By John C. Maxwell
It's hard to imagine a time when Samuel L. Jackson wasn't an A-List celebrity, but twenty years ago he was a frustrated, little-known actor who couldn't seem to breakthrough. Despite his prodigious talents, as of his 41st birthday Jackson could claim nothing more notable than a few minor cameos. Intensely discouraged, he turned to cocaine and quickly developed a dependency on the drug. Within a year, he hit rock bottom. When his wife and eight-year old daughter discovered him passed out on the kitchen floor, there was no denying that he had lost control.
After finding Jackson unconscious, his wife LaTanya immediately checked him into a rehabilitation clinic. For the first time, Samuel L. Jackson was forced to face up to his anger and discouragement, and he began to make life changes. To his credit, Jackson submitted himself to the recovery process, and with the encouragement of his family, he was able to break his addiction. Less than twelve months later, he finally achieved stardom for his supporting role in Jungle Fever. From then on, his reputation grew steadily, and his career flourished. Today, he is regarded as one of Hollywood's finest and hardest-working actors.
What can we learn from Samuel L. Jackson's journey?
No one is immune to discouragement.
Regardless of your personality, potential, or position you will encounter discouragement at some point in life.
Our response to discouragement holds the key to our future.
I've noted two types of people in the world: splatters and bouncers. When splatters hit the bottom they land with a thud and stick like glue. No matter what you try to say and do, there's no use trying to pick up a splatter who has fallen flat. Bouncers on the other hand, pull themselves together and rebound after hitting the bottom. Give them a little bit of encouragement, and they will ride it back up to the top.
Everyone who falters has a choice: are you going to get up or give up? The difference between the splatters and bouncers lies in their attitude. Splatters bemoan their fate and blame others for their problems. Bouncers learn from their failures and find supporters to help them recover.
Our influence can be pivotal in rescuing others from self-destructive discouragement.
Imagine if Samuel L. Jackson had not been married, or if the people who cared about him had not intervened on his behalf. He might never have checked into rehab, he might never have beaten his drug addiction, and the world might never have been entertained by his acting. Thankfully for Jackson, he was surrounded by people who loved him and encouraged him as he recovered from substance abuse.
In leadership, inevitably you will cross paths with someone who is downtrodden. When you do, your encouragement can be a lifeline to save them from spiraling into self-destructive despair. Here's how you can counteract discouragement:
1) Guide Them to the Right Perspective
People who are discouraged oftentimes seem trapped under a black raincloud. Everywhere they turn appears to be dark, and they cannot see rays of light anywhere. As a leader, you can point to the positives and help them to keep hope alive. In additional, you can assist the discouraged person in properly interpreting setbacks. Remind them that just because they experienced failure doesn't mean they are a failure.
2) Connect Them to the Right People
You may encounter people whom you have limited ability to encourage because you can't relate to their area of discouragement. For instance, if you've never been in sales, it can be hard to cheer up a dispirited salesperson. However, within your network, you may know someone who has undergone similar frustrations in sales and would be glad to share some encouragement from his or her experience.
Also, the depth of someone's discouragement may necessitate professional assistance. In the middle of his drug addiction, Samuel L. Jackson didn't need a pep talk from a buddy as much as he needed medical care and attention from a licensed counselor. Sometimes the best service you can do for someone who has hit rock bottom is to persuade him or her to get help.
3) Restore Them with the Right Words
Dr. Martin Lloyd Jones, at one time the greatest heart surgeon in England, says this in his excellent work, Spiritual Depression, It's Cause and Cure: "Most of your unhappiness in life is due to the fact that you are listening to yourself rather than talking to yourself." Think about it. When you're discouraged, you wake up in the morning and right away, there are streams of thought coming into your mind. You haven't invited them; you didn't ask for them; you are not consciously doing anything to produce them; they just come! They start talking to you.
As a leader, you can help people filter unfounded fears and unwarranted worries from their inner dialogue. After doing so, you have the opportunity to speak affirming and encouraging words that can take the place of negative thoughts. Once people change their thinking, their attitudes and actions eventually follow.
| Q&A with: | Richard S. Tedlow |
| Published: | March 29, 2010 |
| Author: | Martha Lagace |
Reviewing a spectacular business failure, we often wonder why the CEO didn't see trouble coming. It was so obvious.
Why didn't Digital Equipment Corp. CEO Kenneth Olsen see the PC as a threat to minicomputers? Did Coca-Cola's Roberto Goizueta really think New Coke was a good idea? How long did Henry Ford think he could keep selling black-only Model Ts?
"Denial has always been a problem," writes Harvard Business School historian Richard S. Tedlow in a new book, Denial: Why Business Leaders Fail to Look Facts in the Face-and What to Do About It. "What is different today is that the cost of denial has become so high. We are living in a less forgiving world than we once did."
We asked Tedlow to discuss how denial can cripple a company, and what can be done about it.
Martha Lagace: What is the meaning of denial as you conceptualize it in your book?
Richard Tedlow: Denial is the unwillingness to acknowledge and deal with reality. It is the choice—sometimes willful, sometimes unconscious, often semiconscious—to enter an "as if" world, to act "as if" facts are not facts because they are difficult to face.
Sigmund Freud referred to denial as a combination of "knowing with not knowing," a phrase that has been defined as a "state of rational apprehension that does not result in appropriate action." In her brilliant study of the disastrous decision to launch the space shuttle Challenger in 1986, sociologist Diane Vaughan used a similar phrase, "seeing but not seeing."
From the consulting couch to the launch pad, denial is ubiquitous. You find it in individuals, in teams, in companies, in industries. Indeed, you find it in entire nations and economies. Look at the invasion of Iraq, or the dot-com bubble of the 1990s, or the residential housing and commercial real-estate bubble of the past few years, or the fantasy that the market for derivatives could somehow regulate itself—the consequences of all we are dealing with this very day.
Denial is not merely being wrong. Everybody makes mistakes. Denial is falling into a cognitive Bermuda Triangle. Everything is clear, yet you lose your bearings.
Q: How pernicious a problem is denial in business today?
A: Denial has always been a problem. What is different today is that the cost of denial has become so high. We are living in a less forgiving world than we once did.
Here's an example. General Motors had a dysfunctional business model for decades. Shrewd observers knew it. The company did not transform itself because it could continue to coast along, living in the reflected aura of its past glory.
GM's leadership acted in 2008 as if it were 1998 or 1988. It wasn't. And the inconceivable happened—this once-great firm went bankrupt.
Q: Given that a CEO's role is often to keep the company energy high and to stoke optimism among employees, are CEOs by virtue of their position especially prone to denial? How could they better blend optimism and realism?
A: Accentuating the positive for employees or others is not denial, as long as you yourself are fully confronting reality. In fact, there may be times when it is prudent, even necessary, to put on a brave face.
On the other hand, convincing yourself that things are better than, or different from, what they really are is never prudent, and often disastrous. So the key is to be ruthlessly realistic with oneself. As I hope the book makes clear, this is one of the greatest challenges for any CEO.
Q: The Innovator's Dilemma by HBS professor Clayton Christensen illustrated how formerly successful incumbents can be blindsided by more nimble competitors. Do you see denial as a particular risk for large, established organizations as much as for young, entrepreneurial firms? Is denial a predictable downside to success?
A: Denial is more endemic to older firms because it so often results from stubborn adherence to a once-accurate perception of reality that has gradually become obsolete. In the words of John Kenneth Galbraith, one's view of the world "remains with the comfortable and the familiar, while the world moves on."
Henry Ford saw more clearly than most the widespread hunger for inexpensive, motorized transportation. That vision made great successes of him and his company. But eventually, when sales of his breakthrough, no-frills Model T began to flag because car buyers became interested in style, not just functionality, Ford refused to face facts. He denied that the world had moved on. And his once-dominant company paid the price.
Established firms, which by definition have enjoyed some measure of success, are more likely to deny new realities because the old ones worked well for them. Young enterprises are not similarly weighed down by the dead hand of history. But that does not mean that they are immune to denial—far from it.
