Beyond Social Media, Creating Social Capital

Rich conversation and insights flowed on Friday morning when the Booth Strategy Discussion group happily pondered four key questions on the topic of Social Media, Not just for Marketing.

This month, David Friedman of Bridgewell Partners offered to facilitate and he began inviting us to consider four key questions:

  1. Do social media supported interaction practices represent a fundamental change in how people work?
  2. What barriers exist to adopting these practices and are the practices optional?
  3. How many, and what kind of resources does converting existing social media activities into successful practices require?
  4. What kind of governance and rules makes social media work and how do you find and manage the advocates?

As usual, the conversation flowed from topic to topic, not chaotically, just indicative of authentic interactive thinking. In hindsight, the face to face conversation and personal value participants derive from ongoing, live exchange of perspectives offers a contrast to the online tools we had met to discuss.  I’ll do my best to share some of the key learning and insights. As usual, I took  time to extend, document sources and supplement my notes, so please do add your thoughts.

People are social animals

Learning is a social endeavor. Knowledge sharing, collaboration and innovation processes succeed when they leverage the subtleties of social interactions. Today’s social media tools facilitate social engagement and may solidify associations that typically erode over time and as geographic distance increases. Today, it is easier than ever to stay actively in touch with associates—neighbors, classmates, friends or colleagues that we no longer see regularly. Their value however comes in creating opportunities that go behind the real world encounter.

Business requires connection and by design, social tools enable people to connect to others for every possible purpose. Want to grow your expertise, make new acquaintances, qualify and connect with experts on specific or general problem or topic areas?  The social tools are a two –way street.  The same behaviors gain new understanding and win support for specific activities and perspectives.

Google changed the way we look for ideas, people, places and things. Twitter  compact messages unleash conversations, debates and ongoing thoughts.  The messages are easy to find and monitor. Content once shared in exclusive forums once closed become public. The virtual location and use of links expands the audience once limited to insiders. Dedicated communities of practice consistently create value for participants, and switching up technology choices amplify the reach of these conversations, e.g. threaded topic discussions used by groups on Linked in.

Closed, restricted conversations however too have their place and have been the domain of  membership restricted list-serves such as those used by MENG—the Marketing Executives Network email list serve, or SERMO (http://www.crunchbase.com/company/sermo) for surgeons.  Some individuals have always been keen to share best practices, or seek out the specialized knowledge of admired colleagues.

Social Capital

Businesses don’t make decisions, people do.  In Bowling Alone, Robert Putnam described the growing isolation that technology promotes. Leveraging  work by Gary Becker and others the book opened new conversations.

Social Capital, embedded in the social realm, is not based on assets or individuals.  Social Capital resides in the fabric of relationships between individuals and in individuals’ connections with their communities (Putnam 1995c)

The emphasis to calculate ROI from Social media misses this point.  No wonder many organizations fail to capture value from socially shared knowledge to improve the way people work? Among the articles we reviewed were some promising signs some companies are making the leap, changing the way they work and incorporating social media practices.

How are some companies succeeding? 

“Organizations operate more like machines, their structure a legacy of the industrial age, taking comfort and finding security in maintaining bureaucratic control.”   In 2006, Chris Anderson published The Long Tail: Why the Future of Business is Selling Less of More.  Transitioning from a command control operating model to deliver unlimited variety to meet specific, personalized needs demands a complete upheaval of management practices, organization charts that operate according to very different rules, beliefs and values.

The industrial age made power free. Many industries gained advantage harnessing that power. Similarly, the present social age, enables communications to spread freely. Success flows to those who manage to find and amplify freely exchanged messages, support their business proposition and gain competitive advantage.

The social paradigm’s counter-intuitive approach contrasts sharply to old push process, where a company worked hard to choose the message and then spent ample budget to promote messages designed to attract the interest of buyers. Today, businesses who listen and move to position themselves within the ongoing conversations that match their product or service set, stand to gain.

Examples of social media transformations of work

Edelman’s business is public relations. They turned their entire recruitment process around by pursuing and inviting those people who demonstrate ability to build an active following.

Intuit’s TurboTax built customer comment threads directly  into their interactive software   allowing people using the platform to learn practices and see examples from other users.

