Category: Innovation

The importance of transparency

The US Federal Reserve has announced they will release more details from the information they use on determining official interest rates. On the same day the social networking site Twitter is embarrassed when its opaque verified account policy fails.

Being open and honest is the key component in trust and in turn trust is the bedrock of society. If you can’t trust your neighbour, the local cop or the grocer at the shops then society quickly starts breaking down.

Many big businesses, particularly those in markets where they are one of a small group of incumbents get away with abusing your trust; they tell an illegal surcharge can’t be waived because “that’s their policy, you can’t change an account because of the “terms and conditions” and that the call centre’s operators name is Janet even though it’s Rajiv and you know that when you call back asking for “Janet” you’ll be told”there’s 35 Janets working in the department right now”.

All of this we’ve come to expect from big bureaucratic organisations like the phone company, the bank and the tax office. The interesting thing is how many new businesses that are adopting this anti-customer model of operating.

Rules and policies are fine – as long as everyone knows them, they aren’t too onerous and they are applied fairly and consistently.

The challenge for all businesses – particularly those taking on incumbents – is they have to show they are more trustworthy than the existing operators. If you can’t show that, then maybe it’s time to think about how you operate.

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It’s you, not them

Sometimes management are the problem, not the staff

An article in Bloomberg on The Three Types of People To Fire Immediately is a classic example of mistaking symptoms for the cause of an organisation’s problems.

G. Michael Maddock and Raphael Louis Vitón write that the biggest blockers to innovation in a business are the employees who can be roughly divided into four groups; the ones who welcome innovation and the three groups who block it – “the victims”, “the non-believers” and “the know it alls.”

Vitón’s and Maddock’s advice is to sack those in the three groups of blockers.

If anything sacking the “know it alls” means you will lose valuable corporate memory, the “non-believers” maybe the dissenters who are critical in keeping visions in contact with reality and the “victims” may actually be the most passionate people in your organisation.

Those “victims” are often the people who’ve tried to make a difference early in their careers, their attempts failed and they found themselves sidelined and embittered within the organisation.

I came across many of these when I was working with the state government, they’d had good ideas and continuously found themselves belittled when they’d tried to implement them.

To add insult to injury, many of those ideas would be adopted some years later to great fanfare with credit given to the same managers who’d stifled the earlier suggestio

Rather than giving those “victims” a pink slip, it might be worthwhile talking to those staff and finding why they are negative and where the system can be improved.

If you have a workplace full of negativity then the blame for a dysfunctional culture usually lies in the management suite.

Perhaps it’s the managers who need to be fired for creating a nay-sayer business culture of victims and non-believers.

My concern with Vitón’s and Maddock’s advice is that it seems to play to the conceit of executives who think they, and their organisations, are something they are not. That’s nice for management consultants stoking corporate egos but a lousy deal for shareholders, staff and customers.

Sometimes it’s better to understand what your business is and where the organisation’s strengths lie  – both in management in and staff – before jumping on the innovation bandwagon.

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Channel Conflict

How does a small business compete with a big supplier?

I first became aware of the term “Channel Conflict” in the late 1990s when running an IT business that was a Microsoft reseller.

A channel conflict is where a supplier starts competing with the merchants they supply, or promoting one group of their customers against another. A good example is Google’s Travel Search that is upsetting many of Google’s own advertising customers.

As a local IT support business my channel conflict came from Microsoft advertising their own direct sales and consulting services as well as promoting their premium “gold” partners.

Conflict with such a big channel partner was frustrating and unavoidable given Microsoft’s position in the market. We couldn’t do anything about it except work towards Gold Partner status and differentiate ourselves from the competitors who had the advantages of Microsoft’s marketing.

The web – in particular online commerce – is increasing these channel conflicts as the Internet sweeps away existing middlemen and allows others to develop.

A good example of how e-commerce is changing things was a tweet from Australian business broadcaster Brooke Corte where she found a swimsuits retailer’s prices were 40% cheaper through her shopping mall’s website.

Essentially the swimsuit retailer is being undercut by their own landlord’s e-commerce service – an incredibly difficult channel conflict.

For the retailer, they are up against Westfield; a big, multinational player with substantial market share and deep pockets who also happens to be their landlord in many high traffic locations.

It isn’t all bad news for the small retailer facing a channel conflict; Seth Godin has a good perspective of what happens when the big boys decide to play in your sandpit.

Seth’s situation was in 2008 Google launched a competitor – Knol – to his Squidoo businesses. This appeared to be the death knell, or Knol, for Squidoo.

Three years later, Google killed Knol.

In many cases channel conflict turns out not to be such a problem for the specialist retailer – big companies like Google, Microsoft and Westfield are good at what they do and dealing with the minutiae of retailing is not necessarily one of them.

Small businesses also have an advantage in the very online tools that are disrupting retail and other fields. TechCrunch recently looked at some of the mobile and price comparison tools and how local retailers can use them to compete with Amazon.

Coupling technology with service and focus – two factors that large companies usually struggle with – can define the battlefield for smaller businesses struggling with channel conflict.

