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Copyright © 2012, Emerald Group Publishing Limited
Strategy in the media
Article Type: CEO advisory From: Strategy & Leadership, Volume 40, Issue 6
Rebuilding the Gucci brand
Domenico De Sole’s tenure at Italian fashion eminence Gucci Group’s top job started in 1995 following years of plummeting sales and mounting losses in the aftermath of unbridled licensing that had plastered Gucci’s name and distinctive red-and-green logo on everything from sneakers to packs of playing cards to whiskey – in fact, on 22,000 different products – making Gucci a “cheapened and over-exposed brand.”
De Sole started by summoning every Gucci manager worldwide to a meeting in Florence. Instead of telling managers what he thought Gucci should be, De Sole asked them to look closely at the business and tell him what was selling and what wasn’t. He wanted to tackle the question “not by philosophy, but by data” – bringing strategy in line with experience rather than relying on intuition. The data were eye opening. Some of Gucci’s greatest recent successes had come from its few trendier, seasonal fashion items, and the traditional customer – the woman who cherished style, not fashion, and who wanted a classic item she would buy once and keep for a lifetime – had not come back to Gucci.
De Sole and his team, especially lead designer Tom Ford, weighed the evidence and concluded that they would follow the data and position the company in the upper middle of the designer market: luxury aimed at the masses. To complement its leather goods, Ford designed original, trendy – and, above all, exciting – ready-to-wear clothing each year, not as the company’s mainstay, but as its draw. The increased focus on fashion would help the world forget all those counterfeit bags and the Gucci toilet paper. It would propel the company toward a new brand identity, generating the kind of excitement that would bring new customers into Gucci stores, where they would also buy high-margin handbags and accessories. To support the new fashion and brand strategies, De Sole and his team doubled advertising spending, modernized stores, and upgraded customer support …
In effect, everything De Sole and Ford did – in design, product lineup, pricing, marketing, distribution, manufacturing, and logistics, not to mention organizational culture and management – was tightly coordinated, internally consistent, and interlocking. This was a system of resources and activities that worked together and reinforced each other, all aimed at producing products that were fashion forward, high quality, and good value.
It is easy to see the beauty of such a system of value creation once it’s constructed, but constructing it isn’t often an easy or a beautiful process. The decisions embedded in such systems are often gutsy choices. For every moving part in the Gucci universe, De Sole faced a strictly binary decision: either it advanced the cause of fashion-forwardness, high quality, and good value – or it did not and was rebuilt. Strategists call such choices identity-conferring commitments. They are central to what an organization is or wants to be and reflect what it stands for.
Cynthia A. Montgomery, The Strategist: Be the Leader Your Business Needs (HarperCollins, 2012).
Becoming an effective strategist
Rare is the company, though, where all members of the top team have well-developed strategic muscles. Some executives reach the C-suite because of functional expertise, while others, including business unit heads and even some CEOs, are much stronger on execution than on strategic thinking. In some companies, that very issue has given rise to the position of chief strategy officer – yet even a number of executives playing this role disclosed to us, in a series of interviews we conducted over the past year, that they didn’t feel adequately prepared for it …
1. Understand what strategy really means in your industry
By the time executives have reached the upper echelons of a company, almost all of them have been exposed to a set of core strategy frameworks, whether in an MBA or executive education program, corporate training sessions, or on the job. Part of the power of these frameworks is that they can be applied to any industry.
But that’s also part of the problem. General ideas can be misleading, and as strategy becomes the domain of a broader group of executives, more will also need to learn to think strategically in their particular industry context. It is not enough to do so at the time of a major strategy review. Because strategy is a journey, executives need to study, understand, and internalize the economics, psychology, and laws of their industries, so that context can guide them continually …
2. Become expert at identifying potential disrupters
Expanding the group of executives engaged in strategic dialogue should boost the odds of identifying company or industry-disrupting changes that are just over the horizon – the sorts of changes that make or break companies.