Ernst & Young  created mobile applications on ITunes giving customers insights , tax guides, legal tips etc.   They also created EYE, Ernst and Young Executive, an IPAD based magazine .

Two books, Smart customers, Stupid companies  and Opting In, by IBM Lotus Notes Executive and social business thought leader Ed Brill, admirably illustrate how knowledge IS social, the more interactions the smarter each of us get.

Likewise, peer-to-peer interactions occur within a pertinent context. Customer to customer interactions share very different information than when customers are sharing with company representatives.  The relevance of the exchange to the participants by itself offers  insights around customer perceptions and suggest alternatives to address and resolve their pain points.  This is the very stuff companies once paid researchers to find.  Brill describes the process unleashed by social media as “Thou Shall advocacy,” vs. the traditional company approach of thou shalt not employee governance.

The results?  Resources freed from “finding” should be put to use listening and gravitating to where their customers are actively engaged, communities created to talk about a company rarely happen to be the place the company created for its customers.

Changing the way we work

We all believe that change and changing behavior and processes at work continues to prove hard for several reasons.

Legacy workflows with established internal processes supporting hierarchical, command control organizations clash with the general ease people collaborate and bond outside of work.  Monsanto exemplifies a company who learned quickly how to use social media to build and strengthen what were formerly weak relationships.

Communications become conversations, as illustrated by their 2012 letter to shareholders proclaiming “the ways in which we are all interconnected…” Monsanto continues to evolve their communications beginning  with a move beyond stylistic changes to their communications as  this 2009 St. Louis Biz Journal story illustrates. Communications redesigned their department to listen and engage in honest dialogues with a wider audience of stakeholders. The corporate stakeholders no longer bequeath the controversial issues to the opposition. Instead of releasing official stances,  their communications team speaks directly to specific concerns and in so doing taps expertise inside the organization to share and engage employees as well as externally with consumers.

Value above replacement

At the core, social network mechanics leverage an individual’s ability to influence the behavior of others in their circles or network. The CEO of Klout wants everyone to believe that influence is the currency of the social web. Those companies who understand how to leverage their players may very well gain advantage.

 Ron Burt’s work calculates the “value of social capital, showing how in the business world reputation has come to replace authority and …. from other researchers’ studies, provide robust evidence of the value of brokerage.”  If you consider, as Burt does, that social capital is a metaphor for advantage then it’s not that hard to see how the sports world has put this to work.

Value over Replacement, aka VORP, may have begun with baseball but has since infiltrated the fan base of many other sports.  I even found the concept used to evaluate Rock and Roll band members. The adoption of  this concept by other domains illustrates word of mouth at work, and also the nature of social capital flows.  Studies and metrics rarely explain why some words travel and others remain where they were first spoken.

Is the problem workflow design?  The landscape of successful migration to enterprise2.0 practices remains checkered. In part, connected enterprises and successful adoption and implementation of social media platforms and tools require behavior shifts beyond adoption of new tools.  Successful organizations, who do the heavy lifting and restructure their organization, amplify the effects of influencers who in turn, encourage and promote informal collaboration.

The landscape however is littered with numerous unsuccessful change initiatives because they overlook how to put influencers to work. For example, Knowledge management systems, another extension of VORP, sought to capture the tacit as well as explicit understandings and intelligence of workers about to retire. What made them successful also brought success to the organization and it made sense to create the means to keep that knowledge around as people left.  The capture process however proved challenging and few organizations made conscious use of network analysis. This latter tool infiltrated strategic planning activities, but the record of deployment and use remains spotty.

Kraft’s KM initiative in 2000, shows the consequences of missing the opportunity to leverage individual players skills and influence.  The idea was to capture learnings from Consumer Intelligence and Research and Development. In theory, there would be an expert directory, discussion board and an electronic library.  Tagging information properly makes it possible for others to search and find relevant information.  AT Kraft, suppliers were asked to tag their own research, not good for their business model.  But this also diminished the value of the researchers and librarians whose knowledge and tagging skills were never acknowledged as added value.

In contrast, Stack Overflow, illustrates a very different knowledge sharing resource that isn’t dependendent on tagging.  It’s a give and take resource.  The value available depends on people providing good answers and asking good questions.  Participants with high stack overflow scores are deemed experts.

