Strategy in the media

Citation

Henry, C. (2011), "Strategy in the media", Strategy & Leadership, Vol. 39 No. 3. https://doi.org/10.1108/sl.2011.26139cab.001

Strategy in the media

Article Type: CEO advisory From: Strategy & Leadership, Volume 39, Issue 3

Reinventing capitalism

The capitalist system is under siege. In recent years business increasingly has been viewed as a major cause of social, environmental, and economic problems. Companies are widely perceived to be prospering at the expense of the broader community.

Even worse, the more business has begun to embrace corporate responsibility, the more it has been blamed for society’s failures. The legitimacy of business has fallen to levels not seen in recent history. This diminished trust in business leads political leaders to set policies that undermine competitiveness and sap economic growth. Business is caught in a vicious circle.

A big part of the problem lies with companies themselves, which remain trapped in an outdated approach to value creation that has emerged over the past few decades. They continue to view value creation narrowly, optimizing short-term financial performance in a bubble while missing the most important customer needs and ignoring the broader influences that determine their longer-term success. How else could companies overlook the well-being of their customers, the depletion of natural resources vital to their businesses, the viability of key suppliers, or the economic distress of the communities in which they produce and sell? How else could companies think that simply shifting activities to locations with ever lower wages was a sustainable “solution” to competitive challenges? Government and civil society have often exacerbated the problem by attempting to address social weaknesses at the expense of business. The presumed trade-offs between economic efficiency and social progress have been institutionalized in decades of policy choices.

Companies must take the lead in bringing business and society back together. The recognition is there among sophisticated business and thought leaders, and promising elements of a new model are emerging. Yet we still lack an overall framework for guiding these efforts, and most companies remain stuck in a “social responsibility” mind-set in which societal issues are at the periphery, not the core. The solution lies in the principle of shared value, which involves creating economic value in a way that also creates value for society by addressing its needs and challenges. Businesses must reconnect company success with social progress. Shared value is not social responsibility, philanthropy, or even sustainability, but a new way to achieve economic success. It is not on the margin of what companies do but at the center. We believe that it can give rise to the next major transformation of business thinking.

Michael E. Porter and Mark R. Kramer, “How to reinvent capitalism – and unleash a wave of innovation and growth.” Harvard Business Review, January 2011.

Zen and the essence of Apple’s strategy

That ability to express by omission holds a central place in Jobs’s management philosophy. As he told Fortune magazine in 2008, he’s as proud of the things Apple hasn’t done as the things it has done. “The great consumer electronics companies of the past had thousands of products,” he said. “We tend to focus much more. People think focus means saying yes to the thing you’ve got to focus on. But that’s not what it means at all. It means saying no to the hundred other good ideas.” (Jobs sometimes says this even more bluntly: Nike CEO Mark Parker likes to recount the advice Jobs gave him shortly after Parker’s promotion to the top spot: “You make some of the best products in the world – but you also make a lot of crap. Get rid of the crappy stuff.”)

Other companies fail to do things because they’ve overlooked potential openings or are cutting corners to save money; under Jobs, however, every spurned opportunity is a conscious, measured statement. It’s why the pundits who give Apple products poor reviews for not including industry-standard components – for instance, the iMac’s lack of a floppy drive – just aren’t getting it: Apple products are as defined by what they’re missing as much as by what they contain.

“How Steve Jobs ‘out-Japanned’ Japan,” San Francisco Chronicle, January 28, 2011.

An unexpected way to understand the future

Mary Shelley’s 1818 novel Frankenstein, or the Modern Prometheus, is generally considered the first work of science fiction. It explores, in scientific terms, the notion of synthetic life: Dr Victor Frankenstein studies the chemical breakdown that occurs after death so he can reverse it to animate nonliving matter. Like so many other works of science fiction that followed, Shelley’s story is a cautionary tale: It raises profound questions about who should have the right to create living things and what responsibility the creators should have to their creations and to society.

