HMM Customer Focus

What A.G. Lafley's Return Means for P&G

Sarah Green — Fri, 24 May 2013 15:41:23 +0000

With former CEO A.G. Lafley returning to the helm of Procter & Gamble, I asked Rosabeth Moss Kanter for her analysis. She holds the Ernest L. Arbuckle Professorship at Harvard Business School. She's an expert on strategy, innovation, and leading change. She is also Chair and Director of the Harvard University Advanced Leadership Initiative. She is a regular contributor to HBR and HBR.org. She's on twitter @RosabethKanter.

In her latest book, SuperCorp: How Vanguard Companies Create Innovation, Profits, Growth, and Social Good, she analyzed how P&G (among other companies) achieved long-term performance. She wrote the HBS cases on the P&G/Gillette merger, and when she teaches those cases, frequently invites P&G executives to her class.

Why is P&G making this move, now? P&G is in the midst of a major restructuring, and has laid off thousands of people. Why switch horses midstream?

P&G's board has been under a great deal of pressure from an activist investor who has made his views on the pace of the restructuring clear and vocal. Regardless of the merits, that begins to wear everyone down. If the current CEO is under attack, that becomes a distraction for the company and makes it harder to execute or gain credibility with certain stakeholders. Even if the performance improvement plan is on a good path, that noise becomes a distraction (and psychologically, it leads to dreams of escape or wishes for a bold dramatic move). Appointing a new CEO buys everyone time, and thus quiets the noise for a while. But note how P&G did it. Asking A.G. Lafley to return is a sign of how much the company values continuity and company knowledge.

Any time a former CEO returns to run the company after a brief absence, you have to ask about succession planning. Does this move suggest that P&G needs a better succession strategy?

The absence wasn't so brief. Lafley has been out of P&G for 4 years, which in this age of rapid change can include several waves of volatile external change — economic, geopolitcal, technological (social media) etc. But it's also important to note that A.G. Lafley and Bob McDonald worked as a team during the 2000s; when Lafley scored his major successes, McDonald was by his side as vice chairman and then COO. McDonald was intimately involved with the Gillette acquisition and oversaw a model merger integration process. The P&G culture was also important to Lafley's success, and he emphasized the PVP (purpose, values, and principles) as a management guide at the same time that he pushed product innovation, accelerated growth in emerging markets, and used the Gillette merger (with McDonald's full involvement and leadership) as a change catalyst, to adopt some faster Gillette processes. But with the culture still a bedrock of P&G's success and endurance, it always seemed inevitable back then that the CEO successor would be an insider.

Lafley won't just be the CEO, he'll be the President and the Chairman of the Board. That's been a hot topic this week. Will having one person in those three roles make P&G more agile? Or run the risk of them not having independent board oversight?

Among other things, if a turnaround is needed, then the new CEO also needs full support and authority — and probably wouldn't take the job without it. It wouldn't send a great signal if Lafley returned but had one hand tied behind his back. Since he previously held all three roles successfully, why restrict him now? Also, I would hazard a guess that the Lafley return is an effort to accelerate progress on things already underway in McDonald's plan, although Lafley could certainly add creative twists, and that Lafley won't stay very long, just long enough to ensure investor and customer confidence, strategic priorities, and a good succession plan.

McDonald became CEO in the 2009 recession, a time when the middle class continued to shrink. That proved challenging to all the major consumer goods companies, but some (like Unilever) adapted by introducing lower-priced products. How should P&G adapt to a shrinking middle class in the US?

P&G began a portfolio of lower-priced but high-quality products in emerging markets and brought some of the concepts to the U.S., e.g., a laundry variety. It might have been slower than Unilever but wasn't asleep at the switch. The challenge has been not in brand extensions, whether lower price points or additional features. The challenge has been creating new categories entirely. Under Lafley, there were category innovations such as Swiffer and Febreeze, and the addition of men's shaving via the Gillette acquisition. McDonald did shift the portfolio, e.g., sell Pringles and emphasize beauty which is a growth category that is less price-sensitive. But new products or categories that might be in the pipeline don't spring up overnight. The categories introduced under Lafley built on earlier R&D. I wouldn't be surprised if Lafley again gets credit for products underway under McDonald. Also, social media have come on strong since Lafley handed the reins to McDonald, causing shifts in marketing strategies from TV to other media; Lafley will need to be on top of that.

There's also the issue of emerging markets — some have accused McDonald of being overly aggressive in expanding there. Do you think Lafley will need to alter their approach?

It's ironic. Lafley was credited with opening emerging markets as a virtue, but when McDonald built on this, he has been accused of expanding too aggressively. Of course a company should never neglect its largest developed markets. But with Europe as a drag, it seemed wise at the time to invest where there was still growth potential. Brazil has been a major success.

There are clearly no shortage of challenges on Lafley's plate. How can he get people to take creative risks in a climate of turbulence and uncertainty? And what's the number one priority for him right now?

Lafley will have to explain this to the executive team and the company in a way that ensures them that the path they've been on can be productive, especially if they accelerate innovation. He should scrutinize the entire portfolio and product/country mix to identify the most and least profitable and promising for growth, and then to make any needed people changes or adjust investments, such as marketing or product extensions. That's immediate, along with any financial quick fixes. It's not a bad idea to stress accountability. Maybe some of the improvement plan underway was happening too slowly because one area or unit or part of the world dragged their feet and made changes too slowly.

If Lafley accelerates progress on the operational and financial improvements underway, and people see success as reflected in profitability and stock price, then he can look for the creative ideas for innovation, large and small. Also, he can then look at the balance between Cincinnati-centricity and the recent distribution of brand global functions out to the regions, such as beauty in Singapore.

A strategic challenge is not only getting the product and category mix right, but also attracting talent (one reason for moving these brand HQs out of Cincinnati) while also integrating people across the portfolio as "one enterprise" that can find synergies and leverage learning, resources, and talent mobility. When Lafley first became CEO, P&G was struggling with how to become a more global and globally-integrated company; that is still a challenge.