But those insights don’t emerge magically. Consider, for example, technological disruption. For many executives, the rise up the corporate ladder requires a deep understanding of industry-specific technologies – those embedded in a company’s products, for example, or in manufacturing techniques – but much less knowledge of cross-cutting technology trends, such as the impact of sensors and the burgeoning “Internet of Things.” Moreover, many senior executives are happy to delegate thinking about such technology issues to their company’s chief information officer or chief technology officer. Yet it’s exactly such cross-cutting trends that are most likely to upend value chains, transform industries, and dramatically shift profit pools and competitive advantage …
3. Develop communications that can break through
A more adaptive strategy- development process places a premium on effective communications from all the executives participating. The strategy journey model described by our colleagues, for example, involves meeting for two to four hours every week or two to discuss strategy topics and requires each executive taking part to flag issues and lead the discussion about them.
In such an environment, time spent looking for better, more innovative ways to communicate strategy – to make strategic insights cut through the day-to-day morass of information that any executive receives – is rarely wasted.
Michael Birshan and Jayanti Kar, “Becoming more strategic: three tips for any executive,” McKinsey Quarterly, July 2012.
Brands, neuroscience, and social media
It was love at first sight for Nathan Aaron. The North Carolina graphic artist, illustrator, and social media proprietor first saw Method Inc.’s high-style, environmentally conscious household cleaning products on display in his local Target store. He was smitten.
“What caught my attention immediately was mint dish soap … Now, I’m a mint fanatic! Crazy about the stuff … Plus the gorgeous Karim Rashid packaging didn’t hurt things one bit. And that was the beginning of my, should I say, lust affair, with Method.” Aaron wrote that in 2008, in the first post on his new blog, methodlust.com. Since then, he and a community of like-minded consumers have posted more than 1,000 paeans and gripes there, all devoted to the Method company and its brand proposition (fashionably designed, beautifully scented, nontoxic cleaning products). Methodlust.com is nothing more or less than a fan site, similar to one you might see for a hit movie or television show …
Eric Ryan and Adam Lowry, the cofounders and chief executives of Method, are not put off by Aaron’s familiarity or independent- mindedness. On the contrary, they think he’s a dream consumer, and their marketing strategy is built around people like him. “To succeed in a world of earned and social media requires you to shift your mind-set from talking to customers to inspiring advocates,” …
A growing number of social psychologists and marketing researchers use social media to study the link between social norms and purchasing decisions. They are finding that the context of a community influences how people interpret their experiences, and may shape their willingness to have an authentic relationship with a brand, rather than just engage in a transaction. For example, when people expect others they know to react with approval to a product or service, they are more likely to react positively themselves.
Neuroscience research also suggests that social cues shape the way the brain responds to information. Social cognitive neuroscientists and neuroeconomists, including Greg Berns, Daniel Campbell-Meiklejohn, Vasily Klucharev, Malia Mason, Michael Norton, Hilke Plassmann, and Jamil Zaki, have shown that preferences – and the neural responses involved in computing those preferences – tend to change depending on whether people have been told what other people think …
The social nature of thought, combined with the neuroscience of brand loyalty, should be a major factor in marketing priorities. Every touch point in a consumer’s life should be treated as a pivotal moment, an opportunity to reinforce the connection between the consumer and the brand. Touch points that encourage the sharing of social sentiment may be especially powerful reinforcers. Thus, the more often that people like Nathan Aaron post their recommendations online through ratings, reviews, tweets, and commentary, the more broadly emotional associations related to that product or service will proliferate. This social sentiment about brands need not be limited to a fan site like Methodlust.com; it can appear in any context, facilitated directly by brands and retailers across both digital and physical touch points.
Matthew Egol, Mary Beth McEuen, and Emily Falk, “The social life of brands,” Strategy + Business, July 2012.
Creativity and innovation futility
Today Nokia announced that it lost $1.7 billion in the second quarter, its fifth quarterly net loss in a row. Just a few hours before the announcement, the WSJ published a great piece revealing how, as early as 2000, the Finnish phone maker had designed a proto-iPhone – complete with a color touch screen and geo-location, gaming, and e-commerce capabilities. The phone, though, never moved into the mass production phase because of ”a corporate culture that lavished funds on research but squandered opportunities to bring the innovations it produced to market.”
