Killer quotes #9

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

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.   

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.

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.