Q: Companies you describe as crippled by denial include the supermarket chain A&P, the retail conglomerate Sears, and the short-lived delivery experiment Webvan. How did these companies succumb to denial?
A: To paraphrase Tolstoy, every company in denial denies in its own way. To oversimplify a bit, Sears was an example of a firm leaving its market, while in A&P's case, the market left the firm. Both were like the proverbial frog being boiled in a gradually warming pot of water. By the time they realized what was happening, the opportunity for confronting the facts and doing something about them had passed.
Webvan is an example of the fact that, as noted above, being young and entrepreneurial is no safeguard against denial. Webvan's backers convinced themselves that the dot-com gold rush was a permanent new reality rather than just another bubble. They were also blind to the obvious flaws in their business model—defects that numerous outsiders noted from day one. It was a classic case of wishful thinking.
Q: How can managers without executive authority spot the warning signs of denial and help reverse the process before it's too late?
A: It is often middle managers who are best acquainted with new realities. As Andy Grove has noted, these are the people who are out on the front lines while top management is ensconced at the home office, cushioned from the daily reality of the rough-and-tumble of the marketplace. "Snow," he wrote in Only the Paranoid Survive, "melts first at the periphery." Problems, in other words, appear initially at the borders.
Unfortunately, when middle managers actually raise these problems—especially those that contradict the firm's prevailing assumptions and conventional wisdom—they are often ignored, or worse. Henry Ford, for example, fired the executive who dared "speak truth to power" about Ford's Model T myopia—and this man, Ernest Kanzler, was his relative! (He was the brother-in-law of Ford's only child, Edsel.)
A firm that deals with bad news by literally or figuratively dismissing the person who bears it is both in denial and in trouble. Not only will that news go unheard but potential truth-tellers will quickly learn to keep quiet. Or get out.
Q: What is it about IBM and Intel that saved them from the fate of other companies that fell victim to denial?
A: One key factor in IBM's 1990s turnaround (after having denied its way through the PC revolution that it helped create in the 1980s) was its decision to bring in an outsider as CEO. Lou Gerstner was able to reimagine and reshape what had become a calcified corporate culture. The fact that he was alien to that culture, and vice versa, was enormously helpful.
You don't necessarily need an outsider to provide an outside perspective, however. Occasionally a creative, clear-headed insider can break free of both his company's and his own preconceptions by adopting a novel point of view.
This was demonstrated by Andy Grove in 1985, when he and his boss, Gordon Moore, were fighting what appeared to be a losing battle against an impossible business dilemma. In the midst of their aimless wandering, Grove asked Moore, "If the board kicked us out and brought in new management, what do you think they would do?" Suddenly the answer to Intel's dilemma became clear to both men. Grove's deceptively simple question stripped the blinders of denial from their eyes. It allowed them to see the situation afresh, face it squarely, and make what had instantly become the obvious choice.
Grove's question did not make either man smarter. Both were, and are, smart enough. So were the men who had led IBM to near-disaster in the 1980s. Fighting denial is not a matter of IQ. It is a matter of point of view.
By Richard S. Tedlow
The A&P had for most of its history been the low-price-grocery leader. But this is a position you can only hold if your costs are lower than your competitors. Through its steady disinvestment in its stores, through its high-priced union contracts, through its ill-advised store-site-location practices, and through a dozen other avoidable errors the A&P lost that position. This fact it learned the hard way in 1972 when it launched a price war.
The hostilities were conducted under the banner of WEO, which was supposed to stand for "Where Economy Originates." This ugly, clumsy slogan, which sounded like "we owe," heralded a catastrophic year for the company. Sales increased but losses skyrocketed. A&P lost the price war it started, proving only that it could give away the store.
The most puzzling aspect of the price war is why A&P initiated it. During 1971, published figures—please note that everyone knew this; none of it was secret-indicated that the A&P's stores were inferior to those of the four other leading chains. Sales per employee, for example, were almost 45 percent lower than at Jewel. Sales per store were almost 60 percent lower than at Food Fair.
What did A&P's stores look like in the early 1970s? Here are the recollections of an enraged top executive who started out with the company as a part-time store clerk in the summer of 1938:
"After almost twenty years of steady decline and cutbacks, a debilitating paralysis had overtaken most stores in a growing number of divisions. The symptoms were visible and similar. These stores had few customers and did little business, but were open long hours, often seven days and six nights. These stores were obviously short of help, shelves were poorly stocked. What carriages were on hand were usually out in the parking lot. Only one of the six check stands was operating, with no bagger to help shorten the checkout wait. Advertised sales features were often missing from the shelves, dairy, produce, and meat cases. Most times, and particularly at night, no employees were available to assist customers seeking a cut of meat not … on display, or to check backroom stock for sale items missing from shelves, or even to scale and price produce items or grind A&P's bean coffees. Cleanliness and courtesy standards, freshness and quality standards, shelf-stocking and checkout standards, and store employee morale all deteriorated at the same grinding steady pace."
Take a good long look at that last sentence. That "same grinding steady pace." It was the steady downward slide that made it possible year after year to deny that things were getting as bad as they became. I am old enough to remember what an A&P looked like in the early 1970s. The contrast with the mid-1950s was stark. But it had gone to pieces by degrees. Moreover, many things went wrong, not one big thing. The cumulative effects of the slow collapse were easy to deny.
The sad story of denial at the A&P leaves us with a set of questions. What if Bofinger had lived? The seeds of destruction were sown during Ralph Burger's tenure, but he was not around at harvesttime. What if it had been Bofinger rather than Burger?
Perhaps it would not have made much difference. Bofinger had a lot of operating experience that Burger did not, but he was still very much part of the company's gerontocracy. What if John Hartford had had a son who was bound and determined that he could post a better record at the company than his father did? That is what happened at IBM. Thomas J. Watson Sr. had built IBM from a motley collection of cats and dogs into a uniquely powerful firm in a growing industry. His equally ambitious son pushed the company to its limits, presiding over the creation of the IBM 360 in 1964, one of the greatest new-product introductions in American business history. In that case, things would, in all probability, have been different. One person with power—the CEO—can make a key difference in even the biggest, stodgiest of bureaucratic companies.
Why did the company not look more deeply into the quality of its sales and earnings? Why didn't it think more strategically about its reinvestment policy? Why did it pay out so much money in dividends? Why didn't it devote more attention to its executive-development program? When the company went public in 1958, it put six outside directors on its board. One of these was Donald K. David, dean emeritus of the Harvard Business School. Surely he could have designed an executive-education program that could have fast-tracked young talent.
More questions could be asked. They are not easy to answer. My own view is that the closest we will get to an answer is the quotation in the title of this chapter: "They just didn't believe these things were happening." That statement, made by a former A&P executive in 1973, captures the essence of denial. You didn't have to be a genius to see "these things." Thanks to the transparency of retailing, all you had to do was to walk into a store and try to buy a steak, try to buy broccoli, watch your child scream for Tony the Tiger when all you could buy was Ann Page cereal, wait for what seemed like ages at the checkout counter, and so on.
This answer raises another question. Why didn't they "believe these things were happening"? Because, I think, they saw everything through the lens of their history of market leadership. They felt that because they had been leaders for so long, every problem was an outlier, a blip on the screen, not a harbinger of things to come.
All over the country, grocery retailers in the 1950s and 1960s were moving faster and looking better than the A&P. But for a while, especially during the 1950s, the A&P was growing smartly as well. What the company collectively denied was that it is not okay merely to grow. If you grow in absolute terms but decline relative to other firms in your industry, you are going to sacrifice the sharpest, most ambitious executives you have. The less talented will hang around.
The A&P was not destroyed by fire. It rusted. This is the same process, but less dramatic, slower, and therefore easier to deny. "This is the way the world ends," T.S. Eliot wrote in "The Hollow Men." "Not with a bang but a whimper."| Published: | February 22, 2010 |
| Author: | William George |
| Q&A with: | Youngme Moon |
| Published: | April 26, 2010 |
| Author: | Sarah Jane Gilber |
Want to be different? Change your world, not your tactics.
