Strategy in the media

Citation

Henry, C. (2008), "Strategy in the media", Strategy & Leadership, Vol. 36 No. 5. https://doi.org/10.1108/sl.2008.26136eab.002

Strategy in the media

Article Type: CEO advisory From: Strategy & Leadership, Volume 36, Issue 5

The magic number for success

63 is the number for Quickparts.

It appears in the annual report, gets discussed at meetings, and lest any employee forget, 63 periodically flashes on the flat screens that appear throughout the Atlanta headquarters of this fast-growing maker of custom parts for clients such as Intel and Whirlpool.

Back in 2006, Quickparts’ number was 48, which is none too shabby. But here’s the difference between 48 and 63, according to co-founder Ronald Hollis: a 25% increase in customer referrals. That helped drive record profits in 2007 on $23 million of revenues, up from $17.5 million in 2006. This year Quickparts is aiming for 65.

“We want to just keep driving the number up,” says Hollis, 41.

What exactly is this magical metric? It’s called a Net Promoter Score, and essentially it measures customer satisfaction and referrals. The score represents the proportion of customers who are promoters – those so delighted that they praise a product or service to all within earshot – minus the detractors.

Posting the score to employees, and encouraging them to boost it, can help a business owner focus her staff on customer service. And inquiring into the sources of customer enthusiasm and anger can help the owner and her staff identify and bolster their strengths, while addressing their shortcomings. Hollis, for example, learned from his NPS follow-up that customers seeking price quotes online wanted more customized quotes, which he now provides.

NPS has been adopted and praised by large corporations such as Allianz Group Pitney Bowes and Intuit Dan Henson, the newly appointed CEO of GE Capital Solutions, describes NPS as “one of the most powerful tools we’ve ever employed at GE.”

“Get customers to sell for you”, Fortune Small Business, 27 May 2008.

When do mergers work?

There are, of course, situations in which acquisitions do make sense. According to a recent meta-analysis of a number of merger studies, mergers that rely more on cost-cutting – combining back-office operations, eliminating redundancies, and so on – than on promises of vast growth are more likely to be successful. (The merger of J.P. Morgan and Bank One, for instance, led to more than three billion dollars in annual cost savings.) Acquisitions of smaller, younger private companies are usually wiser than acquisitions of publicly traded firms. They’re more likely to give you access to new technologies or products, and you’re more likely to be able to make the deal at a good price. In 2000, for instance, Microsoft paid less than forty million dollars to buy the video-game developer Bungie, the creator of Halo. In the six years that Microsoft owned the company, Bungie’s products generated well over a billion dollars in revenue for Microsoft. When you buy a publicly traded company, by contrast, you typically have to pay a steep takeover premium. And that matters, because, arguably, the best hope of making an acquisition work is doing the deal at a bargain price.

James Surowiecki “All together now?” The New Yorker, 9 June 2008.

Why new airlines fail

Last year, a friend said, “I’ve got a great example of an early-stage disruption for you.” He showed me a full page advertisement for a new airline called Skybus. The model seemed to hit key disruptive notes: fares as low as $10 coupled with new revenue streams such as branded planes.

But earlier this week Skybus shut down. What went wrong? The short answer: Skybus’s strategically sensible move to find a disruptive-friendly pocket of the aviation industry ran counter to its need to develop a profitable business model.

As we note in Seeing What’s Next, the airline industry can be surprisingly difficult for low-cost entrants. In ideal disruptive circumstances, market leaders are happy to cede low-end markets to attackers. But incumbent airlines care a great deal about serving even the least demanding customers because the marginal cost of adding an additional passenger to a plane is relatively low. Incumbents typically respond to a low-cost incursion by slashing prices to try to drive the entrant out of business.

Thirty years ago Southwest Airlines found a way out of this dilemma. The key to Southwest’s historical success was flying in and out of secondary airports, such as Baltimore, Maryland and Manchester, New Hampshire. Instead of trying to cherry pick passengers on existing routes, Southwest historically grew by flying non-competitive routes.

