Wednesday, February 4, 2015

Four book recommendations from Guy Kawasaki

My new book post on s+b is up today:

Guy Kawasaki’s Required Reading
If you’re old enough to remember Apple 1.0, you surely remember that Guy Kawasaki was the company’s “chief evangelist” (one of the first of the weird job titles that don’t seem so weird anymore, with people today getting jobs as digital overlords, creators of happiness, and retail Jedi). In 1987, Kawasaki left Apple to found, lead, and invest in high-tech companies.

Now a name brand in his own right, Kawasaki is an author, speaker, consultant, and social media star. He’s got more than 6.7 million online followers and more than 480 million views on Google+. He also serves as the chief evangelist of Canva, an online graphic design tool. No wonder he’s always smiling.
In 1990, Kawasaki published his first book,The Macintosh Way: The Art of Guerilla Management (Scott Foresman). And since then, he’s written 11 more, including The Art of the Start: The Time-Tested, Battle-Hardened Guide for Anyone Starting Anything (Portfolio, 2004) and, most recently, The Art of Social Media: Power Tips for Power Users(with Peg Fitzpatrick, Portfolio, 2014).
I often see Kawasaki’s books on lists of other people’s favorite books, and that led me to wonder what his all-time favorite business books might be. Here are his top four picks and his comments about them:
If You Want to Write: A Book about Art, Independence and Spirit (Putnam, 1938), by Brenda Ueland. “This book, by a writer and journalist from Minnesota who passed away at age 93 in 1985, explains how to unshackle yourself from doubt and naysaying, even when the source of these hindrances is internal. Although it was written for writers, you can apply its philosophy to any skill: programming, designing, cooking, whatever. This book changed my life because I doubted my ability to write. In short, it empowered me, and I’ve never looked back.”
Crossing the Chasm: Marketing and Selling Technology Products to Mainstream Customers (HarperBusiness, 1991), by Geoffrey Moore. “Moore pierced my naive belief that the best product wins. The best product doesn’t always win—if this were true, Macintosh would have 95 percent market share. Just because you can get early adopters to buy your product, it doesn’t mean that the rest of the market will. Since the book was written, the speed and flatness of the Internet has changed how information spreads, but the lesson that every product faces a chasm is timeless.”
Uncommon Genius: How Great Ideas Are Born (Penguin, 1990), by Denise Sherkerjian. “Sherkerjian examined how the MacArthur Award winners achieved their genius status in this book. The bottom line is that they worked long and hard, so this book taught me the value of gutting it out and being resilient. Are there more important lessons in life than learning that hard work has value, and that geniuses are made, not born?”
Influence: The Psychology of Persuasion (William Morrow, 1984), by Robert B. Cialdini. “Cialdini explains how to influence and persuade people using principles of social psychology. The book should be required reading for every entrepreneur because of the lessons it can teach about reciprocation, and because too many entrepreneurs have insufficient appreciation of how interpersonal relationships work. I guarantee that you’ll be a more influential and persuasive person if you read it.” 

Tuesday, January 27, 2015

Four-star leadership

My latest book post on s+b is about one of the US Navy's most unlikely leaders:

Leading, the Rickover Way

On December 3, 1989, during the summit meeting that marked the end of the Cold War, Sergei Akhromeyev—a marshal of the Soviet Union and Mikhail Gorbachev’s personal military advisor—told George H. W. Bush, “We have read every one of your submarine messages for ten years and have been unable to find or kill even one of them. We quit.”

Akhromeyev was talking about the U.S Navy’s fleet of nuclear submarines, which, starting with the 1954 launching of the Nautilus, undermined the U.S.S.R’s assured second-strike capabilities and tilted Cold War geopolitics in the favor of the United States. “Shrouded in secrecy, Nautilus’ successors could penetrate any and all underwater defenses the Soviets could develop,” explains retired rear admiral and defense company executive Dave Oliver in Against the Tide: Rickover’s Leadership Principles and the Rise of the Nuclear Navy (Naval Institute Press, 2014). “American submarines became so technically advanced that they were essentially invulnerable.”

The prime mover behind the construction of this fleet is four-star admiral Hyman G. Rickover, the unlikely leader of a long-shot endeavor that dates back to the dawn of the nuclear era. “In addition to trying to simultaneously invent and adapt a new technology to an otherwise unvalued naval vessel,” Oliver (who spent much of his career serving under the admiral) writes, “Rickover was personally not terribly charming, needed lots of money, had 98 percent of the Navy arrayed against him, was proposing shattering the cookie jars of many other admirals, and was seen as downright disrespectful of the submarine heroes who had just won the first global war.”

So how did Rickover pull it off? 

One thing he did was to manage up—way up. By 1947, the Soviet occupation of Eastern Europe and the U.S. policy of containment were creating what George Orwell had been characterizing as “cold war,” the U.S. economy had not yet entered the long postwar boom, and the wondrous potential of nuclear power was still being lauded. Rickover danced to these tunes. He pitched the nuclear navy to the Eisenhower administration and the U.S. Congress as a low-cost, high-tech alternative to a conventional navy. He built the Nautilus from used parts—bringing in the first nuclear sub for less than US$70 million. Thus, he bypassed the military hierarchy.

Rickover also understood and respected the power of culture—in this case, the heavily entrenched culture of the U.S. Navy. To drive innovation and establish new ways of working, he tried to avoid building his subs in Navy shipyards. (He preferred to use privately owned yards, where he did not have to buck the entrenched hierarchy.) And he refused to use most of the officers already serving in diesel subs because he wanted to start with a clean slate.

Finally, Rickover was unrelenting in his drive to marry safe, consistent processes with continuous improvements. This, explains Oliver, gave him a leg up on the task of transforming a powerful and unproven technology into a dependable source of military advantage. To be sure, submarining has always been a dangerous business, and nuclear subs are no exception: the Navy lost two of them—the Thresher and the Scorpion—and their entire crews in the 1960s. But the nuclear navy has never had a reactor accident.

Oliver has a weakness for hyperbole, illustrated by statements like this one: “It’s impossible to overstate the massive resistance Rickover encountered when he promoted nuclear power.” But despite his obvious admiration for Rickover’s abilities and achievements, he does not shirk reality in Against the Tide. “Even with his exceptional management and personal work habits,” Oliver tells us, in a final lesson that leaders everywhere might heed, “Rickover would have failed if history had not been on his side.” As always, timing plays an essential role in success.

Wednesday, January 21, 2015

We're all Gen Z

My latest book post on s+b is up:

Stop Managing Generational Diversity

Maybe it’s time to to pull the plug on the idea of managing different generations in the workplace in separate ways. We’ve now got the last few members of “the greatest generation,” baby boomers, gen Xers, millennials, and—depending on how you define them—members of gen Z working together. It seems impractical to ask managers to remember the traits, needs, and desires of five generations, let alone adjust recruiting, training, perks, policies, and interpersonal style to the generation in question.

