The Strategy Review

The Value Proposition - The Heart of Innovation and Growth - Part Two

(Part One of The Value Proposition is here.)

The critical role of the value proposition

10 good reasons why

The Customer Value Proposition deserves a lot more care and attention than it commonly receives. 

When thought through and well articulated, the CVP becomes a powerful lens, through which can be clarified and agreed, for example:

1. The commercial viability of an innovation (prior to the CVP work, most innovations are in fact latent, “inventions awaiting value”);
2. The internal business case required for investment;
3. Identification and prioritisation of key benefits ...
4. … and the required product or service features that deliver them;
5. The choice and segmentation of a market, and positioning within that market;
6. A true - rather than imagined - competitor set …
7. … along with insight into the innovation’s strengths and weaknesses relative to those competitors;
8. Guidance on pricing, linking back to the costs required for the business case;
9. Briefing inputs for brand development and realisation;
10. Guidelines for Go To Market, brand communications and messaging strategies.

So the CVP has, or should have, enormous impact for a wide range of stakeholders and beneficiaries. It’s a low cost, high impact tool … a strategic gift that keeps on giving.

And yet it’s remarkable how infrequently - and, even if it is done, how inadequately - a value proposition is properly bottomed out.

Why is this?

Rethinking innovation

From invention to innovation ...

In my own experience of this type of work, often with new digital product and service development, the biggest blocks tend to be cultural. Engineers, for example, looking through profoundly different eyes to investors or marketers, tend to see an “invention” as the innovation itself. They also, it must also be said, typically struggle to step through the looking glass to view their brainchild as a customer might see it.

There is still, after far too many decades, a stubborn antipathy in the engineering community to anything that looks like marketing or sales. I’ve also observed myself - and joked about it - that engineers remain “in love with the problem”, while everyone else wants to know about the solution.

But the value of the invention can’t be confused with the value of the innovation. 

The former is typically based around an original solution to a functional problem. The latter, we could say, moves the invention forward, to become a marketable solution to a customer problem. The invention - in terms of value proposition development and all that follows - is important only insofar as it supports the anticipated delivery of product or service value to the customer. We could say that it’s the “how”, not the “why” or the “what”, the “where” or the “when”.

… and from innovation to exploitation

What we commonly refer to, under a blanket, catch-all term, as “innovation” in fact unpacks into several distinct and necessary phases. It may be useful to differentiate “Innovation as a process” (“Big I”) from innovation as one stage in this larger process (“little i”).

With this in mind, and having untangled “little i” innovation and invention, we can also add a third dynamic to the larger process of “Big I” Innovation. This is exploitation, used here in a non-pejorative commercial sense, as in combining impactful go to market and sustained realisation of commercial value. 

All three of these dynamics - invention, innovation and exploitation - are required to be present, balanced and well-executed, in order for a programme of new product or service development to predictably deliver real returns to the firm. 

“Little i” innovation, if we accept the approach, becomes the crucial bridge that links the functional solution of the invention to the marketing and income generation achieved in successful exploitation. And it’s precisely on this bridge - where a promising invention meets a potentially lucrative customer problem - that the majority of the CVP work is focused.

We can see now why the deliberate and careful application of value proposition work is crucial to the process of turning fresh invention into customer value, and customer value into profit for the firm. The model can also, by the way, be reversed. A market opportunity (exploitation) can be mapped back, via the innovation stage, to explore existing or potential inventions that could fit the bill.

While it may sound hubristic, it’s not ridiculous to suggest that the customer value proposition is, itself, the beating heart of successful commercial innovation.

Too little, too soon

While all this may form a powerful argument in its support, there remain deeper attitudes underlying the prevalent corporate resistance to formal, disciplined value proposition work. 

Foremost among these are a widespread pressure to take new products and services to market as rapidly as possible, and, despite declared commitments to so-called “customer centricity”, a pervasive low level of interest in directly engaging with customer value.

Underlying the latter issue is an old school, industrially-based belief - one that demands a robust challenge - that the job of a firm is to sell stuff to people, and the job of marketing and sales is to do things to people to make them buy our stuff. 

This mindset is also a cause of what we might call fake customer centricity, playing out, for example, in the form of highly targeted, frequently intrusive digital advertising. CRM, and its related philosophy, LCV (Lifetime Customer Value) often fall into a similar trap. 

Value is thought of as something that we do to customers.

Ultimately, these beliefs cause firms to take to market suboptimal innovations, too quickly, with key benefits and features omitted, wrongly prioritised or poorly articulated, or all of the above. In turn, brand positioning and communications are, as a result, imprecise and uncompelling, requiring a disproportionate spend on sales and advertising to compensate for these weaknesses.

In other words - sin of all commercial sins - an awful lot of money gets left on the table. So the job of the CVP is to ensure that, as far as is realistically possible, such common failures are minimised from the start.

We need to realise maximum possible value for the firm, by articulating, communicating and delivering maximum possible value for the customer.

Managing the meaning of value

Where value as a benefit for a firm is, by comparison, almost childishly simple, customer value is a particular type of benefit that is not only utterly subjective, but entirely contingent upon context and usage that, if not practically then certainly theoretically, change every second for every potential customer. Consciously or otherwise, each customer brings their own personal and circumstantial criteria to meet the firm’s proposition.

Value resides in the customer’s own mind, and refers to a range of diverse and variable factors. Now, our engineer may imagine that referring here means that a customer will, for example, be comparing one product to another based entirely on functional differences.

But for a product or service proposition to do its job, it needs to do two things: 

1. Reach into and across the customer’s entire context of use to embrace a wide range of potential, external references;
2. While at the same time limiting them, by excluding some from the dialogue altogether and prioritising some over others, in order that the customer doesn’t have to work hard to grasp the elements of the offer.

The value proposition work is central here, in that, done well, it enables the firm to:

• Both limit and define the potentially infinite range of comparative references that the customer could go to, when offered a new product or service;
• At the same time, reducing the implied competition;
• While emphasising - versus this particular competitive set - the particular appeals of the firm’s offering to the customer.

In other words, by helping the customer to meaningfully frame - and thus also to simplify - the till-now-unarticulated question that they bring to our proposition, we are enabling them to make sense of and prioritise the unique elements of the offering, while differentiating it in their minds from our primary competition.

Of This and That

The simplest and most powerful approach to framing a customer value proposition is, “You know THIS? Well … THAT!”

THIS, in context, refers to a thoroughly explored and understood problem that we believe a viable customer segment needs resolved (or, of course, an opportunity they’d like to unlock).

THAT is a precise and corresponding account of our proposed solution.

We should immediately take note of three important principles that emerge here:

1. The value proposition is framed entirely in the context, and in the terms, of the customer’s requirement;
2. The value that we are proposing is therefore in direct proportion to the value of their problem: simply put, the larger the customer problem, as we have framed it, the correspondingly larger and more potentially remunerative our proposed solution.
3. With a glance back at the cultural blocks above, we can appreciate the difference between the engineering problem - which is the basis of the invention - and the customer problem, which is the basis for the innovation.

We do need, it must be emphasised again, to resist the siren call of simply comparing our offering with the feature sets and pricing of our real or imagined competition. A key CVP rule is to look for competition after, not before, the contextual customer narrative and our response to it are both formed.

Our competitors are not the people who “do what we do”. They are the firms that occupy the same or similar space in the mind of our customer. Again, this is about context, not content.

A well-formed Customer Value Proposition is best approached as a clearly articulated solution, to a clearly articulated customer need. We can add, if only for a bit of colour, that it can also be seen as a compelling answer to an important customer question.

Framing and claiming value

The THIS that the well-formed CVP lays out is a distillation and definition of the primary contexts within which an offering would represent maximum value for the customer, and the corresponding usages of the product or service that we want the customer to understand. It’s a kind of staging, where the product or service and the customer are cast together in a little drama which shows the way to value. 

Of course, great advertising - in particular long form print ads, such as the popular Jack Daniels poster campaign on the London Underground, and (the audio-visual equivalent) the extended TV ads that play in the cinema - are almost always emotionally evocative dramatisations of these idealised encounters between customer and brand.

So the job of the CVP is very much to “frame and claim” value, and the framing (the THIS) is entirely critical to the impact of the claiming (the THAT). 

The outputs of this work form the basis on which benefit - which otherwise would remain generic and vague - becomes clearly relevant and meaningful to a customer. 

"The Anatomy of a Breakthrough" ... Problem Solving at the Speed of Business

An overdue enquiry

Looking back through a longish, and, thankfully, ongoing career of advising business and brand leaders on typically large strategic decisions (most recently focusing on business and marketing transformation for future growth) I've found that the headline moments - the most impactful, valuable and indeed enjoyable working experiences - have, without exception, involved one or more "Big Breakthroughs".

It startles me to realise - not least because such results really form the basis of my recent and current offerings as a consultant and mentor to my clients - that I've never, until now, taken the time to explore in any depth the intrinsic nature and importance of the strategic breakthrough.

Who, actually, needs breakthroughs?

Why do we need breakthroughs, and why now more than ever?

When do we know that need a breakthrough?

Where do breakthroughs come from?

How do we know when we've achieved a breakthrough?

And, with a nervous glance at the all-too-familiar "1% inspiration, 99% perspiration" rule of success (the stark proportions of which I do, by the way, admittedly from the bias of one whose children are fed and sheltered mostly through the fruits of whatever inspiration I can find, dispute), what exactly does a breakthrough enable in terms of generating beneficial change?

Think different

Before we dive into considering these questions, it seems right to make a rather broader declaration of intent. I've come to understand that, while most strategic development processes are about establishing and agreeing "what to think", the deeper underlying assumptions - for example, that the environment in which we live and work - the world, our customers and our various competitors - will politely stand still, while we ponderously deliberate a typically self-centric and limited range of possible futures - urgently need challenging. It is, in fact, "how to think" that represents the more urgent challenge to business leadership.

Interestingly - alarmingly - amidst the universal debate about disruption, innovation, transformation and so on, and with the now-tedious, tending-to-useless mantra that "The World Has Changed" droning on in the background, we still think about business strategy in more or less the same way that we did in the 1980's. I began to address this concern in my recent book, The Liquid Enterprise, which was intended - and in some instances seems to have succeeded - as a wake up call to enterprise leadership and its advisors, above all arguing that entirely different ways of "doing strategy" are urgently needed, especially given that so much of the role of strategy lies in observing, understanding and reacting to context. 

Who needs breakthroughs? And why?

The context within which we live and work - the environment within and around which we aim to create and exploit new forms of value - now bears little dynamic resemblance to the world which made the essential work of, for example, Michael Porter, such a powerful touchstone into the early years of this century. The challenge of simply "managing (more or less linear) change" is yesterday's luxury. We now trade in a time of what I have called "chronic turbulence". And this space will only become faster, more chaotic, and more unstable, over time.

While most of the world's incumbent enterprises work towards becoming - and this means different things everywhere you look - more agile, our thinking remains mired in laborious, risk-averse, narrowly focused corridors that lead to slow reaction, missed opportunity and naive approaches and responses to threat.

Perhaps this sets the scene usefully, to point up the demand for less navel gazing, and far more, rather than less, inspiration. In order to do business as differently - indeed, as courageously - as we now need to to, we need to think differently.