To Be Continued…More on this topic to follow shortly.

If you care to review the articles that were the basis of this discussion, links follow.  So much more to say and so little time, care to share your reaction?  or contribute some new inspirations?  Please do!

ARTICLES

1. Keynote: Invest in Scalable Social Business Programs

by Jeremiah Owyang on Apr 05, 2011

http://www.slideshare.net/jeremiah_owyang/keynote-invest-in-scalable-social-business-programs

2. Large Scale Transformation–how social lies at the core of your strategy
by Dion Hinchcliffe

http://www.informationweek.com/thebrainyard/news/strategy/how-smart-businesses-reorganize-for-soci/240006107

3. The Collaborative Organization: How to Make Employee Networks Really Work
MIT Sloan Management Review Magazine: Fall 2010Research Feature

October 01, 2010 Rob Cross, Peter Gray, Shirley Cunningham, Mark Showers and Robert J. Thomashttp://sloanreview.mit.edu/article/the-collaborative-organization-how-to-make-employee-networks-really-work/

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Management 2.0–can you shift? Top 50 Overall Rank Company Innovation

In 2011, among 673 companies from 32 countries, Apple topped the list as most admired and respected by both industry peers and overall.  CNN’s Money magazine  survey used several criteria to compute an overall ranking and then shared on a single criterion those companies who made the top ten spots.  A composite summary appears below.  Surprisingly, no company ranked consistently across all criteria –not even Apple who ranked #1 only on innovation.

Top 50 Overall Rank Company Innovation Global Competi-tiveness People management Mangement Quality Long Term Invest-ment Quality of Products/Services Financial Soundness Social Res-ponsibility

25

Goldman Sachs Group

1

1

Apple

2

7

10

4

2

14

Walt Disney

6

3

3

7

10

3

2

Google

9

2

4

1

2

1

24

Nike

2

4

5

9

9

6

31

Nestle

3

3

7

8

9

7

8

7

Amazon. com

4

8

6

4

1

3

10

McDonald’s

1

1

2

12

IBM

8

49

Accenture

9

9

9

5

Procter & Gamble

9

15

3M

6

3

Berkshire Hathaway

4

Southwest Airlines

6

Coca-Cola

8

FedEx

9

Microsoft
N.A. Royal Dutch Shell

6

Nike, Google,Walt Disney and Amazon have similar rock star status.  But the failure of many of  the remaining companies to even make the top ten on other categories, or the inconsistency of the company rankings  is a bit confusing.

If analysts and directors evaluate companies using different criteria , which criteria should management prioritize?

The best case for management 2.0.

Imperfect an instrument as surveys of  directors, industry peers and analyst rankings of companies may be, the disconnects between perception and management is unsettling.

Perhaps, the problem is complexity itself. Siloed, hierarchical , central, command-control decision-making  styled organizations struggle to keep up.  As the world moves faster, successful business outcomes require simultaneous attention to multiple interdependent factors. Consistency in your approach across your markets may prove disastrous.

In compiling the chart above, I initially focused on three indicators:  people management aka Talent; overall management quality; and innovation.  The diversity of companies across these criteria rankings lend credence to the rallying cry to change existing talent and management approaches.  Traditional, internal organizational frameworks or operating design warrant alignment on more than these three factors.   Gary Hamel, long down this path, wrote The Future of management in 2007; and often describes traditional management practices as obsolete, calling for revolution within the ranks. More pertinent, values alignment do not seem to be a priority.  After all why would any organization undergo a major cultural transformation for the sake of upping this score?

Remember Total Quality Management, or the movement to adopt Six sigma cultures?   Though well-intentioned, both turned out to be somewhat of a passing fad, the impetus for effective and efficient operations did  lower bottom line costs, but the residual streamline approach undercut the very capability for resilience necessary to succeed in the current global, rapidly competitive environment.

More contemporary buzzwords rippling through the management literature continuously call for new adjustments, and a shift in style to accompany if not better accommodate technology changes. Simplifying access and transmission of multiple media, aka  web2.0. may indeed require a different management approach.  What  exactly are we describing?  Apart from branding , a series of  common threads unite the work of three thought leaders.