If Thomas Koulopoulos and Dan Keldsen are right, the complexity associated with a multi-generation workforce will only get worse in the coming decades. “By 2080, increasing life expectancy, together with shrinking intervals of technology turnover and innovation, will create an unprecedented 15 generational bands in the workplace, based on each band being about four years in span and expecting people to work from age twenty to age eighty,” they write in The Gen Z Effect: The Six Forces Shaping the Future of Business (Bibliomotion, 2014).

I don’t know if I fully subscribe to the idea that meaningful generational differences are going to appear so quickly, but even the thought of additional employee age cohorts requiring distinctive approaches sounded so daunting to me that I almost stopped reading the book. But then, two sentences in bold print caught my eye: “Generational thinking is like the Tower of Babel: It only serves to divide us. Why not focus on behaviors that can unite us?”
Why not, indeed?

Koulopoulos and Keldsen think that companies should stop managing for generational differences with gen Z, a demographic cohort that is often pegged as beginning around 1995. Why this generation? “These kids are not just digital natives, they are hyperconnected junkies whose expectations will radically change business forever,” write the authors.

This might seem like hyperbole given the fact that many members of gen Z are still in elementary school. But the authors support their statement with evidence drawn from six compelling, albeit opaquely named forces: “breaking generations, hyperconnectivity, slingshotting, shifting from affluence to influence, adopting the world as my classroom, and lifehacking.” These forces, described at rapid-fire speed in the video below, make the case—and set the stage—for gen Z as the only generation on which companies should focus their efforts.

Happily, this doesn’t mean that the rest of us are on the verge of becoming obsolete. Membership in gen Z is not merely a function of your birthdate—according to the authors, it is also a conscious choice. That means two things: One, if we adopt the right behaviors and beliefs, we can all be gen Zers (an idea that the legions of us boomers—who are approaching our discard-by dates—will surely love). And two, companies don’t need to wait around for gen Z to come of age.

Toward that end, I asked Koulopoulos and Keldsen for three things that leaders can do to begin developing a Gen Z workforce today.

"First, adopt reverse mentoring,” they said. “Reverse mentoring, which is used by less than 14 percent of companies, is just mentoring turned upside-down. Rather than having older, wiser employees show young employees how to navigate the organization, the young employees show older employees how to navigate the nuances of new technology, which can be surprisingly difficult to grasp. Companies, like Cisco, which has been doing this for years, have found that the benefits are significant and go in both directions, creating bridges across generational divides that otherwise end up undermining collaboration.

“Second,” they added, “be transparent to increase participation, trust, and innovation. One of the most dramatic generational differences in how employees view organizations is a radical rise in the demand for transparency. For gen Z, transparency is a predicate for trust, and trying to control, govern, or argue the merits of transparency is a sure fire way to alienate and frustrate its members. They believe that access to information ultimately creates greater value than hording it. Think of Elon Musk giving away Tesla’s patents and the open source and copyleft movements, and you start to get a sense for the level of transparency that gen Z expects.

“Third, provide meaning. This one sounds soft,” they explained, “but it may the most important lesson of all if you really want to engage Gen Z. In an always connected, always on world, employees will live in constant conflict if their work does not align with their values and purpose. Creating meaning is not just about being an organization that does good things. More importantly, it is about allowing employees to do things that are fulfilling and rewarding at a very deep level. This means that you have to provide Gen Z the ability to integrate lifestyle and personal passions with work. Luck Stone, one of the largest family-owned and operated producers of crushed stone, sand, and gravel in the U.S., is obsessed with helping employees ‘ignite their human potential’ through values-based leadership. And all they do is crush rock. So, what’s your excuse?”

Wednesday, January 14, 2015

The Kinect Way of Partnering

My new book post is up at s+b:

Give-to-Get Corporate Partnering

In late 2010, Microsoft introduced Kinect, a motion-sensing device that enabled Xbox users to play games using gestures and speech. Within days, however, the platform was hacked by people who started using it in all sorts of ways that Microsoft hadn’t intended.

At first, the company announced it would take legal action against anyone who tampered with its device. But hackers—excited by the opportunities presented by the first general purpose, low-cost gestural interface—ignored the threat. Then, a few months later, Microsoft decided to take a different tack, and embraced the hackers by releasing a software development kit for Kinect. They effectively turned the new platform into a huge open source project, with the company at its center. It was an unexpected about face, one that Bob Johansen and Karl Ronn describe as “truly remarkable and even inspiring” in their new book, The Reciprocity Advantage: A New Way to Partner for Innovation and Growth (Berrett-Koehler, 2014).

Johansen, a distinguished fellow at the Institute for the Future in Silicon Valley, and Ronn, managing director of Innovation Portfolio Partners, point to Kinect as an example of reciprocity-based partnering. “This new type of partnership gives a partner access to your best assets now to achieve rapidly scaling future growth that neither of you could have pulled off on your own,” Ronn explained in an email interview. “At a time when disruption is the greatest threat to business, it allows you and your partner to embrace disruption and harness it for rapid growth.”

With more conventional partnerships, like those between suppliers and their customers, the big problem is that one partner is in control, Ronn says. As a result, only one partner is seeking to develop the asset and the potential for innovation, and profit is reduced. This was the problem with Microsoft’s initial inclination to restrict access to the Kinect platform: Its potential was being limited to the gaming applications for which it was created.

Instead, the authors of The Reciprocity Advantage urge companies to share their most valuable intellectual property and other assets. “Sharing instead of protecting your assets sounds scary,” Ronn says, “but it's not when the partner you are sharing your intellectual property or know-how how with is the partner that unlocks new growth potential.”

The goal is a two-way partnership focused on creating a “new ecosystem that will support radical changes in products and services.” The authors profile various examples of such partnerships: IBM and its big data initiative Smarter Planet; Google and its Google Fiber program; TED and its TEDx partners; and Apple and well, everybody.

The payoff for such initiatives, even when they are launched in a less-than-premeditated way, can be handsome. Microsoft already had a billion-dollar business selling Kinect to gamers. But in July 2014, it released Kinect V2, with improved body tracking, development support, and tooling to the developer market. It also announced that developers who create Kinect apps can sell them through the Windows Store if they wish.

How can your company create a reciprocity-driven partnership? “First define what you can share. Apple shared its iPhone platform, for example,” Ronn says. “Then define a partner whose skills could be combined with your assets to create a new business. When Google wired Kansas City with high-speed fiber, it partnered with the whole city. Kansas City is now a hotbed for digital businesses. Finally, learn together with your partner by conducting small experiments until you perfect the new business model. When you have it perfected, scale it quickly.”

