Management illusions – Brand management and MIT

"The Illusion of Brand Control" is a great article at Harvard Business Publishing. Andrew McAfee, who is a research scientist at the MIT Sloan school Center for Digital Business, offers the insight that in today's market it's not possible for a business to "control" its brand.  "New media" like the internet and Facebook are bi-directional.  People no longer just absorb a crafted message, they are able to push back.  Bloggers and internet commenters can have more influence on a brand than traditional advertising and PR.  As a result, a business's brand becomes the result of what others say about it – not just what the owner says.

And this mirrors what is happening across business today.  As we've moved from the industrial to the information economy, success is no longer about amassing and controlling assets.  Scale advantages have disappeared, with scale accessible to anyone who has a browser and a credit card.  Where the business leader of 1965 likely felt success required controlling everything from employees and facilities to the brand message, in 2015 success is about adapting to rapidly shifting market requirements.

If you want your brand, and your business, to grow and be profitable, you have to realize the dramatic limits of "command and control. That approach works in very static, clearly defined environments.  Like the military.  Businesses today no longer operate in slow moving static environments with high levels of regulation and rigid business limits and significant entry barriers.  Businesses today operate in complex, highly adaptive systems.  Competitors can move fluidly, quickly, globally to offer new solutions and react to changes. 

Today's leaders have to recognize that many of the most important impacts on their business (or brand) come from outside their organization.  Completely out of management's control.  Being Locked-in on what you know how to do has less and less value when you might well have to react very quickly to an external event in an entirely new way in order to maintain product position and growth.  Just ask the leaders at Circuity City, who could not adapt quickly enough and saw their company fail.  Adaptability to shifting market requirements becomes key to sustaining growth.  Competitive advantage is not created by seeking entry barriers.  Rather, competitive advantage now comes from understanding market shifts, and moving rapidly to position yourself in the right place – over and over and over.

Executives who feel like they have "control" of their business are under an illusion in 2009.  And that has been demonstrated time and time again as this recession has driven home a plethora of market shifts.  There are many things managers can control.  But many of the most important things to success are completely out of management's hands.  Thus, the ones who succeed aren't trying to control their brand, or business.  Instead they are building organizations that have great market sensing and are quick to react.  Just compare GM to Google and you'll see the gap between what worked in 1965, and what works 45 years later.

Doing what’s easy, vs. doing what’s hard – The New York Times

Years ago there was a TV ad featuring the actor Pauly Shore.  Sitting in front of a haystack there was a sign over his frowning head reading "Find the needle." The voice over said "hard."  Then another shot of Mr. Shore sitting in front of the same haystack grinning quite broadly, and the sign said "Find the hay."  the voice over said "easy."  Have you ever noticed that in business we too often try to do what's hard, rather than what's easy?

Take for example The New York Times Company, profiled today on Marketwatch.com in "The Gray Lady's Dilemma."  The dilemma is apparently what the company will do next.  Only, it really doesn't seem like much of a dilemma.  The company is rapidly on its way to bankruptcy, with cash flow insufficient to cover operations.  The leaders are negotiating with unions to lower costs, but it's unclear these cuts will be sufficient.  And they definitely won't be within a year or two. Meanwhile the company is trying to sell The Boston Globe, which is highly unprofitable, and will most likely sell the Red Sox and the landmark Times Building in Manhattan, raising cash to keep the paper alive. 

Only there isn't much of a dilemma hereNewspapers as they have historically been a business are no longer feasible.  The costs outweigh the advertising and subscription dollars.  The market is telling newspaper owners (Tribune Corporation, Gannett, McClatchey, News Corp. and all the others as well as The Times) that it has shifted.  Cash flow and profits are a RESULT of the business model.  People now are saying that they simply won't pay for newspapers – nor even read them.  Thus advertisers have no reason to advertise.  The results are terrible because the market has shifted.  The easy thing to do is listen to the market.  It's saying "stop."  This should be easy.  Quit, before you run out of money.