Ron Heifetz describes The Practice of Adaptive Leadership (2009), its associated risks, and why our attachment to authoritative leadership needs rebooting. Gary Hamel’s book, Leading the Revolution (2002) explored ways to reinvent business models in light of the dot-com technology bubble; his more recent title is The Future of Management (2007).  The monthly strategy discussion readings (links at the bottom of this post) also included the insights of Bob Thomas, author of Crucibles of Leadership (2008), from  Accenture’s Institute of High Performing Leadership.

All of these thought leaders describe  embracing unconventional thinking, full transparency, initiative, experimentation, learning from experience or basically creating adaptive cultures. Sounds a little like innovation doesn’t it?

What about the social media factor?

Coincident on the day the monthly strategy discussion met to review these authors theses on management,  the Chicago Booth Annual Management Conference keynote panel focused on the most visible evidence of these shifts– “The economics of Social Media.”  In 2011, it’s impossible to be in business and not be inundated with headlines about Linked In’s public offering,  Facebook’s 600 million and counting users, or Twitter’s 200 million strong.  Of course these are just a few of the applications business must evaluate, not so much to buy, but to watch, listen and learn to respond to many stakeholders associated with their enterprise.

The shift  of control over your brand and business between stakeholders and business leaders and managers is close to parity.  If web2.0, or social media is the people’s network where they can transact, share, express and discover–Business has to be present, flexible and responsive 24/7.  if you had doubts, now you know why Management 2.0 is critical to an organization’s survival.

Social media’s ubiquity challenges the most traditional organizations and their decision-making hierarchy.  Customer facing roles increase risk, especially if  individuals are scripted or their flexibility to act and access to information is  limited by the system.  The parameters around interaction, once  engineered to reduce costs and maximize returns, need adjusting and consider  indirect factors. Typically, an organization expects customer service to buffer or clean up  “messy” or “problem” concerns from the public.  The focus measure is efficiency–avg handle time and the number of calls/hour.  Management did not track the quality or effectiveness of the interaction in the unit performance report. The push for further labor savings resulted in outsourcing and offshoring these units, adoption of automated voice response systems or encouraging online users to check out the FAQ section of a website before contacting support.  Sure, customer satisfaction and customer relationship systems are  important, but the breadth of possible outbound responses remain tightly controlled.  In the same manner that marketing and PR  manage the company message and often write the release printed by limited media outlets.

Integrating Web2.0 and the interaction tracking within the operation exemplify internal innovations or managerial adaptation, right? Management learned to take advantage of technology to lower its delivery costs and use CRM systems to learn about the customer and track transaction behavior.  All signs of adaptation. But do they go far enough?

Back to the Future

Facebook launched in 2004 and quickly spread to all university campuses and entered some corporations, opening to any user in 2006 and quickly became the 7th most trafficked website.

In 2007, social media is not even mentioned in what   Businessweek described as attributes of the worlds most innovative companies:

The leaders of companies on this year’s BusinessWeek-BCG list of the World’s Most Innovative Companies recognize that developing breakthrough products, revamping operational processes, and coming up with new business models doesn’t happen overnight. Instead of relying on gimmicks or incremental line extensions, they’re working to build organizations that are capable of sustained innovation. They understand that requires taking risks and investing for the long-term. And they focus on the things that really matter, such as hiring the most talented employees and providing them with the environment they need to thrive.

…Getting people to step out of their comfort zones can do a lot to spark new ideas. But if they’re not paired with more fundamental changes, all those efforts will go nowhere. Fortunately, some companies have been waking up to that fact…. the proper care and feeding of employees in creative cultures takes much more than training. …best companies seem to be managing a balance of a few high-profile programs aimed at getting employees to think differently and more fundamental processes that make sure the work actually gets done.

Of the top 10 companies (Apple, Google, Toyota, GE, Microsoft, P&G, 3M, Walt Disney Co., IBM and Sony) 3M had dropped to 7 from 3rd in 2006, while Walt Disney had catapulted from 43 in 2006 to #8.  Surprised?

We compared these messages and found them to  echo some of the authors’ admonishment of the management 2.0 revolution.

Marching orders for Management 2.0 Advocates

Note: The original article citations are found below.