The underlying principle in reciprocity partnering is one we’ve heard before: Give first, and taking will take care of itself. Wharton School prof Adam Grant made a strong argument for individuals to focus first on giving in his book, Give and Take: A Revolutionary Approach to Success (Viking, 2013). In The Reciprocity Advantage, Johansen and Ronn extend the same line of thought to the art and craft of corporate partnering.

Monday, January 5, 2015

Zombie Marketing 101

My latest book post on s+b is here:

Zombify Your Customers

These days, zombies are everywhere. They’ve become so commonplace that the Centers for Disease Control and Prevention in the United States uses “zombie preparedness” as a way to educate people about being ready for an emergency. But what, aside from their infectious personalities, accounts for our current fascination with the walking dead?

“Perhaps technology’s unstoppable progress—ever more pervasive and persuasive—has grabbed us in a fearful malaise at the thought of being involuntarily controlled,” suggests Nir Eyal, author of Hooked: How to Build Habit-Forming Products (with Ryan Hoover, Portfolio, 2014). But he is less interested in finding a cure for humanity’s tendency to zombieism than in explaining how to exploit it.

Eyal’s goal in Hooked is to show companies how to stimulate “unprompted user engagement, bringing users back repeatedly, without depending on costly advertising or aggressive messaging.” The idea is to transform services or products into unconscious habits à la Google and Twitter, Angry Birds and Candy Crush Saga, or lottery tickets and slot machines.

To that end, the high-tech entrepreneur, blogger, and lecturer at Stanford’s Graduate School of Business and D.School presents the “Hook Model,” which he constructed from “distilled research and real-world experience.” The model has four consecutive phases: trigger, action, variable reward, and investment.

A trigger activates a customer. You advertise your product, get somebody like me to review it, get friends to tell each other about it, or—in the case of an app icon—place it on a customer’s phone or computer screen. An effective trigger prompts customers to do something: For instance, Eyal points to a Coca-Cola vending machine, with its big color photo of an attractive young person who is reaching out to you, Coke in hand, and the easy-to-read question, “Thirsty?”

Once triggered, the customer acts in anticipation of a reward. If you want customers to act, Eyal says, make it easy and mindless for them —like Facebook does when you want to share something you’ve read with your pals. The author borrows Stanford professor B.J. Fogg’s six simplicity factors for guidelines on how to achieve this task.

Once you’ve got them, it’s time to reward them. And the key to reward, the next phase in the Hook Model, is variation. The same old rewards eventually bore us. So, mix it up using three categories of extrinsic and intrinsic rewards, says Eyal, borrowing from various motivational researchers: “1. Rewards of the tribe—the gratification of others; 2. rewards of the hunt—material goods, money, or information; 3. rewards of the self—mastery, completion, competency, or consistency.”

Finally, to turn use into unconscious habit, the customer must make an investment. “The more users invest time and effort into a product or service, the more they value it,” Eyal writes. “In fact, there is ample evidence to suggest that our labor leads to love.”

The Hook Model is a positive feedback loop: Induce me to do something, and when I do it, give me a reward—preferably something that intrigues me enough to sign up, pay up, or otherwise invest in doing it again. Repitan, por favor, as my high school Spanish instructor used to say. But before you go counting your money, there’s also one more not-so-small thing to consider: First, you have to create something so cool that I’ll want to run around the loop enough times to transform myself into a zombie.

Thursday, December 18, 2014

A robot ate my job

My latest book post on the strategy+business blog is up:

Automation’s Adverse Effects

Nicholas Carr is an every-silver-cloud-has-a-dark-lining kind of guy. In Does IT Matter? Information Technology and the Corrosion of Competitive Advantage (Harvard Business Review Press, 2004), he argued that IT is not a sustainable competitive advantage because new tech can be adopted so quickly by other companies. In The Big Switch: Rewiring the World, from Edison to Google (W.W. Norton, 2008), he articulated the Big Brother–like social and economic consequences of the then-nascent idea of cloud computing. And in The Shallows: What the Internet Is Doing to Our Brains (W.W. Norton, 2010), Carr contended that being online can rewire our brains in harmful ways.
I don’t always agree with Carr, but I read his books because they are always timely, thought provoking, and highly useful for puncturing the sometimes irritating claims of digital utopians. His new book, The Glass Cage: Automation and Us (W.W. Norton, 2014), is no exception.
The Glass Cage arrives close on the heels of breathless announcements about driverless cars and delivery drones, the kinds of automation advances that promise to take us into uncharted territories. They also prompt Carr to wonder what might happen to us as machines take over more and more of the tasks that once required the human touch. 
“If you want to understand the human consequences of automation,” Carr writes, “the first place to look is up. Airlines and plane manufacturers, as well as government and military aviation agencies, have been particularly aggressive and especially ingenious in finding ways to shift work from people to machines.”
The silver cloud of aviation automation has been an impressive reduction on accidents: From 1962 through 1971, there were 133 deaths per million passengers on U.S. commercial flights; from 2002 through 2011, there were 2 deaths per million passengers. The dark lining, Carr reports, is that “a heavy reliance on computer automation can erode pilots’ expertise, dull their reflexes, and diminish their attentiveness.” This has resulted in avoidable accidents attributed to pilot error, such as the loss of a commuter flight heading for Buffalo, NY, in which 50 people died, and the downing of a Rio de Janeiro-Paris flight, in which 228 people died, both in 2009.
While these are dramatic examples outside the norm, Carr says they show how “automation remakes both work and worker.” They also raise a question that leaders in all kinds of companies might want to keep in mind as they pursue the efficiencies of automation: What will the cost be in terms of human capital?
One cost is the possibility that more and more errors will arise from automation complacency, in which the seeming infallibility of computers lulls us into a false sense of security, and automation bias, in which we give undue weight to digital information. Another cost could be the loss of the employee skills that have been automated—and worse, an inability to relearn those skills once they are gone. Yet another, according to Carr, could be a stifling of “curiosity, imagination, and worldliness”—which sounds pretty bad in a time when innovation is often touted as the only reliable competitive advantage.
What’s needed to avoid these consequences is an approach to automation that captures the consistencies and efficiencies that it offers without losing the human judgment and intuition that machines can’t replace. This is the goal of human-centered automation. “Rather than beginning with an assessment of the capabilities of the machine,” writes Carr, “human-centered design begins with a careful evaluation of the strengths and limitations of the people who will be operating or otherwise interacting with the machine… The goal is to divide roles and responsibilities in a way that not only capitalizes on the computer’s speed and precision but also keeps workers engaged, active, and alert—in the loop rather than out of it.”
The Glass Cage is not as much a solution to automation’s dark lining as it is a reminder that every business decision involves tradeoffs. Nicholas Carr is giving us a look at what those tradeoffs might entail as automation reshapes the world of work. It’s going to be up to the companies that adopt it to figure out how to capture its benefits without succumbing to its deleterious side effects.

