Vivek Kaul
Stefan H. Thomke, an authority on the management of innovation, is the William Barclay Harding Professor of Business Administration at Harvard Business School(HBS).He is chair of the Executive Education Program Leading Product Innovation, which helps business leaders in revamping their product development processes for greater competitive advantage, and is faculty chair of HBS executive education in India. He is also author of the books Experimentation Matters: Unlocking the Potential of New Technologies for Innovation and Managing Product and Service Development. In this interview he talks to Forbes on the various aspects of innovation.
Innovation is a very loosely defined term these days. How do you define innovation?
When I started looking at innovation more than 20 years back, it seemed to be a little crisper then, in terms of definition. Now its all over the place. Interestingly, Wall Street Journal did an analysis sometime back where it counted the number of times the word innovation appeared in the quarterly and annual reports in the United States in 2011. They counted more than 33,000 times. Its just a much overused word.
So what does the world really mean?
The word innovation itself really means two things. It means novelty and value. The value requirement is a really important point. And that makes it different from the word invention. Invention is a more legal term. It is about getting patents. If you have a name on your patent you know that value is not a requirement to get a patent. It just has to be new and non obvious to get a patent. There are companies that have lot of patents which have no value for anybody. So its an input to innovation.
Innovation at times can be a really simple idea as well?
I was working once with a company in the area of in vitro diagnostics. Basically they made equipment to do blood analysis. So when you go to a hospital they draw blood from you and put it into a machine. The machine analyses your blood and gives printouts. One of the biggest innovations for their customers was an algorithm, which was essentially a piece of software that ensured quality control. That was one of their main selling points and customers would basically buy their equipment because they highlighted that. They said that I have this insurance that when I run these tests that the equipment automatically checks for quality and is actually very reliable. And they marketed that. From an R&D perspective it was one of the easiest things that they have ever done. It was really just an algorithm that they figured out using data.
That’s really interesting…
Yes. So sometimes you know the most expensive things are not necessarily that provide the greatest value to the market and vice versa as well.
I came across a blog you had written on product innovation where you questioned putting more and more features into a product. Tell us something about that?
I wrote an article together with Donald Reinertsen and in this article we talk about myths. This was one of the myths. He is also an expert on product development. And we have been in many meetings where the entire meeting is dedicated to discussing more and more features. There seems to be an assumption that in a lot of teams that we are basically done when we can no longer squeeze more features into a product. Presumably assuming that more features that a product has, the customer actually sits there and counts the features, and that somehow drives our ability to price it.
And you don’t agree with this approach?
Sometimes you can actually add value to a customer experience by taking features out, by de-featuring. But that rarely happens. I have rarely been to meetings where the main purpose of the meeting was to remove features from a product with the intent to add value. Usually when we sit around and discuss to remove features, it is usually because it is too expensive, it is not manufacturable. Maybe what teams should do is think about when they can no longer take things out of a product rather than when they can no longer add things to it. It’s a very different way of thinking about it.
Making things simple is difficult…
We often talk about it as a quote attributed to Leonardo da Vinci that simplicity is the ultimate sophistication. To make things simpler is very hard because that requires you to have a very deep understanding of what the user really wants. And once you have that deep understanding you have the confidence. Mark Twain once said if I had more time I would write a short letter. In fact that should be true in your field as well?
Yes, longer pieces are easier to write.
Exactly. And the same is true about innovation. Creating something out of a lot of bells and whistles is a lot easier to do sometimes than actually creating something that has the essential features because that requires a lot more thought and a lot more research.
Can you give us an example on this, other than Apple?
A small example is the Danish company, Bang & Olufsen. They make very very high end speakers, stereo systems etc, which are beautifully designed. These speakers are one of the most expensive speakers that you can buy. But there are no buttons for adjusting the frequencies, you just have the volume button. That’s it. What they have done is that they have created products that are very expensive and they have taken away all the controls that normally you would like to have.
How did they get away that?
They set themselves a very interesting standard. They said, when you listen to something on our speakers it should sound like the real thing. And we believe that no user will be able to get close to that by tweaking a few buttons than the way we set up. So they set their standards to be very high and said we don’t want the users to fiddle with it because we are getting as close as we can. All we want you to do is turn the volume button up and down. It’s quite contradictory. You would imagine that if you are charging all that money you would want to give more control to the customers.
But a lot of people love fiddling with features…
Yeah. There is always a market for everything.
