At C-Level

Back to Basics

Since the economic collapse virtually every business has been taking quick and dramatic action to survive the drop in consumer spending and the tight capital markets.  What have they been doing?  Of course, businesses across the board are cutting costs--eliminating all wasteful and unnecessary spending and going without many of the perks and indulgences they had become accustomed to.  Frivolous advertising and sponsorships have been axed.  Cushy retainer relationships are canceled. 

What else?  Well, everyone is concerned with giving customers the best value, resulting in lower-prices and value-oriented promotions.  New products that delivered more sizzle than steak have all but disappeared.  Meaningless line extensions that were little more than marketing filler aren't being funded.  Only real innovations with game-changing potential are still capturing the excitement and imagination of retailers and consumers.

More?  Casual dining and upscale restaurants--a category hit as hard as any--are all talking about customer service.  And I just read that new Toyota CEO Akio Toyoda emphasized that the one of the keys to the company's turnaround will be the ability to refocus on the needs of the customer.

And it strikes me that all of this is pretty basic stuff--time-honored principles for success that have been around for centuries.  Maybe we need a recession every now and then to remind us of these principles of how best to conduct our business, or perhaps to reinforce their importance. 

Tweeting History

I just ran across a very cool Twitter application called TWHistory (www.twhistory.com).  Their idea is to recreate history in a series of tweets from the journals and recounts of various participants in the events.  I'm currently following ten historical faux-Twitterers, including President Lincoln, General George Meade and several soldiers from both sides in a real-time recreation of the Battle of Gettysburg, which took place 146 years ago today through Friday.  This is especially interesting to me since my son and I are visiting Gettysburg later this month, along with other Civil War battlefields.

Many experts have debated the business model potential of Twitter.  I'm not sure anyone knows how it will develop.  But as TWHistory demonstrates, if you build the platform, innovative applications will follow. 

Truth in Advertising

Twenty years ago Dudley Moore and Daryl Hannah starred in the movie Crazy People.  Moore plays a former advertising executive who is committed to a mental institution.  While there, he organizes a group of patients into a copy team to write ads.  Left to their own instincts, and without the normal filters for appropriateness, their copy tends to strike at the truth of the brands.  For example:  "Volvos: Boxy, but nice."  Or, for New York Tourism: "It's not as filthy as you think."  And Metamucil: "It helps you go to the toilet.  If you don't use it, you'll get cancer and die."

Moore submits the ads to his old agency, where they are immediately rejected as preposterous.  But as only happens in the movies, they accidentally replace some actual print ads and go to press.  And they are wildly successful because people are attracted to truth, perhaps because it is so rarely found in the advertising world.

I thought of this while watching a few campaigns recently.  First, the new Microsoft ads, where  real people get paid to find a computer that meets their specifications.  In the ads I've seen, they do look at Macs, but not entirely dismissively.  It's acknowledged that they are a great-looking and maybe even a cool computer, just way over-priced.  Well of course.  We've all known that for years, right?  Admitting this simple truth in the ad gives Microsoft a little credibility in my book.  (Don't write me Mac-lovers--I know there are other advantages of Macs over PC's.  You didn't expect MS to be completely truthful did you?)

A new commercial from GM is even more interesting.  It leads with how times have changed.  There's no longer the need for so many brands.  And GM is changing too.  And then the line that's so intriguing: "The only chapter we're focused on is chapter one," an obvious reference to its Chapter 11 bankruptcy filling.

No, I don't think this GM spot is a particularly good ad.  It seems awkwardly written and with a questionable creative strategy.  But despite that, I couldn't help but be impressed by the candid admissions in the copy.  And for the first time it made me think that maybe, just maybe, if GM can 'fess up to its ugly present condition perhaps it can make the changes required for success.

Truth is a rare commodity in business, and especially advertising.  So rare that it's surprising when you find it.  And when applied, a little bit can go a long way. 

Wal-Mart Plays Big Casino

It would be easy for Wal-Mart to gloat.  Every other retailer is suffering from horrendous sales, shrinking margins, disastrous profitability and the dull realization that consumer spending isn't going to bounce back.  So while their retail  competitors look forward to nothing better than rolling over the precipitous Q4 '08, the perfectly positioned giant from Bentonville revels in 5% sales growth driven by new traffic from more upscale customers doing more downscale shopping.