Tuesday, December 9, 2014

Raises by the pound?

My latest s+b book post:

Improving Employee Well-Being by Default

Companies are instituting all sorts of health programs aimed at enhancing the quality of life and productivity of their employees, and reducing costs. The other day, for example, a friend showed me her Fitbit—a digital pedometer—provided by her Fortune 500 employer. The company even created a friendly competition around the device that includes healthcare rebates and gift cards for those employees who record a fixed number of steps, and rewards to those who record the most steps.
Although these kinds of programs certainly encourage employee fitness and health, Cornell University marketing professor Brian Wansink says that too often “wellness programs are like New Year’s resolutions: They’re enthusiastic and bold, but they never seem to deliver.” The problem, which Wansink explains in Slim by Design: Mindless Eating Solutions for Everyday Life (William Morrow, 2014), is that programs like the one around Fitbit require employees to make a conscious effort to become healthier. As a result, they are easily tripped up by their unconscious behaviors and emotions.

Wansink’s solution, which will sound familiar to readers of cognitive psychologists like Daniel Kahneman and behavioral economists like Dan Ariely, is to make healthy choices the default choices for employees. “Becoming slim by design works better than trying to become slim by willpower,” writes Wansink. “That is, it’s easier to change your eating environment than it is to change your mind.”

That’s why he likes commonsense and easily implementable ideas such as putting free fruit in break rooms instead of donuts; signs that give the number of calories on vending machine choices and loading the least-healthy options in the lowest slots of the machines; and in cafeterias, making salad the standard side dish and offering half-size dessert portions.

These ideas only touch the surface of the many ideas that Slim by Design offers for the workplace, as well as four other “zones that booby-trap most of our eating”—home, restaurants, grocery stores, and school lunchrooms. The basis of these ideas is research that Wansink has conducted over the past quarter-century, most recently at the Cornell University Food and Brand Lab, where he serves as director.

In one of those studies, Wansink and his team discovered that moviegoers not only ate less when snacks were packaged in smaller bags, but that more than half of the subjects said they would willingly pay 20 percent more for the smaller packages. He recalls reporting that counterintuitive finding to a couple of dozen Nabisco executives in 1996, who were “staring at me with their mouths frozen open—like I was Medusa with snakes for hair or like I had just finished yodeling.… Just like in a cartoon, I could see a big collective thought bubble above their heads: ‘SELL LESS AND MAKE MORE?’”

One idea in Slim by Design to improve the health of employees really stood out: Make 10 percent of manager’s pay contingent on improving the health of the employees he or she supervises. “Imagine what would happen if your boss—along with the other managers in your company—were graded, promoted, and paid partly on how she tried to help make you healthier. Again, healthy employees are good for business—fewer sick days, fewer medications, and fewer heart attacks,” says Wansink. “Yet, if even just 10 percent of your manager’s annual salary was based on what she did last year to help improve your health, it would be okay—not weird—for you to sit on a highway-cone-orange exercise-ball chair instead of a black office chair. One-on-one walking meetings would become normal, and desktop lunches might start to look antisocial. You might be thanked when you bring in fruit on your birthday but given the stink eye if you brought two dozen donuts or five pounds of bagels.”
What would managers think of such a plan? Wansink asked a group of them if they would rather work for a company that tied 10 percent of their evaluations to employee wellness or one that didn’t. The result: 64 percent said that they wanted to work for the former company, believing it to be “a more dynamic, progressive industry leader, with room for more advancement.”

Sounds like a winning scenario to me, unless you’re the employee who brought in those donuts.

Tuesday, December 2, 2014

Fast, simple, cheap experimentation

My latest book post on strategy+business:

How to Avoid Bad Investments in Good Ideas

In late 1999, while it was still the 800-lb gorilla in the video rental market, Blockbuster Video called in some outside help to address its biggest customer complaint: late fees. One of the calls was to Michael Schrage, then a research associate at MIT Media Lab, whose book, Serious Play: How the World’s Best Companies Simulate to Innovate, had been recently published by Harvard Business School Press.

Schrage’s brief, as he explains it in his new book, The Innovator’s Hypothesis: How Cheap Experiments are Worth More Than Good Ideas (MIT Press, 2014), was simple: “Help Blockbuster transform late fees from a primary pain point into a marginal concern for the company and its customers.” So he did some poking around in Blockbuster’s databases and stores.

Schrage found that the hapless customers who were paying the most in late fees were also the company’s most prolific renters. And even as they continued to patronize the company, these customers were venting their frustration to Blockbuster employees, as well as to other existing and potential customers. Several of them sued the company. (One of them, Reed Hastings, turned out to be something less than hapless. After being charged US$40 in late fees on Apollo 13, he founded Netflix, which had no late fees and played an instrumental role in driving Blockbuster into bankruptcy in 2010.)

“But,” writes Schrage, who has also contributed to s+b, “this seething ‘renters’ rebellion’ coexisted with an irrefutable business fact: The money was great.” In those pre-streaming days, analysts estimated that that 20 percent or more of Blockbuster’s pretax profit came from customers who couldn’t get it together to return rentals on time.

Blockbuster was considering several costly and complicated solutions to the conundrum, but Schrage thought that the company didn’t know enough about its late-fee customers to undertake a major initiative. Instead, in a meeting with management, he proposed a simple, inexpensive experiment in which a dozen or fewer Blockbuster stores would send reminders to customers to return movies before late fees were incurred. “I went down in flames,” recalls Schrage.

Blockbuster wanted to eat its cake and have it, too. The company was looking for a big, strategic-level solution that would eliminate the customer service problem without putting its revenues at risk. The one it adopted—an extended rental period after which the customer was charged the full price of the movie—proved not only unpopular, but illegal. The plan was abandoned, the company reinstituted its original late fee policy, and the downward spiral continued.

In rejecting his proposal, Schrage claims that Blockbuster misunderstood the true nature of innovation: He cites economist Joseph Schumpeter who called successful innovation a feat of will, not intellect. Further, he says the company missed the importance of uncomplicated, cheap, and fast experimentation.

Schrage’s thesis in The Innovator’s Hypothesis is that “creative experimentation, with and within constraints, makes high-impact innovation a safer, smarter, simpler, and more successful investment.” Experimentation weeds out otherwise seductive ideas that can’t be implemented, like the plan Blockbuster adopted . It brings to light insights that lead to unanticipated solutions. It also creates a bias for action: When you run an experiment, you’re actually doing something, not just talking about it.

Accordingly, half of Schrage’s new book is devoted to an innovation methodology called 5x5 that captures the benefits of experimentation. In the 5x5 approach, writes Schrage, “A minimum of 5 teams of 5 people each are given no more than 5 days to come up with a portfolio of 5 ‘business experiments’ that should take no longer than 5 weeks to run and cost no more than 5,000 euros to conduct. Each experiment should have a business case attached that explains how running the experiment gives tremendous insight into a possible savings of 5 million euros or a 5-million-euro growth opportunity for the firm.”