Think about that: Mary Shelley put these questions on the table almost two centuries ago – 41 years before Darwin published The Origin of Species and 135 years before Crick and Watson figured out the structure of DNA. Is it any wonder that Alvin Toffler, one of the first futurists, called reading science fiction the only preventive medicine for future shock?

Isaac Asimov, the great American science fiction writer, defined the genre thus: “Science fiction is the branch of literature that deals with the responses of human beings to changes in science and technology.” The societal impact of what is being cooked up in labs is always foremost in the science fiction writer’s mind. H.G. Wells grappled with creating chimera life forms in The Island of Doctor Moreau (1896), Aldous Huxley gave us a heads-up on modified humans in Brave New World (1932), and Michael Crichton’s final science-fiction novel, Next (2006), brought the issues of gene splicing and recombinant DNA to a mass audience.

… Indeed, a year before the first atomic bomb was built, the FBI demanded that the magazine Astounding Science Fiction, recall its March 1944 issue, which contained a story by Cleve Cartmill detailing how a uranium-fission bomb might be built.

Robert J. Sawyer “The purpose of science fiction,” Slate, January 27, 2011, www.slate.com/id/2282651/

Moving beyond multi-tasking

The importance of reserving chunks of time for reflection, and the difficulty of doing so, has been themes in management writing for decades. Look no further than Peter Drucker’s 1967 classic, The Effective Executive, which emphasized that “most of the tasks of the executive require, for minimum effectiveness, a fairly large quantum of time.” Drucker’s solutions for fragmented executives – reserve large blocks of time on your calendar, don’t answer the phone, and return calls in short bursts once or twice a day – sound remarkably like the ones offered up by today’s time- and information-management experts …

Better solutions exist, and they aren’t rocket science. What we hope to do in this article is help executives, and their organizations, by reminding them of three simple things.

First, multitasking is a terrible coping mechanism. A body of scientific evidence demonstrates fairly conclusively that multitasking makes human beings less productive, less creative, and less able to make good decisions. If we want to be effective leaders, we need to stop.

Second, addressing information overload requires enormous self-discipline. A little like recovering addicts, senior executives must labor each day to keep themselves on track by applying timeless yet powerful guidelines: find time to focus, filter out the unimportant, forget about work every now and then. The Holy Grail, of course, is to retain the benefits of connectivity without letting it distract us too much.

Third, since senior executives’ behavior sets the tone for the organization, they have a duty to set a better example. The widespread availability of powerful communications technologies means employees now share many of the time- and attention-management challenges of their leaders. The whole organization’s productivity can now be affected by information overload, and no single person or group can address it in isolation. Resetting the culture to healthier norms is a critical new responsibility for 21st-century executives.

Derek Dean and Caroline Webb “Recovering from information overload”, McKinsey Quarterly, January 2011.

What we learned in 2010

1. Surprises are the new normal. Resilience is the new skill. Back-up plans are strategic assets. Volcanic ash, generally not on any company’s worst case scenario list, disrupted air traffic for several weeks. (“Surprise!) As BP proved, minimizing crisis doesn’t cut it, and failure to communicate honestly is the biggest mistake. Kanter’s Law still holds – that everything can look like a failure in the middle. The number of things that can hold things up has burgeoned, especially when politics are involved; Chinese regulators are the latest deal-delayers, this time for the NSN-Motorola deal …

2. Innovation takes courage and the willingness to be out in front rather than following the herd. Speaking of herds, while sacred cows can hold companies back if there is no courage to challenge orthodoxy, cows proved to be a better set of celebrity endorsers than Tiger Woods for Stonyfield Farms and their yogurt marketing. The creativity to produce innovation can involve a great deal of improvisation rather than sticking to a fixed script. It also takes dedication …

3. Straight-line careers are over-rated. Zig-zags might better serve companies and leaders. When change is ubiquitous, stepping outside of familiar territories – whether fields, geographies, or industries – can provide important new insights and perspectives, particularly for emerging opportunities. Veer, soar, and return to the home base triumphant, as Apple CEO Steve Jobs showed. But that doesn’t mean that leaders can parachute in from one setting to another and expect to be effective. Jobs took a pause and learned a few new consumer entertainment tricks. It is a good idea to take learning pauses to prepare for next steps.