A Futurist Looks at the Future of Marketing

Dana Rousmaniere — Fri, 24 May 2013 14:00:07 +0000

Digital marketing is evolving as fast as any other medium on our tablets, smartphones, Google Glass and beyond. To learn about what the future may bring to this marketing genre, we reached out to Gerd Leonhard, an author, strategic advisor, CEO of TheFuturesAgency, and someone whom The Wall Street Journal calls "one of the leading media-futurists in the world."

Here are some of Leonhard's predictions for what's coming. Add yours in the comments section below.

1. By 2020, most interruptive marketing will be gone. Instead, marketing will be personalized, customized, and adapted to what I have expressed as my wishes or opt-ins — which essentially means that advertising becomes content. Data will be essential, and as users, we'll be paying with our data — bartering a bit of our personal information in return for the use of platforms and services. Customers will be forming relationships with brands that are built on trust, and if a company breaks that trust, it will be very quickly viral and very quickly over. By 2020, unauthorized targeting of consumers will essentially be useless. I, as a consumer, am going to choose who I want to hear from. I'm going to like things, or I won't like them, and you will have to earn that from me.

2. The idea of having a separate marketing department is going to vanish. In the future, the "reason to buy" will be socially motivated. If a product is great and everybody loves it, it will sell. And you're going to stop buying things from companies that don't fit your values, just because you can't see giving them the money.

3. Location-based services will be immensely valuable and useful, but not until we have some kind of a privacy bank — some authorized authority or entity that will keep the public safe, and that has a neutral objective. Because clearly, I'm not going to offer up my location if I don't feel safe.

4. Companies are going to try to predict how people feel about their brand, and then adjust in real time by changing features, and starting new conversations with customers in real time. All of the companies of the future will have one big job: to make sure that the customer feels cherished and safeguarded. As Amazon calls it, "customer delight," will be the number one mission. If you screw that up, everyone will leave.

5. Companies can collect all the data they want, but data alone will never be enough. You still need to reach consumers on an emotional level. The bottom line for marketers will be that if a product or service isn't humanized, it won't sell — because buying something isn't an intellectual process of saying "this could be useful"; it's saying "I really want this."

About Gerd Leonhard:
Gerd Leonhard is considered a thought-leader and global influencer in media/content, technology, marketing & communications, telecom, and culture, consulting many leading global companies. He is an author, strategic advisor, CEO of TheFuturesAgency and a fellow of the Royal Society for the Arts (London). Since 2011, Gerd's area of expertise also includes important "green" topics.

Innovations in Digital and Mobile Marketing
An HBR Insight Center

Find Out if You're a Scale-Up Entrepreneur with This Two-Minute Test

Daniel Isenberg — Fri, 24 May 2013 12:00:01 +0000

Cool ideas for new businesses are a dime a dozen. That — plus all the new tech enablers such as instant websites and e-commerce platforms — makes it deceptively easy to start up a new venture. The bigger challenge is to start up a big venture that just happens to be small at first.

Fortunately, real entrepreneurs are growth-obsessed: they cringe when you call them "small." In fact, I don't think you can call something entrepreneurship unless it is driven by big vision, big aspiration, and a burning desire and ability to grow — that is a key message in my new book, Worthless, Impossible and Stupid (due out in July). In the book, I tell the stories of scale-up entrepreneurs from around the world, and how they beat the odds to make a mark on their markets.

Here's a quick test to help you figure out whether you are cut out to be a scale-up entrepreneur. Just answer each question as honestly as you can, Agree or Disagree.

Something inside compels me to make something that will impact the marketplace.
I am great at selling things to people that they may not know they want, nor think they have the money to buy.
I have people on my team who are better than me in several areas of knowledge or practice.
My venture already has the procedures, policies, and processes in place to be ten times the size we are today.
When I don't know what my next step is, I have experienced people I can turn to for ideas.
There is money out there to fuel a venture that is growing fast; I just have to find it when I am ready.
When I achieve my objectives I keep raising the bar higher and higher.
I am one of the best sales people I know.
Think big; thinking small is a crime.
I know entrepreneurs just like me who have grown big, fast.
The sales process is just starting when the customer first says no.
If my venture stands in one place too long, it runs the risk of perishing. We have to keep moving forward.
I know how to find great people to hire.
Nothing gives me a bigger rush than closing a big sale.
It is more important to know of a big problem that customers have and then look for a solution, than it is to have a solution that is looking for important problems to solve.
I used to think our great technology would take us to leadership in our market — now I realize it is our team, our organization, our marketing and our ambition to sell.
Even though I am a startup, I think more like a market leader than a small business.
(extra credit) If Isenberg were smart, he would make millions from this test and retire.

If you scored 16 or more, the sky is the limit. Go for it.

Why the emphasis on sales? I recently met the head of a startup accelerator who said that entrepreneurs should not be concerned about selling; they can always go out and hire a vice president of sales when they are market ready. Indeed, many would-be entrepreneurs who are drawn by the romantic vision of developing a snazzy new app or product pooh-pooh selling as beneath their dignity.

I don't think so. I learned a lasting lesson when I was in charge of the Japan market at Voltaire, the Israeli pioneer in the lab and field proven Infiniband open standard technology that makes super computers out of huge racks of commodity computers. Voltaire got the technology down pat but struggled with selling a product that enterprise customers were leery of. It was the CEO's incredible persistence (and experience) in all aspects of selling — sales organization, compensation, pipeline management, and selling skills — that not only saved Voltaire from oblivion, but eventually propelled it to a NASDAQ IPO. Sale is a big part of scale.

