Anne Mulcahy: Reflecting on her Tenure at Xerox

Anne Mulcahy retired as Chairman of the Board of Xerox this week. She had already turned over the reins as CEO some time ago. In this Business Week video, she reflects on her tenure, with specific emphasis on what she did as she took charge and began the turnaround at Xerox.

Using Social Networks to Drive Change at Houlihan's

The March issue of Fast Company featured an article about the Houlihan's restaurant chain's efforts to recharge growth. The article describes how Houlihan's "created its own social networking site, HQ, an invite-only 'brand community' of 10,500 'Houlifans' to serve as a virtual comment card." The firm used extensive feedback from the dedicated customers on the social networking site to retool a new "tapas style" set of small plate menu items and make the place an attractive venue for young adults to hang out, eat light, and enjoy a drink.

How do you get millenials to provide such rich feedback to you? Houlihan's understood that you have to offer something in return, namely information. These fans liked the fact that they were given priority access to information about new product offerings, recipes, and the like. They enjoyed talking about the changes and felt great about the fact that the company was listening to them. Perhaps most importantly, Houlihan's found that engaging customers so intensely led these fans to bring friends along with them on future visits.

What's most interesting about the firm's approach is that they did not use a public social media platform to engage with these customers. They chose to form their own site so that they could gain exclusive access to these insights from their customers. Of course, a company can only be successful with such a private site strategy if they can attract customers to visit the site and interact on it. If you can accomplish that, naturally you can enjoy the fact that rivals cannot access the information you are gathering from consumers.

I don't think, however, that firms should rely only on exclusive sites such as this one. An effective strategy of engaging customers must include interaction on public social media platforms as well. In that way, firms avoid the risk of missing key insights and feedback that more casual customers may provide, as well as input from those people who have chosen NOT to be customers any longer for some reason.

How Ethical Are We?

The Uncommon Knowledge section of the Sunday Boston Globe featured a synopsis of an interesting new study about ethical decision making. The University of Toronto's Chen-Bo Zhong and several co-authors explored the question of whether poor ethical choices tend to occur more frequently during snap judgments or situations involving time for more extensive thought and reflection. Interestingly, Professor Zhong's results suggest that ethical lapses occur more often when people take time to consider their decisions. It may have to do with the fact that individuals assess their "morality bank account" if they have time to consider their decisions. The authors suggest that we may come to believe that we have earned some amount of "morality credits" after making ethical choices. Unfortunately, that means we then become comfortable making less ethical choices, because perhaps we see it as just drawing upon the credits that we have earned over time. In other words, we may come to think of less ethical choices as akin to withdrawing from a savings account that we have done a good job of building previously.

LinkedIn: Where the Jobs Are!

Fortune has a new article titled, "How LinkedIn will fire up your career." Everyone should read this article, but particularly the college and MBA students out there. In the article, John Campagnino, Accenture's head of global recruiting, points out that he plans to do at least 40% of his hiring in the next few years through social media. By and large, that means LinkedIn. Who will you find out there on LinkedIn? It's an impressive group of folks. "The average member is a college-educated 43-year-old making $107,000." Not bad company at all!

In the end, though, you have to be able to communicate personally with a prospective employer to actually land the job. LinkedIn may get you a conversation, but then you have to be able to communicate well in person. You have to be articulate, thoughtful, and passionate. You need to be able to beyond the profile to truly differentiate yourself and make the case for why you can add value to a particular organization. As the article concludes, "You work the network. You connect with people like John Campagnino at Accenture if you want a job in consulting. Then you turn off the computer, and you call your connections on the phone. And you invite them to lunch." In sum, keep in mind that LinkedIn is just the ticket to the game. It's true, however, that it's becoming of the best sources of tickets in town.