4. Openness and inclusion should be the new standards. As the movie Inside Job argues about the banking crisis, closed circles of elites can reinforce dysfunctional behavior when there are interlocking financial interests and self-dealing relationships. Including people from formerly excluded groups might surface problems earlier or discourage throwing caution to the wind. Power goes to the connectors, a 2009 lesson. Connectors bring new ideas and information across groups, a very important role when the best new opportunities lie in emerging markets unfamiliar to those. Thus, the leadership ranks must be globally diverse …

5. Forget privacy especially if you’re a leader. Leaders are always on. Microphones and video cameras are always on, too, as former British prime minister Gordon Brown found to his peril. Xerox CEO Ursula Burns received better coaching from her predecessor, Anne Mulcahy, and provides a positive model. But other CEOs weren’t so fortunate. As former HP CEO Mark Hurd learned, small lapses can trip up leaders, even smart ones producing financial results, if they do not have a base of support. In the digital age, the spotlight is always on …

Rosabeth Moss Kanter, “Five lessons from 2010 worth repeating – without repeating 2010, HBR Blogs, January 3, 2011, http://blogs.hbr.org/kanter/2011/01/five-lessons-from-2010-worth-r.html

Can you outsource too much?

What happens when companies become too dependent on outside suppliers and cede them too much control if they lack the same degree of understanding and awareness about how important product or service elements fit together and what’s necessary? Once management lets go of critical internal levers, how does it go about reestablishing them?

These questions arose during a multiyear research project examining supply strategy relating to new product development at a major European automotive company. In the late 1980s, the company – which we call Alpha – had direct supply relationships with more than 3,000 suppliers, most of them small companies. The suppliers were mostly involved in the production of components, and only to a limited extent in the design of components. In the early 1990s, however, management began shifting increasing amounts of design and engineering work to suppliers. That trend was hastened by the proliferation of electronics in cars, which was beyond the traditional competence base of automotive manufacturers. Although all companies shift activities to outside suppliers, Alpha pushed outsourcing even further. By the mid-1990s, Alpha began to outsource the design of complete systems, such as dashboards, seats and safety systems, to suppliers that had the ability to provide entire systems.

To senior management, outsourcing entire systems – including the design of those systems – seemed like the right direction. Similar supply arrangements were already common in other industries such as computers. By becoming less integrated, Alpha management hoped to increase flexibility (by being able to switch suppliers and technologies), reduce lead times (by taking advantage of concurrent engineering) and cut development costs while improving product quality (by utilizing suppliers’ specialized expertise). With its new networked innovation strategy, Alpha expected to build close relationships with 350 first-tier suppliers, mostly suppliers of systems, thereby significantly reducing the number of direct supply chain relationships. With independent suppliers, outsourcing coordination would become easier …

It wasn’t long before management identified problems with this approach. By moving so much new-product design work to outside companies (in the space of 10 years, the percentage of design work being performed externally rose from between 25% and 35% to 85% of the value of a car, more than most competitors), the company lost its grip on many of the elements that shaped design decisions and outcomes. The pre-development phase was when the concept of the vehicle was worked out and when decisions on performance trade-offs were made. But without any direct involvement in the component design and engineering process, key decisions – for example, how the suspension felt or where the ventilation control knobs were located – were now in the hands of suppliers that didn’t know the customers or what customers expected as well as Alpha did.

Francesco Zirpoli and Markus C. Becker, “What happens when you outsource too much?” Sloan Management Review, Winter 2011.