As HBS professor Youngme Moon argues in Different: Escaping the Competitive Herd, competition too often breeds conformity. Yet there is plenty of space for adventurous companies keen to break free of the pack.
"In a nutshell, the book is an exploration of what it means for a business to be different, to be meaningfully different, to be different in a way that makes a difference to consumers," she says.
"Differentiation is a way of thinking."
An authority on innovative consumer marketing strategies, Moon has published case studies on companies including Microsoft, Sony, and Intel, and consults with consumer marketing companies in the area of innovation. She also serves on the board of directors of Avid Technology and the board of governors of the American Red Cross.
We asked her how companies can be truly different.
Sarah Jane Gilbert: What led you to write Different?
Youngme Moon: I wrote this book because in business today there is a huge disconnect between the way we talk about the concept of differentiation and the way it actually plays out in the market.
What I mean by this is, in our business schools, we preach the importance of differentiation; in our executive suites, we build our strategies around the concepts of differentiation. But when most consumers leave their homes to purchase something as prosaic as a bottle of shampoo or a carton of juice or a pair of sneakers, they are confronted with a dizzying array of options to choose from, options that are notable, not for their difference, but for their apparent sameness.
And so there is a disconnect between the way companies talk about their products and brands, and the way consumers ultimately experience them.
Q: How does this "disconnect" between marketers and their customers occur?
A: In my research, what I learned was that despite the fact that most companies are deeply committed to the concept of differentiation, at any given moment they are also intensely aware of what their competitors are doing, and it is this competitive vigilance that ultimately pushes them down a path of conformity. They will notice, for example, that competitor A has decided to offer a couple of new features in this market, or that competitor B has raised its prices in that market. And it is these observations that make it very difficult for them to resist the urge to follow suit. Competitive pressure, I argue, breeds conformity.
Q: You discuss consumer devotion to a product or service in your chapter on "category blur." What do you see happening to brand loyalty?
A: There is no question in my mind that, when it comes to many consumer brands and services, overall brand loyalty is on the decline. In the book, I outline a number of reasons for this; one of them has to do with the proliferation of products and services available to us.
Many years ago, I had a boyfriend who considered himself a pretty classy fellow because he only ate Häagen-Dazs ice cream, but the fact of the matter is, it's easy to be a Häagen-Dazs loyalist when Häagen-Dazs is the only major player in the premium ice cream game. When the market is packed with premium clones, Häagen-Dazs loyalists are by definition going to be harder to find. My dad used to swear by Sony televisions; well, I went shopping for a big-screen television recently and I have to tell you, standing before that huge wall of big-screen TVs, it struck me how old-fashioned my dad's fidelity to a single brand would seem today.
"As the number of products within a category multiplies, the differences between them start to become increasingly trivial."
The truth of the matter is, my father never had to choose a credit card affiliation out of a deluge of credit card offers in his mailbox. My mother never had to pledge allegiance to a single brand of yogurt out of a vast and constantly rotating selection of yogurts. In so many consumer categories today, we are confronted with so many choices, so many brands, and so many products—that we often experience the category as a big "blur." In this context, it should not be a surprise that brand loyalty is harder than ever to come by.
Q: What is "hyper-maturity?"
A: It takes a period of time before a category reaches the point that we begin to experience it as a blur. When a product category is nascent, it tends to be dominated by a much smaller set of products, or even a single product. The original PowerBar. The original Walkman. Coke and Pepsi. As the category evolves, however, the number of product alternatives within the category tends to grow exponentially. Today, PowerBar alone produces more than 40 different varieties of its energy bar, and the energy bar category has grown to include more than 60 assorted brands. Today, Sony produces more than two dozen variations of its Walkman, and the personal stereo category consists of hundreds of options. In fact, one quick way to gauge the maturity of a category is to simply track the number of product variants in it.
And yet it would be a mistake to assume that product proliferation creates product diversity. On the contrary, as the number of products within a category multiplies, the differences between them start to become increasingly trivial, almost to the point of preposterousness. Try it. Pick a random product category such as bar soap or running shoes, and make a list of what is different between the products within the category. The list may be long, but an overwhelming number of those differences will almost certainly be trifling.
When a category reaches this stage—the stage at which product differentiation is experienced by most consumers as product sameness, the stage at which the category appears to be filled with what I refer to as "dissimilar clones"—it has reached a stage of hyper-maturity.
Q: Does your book include examples of companies that have broken free from the "sea of sameness?" How did they differentiate themselves to remain competitive?
A: Against this backdrop of overwhelming conformity, it is harder than ever for a business to be a positive deviant. And so, in a nutshell, the book is an exploration of what it means for a business to be different, to be meaningfully different, to be different in a way that makes a difference to consumers.
Along the way, yes, I offer a number of examples. In fact, in the book, I contend that if one were to identify the most compelling business stories of the past two decades, a disproportionate number of these companies, in category after category, achieved their success simply by figuring out a way to be radically and dramatically different from the rest of the crowd. The idea in the book is not only to celebrate these mavericks; it is to deconstruct and demystify what they've accomplished in a manner that makes their achievements understandable and accessible to the rest of us.
Q: How does a company go about making changes when trying to be different? How can marketing managers get started?
A: My answer here is difficult to distill into a sentence or two, so I urge you to turn to the book if you want an in-depth discussion of this. However, I will say this: Differentiation is not a tactic. It's not a flashy advertising campaign; it's not a sparkling new feature set. It's not a laminated frequent-buyer card or a money-back guarantee. Differentiation is a way of thinking. It's a mindset. It's a commitment. A commitment to be different, not in a superficial, I'm-going-to-offer-a-couple-of-features-my-competitor-doesn't-offer kind of way, but in a way that is fundamental and near impossible to replicate.| Published: | September 14, 2009 |
| Author: | Sean Silverthorne |
If the ongoing social networking revolution has you scratching your head and asking, "Why do people spend time on this?" and "How can my company benefit from the social network revolution?" you've got a lot in common with Harvard Business School professor Mikolaj Jan Piskorski.
Only difference: Piskorski has spent years studying users of online social networks (SN) and has developed surprising findings about the needs that they fulfill, how men and women use these services differently, and how Twitter—the newest kid on the block—is sharply different from forerunners such as Facebook and MySpace. He has also applied many of the insights to help companies develop strategies for leveraging these various online entities for profit.
"Online social networks are most useful when they address real failures in the operation of offline networks," says Piskorski.
They can address some basic search failures: "It's hard to know what my friends are up to, but online I can catch up with them quickly." But they can also fix bigger search shortcomings, such as those related to establishing new relationships.
"If I am looking for someone who can help me with my start up, I would ask my friends if they know such a person, and if they don't, I would ask them to inquire with their friends. The problem is that those friends of friends don't always have an incentive to help, so they won't work on my behalf. But here is where LinkedIn comes in handy—there I can go and search through the network of my friends of friends and find the person I am looking for."
Online social networks also can improve people's ability to use offline social networks as "covers." This is very salient on LinkedIn. There, people display a lot of information about their careers, which makes them available to headhunters and other employers as passive candidates. But they also establish relationships with others to stay in touch with peers and to make new contacts. This network allows them to establish plausible deniability that they are not looking for a job, even if they are.
With these general ideas of why people use these sites, Piskorski examined weblogs of social networking sites (not LinkedIn) to see what people did when they were online. "I just wondered why people spend so much time on these sites; what do they do?"
The biggest discovery: pictures. "People just love to look at pictures," says Piskorski. "That's the killer app of all online social networks. Seventy percent of all actions are related to viewing pictures or viewing other people's profiles."
Why the popularity of photos? Piskorski hypothesizes that people who post pictures of themselves can show they are having fun and are popular without having to boast.
Another draw of photos (and of SN sites in general) is that they enable a form of voyeurism. In real life there is a strong norm against prying into other people's lives. But online enables "a very delicate way for me to pry into your life without really prying," the researcher says. "Harvard undergrads do it all the time. They know all about each other before they meet face to face. 'Oh, you're that guy that did that internship in D.C. last summer.' "
Piskorski has also found deep gender differences in the use of sites. The biggest usage categories are men looking at women they don't know, followed by men looking at women they do know. Women look at other women they know. Overall, women receive two-thirds of all page views.