Of course, company leadership is Locked-in to doing what it always has done.  So it doesn't want to stop.  And many employees are Locked-in to their old job descriptions and pay – so they don't want to stop.  They want to do what's hard – which is trying to Defend & Extend a money-losing enterprise after its useful life has been exhausted.  But if customers have moved on, isn't this featherbedding?  How is it different than trying to maintain coal shovelers on electric locomotives?  This approach is hard.  Very hard.  And it won't succeed.

For a full half-decade, maybe longer, it has been crystal clear that print news, radio news and TV news (especially local) is worth a lot less than it used to be.  They all suffer from one-way communication limits, poor reach and frequently poor latency.  All problems that didn't exist before the internet.  This technology and market shift has driven down revenues.  People won't pay for what they can get globally, faster and in an interactive environment.  As these customers shift, advertisers want to go where they are.  After all, advertising is only valuable when it actually reaches someone.

Meanwhile, reporting and commentary increasingly is supplied by bloggers that work for free – or nearly so.  Not unlike the "stringers" used by news services back in the "wire" days of Reuters, UPI and AP.  Only now the stringers can take their news directly to the public without needing the wire service or publishers.  They can blog their information and use Google to sell ads on their sites, thus directly making a market for their product.  They even can push the product to consolidators like HuffingtonPost.com in order to maximize reach and revenue.  Thus, the costs of acquiring and accumulating news has dropped dramatically.  Increasingly, this pits the expensive journalist against the low cost journalist.  And the market is shifting to the lower cost resource — regardless of how much people argue about the lack of quality (of course, some [such as politicians] would question the quality in today's "legitimate" media.)

Trying to keep The New York Times and Boston Globe alive as they have historically been is hard.  I would contend a suicide effort.  Continuing is explained only by recognizing the leaders are more interested in extending Lock-in than results.  Because if they want results they would be full-bore putting all their energy into creating mixed-format content with maximum distribution that leads with the internet (including e-distribution like Kindle), and connects to TV, radio and printPricing for newspapers and magazines would jump dramatically in order to cover the much higher cost of printing.  And the salespeople would be trained to sell cross-format ads which run in all formats.  Audience numbers would cross all formats, and revenue would be tied to maximum reach, not the marginal value of each format.  That is what advertisers want.  Creating that sale, building that company, would be relatively much easier than trying to defend the Lock-in.  And it would produce much better results.

The only dilemma at The New York Times Company is between dying as a newspaper company, or surviving as something else.  The path it's on now says the management would rather die a newspaper company than do the smart thing and change to meet the market shift.  For investors, this poses no dilemma.  Investors would be foolhardy to be long the equity or bonds of The New York Times.  There will be no GM-style bailout, and the current direction is into the Whirlpool. Employees had better be socking away cash for the inevitable pay cuts and layoffs.  Suppliers better tighten up terms and watch the receivables.  Because the company is in for a hard ending.  And faster than anyone wants to admit.

Don't miss my recent ebook, "The Fall of GM"  for a
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Innovation or change in Federal regulations? Not yet President Obama

Yesterday we heard announcements about reforming the federal regulators and the systems they use to manage money and banking, and now the Treasury Secretary is out selling the program to Congress "Geithner Fields Revamp Queries" Marketwatch.com.  It's touched off a big debate, as some people think the project has gone too far – and others think it hasn't gone far enough.  That's interesting, because most people think something needs to be done so the events of last summer — a near melt-down in the banking system and a near collapse of the monetary system — are not repeated.  So we might want to think about what was announced through the lens of The Phoenix Principle to see if we can expect much change.

Bruce Nussbaum is billed as "the innovation guru" on Businessweek.com.  He reports "President Obama Failed At Redesigning the Financial System."  Interestingly, his biggest complaint is that the President "didn't do what FDR did in the 1930s" and then attributes FDR with significantly Disrupting the government apparatus at the time.