Skybus tried to follow this approach. Only one of its initial routes (Columbus, Ohio to Los Angeles) overlapped directly with a major airline’s route. It also borrowed RyanAir’s model of “unbundling” plane tickets, or charging seemingly impossibly low fares to entice more people to fly and then layering on additional charges for various services like checking in bags.

Southwest succeeded because it coupled the most attractive secondary routes with a very low-cost business model. RyanAir has been able to succeed because its cost structure is incredibly low, its operations are incredibly efficient, and it has high capacity utilization. In both cases disruptive success traces back to business models that allow prosperity at low price points.

After all, at the end of the day succeeding with a low-priced offering requires a business model that turns low prices into attractive profits. Otherwise a low-priced model is simply a recipe to make less money than market leaders.

Evidently, Skybus couldn’t crack the code on the aviation business model. Part of its problem could be that there just aren’t that many attractive secondary routes in the United States that haven’t already been picked off by Southwest and others.

Scott Anthony, “Why it’s so hard to disrupt the airline industry” Harvard Business School Discussion Leader, 8 April 2008, http://discussionleader.hbsp.com/anthony/2008/04/why_skybus_didnt_take_off.html

Innovation in tough times

Leading up to Google’s first-quarter earnings report on April 17, investors couldn’t have been more bearish. They had knocked the stock down 35% since the start of the year, concerned that a weak economy would finally hurt the search giant’s advertising business. But Google defied skeptics – and the economic downturn – with a surprisingly strong showing that sent the stock soaring 20% the next day. More than anything, Google’s continued prosperity is a testament to its ability to keep innovating, both in search and advertising operations and in new lines such as online office-productivity software.

Many companies, says Chief Executive Eric Schmidt, can skirt downturns entirely by coming up with innovations that change the game in their industries – or create new ones. (When asked if Google’s strategy would change as the economy heads into a likely recession, he replied: “What recession?”) In a recent interview in a tiny meeting room next to his Mountain View (Calif.) office, Schmidt told Business Week Silicon Valley Bureau Chief Robert D. Hof how Google manages the tricky process of innovation.

Do companies have to manage innovation differently in a downturn?Innovation has nothing to do with downturns. A hot product will sell just as well in a recession as it will in a non-recession. Let’s imagine that we invented a better advertising product for television. What would our revenue growth be for that? Well, you’re into a $50 billion market, so it will be driven not by whether there’s a television ad recession but by what degree we can get people to substitute [our product] for the other. The strong companies understand this, and during a recession, they invest.

Can other companies emulate Google’s famous model of letting engineers spend about 20% of their time on projects outside their main job?The story of innovation has not changed. It has always been a small team of people who have a new idea, typically not understood by people around them and their executives. [This is] a systematic way of making sure a middle manager does not eliminate that innovation. If you’re the employee and I’m the manager, and I sit down and say, “Our product’s late, and you screwed up, and you gotta work on this really hard,” you can legally say to me, “I will give you everything I’ve got, 80% of [my time].”

“How Google fuels its idea factory,” Business Week, 29 April 2008.

Seeing the opportunity in employee turnover

Despite the earnest efforts of many executives to win the so-called “war for talent”, employee mobility remains a fact of life. According to a recent survey, from the beginning of 2005 to the end of 2006, companies lost nearly 30% of their human capital.

What are managers to do? The traditional solution has been to focus on strengthening employee-retention programs in order to curb worker turnover. But although such efforts might produce limited gains, they do not address the broader issues driving employee mobility. Instead, a more innovative approach is needed. Our research suggests that companies might benefit from developing new strategies that, instead of focusing on suppressing employee mobility, actively seek to exploit the potential opportunities it creates. For such approaches to succeed, however, managers must rethink some of their basic assumptions about the “war for talent.”