"This was a very big surprise: A lot of guys in relationships are looking at women they don't know," says Piskorski. "It's an easy way to see if anyone might be a better match." Again, online networks act as cover.
Piskorski says these findings do not hold for one network: Twitter.
Looking at who uses Twitter, which restricts users to 140-character messages, Piskorski and student-researcher Bill Heil (HBS MBA '09) found that 90 percent of Twitter posts were created by only 10 percent of users. This was not surprising, he says, because the technology uses words without photos to communicate.
"Only the people who are willing to put themselves out there publicly in words to people who they may not know will use Twitter. Some people will find this incredibly appealing, others will find this too scary."
"Women actually say things, guys give references to other things."
But the remarkable finding was the gender dynamics. According to the research, there are more women on Twitter than men, women tweet about the same rate as men, but men's tweets are followed by both sexes much more than expected by chance.
"That was stunning because on all these other social networks you see the opposite," Piskorski says.
Piskorski and Heil are now doing a follow up study to see whether this is because there are no pictures on Twitter or because men and women say different things. Early results suggest that women create fewer links in their tweets than men. "Women actually say things, guys give references to other things." But even accounting for these differences, the researchers still saw differences between how men and women are followed, perhaps pointing to a fundamental representation of the role of men and women in society.
To continue on the issue of online representation of offline societal trends, Piskorski also looked at usage patterns of MySpace. Today's perception is that Twitter has the buzz and Facebook has the users. MySpace? Dead; no one goes there anymore. Tell a marketer that she ought to have a MySpace strategy and she'll look at you like you have a third eye.
But Piskorski points out that MySpace has 70 million U.S. users who log on every month, only somewhat fewer than Facebook's 90 million and still more than Twitter's 20 million in the U.S. Its user base is not really growing, but 70 million users is nothing to sneeze at.
So why doesn't MySpace get the attention it deserves?
The fascinating answer, acquired by studying a dataset of 100,000 MySpace users, is that they largely populate smaller cities and communities in the south and central parts of the country. Piskorski rattles off some MySpace hotspots: "Alabama, Arkansas, West Virginia, Oklahoma, Kentucky, Florida."
They aren't in Dallas but they are in Fort Worth. Not in Miami but in Tampa. They're in California, but in cities like Fresno. In other words, not anywhere near the media hubs (except Atlanta) and far away from those elite opinion-makers in coastal urban areas.
"You need to shift your mindset from social media to social strategy."
"MySpace has a PR problem because its users are in places where they don't have much contact with people who create news that gets read by others. Other than that, there is really no difference between users of Facebook and MySpace, except they are poorer on MySpace." Piskorski recently blogged on his findings.
Corporate marketers by and large struggle with how to use social networking sites to reach potential customers, says Piskorski, who advises companies on this subject. The problem is that execs think of online social networks as social media and treat it as another channel to get people to click through to a site.
It doesn't work that way.
For one thing, findings show that people don't click through on advertising on social networks. "A good analogy is to imagine sitting at a table with friends when a stranger pulls up a chair, sits down, and tries to sell you something while you are talking to your friends. You will not get far with a strategy like this."
"To be successful, you need to shift your mindset from social media to social strategy," he continues. A good social strategy essentially uses the same principles that made online social networks attractive in the first place—by solving social failures in the offline world. Firms should begin to do the same and help people fulfill their social needs online.
To continue the earlier analogy, "You should come to the table and say, 'Here is a product that I have designed for you that is going to make you all better friends.' To execute on this, firms will need to start making changes to the products themselves to make them more social, and leverage group dynamics, using technologies such as Facebook Connect. But I don't see a lot of that yet. I see (businesses) saying, 'Let's talk to people on Twitter or let's have a Facebook page or let's advertise.' And these are good first steps but they are nowhere close to a social strategy."| Published: | August 17, 2009 |
| Author: | John Quelch |
Older Internet users may remember the battles over the commercialization of the Web in the early 1990s, when the first Mosaic browser was introduced. Back then, pioneering adopters passionately condemned the first Web advertisers and tried to bring down their sites with "flaming" attacks. The fight was lost as consumers voted for free information supported by advertising over subscription services.
Ironically, online advertising and the commercialization of the Web achieved important goals of the resisters: to preserve the Web as a medium for free publishing and communications. A recent TNS study reported the leading activities of Internet users as: used a search engine to find information (81 percent); looked up the news (76 percent); used online banking (74 percent); looked up the weather (65 percent); researched a product or service before buying it (63 percent); visited a brand or product Website (61 percent); paid bills (56 percent); watched a video clip (51 percent); used a price comparison site (50 percent); listened to an audio clip (44 percent ).
"Social networks and the easy connections they facilitate are transforming social life and have helped to elect a President."
All of these activities either are subsidized by advertisers, or take the place of traditional advertising, information search, and purchasing and banking transactions. Free access to information entertainment, along with speedier and more convenient transactions, are a great deal for consumers. Social networks and the easy connections they facilitate are transforming social life and have helped to elect a President. They also increase productivity in the larger economy.
How can we quantify the economic impact of the Internet? A recent study we prepared with Hamilton Consultants for the Interactive Advertising Bureau uses three methods to value the contribution of the advertising-supported Internet to the U.S. economy:
The advertising-supported Internet also helps the economy by fostering innovation, entrepreneurship, and productivity, particularly among small businesses that create most new jobs in the U.S. In addition, larger companies in this sector, such as Cisco, Google, or Adobe, have been a haven of relative stability through the current economic downturn and boost the U.S. balance of trade through their global sales.
"The advertising-supported Internet also helps the economy by fostering innovation, entrepreneurship, and productivity."
Consider also the social benefits of the Internet, harder to quantify but including the power of access to information as well as greater flexibility in balancing work and family obligations through telecommuting. The economic downturn is accelerating consumer interest in social networks and online communities as a source of support. And 19 percent of all U.S. marriages are now the result of bride and groom meeting via the Internet.
When regulators start trying to constrain the Internet, let's be aware of its enormous and ever-increasing economic and social impact. The Internet is an economic powerhouse that drives U.S. competitiveness and productivity.
Editor's Note: Harvard Business School professor John Quelch writes a blog on marketing issues, called Marketing Know: How, for Harvard Business Online. It is reprinted on HBS Working Knowledge.
| Q&A with: | Robert D. Austin, Richard L. Nolan, and Shannon O'Donnell |
| Published: | May 11, 2009 |
| Author: | Martha Lagace |
Rising star Jim Barton has decidedly mixed feelings after being selected as the new chief information officer at the fictional IVK Corporation. On the one hand, he lacks an IT background; on the other, he's ambitious and up for a challenge. And a challenge it is: When Barton takes over as CIO, his company badly needs a jolt of energy and expertise to grow and to resuscitate its declining stock price. The chief executive who promoted Barton is hopeful but hard-nosed; and Barton's IT group—while talented and tech-savvy—is impatient, even borderline dysfunctional. So begins Barton's wild ride and ultimately an excellent journey to learning effective leadership skills in The Adventures of an IT Leader (Harvard Business Press).
According to the novel's creators, a fictional approach allowed them to blend real-life incidents they had encountered as managers, consultants, and educators working with a diverse set of companies.
"In this way, we could pool all this knowledge and distill it down to the essential principles that CIOs can generally apply, regardless of industry or size of firm, while describing 'realistic' and recognizable situations."
Co-writers Robert D. Austin and Richard L. Nolan are professors at Harvard Business School while Shannon O'Donnell is a consultant with Cutter Consortium's Innovation Practice and a PhD fellow at Copenhagen Business School. The three teamed up via email for the following Q&A. An excerpt from The Adventures of an IT Leader appears afterward.
Martha Lagace: It's a clever idea to tell your story through the fictional character of Jim Barton, a fledgling CIO. Why describe CIO challenges through fiction?