Schrage says that he’s been facilitating these 5x5 exercises in companies, under the auspices of MIT’s Sloan School of Management and the Moscow School of Management since 2009. The results: “There are always—without exception—at least three or four experiments that make top management sit up straight, their eyes widening (or narrowing, dependent on temperament), and incredulously ask, ‘We can do that!?’”

At a time when fast-track innovation is invariably pegged as a prerequisite of corporate success, 5x5 sounds like it might make a pretty interesting business experiment in and of itself. 

Thursday, November 6, 2014

Of invisible hands and impartial spectators

My new book is up on strategy+business:

Adam Smith’s Other Book

Adam Smith’s use of the metaphor “an invisible hand” to suggest that the individual pursuit of self-interest could also benefit society as a whole has been embraced as a rationale for unfettered capitalism. But the theory has come under fire in recent years. For one thing, it’s hard to find the societal silver lining in cases like the abuse of subprime mortgage–backed derivatives, which led to the Great Recession.

Before we ride the father of modern economics out of town on a rail, however, we should acknowledge that our current interpretation of his metaphor is an exaggerated one. Smith briefly mentioned an invisible hand only three times in his published works and only once in his 1776 economics classic An Inquiry into the Nature and Causes of the Wealth of Nations—and never did he imbue it with the economic heft it has taken on in the past century or so. We’ve also separated the invisible hand from another essential Smithian metaphor: “the impartial spectator.”

If, like me, you haven’t heard of the impartial spectator, you might find Russ Roberts’s How Adam Smith Can Change Your Life: An Unexpected Guide to Human Nature and Happiness (Portfolio, 2014) enlightening. In it, Roberts, an economist at Stanford University’s Hoover Institution, explores Adam Smith’s other big book, The Theory of Moral Sentiments, which Smith published in 1759 (17 years before The Wealth of Nations) and then substantially revised in 1790, the year he died.

The Theory of Moral Sentiments isn’t about economics. It is, Roberts says, a “road map to happiness, goodness, and self-knowledge.” He explains that while Smith acknowledges that we humans are essentially self-interested, he also says there’s more to us than that. Consider the first sentence in Smith’s book:
How selfish soever man may be supposed, there are evidently some principles in his nature, which interest him in the fortunes of others, and render their happiness necessary to him, though he derives nothing from it except the pleasure of seeing it.
Further, Roberts explains, Smith argued that there are internal governors of our natural self-interest that stop us from doing harm to others: “Smith’s answer is that our behavior is driven by an imaginary interaction with what he calls the impartial spectator—a figure we imagine whom we converse with in some virtual sense, an impartial, objective figure who sees the morality of our actions clearly. It is this figure we answer to when we consider what is moral or right.”

Roberts goes on to tell us that Smith saw the impartial spectator as neither god nor government. In the fashion of the Enlightenment, Smith believed the impartial spectator to be an internalized representative of our collective humanity—“reason, principle, conscience, the inhabitant of the breast, the man within, the great judge and arbiter of our conduct.” Smith continues:
It is he who shows us the propriety of generosity and the deformity of injustice; the propriety of resigning the greatest interests of our own, for the yet greater interests of others, and the deformity of doing the slightest injury to another, in order to the obtain the greatest benefit to ourselves.
Good stuff, but perhaps it’s a bit too easy to dismiss as classical claptrap. Maybe that’s why so many of us know about Smith’s invisible hand and so few of us know about his impartial spectator. But I know about both now, and I wonder if the former can operate properly without the latter. In other words, is it possible that the benefits of the invisible hand can be realized only in conjunction with the guiding hand of the impartial spectator?

Perhaps the abuse of mortgage-backed collateralized debt obligations (CDOs), as just one of many examples of market failures, was a direct result of the mechanism of the invisible hand operating without regard for the impartial spectator. If mortgage officers had been listening to their impartial spectators, would they have encouraged home buyers to sign for loans they clearly could not service? Would market makers have flogged CDOs that they knew were fatally flawed? Thanks to Russ Roberts, I’m pretty sure how Adam Smith would have answered these questions.

Tuesday, November 4, 2014

s+b's Best Business Books 2014

It’s striking how quickly and directly the seven reviewers in our 14th annual best business books special section get down to brass tacks. In the opening essay, Strategy& senior partner Ken Favaro picks the three books that offer new thinking about strategy that is practical and compelling. Marketing expert Catharine Taylor peels away the hype and spin of her discipline to identify books that get to the essence of the brand experience. Veteran business editor and author Karen Dillon reviews the books that will help you hone your decision-making chops—with or without an assist from big data. James O’Toole continues his unbroken run of best business books appearances by taking on a perennially relevant topic whose parameters he helped define: organizational culture. Longtime s+b book reviewer and contributing editor David Hurst identifies three books that explore not only the how-to of technological innovation, but also how technology is driving innovation in every sphere of our lives. Triple-bottom-line pioneer and first-time contributor John Elkington reviews books that provide actionable means for dealing with the seemingly intractable challenge of sustainability. And in the final essay, another notable first-timer, economic columnist Daniel Gross, reviews three books that cut through the hot-button issue of global income inequality to get down to hard facts—the Cockney twist on which is sometimes pegged as the origin of the phrase get down to brass tacks. Enjoy the reading—then, put it to work.  --Theodore Kinni


To the Nimble Go the Spoils
by Ken Favaro

Brand Diving
by Catharine P. Taylor

Executive Self-Improvement
The Human Factor
by Karen Dillon

Organizational Culture
The Nothing That’s Everything
by James O’Toole

Greasing the Skids of Invention
by David K. Hurst

Tomorrow’s Bottom Line
by John Elkington

All Things Being Unequal
by Daniel Gross

Monday, November 3, 2014

Killer quotes #11




"Long live freedom and damn the ideologies"


-- Robinson Jeffers



Thursday, October 30, 2014

The joke's on Richard Branson

My new book post is up on strategy+business:

The Virgin Chronicles

It wouldn’t surprise me to look up “entrepreneur” in the dictionary and find Richard Branson’s picture next to the definition. Heck, given his success at promoting himself and the Virgin brand over the past five decades, his picture could be there instead of a definition.