In the past, employee mobility was framed as a win-or-lose scenario: A company wins if it keeps its employees and loses if they leave … But dwelling on the loss would only prevent company executives from seeing the potential opportunities created by the social capital embedded in their relationships with the departing employees.

Social capital is defined as the sum of the actual and potential resources embedded within, available through and derived from relationships. When employees move between companies they often maintain contact with former colleagues. Because of the trust and comfort embedded in these ties, employee mobility can create a conduit for information, allowing knowledge to flow between organizations. These relationships can also serve as the basis for future business dealings between companies. In addition, because mobile individuals possess knowledge about the capabilities, work practices and processes of their former employers, they can make interorganizational endeavors more efficient. Thus, the social capital created by the movement of employees across companies can be a key source of competitive advantage.

An implicit assumption of the “war for talent” perspective is that departing workers are lost to competitors. Yet employees also leave to join existing and potential “cooperators,” such as customer companies, suppliers and partners, and such movement can facilitate the creation and strengthening of business relationships with those organizations.

Deepak Somaya and Ian O. Williamson, “ Rethinking the ‘War for Talent’”, Sloan Management Review, Summer 2008.

Amazon’s next revolution

Jeff Bezos’ store in the sky is hard to beat for books, CDs, and a zillion other products. It’s also great for quick technology fixes. Say you need a fat HP server for hosting the too-moronic-to-fail Facebook app you plan to launch next week. Only $1,300 and change! Hit 1-Click. Select expedited shipping. What’s for lunch?

But there’s a cheaper, faster, better way to satisfy your hardware jones. Tucked over on the left side of the page, the nerd gnomes in Beacon Hill, Seattle, have embedded an option that blows computer shopping into, well, the clouds. Click on “Amazon Web Services.” Key in your Amazon ID and password and behold: a data center’s worth of computing power carved into megabyte-sized chunks and wired straight to your desktop. Clones of that HP tower cost 10 cents per hour – 10 cents! – and they’re set to start spitting out widgets as soon as you upload the code. Virtual quad cores are a princely 80 cents an hour. Need storage? All you can eat for 15 cents per gigabyte per month. And there’s even a tool for monitoring your virtual stack with an iPhone. No precious cash tied up in soon-to-be-obsolete silicon, no 3 am runs to the colo cage. Outsource your infrastructure to Amazon!

There’s a name for this: cloud computing. Or less poetically, utility computing, or even the unfortunate acronym HaaS, meaning hardware as a service. Whatever it’s called, Jeff Bezos is loving it. On a sunny winter day, with Mount Rainier and the Olympic range on spectacular display, the bald billionaire sits in a conference room in the converted VA hospital that serves as Amazon headquarters. He’s ticking off all the reasons why Amazon Web Services and its industrial-strength suite of online processing power, storage, and other geeky treats are the best thing to come out of the company since 1-Click. AWS capitalizes on Amazon’s combination of computational skills and operational savvy. It piggybacks on a multibillion-dollar IT infrastructure. And it pulls in a whole new category of customers looking for rock-solid scalable computing on demand – blue-chip startups like Zillow and PowerSet, kids in garages building the next Google, even adventurous corporate IT jocks looking to offload some of the drudgery …

While the pinstripes gnashed their teeth about costs – more than $2 billion spent on IT! – Amazon was bolting together the world’s broadest, deepest, smartest, most versatile global technology platform, ready for anything from running data centers to delivering cat litter. Now Bezos’ globe-spanning empire is primed to lead the migration of computing power from the desktop to the Net. It’s a shift potentially as dramatic as the desktop revolution that another Seattle-area company – often similarly underestimated – rode to power two decades ago. Jeff Bezos’ aerial department store leafing out into a digital cloud forest. Amazon, indeed.

“Cloud computing. Available at Amazon.com today,” Wired Magazine, 21 April 2008.

When should market leaders help their competitors?