Groupon

Have you heard of Groupon? Dan O'Connor, the head of the retail research and advisory firm RetailNet Group, informed me about this innovative new company a few months ago. Last week, Fortune's Jessi Hempel wrote about Groupon. As Hempel puts it, the company "marries coupons with the wisdom of crowds." Here's the way Groupon works: 2 million people have become subscribers to the firm's emails. Each day, Groupon offers one deep discount coupon in each of forty cities across the United States. One deal, for instance, might be for a spa in New York City. Subscribers receive an email about the offer. If enough subscribers express interest in the deal, then each respondent receives the coupon. For example, Groupon might offer a 50% discount to a particular spa, provided that 100 subscribers respond to the offer. If the offer does not attract enough subscribers, then the coupon is not given to anyone. How does Groupon generate revenue? They receive a fee from the businesses offering these deals, provided of course that they can get enough subscribers to meet the quota on a particular offer. Why do firms offer such steep discounts via Groupon? First, it provides a way to drive volume at times when they might have excess capacity? Second, it offers an opportunity to create some buzz among social groups within an urban area. Finally, many companies find that such deep discounts lead to follow-on visits from customers who are pleased with their first encounter with the particular company. Is Groupon successful, or are they just another start-up with lots of buzz and little profit? According to founder Andrew Mason, they've been profitable since June 2009, and they aim to achieve $100 million in revenue this year. That's pretty remarkable stuff, and it is transforming the way that many people purchase certain products and services.

Edges vs. Fringes

John Hagel, John Seely Brown, and Lang Davison have an intriguing blog post over at Harvard Publishing. They make a crucial distinction between fringes and edges. Fringes exist on the periphery of mainstream society, and they are unlikely to ever grow to transform the core. Edges also exist on periphery, but they have the potential to transform and supplant the core in various industries. Hagel, Brown, and Davison try to identify some characteristics that distinguish fringes from edges. Naturally, companies would love to know what activity at the periphery has the potential to become a large mainstream market opportunity.

While I think these thought leaders offer some intriguing ideas, I found myself still unsure whether their insights can enable better decision-making. For instance, they argue that scalability distinguishes edges from fringes. They discuss scale in terms of both supply and demand. Here's what they say at one point. "Scalability also matters on the demand side. Is there a sufficiently big addressable market?" What's wrong with that statement. Nothing, really... except that the trouble with most disruptive innovations remains that, ex ante, one often finds it extremely difficult to size the market opportunity. In short, I think we often can only assess the true size of a market opportunity well after innovative businesses have begun to grow. What we need are better ways to actually make the distinction between edges and fringes in the very early stages. The authors have made some progress, but there's much work to be done on that point.

Do Family Firms Have Incentive Problems?

A new Harvard Business School working paper by scholars Oriana Bandiera, Luigi Guiso, Andrea Prat, and Raffaella Sadun examines whether family firms pay differently than companies that have dispersed ownership. They find that, "Family firms use contracts that are less sensitive to performance; these contracts attract less talented and more risk averse managers; these managers work less hard, earn less, and display lower job satisfaction." Why do family firms offer lower-powered incentives to managers? The authors argue that they do so because they want to preserve family control over the business. Thus, they do not want to provide a high degree of equity upside to professional managers who are not family members. They conclude with a thought about how large concentration of family firms in a country may affect overall economic performance. The authors write, "Economies where family firms prevail because of institutional or cultural constraints are also economies where the demand for highly skilled and risk tolerant managers languishes." The underlying paper may be a tough slog for some to read, as it is highly academic. However, family business owners should take a look, as the conclusions surely are relevant to them.

My financial adviser is a yes-man!

Fortune this week features new research by Harvard behavioral economist Sendhil Mullainathan. The research shows that most financial advisers tend to reinforce the biases in a client's investment strategy, rather than fundamentally altering the approach. Advisers seek to keep the first-time client coming back. Thus, they fail to confront the client and challenge the flaws in the investment portfolio. Do you have a financial adviser? Is he or she a sycophant? Does this person reinforce your predispositions?

"Brand Radar"

Over at the Business Week site, consultant and former Harvard professor John Sviokla reflects on an interesting episode that took place on a Virgin America flight just a few days ago. On March 13th, A Virgin America flight from Los Angeles to New York ended up being diverted to Newburgh, N.Y., because of very poor weather. Passengers suffered through a four-hour wait in the plane on the tarmac at Newburgh. You can imagine the scene. We have heard of similar horror stories in the past. David Martin, CEO of Kontain.com, documented the entire episode on his company's iPhone social-media application. Virgin America learned about Martin's social-media writings, and the CEO ultimately called him. Each passenger ended up receiving full refund for the flight and a $100 voucher for future travel.