Branson founded Virgin in 1970 as a small mail-order business that sold discount records. Following a strategy that he describes as “screw it, let’s do it,” he went on to build eight billion-dollar companies in eight different sectors. Today, the Virgin Group employs more than 60,000 people in more than 100 companies. Its revenues are somewhere in the neighborhood of US$24 billion annually.
Branson has written seven books recounting his adventures in business and elsewhere. From Losing My Virginity: How I've Survived, Had Fun, and Made a Fortune Doing Business My Way (Crown Business, 1998) to his newest effort, The Virgin Way: Everything I Know about Leadership (Portfolio, 2014), they’re all pretty much the same—humorous descriptions of Branson’s romps through a bewildering array of businesses, many of which were in mature industries with what were once deemed high barriers to entry, like airlines, telecom, banking, railroads, and soft drinks.

The Virgin Way and the books that came before it don’t contain blueprints for building and leading your own business empire. Indeed, they strongly suggest that it might be better to chuck all your well-laid plans out the window and just say “yes” to the next business idea you hear…and the next…and the next. (Branson’s staff nicknamed him “Dr. Yes” for good reason.)

But therein lies the real value of the peripatetic entrepreneur’s oeuvre: Branson’s books reveal how passion, imagination, a sense of fun and adventure, and just plain ballsiness can trump not only the status quo, but also everything they teach you in business school. You can hire plenty of people who will talk about the way things are and the way things should be done, but the qualities that a guy or gal like Branson brings to the table are much harder to come by.

There are also lots of great stories and some surprising lessons in Branson’s books. In The Virgin Way, he tells us about his love of elaborate April Fools’ Day pranks. In 1986, for example, when Virgin Megastores were popping up throughout the United Kingdom, Branson decided to play a joke on the music industry: He did an exclusive interview with Music Week, the industry’s leading trade publication at the time, in which he announced that his company had been “secretly developing a giant computer, on which we had stored every music track we could lay our hands on.” For a small fee, he said, consumers would be able to download any song or album they wanted.

The story, headlined “Branson’s Bombshell: The End of the Industry,” broke on the morning of April 1 and Branson’s phone started ringing off the hook as music executives called “to beg, threaten, and plead with me not to go ahead with such a crazy scheme.” At noon, he held a press conference revealing that “Music Box” was a prank.

Years later, Branson met Steve Jobs who said that he, too, had been taken in by the Music Box story, and that the idea had stuck in his head. The real punchline came later still, when Apple launched iTunes and the iPod, which sounded the “death knell” for Virgin Megastores—which now only operates in the Middle East.

“Clearly the moral behind this story,” explains Branson, “is that if you’re going to let others know—even as an April Fool’s joke—how you think your industry might look in the future, then you had better make sure that your company has a plan already in place to get you there first. If you don’t, then the joke could very easily be on you!”

Friday, October 17, 2014

Killer quotes #10

"Between stimulus and response there is space. In that space is our power to choose our response. In our response lies our growth and our freedom" -- Viktor Frankl








Thursday, October 16, 2014

The best sales book of 2014

My new book post on s+b's website is up:

Reframing Sales Effectiveness

I’m calling it early: Aligning Strategy and Sales: The Choices, Systems, and Behaviors That Drive Effective Selling (Harvard Business Review Press, 2014), by Frank V. Cespedes, is the best sales book of the year. I know we’ve got a few months left in 2014, but I’m not too worried that I’ll be proven wrong—I’ve been waiting for a sales book like this one for a long time and the odds that another will appear before December 31 are long indeed.

With rare exceptions, sales books are about one of two things: the sales process or sales skills. The process books are aimed at providing the sales force with a path it can follow to close deals; the skills books are aimed at bolstering an individual salesperson’s results. Good ones of both ilks can be worth their weight in gold. “But,” warns Cespedes, a consultant and senior lecturer at Harvard Business School, “they also treat selling in isolation from strategy, and the focus of much sales training can have a perverse effect: It often leads a company’s sales force to work harder but not necessarily smarter .” Worse, he adds, the sales force can get “better and better at things that customers care less and less about…and the cycle can be self-reinforcing.”
In Aligning Strategy and Sales, Cespedes enlarges the frame in order to show us the bigger picture. That picture reveals a set of linkages:

• A combination of company strategy and market/customer characteristics dictates sales tasks (i.e., the sales process). This suggests it is highly unlikely that a generic sales process will be optimal for your company—unless your strategy is also generic, in which case you’ve got a different problem.

• Sales tasks dictate selling behaviors. You need to know what you are trying to accomplish before you can determine how to accomplish it. This suggests that generic lists of sales traits probably will not be optimal either (and I write this as the coauthor of a book that derived a list of desirable selling behaviors from the correlation between the behavioral traits of several hundred thousand newly hired salespeople and their subsequent performance).

• Sales behaviors dictate sales hiring, sales systems, and the sales environment. The latter three buckets are the levers by which you get the behaviors that you need to execute the sales tasks that enable you to deliver on your strategy in the marketplace.

This type of framework is not rocket science and it shouldn’t be unfamiliar to executives. After all, every function in a company is subject to the same—dare I say it, generic—set of linkages. But they are rarely articulated in a sales context and so one or more of them are often neglected when companies set strategy or seek to enhance sales performance. And, as you might expect, the results aren’t pretty in either case.

What I really like about Cespedes and his book is that he knows achieving success in sales isn’t simple. The parts are always moving. Executives are adjusting their strategies in response to a host of variables. Salespeople are changing their processes and adjusting their behaviors in response to ever-changing conditions on the field. Sales managers are coming and going. Sales incentives are constantly changed based on inventory levels and margins and demand. “In any situation where you have interacting variables like this, you must confront the interactions and diagnose the problem,” he says. “That’s what’s needed to improve selling and strategy.”

(That little italicized and is worth a brief aside: Strategy informs sales, but sales also informs strategy. Your salespeople are in the market and they are tripping over vital strategic intelligence on a regular basis. You might want to start actually listening to their bitching and moaning.)

Back to the business at hand: Let’s say your sales aren’t exactly cause for celebration and, as is their wont, everybody is pointing the finger at each other. How do you fix it? The answer to that question is the core content of Cespedes’s book. Chapter by chapter, the author deconstructs the big picture, explaining how to tell where there are disconnects in linkages and how to approach the job of repairing them. Again, not rocket science—but in a business world where sales is often seen as a black box and sales misses are addressed by firing underperformers, giving big signing bonuses to new managers and salespeople, and chucking money at motivational speakers, Aligning Strategy and Sales is well worth the cover price.    

Thursday, October 9, 2014

Mia Farrow's army

My new book post on strategy+business:

The Price of Privatizing War

My experience with mercenaries extends about as far as Abbott and Costello in the Foreign Legion, a comedy that ran repeatedly on a New York television station when my brothers and I were young and never failed to tickle our funny bones. Yeah, yeah, I know—très sophistiquè. But in those days, private military companies (PMCs) were well beyond the ken of four kids from New Jersey.

These days, on regular drives to the Outer Banks in North Carolina, I pass a turnoff that leads to a 7,000-acre training center belonging to a PMC named Academi.