Gary  Hamel talks about inspiring and changing the environment, aggregating human capabilities toward the collective and mentions three big organizational challenges:

  1. Adaptability–how to build self-transforming organizations
  2. Innovation–mobilizing imagination
  3. Engagement–on both the emotional and intellectual so people bring all of their capabilities to their work.

Ron Heifetz talks about adaptive leadership means changing the way people do business in many places in the organization.  In other words, innovation isn’t just for marketing.  Leadership has to orchestrate the connections between the possible, or the abstract strategic imperative and the tactical or working level.  The question is not merely whether to  establish accountability; but how to  help all levels of the organization challenge and push the frontier of their current constructed environment and create room for experimentation, where people are free to make mistakes and learn.

Finally, Bob Thomas suggests that experience has to be turned into leadership capabilities and focus on the ability to learn lessons.  Provide the  imperative around durable processes in three facets of learning:

  1. Prepare — how do/could we frame the problem, understand how we learn and focus on accelerating the possibility to learn
  2. Deploy–activate our sense-making skills, emotional IQ, story telling, practice with  multiple decision-making and leadership styles to close the gap between theory and practice.  (Heifetz expresses the gap as the difference between knowing and abstraction).
  3. Renew–Points of view are teachable as well as adaptive.  Managers should build and exercise their own advice networks.

Sounds easy right? The 2007 article profiled GE, Disney, IBM and Boeing.  By 2011,  the companies rated by their industry peers and then overall only identified Google, Apple and only the Walt Disney company made the top 10 list.

Articles featured in the monthly Discussion

Ron Heifetz

1. Adaptive Leadership

 2. The Interview Adaptive Leadership

Gary Hamel

Can’t Innovate? It’s Management’s Fault (Really!)

Inventing Management 2.0

Bob Thomas

Turning Experience into Leadership

Is it Too Late for a Web Strategy?

Old spice man

If you don't know this man, then you're missing out on one of the more popular twists in popular culture and marketing of 2010. 

This is the Old Spice campaign's man of mystery.  Intentionally I did not insert the web video, nor am I interested in chasing down the viewer stats, though sales report isn't great.  It's here because the ad reference exemplifes multi-channel linked marketing strategy and came up  in last Friday's monthly Chicago Booth Alumni Club's Discussion around  Strategic Management Practices.

Wearing my research hat, and doubling as a typical consumer, the first place I turned to find the reference was to type the key word phrase "old spice man" into my google search bar located at the top of my web browser. My search was not to purchase, engage in conversation or to gain proximity to someone with product experience –that would need  some different key words.  The campaign as well as my search process shows the evolution of the internet and the effect of its influence in our lives.  The shifting trends exhibited below in this wonderful chart  was the focus by Chris Anderson and Michael Wolff in the provocatively titled September 2010 article in Wired The Web is Dead, long live the Internet

Internet traffic trends 2010

CISCO compiled data using the Cooperative Association for Internet Data Analysis (CAIDA). The chart suggests that Video and Peer to Peer traffic is increasing while the use of the world wide web is declining.  This data is somewhat misleading and the chart's suggestions that mobile apps, and other specialized channel options, will displace the web browser  is not so clear-cut.

Is this graph a credible and reliable translation of the geek speak from  CAIDA?  A more recent  analysis than what appeared in Wired, expresses the following:

" Continuing its growth in traffic, connectivity, and complexity, the current Internet is full of applications with rapidly changing characteristics."

Overall, CAIDA has found that traffic on the internet continues to grow,  which is not adequately represented by the two- dimensional graph CISCO and WIRED depicted. Growth does accurately reflect the transition and growing emergence of traffic off the world wide web and into  alternative internet based transmission paths (e.g. mobile based and other applications that allow real time streaming).  

This same transition mimics strategies used by effective  marketers who link the brand messages and campaigns across  multiple media platforms.  Key words provide the bridge. The more consistent their use across the growing number of media platforms,  the more certain an organization's promotion efforts will  intersect key consumer touch points on or offline.   Ideally, consumers pick up these same key words  and carry them across other natural communication channels, further enhancing the brand's reputation and in theory  increasing sales.