As declining margins and new technologies tempt big suppliers into dabbling in areas they previously avoided channel conflict is only going to increase, though for the creative and confident businesses it isn’t the threat it first seems to be.

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Why governments fail in building Silicon Valleys

Can governments build entrepreneurial hubs?

Don’t Give the Arnon Kohavis Your Money warns Sarah Lacy in her cautionary tale of what happens when an economic messiah comes to town promising to create the next Silicon Valley.

“Hopefully this story finds a way to circulate out to the wider audience of government officials and old money elites who have good intentions of wanting to make their city a beacon for entrepreneurship.” Writes Sarah. “Hopefully it reaches them before they get bamboozled into giving the wrong people money to make it happen.”

Bamboozled Bureaucrats

For 19 months I was one of those government officials and saw those good intentions up close while developing what became the Digital Sydney project, that bamboozlement is real and a lot of money does go to the wrong people.

Sarah’s points are well made, Silicon Valley wasn’t built quickly with its roots based in the 1930s electronic industry and the 1960s developments in semiconductors – all underpinned by massive US defence spending from World War II onwards.

In many ways Silicon Valley was a happy and prosperous accident where various economic, political and technological forces came together without any planning. Neither the Californian or US Governments decreed they would make the region an entrepreneurial hotbed and sent out legions of public servants armed with subsidies and incentives to build a global business centre.

This is the mistake governments – and a lot of entrepreneurs or business leaders – make when they talk about “building the next Silicon Valley”; they assume that tax free zones, incentive schemes and subsidies are going to attract the investors and inventors necessary to build the next entrepreneurial hotspot.

For governments, the results are discouraging; usually ending in failed incubators and accelerator programs all conceived by public servants who, with the best will in the world, don’t have the skills, incentives or decades long timelines to make these schemes work.

New England’s failure

At worst, we end up with the corporate welfare model that sees governments and communities exploited like the tragic story of New London, Connecticut, where the local government spent $160 million and cleared an entire suburb for drug company Pfizer to establish their research headquarters, which they closed a few years later and left a waste dump behind.

While the New London story is one of the worst examples, this sort of corporate welfare is the standard role for most government economic agencies. The department I worked for gave subsidies to supermarket chains to open distribution centres and stores that they were going to build anyway.

One of the notable things with development agencies and the provincial politicians who oversee them is how they are easy victims for the economic messiah – it could be a pharmaceutical giant like in New London, a property developer promising Sydney will become a financial hub or a US venture capital guru flying in and promising Santiago will be the next San Francisco.

The truth is there are no short cuts; building a technology centre like Silicon Valley, a financial hub like London or a manufacturing cluster like Italy’s Leather Triangle take decades, some luck and little intervention by government agencies or outside messiahs.

Silicon Valley and most other successful industry centres are the result of a happy intersection of economics and history. The best governments can do is create the stable financial, tax and legal frameworks that let inventors, innovators and entrepreneurs build new industries.

All government support isn’t bad as well thought out, long term programs that help new businesses and technologies grow being the very effective – we should keep in mind though taht Silicon Valley couldn’t have happened without massive US military and space program spending.

Like a parent with a baby, the best governments can do is create the right environment and hope for the best. Interfering rarely works well.

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Pretty shells and shiny toys

Are we obsessing on the wrong things in technology?

“I was like a boy playing on the sea-shore, and diverting myself now and then finding a smoother pebble or a prettier shell than ordinary, whilst the great ocean of truth lay all undiscovered before me.” – Isaac Newton

“We live in a bubble, and I don’t mean a tech bubble or a valuation bubble. I mean a bubble as in our own little world,” – Eric Shmidt

Newton’s famous quote is one of the things that jumps out on reading the opening of Jeff Jarvis’ Private Parts, is how we live in an era of pretty shells that catch our attention and obsess some of us.

While we play with those pretty shells, we ignore much of what is happening around us. Those glittering social media and cloud computing tools are fun to play with, but what do they really mean?

The winners from the early stages of the industrial revolution were people like Josian Wedgwood and Robert Stephenson who saw how to apply the inventions of the time to create new products and markets, later they were followed by people like Thomas Edison, Andrew Carnegie and Henry Ford who developed the industries of the 20th Century.

Right now, we’re making shiny trinkets out of our technology tools, Business Week’s It’s Always Sunny in Silicon Valley makes this case well and Eric Schmidt’s bubble quotation above comes from that.

We see lots of applications for finding coffee roasters, sharing music files and plugging into the social media platform of the day; all of which are the concerns of middle class white people trying to maintain last century’s consumer society.

Somehow we’re missing the bigger picture, but gee those sea shells are pretty.

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Lords of the digital manor

How free content and expensive management can’t live together

There is something fundamentally wrong with AOL’s media business states a Business Insider headline.

What is fundamentally wrong is quite basic to anyone who has owned or managed a business – money.

The problems at AOL illustrate the deep flaws in the “digital sharecropper” business model of putting free or cheap content on the web to harvest online advertising.