Sviokla writes that we can learn some important lessons from this episode. Specifically, he argues that, "Every company must have 'a brand radar system' to constantly monitor social media. The good news is that if a company commits to this notion of having a brand radar system, there are many tools to help build this surveillance capability." Many people have talked about this idea of monitoring social media constantly both for good and bad feedback regarding your brand. What's interesting is the speed and agility required on the part of companies. Do all firms have that type of flexibility and fast response capability? Does yours?

Sviokla points out that Disney's Chief Technology Officer informed him that it used to take until the end of opening weekend for the company to determine if a movie was doing well. Now, social media enables Disney to detect within hours of a premiere how customers are feeling about the film. Word of mouth spreads via social media in a matter of hours, not days. Thus, firms need to have a sophisticated brand radar system, but that's not enough. They also need an incredibly fast and agile response system as well.

Idea Monkeys

G. Michael Maddock and Raphael Louis Vitón have written a useful column over at Business Week's website about innovation. In that article, they describe the concept of "idea monkeys" - those people in your organization who are an endless source of ideas and suggestions for how to do things better. They warn against the tendency to become overwhelmed by these individuals. One doesn't want to curb their energy. Instead, Maddock and Vitón recommend finding ways to direct their enthusiasm and efforts. Call on them to innovate in a particular area that needs improvement, for instance.

One thought struck me as I read the article. Leaders not only have to learn how to work with such "idea monkeys"... they must help those innovators persuade and influence others to adopt their ideas. The most creative and innovative folks in organizations do not always have the skills required to sell others on those ideas. Leaders in the organization have to help them build buy-in and commitment.

NetFlix Prize Sequel

NetFlix has announced the cancellation of its NetFlix Prize sequel. The contest, designed to solicit ideas for improving its recommendation engine, has prompted serious concerns about the improper disclosure of private customer information. Apparently, two researchers were able to uncover personal information for NetFlix users, and they disclosed this issue in a Wired magazine article. According to the Wall Street Journal, one researcher, Arvind Narayanan, "has written that privacy incidents like the one involving Netflix 'have shown that people responsible for data release at these companies do not put themselves in the potential attacker’s shoes in order to reason about privacy.'"

This episode highlights a broader lesson for company executives. They often don't spend enough time stepping into the shoes of other key parties such as customers, suppliers, competitors, or potential hackers. That role play exercise can be vital in determining a company's critical weaknesses.

Getting Younger at L.L. Bean

The Boston Globe published an interesting article about L.L. Bean's efforts to attract a younger demographic with its new Signature line of products. The paper reports that L.L. Bean's average customer age is 50 years old. One can see why L.L. Bean has chosen to launch a product line aimed at customers in their 20s and 30s.

This article stood out for me, though, not because of L.L. Bean's new product line, but for the way in which an enterprising young college student named Charlie Carey and his friend, Charlie Hale, have become ambassadors for the company. Carey, a Bates freshman, contacted L.L. Bean when he discovered the new product line. He had some ideas for how to promote the line to college students. The folks at the company headquarters did not dismiss this young student's inquiry. Instead, they invited Carey and Hale to headquarters to meet the marketing team. Company managers took notes as the two college students offered ideas on how to appeal to young people. Soon, they had signed on to be brand ambassadors, receiving free clothing in return for their marketing efforts on behalf of the company. According to the article:

"The students created a code name for their preppy endeavor — “Bean in the wiL.L.d’’ — and developed a private online forum where they plan to write updates for L.L. Bean on how the clothes are fitting, what styles are working, and post photos of the outfits they put together. L.L. Bean will use this feedback, along with other customer input, to drive style, marketing, and price updates for the collection."

What's the lesson for other companies? Let's begin by asking: Would my company respond so enthusiastically and openly to such a customer inquiry? Would we be open to collaborating with customers in this way, particularly if they are young people who are not our core customers traditionally? I would argue that most firms would die to have such dedicated, loyal fans... yet, many companies might dismiss such an email from two college students without much thought. How would your firm react?