Rob Austin, Dick Nolan, and Shannon O'Donnell: Our decision to use fiction opened up a host of opportunities for inviting reader engagement. For the professionals, our story of Jim Barton often mirrors their own life experience, and has prompted many real CIOs to say to us "this is my life," "this book is about me," even (from one) "how did you find out about this?" The story also provides a context apart from the complexity and sensitivity of their own company; this allows executives to engage in important discussions about, for example, risk trade-offs and relationships with peers, subjects that might be too sensitive in their own company contexts.
For the student who nowadays has a host of dynamic multimedia material competing for his or her attention, we wanted to create a high-quality, engaging classroom experience. Both plot and character development in the book are inspired by a popular storytelling structure called "the hero's journey" that is used widely in the writing of popular film scripts like The Matrix or Star Wars. Character behaviors, actions, and motivations hook the interest of readers at all levels, regardless of their professional experience with IT, while the plot sets up a series of expectations that keep the reader curious and invested in the story. We've had students at undergraduate, graduate, and executive levels telling us that they couldn't stop reading because they were eager to know what would happen next.
In addition, chapters of the book are designed like teaching cases, built around key decisions the CIO must make. Students are invited to walk in the shoes of the CIO and become active participants in making these decisions and creating new knowledge about IT leadership through classroom discussion and debate.
We want to send the signal that this is a different kind of reading and learning experience. Our publishing team at Harvard Business Press, led by the talented Kathleen Carr, had been generating a host of innovative ideas that naturally aligned with this book's innovative format—the use of artistic illustrations was their suggestion, and we were thrilled to make them a part of the book, in line with our strategy to engage a broad audience through telling an interesting and important story being played out in twenty-first-century organizations.
Q: What makes a CIO job the most volatile, high-turnover job in business? How important is CIO leadership for the future success of companies?
A: Early in our careers at the Harvard Business School, we discovered that the turnover of CIOs ran at around 30 to 40 percent per year. As a result of our research, we described the driving cause as the rapid change of IT through the operation of Moore's Law (IT cost halving every 18 months or so), which we thought would be short-lived. But when we looked at the turnover rates again a few years later, we discovered the rate was about the same, but the driving cause was more than just the rapid change in IT: It was also because IT was the nexus of major organizational change, the key enabler of business process redesign.
Over the years, the CIO job has remained a hot seat in business and has, in turn, become a key management position in executing a company's competitive cost structure and strategy. It has become a key senior management position that can enable companies to transform their twentieth-century industrial organization structures to twenty-first-century information-based organization structures.
Q: In your novel, though Barton had been willing to critique his predecessor for constantly fighting fires, he found himself facing the same dilemmas. Did it actually help him as CIO to know relatively little about IT?
A: Among a few key differences between the management styles of Jim Barton (trained as a general manager) and his predecessor Bill Davies (trained as an IT specialist), the most important is arguably in their approach to managing relationships. Davies focused where he was strongest—on his relationship to the IT department—and tended to retreat into the IT "basement" in times of conflict with business units and senior management. Barton paid attention to his staff, while at the same time more effectively managing communication with his peers and the CEO, making more explicit business arguments for IT in the context of senior leadership meetings, and inviting the CEO and partners into important, risk trade-off decisions. An important lesson Barton learns over the course of the novel, after rashly seizing control of IT project prioritization, is the importance of including business-side managers in certain key decisions so that all are invested in a successful outcome.
In other words: Successful IT strategy and management is now extremely dependent on collaboration with the senior management team and the IT team. In the twenty-first century, IT has become a "participative sport" for the senior management team, rather than a "spectator sport." Barton was persistent in making the senior management play IT as a participative sport. Davies wasn't.
In the structure of the hero's journey, Davies is someone Barton must come to understand in order to surpass. In the course of the story, Barton first rejects Davies' management approach, then in a more mature fashion, finds ways to "get into the skin" of his opponent, incorporate the useful perspectives he has to offer, and find ways to make new choices based on an understanding of why Davies failed.
Q: The crisis section we are excerpting at the end of this interview is about coping with a sudden denial of service attack. It's also about Barton navigating around conflicting advice while preparing for a meeting with Wall Street analysts in which he must put his best face forward. Barton's CEO is particularly tough. How common is it for a CIO to be caught in the middle, and have you any general guidelines for navigating similar circumstances?
A: We think this situation facing Jim Barton represents the essence of a difference between successful twentieth-century senior executives and twenty-first-century senior executives. Much more frequently, today's senior executives are confronted with situations with multiple uncertainties, requiring collaboration and judgment from experts who know more than they do about many aspects of the situation. Much more frequently also, there is less time for making important decisions—not infrequently, they have to act in real time. With modern IT (with real time, Internet search, and social networks), few decisions can be made in secret, and even fewer can be kept secret. While the CEO is on the ultimate "hot seat," the pressure to provide the analysis and judgment spills over to the senior executive team members, and, in this case, the CIO.
Our advice to CIOs and other senior executives is to build a foundation of trust with a well-rounded management team ensuring that strong management capabilities reside in the team, and that great technical expertise is accessible to the team. Be prepared, and not surprised, by this kind of decision-making. In addition, ensure that all decisions are executed in the context of a deep ethical code reflecting sound values.
Without giving away an important twist in the plot concerning Barton's decision and advice to the CEO, later in the book we have a reflective discussion between the CEO and Barton about the motivations of the CEO as he took some controversial actions of which Barton disapproved. This late chapter provides further insight into the character of the CEO and allows Barton to "walk in the shoes" of the CEO to see from his perspective why he didn't follow Barton's recommendation.
Q: Barton seems to accept and perhaps appreciate the different personalities and work styles in his group. How much of effective CIO leadership has to do with the people side of managing?
A: We think there are work styles unique to certain tasks in IT organizations. Chapter 3 explores one difference: the need to sometimes include input from specialists when making key management decisions, given that managers often can't keep up with the high-speed technological advances their employees master, and that so much of the work is difficult to observe.
"IT has become a 'participative sport' for the senior management team, rather than a 'spectator sport.'"
Chapter 15 of the book deals specifically with considerations necessary for managing highly talented employees, who produce great value for the organization but may go about it in ways that test normal work-day structures or departmental rules and cause internal conflict. With insight offered from professional jazz musician Carl Størmer, we developed a scene in the story in which one of Barton's talented security specialists performs with his jazz ensemble. This leads to a discussion about how to manage real-time collaboration between highly skilled people, and gives readers the chance to consider new ways to think about how to manage IT innovation.
Work has fundamentally changed in a number of important ways from twentieth-century organizations to twenty-first-century organizations. "Place" and "time" of work are two of the most important changes, and we have incorporated these changes throughout the book. The "time" of work is no longer a specific time such as 9-to-5. As much of the factory work has been automated along with customer service, work is carried out throughout the day and night. And, of course, "place" of work has changed too—it has become less located in a specific physical place and is more often done in virtually connected spaces—often spaces that span the globe. In these conditions, the resulting impact has been that people are able to and need to draw on a richer set of experiences and bring them to bear on their work.
The example in Chapter 15 relates the work of John Cho, a highly talented systems architect, to the approaches that have been developed to achieve great levels of creativity by accomplished jazz musicians. It is not uncommon to find outstanding professionals engaging in outside activities that are complementary, that enable them to perform in their chosen professions better.
Q: What are you working on next?
A: Given the success we've had with the structure of this novel in classrooms and with readers so far, with the support of our talented Harvard Business Press team, we're extending the hybrid case-novel form to the journey of another hero: the twenty-first-century CEO. We pick up our hero, Jim Barton, at a latter point in his career, as he's offered the opportunity to lead the transformation of a struggling medium-sized military aircraft company into a successful twenty-first-century commercial airplane company. We are filling our hero's next journey with even more challenges, crises, seductions, dangers, and betrayals, and we're introducing a new kind of technological application that goes beyond Jim Barton's "white board" to help him navigate this strange new world, as he takes up his ultimate challenge: becoming a successful twenty-first-century CEO.