If your business is selling Search Engine Optimization (SEO) this emphasis on key words appears  great for business. It's not however where a capable marketing strategy should invest the majority of its budget.  Not merely because there is some danger to pursuing this strategy (see the The dirty little secrets of search in last week's New York Times); but the greater, more complex objective is reputation management and not key word optimization.  

 Historically, brand owners/creators controlled media messaging and placement.  To successfully sell, you "paid" for the privilege of being placed in front of consumers walking through the yellow pages or by a billboard, listening over radio/TV  or their eyeballs scanning newspaper or specialty publications. Product packaging, placement and promotion  are often  budgeted separately and only occasionally linked for a "special" promotion (e.g. cause marketing or a contest).  The rise of the world wide web, added the category of "owned" media to the marketing mix and budgets had to cover the cost of website development, content writers and traffic analysis, including SEO.  With Social Media, a third area– "earned" warrants increasing budget and management attention to monitor the customer-created channels and chatter of your brand enthusiasts  as well as brand detractors. (see complete description in Branding in the Digital Age by David Edelman). 

 The Edelman article's case study of a TV manufacturer across one touch point within the wider consumer decision journey proves far more  instructive than my earlier reference to the Old Spice ad and its multi-channel focus. 

"A costly disruption of the journey across the category made clear that the company’s new marketing strategy had to deliver an integrated experience from consider to buy and beyond . In fact, because the problem was common to the entire category, addressing it might create competitive advantage."    

Unlike Old Spice, the manufacturer opted to shift the marketing emphasis away from paid media.  Focusing on owned and earned media seems to enhance the effectiveness of their key words and multi-channel linkages, and engage traffic where it mattered most at the buy, and enjoy, advocacy, bond  touch points. This is not a prescription for all brands, but the case is instructive in identifying the disconnects and deficiencies in common web based strategies, or even of marketing extravaganzas disconnected from the ongoing conversations that are circling your business, product and/or brand.

Whether or not you belief in Chris Anderson's prognosis about the death  of the Web or buy into David Edelman's Consumer Decision Journey research, few organizations appear to have fully leveraged these changes.  Increasingly, an ability to execute and efficiently allocate resources to address the demands presented by the growing number of communication channels  will  distinguish successful companies from their competitors.  The changes create more opportunities for strategy to take a more commanding role in managing and driving the combined efforts, either internally or with the help of outside specialty firms.

Additonal Discussion Take Aways

  • Social networks are informative, free sources of intelligence that naturally build out and generate mutual trust and benefits to buyers and sellers. 
  • The role of the marketer is merely to influence and no longer the producer/director of the brand experience.
  • The responsibility for marketing  is changing and increasingly is upending internal role limitations  and requiring participation from unlikely sources e.g. corporate governance, communication standards and guidelines.  Employees share roles with customers and the more acquainted with internal policies, strategies and planning the more they can aide and assist in  wider message consistency. 
  • Authenticity has become ever more important.
  • Fluidity and increasing knowledge of terminology around the digital communications space is a valuable skills set…not just for marketers and IT folks. 
  • As reputation management rises and people do business more and more with the people that they know,  is there anything really being created of value, and are other marketing and sales efforts as necessary?
  • How do these lessons translate or enhance B2B sales? 
  • It's not the web vs. the internet differentiation that matters, as much as recognizing how one innovation(social media)  has brought into focus an array of  deficiencies and gaps within an organization (marketing departments) as well as an industry (e.g. advertising) The challenge is how to best integrate the old with the new. 
  • In the end, the prescription to know your customer before creating your strategy remains the first and foremost lesson. Knowing what your customer wants will always be helpful but successful business requires more.
  • True differentiation in products being marketed remain beneficial but the emphasis should be toward innovation in developing products. 
  • Important to remember the shape of the adoption curves with new technology and Chris Anderson's point that new doesn't replace old. New merely creates more table space to accommodate more preferences.  The challenge is the frequency we change, resort and revisit our marketing activities and resource priorities. 
  • Both  articles confirm the importance of social media and keeping up with changing technologies.  They also call attention to the  the challenges organizations  face in trying to bring them together  to create successful communities around their products and/or brands.

 

Any added thoughts, perspectives or cases are welcome.