Industrial accidents and financial crises

The connection between banks and nuclear reactors is not obvious to most bankers, nor banking regulators. But to the men and women who study industrial accidents such as Three Mile Island, Deepwater Horizon, Bhopal or the Challenger shuttle – engineers, psychologists and even sociologists – the connection is obvious. James Reason, a psychologist who studies human error in aviation, medicine, shipping and industry, uses the downfall of Barings Bank as a favorite case study. “I used to speak to bankers about risk and accidents and they thought I was talking about people banging their shins,” he told me. “Then they discovered what a risk is … ”

One catastrophe expert … Charles Perrow, emeritus professor of sociology at Yale … is convinced that bankers and banking regulators could and should have been paying attention to ideas in safety engineering and safety psychology. Perrow published a book, Normal Accidents, after Three Mile Island and before Chernobyl, which explored the dynamics of disasters and argued that in a certain kind of system, accidents were inevitable – or “normal”. For Perrow, the dangerous combination is a system that is both complex and “tightly coupled … ”

Perrow believes that finance is a perfect example of a complex, tightly coupled system. In fact, he says, its complexity “exceeds the complexity of any nuclear plant I ever studied” …

Perhaps the most profound and worrying parallel between preventing industrial catastrophes and financial ones emerges from Perrow’s pessimistic theory of “normal accidents.” For him, any sufficiently complex, tightly coupled system will fail sooner or later. The answers are to simplify the system, decouple it, or reduce the consequences of failure.

Tim Harford, “Three Mile Island, the Challenger Shuttle, and … Lehman Bros.?” Financial Times, January 16, 2011.

The right kind of knowledge

We live in an age where advantage comes not from knowing more, but from knowing differently. Cultivate your contrarian spirit in 2011.

Gary Hamel on Twitter, January 1, 2011, http://twitter.com/profhamel/statuses/21379368865497088

When do consumers prefer quality to low prices?

Today’s marketplace promises seemingly infinite choices for consumers, even as evidence suggests that a surplus of choice can sometimes feel more like a burden than a freedom. Having too many choices can demotivate shoppers, prompting them to delay or abandon an intended purchase because selecting the best product at the best price requires too much effort. Retailers worry that consumers may simply opt for lower quality and less expensive products when confronted with a clutter of choices. For example, comparing prices requires much less effort than sampling the features of new cell phones or tasting half a dozen different wines.

Retailers’ fears may be unfounded, though, particularly when it comes to luxury and high quality goods. Professor Sheena Iyengar worked with Marco Bertini of London Business School and Luc Wathieu of Georgetown University to test the hypothesis that in some instances a broader set of choices drives shoppers toward rather than away from higher quality products that have higher prices …

In a series of experiments, the researchers showed that consumers do become more sensitive to quality when facing a dense field of choices – one in which there are a large number of products within a given range of qualities. Shoppers presented with 21 types of chocolate were prepared to pay 33 percent less for a low quality chocolate and 40 percent more for a high quality chocolate relative to those presented with only five different types. The results of further experiments where consumers chose from an assortment of wines or astronomical binoculars revealed that manipulating the perceived density of a choice set could similarly affect shoppers’ sensitivity to quality. The researchers also analyzed sales data from hundreds of lots sold through an auction house over a two-year period, finding that the same phenomenon holds true in the field.

In all cases, consumers were consistently willing to pay more for higher quality products and less for lower quality products. And, when given fewer choices, consumers were far less willing to pay for quality and gravitated toward lower quality, less costly items. They also reported weighting quality as more important when facing larger choice sets.

“Coax consumers toward higher quality by offering a dense set of choices,” Ideas@work, (Columbia Business School) January 2011 http://www4.gsb.columbia.edu/ideasatwork/researchbriefs/7314376

Will more companies shun the IPO?

Barry Silbert, of SecondMarket, made the strongest case possible that “the IPO market has been dying a slow death over the past ten years,” and that nowadays it’s pretty much impossible for a company worth less than $500 million to go public. So it makes sense that private exchanges like his are stepping in and allowing owners to start selling stakes without going through the hassle and expense of an IPO.