A consultant and personal friend pointed out to me some years ago that "you're either offering process, or you're offering genius". While I make no claims whatsoever to the latter, it's surely clear that we have no time for long-winded methodologies of thought. And in any case, the historical models of the world that we naturally enough bring to our thought challenges merely lock us into ways of thinking that, from here on, are redundant even as they roll off the press.

We need to think in ways that, consistently, rapidly and repeatably, enable Big Breakthroughs.

When do we need a breakthrough?

At the most basic level, in my own experience a breakthrough is demanded when either we're not sure where to go next, or we know where we want to go, but feel hampered or blocked by an obstacle. That obstacle may, by the way, be temporarily invisible to us, and a key part of the early endeavour can be working out exactly what it is that stands in the way.

This is precisely where "how we think" becomes critical to forward movement. But the pressure on leadership teams to a) be seen to know exactly what to do at all times and b) from there to be seen know exactly how to implement whatever change is evidently needed, typically makes productive, creative thinking emotionally impossible.

A lot of the time - and this will surely only increase, effectively to infinity (the speed of business will continue to accelerate into the future, foreseeable or not) - we're not at all sure what to do. And this starts with not knowing what to think. And knowing what to think depends, entirely, on knowing how to think.

Breakthrough thinking (and let me just flag in passing something that has become clear - that some of the most powerful breakthroughs in fact come from not thinking at all ...) is utterly different from business as usual thinking. Some of my own most penetrating and valid work has occurred when, for example, putting down the problem in hand and listening to music ... certain punk bands, by the way, seem to provide the kind of mental floss that does the trick.

But here's the key. We rarely today have the luxury of a leisurely series of workshops - spread over weeks or even months. And while engaging one of more of the big name consultancies or agencies provides a certain amount of valuable reassurance, their typical (although not universal) dependency on hard wired methodologies tends to make the intervention too ponderous for purpose, while at the same time failing to provide a sufficiently bold and radical intervention.

Einstein - as so often - provides a neat summary of the issue here. "We cannot solve our problems with the same thinking we used when we created them."

Where do breakthroughs come from?

There's something mysterious - even miraculous - about a breakthrough. It comes from a different place than any other form of realisation. The "before" is like standing in front of a thick, apparently impenetrable wall. The initial feeling may be one of utter bewilderment - perhaps fear, at the prospect of failure.

As mentioned above, I summarise such challenges into two basic types. We either have no idea where to go next. Or we have a desired outcome, but no idea how to get there, or, perhaps more commonly, see a huge block in our way that appears insurmountable.

Either way, when we do break through to fresh clarity, there's a sensation of having performed a kind of alchemy, having extracted conceptual gold from a mere handful of earth.

Can a breakthrough be made to happen? Is there a formula to guarantee success?

My own belief - and I'm happy to alter this anytime - is that any form of process thinking tends to reduce the potential for a breakthrough. Not least because - with a nod back to Einstein's point above - true breakthroughs seem to happen - to emerge - out of our unconscious, unstructured minds, rather than from a logical step by step development process. We need, it seems, to put down linear thinking in order to reframe and readdress the challenge.

In this sense, I believe that any useful thought tools and techniques that we may find useful are likely to focused less on "what to think" - what does a viable solution to the problem as currently stated look like? - to "how to think", and in particular, how to think differently.

A case in point. A friend of mine a couple of years ago, at a crossroads in terms of both career and life direction, asked me "What do you think I should do?" After reflecting for a few seconds - and, I should say, stepping back into what I think of as my mental breakthrough room (I know ... a bit pretentious and weird ...) - I suggested this: "Probably nothing at all."

Somehow this kind of counter-intuitive approach widens the field of consideration. In a way, it dissolves that wall that we confront, long enough to distance us from the obvious "hard wired" solutions (note that they're often hard wired by the way the initial problem is framed in words), and - I'd say importantly - to prise open the gates of the unconscious mind, whose processing power, by the way, is exponentially greater than that of the conscious mind, thereby enabling a far greater freedom and power of thought.

Or, perhaps, "non-thought". There's conclusive evidence that not thinking lends itself beautifully to the solution of thought problems. Well-covered elsewhere, of course. Certainly, the imp of the perverse seems to play a frequent and precious role in the magical unlocking process that leads to a true breakthrough.

Referring back once again - for the last time - to Mr Einstein - I've found that the vocabulary of the problem as stated has a knack of blocking the way towards a breakthrough solution. For that reason, reframing the challenge in a variety of non-traditional - even bloody-mindedly counter-intuitive - expressions, in particular, being deliberate about breaking free of sector and company jargon - is almost always useful.

A familiar example of this method is when we're looking for new customer value - in other words, for promising areas of innovation. As soon as we remove the problem statement from the area of "What might we, as the company, be able to do?", and move the discussion to, say, "How does it feel to be a customer in this or that situation?", the creative space invariably, and rapidly, opens up to enable more radical, energising options.

How do we know we have a breakthrough?

So far, so more-or-less-familiar workshopping techniques ... But what separates a true breakthrough from just another decent idea that no one had come up with before? In my experience, we recognise a breakthrough emotionally before we challenge it rationally. A true breakthrough is felt as an immediate "Aha!" moment, where a good idea is more of an "Ah ...".

Indeed, and this is an area of enquiry I'm excited to explore, a true breakthrough lands as more of a "HaHaHa!" moment. There's a useful and pleasing connection between a breakthrough and an excellent joke. Someone - I'd like to think it was me, though I think the idea originated with Sigmund Freud's work on humour and jokes - made the point that to hear a good joke is to be "ambushed by the truth". They have a lot in common: a kind of unforeseen collision of old and new meaning - sometimes of sense and nonsense, that in the business context we might describe as an explosion of fresh value, along with a lot of fresh energy to propel it forward into our consideration.

Here's Freud on jokes. "A remark seems to us to be a joke, if we attribute a significance to it that has psychological necessity and, as soon as we have done so, deny it again ... We attach sense to a remark and know that logically it cannot have any. We discover truth in it, which nevertheless, according to the laws of experience or our general habits of thought, we cannot find in it."

Jumping between the meaningful and the meaningless, as it were, we are, when we achieve a breakthrough, ambushed by the truth. And - once again speaking only in my experience to date - true breakthroughs do nothing so much as magically uncover fresh and important truths - whether deeply personal ones, that lead to a fresh world view, or market insights that research had failed to reveal - that were hitherto invisible to us. And that unlock the opportunity for significant, confident change.

To experience a creative breakthrough, perhaps, is akin to hearing the best joke you every heard. Closely followed by the profound satisfaction of knowing that you had written it yourself.

The consequent release of energy, of confidence, of clarity and of desire for change is - as anyone who has faced the forbidding wall between big problem and compelling solution will agree - one of the most precious outcomes a leadership team can achieve.

This, to conclude, is why I remain deeply fascinated by breakthroughs. And as always, I'd love to hear your thoughts.

Thanks for reading. MB.

 

Winning With Purpose

 

 

The only disruption that really matters now? The structure of the enterprise itself.

Much hand-wringing, and for far too long, about the future of the beleaguered CIO, torn like a pair of Levi's between the two mules of of Keeping The Lights On and enabling - or worse, driving - well ... here insert whatever digital transformation catchphrase that takes your fancy.

Enterprise IT of course has its many faults and failings. But the game of CIO-bashing has to stop now.

The problem that dare not speak its name, the underlying denial in the C-suite that is too often unfairly - explicitly or implicitly - laid at the CIO's door, is that few large enterprises (I'm sorely tempted to say none here) have a clear and confident picture of their required business architecture.

This is interesting, because exactly as we've seen with digital transformation, where business and IT bring highly diverse perspectives to bear, enterprise architecture and IT architecture are each profoundly different at every level. They may ideally overlap of course, but are essentially from different planets.

However they should reflect, enable and speak to each other. And this brings us to the nub of the problem.

For decades, IT had the relative - and often thankless - luxury of supporting and responding to the needs of a slow-changing enterprise that, more or less, knew clearly what it was, what it was here to do, and therefore both strategically and structurally had been able to connect the technology investment with its needs. Until the consumerisation of tech, along with the closely associated arrival of what is, perhaps unfortunately, known as the "SMAC stack", those needs revolved around classic business support functions: record keeping and so on.

For the "keep the lights on" (at all costs and by the way do not EVER f%^k this up ...) folks, to be flatly presented with the challenge of "driving the transformation of the enterprise for the digital future" is a very nasty shock. Not least because real budgets are often not allocated for the shiny stuff, but more importantly because, in isolation, enterprise IT cannot, in any seriousness, be asked to reframe the direction, strategy and, above all from their POV, resulting architecture of the business, in order to convert it into a plausible technical solution set.

The emergence of so-called "shadow IT", where LOB's, for example, define, brief and invest in their own segment of a naturally then-fragmented IT architecture, is not best represented as merely an understandable and commercially-led reaction to the inability of the CIO's team to acknowledge, support and meet their changing needs.

It goes deeper. Shadow IT - alongside this surely-now-out-of-date CIO-bashing - is a potent and tangible symptom of the chronic reticence of leadership (including, where they are still allowed into the war room, CIOs) to take on the direct and urgent challenge of redefining how the enterprise must - strategically as well as operationally - be shaped in order to remain relevant and with a chance of future growth.

This is not THAT difficult a task in itself, surely. So why the delay? Why the denial?

Under these ostensibly common sense challenges, lurks a Pandora's Box of far more disruptive implications that throw into sharp, uncomfortable relief huge questions about the raison d'etre of the entire business, the areas of competition it might feasibly address, its ability to thus continue to satisfy customers, grow shareholder value, and so on. Not to mention the competence of the leadership team itself. A very hot spot, then.

There is a psychological "There Be Dragons" issue facing leadership that cannot be over-dramatised. It's a life or death thing, in many sectors and for many global brand leaders.

Without seeking to end with a fatuous plug, I have directly addressed these issues - with no claim to providing all the answers, but with a confident one to have asked many of the right sort of Big Questions, in my recent short book: "The Liquid Enterprise".

Its goal is simply to point out why the knee-jerk responses of e.g. Digital Transformation, Customer Experience and Innovation programmes, while serving useful immediate purposes of efficiency and cost-saving, in themselves tend to deepen the very denial that pushes back the far larger, existential issues of enterprise purpose, shape and architecture, into the reassuring but still-dangerous background.

The way the enterprise does strategy, and the way its architecture is evolved, hold the combined key to enabling the notorious and increasingly toxic gap between IT and business to be reduced to a point of meaningful alignment.

Anything less? We are, as I like to say, fiddling when we should be burning Rome.

Introducing "The Liquid Enterprise"

I'm pleased to announce the publication of my latest book, The Liquid Enterprise, How The Network is transforming value, what it means for business, and what leadership needs to do about it by Infinite Ideas, Oxford, on the 29th February.

Here is a synopsis and some kind endorsements, and you'll also find a taster for download.

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We know everything. And it tells us nothing.

As the world’s most venerable corporations scramble to keep up with an ever-faster, ever more chaotic market, a profound paradox is emerging at the heart of business strategy. Information – that touchstone of understanding, decision and action – has begun to attack confidence, competitive advantage and growth.

The speed, precision and potential for innovation that the digital revolution has conferred on business is undeniable. And yet we have never felt more distant from the consumer, never felt less sure of what to do next, never felt less confident about the dynamics of the context in which we live and work.