If you look at mobile phone marketing, the selling point seems to be features…
Look at Japan for example. If you look at Japanese mobile phones they have more features than anything you can imagine. You can watch television on them. They have got everything on these phones. But when you ask Japanese consumers, one of their problems is that they are so complicated to use. Not surprisingly, the iPhone has one of the highest penetrations in the Japanese markets. So the question is how can that be? It is more expensive. It has less technology in it. It has fewer features in it and yet it has one of the highest penetrations in terms of growth.
That’s an interesting example…
The reason why I came up with this observation is because I bought this toaster, which came with a manual and had a little LCD display on it. And it set me thinking. I bought an iMac and it had no manual and I bought a toaster and it came with a manual that thick.
There is no manual with an iMac?
No. There is no manual with an iPhone. You just get a little leaflet in there in terms of what to do if something goes wrong. In fact when Steve Jobs came back to Apple one of the first things he did was he took manuals away from developers. The belief was that manuals are for developers who don’t know how to make it intuitive. So as a developer if we don’t know how to make it intuitive we think that’s there is always the manual where we can write down and explain how it works. The problem is that nobody ever reads a manual. So the perfect solution was lets just take away the manuals from the developers. If you cannot explain it, if you cannot make it intuitive, then don’t it.
Do organisations become less innovative as they become large?
I wish I could give you a yes or no response. There are actually certain advantages that come with size and there are some disadvantages that come with size. As you get bigger., you have a momentum. You have an established customer base. Sometimes you can take a long term view as well because you have got an ongoing business and you can afford to wait a little bit. But you have some disadvantages as well. You have got a customer base, that may hold you back and drive you in a different direction. As you get a bigger, you need to have processes and procedures for coordination that are often then viewed as bureaucratic.
Can you give us an example of a large company that is innovative?
Take a company like BMW. It is very innovative. Right now they are launching the i3 which is an extremely innovative car. Its a fully electric car. But that’s not the only innovation. They also figured out how to actually make the entire body shell out of carbon fibre. This is an example a great innovation in all dimensions. They had to come up with a process innovation. Carbon fibres are basically carbon bodies, very light structures that go into very high end automobiles. For example, Formula 1 cars are typically made from re-enforced carbon fibre bodies. You need to bake them. Its a very labour intensive process.
And BMW changed that?
They couldn’t follow a manual process for a car like this because they want to mass manufacture it. It would be way too expensive. So they had to actually innovate in manufacturing. They had to automate the production of carbon fibre. And it changes everything. Once you make the body of your car from carbon fibre, things like crash dynamics totally change. Then there was the electric side of it as well. So the i3 which is coming out this fall. The whole project was more expensive than any of the car platforms that they have developed recently. Estimates are of around $1-5-2 billion. Its a huge risk and they don’t know whether the car is going to sell in enough numbers. It is going to be priced pretty close to $35,000-40,000 in the United States and close to around 35,000 euros in Europe. This is a huge bet that they are placing.
And they are able to do it because they are big?
BMW is a very big company . A small company may not be able to take that bet because they don’t have the expertise. They may have the expertise in one area but they don’t have all the different knowledge bases that this will require to put something like this together. So BMW has the deep expertise. They are very profitable. So they can afford. Whether they can afford to let the i3 fail that remains to be seen. If it fails that will be a big dent. But they can afford to put $2 billion into something like this which could really change the future not just for BMW but for the car industry as well. So large companies can be innovative.
I was reading one your research papers in which you talk about the fact that you cannot treat R&D like manufacturing and unleash techniques like six sigma….
There is a real danger right. I was working in the quality field when six sigma first came out. Six sigma was essentially designed to address production variability in Motorola’s semiconductor factories. It was adopted by others. And at GE it became a big change management programme. But we should also fundamentally understand what Six Sigma is all about. Six Sigma is about reduction of variability. And that is very suitable for tasks that are very repetitive. Variability is actually a bad thing and you want to drive it out. If I am at a bank and I am processing transactions then I want to these transactions to go through with zero mistakes. Any kind of variability is bad. That’s true…
But if you take a concept like this to innovation where we talk about experimentation, creativity and all these sort of things, variability is something that is quite natural. You take a technique like this and you are trying to drive out variability you can kill the entire process. The more upstream you go the more dangerous it is. Something by the way 3M found out the hard way. Jim McNerney became CEO of 3M. Having come from GE he was a master of six sigma. He drove it in at 3M. It initially helped them because there was a lot of variability at 3M. Fifty five divisions there was not enough co-ordination. When six sigma was implemented in upstream R&D driving out variability, they killed a lot of good things that they were working on. This frustrated a lot of people and later on when the next CEO came he really had to correct that.