According to the company’s website, it “boasts many unique training facilities, including 50 tactical ranges, five ballistic houses, multiple MOUT/scenario facilities, four ship-boarding simulators, two airfields and three drop-zones, a three-mile tactical driving track, 25 classrooms, multiple explosive training ranges, a private training center, accommodations for over 300 personnel, and other training support activity centers.” Academi acquired the center from Blackwater, the notorious PMC whose employees killed 17 civilians in Baghdad’s Nisour Square in 2007.

Both companies supply services in the “market for force,” as Sean McFate, an assistant professor at the National Defense University and adjunct social scientist at the RAND Corporation, puts it. They are part of a multibillion-dollar industry (estimates range from US$20 to $100 billion annually) that includes public multinational companies run by veteran Fortune 500 executives and represented by their own trade association.

McFate explores this industry in Modern Mercenary: Private Armies and What They Mean for World Order (Oxford University Press, 2014). And happily, he does it in a way that eschews moral hysteria in favor of a dispassionate, academic approach. That may be because he has worked as a defense contractor (helping Liberia build its army, for example, among other assignments), and studied the industry. No matter what you think about “for-profit killing and the commodification of conflict,” McFate makes a strong case that demand for PMCs will expand in the decades and, perhaps, centuries ahead. The privatization of war is a growth business.

McFate acknowledges that PMCs are an emotionally charged subject. But he also puts them in historical perspective. They’re not a new concept. Xenophon’s Ten Thousand—whose story Peter Drucker said taught him everything he needed to know about leadership—were Greek mercenaries. Mercenary companies (condottieri) were the go-to guys if you wanted to wage war in the late Middle Ages. “By the middle of the seventeenth century,” explains McFate, “the conduct of violence was a capitalist enterprise no different than any other industry.” Around that time, states began to monopolize the market for force by building standing armies, and private armies were outlawed. What better way to guarantee the security of your kingdom than to have the only army in town?

Mercenaries didn’t disappear entirely after that, but the demand for their services was relatively limited, until the United States started hiring PMCs to bolster its downsized standing army in Iraq and Afghanistan around 2003. And it’s unlikely that demand will fall again, even as the U.S. buying binge subsides. The reason, explains McFate, is that we are entering a period of neomedievalism, in which “the world’s order is polycentric, with authority diluted and shared among state and non-state actors alike.”

This means that the market for force is diversifying, with the demand stemming from more and more countries, transnational organizations like the United Nations, NGOs, corporations, and even movie actors. Yep, as McFate reminds us, Mia Farrow approached Blackwater and several human rights organizations in 2008 with a plan to end the genocide in Dafur. She wanted to pay Blackwater to stage an armed intervention aimed at creating protected refugees camps, while the human rights organizations mounted a media campaign to force a U.N. peacekeeping mission. The well-intentioned idea fell through, but could Farrow really hire a private army and invade Sudan? Yes, and successfully “for days and perhaps even weeks,” concluded McFate, who was called on to evaluate the feasibility of the plan shortly after it was conceived.

The Modern Mercenary is filled with fascinating stuff, and its bottom line is that there is no stopping the continuing development of the market for force. So, what—if anything—should be done? McFate says we have to regulate the industry while the free market for its services is still dominated by the demand from a few big customers, mainly the U.S. If we don’t, he warns, the profit motive could cause PMCs to perpetuate armed conflict. And then, we might really get a look at what the world was like in the Middle Ages.

Thursday, September 25, 2014

Killer quotes #9

"They say hard work never hurt anybody, but I say: Why take the chance?"     --Ronald Reagan

Tuesday, September 23, 2014

A foxy approach to global sustainability

My latest book post on s+b:

The Business Approach to Climate Change

We’ve been cautioned—and often berated—about the unsustainable nature of the global economy for several decades now. These days, the warnings of the dire consequences we face seem to be arriving with greater frequency and in ever more urgent rhetoric, but substantive progress is more aspiration than reality.

Witness the environmental efforts of the United Nations. The UN Intergovernmental Panel on Climate Change recently reported that not only have we not been able to reduce greenhouse gases, but emissions have actually risen to record levels, growing at a faster rate between 2000 and 2010 than in any of the three previous decades. Meanwhile, it can’t get Xi Jinping of China and Narendra Modi of India—the leaders of the first and third most prolific producers of these emissions—to attend the UN’s Climate Summit 2014 on September 23, which has been expressly convened to pave the way for a “meaningful, robust, universal, legal climate agreement by 2015.” And an internal review of the UN’s environmental efforts suggested that even as funding for these efforts mushrooms, they are somewhat less than effectively coordinated and organized.

It’s not my intention to pick on the UN—at least its leadership is trying to do something about climate change. Instead, my aim is to illustrate why John Elkington, who 20 years ago popularized the “triple bottom line,” and Jochen Zeitz, who implemented the first environmental profit and loss account (at Puma, with an assist from PwC), have concluded that “business has no option but to take the lead” in the quest for a sustainable global economy. (strategy+business is published by PwC Strategy& Inc., a member of the PwC network of firms.) In their new book, The Breakthrough Challenge: 10 Ways to Connect Today’s Profits with Tomorrow’s Bottom Line (Jossey-Bass, 2014), Elkington and Zeitz argue that “the perfect storm involving globalization, the increasing power of multinational corporations, and the impact of the prolonged economic downturn” makes effective governmental action unlikely.
On its surface, the idea that we need to depend on business for the creation of a sustainable world seems like putting the fox in charge of the henhouse. After all, much of the blame for our troubled outlook rests on the shoulders of the business community, which has vociferously opposed countless solutions to the problem.

But maybe the idea isn’t so farfetched: If we suffer widespread ecological disaster, if people have no jobs, and if financial systems collapse, what happens to corporate profits? It may be that companies will take the lead in creating a sustainable world not because they’re the last ones standing, but because the drive for profit will leave them with no other choice.

Elkington and Zeitz think business can and should take on this challenge. But they don’t underplay its daunting magnitude—a reality that quickly becomes clear when reading their book. The “10 ways” referred to in the subtitle are more like prerequisites.

Business leaders, the authors tell us, must adopt a new and far more ambitious and expansive mindset about sustainability. New structures, like the benefit corporation, are needed. “True” accounting principles must be adopted. True returns must be calculated. Human, social, and planetary well-being must be pursued. The playing field must be leveled: “Subsidies or incentives for practices that are destructive to people and the planet” must be eliminated, they write. Full transparency is required. The way we are educating tomorrow’s business leaders must be changed. Business needs to turn to nature as a model for innovation, following in the footsteps of people like Janine Benyus. Short-termism has to be eradicated. Only when these conditions have been met, can the real work begin.