The attraction is clear: for one thing, as Silbert says, “the company gets to decide who the buyers and sellers are, and what information they want to disclose to investors.” And by being picky about possible buyers, it avoids the fate of many public companies whose stock is held largely by traders with a time horizon of weeks, days, or even seconds.

What was interesting was the very low degree of pushback that Silbert got. David Liu of Jefferies spent as much time on the downside of IPOs as he did on the upside. “The IPO windows are much tighter now than they’ve ever been, there are so many exogenous shifts in the global marketplace,” he said. “When we counsel companies on the IPO route, we spend a lot of time on the volatility, the quarterly earnings, everything.” He was much more bullish on the M&A market, generally, than the IPO market …

… Silbert said that nine out of ten CEOs who had run both public and private companies would say that given the choice, they will never go public again … My feeling is that there’s so much money flowing into the private markets these days, in the form of VC funds and super-angels, that tech companies have almost no need to tap the IPO markets any more. They make sense for things like banks and car makers, but in general the total number of listed companies, which has been falling steadily for a decade, will continue to fall for the foreseeable future.

Felix Salmon, “Is the era of the public company coming to an end?”, A Slice of Lime in the Soda, January 25, 2011, http://blogs.reuters.com/felix-salmon/2011/01/25/is-the-era-of-the-public-company-coming-to-an-end/

Government policy and innovation

President Obama gave a stirring speech last night, saying “We need to out-innovate, out-educate, and out-build the rest of the world.” He used the word “innovate” more times in his State of the Union than any other US president. To those of us who believe the future of the country depends on its innovative capabilities, this was hugely positive. But the obstacles to boosting innovation in the US are far higher than the President acknowledged. Indeed, as CEOs gather at the World Economic Forum in Davos, they are much greater than most business leaders are willing to say.

Here are some harsh truths that President Obama did not face in his State of the Union speech: there is very little actual innovation taking place within Big Business; Washington innovation policy is placing big bets in the wrong places; China’s innovation policy is superior to America’s.

Let me explain. A devastating National Science Foundation Business R&D and Innovation Survey that generated almost no media discussion when it was released in the fall showed that only 9% of the 1.5 million for-profit public and private companies in the US had any product, service or process innovation between 2006 and 2008. Of manufacturing firms, 22% innovated. In non-manufacturing, a mere 8% innovated. As economist Michael Mandel has observed, “you can’t be an innovation economy if only 9% of your companies are innovating.”

Under both Democratic and Republican administrations, for nearly 20 years, Washington has been placing the wrong bet on R&D. Hundreds of billions in government funding has gone into bio-sciences without any significant return. Genonomics was heralded as the Next Big Thing after silicon, the driver of future economic growth. It isn’t producing results in terms of new companies, jobs, or economic growth in general, yet billions more flow into NIH and universities every year.

China’s brilliant “Fast Follower” innovation policy is generating the biggest transfer of technology in history. A combination of state-driven policies is driving this policy – requiring Western companies to partner with Chinese firms to do business; demanding transfer of the latest technologies in exchange for access to markets; favoring “indigenous innovation” in government purchasing; fencing off green and other industries from foreign competition; offering low-interest state-bank loans to local champions. This industrial policy is at odds with WTO standards, but is a boon to Chinese economic growth and a long-term threat to US global competitiveness.

A realistic American innovation policy will need to take these three harsh truths into account. We need a much more skilled business leadership than we have currently, capable of creating as well as managing. We need to refocus government investment into manufacturing, energy, and materials. And we need much more vigorous global economic policy that meets the challenge of China’s innovation policies.

Bruce Nussbaum, “What’s wrong with America’s innovation policies,” The Conversation, January 26, 2011, http://blogs.hbr.org/cs/2011/01/whats_wrong_with_americas_inno.html

Socialism and the entrepreneurial spirit

We venture to the very heart of the hell that is Scandinavian socialism – and find out that it’s not so bad. Pricey, yes, but a good place to start and run a company. What exactly does that suggest about the link between taxes and entrepreneurship?