Beneath this brutal conundrum lie disturbing truths about culture, technology and value. Where leadership has relied upon tangible, manageable evidence to guide the enterprise through change to sustainable growth, the chronic turbulence that defines every major market sector demands that we now look to seize advantage from uncertainty itself.

The liquid enterprise throws down the gauntlet to the leaders of tomorrow. It provides a radical rethink of how the new Network Dynamics drive markets, the implications for enterprise and brand, and how we must overturn the principles of traditional business strategy in order to survive and thrive in the unforgiving, chaotic environment that is the market.

Endorsements

The Liquid Enterprise is the first work to take an unflinching look at the unenviable job of transformation leadership, through the eyes of the leader. Taking us far beyond the usual digital platitudes, Michael Bayler once again challenges his readers to discard everything they know, in exchange for an entirely fresh view of strategy that, finally, is fit for today’s and tomorrow’s purpose. - Richard Mosley, Global Vice President of Strategy, Universum, author of Employer Brand Management

Everyone’s talking about change and disruption, but no one seems to have the instructions. Until now. The Liquid Enterpriseexplains exactly what we’ve all been worrying about, why that is, and how to rethink business strategy for a future that demands we constantly transform – or die. - Brian Wong, Founder and CEO, Kiip

The Liquid Enterprise squares up to a Gordian Knot that is the single most important problem facing big businesses today – how to convert the chronic uncertainty that undermines our confidence in the future into our most powerful strategic weapon. Michael Bayler slices through that knot with simplicity, brevity and wit. - Tony Ageh, OBE, BBC Controller

We need a completely new set of rules to navigate such a turbulent world. This easily digested book shows the way. Read, ponder and decide for yourself just how much of our classical management theory is still relevant. - Dr William Webb, CEO Weightless SIG, President of the Institution of Engineering and Technology, 2014–2015

Download Liquid Enterprise taster

Will data kill the consumer brand?

Barbarians in the kitchen

It’s a surprise, and something of a concern, that consumer brands are not more publicly focused on the significant potential impacts of automated shopping and replenishment offerings such as Amazon’s Dash and Echo.

Such services surely signal a determined home invasion, only the first of no doubt many forays into the home territory of our most well-known heritage products.

Already under unrelenting pressure from powerful retailers and, more recently, empowered consumers, not to mention an economic austerity that will not lighten in the foreseeable future, how should a household staple respond to this latest wave of disruptive, data-enabled friendly fire?

The received wisdom is that the present and foreseeable health of consumer brand marketing will be defined and driven by the sophisticated use of data.

And yet, despite the sharply increasing range and depth of data available to practitioners, alongside a lively scrum of martech and adtech service providers, we are if anything more distant from a meaningful connection with consumers than ever.

Down to the crossroads

Should we sit tight and wait for the answer to emerge, or do we challenge the current assumptions and seek alternative approaches? Whatever our choice regarding the former, the velocity of change in market and the ongoing feeling of uncertainty surely demand a regular and rigorous health check.

Are the heavy expectations that lie on digital marketing, advertising and data justified? Or does the way we think about the future of the consumer brand need a radical rethink?

Here I’ll argue for the latter. Having worked in digital media, marketing and advertising for a quarter of a century, and advised leading players on both demand and supply sides, I’ve come to see that a reliance on the current and envisioned applications of digital and data could lead to a severe crisis, at least in their current manifestations, for many of the world’s most familiar and successful consumer packaged goods.

I’m relieved to report that this current challenge is not, necessarily, the end of the road for FMCG. It’s potentially the beginning of a new chapter, one that will demand, alongside a continuing focus on new technologies and ever-richer and more comprehensive forms of data, degrees of bold invention that have not been seen in brand advertising since the golden days of Madison Avenue.

A Game of Thrones

It’s easy to overlook why we have brands, and why they have been so important in both culture and commerce.

Branding was invented in the late 19^th century in the United States by manufacturers of consumer goods. They had become frustrated by the increasing dominance of the wholesalers that controlled, through an effective monopoly of railways and warehousing, the national and regional distribution channels.

The evolution of the retail chains from the middle of the last century, first in the US, then across much of the developed world, extended the field. The power that chains such as Wal-Mart, Target, Tesco and Carrefour have over everyday household brands continues, as is well-documented elsewhere, continues to both expand and to change.

Branding, therefore, has always been about power before value.

Advertising, the undisputed driver of the media landscape of the past 75 years, introduced a new combatant in this unfolding Game of Thrones. Ads are, we tend to forget, information provided to an audience to co-opt them to the cause of the brand. And in doing so, choice enters the picture. And with choice, come the first incremental, then rapid and explosive, empowerment of shopper and consumer.

The great copywriters of the mid-20^th century could never have anticipated the rise of this ruthless connected consumer.

And so we arrive, today, at a kind of pincer movement, with the retailer – on- and offline – and the shopper, equipped to push the beleaguered brand around, with powerful weapons of mass commoditization. At the heart of this brutal new system, of course, lies the data.

There’s no need to go into further detail. The state of play in our Game of Thrones finds consumer brands at a severe disadvantage. The mistake, however, is to assume without close examination that, if digital technologies plus data are the problem, then they must therefore be the entire solution.

Marketing vs. advertising

One little-discussed effect of the digital revolution has been to enmesh the previously separate disciplines of marketing and advertising. Understandable, especially when many of us have concluded, often tacitly, that if it’s all about the data, then we’re really just using different information at different points along the purchase funnel.

I think this has led to important misconceptions, and have found it useful to re-separate them using value as the distinction. We could say that marketing’s primarily about the articulation of value, and advertising’s about its communication.

The discrete roles of data come immediately into focus. Whether used for research, validation of ROI, integration into smarter product and services, prediction and so on, we can’t question that data has been and remains front and centre in intelligent modern marketing.

Furthermore, despite its frequent misfires and continuing disappointments, and while not being the driver of transformation that we once hoped, CRM’s ongoing journey remains at least valid. We should note in passing however that CRM is often partially siloed in customer service. Of which more later.

It’s data’s role in advertising that seems less sturdy.

The vocabulary of digital advertising merits inspection. In particular, the word “relevance” is a daily touchstone of value that should concern us. While a product or service must, from a marketing point of view, resonate with current or anticipated consumer need or desire, surely the task of advertising is not to simply reflect back to our audience all the data we currently hold on them (like an ecommerce recommendation: “If you bought this you might like that”).

To the contrary, advertising’s job is, by blending creative alchemy and astute planning and buying, to convert initial indifference to some level of consideration. We are, we could say, in the very business of irrelevance.

Stephen King, after close to 50 years, still says it best. “How to measure advertising and its effect is not terribly hard if you work out in advance what sort of response you are trying to get, because the basic question then is: Are we getting that response?”

If equity, at its most commercial, is a disposition to prefer our brand over others, and to pay a reasonable premium for it, we must surely concede that, with honourable exceptions, significant ground is being lost to the ubiquitous yellow discount label in the store, and in-basket substitutions and one-click price comparison services online.

While not doubting for a second that media planning and buying should and will continue to be ruthlessly informed and optimised – the programmatic explosion says it all – nevertheless, the magic data bullet that that will rescue the household brand from the Game of Thrones remains elusive.

Efficiency vs. growth

Leading marketers are waking up to a stark realisation. Having spent up to 5 years investing in large programmes of digital transformation that were envisioned as bold steps into the future, they have, instead, become mired in the past.

These initiatives are not, in the main, transformations or innovations. They are programmes of incremental improvement. Efficiency projects. We become, well, smarter, faster and cheaper at doing the things we needed to be better at doing five years ago.

Notoriously, efficiency projects in themselves deliver no business value beyond cost savings. Putting aside the common estimate that 70% of corporate change projects fail, in sharp contrast to even 5 years ago, the sheer accelerations that life and business on the network have conferred on the market mean that we no longer have the luxury of “semi-optional” change gambles.

Life does not go on outside. It rushes past us.

Here, perhaps, a throwaway (and typically cryptic) line from McLuhan’s 1964 masterpiece Understanding Media comes back to haunt us. “The paradox of mechanization is that although it is itself the cause of maximal growth and change, the principle of mechanization excludes the very possibility of growth or the understanding of change.”

Our transformation programmes must not be mistaken for a result. Being digital is simply to arrive, often a little late, at Basecamp One. The mountain of tough competition remains entirely unclimbed.

Having focused, arguably to our detriment, exclusively on the science, we now need to swing back rapidly to the art. It’s creative growth, departing from our platforms of digital efficiency, that demands urgent focus.

Product vs. service

A friend and colleague, one of the country’s foremost engineers, when we were discussing the impact of automated services on consumer products recently, made an observation that must be noted. “But won’t these brands soon enough be selling themselves not to consumers, but to the machines that serve them?”

Indeed. What happens to the intangible and perceived value created by huge investment, over multiple decades, in advertising – with or without the data – when the shopper is, in any sense that we’d recognise, no longer the shopper at all? This is far from a dystopian vision. One way or another, home automation is a reality.

And yes, the data we currently collect and look to for advantage will go on to play a central role in this new episode in our Game of Thrones.

But this will be about services. Amazon, in fact, is best viewed no longer as a retailer, but as an increasingly must-have service provider: this is the logic behind the – for now still reassuringly feature-light – Dash and Echo programmes. The former offers replenishment services for participating brands via either its recently launched one-tap stick-on sensors, or its rather magical Wand.

The latter doubles as a speaker for various audio channels and – far more compelling – a voice-activated home control tool. “Alexa? I’m nearly out of mayonnaise. Get me anything on special offer – over 50% discount – to arrive … oh … Thursday evening. The same size as before.”

We get the picture. The unmediated interaction that consumers and product brands have maintained for so long, is interrupted by a layer that anonymises both sides of the transaction and the relationship.

The fundamental logic here is that quality of service, in the end, always trumps quality of product. We’ve seen this repeatedly in marketing, and of course the digital revolution has accelerated the timelines between comfortable, bankable brand equity and also-ran commodity.

The stark realisation that follows, if we accept this logic and the trajectory we’re seeing so far, is that no matter how we may juggle and refine our marketing communications on behalf of the product brand, we can’t defend against the service players.

A way forward

We are close to marketing heresy here, of course. But looking around at the wholesale disruption we face across all sectors that are exposed to the destructive power of unfettered information, it’s hard, when we’re honest, to imagine that our product brands are somehow immune. To imagine that a data-led communications strategy will provide a sustainable defensive halo, is to ignore what’s right in front of us.

Will data kill the consumer brand? Well, not exactly, despite the clear and present dangers outlined here. It’s branded products that are under immediate threat.

Branded services – initially built around existing products, naturally, but rapidly evolving to create radical, ownable new forms of consumer value – are where logic demands we seek opportunity.

The question that remains is whether brand owners are realistically equipped to take this on at all, in terms of the longer game. Point services, based around a single product or category, will soon enough be subsumed, for the same reason that most branded smartphone apps fail.

Nevertheless, with improved focus and urgency in our various Connected Home programmes, we will uncover innovative, perhaps transformative service models of our own. Multi-category FMCG brand owners hold a particular advantage here, as to stand a chance of remaining, well, relevant in this bleak future context will require offerings that are integrated right across the home, indeed reaching beyond it.

This is not simply a challenge of technology, not indeed of marketing or advertising. I believe it represents, the single most urgent form of transformation that consumer brands should undertake, in order to sustain a useful and valued role in both culture and commerce.

5 leadership fails that block transformation

1. "Not on my gold watch ..."