Earlier this spring, we at Samuel Adams decided to share 10 tons of hops at cost with other craft brewers whose businesses had been imperiled by price hikes and crop shortages. Some business leaders may see this as enabling the competition at the precise moment we could have beaten it. I see it as both the right thing to do and smart business.

The craft beer segment is championed by a fairly close-knit group of passionate brewers who operate as much like colleagues as competitors. Brewers are entrepreneurs, but they are also craftsmen and artisans who love comparing brewing tips, ingredients and beers. We also love educating consumers about what makes beer great. In turn, those curious consumers seek the variety we tell them is a hallmark of craft brewing. Variety comes through having many entrepreneurs, competitors, simultaneously innovating with new recipes.

There’s a palpable sense that we succeed together or not at all. This is true for many business sectors that have a core of small, entrepreneurial players, but it’s especially true when those small businesses have to compete with giants one hundred times their size, the way craft brewers have to compete with multi-national breweries like Anheuser-Busch, SAB Miller-Coors and Diageo.

Indeed, I believe it’s precisely this collegial approach to business and commitment to innovation that has encouraged robust growth in craft brewing for the past five years. In 2007 alone, sales of craft beers increased 12 percent while mass domestic beer sales remained flat.

Craft brewers had been expanding and preparing to meet this increasing demand when, late last year, several new realities converged to create the industry’s most clear-cut moment of vulnerability in 25 years.

The downturn struck craft brewers swiftly. First, prices for wheat and barley increased significantly as farmers opted to switch crops and grow corn to satisfy the burgeoning market for corn-based ethanol. Then, transportation costs increased dramatically due to oil and gas prices. Finally, the weak dollar combined with several seasons of low yields to send prices soaring for the aromatic hops that craft brewers prefer.

Last fall, Noble Bavarian Hops that had been selling for $6/pound were rumored to be selling for $30/pound. Samuel Adams has been fortunate. We’ve been around longer than most craft brewers, and we have long term contracts with hops growers, so our supplies were secure.

In mid-January we hosted a meeting of the Massachusetts Brewers’ Guild, and the hops crisis was the primary topic. I heard about brew pubs that changed their recipes, small breweries that discontinued brewing some styles and others that were poised to shut their doors. It was then I realized that as the category leader it was time for us to step in and lend a hand. We decided to suspend brewing of one of our beers, the very hoppy Imperial Pilsner, and offer 20,000 pounds of German Tettnang Tettnanger and English East Kent Goldings hops to craft brewers in need.

Jim Koch “Why I shared my most valuable ingredient with competitors,” Harvard Business School Conversation Starter, 16 May 2008, http://conversationstarter.hbsp.com/2008/05/why_i_shared_my_most_valuable.html

Cause and effect in the typical case study

So here in lies the rub. The problem of causality plagues a lot of variance-driven research. Causality is, as it sounds, an attempt to clarify whether one action actually causes another. How scientists study this causal relationship is by looking at how variation in one action (the independent variable) causes variation in another (the dependent variable). Sounds simple. Until you want to study something interesting, like people. That’s because you can’t really tell whether the causal relationship goes in one direction or the other.

Take, for example, teams, morale, and productivity. You can find that happy teams are productive teams, and conclude that happy people create productive teams because they work better together. This leads to one set of managerial recommendations around making your people happy. Or you can find conclude (often more accurately) that productive teams create happy people because people like to do things they do well. Now you get a completely different set of recommendations around managing people in teams. Of course, because people aren’t dumb, the causal relationship goes both ways many hot teams are caught in the positive feedback of doing well, feeling good, working harder, and doing better … .

I worked at Apple in the early 1990s. When I got there we were at 55% gross margins and when I left we were at 15%. Was I the cause? I hope not. Either way, I got to see how Apple’s “innovative” management decisions in the 1980s came back to haunt them in the form of impossibly-high manufacturing costs, impossibly-scalable perks (Friday beer busts, morning bagels, massages, first class travel and accommodations), and impossibly-complex product proliferation. Three years later, I wandered the halls of Silicon Graphics and saw the same decisions waiting to bring them down.