Ideas often come at the edges.
It is also sometimes not predictable. If I am a developer and I am developing something new I don’t know exactly what I am going to be doing three weeks down the road. I don’t know the tests I am going to run one month from now because that is the whole point of innovation. Its uncertain. If I had all these answers, I probably wouldn’t be innovating. There wouldn’t be novel because I already know everything about what is going to happen. So inherently there is uncertainty that is built in and we just have to be comfortable living with that uncertainty. That is why I talk about business experimentation.
Can you tell us something about?
One of things that executives need to understand is that most assumptions/hypothesis that they make about novelty turn out to be wrong. The real danger for an executive is that if they feel they have an assumption about novelty and they go out without running the experiment, it could be quite disastrous. I don’t know if you have been following the JC Penney story.
What’s happened there?
It’s a fascinating story. Ron Johnson was the person responsible for Apple stores. More than 1 million are walking through Apple Stores everyday now. He was hired by J C Penney as their CEO, with the mission to revolutionise retail for JC Penney. So that was his job. He was one of the most admired executives in the retailing space for having done what he had at Apple. He tried to innovate retail for JC Penney and it turned out to be a disaster. I think sales were down 25-30% or so. And he didn’t run the experiment.
What happened?
He basically made an assumption of what the future of JC Penney retail should look like and he did away with discounts. He was very confident because he was right in the past. And turned out to be wrong. He should have taken some 20 stores and run randomised field trials. A lot of executives get hired for their expertise and they have a lot of confidence. If you were right ten times in the past. You believe that you will be right the 11th time as well. Sometimes its a curse if we are right all the time. Sometimes the kinds of things we learn in one context we may not be able to move it to another context, when the context changes.
No interview around innovation is complete without talking about Google. The company keeps doing many things, but other than there AdSense business nothing really has been a big money spinner.
That’s been making a lot of money.
Innovation should also lead to some profit. How do you explain the disconnect in case of Google?
I am no expert on Google. There are two ways to look at. One way to look at it is the way you describe it. They have got one business model essentially and they are trying all these things. None of it, at this point seems to be able to create another business model or another source of significant revenue for them. Another way of looking at it is that all the things they do drive more traffic towards them. I don’t know how much money they are spending on Google Glass. But that in itself is driving so much traffic to their site, which then increases the costs of the ads. They can probably pay for the whole project and more, just from the addition of the incremental traffic and the incremental ad revenue that one project created.
This makes tremendous sense…
When you use Gmail, you are actually giving them information. They can actually use it to place customised ads. Its the same thing with Android, which they give away for free. But by making Andorid available for free, its all on the mobile phones and gives them access to mobile phones, which then allows them to do ads on mobile phone. You can kind of see the whole logic. All these things ultimately lead back to their fundamental business model which is the ad model. I bet they are trying really hard to think of other ways at one level, but at another level they are probably thinking about an eco system that they are trying to create that ultimately drives people back into the ad space, and gets more information about them.
So basically they won’t allow any other search engine to come up…
They won’t want to do that. Of course not. They want traffic. The worse thing that can happen to them is traffic going somewhere else and the ad revenue falling .The whole business model will go away.
The interview originally appeared in the Forbes India magazine dated November 15, 2013 with a different headline
“ India should have been after Pakistan to start talking after 26/11”
Vivek Kaul
Stuart Diamond has taught and advised on negotiation and cultural diversity to corporate and government leaders in more than 40 countries. For more than 90% of the semesters over the past 15 years his negotiation course has been the most popular at the Wharton Business School, based on the course auction. He is also the author of Getting More – How You Can Negotiate to Succeed in Work and Life. In this interview he speaks to Firstpost on why India and Pakistan need to negotiate, how the soldiers negotiate with tribal leaders in Afghanistan and why the lack of people skills is proving costly for technology firms.
What is the most important point in any negotiation?
Almost any negotiation worth doing with anybody, whether its a billion dollar deal, diplomacy or my kid wants an ice cream cone, is a high stakes negotiation to that person. So almost every negotiation that is done in the world begins as an emotional negotiation. When stakes are high people get emotional and listen less.
That’s a very perceptive point you make….