It's entirely natural to resist change. Business leaders who feel lost and disempowered to lead the type of transformation that's now needed, are tempted to bluster and, most importantly, to refuse to accept and define a business context that demands the most radical rethink ever. There is no simple solution to this. Without a truly Damascene leadership conversion, the enterprise will deliver nothing more than minor tactical innovations and incremental process improvements.

2. "It's all about digital ...

... therefore the solution must also lie in digital." Businesses that are still mired in the idea that "being more digital" is a way forward, to the exclusion of dramatic creative reinvention and growth, get stuck in the recent past. Life no longer goes on outside, it rushes past us. DT projects tend to net out as efficiency programmes. We're fiddling, when we should be burning Rome. Digital is not the endgame, it's an entry level ticket to the new game, one in which everything - and therefore nothing, usefully - is digital.

3. "I've been to Silicon Valley ...

... and now I get it." Most major corporates with any interest in technology are either making the pilgrimage or bringing a range of youthful Mohammeds to the mountain, in the form of hackathons, start-up parades and so on. Again, this is not wrong per se, but left in isolation is merely transformation porn, when what's urgently needed is consummation. There is nothing per se to learn from technology start-ups other than that, if we don't move very sharply, the future belongs to everyone but us. Great entertainment, but a sideshow. What should we be doing in the big tent?

4. "We have an innovation programme ...

... and we're really excited." Innovation, like digital, has become a term that excuses a lack of significant transformation. Too often, it's what we do - and worse, all we talk about - while we try to work up the courage to disrupt ourselves. Blind innovation without a respectable, and highly flexible, set of hypotheses for fresh enterprise and customer value is a waste of time, worse even than a waste of money in this accelerating market. Significant innovation, even done perfectly, does not lead transformation, it follows it.

5. "Are we there yet?"

From here on, there is no "there". We are never transformed, only transforming. This is perhaps the most difficult cultural shift of all. The language of business - in particular, the language of success - is peppered with metaphors of triumph over adversity, overcoming obstacles, and heroic, final arrivals. In other words, the conclusive delivery of results - laurels that we can proceed to sit on for a couple of years or more - has been the game. Well, it's over. Competitive advantage, to reference Rita McGrath's excellent book, is from now on only ever transient. No more heroes? Well, not exactly. But stone-faced rigidity and going down with the ship are so last century.

What Does Digital Transformation Really Mean?

DIGITAL IS ... AN ADJECTIVE

… which is why the question "What Is Digital" so often leads nowhere. We need to get some nouns into the discourse! 

Here we focus on understanding digital transformation through the complementary lenses of digital culture and digital business. 

Having set the scene, we move on to the overall strategic imperatives of every enterprise transformation. We then map the three sequential stages of transformation that summarise the enterprise journey.

Simply put, the question we’re asking here is “What problem are we solving for the enterprise?”

REFRAMING THE CHALLENGE

Digital Culture

Digital culture is not, at its roots, about networks and smartphones. It’s a societal condition, now effectively global, that is driven by the systemic and technologically-enabled shift of power from institutions and corporations to individuals and groups.

It began, and continues to evolve, along the narrative of the ongoing Consumerisation of Technology, a quite recent phenomenon that was born in the 1980’s, at the intersection of the PC revolution and early forms of interactive entertainment technology such as the karaoke machine and the (analogue) video game.

The key dynamic here is that of the increasing agency of the individual: there’s a direct line between these origins in so-called “multimedia”, and today’s empowered, connected consumer.

Digital Business

Digital business is not best understood merely in terms of software, networks and devices: these are of course key enabling components.

It’s the impacts of these ever-changing technologies that matter: this is above all about meeting the challenge of the consistent acceleration of market clock speed, which has been set in motion (in digital culture) by the migration of billions of end consumers onto global networks.

It’s this radical shift in the locus of value onto networks that has seeded and enabled the unprecedented growth of the most powerful and disruptive brands in history.

When we talk about “the Uber effect” (whether as threat, opportunity or both) we are, consciously or otherwise, referring to explosions of disruptive market power through network value innovation.

This is driven, above all, by Network Velocity.

Digital Transformation

Digital culture and business combine to frame the essential strategic context for transformation. This is about a programme of change to reconnect the enterprise with the market, and align its functions around the end customer.

For the C-suite, there are three “prime” transformation imperatives:

• Acceleration – the paramount challenge is a managed shift from corporate, then to customer, then to network speed;
• Adaptation – the ability of the entire enterprise to flex and react quickly (at micro and macro levels) to opportunity and threat;
• Automation – the systematic and focused encoding into software of any and all functions that are susceptible, increasing speed and quality, while reducing cost.

These three prime activities combine to define the boundaries of any truly strategic digital transformation programme.

GETTING TRANSFORMATION WRONG

Two common misconceptions tend to block the enterprise from genuinely strategic transformation programmes, delay the instigation of productive work, and suck up important budgets.

It’s correct, to a degree, to focus on customer experience: this is not itself transformative, it’s at best incremental.

While UX/CX work is important, if made the core of a strategic programme, it diverts attention and spend from the deeper interventions while over-emphasising touch points and interfaces;

Equally common is a focus on data over value, linked to an assumption that information is the key to faster, more accurate end customer insights, and a deeper and more sustainable relationship.

Of course, this is an important consideration, but as with the interface problem does not in itself support a differentiated, meaningful brand><customer relationship.

THE TRUE JOURNEY OF TRANSFORMATION

It’s recommended for initial analysis and planning purposes to view digital transformation as travelling across three distinct and logical stages:

1. Efficiency – streamlining and cost-cutting in business processes, where most enterprises have focused to date, and many get stuck;
2. Integration – the reorganisation of enterprise products, people and processes (overall, its philosophy and culture) around the end customer (meaning the external market environment);
3. Migration – most challenging and disruptive, the shift in the enterprise’s model of value creation and distribution onto the network.

We immediately recognise that the most admired and highly-valued innovators – from Google, Facebook and Amazon, through to the ubiquitous Uber and AirBnB – have already jumped straight to the third stage: their models fully leverage network speed and scale.

They dominate in an entirely new, albeit recognisable, form of cultural and commercial power.

This is Network Agency. Network Agency is, above all, the prize towards which all enterprise programmes of digital transformation must, in the end, aspire.

 

A look back at a book that still has a little bite to it ...

 

With thanks to the good folks at Salt Digital, here's the first of 3 short videos looking back at my work in digital strategy ... this one focuses on Promiscuous Customers: Invisible Brands, written in 2001 with dear friend and co-conspirator David Stoughton.

We'll put the IoT into IDIoT (if we're not careful)

Who's NOT talking about the Internet of Things?

Who's NOT wondered how to get a piece of the sqillions of bucks that IoT will - and we know that one way or another it's true - generate.

And yet, as with so many techno-cultural shifts (this one's truly tectonic), few of us have a sense of, beyond the undoubtedly enormous IT and telco RFP's that are already starting to fly about, where the value will lie for a) businesses and b) their customers.

This is THE hot spot for IoT. We have to get beyond the bewildered - albeit polite - shrug of the CMO, and the unconvinced shrug of the connected consumer.

We have to know how making dumb objects smart will create fresh, sustainable customer value, and, in the end far more critically, how it will build brands.

I have to say that I wrote about this in great depth (and disccomfort: this was 14 years ago now) with my then-collaborator and long-time friend David Stoughton, in our still-robust manifesto for digital value, Promiscuous Customers: Invisible Brands; we called it "information-based service value" in the book.

The information's now a given of course. But the hunt is now on the elusive  value that configure-once, love-forever customer services will enable and sustain.

Some of us are (once again) thinking about this challenge in great detail. I'll be writing about it in the coming months.

A good - and far too long overdue - reboot to this old blog of mine. Labouring in the mines of agencyland had, as so often happened, dulled the edge of the remains of the brain.

No longer. Let's crack the IoT. It's where digital value REALLY takes off. And this is not, believe me, your mother's marketing.

Google, Apple, Facebook ... and the future of the content industry

A single shared obsession

The business models and ambitions of the giant – and despite their sheer size, power and visibility, often unfathomable – technology firms that stand guard at the borders of the consumer’s online experience, Google (including YouTube), Apple and Facebook, need careful scrutiny and differentiation, in order for us to understand the threats and opportunities they separately and together represent.

One thing before we look at them individually. All three of the businesses – and the same goes for their many associated products and services – are distinguished by their obsession with consumer value, consumer control, and consumer power.

The value they command in their respective market spaces, along with the significant compromises and loyalty they demand quid pro quo of their users, all sit firmly upon this revolutionary imperative.

Each of them drives their users – often compromising, sometimes even destroying previous commercial value chains in the process – to the very heart of the value bulls-eye. Before, consumers languished at the right hand of the value chain, at the disposal of product and service providers, as and when they decided to bestow their outputs on the market. Now, connected, empowered and increasingly “flattered” customers sit at the control panel of a remarkable spider’s web of influence and information. And nothing at all will ever be the same.

This relentless, dramatic shift of value, control and power, from enormous traditional business concerns over to connected consumers, sets the foundation for all of the contextual and competitive changes that content marketers are now facing in the online market.

Nevertheless, outside this powerful unifying mantra among these businesses, each of them has an entirely different vision and strategic agenda that must inform our respective approaches to them as partners, as routes to market, and, all too often, as competitors for the highly valuable, elusive attention of the online audience.

Apple

Apple is not, primarily, a consumer technology firm.

Well, of course it is, but the reasons for Apple’s remarkable ascendance to become effectively the most valuable company in the world, do not primarily lie in its ability to engineer, time and again, a world-beating ergonomic experience in devices that continue to dominate – in both sales and sheer imagination – the consumer electronics market.

Apple is, or has been to date in its growth period under the consummate marketer and brand guru, Steve Jobs RIP, a brand marketing company.

And what it markets – manifested in, but to be understood as distinct from, its family of devices and cohesive, fully-integrated vertical ecosystem – is nothing short of “your perfect digital life”. It is legendary by now that converts to Apple find it almost impossible – even when forced to do so by, for example, corporate policy – to revert to other operating systems. Why is that? It’s not just about great design.

Here’s the key insight.

Irrespective of content – and this is absolutely key to grasp: no matter what task the Apple user is performing, whatever communications they’re sharing, no matter what content they might be consuming, the Apple experience in and of itself is transformational for its tens of millions of passionate users, in terms of, for example, a sense of identity, a feeling of flow, a comfortable control, an intrinsic aesthetic pleasure, above all, a genuine and profound joy in their connected life.

Apple, in other words, exists to provide an extraordinary experiential mirror for its customers, that continually reflects back to them an idealised vision of themselves, their lives and their worlds.

This, for now, exclusive hold over so many millions of consumers’ optimal online experience, is the root of the success of Apple’s iOS/iTunes walled garden ecosystem, now boasting some 250m accounts worldwide.

It’s also the basis of their startling, rather sudden ability to call the shots to the world’s biggest entertainment firms.

And this is how they’re able to inject a highly significant dimension of extra “Apple value” into the hitherto simple experience of selecting, buying or renting, and watching a home video.

More so than perhaps any other brand – and yet with a certain appealing balance, given that the passionate user experiences an unrivalled sense of control – Apple truly owns the customer relationship.

Google

Google is, for many people, The Web. But behind the juggernaut lies a business that is great at some things and not so great at others. For every successful Google start-up there are dozens of failures, big and small.