Excerpt from The Adventures of an IT Leader, by Robert D. Austin, Richard L. Nolan, and Shannon O'Donnell:
Crisis
Thursday, June 28, 9:24 a.m. …
Barton was enjoying an unusually slow morning, finishing an elegant breakfast at a Hilton in midtown Manhattan, when the first call indicating trouble came in.
He had come to New York for an early afternoon meeting with Wall Street analysts. That [CEO Carl] Williams had chosen him for the meeting was a sign of just how well things had been going lately for IVK—and for Jim Barton, CIO. In the past three weeks, IVK's stock price had begun to rise, lifting spirits throughout the company. Optimism percolated through the offices and hallways. At the same time, Barton had been scoring victory after victory. A recent all-hands IT department meeting had gone extremely well; he'd fielded a few tough questions, but people seemed pleased with his answers and the department's overall direction. Even John Cho had nodded in response to some of Barton's remarks. His resolute actions had also gained him the confidence of the company's senior leadership. In meetings of that group, Barton's views now swayed Williams more readily than anyone else's. And why not? This was a guy who knew the IVK business inside and out and had apparently mastered the mysterious world of IT in just three months.
Sending Barton—former Loan Ops VP, now chief IT guy—to New York on the crest of a wave of recovery, Williams had explained, sent exactly the right message. Under a new CEO, IVK had woken up to a realization of its current size and the consequent need for a new style of management. The company would mature into a grownup financial services firm. What had been a freewheeling, improvisational approach to management would become more professional. Without sacrificing organizational agility, the company would institute more formal systems and controls. IT was, of course, key to achieving this. An expression Williams and Barton had begun to use in conversation to describe where they were headed captured their joint vision of the future: "a lean service factory." It was only natural that Barton would explain all this to Wall Street.
He'd been sipping coffee, going over his notes, making some last-minute adjustments to the presentation for the afternoon meeting, when his cell phone rang. The phone display told him it was Bernie Ruben. Barton guessed that the call might be last-minute advice about how to tweak the analyst presentation.
He was wrong.
"Hi Bernie, what's up?"
"Hi Jim. I'm afraid we've got a problem, and we felt we should get to you with an update."
"My laptop is upstairs. Is it something I need to change in the presentation?"
"Nothing like that. We're experiencing an outage this morning, for about the last forty minutes. Customer Service is down. None of the call center systems are working, and the Web site is locked up."
"Oh. Damn. I assume we're executing recovery procedures?"
"Such as they are."
This confused Barton. He'd heard, time and time again, about the call lists and emergency procedures that assured business continuity in a crisis. "What do you mean, 'Such as they are'?"
"Sorry. That's my cynicism coming through. The fact is, those procedures are pretty badly out of date. I don't think we realized quite how out of date until thirty minutes ago."
This made Barton angry. "Wish you'd flashed that cynicism a little sooner. I've been taking everyone's word on this. I thought we were prepared for an outage."
Ruben, hearing the tone of Barton's voice, pulled back. "We're not completely unprepared, just not as prepared as we'd like to be. We've got great people on it. But the truth is that outages don't usually happen in a predictable way. Inevitably, we have to wing it a bit."
"And why are you calling to tell me?" Ruben's area had no operational responsibilities, thus would be involved in an outage only peripherally. Barton imagined his team voting on who the bearer of bad news would be.
"Because everybody else is kind of busy, frankly," Ruben answered. "Fenton and Cho are right in the middle of this. Ripley is at the data center, rebooting things. Juvvani and his team are trying to figure out what's wrong with the Customer Service systems."
"Cho? Do we think this might be some kind of security event?"
"I was coming to that." Ruben paused, as if to steel himself, before continuing. It was very unlike Bernie, that pause, and it communicated the gravity of the circumstances more than the words that followed it. A bolt of panic stirred the eggs Benedict digesting in Barton's stomach.
"We're receiving a continuous flow of e-mails at our Customer Service address," continued Ruben, "about three per second, each with no text in the body of the message and a one word subject line that says, 'Gotcha.'"
"Gotcha?"
"Yes. It's like 'Gotcha, gotcha, gotcha, gotcha.'"
"What the hell does that mean?" Barton channeled his frustration into an exasperated hand movement, which promptly toppled his coffee cup. Hot liquid flowed from the table onto his lap.
"We don't know," said Ruben. "It could be a coincidence that Customer Service systems are down at the same time that we are receiving these e-mails, but …"
"But it doesn't sound coincidental, does it?" Barton stood, motioning to a waiter to indicate the spill and request his check.
"No," conceded Ruben. "That is the concern."
"Bernie, I need more information," Barton said. "I don't want to take people off their urgent duties, but at some point in the next hour or so I need a full update. Williams will get wind of this soon …"
"He has already …"
"… and I need to know what to tell him."
"I'll pull a group together, and we'll call you. How about 10:30?" Barton looked at his watch. It was 9:37 a.m. "Make it 10:15. There's no telling when Williams will call me. I'll hold off calling him until I hear more."
"I'm on it," said Ruben.
Barton hung up the phone. The waiter, rushing over to control the spill, also perceived the urgency of the call. He hurried the check to Barton, who quickly signed it and dashed out of the restaurant.
As Barton awaited the elevator that would take him to his floor, another call came in, this one from Graham Wells, IVK's VP of Legal Affairs and General Counsel.
"This is Jim Barton."
"Jim, we've got to reduce our legal exposure here." Wells's voice was an octave higher than usual.
"What do you mean, Graham?"
"We have to take dramatic action, signal that we've done everything we can."
"We are doing everything we can, Graham." […]
"Can we shut off power to the computer systems? Or cut the wires that go to the Internet?"
"We could, Graham, but I doubt that would be smart."
"Smart doesn't matter. What matters is what we can say in a deposition."
The elevator arrived, but Barton moved away from it to sit in a nearby chair.
"A deposition? What the hell are you talking about, Graham?"
"If it is security incident," he continued, "we may be looking at the legal implications. Customer lawsuits, shareholder lawsuits, government penalties, you name it."
"Because our Web site is down?" Barton said. But even as he said this, he knew it was more than that. His remaining optimism drained away, consumed in the heat of Wells's fear.
"If this is hackers—if hackers are stealing customer data—this is going to be bad."
"We don't know that yet, Graham."
"That's why we need to take drastic action. Listen, I just got off the phone with Carl. That last words he said to me were, "Call Barton, make sure he understands the legal ramifications.' That's what I'm trying to do. And my official legal opinion is that we should shut down every computer in the place until we know what's happening. Can we turn off power to the entire company? I will now call Carl back and let him know that you and I have spoken."
Barton was shaken. "Thanks, Graham," was all he could manage. An elevator arrived and Barton dashed across the lobby to catch it. 
| Published: | November 10, 2008 |
| Author: | Martha Lagace |
Internet-connected televisions, social media, and the power of simplicity were all cited as launch pads for future innovation in technology, according to a panel of experts that convened at Harvard Business School as part of the HBS Centennial Business Summit in October.
And though advertisers love the Internet, to what extent they can capitalize on these transformations remains an open question.
HBS professor David Yoffie moderated the session on "The Technology Revolution and its Implications for the Future," with panelists James Breyer (HBS MBA '87), partner of the venture capital firm Accel Partners; Susan L. Decker (HBS MBA '86), president of Yahoo! Inc.; and Eric Kim (HBS MBA '81), senior vice president and general manager of Intel Corporation's Digital Home Group.
The first computer, the ENIAC, cleared the path for future innovation in the late 1940s, said Yoffie, who set the context for the ensuing discussion. Today, millions of Web users generate free content, and we are witnessing an "explosion" in video and cell phone use, he continued, with more than 100 million smartphones already in use. In addition, there is the phenomenon of virtual worlds, where approximately 217 million online players interact.
This is an evolving landscape, with much growth remaining, Yoffie said. Of 6.5 billion people in the world, about 1.5 billion have Internet access, more than 300 million have broadband access to the home, and 3 billion have cell phones, a growing number of which offer Internet access.