Added citations

Edelman makes some of the same points in this article:

Four ways to get more value from digital marketing

By David C. Edelman, McKinsey Quarterly, March 2010

https://www.mckinseyquarterly.com/Four_ways_to_get_more_value_from_digital_marketing_2556

 

Trust Agents, Using the web to build Influence    by Chris Brogan and Julien Smith

NOW Revolution, 7 shifts to make your business faster   by Jay Baer and Amber Naslund

Seeing the Iceberg, Strategic responses to Business Disruptors

Titanic image

By the time we see the iceberg, is it always too late to change our course? Business model disruptions often blind  fast growing companies– shareholder  darlings, and result in their precipitous decline.  The impact of the hit is rarely limited, as the wake of the disruption ripples across the globe creating uncertainty in the capital markets.

Last week, Janurary 18  Borders Group Inc appeared as the latest casualty.   Borders Hires Restructuring Lawyers  story reported by the WSJ, corporate management’s decision to suspend book order payments and hire restructuring lawyers.  Top c-suite executives resignations soon followed.  At this point, it appears collapse is their only alternative.   But a year ago, on the 27th of January, their CEO resigned. The interim CEO announced in April a turnaround plan, that in retrospect  failed to keep them afloat.

Is the Border’s case a failure of strategy, leadership or execution?  A full analysis isn’t necessary to realize the price paid by delaying responses to industry disruptors .

I wouldn’t have paid much attention to this story, or been that drawn into the analysis had I not sat with Chicago Booth alumni last Friday and focused exclusively on this issue of business model disruptors.  The Border’s story was coincidental, and though none of us had direct facts or details, we recognized that the leadership team could not have merely been asleep or unaware that trouble was looming.

McKinsey recently published a survey on the value of corporate strategy. Their findings were not surprising and merely confirmed the Booth and Kellogg  discussion participants experiences.

Strategy is hard

Defining the nature of your business proves to be challenging. Borders first and foremost was a bookseller. Their mega-store concept, in  itself an industry disruptor, enjoyed great success until a competitor introduced further industry disruptors. Why were they incapable of applying lessons of their own mega-store disruptive history?  Why couldn’t they switch-up to an online platform and seize the opportunity for more same site sales and avoid square footage overhead?  I leave the case write-up to others.

I wonder whether disruption is inevitable and if so, what if anything can a company facing similar game-changing disruptions do?

It was precisely this question that the monthly discussion of Chicago Booth Alumni considered last Friday.  To frame the short conversation, attendees reviewed in advance three articles with strategic advice and  listed at the end of this post.

Unlike the predictability and regularity of a ticking mechanical clock, the future rarely repeats or duplicates the past.  Our circumstances are always shifting. Some subtly, occurring  as imperceptibly  as the orbital passage of the earth around the sun.  Business disruptors succeed because they are rarely taken seriously by industry insiders early enough.

A single customer may wander; but consumers rarely act en mass abruptly taking their business to an emergent competitor. In reality, the best customers stay loyal  and provide an ongoing revenue stream. This renders the company blind to the departure and slowly increasing exodus of marginal customers who strengthen competitors into a massive menacing iceberg. The small top , poses no visible threat and is thus dismissed as inconsequential.

Most successful business leaders  monitor and report business metrics which they also review with interested stakeholders , e.g. senior management, share-holders,  boards of directors. Rarely do these metrics display the full organization’s capabilities and/or its resilience to withstand disruptive threats.

Clayton Christensen studies corporations facing change  and found management rarely focused on changes in demand as they occur in their marketplace. Resilient companies insure existing resources can successfully meet the evolving needs of their customers.  Their review process is not retrospective, but focuses on the future by assessing what steps in their process and values will  propel, not impede their ability to  innovate.  This choice compromises their ability to win.  In a race with a motorboat, paddling faster, or cutting dead weight won’t help you win; but an innovation in your paddle or changing the contours of the boat might.

Strategic suggestions

Disruptions in your market and Business model are rarely welcomed or predictable.  Several tactical strategies make it possible to bounce back or even advance your market position.We discussed three.

  1. James Ogilvy, writing for Strategy +Business, offered metaphors from philosophy to illustrate how easily management and leadership miss critical cues. He suggests that to avert disaster, create a culture of resiliency, one in which  emboldened employees both speak and act early.  No one predicts the future but present operating decision processes can prepare an organization to be more responsive, helping lay plans for changes no one yet understands, measures or foresees.