Why the emphasis on attitude? I have found that ambition, which seems to have become a dirty word in some cultures, is a continental divide between self-employment and entrepreneurship. Without it, you will always be a mom-and-pop operation. In Denmark, they call this the "BMW Syndrome" — make enough to buy my BMW, and I have made it. Nothing wrong with that, it just isn't entrepreneurship. As Apax founder Sir Ronald Cohen puts it, "Your business will grow to the size of your vision ."

Don't Read Infographics When You're Feeling Anxious

Nicholas Diakopoulos — Thu, 23 May 2013 14:00:02 +0000

Ever had to look at a data visualization while you were in a lousy mood? Chances are you were more likely to make an error in visual judgment than if you had been feeling more cheerful. New research suggests that putting users in an emotionally positive mindset improves their accuracy in interpreting data visualizations. So even if your company publishes only the occasional graph, provoking a positive emotional response in the audience might just help you get your data across more accurately. Moreover, as research in this area grows more nuanced, companies producing visual analytic tools and products may be able to enhance their effectiveness by designing with emotion in mind.

It's already broadly accepted that emotion (or affect as it's called in psychology) can influence different cognitive processes like attention, memory, creativity, and problem solving. As design-thinking legend Don Norman writes in his book Emotional Design, "When you are in a state of negative affect, feeling anxious or endangered, neurotransmitters focus the brain processing," allowing for concentration on details. "Positive affect arouses curiosity, engages creativity, and makes the brain into an effective learning organism," allowing for a less-focused and broader view of the situation.

Recently published research from Ph.D. student Lane Harrison and collaborators extends this understanding of affect and brain processing to the realm of data visualization. Their results experimentally show that people who were positively primed — put in a good mood by reading a lighthearted news article — made less visual judgment errors across a range of different charts than people who were negatively primed. Moreover they found that it was the positive priming that was decreasing error rather than the negative priming increasing it.

What does this mean for companies designing data visualization tools and environments? If visual judgment and analytic accuracy is of the utmost importance, like in finance, intelligence, or health-care, you might think about how to integrate positive priming into the user's experience. The broader idea is something that scholars Richard Thaler and Cass Sunstein, in their book Nudge, call "libertarian paternalism" — biasing experiences to correct for cognitive deficiencies in human reasoning.

So, if users are less error prone when they're happy, why not design that emotional response into their tools and environments?

If only it were that easy. The news articles used as the affective primes in Harrison's study only nudged the mood of 30% of participants. It's also unclear how long an affective prime really lasts, how "durable" it can be. In the study, the subjects looked at the visualization right after reading the positive or negative story, but in a real use-context people are exposed to all kinds of different things that might confound an attempt to bias their mood: nutty co-workers, startling news events, soothing music, frenetic social media, or dreamy personal ruminations, all of which can be hard to control.

Manipulating emotions may come with its own set of slippery slopes and gotchas too. Another study from 2011 used images of things like smiling babies and rollicking puppies to induce positive affect in a creativity task. But imagine a somber data visualization about a patient's health vitals surrounded by such an artificial attempt to manipulate the user into a positive, more accurate mood. The tension between the desired affect and the inherent tone of the content could be problematic or even backfire entirely.

Less intrusive ways to put users in a positive frame of mind include making the interface more aesthetically pleasing or changing the lighting or color in the user's environment. Environmental conditions that Don Norman cites as engendering a positive affect include sweet smells, soothing sounds, harmonious music, symmetry, and smooth objects. Such environmental changes might stand in less direct conflict with underlying content than an interface that is actively trying to manipulate mood.

It should be clear that there are challenges here: When, how, and how much might you want to provoke emotion? And should you design it into the tool, or into the environment? These questions will get sorted out as the research in this area improves, but what we do know is that whether the end-users of your company's data visualizations are customers, the public, or a group of internal analysts, it might just be worthwhile to keep those users in a cheerful mood.

What Google Glass Reveals About Privacy Fears

Larry Downes — Thu, 23 May 2013 13:00:07 +0000

Marketing professionals have learned the hard way that no matter what they do or do not plan to do with consumer information, privacy matters. In part, that's because marketing has always been something of a black art. When an ad appears to speak to a consumer directly, of course, it's likely to be most effective. But that's also the moment when the creepy response kicks in. How did they know what I wanted, perhaps even before I did?

Couple the lack of transparency of marketing generally with the shock of new technology, and you get anxiety over information use that increasingly translates into calls for legislation or regulatory intervention.

New laws aimed at specific technologies, however, are the worst possible outcome. Legal solutions are by their nature blunt instruments for managing uncertainty. At best, they add significant enforcement costs without solving the problem. Spam e-mails were made illegal by a 2003 federal law, but all that law has done is to provide lifetime employment for lawyers at the Federal Trade Commission.

At worst, special laws simply ban the new thing before its developers have the chance to test it in the market and make adjustments. In the U.S., for example, advocacy groups initially demanded that Congress outlaw Google's Gmail when they learned the service would be paid for with contextual advertising that "reads" the content of user messages.

FCC Commissioner Ajit Pai recently referred to such efforts as "Red Flag Laws," an allusion to legislation passed in response to the initial panic over an earlier disruptive technology: the automobile. He writes:

The temptation to overregulate new technologies is strong. It's also misguided. Today, everyone would agree that it would be absurd for the government to require an automobile to be preceded by a person carrying a red flag to warn people that a car was coming. Or worse, imagine if regulators required motorists to stop, disassemble their vehicle, and conceal the parts in bushes if the car frightened a passing horse. The first actually happened at the dawn of the automobile age — they were called Red Flag Laws — and the second nearly happened, passing the Pennsylvania state legislature unanimously, only to be stopped by the Governor's veto.

In retrospect, of course, Red Flag Laws always look ridiculous. But in the heat generated by torch-wielding mobs, the absurdity of calls to do something — anything — to stop the march of progress aren't always so easy to counter. Consider what Techdirt's Mike Masnick has called a "moral panic" over the release in a year or so of Google Glass, a head-mounted computing device that projects information onto a tiny display positioned in front of one eye.