So how does new CEO Michael Duke respond?  By taking a bow?  Negotiating his option package?  Nope.  Word is he's making a strategic change of cataclysmic proportions--shifting the concept ever-so-slightly upscale.  Sam Walton might think it blasphemous, departing from that simple, single-minded almighty lowest-possible-price mantra that has resulted in a staggering $400 billion in sales.  This isn't just poking at a sacred cow, it's slicing it into hamburger, eating it for dinner, then washing it down by playing drinking games with the Holy Grail. 

What will it mean to consumers?  More premium brands like Dell and iPod will find space on the shelves.  More capital will be put into stores, making them more inviting and appealing.  More labor will lead to better service. But not more value.  On the contrary, since none of the above come freely, we can, in the future, expect to pay just a little bit more than we might have without these improvements.

A few observations:
1. The logic makes some sense.  Wal-Mart has picked up a new breed of customers.  If the retailer can keep them coming even after the economy picks up it's a tremendous long-term benefit, while avoiding the hard fall if these customers return to their old buying haunts.

2. Now is the time to do it, when the economy is down.  Capital improvements are cheaper and all the competitors are cutting back.  Net, Wal-Mart will get more bang for every buck invested in the stores.

3. It's the riskiest bet a CEO can make--to make fundamental changes in the strategy while times are good.  It reminds me of the famous Microsoft shift to focus on the Internet.  It could be a colossal mistake, a momentum killer resulting in long-term derailment. Or it could be exactly the right thing, at the right time. This is Michael Duke playing Big Casino, and it's the type of bet most CEO's would never have the guts to make. Right or wrong, you've got to give him props for the nerve to raise the stakes and go all in.

I hope it works.  Maybe we can get cheaper iPods.

Way Outside the Dots

I couldn't help but be impressed by the grandeur of the plan by Solaren, a solar energy start-up from Southern California.  Following Isaac Asimov's visionary lead, it wants to build and launch a satellite that will collect up to one million megawatts of  solar energy and send it back to earth, available 24/7.  Solaren just signed up its first customer, California's major electric supplier Pacific Gas & Electric, although the company has only agreed to purchase upon delivery--a risk-free deal for PG&E. And Solaren still has a few things to work out--like how to raise a few billion dollars, build the satellite, launch it, and send the power back to earth.  Ah, the devil is in the details!

Still, just the fact that this is being taken seriously is inspiring.  It's the kind of big thinking that invites massive skepticism and dozens of legitimate reasons why it will never work.  And yet, it's the type of endeavor that unleashes our imagination and pushes the boundaries of our thinking.  Outside the dots?  How much farther can you get than outer space?

I'm less worried about declining natural resources than most.   I believe innovation will present powerful solutions to the most challenging problems.  Besides faraway approaches like Solaren's, we should expect dramatic improvements in wind power, oil extraction efficiency, nuclear spent fuel processing and waste material recycling, water desalination and the like.  As the availability of existing approaches decline, prices will increase, consumers will become desperate and investors will swarm to bold new ideas that promise a brighter future.

And while the majority of businesses will always be mired in the day-to-day efforts preserving margins and maintaining market share, some will be prepared, because they already see the biggest problems as giant opportunities awaiting the transformational impact of innovation and vision.

KFC, OOS, DOA

Ninety-nine percent of restaurant promotions are derivative.   So it shouldn't surprise anyone that the wildly successful Denny's Free Grand Slam deal would be quickly copied by someone.  And while imitation may be the sincerest form of flattery, it is not necessarily the best prescription for marketing success.  Just ask KFC.

The Denny's formula was brilliant: Give away a meal.  Replace a major media campaign with a single high-profile announcement (for them, the Super Bowl) and rely on blogs, Twitter, email and word-of-mouth to spread the word.  Then make sure you can execute.  Denny's did this by limiting the offer to dine-in customers only, so the table turns became the governor that saved the kitchens from imploding.  The result, as reported in this blog a few months ago, was a resounding success, strategically, tactically and financially.

This did not go unnoticed at KFC, which surely prides itself on having smarter marketing folks than Denny's.  In the midst of a strategically brilliant and well-executed launch of Kentucky Grilled Chicken, they smelled an opportunity more aromatic than its 11 herbs and spices.  Take the Denny's formula, but instead of the costly Super Bowl ads, launch it on Oprah (the Walter Cronkite of our generation).  Then let the bloggers, Twitterers and email-mongers take over.  A free Kentucky Grilled Chicken meal has got to be as big a draw as a Denny's Grand Slam breakfast, right?

