning what customers, the press, influencers--really anyone--thinks about the company, its products, its marketplace, industry, etc.

To which a reasonable person might ask: "Isn't that my marketing department's job?" Especially with newer tools like blogs, wikis, Twitter, etc., marketing is taking the lead in engaging with the "groundswell."


While marketing has a significant role to play, they cannot own this function, any more than finance can own any decision that has to do with dollars and cents--it's too big, too comprehensive and too important to be limited to one group. Here are several reasons why:


Marketing is obsessed with brands & messages. Brands and messages are relentlessly positive--who buys a negative message? But learning comes from both positive and negative stories. There are threats as well as opportunities. Marketing is asked to convey messages, not to understand the world in all its messiness and complexity.

PR is asked to get positive stories out there, and to counter negative perceptions--not to learn or to inform the company. True dialogue involves listening--even when the conversation is negative or you don't agree with it--and trying to find lessons in that. Perception is reality, and PR tries to change perception--what we're talking about here is, by contrast, understanding reality.


The view of both is too limited. Different parts of the organization have different things to learn from the outside. Operations needs to learn new ways of working. Product management needs to understand how customers actually use products. HR needs to know how the workforce is evolving. Groupthink is also less likely when a diverse group of people is examining the world--with more likelihood that sound actions, and commitment to achieve them, will result.

Comcast's experiment with Twitter-based customer service (see example here of "Groundswell" co-author Charlene Li Tweeting for help and Comcast responding) works because the Comcast guy is trying to solve a customer problem, not deliver a message. If Charlene ends up feeling better about Comcast, it is a side effect, not the intent, of the action. The tech is also in a position to learn deeply about this customer situation and, I'm certain, to disseminate the learning to colleagues.

Imagine this fictional Twitter dialogue if Charlene had to engage with marketing instead of with a real tech (I've reversed it for readability. In real Twitter, the newest message is on top):

charleneli: @comcastmktg My connection keeps going in and out, happens every few months. Comcast Cust service has no idea why. Any way to escalate?

comcastmktg: @charleneli That's hard to believe. Comcast has the highest network reliability in the industry.

charleneli: @comcastmktg Yeah, fine. Can you help me with my question?

comcastmktg @charleneli Of course. One more thing. Did you know we have twice as many HD channels as DirecTV?

charleneli: @comcastmktg What? Who are you? Can you get me to someone who can help me?

comcastmktg @charleneli Right away. Please email help@comcast.com and you'll get a response within 24-48 hours. Have you heard about our community service initiatives?

charleneli: @comcastmktg Aaargh!

Coming next: what is the role of consultants (written by an actual consultant!) in bringing the outside in?

Prior posts in this series:
Part 1 Part 2 Part 3 Part 5
Reading list:
Gary Hamel, "The Future of Management"
John Kotter, "A Sense of Urgency"
Charlene Li & Josh Bernoff, "Groundswell"

Tags:
change, innovation, leadership, management, communication, social media

Corporate Change #3 - Bringing the outside in, for real

OK, so you've read my prior two posts on the subject of corporate change, and recognized your need to greatly enhance the information you get from the outside world. Now what?

You'll need to embrace a few basic principles (it won't be easy!):

Enable employees:

1. Reward curiosity and information sharing
   
2. Make time and space for employees to engage with the outside world--wall-to-wall meetings are a no-no
3. Tap existing conduits to the outside (sales force, retail clerks, customer service reps, marketing, investor relations)
   
4. Ensure your information systems and policies don't get in the way

Listen hard:

1. Don't tune out bad news
2. Try to assemble information from many constituencies (customers, competitors, employees)
3. Embrace raw/inarticulate/emotional input
   
4. Honor dissent
   

Create systems and methods to gather and utilize information:

1. Deploy information "commons" where information can be posted, commented on, and passed across and up to aid in decisionmaking
2. Systematically gather information relevant to your business and add it to the commons
   
3. Regularly gather and sensemake commons-generated information
4. Use the information to inform strategy, planning, organization, etc.
   
5. Demonstrate to the employees that the information is used, to encourage ongoing contributions
   

Most companies are not ready for this. Some are. Those that aren't: start getting ready. If you think implementing the above is a lot of work, think how hard it is to navigate out of a crisis--an avoidable crisis, if only you paid attention to and utilized what was going on all around you.

In the next few posts, we'll dig into some specific high-value areas of bringing the outside in.