We need to bear this in mind in our approach to them, to avoid the knee-jerk assumption that the company is all-powerful in online matters.

This isn’t the place to get into Google’s numbers … in a sense, their sheer scale masks the strategic truth about the business.

It has, for example, more or less single-handedly gutted the traditional advertising business by taking a huge proportion of online consumer attention by the scruff of the neck, at source, by creating the killer search engine. But despite its potential to kill entire categories, this is perhaps the only area where Google’s formidable ability to both destroy and reconstruct industries and sectors has fully manifested.

A key thing to remember about its two key entities – both of which are ad-led – the web search business and YouTube, is that they are above all on-ramps to experiences of some form, portals, if you like, to discovery, to relevance and to reassurance.

This gives Google remarkable power in an online environment that is, today, hardly navigable without the appropriate maps and guides. (How often do we hunt down URL’s for sites we seek? Almost never … we either link from another document, or we search, mostly via Google.)

However, this also means that Google increasingly depends, not just as a competitor against other search engines, but far more broadly in the war for consumer attention that it fights with its two giant competitors, not just on its ability to help us find stuff at all, but – under increasing pressure – to help us find The Right Stuff.

In other words, not just search results – lists of more or less options – but the actual experiences that await consumers once they clear Google’s on-ramp and are onto the highway, are critical to the company’s strength of position going forwards.

Another way to understand this is as follows.

Google’s declared mission is, to paraphrase, to give us mastery over the world’s information. Now, we’re spoiled for information: the search results that used to delight us just for being there at all, begin to irritate us, and we begin calling for deeper, more substantial value. It is, in fact, what lies behind the search result that interests us.

So, even though Google’s search business is not intrinsically concerned with or geared towards what comes after the search (for a start, it’s not what they get paid for … more than one person has pointed out that Google doesn’t in fact find and aggregate information that’s relevant to consumers, but finds and aggregates consumers that are relevant to the brands that fund it), the company is forced into becoming much more of an experience business.

Interesting? Yes. For a number of reasons.

Hold the ticker-tape for just now, but we begin to understand, at least superficially, why the company continues to explore and invest aggressively around the edges of its search business (the company’s acquisitions in 2011 alone cost it some $40bn), and also why YouTube has suddenly begun to find content of longer form and higher quality of such interest. And the company is clearly utterly determined to get Google TV front and centre in tomorrow’s media landscape.

Let’s look at this from yet another angle. Apple and Facebook, individually and together don’t only exercise phenomenal influence over both range and quality of online experience, but are increasingly able, albeit to a degree standing on Google’s shoulders, to support consumers in finding, evaluating and sharing high quality entertainment experiences. They are, therefore, increasingly able to compete in new and quite compelling ways, on Google’s home turf of search and discovery.

Facebook is perhaps the most potentially destructive force in this case, one of the key reasons for Google’s focus on its Google+ social network, alongside its recent and controversial integration of services (read consumer data …) under one universal scheme.

If Google is, like the three other giants, playing for a dominant share of the experience pie, it needs to move rapidly and convincingly beyond vanilla search-and-result on the one hand, and LOLcats cuteness in YouTube on the other.

We can’t jump straight from here to the all-too-common “Great! They need us more than we need them!” assumption.

But we can, quite reassuringly, see a significant fit for the world’s highest quality long-form content alongside the world’s biggest information company, as it seeks to move convincingly – let’s not forget, in the face of very, very persuasive and aggressive competition from Apple and Facebook – into the broader and very competitive arena of rich, profound consumer experience.

A concern here, certainly, remains Google’s core revenue model. As long as it remains almost entirely advertiser-driven, the company has little intrinsic interest in sustaining or enhancing the value – market pricing or perceived – of our product.

We are thus in danger of being left a vehicle for another purpose altogether … a premium reward for the consumer attention that is to be sold on – still at commodity prices for now – to Google’s own customers, brands who, like Google itself, still have insufficient grasp of entertainment to be considered true long-term partners.

Facebook

If Google is, for many consumers, The Web, then Facebook is what they do with it. Staying away from its current valuation and IPO (happening at the time of writing) the company pulls in by far the highest volume of quality consumer attention in the world.

This is the reason for Facebook’s truly explosive commercial success, the fascination with its valuation, but above all, its profoundly disruptive effect on the media market, including the giant incumbent, Google itself.

And the key underlying driver of all the above, that propel the business forward? Its users – 50% of whom, so now 500,000,000 – use Facebook every day remember – both create and consume Facebook’s content (if that’s still the right word for such a biblical torrent of incredibly diverse material).

It’s also essential that we appreciate that, just as with Google and Apple, consumers’ motivations are not simply to consume content. The driver of social media behaviour among connected consumers is above all self-expression. It’s our stories, first and foremost, that we tell on Facebook and the content of Big Media is sometimes, sometimes not “co-opted for this higher purpose”.

When consumers take on the role of tellers of their own stories, and the platform itself takes care of assembly, distribution and – above all – the precious feedback that Facebook delivers (its dynamic is far more about the Like and the Comments than it is about the publishing), the value of professional content of any kind, while not disappearing, is radically shifted into a new and quite unfamiliar context.

What is being shared on Facebook, therefore, is not primarily our content, or indeed anything of direct commercial relevance. It’s billions of personal narratives of consumer identity, that may or may not feature references or links to our product.

It’s also for this reason that the value exchange that has underpinned consumers’ (admittedly dwindling) willingness to consume ad spots in the context of linear media, is broken, and in the age of social, brands are obliged to retread their budgets, to take into account what’s being called “engagement”. If I’m producing what I see as compelling content for myself and my personal tribe, advertisers play – at least for now – little tangible role in its creation, promotion and distribution, and thus my willingness to tolerate – let alone appreciate – interruptive messaging is, understandably, sharply reduced.

(Impressive though they may be in isolation, when stacked against the volume and depth of consumer attention it commands, and compared to how other forms of media are valued and monetised, Facebook’s revenues at the time of writing could be seen as pitiful.)

So – perhaps more than the other two giants – Facebook’s revolutionary dynamics and its resulting extraordinary upending of culture, commerce and consumer power, represent a powerful threat to traditional media and indeed to many of the web’s huge incumbents, that must first be looked right in the eye in order to establish where and how defensive imperatives and offensive opportunities can be found, balanced and exploited.

Specifically from the home video perspective, Facebook is the least passive, richest and most vibrant online environment currently in play. As such, we need, I’d argue, to approach this entirely new continent as first and foremost a foreign territory: one with enormous riches indeed, but also with close to a billion empowered, spoiled inhabitants whose goodwill and possible custom we must negotiate for with care.

Beads and tomahawks are not enough to conquer Facebook. As with Apple and Google, its potential as a mere content distribution channel is far outweighed by the alternative – many of them actively movie-hostile – forms of consumer value on offer.

If we can grasp and align with these, appreciating that in Facebook, far more than any other media channel, the consumer truly is king, we can begin to leverage this titanic new player while still in relative infancy.

Nothing about Amazon? Ah ... That's for another day! And it's a big, big story.

Posted with Blogsy

Can digital build brands? An essay on the coming shift to Engagement-based marketing

A troubled history

Stephen King's brief, urgent paper, "What Is A Brand?" was produced 40 years ago at the dawn of the seventies.

Even then, branding was struggling for its seat at the high table of commerce:

I wonder whether all top management are involved deeply enough in the nature of their brands. Do they realize fully enough that it is from the success of brands rather than as products that the profits will come? Do they fully understand the nature of brands? Do they set company objectives in terms of brand positioning or simply in financial terms?  

The answer – then, and perhaps all the more so now – is an emphatic “No”.

Now the unforgiving context within which marketing and advertising must operate, along with a number of questionable assumptions that have come to prevail, have forced branding’s role and value even further into the background.

One of the least satisfying developments since digital advertising has so radically disrupted the industry, is the current demand for ROI at every turn. This has pushed brand managers into a position so defensive that they can often only point to e-commerce conversions to justify investment in anything digital, other than perhaps the most meat-and-potatoes search program.

The assumption seems to be that the lion’s share of brand building is still best achieved by blanket messaging via above the line advertising, and that digital investment sits – as it perhaps always has since its inception – further down the pipe, alongside direct marketing and retail.

Such developments, given particularly that the balance sheets of many of the world's biggest businesses continue to list brand equity as a dominant line, are surely an immense concern.

At a time when swathes of quality consumer attention are lavished on social and smartphone, can we seriously continue to imagine that brand equity – like royalty at a rugby international – watches from comfort and safety in a warm hospitality box, while every other significant aspect of the connected consumer’s life, including our own products and services, is kicked vigorously around the chilly playing field of digital?

No. Brands, for better or worse, are being actively, constantly and irresistibly constructed and deconstructed in digital. We are fascinated and bewildered by capricious shifts in the tribal sentiments of connected consumers: utter indifference to our most exquisite, flattering siren calls one moment, and the next, their inexplicable rush to engage en masse, triggered by an apparently tiny flutter of influence in a corner we never knew existed.

We have to date gained no convincing idea of how to play under the ever-shifting goal posts of 21^st century marketing. Certainly the performance of advertising in digital – while spend increases every year, the bulk of the investment is still in the “defensive”, hygiene-factor area of search – continues to vex all but the most dedicated of advocates.

Here we revisit and review this important element of Stephen King's substantial legacy, the argument for advertising’s key role as architect and builder of the brand equity that translates as preference and premium prices, through the unsentimental lens of post-digital culture and commerce. 

An evolving role

… whatever people might wish to call the process of creating a property that combines tangible and intangible attributes, can be symbolized in a trademark that creates influence and value if properly managed … Well, that is branding by any other name.

                                                                                                     Rita Clifton, Chairman and CEO, Interbrand

Adaptation is, as it happens, part and parcel of branding's story. Stephen King wrote in terms of its “waves”, or evolutions, within the broader history of marketing.

He wrote about branding very much as a defensive imperative, first used by consumer product manufacturers to push back against the wholesalers that dominated consumer product marketing from the late Victorian era, and second – starting in the 1950's – against the retail chains whose dominance of brands' channels to market, alongside their aggressive own-brand programs, created a game of cat and mouse that continues today. 

The latter in particular challenged manufacturers to investigate sources of value, beyond the product itself, to sustain both preference and margin.

So Mr King completed his paper by pointing to the need for advertising to build and sustain new forms of ownable added value around the consumer brand.

First, we can recognise that in the 1970s it may well have a different role from the past. Added values and their effects on profits will become more important … Secondly, we can improve our methods of setting advertising’s objectives, by thinking of them in terms of the advertising’s contribution to the added values of the brand … And thirdly, we can recognize that advertising itself is a totality … If we try to produce it by the atomistic approach, we will end up with a sort of Identikit brand … (which) will never come to life.

As we read his words, we have feelings of both familiarity and regret. His argument could live very comfortably in any seminar in 2012, but what have – indeed since long before they were written – always been common sense marketing rules to live by, remain curiously, stubbornly peripheral to current marketing practice.

Nevertheless, we also realise that a large element of the historic role performed by branding, before we arrive at the generally accepted creation and attribution of added value, has in sharp contrast been defense against an ever-threatening – and ever mutating – diminishment of perceived value.

If wholesale and retail have been the source of such threats to date, has digital introduced a new player?