Problems in Napa Valley

Business Week reports that, "As many as 10 premium wineries and vineyards in the area—home to the nation's priciest grapes—will change hands in distressed sales or foreclosures this year and next, according to an estimate by Silicon Valley Bank." The article explains that many people entered the wine business during the economic boom, buying up very expensive land in Napa Valley and trying to produce high-end wines. While revenue growth for wine had been strong for many years, things have changed with the economic downturn. Fewer people are buying super and ultra premium wines, and more folks are turning to lower-priced, but good quality imports from countries such as Chile, Argentina, and Australia.

What the article does not mention is that the economics of producing high-end wines in places like Napa proves especially challenging because of the long time horizon in the ultra premium wine-making business. First, the firm must make a substantial capital investment to purchase the land and equipment. Second, a long time lag exists between the year in which vines are planted and the point at which aged wine is finally sold to consumers. If a firm purchases land and plants vines today, it harvests the first grapes from those vines three years from now. The winery sells the first aged ultra-premium wine in Year 5, and full-scale wine production does not occur until between Year 7 and Year 10. That's a very long time to wait for a return on a very expensive investment. One has to be very patient, and you have to be able to command a strong price for high quality wine to make the returns attractive. Falling real estate values and high mortgage payments can make it impossible for small wineries to survive, as we are seeing now. Frankly, even with stable real estate values, the payoff for such a real estate investment can be way off into the future.

Doritos Poking Fun at Apple

Here is a hilarious new YouTube video - a Doritos commercial spoofing the introduction of the iPad. Talk about creative viral marketing!

Coupons!

My colleague, Keith Murray, tells you everything you wanted to know about coupons over at his excellent marketing blog. If you have time, check out some of his other terrific posts with topics ranging from Sandra Bullock to Dove's attempt to target male consumers.

Jon Stewart on Toyota's Troubles

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Van Halen, Brown M&Ms, and Operational Excellence

Do you have a simple way of testing whether the processes in your company are operating as you expect? Can you tell if people are paying adequate attention to detail?

As readers of this blog know, I'm a fan of the work of Dan and Chip Heath, authors of the best-selling book, Made to Stick. I'm now reading their second book, Switch, and thoroughly enjoying it. I recommend the book for those interested in creating change in their organizations and communities.

In this month's edition of Fast Company, the Heath brothers describe the reality behind the legend of the brown M&Ms that the rock band, Van Halen, used to insist on banning from the backstage area during their concerts. Van Halen's concert contract used to read, "There will be no brown M&Ms in the backstage area, upon pain of forfeiture of the show, with full compensation." When people heard of this clause, they considered lead singer, David Lee Roth, and the other band members to be the ultimate divas. Actually, the band had a very different reason for insisting on no brown M&Ms. They put on very elaborate concerts back in the 1980s, and they had very detailed contracts specifying all the equipment and procedures required to operate a successful show for their fans. Within that lengthy contract, Van Halen buried a simple clause banning brown M&Ms from the candy bowls backstage. When the band members arrived at a venue, they would check the bowl. If they found brown M&Ms, they knew that the crew had no paid sufficient attention to detail. They knew to take a closer at the overall operation. What a magnificent little test! Every leader should consider what small signs they can look for to determine whether an organization's detailed operational processes are functioning properly.

The Greening of Wal-Mart

This month's issue of Fast Company profiles the world's fifty most innovative companies. Wal-Mart comes in at #9, largely due to its green initiatives. I'm sure many folks questioned Wal-Mart's intentions when it began its major sustainability initiatives in the fall of 2005. However, as we have learned, many efforts to become more green actually have fit nicely with Wal-Mart's low cost strategy. Why? A number of green initiatives at Wal-Mart actually reduce costs because they eliminate waste. Let's take plastic shopping bags. According to Fast Company, Wal-Mart used 2.5 billion fewer plastic bags in the first twelve months of its push toward the use of reusable shopping bags. Well, let's think about how much that is worth. According to this article from National Geographic, a plastic shopping bag costs about one penny. Therefore, some simple math tells us that Wal-Mart saved $25 million in just one year thanks to its efforts to shift consumers away from disposable plastic and toward reusable shopping bags. Talk about a win-win... Wal-Mart helps the environment and saves a big chunk of cash. One could imagine that other green efforts at the firm, such as initiatives to reduce energy and fuel consumption, have also yielded win-win results.