What these statistics suggest is that "the most precious currency today is information," said panelist Jim Breyer, an early investor in Facebook and a director of Wal-Mart Stores. "Each year there is more information created on the Web than in all the previous years combined. Investment initiatives are around participating in the information flow. We [at Accel] are interested in companies that help us understand how to structure information, communicate, categorize some of that self-generated information, and then act on it."
A sticking point currently for businesses is spanning the gap between the physical and the digital world, he continued.
"Right now there are significant problems understanding how to take what we are getting at point of sale in the physical world environment—very valuable info on customers—and how to integrate it with all the information that is being generated on the Web. To date, there is no company that allows one to take quickly all this information 'in the cloud' and integrate it with the vast arrays of information in the physical world."
Difficulties aside, Breyer said the promise of technology meant that innovation to solve a problem could arrive from any quarter: prominent companies, nonprofit enterprises, "two students in a dorm room, or mothers or fathers after they have done their school pickups." He continues to be impressed by businesses that start with little capital—anywhere from $10,000 to $50,000—yet get to scale quickly and build new applications on the Web.
Just as technology is influencing society, society is increasingly making demands on technology, said Sue Decker of Yahoo!
"The way we live, love, communicate, and work will influence technology, and the greater population will be exercising an increasing amount of control," she said. Decker cited statistics suggesting that in 2007, 12 percent of newlyweds met online. In addition, of the users in the United States, half sleep with a cell phone or other electronic device nearby, and married couples usually do not share cell phones.
Innovation will serve people who want simplicity of technology usage. As the network gets larger it becomes less relevant to individuals, she said, so people want to organize their experience according to their own interests. "Companies that will do pretty well will create a dashboard of simplicity that is very open to the whole Internet, not just to the company it may be associated with, and will elevate social connections in a way that drives dollars."
How exactly social connections will drive dollars remains to be seen, she added. Although some sites such as Yahoo! include premium services that require fees or subscriptions, the largest business model by far is advertising: a $45 billion industry globally that has been growing about 20 percent per year, said Decker. Advertising on the Web is very effective in the sense that advertisers can reach great scale and do precision targeting. The challenge is to discern consumers' intent.
"Search is unbelievably efficient because you look at a little query box. You can tell exactly what people care about, and you can serve an ad that is relevant at scale. In social media, that is very difficult to do. It's very hard to know what people care about with respect to buying things, because you are inferring intent, you're not taking intent directly from the consumer," said Decker.
"Advertisers really want to be there: They love the demographics, they are increasingly comfortable with some of the brand risks of what that might mean. But Internet advertising still doesn't perform very well, and that's a challenge. How do you serve the right ads to the right user and understand what it is that that individual would be interested in buying?"
Pressure has been building for a merging of television and the Internet, said Intel's Eric Kim. Consumers now expect Internet service everywhere, with implications for entertainment and advertising.
For almost 90 years, the television has been a one-way device, and it should be a two-way device. "This is not a new idea," Kim clarified. "Many attempts have failed. It primes us for success." Prices of televisions are going down, and the industry as a whole is mature, leaving an opportunity for the Internet to disrupt both the value chain and the content industry. Advertisers, for their part, continue to feel comfortable placing ads on TV, gauging that their dollars will not be wasted. Emerging markets further propel the growth potential for innovations combining the Internet and television, which is a natural, low-cost, and ubiquitous way for people in emerging markets to engage with the Internet, he said.
"We think there's a lot of room for innovation here and a lot of room for richness and choices," Kim concluded.
"There is no silver bullet in a lot of these economic models," added Breyer. "It's almost always the case that the business models shift in every successful company. I think it's our job as board members, CEOs, and investors to find breathtakingly brilliant entrepreneurs who then try to find breathtakingly brilliant operating executives who also understand the products, and try to spend a great deal of time finding pockets of monetization. There will be a great deal of experimentation. Some of it will work and a lot won't. Five years from now, many of them will have found highly successful business models," but it is tricky at the beginning of a new venture to predict what those models might be.
A dashboard concept is very important as the key to innovation, said Decker.
"Increasingly, companies will find ways to leverage whatever social networks you're in, find ways to service those in ways easy for you to access, and try to go for more simplicity," she said. "Simplicity is the single thing people really want. It's going to get faster in terms of technology. There's going to be more opportunities and interconnections.
"But fundamentally, removing the complexity and adding simplicity so you can easily access in an open way everything you want, and leverage a lot of social connections rather than going to multiple ones, is how the user experience will evolve."| Q&A with: | Sunil Gupta |
| Published: | July 27, 2009 |
| Author: | Sarah Jane Gilbert |
When marketers want to reach users of social networks such as Facebook, MySpace, or Cyworld, they have two choices: buy advertising or start a viral campaign.
New research by Harvard Business School professor Sunil Gupta suggests that viral may be the way to go in these connected worlds. But first it's important to understand both who influences purchase decisions in online communities and which groups of users can be influenced.
"Viral campaigns truly leverage the network aspect of these social networking sites."
"By understanding the social network of users, firms can better understand and influence consumers' behavior," says Gupta, who coauthored the working paper "Do Friends Influence Purchases in a Social Network?" [PDF] with Raghuram Iyengar, of the Wharton School, University of Pennsylvania, and Sangman Han, of Sung Kyun Kwan University in South Korea.
Gupta recently discussed the research with HBS Working Knowledge.
Sarah Jane Gilbert: Your research attempted to answer this question: Do friends within a social network influence online buying behaviors of others in the group? What did you discover?
Sunil Gupta: To answer this question we used data from Cyworld, an online social networking site in South Korea with almost 21 million members. Cyworld users buy virtual items to decorate their home pages. Our research shows that some users are influenced by the purchases of their friends while others are not.
Q: One of your findings was that certain types of group members are more influenced by social pressure than others. Can you discuss the distinctions among user groups and how they influence buying?
A: We found three distinct groups. Low-status members (48 percent of the users in our sample), who are not well connected to others, are generally unaffected by the purchases of other members. Middle-status members (40 percent of the users) are moderately connected and show a strong and positive effect due to friends' purchases. In other words, this group shows strong "keeping up with the Joneses" behavior.
Members of the high-status group (12 percent of the users) are well connected and are very active on the site. However, these users show a negative effect due to friends' purchases because they want to remain distinct. Instead of buying items like the other members, this group tends to pursue non-purchase-related activities (e.g., uploading their own content).
Q: Were you able to quantify social influence in terms of how it increased or decreased the percentage in sales revenue?
A: The impact of the low-status group on revenue is negligible. Social influence increases revenue from the middle-status group by 5 percent. In contrast, social influence leads to almost a 14 percent drop in revenue from the high-status group.
Q: Despite the ability to gather millions of users, the business viability of social networking sites seems uncertain. Is there any good news in your findings for the Facebooks and Twitters of the world?
A: Following the success of Google, social networking sites such as Facebook have been trying an advertising-based business model. However, studies show that the click-through rate of ads on social networking sites is extremely low—simply because people don't go to these sites to seek information about specific products. Therefore, the advertising-based business model has had only limited success on social networking sites.
If the purpose of advertising is to influence consumers' purchases, our research shows that there is another way to influence their behavior. Imagine that Sony wants to promote its new digital camera. Sony can either advertise on Facebook and accept a very low click-through rate, or give away free cameras to several Facebook members (potentially at a lower cost than advertising) and generate a viral campaign. Our research shows that this viral campaign is possible. We further show what type of users are more likely to be influenced by such a campaign.
Interestingly, Sheryl Sandberg [HBS MBA '95], the new COO of Facebook, recently talked about such a campaign. On Valentine's Day, Honda offered 750,000 Facebook members a heart-shaped virtual gift complete with the Honda logo that could then be passed on to other members. It is exactly this type of viral campaign that has the potential to be an enormous source of revenue. Unlike banner ads, these viral campaigns truly leverage the network aspect of these social networking sites.
Q: What are some key takeaways from your work for retail and other online sites in general hoping to influence online purchasing decisions?
A: The fact that people are influenced by their friends is not new. We all know it at some level or the other. However, by understanding the social network of users, firms can better understand and influence consumers' behavior.