Welcome to Norway, where business is radically transparent, militantly egalitarian, and, of course, heavily taxed. This is socialism, the sort of thing your average American CEO has nightmares about … Norway, population five million, is a very small, very rich country … Norway is also an exceedingly pleasant place to make a home. It ranked third in Gallup’s latest global happiness survey. The unemployment rate, just 3.5 percent, is the lowest in Europe and one of the lowest in the world. Thanks to a generous social welfare system, poverty is almost nonexistent.

Norway is also full of entrepreneurs like Wiggo Dalmo. Rates of start-up creation here are among the highest in the developed world, and Norway has more entrepreneurs per capita than the United States, according to the latest report by the Global Entrepreneurship Monitor, a Boston-based research consortium. A 2010 study released by the US Small Business Administration reported a similar result: Although America remains near the top of the world in terms of entrepreneurial aspirations – that is, the percentage of people who want to start new things – in terms of actual start-up activity, our country has fallen behind not just Norway but also Canada, Denmark, and Switzerland.

“In Norway, start-ups say ja to socialism,” Inc, January 20, 2011.

What the New York Times could learn from Apple

You know about iTunes. You can pay 99 cents or $1.29 to own a song. It’s a lot more cost-effective in these troubled economic times than plunking down 15 or 20 bucks for an entire album – especially when you didn’t even want to listen to two-thirds of the tracks on the disc in the first place.

Take newspapers. Say you happen to be a diehard sports fan and your obsession is the New York Yankees (yes, I’m talking about myself here). Under the iTunes pricing model, I could bypass all of the news and analysis on the Mets, Jets, Giants, Knicks, Rangers, Devils, Islanders, Nets, et al.

To ensure that sort of convenience, I’d gladly pay a few shekels a year. Who wouldn’t?

Sure, this can be done now, thanks to free content online and aggregators like Google or Yahoo. But as media companies get a clue and start charging for content, instead of offering a one-size-fits-all option, they’d be smart to look at an à la carte pricing method, much like iTunes.

And that’s really the crux of it. Media companies sometimes forget the idea that its audience is comprised of consumers – not merely news hounds. These are busy people who work hard and have a lot of options beyond reading the morning newspaper, reading Time or Newsweek or watching an evening program …

Today, it’s all the rage to marvel over Apple Inc.’s (NASDAQ:AAPL) genius at rolling out a steady stream of fancy products – gadgets, really – that nobody truly needs to live a happy life …

Overlooked sometimes is Apple’s distinctive pricing plan, a crucial component of the company’s marketing prowess. Again, it represents an extension of Apple’s determination that its customers want convenience.

Why can’t the media titans see it, too? Journalists are fairly stuffy – pompous, anyone? – people. We always think we know best. We know what you ought to be reading, listening to and watching. And we are right, of course, because WE say so.

Media people are always surprised and horrified when we turn out to be wrong. For example, The New York Times Co. (NYSE:NYT) was aghast a few years ago when its highly publicized Times Select program — in which the newspaper placed its famous columnists behind a pricing “wall” and charged readers to read their utterances – fizzled. Eventually, the Times withdrew Times Select.

The company is now on the verge of unleashing another Internet pricing program.

Much of the media and entertainment world needs rethinking. It seems kind of crazy that people should be required to pay the same amount of money for a ticket at the box office for a blockbuster as for a bomb.

It’s hardly front-page news for me to suggest that a media company is, indeed, a business venture that must, as Paul Simon once sang, “keep the customer satisfied.”

An iTunization of their wares would be a useful starting point.

Jon Friedman “Why we need an iTunization of the media,” MarketWatch, December 23, 2010, www.marketwatch.com/story/why-we-need-an-itunization-of-the-media-2010-12-23

Craig HenryStrategy & 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).