Glass will also be voice activated, capable of performing many basic computing functions (sending messages, looking up information), and of recording and sharing audio and video. The product is about to enter a controlled beta release to some 8,000 early users, or what the company is calling "explorers."

In a literal sense, Google Glass is nothing new. Head-mounted displays have been around for decades, initially designed for military and advanced simulation applications but now cost-effective for consumers. At this year's Consumer Electronics Show, I saw perhaps a dozen companies offering such devices, pitched for the convenience of hands-free computing, as aids to those with disabilities, or for high-end immersive gaming.

Nor are any of the functions performed by Glass especially novel. The device will simply mimic some of what billions of us can already do with a smartphone. Except that you wear it on your head rather than holding it in your hands. As many of us also already do with Bluetooth headsets.

There is, I suppose, one difference that's worth mentioning. The product will be made and sold by Google. On the one hand, that seriously ups its coolness factor, making Glass a "must have" for the technorati. On the other hand, it also increases the anxiety level of those already uncomfortable with the company, and with smartphones and other mobile devices that can record audio and video more or less without notice.

The Red Flags are flying high. A White House petition asks the Obama Administration to "ban Google Glass from use in the USA until clear limitations are placed to prevent indecent public surveillance." (So far, 38 of 100,000 required signatures have been collected.) One site, Stop the Cyborgs, already offers downloadable signs businesses are encouraged to display announcing that "Google Glass is Banned on these Premises." They also sell t-shirts, though one customer complained that the material used was so thin as to be transparent, an unfortunate irony.

Lawmakers are eager to get in on the fun. A West Virginia legislator, after reading a short article about the product, immediately introduced a bill that would prohibit driving while "using a wearable computer with head mounted display." And last week, eight members of a bi-partisan Congressional "Privacy Caucus" wrote Google CEO Larry Page to say they were "curious whether this new technology could infringe on the privacy of the average American." The questions that followed made the point clearer: we don't know what this product will be, but we don't like it.

I shouldn't be flippant. It's certainly true that ever-smaller and ever-more-powerful mobile devices raise important questions about the costs and benefits of persistent surveillance, and of the line between personal autonomy and acceptable social behavior.
These, however, are more philosophical issues than legal problems, or at least they should be. We already have privacy laws on the books, and there's very little about Google Glass that suggests a need to start over. (Driving while using head-mounted displays is already either legal or illegal, depending on each state or country's law regarding distracted driving.)

What's more interesting has been Google's response to the uproar over a product that doesn't even have a launch date. By and large, the company has said nothing, other than to actively promote Glass's future release and highlight its great potential.

For years, I have advised companies of the importance of getting ahead of privacy concerns on new applications, especially those that might trigger the creepy response. That's because the real privacy constraint on companies has always been consumer outrage. Thanks to social media, that's become an ever-more potent force — arguably more compelling than anything lawmakers might do.

Once the moral panics start, it's impossible to predict where they will lead. So the wisest course is to head them off. The important take-away for product makers isn't so much about what they do with personalized data, but how they design and test a new offering, launch it, explain it to consumers, and provide tools for information management.

Public education and transparency can do a great deal to defuse angry mobs before they've had a chance to storm your castle. The difference between personalization that everyone loves from the beginning (Amazon and iTunes recommendations, TiVo suggestions) and personalization that stimulates a fatal rejection (Facebook Beacon, Google Buzz, LinkedIn personal ads) has little to do with the nature of the data being used. It's all in how you explain it. And you don't get a second chance.

But Google seems to be taking a different tack — at least so far — by largely ignoring the rising tide of negative commentary. The company has refused numerous requests for comment. At a developer's conference last week, Glass product director Steve Lee said only that "Privacy was top of mind when we designed the product."

It's hard to know if this is actually Google's strategy, or whether they're waiting for a more appropriate moment to leap directly into the fire. But maybe the company has evolved to the next stage of privacy management. Perhaps they've decided that saying anything in response to pre-launch fears of product misuse only adds fuel to a generalized moral panic that is now more-or-less persistent.

Given the high level of irrationality around privacy these days, Google might be onto something. Perhaps arguing logically with those who are reacting emotionally just makes things worse. One way or the other, marketing executives should keep a close eye on how the Google Glass story plays out. It may prove the best case study yet in how to — or not to — manage privacy fears.

Innovations in Digital and Mobile Marketing
An HBR Insight Center

How to Create True Customer Advocates

Bill Lee — Wed, 22 May 2013 16:00:27 +0000

Who sells your products or services? This may seem like a silly question, the answer being of course, the sales & marketing team. But increasingly, the most important person selling what you're offering is — your customer.

More specifically, your customer advocates. And, as buyers increasingly expect to learn about products and services from their peers who are using them, companies are getting more creative at putting their happy customers in front of those buyers. The forms that this kind of community marketing can take are varied, and might include straightforward references and referrals, customer blogging or video (an area of exceptional creativity), participating in communities, associations or consortiums, speaking at industry events...it's a growing list.

One predictable result of this activity has been increasing demand from marketing and sales leaders to find more such advocates to showcase, in some cases creating a "beast that needs to be fed" similar to what you see in traditional media channels — like sports or the entertainment industry — that experience rapid growth in popularity.

So the question becomes: in order to keep the advocate pipeline filled, should you incent customers with rewards, discounts, even payments of some sort? My strong suggestion — based on actual experiences from companies who are not incenting customers to advocate — is to avoid this slippery slope. It's not good for them, or for your business.

So then, how do you make this happen? How do you create the conditions that generate not only happy customers, but true customer advocates? Here are some key elements for creating an overarching value proposition that fosters customer advocates and preserves the integrity of their advocacy:

Deliver what you promise and promptly fix what goes wrong. The obvious starting point, which everyone knows, but many firms lose sight of this over time. Marketing that's based on customer advocacy and influence must keep this basic truth front and center. These frontline actions are what underlie any genuine enthusiasm from a customer. You can't create or enlist a customer advocate or build a customer-based sales force without the solid foundation of an ongoing, responsive delivery and service relationship.