The next time someone points out an organization’s innovative innovation practices, think hard about whether those practices were there when the real innovation took place. Then think about where you’ve seen them before, and what happened to those companies.

Andrew Hargadon, “Googling the causal confusion syndrome,” The Hargadon Blog, 21 May 2008, http://andrewhargadon.typepad.com/my_weblog/2008/05/googling-the- causal-confusion-syndrome.html

Future looks bright to futurist with a track record

Worried about greenhouse gas emissions? Have faith. Solar power may look terribly uneconomical at the moment, but with the exponential progress being made in nanoengineering, Dr Kurzweil calculates that it’ll be cost-competitive with fossil fuels in just five years, and that within 20 years all our energy will come from clean sources.

Are you depressed by the prospect of dying? Well, if you can hang on another 15 years, your life expectancy will keep rising every year faster than you’re aging. And then, before the century is even half over, you can be around for the Singularity, that revolutionary transition when humans and/or machines start evolving into immortal beings with ever-improving software.

At least that’s Dr Kurzweil’s calculation. It may sound too good to be true, but even his critics acknowledge he’s not your ordinary sci-fi fantasist. He is a futurist with a track record and enough credibility for the National Academy of Engineering to publish his sunny forecast for solar energy

He makes his predictions using what he calls the Law of Accelerating Returns, a concept he illustrated at the festival with a history of his own inventions for the blind. In 1976, when he pioneered a device that could scan books and read them aloud, it was the size of a washing machine.

Two decades ago he predicted that “early in the 21st century” blind people would be able to read anything anywhere using a handheld device. In 2002 he narrowed the arrival date to 2008. On Thursday night at the festival, he pulled out a new gadget the size of a cellphone, and when he pointed it at the brochure for the science festival, it had no trouble reading the text aloud …

“Certain aspects of technology follow amazingly predictable trajectories,” he said, and showed a graph of computing power starting with the first electromechanical machines more than a century ago. At first the machines’ power doubled every three years; then in midcentury the doubling came every two years (the rate that inspired Moore’s Law); now it takes only about a year.

Dr. Kurzweil has other graphs showing a century of exponential growth in the number of patents issued, the spread of telephones, the money spent on education. One graph of technological changes goes back millions of years, starting with stone tools and accelerating through the development of agriculture, writing, the Industrial Revolution and computers. Now, he sees biology, medicine, energy and other fields being revolutionized by information technology.

John Tierney, “The future is now? Pretty soon, at least,” The New York Times, 3 June 2008.

Success brings competition even in the most remote markets

Nine years ago, Avarzed could not have gotten a small business loan anywhere in her province, even if she had possessed 10 times the value in collateral (which she didn’t). She lives in the province of Dornogobi, part of the Gobi Desert in Mongolia, a land-locked country between China and Russia known for harsh winters, arid steppes and nomadic herders. In this country, 2.9 million people are spread out over a land the size of Western Europe, although more than a million of them live in the capital city of Ulaanbaatar.

Avarzed was a single mother with three children in school, barely making ends meet by operating a small kiosk selling food and sundries. Then she got her first loan; she used the US$80 to buy more goods to sell in her kiosk. “I am grateful that someone trusted me, and I have always tried to repay my loans on time because of this,” she says.

Today, she is putting one child through university in Ulaanbaatar, lives in a three-room apartment and owns her own shop. She used her latest loan of US$6,000 to expand her stock, buying stationary and beauty products. However, in the provincial capital where she lives, retail is not the only sector seeing growth: There are now six banks operating in this desert town of 19,000 people.