Rethinking the Off-site Meeting

Yesterday, the Wall Street Journal published an article about how firms have developed an alternative to the traditional off-site meeting. Many of you, I'm sure, have participated in the pricey boondoggle known as the "leadership retreat" at many companies. You know... the two days of sun, golf, ropes courses, cocktails, dinners, and oh yeah... a meeting or two about actual substance. Some firms have rejected these expensive affairs and simply chosen to keep their meetings in-house. However, a few companies have found a very productive middle ground. They still go off-site for critical meetings of the senior team, but they do not go to expensive hotels and conference centers. Instead, they hold their meetings at other local companies' offices. Why would they do that? Well, the change in location still gets them away from the frequent interruptions of the office; the different scenery can spark creativity. Beyond that, though, the company that they visit can provide a wonderful opportunity to learn about another firm's best practices, as well as the challenges that they have encountered. Thus, the off-site becomes an opportunity not only for introspection and brainstorming on the part of the management team, but also a fruitful venue for learning.

I have always believed that brainstorming and creative problem-solving works best if managers have some "fuel" to drive the conversation. Thus, I often tell managers to do some homework before a retreat. They should go visit customers and competitors, read a few thought-provoking articles, and spend some time with front-line employees. Then, when they come to the retreat, they have some fodder for conversation. Similarly, touring another company's facilities before sitting down for a retreat can be great fuel to spark an interesting conversation. I love this new economical management innovation!

Bringing SKUs Back at Wal-Mart

On February 16th,in a post titled "Retailers Get Tough on Brands," I wrote about how many retailers have been rationalizing their product assortments. I outlined a number of reasons for this product line rationalization including the profitability of private label, the improvement in inventory turns, and the reduction in logistics costs. Now, we read in a Business Week article that Wal-Mart may be reconsidering some of the streamlining that they have done in product assortments.

According to the article, "Wal-Mart Stores Inc., the world’s biggest retailer, is bringing back some products it had removed from shelves last year as shoppers turn to competitors for a wider selection of merchandise." This move by Wal-Mart raises some interesting questions about customer expectations. People had clearly come to expect wide product assortments from Wal-Mart, and thus, the rationalization appears to have created some backlash. For retailers such as Trader Joe's, who have always had a limited assortment, customers don't have an expectation of finding a wide variety of brands, pack sizes, and the like. The expectations at mass merchandisers is clearly different. The expectation issue appears to be a key hurdle for companies as they trim product assortments. For large mass merchandisers, the key will be to trim SKUs that can't easily be found at competitors, that don't have a loyal core of fans, or whose removal won't cause a reduction in store visits on the part of loyal customers.

GM Restores Dealerships

General Motors has announced that it has reinstated 660 auto dealerships that it initially had tried to shut down. These dealers had applied for reinstatement. Apparently, GM has made this decision out of a desire to improve sales. The Wall Street Journal article on the move cites CEO Whitacre's desire to improve market share at the firm and to retake Ford, which sold more automobiles than GM last month.

Where does this leave GM in terms of dealerships. Here is what the Wall Street Journal reports:

"Toyota now has 1,452 dealerships in the U.S., each of which last year sold an average of 1,219 vehicles. GM has about 5,500 dealerships and sold 2.1 million vehicles last year, an average of about 376 a store."

Looking at those statistics, one has to wonder whether GM truly wants to change its ways. How can reinstating these dealers make sense given the huge disparity in autos sold per dealer cited above? Does GM truly want to have a rationalized, efficient distribution channel, or is it simply obsessed with market share? Does it matter whether it sells more vehicles than Ford? Shouldn't profit be the objective here, not market share alone?

Direct to Consumer

This Business Week article describes how a number of prominent consumer goods manufacturers have decided to expand their direct selling to consumers. The article cites firms such as P&G, Levi's, Mattel, and Columbia. Why would firms do this? First, many of these popular brands find themselves squeezed at the retail level by the rapid expansion of private label products. Moreover, many large retailers have chosen to rationalize branded product lines in an effort to increase inventory turns and streamline operations. Finally, direct selling offers consumer products companies an opportunity to connect directly with their consumers... to provide customized products in some cases, to gather feedback from users, learn about new trends, and to engage customers emotionally and socially with the brand.