Know your customers' problems. "The most important thing you can bring to a dialogue with me is knowing my problems," says Patty Morrison, CIO of Cardinal Health. "And it's really not that hard." She suggests that reference program managers invest in, or otherwise get access to, their firm's market research about key-customer references. "If you want to develop a customer as a reference, know everything you can about them. And then know everything you can about your important prospects too."

Put your customer references together with their peers. Your firm is in a great position to connect your customers to their peers — other executives and managers like themselves who deal with similar issues. And those connections are highly valued. But where do you find them? Among your other customers, of course. Find ways to bring them together — live events, in teleconferences, on the Internet — so that they can exchange ideas and learn from each other.

Market and sell your customers. Tout your customers' achievements as much, if not more than, your own in that white paper or case study. Remember, that (and not a bunch of information about how wonderful your firm and its offerings are) is what prospects care about.

Provide your customer references with opportunities for growth. Often your most dynamic customer references are eager for personal and professional development. Provide these in the form of speaking opportunities, interviews with the media, and the like, where customers can demonstrate thought leadership.

Remember, you have leverage. If your firm is a smaller supplier or brand new, your customers want to help you. "Helping my smaller vendors grow and get established is in my interest," notes Morrison. "So I'm willing to do what I can to help you grow your customer base. On the other hand, if you're larger and better established, you can help me reward my team by letting them go to conferences and present papers. It's great career development for them."

Tie referencing to performance. For larger relationship accounts, some reference programs try inserting an agreement to provide references up front in the customer's contract — a major and obvious turnoff. Yet many companies persist in doing this, or trying to. A better, value-based approach is to initiate a quarterly review process to, first, review performance metrics; next, identify how your solutions are benefiting the customer and document it; then (and only then), when you and the customer are feeling good about the relationship, turn to talking about your prospects faciging similar issues. Almost always, the customer will be ready to share contact lists and talk to prospects on your behalf.

Align your PR messaging with your customer's. "If you want a customer to publicly reference for you," notes Morrison, "you need to understand what message their PR is trying to get out to the world about their company. And then ask, how might our message tie into theirs?" When she was CIO at Motorola, for example, the firm wanted to talk about things like mobility, devices, and public safety. So, if you're doing business with Motorola, how can you tie your messaging to theirs? "If my PR person comes into my office with you and you both say, 'Here's the message we think benefits our companies together,' then I see a win-win."

Offer other customer-engagement possibilities. This is particularly important for your higher-level key customers, who may very well want to provide input into product or solutions development, or even your strategic direction. Offer such customers positions on your advisory boards or executive forums. Or they may want to engage with your other customers or other peers in community efforts.

Succeed. Finally, remember that a customer who's taken the risk of putting her eggs in your basket wants you to succeed for obvious reasons — if yours is a small company, you're more likely to survive. If you're a large firm, you're more likely to invest research and product development dollars improving the solutions you're providing. And that's true even if your customer is a large or even marquee customer. Don't be intimidated about asking for appropriate reference support.

Getting customers to advocate for you is a lot different from getting them to buy your products and services. It should come as no surprise that it requires a new value proposition. Once you embrace this, you'll find that customers can help you grow your business in remarkable ways.

The Rise of Virtual Brick-and-Mortars

Jeffrey F. Rayport — Wed, 22 May 2013 15:00:26 +0000

Ever since Amazon's Price App appeared on the retail scene some 18 months ago, pundits have prophesized the demise of big-box retailers. There's no question that Amazon's innovation went right for the jugular of any volume- and price-focused retailer selling commodity goods like consumer electronics and household wares. Indeed, retailers from Best Buy and Target to Bed Bath & Beyond, PetSmart, and Toys R Us are in danger of becoming mere showrooms for Amazon and its ilk. But innovative retailers are responding to this threat by turning "showrooming" to their own advantage.

One obvious strategic response has been to fight back with in-store experiences and proprietary merchandize that Amazon cannot match. The quintessential example is the quirky local book store, which sells antiques, unusual knick-knacks, offers free Wi-Fi, and hosts a café — an eclectic mix of experiences enriched by products, services, and community that trump online retailing. But this approach has many limitations, chief among them is that it's hard to scale.

A less obvious response that's accelerating in the global marketplace is to accept that stores are showrooms — and design them accordingly. Samsung showcased an array of the company's products from around the world that consumers could examine, play with, and admire. They just couldn't buy them. Its retail clerks pointed consumers to nearby locations where Samsung products were for sale. It was an actual showroom. Having helped establish Samsung as a consumer electronics megabrand, the showroom served its purpose and has recently closed. By contrast, Miele, which makes and markets everything from kitchen equipment to household wares, runs 10 "Centers" in the United States. They host cooking presentations, master classes, and wine tastings, but, other than obvious accessories, they don't sell the company's products. They just showcase them. As Samsung demonstrated, sometimes a showroom is just a showroom.

By contrast, the UK-based retailer, Tesco, has launched an array of "virtual" stores designed to sell products with no merchandise. The world's first virtual store was a Tesco Homeplus opened in the Seoul Subway in August 2011. This wasn't really a store: it was a wall that displayed over 500 of the chain's most popular products, each with an associated barcode that users could scan to populate a shopping basket that Homeplus would deliver to their homes the same day. Since launch, the Homeplus Smartphone App has become the number one shopping app in Korea, with over a million downloads to date. Homeplus has extended this concept to bus stops. The goal? Says one Homeplus executive: "Make the shopping experience easier and more convenient for our customers." Homeplus is now the market share leader in South Korea.