Increasing Competition

Mongolia is just one difficult environment where microfinance – the business of providing financial services in small transaction amounts to poor, underserved markets – has taken off in the past five years. But its experience showcases some of the changes now buffeting the industry as microfinance institutions (MFIs) and their markets mature, private investors arrive on the scene in force and traditional microfinance values are questioned.

“Microfinance grows up: success brings new challenges for investors, practitioners, in emerging economies,” Knowledge@Wharton, 16 Spring 2008, http://knowledge.wharton.upenn.edu/article.cfm?articleid=1940

The long shadow of the latest Black Monday…

Credit where it is due. In bailing out Bear Stearns’ troubled mortgage portfolio and encouraging J.P. Morgan Chase to buy the rest of the firm for next to nothing, the Fed prevented the mother of all Black Mondays from occurring on March 17, while punishing Bear’s management and stockholders for the company’s recklessness. Had the Fed failed to address Bear’s fate so promptly, panic selling would almost certainly have engulfed Lehman Brothers, Merrill Lynch, and other Wall Street firms.

Ultimately, though, the Fed’s actions are likely to provide a respite from, rather than a resolution of, the credit crunch, and they point to the urgent need for more vigorous regulation and oversight of Wall Street. In rescuing Bear, the Fed went well beyond its original mandate of lender of last resort to commercial banks, such as Citigroup and Bank of America. The same day Bear was sold, the Fed also offered emergency financing directly to 20 Wall Street investment banks and agreed that the firms could provide as collateral “a broad range of investment-grade debt securities,’’ including mortgage paper nobody else wanted to buy.

To be sure, these are challenging times. But the Fed has embarked on a historic change. In extending its protective arm to all of Wall Street, it is evoking the threat of the Great Depression or even one of the 19th century’s epic financial whirlwinds. In 1825, the Bank of England, facing a wholesale panic in London’s financial district, flooded the markets with cash: “We lent it,” a spokesman commented at the time, “by every possible means consistent with the safety of the bank, and we were not, on some occasions, overnice.” Ben Bernanke wasn’t very nice to Bear’s stockholders either, prompting some of them to agitate for more cash from J.P. Morgan to approve the deal. But to everybody else on Wall Street, Bernanke seemed like the tooth fairy. From now on, he was effectively saying, no Wall Street firm is dumb or venal enough to be allowed to fail.

John Cassidy, “The Great Depression debate”, Portfolio.com, 14 April 2008, www.portfolio.com/views/columns/economics/2008/04/14/Analyzing- Bear-Stearns-Bailout#page4

… and how we can prevent the next one

We also need to get better and more information to more-sophisticated investors and financial professionals. In real estate, one important way of doing that is by further developing the financial market rather than focusing only on regulating it or reining it in. For instance, real-estate futures markets, which have existed since 2006 but are still in their infancy, have the potential to tame future housing bubbles. Without them, there is no way for skeptical investors who think they see a rising bubble to express that opinion in the market, except by selling their own personal homes. If futures markets grow, then any skeptic anywhere in the world could profit from a bubble in say, Las Vegas, by short-selling real estate there. Substantial short-selling would reduce bubbles and provide information to home builders, ratings agencies, and others. In turn, builders, for instance, might not overbuild if they see that most of the money in the futures markets is being bet on price declines.

Subsidized financial advice and the encouragement of real-estate futures markets are just two examples of the sorts of actions that could limit future bubbles. The larger point is that increasing the amount, accessibility, and reliability of information about investments should be a high priority for policy makers. Epidemiology suggests that even very small changes to the transmission rate of a disease can make the difference between an epidemic and a low-transmission disease. If better information inoculated even relatively few people against boom thinking, that could prevent many bubbles from rising.

Robert J. Shiller, “Infectious exuberance,” The Atlantic, July/August 2008.