Well actually, it was bigger, fueled by Oprah's imprimatur and the apparent ease of dropping by a conveniently located KFC outlet for a chicken dinner to go.  Unfortunately, as has been widely reported in the press, things did not go smoothly.  There were millions of problems downloading the coupon from Oprah.com (including mine, which I could never successfully print) and massive chicken Out-Of-Stocks in KFC's around the country.  As a result, the company resorted to offering customers rain checks that had to be mailed in.  To make amends, KFC gave the disappointed customers the rather modest and overwhelmingly unsatisfactory compensation of a free Pepsi for their troubles.   The result?  Grumpily hungry customers.  Negative PR.  And a disastrous promotion, even if it did generate massive trial of the new grilled chicken.

So what can we take away from this experience?  Mostly what KFC should have already known.  But just in case, here are a few lessons:

1. Simple is good.  Complicated is bad.  In an attempt to police double-dipping and control demand, the KFC promotion required you to print a coupon with unique bar codes from Oprah's website.  I'm sure this was a major factor in getting Oprah in on the deal.  But as previously mentioned, the bar code technology was a major problem, causing frustration, customer support issues, etc.  Contrast this to Denny's--Come on by and we'll give you a free breakfast, no strings attached.  Every marketer should heed the advice of Will Rogers: "Nothing you can't spell will ever work."

2. Operations first, marketing second.  This is an age-old problem in fast food.  It's what nearly killed McDonald's in the '80's and '90's.  The customer experience is the best way to build--and the fastest way to lose--brand equity.  Denny's recognized that their worst case scenario was long lines around the building (which is pretty good advertising, by the way).  If people didn't like the look of the line, they could turn around and go home.  At KFC, on the other hand, you had a steady stream of angry customers marching up to counters and wondering why there was no chicken, leading to explanations, excuses and confrontations that could not be worse for business.  I could write a book on this, but the Cliff Notes version is as follows: Big Marketing Ideas cause unnatural demand spikes that are operationally difficult to manage, causing long-term damage to the customer base while Marketing is off celebrating their short-term victory. 

3. If your franchisees aren't committed, don't do it.  This is a hard lesson and what makes a franchise system so very difficult to run.  Believe me, there is no person more capable of leading a group of franchisees than YUM Brands' CEO David Novak.  I've known David for years and seen him in action.  I'd follow him up Pork Chop Hill no questions asked.  So if his persuasive leadership didn't convince the franchisees to pony up on their food orders then this promotion was Dead On Arrival.

Naturally, KFC is spinning this as a terrific success, with five million coupons redeemed.  But sometimes success can hurt you worse than failure.  I bet it left a nasty aftertaste with Oprah, too.

Strange New Product of the Week

Does chocolate really make everything better?  Just ran across a full-page ad for Mo's Bacon Bar.  Uh ... right. I'll give them credit for creative thinking.  And guts.  But really, what's next? Chocolate covered meatballs?  Frozen chocolate wiener sticks?  I, for one, am going in a different direction for Mother's Day.

I was also a little surprised at the product name.  From the snooty-sounding folks at Vosges Haut Chocolat, whose other products include The Napolitan Collection, the Barcelona Flaming Heart and the Organic Dominica Noir we get ... MO'S BACON BAR?

Which prompted me to wonder, just where is the exotic-sounding Vosges Haut Chocolat located?  Belgium perhaps?  Switzerland?  So I did a little research and discovered it's a 10-year-old company from CHICAGO!!!

I wonder if Mo is a Cubs fan.

The Foolishness of the Masses

There's an ugly cousin to James Suroweicki's popular theory of The Wisdom of Crowds.  Let's call it The Foolishness of the Masses.  I thought of this today while reading Rebecca Buckman's article Where's the Cash? in Forbes.  (By the way, I think Buckman writes more authoritatively and insightfully about the venture capital business than any journalist I know.)  The article points out that six months ago web entrepreneurs were getting soundly rejected by VC's if their models weren't based on ad revenues. Now that rates have fallen, the pendulum has swung wildly in the other direction.  Venture Capitalists, perhaps more than any other industry, move in herds, often relying more on popular thinking than good sense.  (Which is why, as Buckman has pointed out in other meticulously researched articles, an average investment in a VC fund has historically been much better for the venture capitalist than for the investor.  But that's another story.)

VC's aren't the only ones who suffer from The Foolishness of the Masses.  Almost every company that has ever hired an executive does the same when they issue specs for a resume that fits the traditional and expected background for the job.  When was the last time a CEO said to a recruiter: "Find me the best available athlete.  We can teach her the insurance business.  But we can't teach talent!"  To test the ridiculousness of this mass foolishness, ask any CEO if he or she would likely be successful running a business very different kind of business.  Most will confidently reply in the affirmative, stating that they would leverage the same capabilities and principles that have made them successful in the past.  So why doesn't the same principle apply to new hires?  Simple: The Foolishness of the Masses.  Everyone recruits the same way, so it must be the thing to do.