UK-based Ocado, a pure-play online grocery retailer, has taken the Tesco innovation one step further. It's opened physical stores — actual "high street" locations — where consumers can roam a branded space, browse products, scan barcodes, and complete their shopping task by ordering online from a physical location. One major draw: you don't have to carry those heavy groceries home. Ocado's first actual store, in a London mall, was a hit. (Like Homeplus, to access the service, consumers have to download a proprietary shopping app, called Ocado "On The Go.")

The strategy is a striking success. Nearly one in four orders at Ocado is now placed using mobile devices. According to shop2mobi, a Dutch Internet start-up that works with retailers to launch QR-code based virtual stores, over 300 virtual brick-and-mortar stores were "published" worldwide in 2012. The firm claims that 2,000 are already planned to open in 2013.

All of which brings us back to the dilemma facing traditional retailers. Many big-box retailers are fighting back by accepting that their stores are showrooms as well as points of sale. They are using the techniques of virtual stores in their physical locations to make it easy to shop online while in store. These include Wal-Mart, Best Buy, and even Tesco itself. Offering a combination of shopping apps and QR codes, these retailers are replicating the convenience Amazon promises (many with a price-match guarantee) by enabling shoppers to use the stores to showroom their own goods — and then buy directly from them. The message is clear: in-store experience matters. The more compelling and unique — think REI with its climbing walls — the better. But the overlay of attributes associated with online shopping is also essential to survival. Otherwise, the Big Boxes that dot our retail landscape will, indeed, become an artifact of the past. (Circuit City, anyone?)

The lesson for marketers is fundamental. Don't count on bringing customers to your brand. Bring your brand to your customers. Place your offerings squarely in the context of your customers' lives. Otherwise, they'll likely take the path of least resistance — and that could mean they don't buy from you.

Innovations in Digital and Mobile Marketing
An HBR Insight Center

Embrace the Business Model That Threatens You

Leonard Fuld — Wed, 22 May 2013 12:00:23 +0000

If your company is already well established and has smart management, it is likely that it will become a hybrid in the next ten years, blending its legacy business with a new business model that is rising to threaten it. Take Walmart, for example. After suffering several years of Amazon's online hegemony, Walmart responded with a hybrid approach. Merchandise ordered online can now be drop-shipped for same-day pickup at local stores. This and other creative solutions have driven over $9 billion of online sales to Walmart. (It's no surprise that Amazon — which has no physical stores — has mirrored the move from the other direction, installing lockers in neighborhood stores to allow for direct pickup.)

Entertainment and medicine are other industries where hybrid models are beginning to emerge as resilient success stories. Netflix, formerly a media distributor increasingly threatened by the very entertainment companies whose programming it sells, has begun producing its own original programming (such as the recently released series House of Cards.) According to Netflix, offering popular original programming has attracted its customers to order more items from the rest of its media catalog — a hybrid win-win. The Veterans Administration hospital system has formed an alliance with Bosch Healthcare to offer a more efficient means to monitor and diagnose the elderly or infirm remotely, from their homes.

To understand how strategic logic leads readily to such hybrids, consider the results of a recent war game I helped to stage, in which participants sought winning strategies in one fast-changing sector: the US higher education market. Teams playing the roles of traditional large state and non-profit colleges confronted other teams representing the new Massively Open Online Course (MOOCs) and distance learning enterprises, such as Coursera and The University of Phoenix. At first the teams circled each other in the plenary session, each declaring its position and revealing strengths and weaknesses. It soon became clear to the teams and to the observers in the room that neither the online nor the traditional college "education delivery" model alone could prevail. Traditional brick-and-mortar schools suffer from a high cost base that has resulted in tuitions reaching stratospheric heights. Meanwhile, the alluring proposition of the online offerings — courses you can take anywhere, anytime, at a lower price point — is tainted by high drop-out rates and the somewhat lower credibility of their certificates and degrees.

As the war game evolved, so did the teams' strategic positions. The teams representing traditional schools knew they needed a strong — not just a token — distance learning component. In contrast, the online technology-driven entities sought the revenue stream and prestige the brick and mortar schools enjoyed. Each side appreciated that it needed the other model to grow, and that partnering was the most expeditious way forward, but the combinations had to figure out how they would build revenues and student bases without cannibalizing each other's position. Forced to deal with gathering change in the market and perceiving a need to catch a fast-moving wave before it crested, these teams began arriving at solutions that screamed hybrid, all of them combinations of the two worlds.

One, for example, featured the MOOCs of the world, such as Coursera and the Harvard-MIT joint venture EdX, playing the Netflix courses-on-demand card. At the same time, this solution called for the MOOC to serve as a student lead generator and revenue producer for brick-and-mortar university partners. The MOOC would receive funds from all its partner universities when students who had taken and completed the free online courses actually applied and were accepted into the four-year institutions. At the point of acceptance and enrollment, the universities would pay the MOOC a fee for each MOOC student enrolled. Thus a hybrid concept yielded a win-win for all participants.

Hybrids are not necessarily mergers. Often, one company is grafting on a piece of another's competency to solve a business challenge, without having to buy the entity outright. Both entities can remain intact and both can win in the marketplace. One way or the other, the hybrid approach allows an incumbent to address market shifts without losing the essence of what made it successful in the first place. It turns the threat of disruption and disaster into an opportunity. Instead of the outsider disrupting and destroying the legacy firm, it can pave the way to the incumbent's next strategic position.

Not every company can find or benefit from a hybrid solution. For an indication of whether one is in your company's future, ask yourself a few basic questions. Are there market pressures that we cannot respond to on our own, drawing on our existing model? Are the proposed solutions too far out of our competency range? Is the disruptive offering missing a piece of the strategic puzzle? Is the disruptive firm unable to make its own market soon enough or show a profit? Finally, can we find a combination — through partnership or merger — that will create a whole greater than the sum of the parts each company brings to the table? If at least some of the answers are coming up "yes," then the hybrid approach should be a strategic solution you start working toward — ideally, before your competition beats you to it.