I would agree with that assessment.  FDR attacked a bevy of Lock-ins currently then in place.  His attacks caused people to reconsider the approach then being used, which had remarkably high unemployment and long bread lines, and opened White Space to try all kinds of programs broadly referred to as "The New Deal."  Ronald Reagan 50 years later was similar.  He attacked what had become the conventional wisdom of the time, and his Disruption opened White Space which led to the greatest tax code reform ever, as well as significant changes in labor relations and government deregulation of industry.  Both are examples of Presidents that first Disrupted, and then used White Space to develop new solutions

President Obama has not Disrupted.  He's definitely whacked the chicken coop a bit, ruffling a lot of feathers, by doing things such as pushing for the firing of GM's Chairman/CEO.  But so far, even though he espouses change, his administration hasn't attacked any old Lock-ins.  He keeps talking about changes "within the system."  As The Phoenix Principle would predict, this sort of approach to change usually aggravates everybody – even your own supporters – and results in little significant change.  Perhaps some marginal adjustments, but since the underlying Success Formula is not attacked all the recommendations lie within it – and the Status Quo is largely preserved.

Mr. Nussbaum, in an interview on BusinessWeek.com entitled "What Should A.G. Lafley Do Next?", recommends the President appoint the former head of Proctor & Gamble to be the nations Chief Innovation Officer.  Although a novel idea, it won't make any difference.  Mr. Nussbaum's consultant-style recommendation is the kind that gets a lot of executives in trouble who end up with lofty goals, but no chance of success.  Such a move would put an embarrassing end on Mr. Lafley's career, and be an embarrassment for the President.

The federal government is a series of silo fiefdoms controlled by individual secretaries.  Mr. Nussbaum would like Mr. Lafley to use "design theory" to cut across fiefdoms in order to innovate.  Mr. Nussbaum gives Mr. Lafley credit for reorganizing P&G this way to success.  But, how exactly is someone who works for the President supposed to re-organize the administrative branch of the federal government?  Fiefdoms with their own individual mandates, leaders, staff and budgets.  Especially without a dramatic Disruption that forces everyone to agree on such a massive reorganization.  No commitment from the President will matter when the silo kings are allowed their silos.  Probably a lot of recommendations – long the domain of Presidential commissions – that say there should be more cross-departmental work.  But without a Disruption, something that rocks the apparatus to its core, there's no hope of this happening.

Despite the President's lofty goals and ambitions, he risks becoming somebody who talks about change – but doesn't accomplish much.  This may upset you, or you may be happy, depending upon your point of view.  But as a practical matter, should we expect that health care reform will be something radical – like social security and medicare were – or something much less dramatic?  The answer is now clear.  Lacking Disruptions, and when we look at the financial services reform proposed yesterday, we should expect something that will be an extension of the current system.  A bit of tweaking to how things are currently done, but largely the same.  Financial system reform left 95% of the players and their products untouched – and focused on small changes to a few institutions and a few products that are identified as central to the problems last summer.  We should expect that health care reform would leave 95% of the system and products unchanged as well.  Despite whatever rhetoric is extolled from politicians and pundits of either party.

This is not to say that the federal government does not adapt.  When attempting to do more of what it has always done better, faster, or cheaper we regularly see that such sustaining innovations are picked up quickly and used effectively.  And this was demonstrated this week when we learned that the State Department and other federal agencies were relying substantially on Twitter to receive information from Iran, and communicate with people in Iran.

For years the government apparatus relied on journalists for lots of two-way international communications.  This often created a somewhat cozy relationship between very large newspapers with feet on the street in remote and unfriendly locations with people in government.  This coziness had the really bad side effect of causing America's enemies to think most journalists were American spies working for the CIA, etc.  So what worked for journalists all too often got them jailed and sometimes killed.  But this system completely broke down the last 2 years as traditional journalism, and the newspapers, started going broke.  The journalists were laid off in droves, and the government lost its primary info feed from offshore.

What's replaced journalists for readers has been a market shift to the internet.  People have turned to bloggers, media sites and social networking for information.  This dramatic shift has wiped out the profits at newspapers, and shut down a lot of properties.  For media companies this represents wholesale change. 