Shifts in power

Branding has always been just as much about power as about value. This is even more evident, at a time when connected consumers are still in the early stages of flexing newfound powers of “mass self-expression”[1], co-created meaning, identity and belonging, and their own tribally-based, direct influence over which ideas attain currency, and which fade away to nothing.

These are the kinds of cultural tasks of search and selection that brands have performed for us until recently. Do they still deserve their rather exalted position? Because viewed through a lens of global connectedness, brands are (until we intervene … whether and if so, how we do so is the subject of our enquiry) merely “yet more ideas” floating among a cast of literally billions.

As Umair Haque, the economist and media theorist, has correctly pointed out[2] from 10 years ago, where media, pre-digital, were scarce and thus highly valued, and consumer attention was plentiful, now media are overwhelmingly everywhere and consumer attention is the new gold.

We see a dramatic shift in power here, one that overturns the brand communications apple cart once and for all.

It's the power of the connected consumer that sets the scene for branding's next, “third wave” challenge. Along Stephen King’s branding timeline, first wholesalers and then retailers have historically set the challenges that great advertising has met, time and again, shoring up meaning and value not only around products and services, but crucially, within consumers’ own daily lives.

We now have a third protagonist, globally connected consumers themselves.

And while the battle for control of meaning and value remains the focus, we are today severely handicapped not only by earthquakes on our playing field and goal posts that never stop moving: we now learn that our star player is injured and may never return to top form.

The moving goal posts

Advertising, brand-building’s primary weapon of mass communication, is today in trouble. At its root, uncertainties about its role and value boil down not to its effects – arguably more measurable than ever before – but to a growing doubt about what it’s actually for. The strident insistence on ROI at every turn, points in the end not to questions about what is achieved in any given campaign or tactic therein, but about what it’s worth. Not so much what are we doing or how, more why.

We’re reminded of the familiar description of an accountant as one who know the price of everything but the value of nothing. Measurability per se is, at least in digital channels, not a challenge. To the contrary, it’s the struggle for advertisers to reach some post-digital equivalent of the impression, of familiar, trusted reach and frequency, that underpins this crisis.

While ad spend remains stable for now, there's an emerging sense among brand owners that, even when bullseyes are consistently hit, they're shooting at the wrong targets. That somehow, the game has moved on.

I think this is close to the truth. Consumer presence and consumer attention have – a key and rarely-acknowledged legacy of the digital revolution – become uncoupled. The implicit value exchange that has underpinned advertising's very successful partnership with media is fractured, when formerly precious content is commoditized by sheer volume and choice.

Why else would we be hearing incessantly about the challenge of "engagement"? Behind all the talk about this still-elusive concept, is the sense that while the consumer eyeball may still drift over the messaging, the mind is elsewhere, “otherwise engaged”.

The fragmentation that so concerns advertising and the media that serve it, is happening just as much within a single consumer’s field of attention, as it is amongst a brand's target audience. And attention is a zero sum game.

So what has happened to cause this? And if branding is, as we noted above, concerned with building associations around products and arrives, then how, in this age of consumer empowerment and tribalism, are these often far richer and more plentiful associations being built. And perhaps more vexing, by whom?

Macromedia and Micromedia

Think of today's powerhouse brands. Coke, Mercedes, and the remaining handful of other great legacy brands were built, and continue to thrive, on the back of enormous advertising budgets. They are, in fact, entirely constructs of media. Ever since its rightly-famous “1984” campaign, Apple has marched in that number too. Steve Jobs was in many ways an advertising man more than a technologist. But do we feel that the Apple brand resides in advertising? Or is its victorious brand nourished by some other, deeper source?

Think now of the 21st century barbarians at the gate. Google, Amazon, Facebook, and Twitter are representative. For their billions of daily users, life without these brands is unthinkable. And yet, Facebook only began to advertise in September 2012, and Google only some 2 years previous to that, launching its now-won Chrome browser war against Explorer and Firefox.

Without contradicting Stephen King’s core premises, the new powerhouse brands of the digital age are clearly being built without any direct dependence on the media and advertising system.

This, perhaps, is not big news for most of us. But where does this leave the FMCG brands whose products and services are not, as the technology giants are, hardwired into daily consumer culture? How are they to argue their way over the threshold into the party?

It helps if here we divide media into two constructs. Visualize them as two separate circles, like you’d see in a Venn diagram. Consumers and brands map across both, but as we’ll see, the power of advertising – digital or otherwise – to create and distribute brand meaning and value in both is highly restricted.

Let's call these circles “Macromedia” and “Micromedia”. Big TV, Big Web, and Big Advertising are all largely moored in Macromedia. It's corporate, it's about big stakes, big budgets and big risk. But these days, it also has a fair amount of nose pressed up against the window of Micromedia.

Micromedia is that personal, “me and mine”, tribal zone of intimacy that is the most fascinating and troublesome consequence of the connecting of consumers.

If Macromedia is about the heft and swagger of Big Media, Micromedia's ruler is the powerful, often ruthless consumer (increasingly a troubling word, in terms of its assumptions). If Macromedia is about consumption of media by consumers, Micromedia is about self-expression by consumers to each other and, in some instances, back to our brands.

We have to now largely acted as if Micromedia were a new, younger, subordinate territory within Macromedia. We have thus assumed that plain vanilla digital advertising would, as traditional advertising has done so well in the past in Macromedia, build brands and drive purchasing in Micromedia. But this is where the “digital is just another channel” school of thought has failed so crucially.

In Macromedia, digital is indeed “just another channel”. But in Micromedia, the very fabric of the environment is digital, and furthermore the primary dynamic, the prevalent flow, is not from industry to consumer, but quite the reverse: outbound consumer self-expression and co-creation. These are the “extensions of man” that McLuhan wrote about so cryptically back in 1964, finally come to life in social and mobile, with transformational results.

This is I believe why the consumption-based advertising that has always ridden, with enormous success of course, on the tails of content, has struggled so frustratingly in Micromedia. Advertising in Facebook and mobile remain at the time of writing profoundly unconvincing in terms of both consumer acceptance and brand acceptance.

We have long talked about above, below and through The Line. I call this new challenge “Behind The Line”, the line of course being the far-from-permeable membrane that separates Macro- and Micromedia.

The technology giants that have ridden the web to commercial dominance have without exception done so by establishing a strong base in Micromedia, by empowering our already power-hungry self-expressing, co-creating connected consumer. While they do advertise, they sustain their brand equity above all by further empowering their customer Behind The Line.

Note, by the way, what happens when any – and it doesn’t matter how dominant they may have been – of the new powerhouses steps out of line (another Line to worry about here, perhaps!). Netflix (pricing), Facebook (trust and data), Apple (maps) and plenty more have felt the freezing breath of the hostile consumer tribe when their exhilarating new power is diminished or threatened even slightly.

A brand built in Micromedia is thus a still a house built on sand, that shifts along with the restless, capricious moods and desires of the globally connected consumer. Even a luxurious palace like Apple’s is intensely, incessantly vulnerable. So perhaps we should be careful what we wish for.

Experience and Expectation

While we may now understand a little more about the constructs and dynamics that make up Digital The Culture, as opposed to Digital The Channel, the question remains, if we are to build brands in digital, what must change?

I’m still myself in the early stages of developing planning frameworks that bring Macromedia and Micromedia together to enable true “Behind The Line” brand communications.

It’s my belief, however, that branding in the post-digital era demands we move far beyond messaging, to take on the active management and optimization of consumer experience across all key touchpoints, right along the entire product lifecycle.

I also belief as a consequence that brand equity can be viewed and ultimately valued as a sort of snapshot in time of the sum of goodwill and otherwise that such experiences engender in what is, remember, a globally connected, highly tribal consumer.

Brand building, which has till recently lived almost exclusively in advertising, has been primarily a brand-controlled system of linear, almost entirely one-way “Promise and Delivery”. In the digital age, a new and, for now, chaotic dynamic has come into play, disrupting a lot of what we knew before, challenging all the rules and roles of marketing.

In contrast to the regimented lines of Promise and Delivery, we have in Micromedia a corresponding but very hard to reach cycle of consumer Experience and Expectation. Our brand Experiences – good, bad, indifferent – drive our brand Expectations (and also, note, our own brand Expressions via social to our hundreds, thousands or millions of networked cohorts). And round again of course.

But what matters most here is that the cycle is driven not by brands, but by consumers in tribes. Advertising (digital or otherwise makes no real difference) holds little sway here. To revisit McLuhan, the medium is in this case not just the message, it’s also the product or service itself. There is no time, in digital, between the Promise and the Delivery. Indeed, there is no longer effective difference between them: what we say and what we then do are held up for public scrutiny

So the dynamic between Experience and Expectation, how that plays out across the network, and how in turn we choose to invest in engaging the attention of the consumer, will I suggest be the future of brand building in digital. Advertising’s more precise role has yet to unfold, but clearly whether it’s digital or not, branding’s traditional vehicle has, in Micromedia, a secondary role.

If digital is indeed to build brands, and one way or another we must find out how, my last point is that less focus on Return On Investment, and more focus on improving the powerful consumer’s Return On Attention, would be an excellent departure point.

With this imperative in mind, I’ll leave you with a final, wise thought from The King.

How to measure advertising and its effect is not terribly hard if you work out in advance what sort of response you are trying to get, because the basic question then is: Are we getting that response?

 

---

[1] Manuel Castells, Communications Power

[2] Umair Haque blog, Bubble Generation

 

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Outside the enterprise, top teams now see a market in perpetual disruption. Change, already utterly pervasive, often seems unmanageable. 

Business leaders have no great interest in becoming digital ninjas. But most lack a confident, sector- and enterprise-relevant and communicable point of view regarding the true impacts of the connected consumer, social media, the smartphone, and the role and value of data in driving strategy and competitive advantage.

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The Future of Engagement? Disengagement

This tiggerish little piece published in today's MediaTel's Newsline begins to explore the impact of M2M (Machine-to-Machine) on consumer engagement and loyalty.

Bowling and Pinball ... the ball rolls on!

Very pleased and flattered to see the good old Bowling and Pinball meme that I pushed out in 2007 taken forward into fertile territory by my close friend Peter Sieyes and colleague Rob Malcolm in this very useful piece for Wharton: Knowledge In Action.

It astounds me - in a good way :-) - that the thinking should have such legs ... Though somewhat alarming to imagine my headstone in (I hope) the very distant future: "You know ... the bowling and pinball bloke"!

Here, by the way, are the videos I first used when explaining the model to the great and the good of media and marketing.

The bowling ... and the pinball.

Misconceptions holding back digital, social and mobile marketing

I'm very pleased indeed to have this comprehensive article featured in the July issue of Market Leader.

It combines what I believe to be some of my most incisive observations of the current media and marketing zeitgeist, pointing up the critical conceptual blocks, and providing I hope some meaningful clues for the way forward to credibility, significant brand investment, and of course, growth.

I'll also be speaking around these insights in the coming months, so if there's a slot in an event schedule that might fit the bill, please do let me know.

Download Bayler on Digital Disruption and Value

Download Market Leader cover July 2012

Here also, in a connected vein, is an account of yesterday's panel at Mediatel's excellent Media Playground event, questioning the relative value of data in marketing vs advertising. A hot discussion, too.

An essential book for students of what's happening

James Gleick's masterful work "The Information" is taking my breath away.

The quality of scholarship combined with the accessibility and the sheer excitement of information's journey from pre-history to present, post-social, day is superb.