Harvesting organizational knowledge

What’s the point of capturing organizational knowledge if it’s going to be tossed into some file and forgotten? That’s all too often what happens to lessons from postmortems and after-action reviews. One way to make sure such knowledge will benefit the people who need it is to engage them in what we call a knowledge harvest: a systematic, facilitated gathering and circulation of knowledge. Our approach, piloted by Intel Solution Services (ISS), Intel’s IT consulting arm has helped the company speed collection and transmission, and has improved the likelihood that knowledge gets productively and creatively reused.

The key is to identify, before the harvest begins, others in the organization who could use the knowledge (the “knowledge seekers”) and involve them in gathering valuable lessons. Consider how an ISS health-care consulting team in Germany conducted a harvest. It viewed knowledge reuse as critical to the success of the company’s Future Hospital program, involving 160 subprojects that the team participated in. For one of those projects, it had developed an innovative medical dashboard that graphically displayed emergency room activities by aggregating transmissions from Wi-Fi tags on rooms, equipment, and patients. Encouraged by initial successes in the ER, Oliver Mark, principal enterprise architect at Intel Germany and chief architect for this program, brought in Katrina Pugh as a harvest facilitator to help the team surface tacit knowledge and transfer it to the larger program.

As facilitator, Pugh recruited knowledge seekers from other departments and project teams at Intel. Because seekers are self-interested, they ask tough, exploratory questions of knowledge originators, extracting important nuances, not only about how a project was executed but also about how costs built up, how knowledge might be applied elsewhere, what worked and what didn’t, and so on.

From the outset, the ISS team thought that Intel’s marketing department and solution delivery department (which develops consulting methods) might be able to apply what it had learned to creating and promoting future products. In a series of teleconferences, the team members probed by the facilitator and the knowledge seekers recounted how they had designed, adapted, and deployed the technology and worked with new third-party software vendors. The harvest surfaced important Wi-Fi innovations that were developed by the Intel Germany engineers; it allowed seekers from solution delivery to explore how ISS structured its work with clients to reach consensus early and speed project delivery; and it helped the marketing department examine the potential for co-marketing.

Katrina Pugh and Nancy M. Dixon, “Don’t just capture knowledge – put it to work,” Harvard Business Review, May 2008.

Putting customers on the couch

Several years ago, when Universal Studios was feeling a bit depressed over its struggle to draw attendees to its Orlando parks, the company sought professional help. Dr Mark Ingwer, president of Insight Research Associates, uses a hybrid technique to understand consumer attitudes and behaviors in relation to a brand, what he calls psychoethnography. The approach combines psychological interviews with behavioral research, in this case actually following families in Disney World and Universal Studios parks to understand the different experiences in each. As Ingwer demonstrates, behavioral research often can provide marketers with information about what consumers do – but not a lot about why they do it. For that, you need a shrink – sort of.

Behavioral Insider: What problem did you need to solve for Universal Studios?

Ingwer: People didn’t know what they could expect when going there, so Universal Studios was not considered a destination theme park by many of their out-of-market visitors. They obviously wanted to get on the radar of folks planning to come down. Somehow there was this vague notion that Universal Studios was related to being in the movies in some way, and that was the essence of what the brand conveyed. We were contracted because they hoped to develop strategic learning for marketing in order to differentiate the resort experience from Disney.

BI: What is psychoethnography?

Ingwer: The technique du jour is anthropology and ethnographic research, and it is a wonderful tool because it unveils what people are doing by actively observing them. But it doesn’t necessarily get at the motivations. So the combination of the motivational and the observational enables us to get underneath needs and desires and emotional differentiation. We joined families as they experienced the theme parks and then conducted interviews that addressed some emotional experience issues to understand how they experienced the two parks. We did everything from guided imagery to recreate the thoughts and the feelings connected to the theme park. We gave them words to differentiate the two. We also used a technique similar to laddering and trying to understand what they were looking for and why they left their normal lives to accomplish. We looked at their continuum of this notion of escape and what that meant to them.