Five Things Tim Cook Should Do at Apple (Now that He's Done Testifying)

Dan Pallotta — Tue, 21 May 2013 21:00:42 +0000

Tim Cook performed brilliantly in front of Congress today. He was authoritative, in breathtaking command of his facts, as he always is, and brought a unique perspective to each response. Senator Levin was out for blood, but "No one laid a glove on him," as Phillip Emer DeWitt wrote for Fortune. He put his questioners to shame. His response to the question of whether Apple was violating basic rules of fairness was brilliant: "I am a fair person. Apple is a fair company. I would not administer [something that was unfair.]" This is no dime-a-dozen MBA or supply-chain guy. This is a man of unique character and exceptional intelligence with an opportunity to make his own mark, not just on Apple, but on history.

There are a few important things that he could do a this point in his tenure that I believe would advance his movement toward that destiny in a big way.

Make a Self-Deprecating Joke
Tim Cook is the stiffest scripted presenter since Neil Armstrong. But most people aren't bothered by that. What bores them is his unconsciousness about it. If Tim simply let people know that he knows he's a lousy presenter he'd instantly be a better presenter. He should start out WWDC with a killer self-deprecating routine acknowledging how stiff he is. Mock himself. People would love it. They would love him.

Run a Great Ad Series
Apple needs to get brave and bold and fun with its advertising again. Maybe it revives the Mac vs. PC campaign, but make it iOS vs. Android, and destroy Android over the inability to get the latest software updates, the malware problems, the privacy issues, the lack of ability to easily synch all of your content to all of your devices, the freeze-ups, the cheesy product lanches, etc. Alternatively, get inspirational and move people with the difference Apple products make in the lives of the blind, poor children in rural schools, entrepreneurs in the developing world. The medium is the message, and a bold company cannot stay cautious with its creative. Tim has to lead this charge.

Stop Delegating Big Announcements to Others
Tim has taken the delegating thing too far. Product announcements are the setting for the leader of the organization to demonstrate their excitement about the product and to make the argument for the product. When Tim delegates every element of the keynotes to his Senior VPs, and just bookends the keynote with opening and closing remarks, he can come across as dispassionate about the products, and illiterate on how they integrate with the overall Apple story and how they integrate with his vision.

Steve Jobs was like a litigator at a keynote — he made arguments — he made irrefutable cases for how the current class of products sucks, why they suck, what the fundamental problem is, and then he showed how Apple was going to fix it. He didn't just say he was going to delight customers, he deconstructed how Apple would do it by taking them on an argumentative odyssey in which Apple was always the hero there to slay the dragons of mediocrity. It showed that he cared about delighting customers because he understood what frustrated them. That made him human to his customers, and for all his aloofness, Apple fans could relate to Steve Jobs because he showed them that he empathized with their problems.

Tim Cook has to do the same thing. He has to show that he uses the products. That's his job. This delegation of major product announcements — wholesale — to others is either lazy or it's based on a misguided sense of how you motivate your reports.

Make the Distinction Between Product Design and the Design of the Future
Product design and future design are two different things. Jony Ive can design the products of the future, but he can't design the future of the company. Imagine President Kennedy hiring a "Chief of Vision," instead of providing the vision himself. Tim Cook has to contemplate what his vision is for the future of Apple and he should stage a major event to articulate it.

Don't Worry About Being Liked
Steve Jobs' vision wasn't his only strong suit. His willingness to fight for that vision and to be disliked if that's what it took to make that vision real was as valuable as the vision itself. The sense of possibility that he emanated didn't just show up in a new product. It showed up in his ability to get the product out the door six months earlier than anyone said it could be done. And he didn't make that happen by worrying about being liked. At every level he showed people that human beings were capable of something more. He didn't do that by appealing to their lazier angels. Delighting customers also means showing people that real things can get done, and get done much faster than they get done by all of the other companies that frustrate them in their lives — you know, the companies that are forever showing concept products that people love but that never make it to market. And to get things done like that, you have to mess with that inherent human tendency to slow things down. People don't like it, until you show them what they're really capable of. They might dislike you today. But they'll love you in the long run.

There is zero reason — zero reason — that Tim Cook cannot earn a place in the pantheon of great American business leaders. But to do it, he's going to have to stretch outside of his comfort zone.

Welcome to the One-Screen World

Mitch Joel — Tue, 21 May 2013 15:00:14 +0000

As screens get increasingly getting cheaper and more ubiquitous, are we going to keep counting them?

Not too long ago, I was asked to give a presentation on the state of digital media and how well brands are intersecting the worlds of marketing and technology. Prior to my closing keynote, there was a panel discussion about the state of media. One senior media executive was discussing the power of "a four screen world." I thought that he had made a mistake. I was familiar with the concept of three screens (television, computer and mobile), but four screens was something new. Eventually, he unveiled that the fourth screen was the tablet.

It's still somewhat shocking to think that the iPad was first introduced on April 3rd, 2010, and we now live in a world where Apple is selling more iPads than any PC manufacturer is selling of their entire PC line. This has been a steadily growing trend since 2012. And yet this is the fourth screen?

The basic dilemma for marketers is this: there are now too many screens to count. Set aside PCs, tablets, smartphones, and TVs (connected or otherwise), for a moment. Your car, your thermostat, your washer and dryer, your refrigerator are all on their way to being "smart" as well — connected to the internet and to each other, featuring screens that offer up all sorts of information, from usage data to content, like a fridge that suggests recipes based on the food stored inside.

This means the future is not about three screens or four screens or fourteen screens. It's about one screen: whichever screen is in front of me. In a world where screens are connected and everywhere, the notion of even counting them seems arbitrary, at best. If you don't believe me, speak to somebody currently sporting Google Glass.

At the same time that screens are proliferating, they're also integrating.

My niece is nineteen years old. When she was sixteen, she would come home from school, take out her laptop, plop down on the couch, lift the computer lid, turn on the TV, plug in her iPod earbuds, and set her BlackBerry down next to her. From afar, it looked like she was running NORAD. But fast-forward a mere three years, and now she comes home from school, takes out her iPad... and that's it.