But government users quickly adapted.  In their effort to Defend & Extend their roles, they became quick users of these sites as well.  And when Iran refused to allow traditional journalists outdoors – or even to report on uprisings – the government officials turned to Twitter.  And, just like the government used to ask the newspapers for help, they had no trouble asking Twitter – as reported in "U.S. asks Twitter to stay on line because of Iran vote" on MSN.com.  And, much like how The Washington Post or The New York Times responded in the past, Twitter obliged.  It was a remarkable example of "business as usual" for the government agencies – just done a little faster, better and probably cheaper.  And this, of course, reinforced to international leaders their claims that Twitter and social media sites are "tools of the U.S. governement."  In what appears "the more things change the more they stay the same" we see how easily the status quo can be reinforced, even amidst a dramatic change for the participants.

There can be reform in any government.  There even can be innovation.  But obtaining that reform requires

  1. Someone develop very clear scenarios about the future that describe the need for change
  2. A recognition that competitors will do better and we'll do worse if we don't change
  3. A Disruption – an attack on Lock-ins that support the Status Quo
  4. Using White Space to test new solutions toward which the organization can migrate as pieces are demonstrated successful.

It works.  We see it work for individuals, work teams, functional groups, businesses, industries and even for governments – like exemplified by Franklin Roosevelt and Ronald Reagan.  FDR did a marvelous job of describing a future at risk if America didn't start working again, otherwise international competitors would take over the country.  And Ronald Reagan similarly described a future that would be entirely different (free of inflation and stagnation) if changes were made – and one at risk of its long-term enemy the USSR if changes weren't made.  But if you try to shortcut these steps you get only marginal change. 

Frozen in the headlights Part 2 – Gannett, New York Times, McClatchy

"Newspapers face pressure in selling online advertising" is today's headline about newspapers.  Seems even when the papers realize they must sell more online ads they can't do it.  Instead of selling what people want, the way they want it, the newspapers are trying to sell online ads the way they sold paper ads – with poor results

We all know that newspaper ad spending is down some 20-30%.  But even in this soft economy internet ad spending is up 13% versus a year ago.  Except for newspaper sites.  At Gannett, NYT and McClatchy internet ad sales are down versus a year ago! 

People don't treat internet news like they do a newspaper.  The whole process of looking for news, retrieving it, reading it, and going to the next thing is nothing like a newspaper.  Yet, daily newspapers keep trying to think of internet publishing like it's as simple as putting a paper on the web!  What works much better, we know, are sites focused on specific issues – like Marketwatch.com for financial info, or FoodNetwork.com.  Also, nobody wants to hunt for an on-line classified ad at a newspaper site – not when it's easier to go to cars.com or vehix.com to look for cars, or monster.com to look for jobs.  Web searching means that you aren't looking to browse across whatever a newspaper editor wants to feed you.  Instead you want to look into a topic, often bouncing across sites for relevant or newer information.  But a look at ChicagoTribune.com or USAToday.com quickly shows these sites are still trying to be a newspaper.

Likewise, online advertisers have far different expectations than print advertisers.  Newspapers simply said "we have xxxx subscribers" and expected buyers to pay.  But on the web advertisers know they can pay for placement against specific topics, and they can expect a specific number of page views for their money.  As the article says "if newspapers want to get their online revenue growing again, once the economy recovers, they have to tie ad rates more closely to results, charge less for ads and provide web content that readers can't get at every news aggregation site." 

When markets shift, it's not enough to try applying your old Success Formula to the new market.  That kind of Defend & Extend practice won't work.  You're trying to put a square (or at least oblong) peg into a round hole.  Shifted markets require new solutions that meet the new needs.  You have to study those needs, and project what customers will pay for.  And you have to give them product that's superior to competitors in some key way.  Old customers aren't trying to buy from you.  Loyalty doesn't go far in a well greased internet enabled world.  You have to substantiate the reason customers need to remain loyal.  You have to offer them solutions that meet their emerging needs, not the old ones.