Prior posts in this series:
Part 1 Part 2 Part 4 Part 5

Reading List:
Gary Hamel, "The Future of Management"
John Kotter, "A Sense of Urgency"

Tags:
change, innovation, leadership, management, communication

Corporate Change #2 - Why are companies so inwardly focused?

In part 1 of this series, we discussed one key reason companies fail to change even though it's vital: the inability to, using John Kotter's term, "bring the outside in." In other words, companies don't choose to look outside their walls to see what's happening around them, assess the implications, and absorb that into their strategies, products and operations.

Why is this so?

Reason #1 - The Community Effect
A company, as it expands from one person, to ten, to one hundred, to a thousand and beyond, takes on the identity of a community. The employees usually work in an office or plant together. They get information from the same sources--the company newsletter, intranet, staff meetings (more on that later). They spend more time with other employees than with anyone else other than family. A culture develops that inspires curiosity about what's happening inside and reduces it about what's happening outside.

Reason #2 - Leadership Arrogance
I talked to a former client last week and told him about some work I'm doing mining insights from customer-service calls. He told me, "Our CEO thinks he's just like our customers." Since this CEO sees himself as a perfect proxy, there's no reason to dig deeply into customers' feelings.

Reason #3 - Information Flows Top-Down
Leadership serves on outside boards, goes to conferences, talks with consultants. They are tasked with creating strategy, which requires some curiosity and information about the world outside the corporate walls. They process that information into strategy documents, brand images, mission statements, etc., and send it down the line.

Leadership likes orderly information, not the messiness that real engagement with the outside world creates. Most leaders believe that employees don't want that much engagement (in some cases they may be right). Employees realize that the highly-packaged, spun information that they receive is bland and biased. I recently re-encountered a saying familiar from my early working days: "We workers are like mushrooms. Leadership keeps us in the dark and feeds us s--t." I heard that expression countless times till I became a senior leader--interestingly, I never heard it after that.

Combine reasons 1, 2 & 3 and you have an inwardly-focused, uncurious company. Information is either packaged pablum from above, or internal gossip. Conduits to the outside--front-line customer service reps, retail clerks, B2B sales people--are drowned out by the inside talk. Marketing communications staffs engage with the external but are dedicated to sending out messages or countering negative news.

What we've created here is company-as-fortress. Suspicious of the outside, comfortable with colleagues, uncurious. Information is routinized and bleached of content and contrast. Clearly, there's a lot to be done to realize Kotter's prescription to bring the outside in. We'll begin discussing how in the next post.

Other posts in this series:
Part 1 Part 3 Part 4 Part 5

Related posts:
A competitive advantage: employees who spend their day talking to people
Time to start listening to front-line employees

Reading List:
Gary Hamel, "The Future of Management"
John Kotter, "A Sense of Urgency"

Tags:
change, innovation, leadership, management, communication

Time to rescue "corporate change" from cliché bucket

Every company recognizes the need to change, correct? There are so many failure stories describing the terrible consequences of companies standing still that no executive in her right mind would ignore the need to reinvent the business on a continuous basis. We hear this all the time:

"The only constant in our business is change."

Yeah, right. Even if the idea is understood on its surface, companies worldwide are doing a terrible job of implementing it. If you read the newspaper, outside of mergers and acquisitions, change occurs only when companies are in crisis.

In other words, only when the situation is so bad that it can no longer be ignored or rationalized away do companies take on the hard work of reinventing themselves. What does this mean? As Gary Hamel wrote in 2007's best business book:

...In recent years, entire industries have been caught behind the change curve. Television broadcasters and newspaper publishers, record companies and French vintners, traditional airlines and giant drug companies, American carmakers and European purveyors of haute couture--all have been struggling to rejuvenate seriously out-of-date business models. Sure, many of the companies in these industries will regain their footing--eventually. But in the meantime, billions of dollars and millions of customers will be lost. Such is the price of maladaptation. (p.42)

No CEO wants to squander billions of dollars of lost opportunity--not least because of the primordial urge to save one's own skin. Yet it doesn't happen. This week's series of posts takes on one large reason why change rarely happens without crisis, and a way to start a fundamental culture change that can help instill the ability to recognize opportunities and threats and move more quickly to address them.

The root of this thinking is John Kotter's great new book, "A Sense of Urgency." Kotter takes his lifetime of study of organizations and wonders why so many organizations are so complacent, or worse, running around frantically accomplishing nothing. I'd like to focus on one reason why:

...Organizations of any size or age tend to be too internally oriented. Even people who know this fact often underestimate the size of the problem and its consequences. The disconnect between what insiders see, fee, and think, on the one hand, and external opportunities and hazards, on the other, can be astonishing at times--even in organizations that are producing very good short-term results. (p.67)

Kotter's prescription for companies is to "bring the outside in." To inform their people and thinking with a knowledge of the environment outside the company's walls. That's what we'll elaborate on in our next post.