All of that core content is now readily available on one screen. From content (in text, images, audio, and video) to communications (chatting with friends on Skype or via Google Hangouts), it's all there on this one device that rules them all.

This convergence is happening because, no matter how many screens you buy, you only have one pair of eyes. Yes, we are seeing a massive uptick in consumers who are using companion devices (meaning, they are watching TV but have their smartphones nearby), and while the industry does refer to it as a companion device, the truth is that you're not watching the television with one eyeball and tweeting on your iPhone with the other. You're seeing one screen at a time.

Welcome to the one-screen world.

Here we are, today, with over a billion smartphones in the world. They outnumber the PCs. Fifteen percent of online retail sales will take place this year via mobile devices, according to eMarketer, and that's a 56% increase from 2012. Within the next decade, virtually all mobile phones will be smartphone, meaning six billion people will be constantly connected. We already live in a world where more individuals have a mobile subscription than access to safe drinking water.

And yet, according to a recent survey by Adobe, 45% of marketers say their firms still don't have a mobile presence. Businesses are still splitting hairs of what is the web, what is the smartphone, what is the tablet, and what is TV. Instead of hunkering down and figuring out what the customer's new expectations are when everything from their washer and dryer to their television and smartphone are hyper-connected to one another, most marketers are just worrying about how they're going to advertise on a mobile screen. Advertising? That's not the revolution here. Now, brands don't just advertise on someone else's mobile site, they can build their own apps, tools, and programs of engagement that make mobile a different kind of media. They can create value through offering a mobile service or app that is truly useful. They can touch their consumers in ways that are both contextual and location-aware. This is the proverbial "last mile" that all marketers were hoping for: contextual, personal, and by location.

If ever there was a time to embrace the notion of the one-screen world, this would be it. Increasingly, consumers are rolling these screens up into one. They're streaming video from their tablets and laptops to their TVs. They're watching TV shows on their phones. They simply want the content they like on the device they prefer, when they want it.

The rise of mobile gives marketers a tremendous opportunity to rethink what their jobs really are. Don't send me a coupon or bombard me with ads for the latest washing machine; don't blast me with a text message while I'm in a department store's appliance center. Create an app that lets me control my washing machine, so I can start my washing on my way home from the office, so it's not sitting wet all day in the washer.

Remember, at the end of the day, your customers only have one pair of eyes, and they're only looking at one screen: the one that interests them.

Innovations in Digital and Mobile Marketing
An HBR Insight Center

Did You Really Buy A Snowmobile? Big Data Knows

Mon, 13 May 2013 13:06:00 +0000

Better data analysis helps banks rile fewer customers while trying to stop credit card fraud.

What High-Quality Revenue Looks Like

Anthony K. Tjan — Thu, 07 Feb 2013 15:00:53 +0000

Growth. In my world of venture capital, we hear all the time that growth drives value. It is how some investors justify putting sky-high valuations on companies that are growing, but not yet making any money. Consider Zynga, which lost $209 million in 2012 — but is still valued at about $2 billion because of the cash it raised and because its revenue is still growing. On the other hand, there's Groupon, once lauded as the "fastest-growing company ever." Its stock price peaked weeks after the company went public in 2011 and is down about 80% since. The market has come to question whether its growth can be sustained, and with what underlying earnings.

Focus on growth and growth alone is always a temporary strategy. Over time, a company's value becomes a function of both growth and cash flow. Superior earnings eventually lead to superior value creation.

Put another way, quality (i.e. sustainability) of revenue matters as much as quantity (i.e. growth) of revenue. High-quality revenue has three main characteristics: predictability, profitability and diversity. So in addition to looking at year-over-year growth, you should be looking to these three metrics to drive long-term value:

1. Predictability. What is your predictability metric? That is, how much of an "annuity" does your business model have? This is best measured by counting your customers from last year, and seeing what percent of them remain customers this year. For example, if you had 1,000 paying customers in 2011, how many of them were still with you as paying customers in 2012? At our venture firm, we look for companies that have the potential of getting to 90% of their customers returning year over year and spending at least the same amount or more. With that level of recurring revenue, your product has gone from "good-to-have" to "must-have." The client-recurrence count year over year (or its inverse metric, churn), along with a measure of whether those recurring clients are spending at least the same amount in aggregate (recurring dollars), are the best proxies for predictability of revenue. It's always easier to forecast if you can be confident that 90% of last year's customers and dollars will be back this year.

2. Profitability. Where does your profit really come from? A company's earnings are the sum of many different revenue streams contributing different margins and by extension different profit streams. At a fast-food establishment, for example, a fountain drink is likely a key profit driver relative to other elements of the meal. Or take giant online retailer Amazon. It makes its money as an e-commerce giant by selling goods, right? A closer look would show that the majority of its profits come not from e-commerce sales but from its third-party marketplace, media, and growing web and cloud services. Unpack your profit margin to see where you really want to drive your sales — to higher-margin areas. A practical approach is to divide your revenue into higher-margin and lower-margin categories. What is a benchmark for a good margin? It obviously varies by sectors — for example, retail businesses will have lower gross margins than SaaS (Software as a Service). We like business models that can generate gross margins of over 70%.

3. Diversity. When we evaluate companies we look closely at revenue concentration. While early-stage companies may often have a couple of customers that make up a large portion of revenue, over time you want to build a diverse revenue base. In general, we urge companies to ensure that none of their top five clients makes up more than 15% of revenue.

So there you have it. It's a simple enough framework, but often difficult to achieve. High-quality revenue requires predictability, profitability and diversity. Do you have highly predictable revenue with high gross margins and without revenue concentration? Growth fueled by low-quality revenue can be exciting, but it eventually fizzles out. For the long run, as with most things in life, high quality is the way to go.