Lords of the digital manor

Sites like Demand Media and Huffington Post can’t make money from content if too many staff expect to get paid. Chris Anderson illustrated this in a rebuttal to Malcolm Gladwell where he examined the economics of his GeekDad blog and the work of its manager, Ken;

So here’s the calculus:

  • Wired.com makes good money selling ads on GeekDad (it’s very popular with advertisers)
  • Ken gets a nominal retainer, but has also managed to parlay GeekDad into a book deal and a lifelong dream of being a writer
  • The other contributors largely write for free, although if one of their posts becomes insanely popular they’ll get a few bucks. None of them are doing it for the money, but instead for the fun, audience and satisfaction of writing about something they love and getting read by a lot of people.

It’s almost touching to picture the modern day digital serf touching his flat cap and murmuring “thank you m’lud” on receiving a ha’penny from the lord of the digital manor before scampering back to working on becoming a well read, but unpaid writer.

We don’t pay writers

The business model of the Geek Dad blog or the Huffington Post relies upon these unpaid writers donating their work and time –the digital sharecroppers as described by Jeff Attwood.

Low paid or free labour is essential to the success of these site, when the bulk of advertising income goes straight to the proprietors the digital aristocrats – Lord Chris of Wired or Duchess Arianna – can live well.

The business model falls apart when management starts taking a cut of the profits; install a highly paid CEO and management team with their squadrons of Executive Vice Presidents or Group General Managers with the Medici-esque perks and entitlements these folk demand and the profits disappear.

AOL’s problem is it has too many highly paid managers extracting wealth from the company’s cashflow.

This is exactly the same problem print and television media empires have, once the rich rivers of gold allowed them to build up well paid management castes that are now crippling the businesses as revenues can’t support their financial burden.

Paying for digital media’s future

Over time, online media revenues are improving. As Morgan Stanley analyst Mary Meeker pointed out in 2010 that U.S. consumers spend 28 percent of their media time online, yet in 2010 only 13 percent of ad spending goes to the Internet. As advertisers follow consumers, publishing on the web will become more profitable.

The risk for big media organisations is their money will run out before the digital renaissance arrives and when it does, they may have squandered their natural advantages by shedding quality journalists, experienced sub-editors and good editors in an effort to prop up executive bonuses.

AOL’s management problem is part of a much bigger problem across markets and industries, we can call it managerialism – there are too many highly paid managers getting in the way of the writers, engineers, scientists, artists and tradesman who add real value to their organisations.

Strangely, it may be Chris Anderson’s “free” model that kills the managerial culture as enterprises that can’t afford to pay product creators certainly won’t pay an Executive Vice President’s entitlements.

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The business of denial

Denying market realities is rarely a good business move

Denial is a powerful sedative, it allows us to trundle dozily along a well worn patch oblivious to the reality our comfortable world has changed.

Last week’s claim that youth is fed up with the iPhone by Nokia’s Niels Munksgaard – who has the wonderful title of Director of Portfolio, Product Marketing & Sales – is a great example of how far and how long denial can continue while there’s still money to pay executive bonuses.

Canada’s beleaguered Research In Motion, manufacturers of the Blackberry phone, showed the same delusions when they released their Playbook tablet computer with the declaration Amateur Hour Is Over.

The only amateur hour was in the hubristic minds of RIM’s marketing team.

While profits keep flowing big organisation can afford delusions – Google can indulge their social media fantasies while the Adwords rivers of gold continue to flow ever faster and Microsoft can continue to indulge their delusions while their Windows and Office products remain immensely profitable.

Microsoft’s “droidrage” campaign, designed to embarrass Google’s Android mobile phone platform, is part of that delusion; for Microsoft’s campaign to work they have to prove there is a widespread Android malware problem, show their system isn’t prone to the same flaws and – most importantly – have enough product on the market to sell to those disillusioned Google customers.

Such a negative campaign has many fallacies – it assumes there are widespread security problems in Android, that Microsoft will pick up disaffected Google customers and there are enough Microsoft based products to grab those sales.

Probably Microsoft’s biggest problem is the assumption that customers actually care about that stuff – for years Windows dominated its market despite being riddled with computer with security holes and malware.

Microsoft succeeded because their competition was delusional; the best example being WordPerfect claiming graphic systems like Windows were a fad at a time when an inferior Microsoft Word was gobbling up their markets.

By the time WordPerfect realised their error and released a truly dreadful WordPerfect for Windows it was all too late, like a stagecoach company realising the motorcar is here to stay.

The problem for businesses in denial is that reality eventually does bite; plenty of people in the newspaper industry believed their advertising based model was secure and profitable – indeed many of the cosseted managers in that sector still believe it is – which now leaves them struggling in a changed world they thought they could ignore.

Denial among incumbents is a great opportunity for newer, more flexible players; for years mobile phone and tablet computer manufacturers were in denial about the usuability of their product – Apple proved them wrong and now commands the most profitable chunks of those markets.

Being the village blacksmith or a buggy whip maker was a good business to be in at the beginning of the 20th Century. Thirty years later those block boys and saddlemakers who hadn’t made the jump found themselves out of work.

It’s going to be interesting to see will be this century’s buggy whip manufacturers.

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