Other posts in this series:
Part 2 Part 3 Part 4 Part 5

Related posts:
Best business books of 2007
On "A Sense of Urgency"

Tags:
change, innovation, leadership, management, communication

A Mistake-Bank-perfect epigraph

I just unwrapped "Einstein's Mistakes" and this appears before the Preface:

Errors are the portals of discovery.
James Joyce, Ulysses

Is it time to downsize that big house?

Friends of ours, as their small business grew, moved up into a large, spacious house with a big deck and yard overlooking a creek. Business is still good, but this month they are moving back to the smaller house they used to live in.

The VP of Common Sense has from time to time floated the idea that we downsize our house as well. "Wouldn't it be great to live in a nice little Cape?"

And today's New York Times profiles people who are radically downsizing into "tiny homes" that measure 100 sq ft or less.

Rising energy prices and carbon-awareness are certainly impacting this thinking, but there are other factors as well. Bigger houses mean more stuff--furniture, wall hangings, rugs, toys (if you have kids). Keeping them clean is hard to do yourself. Maintenance costs are higher. And neighborhoods can be a factor--our friends found that their large-home neighborhood was too quiet. They rarely saw their neighbors, there weren't kids around. It was lonely.

The "little Cape" discussions in our house usually don't last long. But they keep coming back. Who knows? If you come visit us someday, you may have to sleep on the living-room couch.

(Photo: a Tumbleweed Tiny House)

Tags:

real estate, housing, environment, New York Times

Follow my Twitter updates

I know you've been hankering to read even more of my nuggets of wisdom :). Now my last 10 Twitter posts are on the sidebar of this blog. I'm at CTIA, and doing formal blog posts is difficult at best, so Twitter will be the best way to learn what I'm seeing at the show. If you want to follow me over on Twitter, I'm at jmcaddell.

Behind the Google Chrome comic

The New York Times discusses Google's decision to use a comic to illustrate the thinking and concept behind the new Chrome browser, including an interview with Scott McCloud, the creator of the comic. A notable quote:

“I don’t think the potential for comics in nonfiction has been exploited nearly as much as it could be,” [McCloud] said. And what they can teach people should not be underestimated. “When you’re on an airplane and your life depends on it,” Mr. McCloud said, “comics are going to tell you how to open an emergency exit.”

(Photo: a page from the Google Chrome comic)

Related post:
The Chrome Comic book
On "Understanding Comics"

Tags:
communication, comics, visual

More Friday randomness

If you love music and occasionally like to peek behind the curtain to learn more about how a recording is made, then this post by Thomas Dolby is essential reading.

If your only recollection of TMDR is "She Blinded Me With Science" or "Airhead" you'd do well to check out all his discs. He remains an excellent and creative musician. And it's wonderful that he lets us in on how he works.

Reading this reminds me that I need to buy the CD of Dolby's "The Flat Earth." It's one of those titles that I had on vinyl but never replaced when I went to CDs.

UPDATE: Just downloaded the MP3 of "The Flat Earth." Ain't e-commerce great?

Creative Destruction?

I'm thinking of the phrase popularized by Joseph Schumpeter. He writes, in Capitalism, Socialism and Democracy:

The opening up of new markets, foreign or domestic, and the organizational development from the craft shop and factory to such concerns as U.S. Steel illustrate the same process of industrial mutation–if I may use that biological term–that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one. This process of Creative Destruction is the essential fact about capitalism. It is what capitalism consists in and what every capitalist concern has got to live in. . . .

I took the photos below last week near my house. Times gave gotten tougher--there are more of these boarded-up places around. I'm planning to revisit these locations over the next year or so and see what, if anything, these two sites turn into.

32nd Street, Camp Hill, PA. 28 August 2008

Carlisle Pike, Silver Spring Township, PA. 28 August 2008

Tags:
creative destruction, renewal, failure,

HBR adds to business failure learning library with "7 Ways to Fail Big"

This article in the September 2008 issue of the Harvard Business Review, by Chunka Mui and Paul Carroll, discusses seven corporate worst practices and relates business stories that demonstrate them. The practices are:

1. The Synergy Mirage - companies justify acquisitions by touting synergies that just aren't there, or aren't there in enough volume to make the price worthwhile. (Quaker buys Snapple, Unum and Provident merge.)