I"m reminded of something Mark Twain once said: "Whenever you find yourself on the side of the majority, it is time to pause and reflect."

Seven Radical Innovations for Higher Education

There has been much discussion in the business press lately about higher education, with many voices crying for a significant reworking of the MBA. Unfortunately, that's a band-aid--way too little and much too late. In contrast, I'd like to suggest seven much more radical innovations that can and should be considered for higher education in general, to strengthen our economic foundation for the future:

1. Eliminate Bachelor degrees.  We all know that a degree is all but meaningless and can be acquired with the faintest trace of actual education.  It often represents a young man or women who had no better options so simply stayed in school. But it is not an effective indicator of education, intelligence or learning.  To wit, George W. Bush and William F. Buckley both got BA's from Yale.  What does that tell you?

2. Replace degrees with standardized testing, similar to the GED, SAT or ACT.  Really, who cares what classes you took in school if it didn't stick?  Why should employers or graduate schools give you special consideration if you didn't learn anything?   Instead, create a bevy of tests that measure knowledge, perspective, creativity, aptitude and problem-solving ability in very specific fields.

3. Make educational pursuits modular.  Instead of one four-year degree, accumulate any number of credits or certifications indicating knowledge in a particular area.  For instance, spend a summer studying in a foreign country and get a Level 1 credit in Turkish Studies.  Build a house for Level 3 credit in construction.  Naturally, these would have to be legitimatized by standardized tests.  There are several repercussions here. One, my beloved classical liberal arts education would fall by the wayside for most students.  That's fine, since  many degree-seekers breeze through those classes anyway.  And two, it would free up passionate students to focus on specific subjects earlier in their educational careers.  Let's face it, there are plenty of technology and science students who have no interest in history and taking a few survey classes isn't going to change their world views. Let's free them up to write code or conduct experiments.

4. Eliminate universities and replace them with private instructors.   Build on the model of ancient times, where itinerant professors like Confucius roamed from town to town teaching eager students for pay.  Of course the Internet will play a big role as well. Why allow your education to depend on half-interested professors more intent on research, professional stature and tenure?.  Get teachers who care about teaching and let them compete for your educational dollars.  (One added benefit of this is the savings in state budgets.)  Of note, private universities could still exist as prestigious research institutions that provide graduate degrees.

5. Give each high school graduate vouchers for limited higher education.  There goes some of the tax dollars we just saved.  The vouchers could be spent on part-time or full-time education.  Students can earn more vouchers through additional efforts which benefit the public, such as volunteerism or military service. 

6. Make team problem-solving projects a standard element of all higher ed pursuits.  This is what is going to save the world--people learning to work effectively together to accomplish great things.  Technology soon will grant us all the processing power and memory capabilities we want, much of it through brain implants. We will need leadership, followership and partnership to harness these capabilities.  These need to be the focus of our pedagogy.

7. Let innovation be the differentiator.  It's not just what you know, or even how well you think, that will drive our economy in the future;  it's how effectively we can innovate--advancing our technology, products, business processes and management practices to create new solutions and new markets.  Companies and research institutions should pay a premium for innovation talent, not just for a business major with a communications minor graduating magna cum laude.

These can't happen overnight, but something big should start happening soon.  The world is changing rapidly, much faster than any of us have ever experienced.  We need to be aggressively challenging all of our old models, but perhaps education more than any, because it's the foundation of our economic structure.

Petraeus on Leadership

General David Petraeus and David Gergen spoke today at the Harvard Kennedy School on 21st Century Leadership. Naturally there was much about "The Surge," and how they were able to bring about such a radical transformation in thinking, particularly with a nation full of skeptics.  (OK, many nations full of skeptics!)  He made an interesting point: It is easier to bring about transformational change if you treat it like it's your last job. 

The reasoning is simple--if you can eliminate any career aspirations or ancillary goals, and focus on simply doing the right thing, you make better decisions and it's easier to build constituencies.  I recall reading that Petraeus quit voting some years back, not out of lack of civic duty, but so he wouldn't be swayed by Washington politics in the administration of his duty. 

It's a good lesson for executives.  It's too easy to let self-interest get in the way of bedrock integrity and unbiased leadership. If every manager could forget about his or her career prospects, bonus and job security, and focus singularly on building an enduring and successful company, then great things would happen.