Behavioral Insider, 25 April 2008, http://blogs.mediapost.com/behavioral_insider/?p=266

Black swans and internal markets

When entrepreneur and former Accenture IT researcher Adam Siegel worked as a consultant, he would see how information often went from true to much less true – from fact to rosy fantasy – as it moved up the hierarchies of client companies. “What were mostly red lights at the project level became mostly green lights – with maybe a few yellows thrown in – by the time [a report] got to the CEO.”

Project owners creatively spun results for political reasons—mainly to prevent funding from being yanked. Consequently, there was a gaping disconnect between the project people down at ground level and the business leaders farther up the food chain when it came to understanding how projects were actually progressing. The leaders tended to think things were going much better than they actually were.

The problem of corrupted information flows stayed with Siegel and ultimately led him to found his current company, Inkling Markets, a software-as-service venture aimed at helping companies conduct successful prediction markets. What does a prediction market have to do with eliminating spin? Siegel sees an opportunity to produce higher quality decision support in businesses by tapping anonymous input “from people who aren’t normally asked their opinions, in samples large enough to filter out individual agendas.”

In the case of an internal prediction market, employees might be asked to weigh in anonymously (wagering a sum of token currency) on a statement like this: “The Voldemort Project will meet all of its defined performance targets by the end of 2008.”

Based on the level of agreement with the statement, an aggregated assessment of the Voldemort Project’s prospects emerges. If that assessment were to disagree significantly with highly optimistic official reports, then the project owners would have some explaining to do. Markets can aim either for wide input on questions of enterprise strategy, or for narrower input on specialized matters from populations of more knowledgeable employees (say, everyone working in the R&D function).

Siegel’s software has a do-it-yourself component so that participants can suggest their own questions. Inevitably, “this surfaces good questions that market owners might not think of.” He adds that this is “hugely important if you’re trying to find the next black swan.”

While many are naturally captivated by the black-swan-finding potential of prediction markets, another sweet spot may be their use as a form of institutional lie detection – guaranteeing the integrity of internal reporting and keeping the progress of business initiatives transparent.

Lew McCreary, “How to kill bad projects,” HBR Editors’ Blog, 4 June 2008, http://discussionleader.hbsp.com/hbreditors/2008/06/how_to_kill_bad_projects_1.html

Putting social media to work

More than 16,000 BT employees work together on wikis, using the same technology as Wikipedia, the online encyclopedia that lets anyone post or edit entries. But instead of teaming up to edit an online encyclopedia, employees gather on them to write software, map cell-phone base stations, launch branding campaigns. Nearly every new project hatches a wiki. This is especially valuable in a global economy, where engineers in Asia can pick up a project as Europeans go to bed. The new groups that evolve on these wikis raze traditional hierarchies: An intern can amend the work of a senior engineer. Meanwhile, some 10,500 employees at BT (that Rangaswami knows of) are already on Facebook. BT is also offering an internal social network. But just like Facebook and Twitter, it won’t work unless it attracts a crowd. Rangaswami can’t force anyone to use it. It would be fruitless to try. To hear Rangaswami describe it, all his team can do is provide tools and watch.

There’s a lot to look at. “We’ve spent years talking about the value of the water-cooler conversations,” he says. “Now we have the ability to actually understand what these relationships are, how information and decision-making migrate. We see how people really work.” Why does this matter? The company can spot teams that form organically, and then can place them on targeted projects. It can pinpoint the people who transmit ideas. These folks are golden. “A new class of supercommunicators has emerged,” he says.

Good networkers have always had their ways to work around the direct reports and dotted lines diagrammed on company charts. They’ve created informal networks. Now, with social media, they have a fast-expanding set of tools to extend these relationships, and even to change their companies.

“Beyond blogs,” Businessweek, 22 May 2008.

Craig Henry Strategy & Leadership’s intrepid media explorer, collected these sightings of strategic management in the news. A marketing and strategy consultant based in Carlisle, Pennsylvania, he welcomes your contributions and suggestions (Craighenry@aol.com).