Years ago IBM almost went bust trying to be a mainframe company when people found hardware prices plummeting and off-the-shelf software good enough for their needs.  IBM had to develop new scenarios, which showed customers needed services to implement technology.  Then IBM had to demonstrate they could deliver those services competitively.  Only by Disrupting their old Success Formula, tied to very large hardware sales, and implementing White Space where they developed an entirely new Success Formula were they able to migrate forward and save the company from failure.

Unfortunately, most newspaper companies haven't figured this out yet.  They don't realize that bloggers and other on-line content generators are frequently scooping their news bureaus, getting to news fans faster and with more insight.  They don't realize that on-line delivery is not about a centralized aggregation of news, but rather the freshness and insight.  And they haven't figured out that advertisers take advantage of enhanced metrics to demand better results from their spending.  The New York Times, Gannett and other big newspaper companies better study the IBM turnaround before it's too late.

Locked-in news leaders – Chris Mathews

The Chris Mathews Show (you can download/view the show at the link) today lamented the failure of newspapers, citing this week's shift to on-line only for the Seattle Post Intelligencer (check my earlier blog on this company for more details.)  Mr. Mathews even went so far as to demonstrate how he, as a boy, folded newspapers to throw them on stoops when growing up in Philadelphia.  The show made a valiant, if completely unsuccessful, effort to Defend the newspaper business.  Maybe because he feels the not breath of on-line competitors himself!

As 2 print journalists and 2 television journalists discussed what was happening with news, the group was notably absent an advocate for on-line newsWhile they discussed the change in behavior of young news readers, all of the panelists were (like me) well over 40.  They talked about how they used a newspaper, but they had no one there to discuss how other news seekers use networking sites or blogs.  There was no blogger on the panel, nor a representative of any notable on-line news sites like Marketwatch.com or HuffingtonPost.com, nor a representative of Google or Yahoo! or any other organization leading the development of on-line content sites.

Mr. Mathews and his guests reminded me of an executive group in a company talking about a new competitor on the scene.  All of them love the existing product, and have processes closely linked to using the current product (they like to get up and read a morning newspaper – but then, they don't have to fulfill an 8:00 to 6:00 job with high productivity requirements).  They talked about "the good old days" when print journalists were the kings.  They discussed how print news used to break stories like the Watergate cover-up (which was 35 years ago).  They guessed at how newspapers might continue to survive, such as by consolidating through mergers and acquisitions, which would allow fewer to survive, but probably thrive – at least that was their hope.  And they confirmed to themselves that if newspapers disappeared it had to be a bad thing – and even threatening to democracy!!  Overall, it was a segment fully dedicated to Defending newspapers, without even the hint of someone who could explain the alternative as a product or a better business model!

By talking to themselves, and their customers, these folks showed their woeful ignorance on the state of on-line news.  Mr. Mathews definitely needs to get more in touch with his (and newspapers') competition.  His panel talked as if those who write about events on-line today don't have or take the time to research their topics — showing his ignorance about how important topics like the delays in producing the Boeing 787 jetliner were ferreted out by bloggers – not traditional media!  And he said that without newspapers you lose "peripheral vision" about the news.  Which ignoredthe role of news consolidation sites and, again, bloggers, and social networks at bringing forward interesting things happening around us to groups with similar interests — things often missed by traditional newspapers with their locked-in reporting methods.

If Mr. Mathews wants to do the topic of failing newspapers justice he should bring on his show people that work in non-traditional newsBloggers and on-line site editors.  His competitionInstead of dismissing them as somehow unqualified (because they aren't like him), he better pay attention to what they do, how they do it, and why they are often able to do his job better than him!  Instead of focusing on his "base" he had better start obsessing about competition. 

And he better start opening some White Space to keep himself and his show relevant – like opening a Twitter account, and creating a web site that's interactive with those in and reading the news (rather than his current vanity site) and blogging himself.  Because if he keeps Defending his current show and position, and the newspapers that are finding themselves too slow and out-of-date in today's market, he's likely to find his show struggling for advertisers faster than he realizes!  His show can fall to the perils of Defend & Extend Management just like any product that pays too little attention to competition and doesn't deploy White Space to evolve its Success Formula.