While it’s not surprising that a lumbering, oversized multinational corporation failed on the innovation front, it’s clear that Nokia does not suffer from a dearth of ideas: It spent $40 billion on research and development over the past decade, almost four times what Apple spent over the same period. Nokia also developed and ultimately discarded not one but two operating systems, Symbian and MeeGo. Nokia’s deficiency lies in what Vijay Govindarajan and Chris Trimble call “the other side of innovation,” or the problem with executing new ideas, not just thinking them up.
If you believe Peter Thiel, this is also an affliction Google suffers from. At a debate at Fortune Brainstorm Tech this week, Thiel told Eric Schmidt that the $30 billion in cash Google has sitting idly on its balance sheet demonstrates that the company is “out of ideas” that are worthy of scaling up:
“The intellectually honest thing to do would be to say that Google is no longer a technology company, that it’s basically – it’s a search engine. The search technology was developed a decade ago. It’s a bet that there will be no one else who will come up with a better search technology. So, you invest in Google, because you’re betting against technological innovation in search. And it’s like a bank that generates enormous cash flows every year, but you can’t issue a dividend, because the day you take that $30 billion and send it back to people you’re admitting that you’re no longer a technology company. That’s why Microsoft can’t return its money. That’s why all these companies are building up hordes [sic.] of cash, because they don’t know what to do with it, but they don’t want to admit they’re no longer tech companies.” …
Ryan McCarthy “Why big companies are bad at innovating?”, Reuters, July 19, 2012, http://blogs.reuters.com/felix-salmon/2012/07/19/counterparties-why-big-companies-are-bad-at-innovating/
Innovation and customer transformation
If you think your company is innovative, Michael Schrage has a question for you: “Who do you want your customers to become?”
Schrage, a researcher affiliated with both the MIT Center for Digital Business and Imperial College’s Innovation and Entrepreneurship Group, has written a new e-book with that title, and he argues that this question distinguishes companies that have authentic innovation to offer from those that don’t. (If your answer is, in effect, “We want our customers to become people who buy more of the stuff we sell,” then you’re in sales, not innovation, Schrage asserts.)
Successful innovations change the people that use them. Innovation is not just about adding new value, says Schrage, but about how you transform users. Consider, for example, how Google has transformed hundreds of millions of ordinary people into people who conduct information searches that, in turn, improve Google’s own algorithms and abilities at search. Or think about how your smartphone – or Facebook account – has changed you and the way you behave. Whether a successful innovation was from an earlier era, such as Henry Ford’s Model T, or involves contemporary technology, a common denominator is that successful innovation changes people’s perceptions and behaviors.
Innovative companies can create customers who are more valuable to them.“I believe that a failure of modern microeconomics has been overweighting the importance of human capital within the organization – and underweighting its importance outside the organization,” Schrage said. In other words, he argues that traditional economic thought has conditioned us to think too often of the interactions between companies and their customers just as simple exchange transactions. In reality, the interaction between innovative companies and their customers is more complicated. Innovations aren’t just exchanges, they’re investments that make customers and clients more valuable. For instance, Schrage sees Starbucks as a company that has created customers who are coffee connoisseurs – and that change in consumers’ attitude toward coffee makes them more valuable customers to Starbucks. Innovative companies should think in terms of investing in customers, according to Schrage, and ask: How does our innovation transform our customers in ways that make them more valuable to us?
Martha E. Mangelsdorf, “A challenging question for innovators,” Improvisations, July 30, 2012, http://sloanreview.mit.edu/improvisations/2012/07/30/a-challenging-question-for-innovators/
Television: death of a business model
People have been predicting the demise of cable television for years. After this week, they might be right.
Two small pieces of news yesterday could make for a big headache for TV.
First, Viacom yanked its 19 channels – including Nickelodeon, MTV and Comedy Central – from DirecTV after the two companies failed to agree on subscriber fees. Second a federal judge cleared the way for Aereo, an exciting new startup that could bring local TV (NBC, ABC, CBS, PBS) to any device you wish, from a smart phone to an actual TV.
Big deal, you might say, so DirecTV people can’t watch “South Park” and techies can get a crappy stream of “The View” on their iPad. That’s not a wrong interpretation of the news, but it’s too narrow. The bigger story here is the death of the bundle.