2. Constantinos C. Markides and Daniel Oyon writing for MIT Sloan raised five key questions from reviewing ideas presented by Clayton Christenson, Michael Porter and others who have studied the challenges  that impede innovation.  Management  who asks themselves these questions will be in a better place to both assess the potential damage caused by a disruption to its business or industry;and correspondingly, respond to the new competitive threat.

The questions don’t produce the plan of next actions. Instead they form the basis to revisit strategy, which is especially helpful to companies who recognize their current products, services or basic business model is time limited.  The process requires great strength to create something new while managing existing revenue opportunities. Pursuing both tasks simultaneously is fraught with challenges and incongruities;  and thus often proves successful when there is a restructuring of the organization that is equally focused on committing to the new change.

3. A third set of insights appeared in another article from Strategy and Business (How to Win). Authors Leinwand and Mainardi posit that companies who possess execution skills and formulate strategy based on existing capabilities are more successful game changers.  These companies are always outward facing and their strategic focus starts and ends with their customers.  This article written  in 2008 before Facebook and other social media tools proved themselves relevant, prophesized why inexpensive interaction with customers remains a great prescription.  In theory, a prudent strategic approach builds a coherent portfolio of ideas, skills and competencies that mutually reinforce the organization’s overall capabilities.  It’s a theory becasue it proves very challenging to execute.  [note, an older article by Christenson and Ovendov in HBR 2000, outline how to assess and find your core capabilities.]

Closing discussion take-aways

Discussion participants summarized their thoughts at closing as follows:

  • Where are the lessons on how to create culture transformations?  The prescription needs more meaningful or effective details.
  • Organizations and their leadership are not as dumb as they seem; rather blaming inertia, or more specifically its absence, inevitably rolls up into a leadership problem.
  • If you can stop the bleeding, act sooner and change the management team it may help, but critically it is management that needs to change what it does and  navigate a better course.
  • “Viewing your death”, an Ogilve tip, is only as helpful as your perceptions of future and the significance posed by outside possibilities when painted into a future scenario.
  • Remember who your ultimate customers are, not your board, not your leadership. Instead, any change or redirection in your business should be based on the shifting nature of your customers .
  • Keep track of your fundamentals, the organization capabilities.
  • Be wary of the situational leadership conundrum…their path to the top shaped how they read the signposts and drive the organization forward.
  • Best to take a long-term look, overcome the protective instincts that may ultimately undermine your ability to move the product along a more realistic and vibrant future.
  • CEOs are ultimately responsible for strategy and any changes have to come from the top.

The best insurance an organization can carry is regular consideration of outsider’s perspectives,  reality checks on their planning.  In theory, a board of directors consists of people whose own context and operating environment is in sharp contrast to your industry and culture.  The more divergent their views of the future, the greater the value of their contribution to your survival and success.

Source Readings

These  articles  were the basis of the Chicago Booth Alumni Discussion January 21, 2011

What Strategists Can Learn from Sartre
http://www.strategy-business.com/article/03405
By James Ogilvy, Strategy +Business, Winter 2003
Strategic thinking can benefit from philosophy. In this reflective piece, the author explained why in an uncertain world where competitive advantage is insecure, setting strategy must become an existential exercise.

How to Win by Changing the Game
http://www.strategy-business.com/article/08401
By Cesare Mainardi, Paul Leinwand, and Steffen Lauster,
Strategy +Business, Winter 2008
This was the magazine’s first major piece on capabilities-driven strategy, laying the groundwork for Leinwand and Mainardi’s book The Essential Advantage: How to Win with a Capabilities-Driven Strategy (Harvard Business Press, 2010).

What to Do Against Disruptive Business Models (When and How to Play Two Games at Once)

http://sloanreview.mit.edu/the-magazine/articles/2010/summer/51413/what-to-do-against-disruptive-business-models/
By Constantinos C. Markides and Daniel Oyon,  June 26, 2010
Fighting against a disruptive business model by rolling out a second business model is one option for companies to consider. But to make that work, you need to avoid the trap of getting stuck in the middle.