Consider a cosmetic company such as Mary Kay. Its Web site currently allows consumers to upload their picture and try different cosmetics virtually to see how they may look before making a purchase. However, if users (especially young consumers) really value the opinion of their friends, Mary Kay may benefit from linking its online site to a social networking site such as Facebook where users may even get instant feedback from their friends before making a purchase.
Q: What are you working on now?
A: I am continuing my research to better understand how information and influence spreads in social networks. I am also working on understanding the relative role of offline and online advertising to determine how firms should optimally allocate their resources across different media.
| Q&A with: | Thomas J. Steenburgh |
| Published: | August 16, 2010 |
| Author: | Sarah Jane Gilbert |
Harvard Business Publishing has released new toolkits to help managers make key marketing decisions on market analysis, breakeven analysis, customer lifetime value, profit and pricing, and analyzing the competitive environment.
The five toolkits were developed by marketing professors Thomas Steenburgh of HBS and Jill Avery (HBS DBA'07) of Simmons School of Management. We asked Steenburgh to explain how practitioners can use the toolkits in their businesses.
Sarah Jane Gilbert: Can you describe the marketing analysis toolkits? What led you to develop the toolkits?
Tom Steenburgh: The field of marketing has undergone immense changes over the past decade, and those changes are driving an increasing need for data analysis.
Marketing today combines both art and science: Managers must combine creative thinking with rigorous analysis when making decisions. Increasing financial pressures demand that managers deliver ROI from their marketing investments; therefore, quantifying the effects of marketing decisions is imperative. At the same time, customer relationship management (CRM) software and emerging Web 2.0 applications are providing managers with reams of data about their customers.
The marketing analysis toolkits are a suite of analytical tools that managers can use to inform decision-making in marketing. Each toolkit includes a technical note that outlines the analysis technique, provides examples of how it is used in marketing, and shows mathematical formulas used in the technique. Also included in each toolkit is a spreadsheet supplement that contains sample problems; interactive graphs and tables that illuminate the concept visually; and a prebuilt Excel model that guides users in conducting quantitative analysis.
The toolkits are designed to be self-study tools that students can complete on their own outside the classroom or that managers can use on the job. They are particularly useful for managers who lack a strong math foundation and/or who have not had experience with quantitative modeling.
Q: How are they incorporated into the curriculum? Can they be used outside the classroom?
A: The marketing analysis toolkits were designed to provide a quantitative foundation for analyzing marketing decisions and an analytical structure and process for completing a marketing plan project. They can be used in undergraduate and MBA courses to enhance students' comprehension and usage of quantitative concepts in marketing.
Professors have used the toolkits to introduce analytical concepts that appear in HBS cases and to provide supplemental support for students as they run quantitative analyses to support their case preparation. For example, the "Customer Lifetime Value Analysis" toolkit complements the "HubSpot: Inbound Marketing and Web 2.0" case, which introduces the concept of calculating the value that a customer segment delivers to the firm.
Professors have also used the toolkits to support marketing plan projects, which are often a key deliverable in the core principles of marketing course at the undergraduate level and the core marketing management course at the MBA level. The toolkits provide analytical structure for completing key sections of a marketing plan, including situation analysis, segmentation analysis, pricing strategy, and financial projections.
More importantly, all are designed to be toolkits that managers can keep in their virtual briefcase and use for real-world decision-making. All are easy to download into Microsoft Excel for use on the job.
Q: Let's focus on the concept of "customer lifetime value." Can you explain what CLV is? Who is the ideal customer?
A: Customers are increasingly being viewed as assets that bring value to the firm. Customer lifetime value is a metric that allows managers to calculate how much a customer (or customer segment) is worth to the firm over his purchasing life. The CLV formula incorporates metrics that capture the outputs of three key customer strategies that firms employ: asset acquisition (attracting new customers to the firm); asset maximization (maximizing the value the firm extracts from each customer); and asset retention (retaining existing customers for the long term). An ideal customer, from a CLV perspective, is one who is inexpensive to acquire, who delivers high annual profits from his purchases each year, and who remains a customer for a long period of time.
Q: How can managers use the CLV toolkit when making marketing decisions?
A: Calculating CLV allows managers to identify opportunities for growing the value of their customer portfolio. CLV can guide segmentation and targeting analysis to decide which customer segments are the most valuable for the firm to target. It can also inform customer relationship management (CRM) planning by helping to segment the customer base by their profitability to the firm, so that managers can increase or decrease marketing expenditures to a particular segment. It provides specific advice on how much to spend to acquire a customer, to retain a customer, or to cross-sell and/or upsell existing customers to other products in the firm's portfolio.
Q: Now let's discuss the challenge of product pricing. How should businesses go about conducting a profitability analysis?
A: Choosing a price for your product is one of the most fundamental and important decisions managers face, and it is often one of the hardest. Pricing decisions require managers to understand how sensitive consumer demand is to changes in price. This requires constructing and interpreting a demand curve to understand how responsive (or elastic) customers' demand for a product is to a change in price. The pricing and profitability toolkit guides managers in how to construct a demand curve, how to calculate the price elasticity of demand, and how to use these metrics to inform the process of choosing a price.
Once a price point is chosen, managers need to understand the impact of that price on their financial projections for the firm. Profitability analysis begins with calculating the revenue the firm will generate from sales of its products. Then, an analysis of variable and fixed costs is undertaken. Finally, these numbers are used to calculate the profit or margin the firm will earn from its operations. The pricing and profitability toolkit provides guidance for calculating revenue, variable costs, fixed costs, contribution margin, gross margin, and net income. In addition, for those firms that sell their products through distribution channels, this toolkit enables the calculation of retailer penny profit and retailer margin.
Q: In addition to CLV and pricing and profitability, what other toolkits are available for marketing managers?
A: There are five toolkits currently available that cover the key analytical tools marketing managers use:
"Market Size and Market Share Analysis": Managers frequently need to estimate the size of their markets, both for existing products, so that sales forecasts can be developed, and for new products, so that market opportunities can be assessed. This tookit enables managers to size a market and generate a sales forecast. Users will learn to measure market demand and calculate market penetration rates and market share.
"Situation Analysis": Before managers can begin to formulate marketing strategies for their businesses, they must have a strong understanding of the internal and external marketing environments in which they are operating. In this toolkit, we present three methods for collecting and analyzing information about these marketing environments firms face: Five C's Analysis, Porter's Five Forces Industry Analysis, and SWOT (Strengths, Weaknesses, Opportunities, and Threats) Analysis.
"Breakeven Analysis": Managers are often called on to make recommendations for or against programs that cost money to implement. Before marketing expenditures are made, managers want to be sure that they will be getting a return on their investment. In this toolkit, we introduce the concept of breakeven analysis, which helps managers assess the feasibility of proposed fixed and variable marketing expenditures, the feasibility of pricing changes, and the feasibility of a new product introduction.
"Customer Lifetime Value Analysis": Customers are increasingly being viewed as assets that bring value to the firm. Customer lifetime value is a metric that allows managers to understand the overall value of their customer base and relate it to three customer strategies firms employ: asset acquisition (attracting new customers to the firm): asset maximization (maximizing the value the firm extracts from each customer); and asset retention (retaining existing customers for the long term).
"Pricing and Profitability Analysis": Pricing is one of the most difficult decisions marketers make and the one with the most direct and immediate impact on the firm's financial position. This toolkit introduces the fundamental terminology and calculations associated with pricing and profitability analysis. Users will learn how to produce and interpret demand curves and calculate the price elasticity of demand. The concepts of revenue, costs, and contribution margin, gross margin, and net income will be introduced to inform profitability analyses. Finally, retailer profitability metrics including retailer margin and penny profit are discussed.
Q: What are you working on next?
A: Over the longer term, we hope to expand the marketing analysis toolkits with other analytical tools used for marketing decision-making. These could include marketing research concepts such as conjoint analysis and perceptual mapping, and brand analysis techniques such as calculating brand equity and conducting brand audit analyses.