2. Faulty Financial Engineering - companies borrowing from the future to make today's revenue look better. Enron, anyone? How about Green Tree Financial?

3. Stubbornly Staying The Course - Kodak, slow to react to digitization of photography, and Pillowtex, which failed to see the trend in outsourcing textile manufacture.

4. Pseudo-Adjacencies - the authors point to Oglebay, a company that thought it could deploy its expertise in shipping limestone to actually quarrying it. Result? Chapter 11.

5. Bets on the Wrong Technology - for example, FedEx ZapMail.

6. Rushing to Consolidate - too often mergers focus on the top-line increases but neglect "increased complexities [that] may lead to diseconomies of scale."

7. Roll-ups of Almost Any Kind - As with Loewen Group, a funeral-home aggregator, roll-ups can't withstand downturns and usually provide a short-term revenue bump at the expense of the long term (see #2).

Leaders, you have been warned. Avoid these at all costs!

Related Posts:
NASA learns to avoid its worst practices in safety
Worst practice learning means our favorite business bestsellers are all wrong

Tags:
worst practice, strategy, learning, mistakes, Harvard Business Review

Buyer's hubris harms revenue growth from acquisitions

Accenture recently released a report entitled “Leveraging Sales & Marketing to Maximize the Value of Mergers and Acquisitions.” This report quantifies what many people have felt about M&A—as far as growing revenue long-term, it’s not a successful strategy. Among Accenture’s findings was that while 56% of companies studied grew faster than their industry groups in the two years before they made a large acquisition, only 33% duplicated that feat in the two years following the year the deal closed.

The report lays out reasons this is so: disruption to customers, loss of key customer-facing staff, unexploited opportunities to market to new customers. (They also provide suggested remedies—they are consultants, after all.)

After living through three significant acquisitions (being bought twice, buying once), I believe there is a deeper reason that drives what Accenture observed—buyer’s hubris.

In spite of rhetoric like “merger of equals,” “best of breed,” and so on, in my experience buyers develop a mindset that they are superior to the company they purchased—smarter, with better products, processes, etc. (Otherwise, perhaps the shoe would be on the other foot!) This is especially true when the merger consolidates the businesses of two once-competing companies.

I recall pleading with one acquirer to retain the name of our company’s flagship product—it had brand value and keeping it would signal to the large customer base that the product itself wouldn’t be retired. At first, the integrated marketing group (led by the buyer’s VP of marketing) thought this was a crazy idea. But, after much discussion, the group reluctantly agreed. That acquiring company no longer exists, but the product—with that old name—lives on and supports many of those same customers.

Buyer’s hubris extends to the acquired company’s customers. Rather than being carefully cultivated, they are frequently taken for granted. (What they need is to be resold on the new company. This is rarely done, in my observation.)
Similarly, the people who support those customers are seen as suspect. Those people may have competed—in some cases, successfully—against the buyer’s sales team. (Perhaps sour grapes is a reason the customers are not treated as carefully as need be.) At any rate, it’s difficult to trust former competitors. As a result, they are not welcomed; their opinions are not solicited.

When consolidating a market, real humility on the buyer’s part is required. There’s a lot of human nature obstructing that, and perhaps it’s unrealistic to think hubris can be overcome. Until that day, however, we’ll continue to read studies documenting poor growth results from mergers.

(Thanks to New York Times Dealbook for the pointer to this research.)

Related posts:
Ultra-competitive mindset costs dealmakers

Tags:
acquisitions, integration, psychology, growth

The Chrome Comic Book

OK, so everyone is writing about Chrome, the new Google browser. But the most innovative thing about it so far is the comic book used to explain its objectives and design.

Comic books are great communicators. They provide a very flexible palette for explaining things (as Google did) or telling stories. If you're interested in creating comic books for business use, you should check out these resources:

"Understanding Comics" by Scott McCloud--the best reference on what a comic is and how it works.

Bitstrips.com - a very cool place to make your own comics if, like most of us, you can't draw.



Josh Neufeld's A.D. - an epic retelling of the story of Hurricane Katrina, in comic-book form.

(Hat tip to Patrick Byers at Responsible Marketing)

UPDATE 9/3/08: Just learned that Scott McCloud (discussed in this post) actually drew the Google Chrome comic. I thought the drawings looked familiar!


Related posts:
Josh Neufeld's story from The Mistake Bank
About "Understanding Comics"


Tags:
communication, comics, visual