 This is a tall order and, as quotes from some of the notable figures featured in the book—like former Shell CEO Mark Moody-Stuart and Unilever CEO Paul Polman—attest, it entails overcoming much resistance. On the bright side, the prescriptive solution in The Breakthrough Challenge has already been launched: It is the agenda of the B Team, an organization that evolved from a roundtable convened by Richard Branson’s nonprofit foundation, Virgin Unite. Who knows? In the end, maybe the foxes will save the hens.   

Thursday, September 11, 2014

Virtual markets aren't flat

My latest book post is up on s+b:

Location, Location, Location

As I recall, the Internet was supposed to render location irrelevant. Pioneering dot-com entrepreneurs, as well as more than a few investors, saw the online world as flat and filled with an endless supply of customers. Of course, many of these dot-coms became dot-bombs.

The bursting of the Internet bubble in 2000 has often been blamed on what then Fed chairman Alan Greenspan described as “irrational exuberance,” but that’s only one part of the story. In a new book, David R. Bell, the Xinmei Zhang and Yongge Dai Professor at the Wharton School of the University of Pennsylvania, suggests other reasons for the bust, reasons that should concern anyone with an interest in online commerce. The book doesn’t address the bubble directly, but it does deflate the idea that underpinned much of the exuberance in the second half of 1990s—that the Internet is always a flat, friction-less marketplace.

“The virtual world is flat in terms of the opportunity it delivers to all of us, but it is not flat in the way that we use it,” writes Bell in Location Is (Still) Everything: The Surprising Influence of the Real World on How We Search, Shop, and Sell in the Virtual One (New Harvest, 2014). “Because the way we use it to search, shop, and sell depends on where we live in the real world, which is anything but flat.” If you have a baby, for instance, and you live 10 miles from a drug store, you are going to be a lot more likely to buy diapers online than if you live across the street from a drug store.

This may seem obvious, but according to Bell, very few online businesses fully consider the geographic factors that can make or break them. Among these factors are resistance, adjacency, vicinity, and isolation.

Resistance is the level of difficulty that customers encounter as they buy products and services. There are two kinds: questions regarding where you might buy something are called geographic frictions, and difficulties that customers encounter in making purchase decisions are called search frictions. Furniture e-tailers, for example, had a lot of difficulty with search frictions at one point: It turned out that people wanted to sit on a couch before they bought it.

Adjacency is the direct proximity of customers to each other. This matters because “most people live in locations that contain neighbors who are similar to them in key ways.” We flock to stores—both online and offline—because our neighbors tell us about them or because we see them buying from stores and we simply copy them.

Vicinity is the connection of one community of customers to another that is not physically proximate. “The end result is the Spatial Long Tail,” explains Bell, “in which the head is demand from customers connected through ‘proximity,’ and the tail is demand from customers connected by ‘similarity.’” You need both.

Isolation is an extreme form of geographic friction in which the preferences of a small minority of customers are not being satisfied locally. Bell, a New Zealander who lives in Philadelphia, says he can’t find Vegemite locally. That’s “preference isolation,” and, often, it represents a demand niche that an online seller can profitably fill.

Although Location Is (Still) Everything is worth the read, I doubt you can use it as how-to guide for building a business plan. Bell takes a stab at tying the concepts he describes into a framework that online businesses can use to get location working for them, but it’s not as powerful as his thesis—that geographic factors play an essential role in online success. A thesis, by the way, that may offer some insight into why Amazon (parent company of New Harvest, the publisher of this book) is busy building 300,000-square-foot “sortation centers” that will cut its shipping times, and why Jeff Bezos is dreaming of fleets of delivery drones.

Thursday, September 4, 2014

Three core concepts for social media

My latest blog post on s+b:

Seeking Social Failures

The business shelves are crowded with books on how to promote ourselves and our companies on social platforms like Facebook, Twitter, and LinkedIn. But Mikolaj Jan Piskorski, a professor of strategy and innovation at the International Institute for Management Development (IMD) and formerly the Richard Hodgson Fellow at Harvard Business School’s strategy unit, takes a more robust approach in his new book, A Social Strategy: How We Profit from Social Media (Princeton University Press, 2014). Using three specific social media concepts, he creates a framework that marketers can use to craft an effective and innovative social media strategy.

Piskorski’s analysis of social platforms suggests these three concepts can account for their success and the success of companies that use them: social failures, social solutions, and social strategy. If you want to be tomorrow’s Mark Zuckerberg or piggyback on the triumph of the next big social platform, look for today’s social failures. Before the lunch invitations come flooding in, I should explain that a social failure isn’t a person—it’s an unmet social need, of which there are two categories. “Meet” failures, Piskorski says, represent constraints in our ability to make connections with new people; “friend” failures represent constraints in our ability to connect with people we already know. The first determinant of a social platform’s success is the commercial potential inherent in the social failure it aims to address.

Social solutions remedy social failures. An online dating service, like eHarmony, for instance, is a solution to a meet failure: the barriers to finding that special someone. An online messaging service, like Twitter, is a solution to friend failure: the barriers to communicating efficiently with your social network. Every solution, explains Piskorski, comes with “trade-offs that arise between different ways of helping us interact with people we do not know and with those we already do.” For instance, a company that is designing a social solution to a meet failure must decide whether it will offer its users private interactions with a few strangers, private interactions with many strangers, or unlimited public interactions. Decisions such as this one define the business concept for a social platform and its user base, and establish its competitive differentiation.

A social strategy, the final of Piskorski’s three core concepts, is the means by which a company can tap into the success of a social platform. For instance, how can a company like Ford or Procter & Gamble leverage the popularity of Facebook or Twitter? Too many companies use social platforms in ways that irritate, rather than attract, customers. “These commercial messages interfere with the process of making human connections,” says Piskorski. “To see why, imagine sitting at a table having a wonderful time with your friends, and then suddenly someone pulls up a chair and asks, ‘Can I sell you something?’ You would probably ignore that person or ask him to leave immediately. This is exactly what is happening to companies that try to ‘friend’ their customers online and then broadcast messages to them.” Now, that’s the other kind of social failure.

Piskorski says that an effective social strategy is one that helps “people do what they naturally do on social platforms: engage in interactions with other people that they could not undertake in the offline world.” So, if you want to market on say, Twitter, you need to understand the social solution it offers its users—for most people, the ability to communicate briefly and efficiently with a relatively small number of family members and friends—and craft your messages in ways that are aligned with and enhance their use of the platform. This is the deceptively simple, central idea behind a successful social strategy.

Being a closet Luddite, I’m amazed by the kind of user numbers that social platforms like Facebook, Twitter, and LinkedIn are reporting: 1.28 billion monthly users; 255 million monthly users; and 300 million members respectively. With user bases of this size, the reach of these platforms rivals and, in many cases, exceeds the media giants of yesteryear. Thanks to Mikolaj Jan Piskorski and his new book, companies now have a clear strategic framework for figuring out how to tap into their power.