I find it interesting to see this development take place given that we have faced many years of increasing retailer power at the expense of many branded consumer products firms. Over the past two decades, retailer power has risen as consolidation has taken place in the retail channel, and as private label products have proliferated and increased in quality. Now, we see the prominent brands fighting back a bit. For years, many brands could not offset this rising retailer power with the threat of vertical integration, because operating a large number of brick and mortar retail stores was simply too expensive. However, going online direct to consumer offers a much more inexpensive way to vertically integrate without many of the risks, such as the high fixed cost investments and inflexibility associated with owning and operating company stores.

Late Fees at Blockbuster

Apparently, Blockbuster has chosen to reinstate late fees, according to this post by Laura Heller. One wonders whether the revenue generated by this move will make up for the decrease in customer satisfaction. Blockbuster already faces severe challenges. Its very existence is at stake. Driving away more customers with such a move is a real possibility.

According to a Harvard case study by Willy Shih and Stephen Kaufman, when the firm eliminated late fees in January 2005, "Blockbuster chose to forgo about $600 million of revenue by eliminating late fees. While early signs suggested this program resulted in increased traffic and rental volumes, it did not offset the loss of revenue as base movie rental revenue grew only 5%." The question is: Will Blockbuster now realize a $600 million gain? One would expect not. It will be substantially smaller. First of all, base movie rental revenue may now fall as a result of this move, as customers opt for other movie rental or downloading alternatives. Moreover, in 2004, before elimination of late fees, the firm had more than $6 billion in revenue. The company's sales have fallen by more than 10% since that time. Moreover, base movie rental revenues are off by approximately 15% since 2004. Thus, Blockbuster stands to gain something significantly less than what it used to generate in 2004 from late fees.

Colbert on Personal Finance

Stephen Colbert offers a hilarious segment re: teaching your children about credit and personal financial responsibility:

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How Experts Persuade Best

I read a fascinating article about some new research in the field of persuasion. You might think that experts exert the most persuasion when they express their ideas with confidence. You would be wrong! In new research about how experts influence consumers by Stanford Professor Zakary Tormala and doctoral student Uma Karmarkar, we learn that experts are more influential when they acknowledge minor doubts and uncertainty as they express their view. In a press release from Stanford University, Tormala explains:

"Our key finding," Tormala said, "is that although non-experts can become more persuasive by expressing high certainty about their opinions, experts can become more persuasive when they express some degree of uncertainty. Across several studies, we found that expert sources gained interest and influence by expressing minor doubts about their own opinion."

Tormala said incongruity between the source’s expertise and level of certainty makes his or her message more intriguing. "Whether it’s a person without established expertise in a given domain expressing very high certainty, or a person with clearly established expertise in a domain expressing low certainty," Tormala said, "the inconsistency is surprising. It draws people in. And as long as the arguments in a message are reasonably strong, being drawn in leads to more persuasion."

The conclusion makes a good deal of sense. You must have a compelling argument. That is a given. Then, a bit of uncertainty draws the consumers' interest, and that interest makes the argument even more influential. Put simply, you cannot persuade the consumer if you haven't got their attention!

The Danger of Trimming Product Costs

The Wall Street Journal has an article today about 3M's efforts to "tweak" its products so as to reduce costs. Undoubtedly, some of these types of efforts make sense, as companies try to compete against efficient rivals, and as they attempt to make their products affordable in a rough economy. However, such "tweaking" efforts come with substantial risk, particularly for firms that have strong brand equity that warrants protection. As John Foraker, CEO of Annie's, mentioned at his talk at Bryant University the other day, many companies develop great products and then spend the next couple years ruining the products... because they reduce the quality of the inputs in an effort to trim costs.

As firms engage in this cost reduction efforts, they must ask themselves repeatedly:

1. How will these "tweaks" affect our brand equity?
2. Will we attract new value-oriented customers at the expense of reducing satisfaction among our current customers?
3. Do we run the risk of encountering serious product quality issues as we change our product inputs?