Every year, 100 million homes pay for a bundle of cable channels. Like any bundle, it’s hard to see exactly what they are paying for. That is somewhat the point of bundling – to disguise the true cost of the constituent items. If you watch ESPN and 17 other channels regularly for four hours a day, you are probably getting a good deal. And that means that millions of other people are getting a “bad deal” on their cable and are subsidizing your TV experience. For these millions of households – who don’t watch live sports; or only want HBO; or only need their Law & Order, ANTM, and Daily Show fix; etc. – an à la carte option for television would almost certainly be cheaper.
But à la carte would blow up television, which has been the most dependable and lucrative business model in modern entertainment history. The Internet gutted the music industry. Print journalism has been forced to innovate or die – or, sometimes, both simultaneously – in response to the Web. The American movie industry has survived fundamentally because it learned to diversify away from the terms “American” and “movie industry” – most of their revenue now comes from overseas and “merchandise-able” franchises. But the cable bundle is still basically the cable bundle, and it is still growing by hundreds of thousands of subscribers a year. Innovation is an answer to a problem. As long as cable providers don’t have a revenue problem, they have less need to innovate …
The Internet is ruthlessly efficient at stripping cross-subsidies and allowing content to shine on its own. (As Jim Fallows has pointed out, newspapers once paid for international coverage with classifieds and cars. Now, if you want classifieds and cars, you go to a classifieds site or a cars site. Bye-bye, cross-subsidy.) Devices like Aereo combined with cases like Viacom’s could be leading to an a la carte model for television. The question isn’t really if the Internet’s unbundling revolution will visit the television industry but when.
Derek Thompson, “The end of TV and the death of the cable bundle,” The Atlantic, July 12, 2012, www.theatlantic.com/business/archive/2012/07/the-end-of-tv-and-the-death-of-the-cable-bundle/259753/
Why newspapers do not innovate
After recently attending the latest in the never-ending series of “future of journalism” conferences, I finally realized why they all fail: They don’t include the right people.
While these well-intended yakfests are rich in whining and dining ops, journo-futuramas generate few practical or actionable ideas because they lack the perspectives of four key constituencies:
Consumers … who not only consume journalism but evidently will create growing amounts of it in the future.
Technologists … who are creating the platforms on which consumers will get and give information in the future.
Marketers … whose advertising purchases historically underwrote journalism and, given the right sorts of products and services, might continue to do so in the future.
Investors … who could bankroll innovative commercial or non-profit ventures to sustain journalism in the future.
Instead of bringing together these diverse and strategically vital stakeholders, the usual journo-futurama is composed largely of white, middle-aged newspapermen (or, more likely, former newspapermen) who came up in the day when cold type was the hot new technology.
While my fellow newsosaurs contribute welcome institutional knowledge and gravitas to any discussion, they represent a significantly outdated view of what journalism is, what it ought to be – and how it may manifest itself in the future.
Their views were shaped in the pre-interactive era, when journalists, in their sole discretion, decided who to cover, what to report, what to write and when to publish it. Apart from the occasional crayon-scribbled note that arrived in the mail, readers seldom talked back, leaving little reason to doubt the work was being well received. This led to the ill-advised belief that journalists, in their sole discretion, were wise enough to know what readers wanted, whether they really wanted it or not.
Unfortunately, this type of one-way, prescriptive thinking suffuses journo-futuramas. But it is seriously out of step with the real world, where readers not only can talk back to the media but also publish news and commentary on their own. Politicians, entertainers, marketers and even humble hockey moms can bypass the legacy news media by establishing direct, one-to-one connections with their intended audiences.
… That means listening to consumers, technologists, marketers, investors and others who form the many constituencies for whatever shape(s) journalism takes in the digital age.
Alan Mutter, “Why ‘future of journalism’ confabs fail,” Reflections of a Newsosaur, July 16, 2012, http://newsosaur.blogspot.com/2012/07/why-future-of-journalism-confabs-fail.html
Craig HenryStrategy & Leadership’s intrepid media explorer, collected these examples of novel strategic management concepts and practices and impending environmental discontinuity from various news media. A marketing and strategy consultant based in Carlisle, Pennsylvania, he welcomes your contributions and suggestions (Craighenry@aol.com).