Make a point of reading this remarkable book.

The End Of Strategy? Post #1

Introduction

This is the first in a series of posts that will form a rolling white paper, examining and getting to grips with what I have come to think of as the remarkable challenge facing organisations of all kinds - and above all, businesses: the state of perpetual disruption. 

In the two areas I work most in - media and marketing - and in particular at their points of overlap, where questions about, for example, the role and value of advertising, and the true impacts of social media, continue to proliferate without satisfactory resolution, there's a pining for one outcome above all. 

When will things go back to some sort of "normal"?

The Year Of ... 

Every year in recent memory has been "The Year Of Something", hasn't it? The last 5 years have each been The Year Of Mobile, for example. 

And what happens? The devices come thicker and faster, consumers pick them up, run with them, co-create with both each other and the new technology giants - GAFA as I've heard them dubbed (Goggle, Apple, Facebook and Amazon) - myriad new forms of value. It all rushes forward. 

But here's the thing. "The Year Of Mobile" never actually arrives. And no one gets more of a real grasp on things than we had last year or the year before. 

And yes, it has indeed been "The Year Of Apple, Google (incl YouTube) Amazon and Facebook" ... for each year as long as we can clearly remember. But the GAFA giants are now almost ecosystem fixtures, the shiny utilities of some kind of new economy. They'll quite happily take the dollar bill in their respective business and revenue models, but really they have no more useable insights for us than British Gas or Thames Water. 

Asking Google or Facebook what you should do, is rather like asking Lloyds of London where you should make your investments. They're generally nice enough people, but it's not their job to care. (And actually, they don't know either.)

We are, it seems, on our own now. 

The new normal

And there will be no returning to "normal" any more, in the sense of familiar, predictable models and markets for exploiting content, for building brands and above all, for developing and executing strategies. 

I intend no melodrama, but it's really over. 

If strategy is above all about the way we think, then an environment in which what we think - and what we think we see - are  now invariably inadequate, always too slow, and often badly wrong, no longer lends itself to what we can call outbound strategy - where we plan for and then "do things" to our markets that create competitive advantage.

Strategies overall - and strategies for innovation are no exception - are only meaningful when their objects, and, just as crucially as we'll see - the contexts within which those objects exist, and within which value is identified, articulated, productised, communicated and eventually delivered, remain more or less fixed, relative to meaningful market coordinates. 

Things need to sort of stay where - and indeed what! - they were yesterday, if you like, for new forms of value to be confidently developed and placed into the market.

This is no longer the case, and sets up a powerful cause of the perpetual disruption that, I am arguing, will plague businesses and their brands in the post-digital era. 

We learned, at a fundamental level, to view change as occasional, disruption as rare - to be feared, exceptional - and innovation as something elusive but achievable, that businesses "do" to markets, to sustain and now and then refresh what has been, till recently, broadly visible, explicable and manageable positions for their various brands. 

But Normal, from here on, is a state of perpetual - and accelerating - flux. 

Impacts and implications

We are already, for practical purposes, passing through the so-called Information Age. Where are we now then? 

On one hand, I'd feel comfortable calling this "The Age Of Disruption". But that - as well as leaving us despondent and rudderless - implies that there's a plausible end point to this new state of perpetual flux. No, we need something both a little less apocalyptic, and a little more realistic. 

I've written periodically about The Age Of Meaning for the past 6 or 7 years, and while I wouldn't dream of claiming to have had the answer to our profound conundrum all along, I do feel that when we come to grips with perpetual disruption, it will be in part because we have finally - with backs against the wall - learned the fine art of the management of meaning.

I'll be returning to the management of meaning later in this process, but for now, I'm sticking to the exploration of the problem. To jump ahead too quickly, to rush a solution, will be to underestimate the problem and compromise any sort of useful insights and ways forward. 

For now, we have a huge conundrum to deal with. 

The trading context of customers, competition, culture and communications is constantly accelerating in both speed and scale, already far beyond a level at which business can usefully react with so-called innovations .

This context has become, in the end, irresistible. It consists, at its most basic, of billions of connected consumers, the technology giants that both enable and add value to their connectedness, and the second-by-second interaction between them, that feeds and fosters an especially concerning new kind of value. Benckler, in his contemporary economics masterpiece The Wealth of Networks, calls this "non-market value": an inauspicious term, no?

Our issue here is not merely the now-tiresome challenge of how to evaluate and thence monetise, for example, the big social networks. It's more far-reaching, and concerning. 

The new post-digital trading context is more than just value-neutral ... It's "value-hostile", precisely because, unlike any other in history, it's no longer neutral ... passive ... waiting, if you like, for something to happen, for our decisions and actions to stir it up. We have, till recently, been able to take quite well-researched products or services (indeed, more recently, consumer experiences) and push them into the market, accompanied by a fairly cogent but above all confident program of communications.

This happy paradigm - whatever happened to paradigms, by the way? - has been supported and reinforced above all by a context that kindly agreed to stand still while we marketed to it. Channels - even early online channels played nice - were neutral; consumers were usefully bound by a combination of postcode and ponderous research programs; insights were valid and fresh for, well, sometimes years! 

Oh, and data ... Well, there was so little of it, and it changed so rarely ... We were even able to sometimes make use of it, before the music and the dance started again. 

I don't have to bang on, surely, about how little of this comfy value chain remains. Dismantled byinformation, wielded by immensely fluid tribes of flattered, entitled consumers, whose very empowerment and daily delight by the GAFA Crew, is paralleled by the disempowerment and daily dismay of the enterprises tasked with somehow delivering - let alone maintaining (let alone predicting!) - something called shareholder value. 

There will be answers. But first we need to fully explore and grasp where the levers of power have moved to, and which of those we are entitled and able to get a grip on to begin navigating a cultural and commercial landscape that will no longer stand still.

Till next time. Thanks for reading.  

 

Doing it for the experience

To Olympia this morning for a quiet Adtech London conference, where despite the evident impact of - yes it's still there - the recession on attendance, we had a very lively and enlightening session on customer experience.

I moderated, with the iron grip they expect from me, and on the excellent panel were Lawrence Merritt of Photobox, Matthew Cashmore of Lonely Planet, David Chalmers of Cisco and Benjamin Braun of British Gas.

Our focal points - which (see iron grip above …) mapped neatly across the key strategic emphases of the panelists, were a) where does customer experience - and its associated benefit, customer engagement - now live in business and brand strategy, b) how does that proceed to play out in terms of the way experience is viewed and managed and c) what approaches to measurement are being adopted?

Without going into too much detail on individual points made - all very succinctly and credibly expressed of course - the following headlines emerged.

First of all, where, till relatively recently, customer experience was just a problem for customer service divisions, it's now - certainly across all the panelists - perceived at the highest levels in the business as a critical driver of marketing and sales value. 

For Photobox and Cisco, the medium is to an overwhelming extent, the message, and not only is their brand equity overwhelmingly held in customer tribes, but remarkably high percentages of revenue - with, one gathered, highly efficient cost levels - are achieved with astute leveraging of both experience and engagement.

Lawrence stressed Photobox's lack of dependence on traditional forms of advertising and its corresponding focus on customer advocacy - what some are calling "earned media" if you like - to drive both brand awareness and hard sales.

For British Gas, a brand with a number of unsurprising challenges, in that customer experience has been - especially around service and billing - till recently so ill-regarded that positive engagement of any kind has been out of the question, a fresh range of online and mobile service initiatives are clearly and meaningfully reversing the experience trend, directly empowering the customer, and establishing both control and clarity to replace the previous sense of murky disinterest. One was struck by the common sense pragmatism and - key element of all experience programs - Utility (OK no pun intended) of the activities Benjamin outlined.

Second, a rigorous and attentive approach to the management and refinement of customer experience - and, critically, processes for the recognition and reward of value-adding customer engagement - feature highly in all successful experience strategies

For Lonely Planet - a bold innovator from their DNA on out - the engagement IS, to a large extent, the business. Matthew reminded the audience that the publisher's earliest days were peppered with thousands of copies of their guides mailed back to them by passionate (not to mention engaged …) users with scores of corrections and additions hot from the field. 

The brand is carrying that focus into all its threads of activity, as their customer base shifts from real to, if you like, virtual backpackers whose concern is less "How do I get there and where can I lie down?", more "How can this location provide the depth and relavance of overall experience I seek from leisure travel?" Matthew also talked in some detail about the attention devoted to testing and refining even the most trivial elements of, say, a web page to ensure that the online experience is as rewarding and engaging as possible.

David talked about the very effective recognition and reward dynamics among passionate Cisco users, to the extent that many of the businesses most valued support teams and even sales people … are customers too.

Third, and perhaps from my own point of view most essential, all of these very diverse operations are, at a gratifyingly high level, acknowledging in their expressed strategies and activities, that the customer really DOES own the brand, and that they - indeed all of us - ignore the impact of customer engagement and the role of customer experience, no longer as a chore, but as a core builder of competitive advantage, at our peril.

Music and murder - Part 1 of Lessons from the Losers

David Stoughton of ValueKinetics writes:

This is a reconstruction of my earlier post kicking off this series. If it varies a little I apologise, but I hope the core of the analysis is preserved.

I'd better start once again by repeating my original apologia about serialisation. It remains true that I'd never have the time to get the whole of the investigation I'm attempting down in one sitting and that it would, in any case, be much too long for a single blog. So, as before, this is part 1 of an intended series of posts exploring the impact of changing technologies and patterns of social use on business. My, admittedly ambitious, intention here is to develop a framework for evaluating likely developments in media, and I hope other sectors, using the fate of the recording companies as an example.

The impetus for this excursion is my increasing discomfort with oversimplifying the changes that are engulfing so much of business. Because, in this blog, we address primarily the impact of social and technical change on the trust, attitudes and behaviour of customers, we tend to adopt a shorthand when addressing it - as I did when talking about music here and here. It is easy to forget that, unless you share our perspective, it is not obvious that, for instance, the record companies must adapt or die, even if they can enforce copyright.

Michael Bayler has summarised the process by which value chains are dismantled under the combined onslaught of technical evolution, standardisation, diffusion of know-how and finicky customers, very succinctly elsewhere in this blog, From value chain to ecosystem. I want now to build on that excellent summary by exploring a particular example, hoping that illuminating how the pattern unfolded in that instance, reveals lessons of more general applicability.

As I said earlier, the focus of the first stages this enquiry will be the music business and, in particular, the recording industry - not just because we have written about it so extensively here - but because it does, in fact, offer an almost ideal case history. As we will see, the pattern of development and the state of the industry when it came under attack, offer extensive insights into the prospects of other media businesses and, I hope, those in other sectors as well.

Don't blame the Internet ...

I will focus in Part 1 on an overview of the changes that have swept across the music industry, creating substantial disruption - to the recording companies in particular. In a sense the history is well known, but to discern the pattern and the key drivers of the change it is important to see the big picture, not simply rehearse recent events. As is often the case, it didn't all start with the Internet, it began with changes to the cost base of the industry, especially to the cost of production.

Cast your mind back to the 70's, then no unsigned band could afford more than a few hours in the, recently developed, multi-track studios. The door to professional recording was firmly locked, and the record companies (and sometimes music publishers) held the key. Only they were willing to offer the advances (for which read loans) required to meet the cost of producing a quality recording. Roll forward 15 years and any aspiring band could afford to produce a respectable album. Of course, that change accelerated with the advent of digital recording, but the significant fact is that it all began on the supply-side of the industry.

... OK, it was an accomplice

Add the Internet and the cost of distribution, until then largely controlled by the recording companies, fell to near zero, and marketing, as practised by the recording companies at the time - stimulating word of mouth - became increasingly the domain of the public.

Everything changed. Now artists can, and do, record, distribute and promote their own material - at a fraction of the old cost. That opportunity inevitably leads them to question the meagre royalties on offer if they sign up to the majors. Simultaneously, hitherto passive customers have become increasingly aware, if only unconsciously, that real costs have declined markedly - leading them to question whether the price point is justified.

It isn't just access that has altered ... the way music is used has too. Digital music is so easy to sample, and professionals have so comprehensively shown how, that consumers inevitably do it too. Snippets of music are extensively used, not just for ring-tones but to communicate personality, affiliation or mood on social media sites and in messaging. This co-option as a language of communication doesn't just change the pattern of use, it broadens and deepens the very meaning of music. What consumers value has changed and any business that serves them must respect and respond to the new needs.

The remainder of the history - changes to the pattern of sales, to attitudes and to behaviours (including, of course, illegal downloading) - has been comprehensively documented here and elsewhere. But, as I hope to show, the essentials of the scenario outlined above are common to all media and perhaps to other industries similarly affected.

The modus operandi

Time to pull back and look at the big picture. As with all good murders there is both opportunity and motive here:

Opportunity

Consumers acquire affordable access to the means of production;
The tools, the knowledge and the skills become universally available.

Motivation

Customers become dissatisfied with the price, flexibility, availability or quality of the offer, or they lose trust in the provider;
The personal, social or financial rewards of engagement with the production process grow as new opportunities are revealed.

The order and relative importance of these factors varies, but the pattern is common to the transformations we have been observing, across a wide range of industries. An important feature to notice, and one that proves no exception, is that the Internet is not the only, and perhaps not even the most significant, cause of change. Changes to the cost of entry and control of distribution are critically important, and may result from a combination of different causes.

Before we leave the music industry behind I want to explore what made the recording companies so peculiarly vulnerable, but that is for Part 2. Finally for this piece you might want to note the relatively minor role played by illegal downloading in this scenario. As we will see its importance has been greatly exaggerated, mostly because a scapegoat was needed, but perhaps also to avoid acknowledging past strategic miscalculations.

You might prefer the flip side

David Stoughton of ValueKinetics writes:

Commenting on declining sales following the crunch, the Economist notes, "It is tempting to conclude that, once economies rebound, customers will start spending again as they did before. Yet there are good reasons to think that what promises to be the worst downturn since the Depression will spark profound shifts in shoppers’ psychology." Some mistake, surely! The shift they observe started long ago, the downturn serves only to expose and accelerate a revolution in consumer markets that has been creeping up on us for years.

Ever since the Internet flooded the the market with information, customers have been using it to break up value chains and unravel established business models. As Mike Bayler has pointed out elsewhere in this blog (From value chain to eco-system) the earliest and most obvious example was in the packaged holiday market, but media and much of retail soon followed. Personal finance, the well-being end of the health market, and energy are well on their way and, as the Economist correctly observes, cautious customers in the wake of the crunch are speeding others into the whirlpool.

Until now the gradual pace of the change has served to disguise its extent, but what's happening is nothing short of a revolution - one that will transform, or sweep away, many established industries. Management faces greater challenges now than at any time since television accelerated mass marketing and kick-started the wave of consolidations preceding globalisation. With the crunch bringing the moment of truth ever closer for a majority of consumer industries, it may be time to stand many accepted strategic nostrums on their head.

Reverse everything

When customers gain control, suppliers are compelled to organise to meet what demand there is effectively. The search for ever increasing efficiencies, relying on marketing to shift ever growing volumes of product, is over. The business logic must change too. In the terms used by Theory of Constraints, the customer is now the bottleneck, the factor that constrains the volume you can produce. The same theory advises that everything else be subordinated to the bottleneck if maximum throughput is to be achieved. That requires you to think differently - try reversing almost every stage of traditional strategic analysis.

• Stop thinking of your market in terms of a product or service category - think instead of the category of customer concern or interest you serve. This changes, and sometimes obliterates, sector boundaries and enables you to think in terms of clusters of relevant, associated, consumer needs you can meet.

• Stop trying to build a community round the brand - instead build the brand round the community that naturally forms around key customer concerns.

• Stop thinking of consumers as a sink for production  - start thinking of them as collaborators and partners in identifying and responding to the needs of the community you are dedicated to serve. That way you expand the scope of your business and with it the services you can supply.

• Stop thinking in terms of geo-demographic or behavioural segments  - think rather of niches defined by particular clusters of customer concern, shared interests and circumstances, or a common and distinct sense of identity within the community.

• Stop thinking of your outlets as distribution channels - start thinking of them as the routes that customers mix and match according to preference to gain access to, and exchange experiences of, products, services, information, and advice, that meet their needs.

• Stop thinking in terms of value chains, supply chains and scale efficiencies - think instead of networks and your role within them. In particular decide whether, from the customer's perspective, you can be most effective as:- a butler, the apex of a pyramid of assistants designed to service every whim; a broker ensuring best value from each deal; a hub linking customers, suppliers and advisers together and with each other; or as a dashboard, presenting all the options and criteria impartially but leaving the choice entirely up to the customer. 

if you reason from the customer perspective and work backwards into your value proposition and the business that delivers on it, there is a good chance that the solution to an apparently disappearing market will be immediately obvious. It may entail making profound changes to your business model, but better face that fact now than wait for the axe to start falling and panic only when it may already be too late.

Innovate or die

David Stoughton of ValueKinetics writes:

Several revealing interviews on 'In business' last night affirm what what we know instinctively is happening - innovation continues to flourish within the, ever inventive, small business sector. The crunch has not noticeably dented their spirits, if anything these players see this as the ideal time to launch new products and services. If capital is a little harder to come by, the same spirit of invention quickly finds alternative ways to launch and grow. Meanwhile established businesses struggle to make sales - the public humiliation of some great, established, institutions is just the tip of the iceberg.

This is shaping up to be a time of upheaval, of the 'creative destruction' that Joseph Schumpeter hails as “the essential fact about capitalism”. The signs are that, if some of its flag bearers over the last fifty years are having reservations about its future, capitalism is renewing itself in the time honoured fashion.

Giant corporations, with few exceptions, are notoriously bad at developing and launching the genuinely new. The failure rate is frightening. Depending on the authority, approximately 70% of new product development projects fail and, perhaps more tellingly “between 33% and 60% of all new products that reach the market place fail to generate desired economic returns” (Smith, P. and Reinertsen D.). Notice the weasel words, ‘that reach the market place’- many, perhaps most, never get that far.

Individuals and small businesses probably fail just as often at innovation: the research does not distinguish the causes of business failure in this sector. But individuals and small businesses are both more plentiful and more resilient - they bounce back with a new, or refreshed, idea and a new business vehicle, ready to start again within months. The odds are not good that, in a straight race to bring new products and services to market, big business will win.

The traditional remedy, of course, is to wait until the upstarts have proved the concept (and taken the initial risk) and then buy them. The success rate here is nothing to write home about either - as we know, many of these acquisitions fail - but the odds are slightly better than doing it yourself.

There's a catch though. Buying up companies requires good judgement (many fail to grow as predicted), the capacity to integrate and capitalise on unfamiliar processes and cultures, and deep pockets. All of these, especially the last, tend to be eroded in a sharp downturn. Many corporations will emerge without the readies, or the resilience, for successful acquisition - and anyway it may be too late by then.

Something has to be done now if the future is to be secured. Given the low success rates in new product development, big business should play on the part of the pitch where it has the advantage, better targeting, superior customer service and improved experience.

The fact is, there is more than one direction for successful innovation at present, if managements think clearly. The incumbent's advantage lies in ownership of the route to market - that is having the brand, capacity, and reputation for service that the majority of customers value. These are the attributes that newcomers lack, and can build only slowly.

I'm betting that the two keys to surviving a storm of creative destruction are:

1. Secure the front, market-facing, end of the business - by introducing innovations to the experience and service that bind the customer more closely to the company;
2. Increase agility at the back, supply, end - by improving agility in partnering, developing skills in brokering value networks and in assembling supply chains quickly, so that the newcomers see reaching their market through the corporation as the quickest and safest way to grow scale.

There are many advantages to such a strategy. Not least that the necessary development can be undertaken in small, incremental, tranches - no 'bet the farm' projects are required - and the initiative will expose equivalent opportunities for savings in areas that will add little or no value for customers or company in the future.

Innovation is a real opportunity for established businesses after all, and far more radical in its results than conventional product development - it just takes a less dramatic form while in progress. Most of the biggest opportunities of the future lie in owning the horizontal platform which customers rely on for whole categories of goods and services, not the vertically integrated, unitary, value chains that are becoming a millstone round the neck of their owners and managements.

The experience of trust

David Stoughton of ValueKinetics writes:

Give a dog a bone! I can't stop worrying away at this one. The antics of the bankers won't let me. So, to the matter in hand.

Yesterday RBS announced it was laying off another 9,000 staff, most of them in 'back office and support' roles. Meanwhile the Bankers Association has been flagging the probable end of free personal banking. Now I'm aware banks have a desperate need to cut costs and start to repay some of those stupendous loans we've been co-opted into making to them. I'm all in favour of them giving the dosh back, and as soon as possible, but is this really the best way to go about it?

I've harped on about trust here, but there turns out to be more to say. Trust is easy to lose, a private south sea bubble just between bankers turns out to be an excellent model. It is very hard to earn. It can only be won on the front line, in the day-to-day transactions that are the stuff of customers' experience.

Child psychologists point out that the process of bonding with a parent is the model for all human trust relationships, and depends heavily on emotional responsiveness and consistency. Absence of response, or inconsistent behaviour, on the part of the parent creates a variety of dysfunctional behaviours in the child, many of which persist into adult life. Such failures of parenting are recognised forms of abuse.

There is a lesson here for retail bankers, and consumer businesses in general. Extensive marketing and expansive promises, accompanied by long waits and indifferent, and often literally non-human, responses to the enquiries that follow, is inconsistent. Credit scoring in place of the evident exercise of personal judgement is a failure of human response.  In sum the lesson is this: 'It's the experience, stupid!'. Only a service that matches the brand promise, consistent handling of day-to-day interactions, and evident, human, consideration for special requests, is likely to rebuild a shattered relationship. As with an abused child, it will take a long time to restore. Meanwhile, asking people to pay up for a broken process may mean it never happens.

Willing adoptive, or foster, parents come forward to rescue children from dysfunctional families. Just so, the established retail banks should remember that the supermarkets, amongst others, have existing or planned services that will quickly spirit away their most valuable customers if they don't get on with mending their core relationships.

To return to RBS and its staff reductions. Back office and support workers may be just the ones needed if banks are to successfully improve the experience. They may have little day-to-day contact, but their work can free up front-line staff to focus on the customer. The only rational way to cut in a crisis is to focus hard on retaining, and if you're in the condition banks are, improving your customer-facing services first - whatever that takes. Then, and only then, should you let go of non-core staff. Given the state of retail banking services, I find it hard to believe that such consideration has been given. I do believe the consequences of a failure to do so will be little short of disasterous - and RBS still has my money.