Hence, unless you deal with that in the beginning you are not going to get the response you like. Also, I’d like to point out that we have begun to study the cost of conflict i.e. the cost of not collaborating. It turns out that India is in a fair amount of trouble when it comes to this. Only 20% of the people in India, trust each other, 80% don’t. If India had the same amount of trust as Sweden, its GDP would be $95 billion higher, which is twice as much as the defence budget, ten times the education budget, fourteen times the health budget and equal to the entire budget shortfall. In addition to that it would have 38 million more jobs, which is twice the population of Mumbai. Therefore the lack of trust in this country is a significant social and economic issue.
Why would that be? Isn’t trust also a function the amount of equality in the country? Like you gave the example of Sweden. Sweden has one of the highest equality levels in the world…
I would phrase it differently. I would say that trust occurs when someone thinks you want to do something for them, even if you are unequal. It begins with the notion of do I care about them? For example, when we had terrorist attacks in Mumbai around five years back, that’s when India and Pakistan should have started talking non stop. That’s part and parcel of the problem, which is even if Pakistan wanted to stop talking, India should have been after Pakistan to start talking, because you cannot solve a problem by not talking. In other words, if we mistrust each other, that’s the time to start talking. So this is counter-intuitive to many people because it says that the less I trust you the more I need to talk to you.
Can you elaborate on that?
For example, instead of India threatening to clean out terrorist cells in Pakistan, and instead of Pakistan putting people on the border, India should say to Pakistan, do you like terrorism? If you don’t like terrorism, we don’t. You want us to be able to do something about it? Let’s start small. What’s the worse problem we can solve in the easiest way? How do we start? Have a discussion about it. As opposed to do it my way. Or I demand this. There needs to be discussion. Even my 11 year old son, when he breaks something on the floor, I don’t blame the floor, I say Alexander how can you prevent this from happening again? Even a 11 year old kid understands that. How do we fix the process?
Not many people would buy that argument these days…
So much time is being spent arguing over yesterday instead of fixing the process for tomorrow. Yesterday adds no value. It is done and you can’t fix it and you can’t do anything about it. Tomorrow is what we can add value to. Too many people are backward facing when they should be forward facing.
One of the interesting examples that I came across was where you allowed your son to watch Scooby Doo for every minute that he played the piano. What was that all about?
It was a trade. First of all life is about a trade. Even a relationship. Quid pro quo. If you don’t need each others needs, soon you won’t have a relationship. And parents expect kids to do things for nothing, when they themselves would never do things for nothing. I wanted to teach my child the value of the trade. I paid money for the piano. I knew he would grow out of Scooby Doo, but he still plays the piano.
What is the lesson?
I wanted to know what do we trade. It teaches people to be responsible. That’s a really good thing to be thinking about with kids and others. What do they value? It doesn’t have to be monetary. It can be something intangible. It can be a letter of reference.
Letter of reference?
Let me tell you an interesting story. About three months ago one of Google’s senior negotiators went to do a deal in the Southern United States where they doubled the fibre optics capacity. The first tranche cost $6 million and it closed two years ago. The vendor wanted $6 million for the second tranche. Instead of asking for a discount this Google negotiator said what can Google do for you? And the vendor said you can write us a letter of reference, so we could build our business.
That’s interesting…
The Google negotiator said fine we will do that. And then he said, what can you do for Google? The vendor decided to offer a discount to Google. And the vendor charged Google $6000 for an installation of $6 million, a 99.9% discount. This happened because they made the human connection and it wasn’t just about the money.
Can you give us another example of where an intangible played an important part in a negotiation?
My models are not only used by Google but by Special Operations in Afghanistan. If they make a connection with the tribal leaders, which may be something as simple as praising the fact that he(i.e. the tribal leader) was a war hero against the Soviets, the tribal leader will tell them where the bombs are buried and where the Taliban are. People say negotiations are complicated. No they are that simple. I like to watch kids negotiate. Kids are very simple. I am happy. I am sad. I am hungry. We are not getting along. A lot of what passes for negotiation is too complicated. Its just a conversation about what’s going on. The thing is it is not rocket science. But unless you know how to do it, it’s completely invisible. These tools are obvious when you see them, but are invisible unless you know them.
The Afghanistan example was interesting..
Let me give you another example. In Afghanistan, you have got tribal leaders interested in co-operating with the Allies. So, I teach the soldiers to say, think your kid is going to be sick next year? It takes some months to get medicines in Afghanistan. Your kid might die. We can get the medicine the same day. Who cares about that in your village? Whether they are a hard bargainer or a soft bargainer, it will be very hard for them(i.e. the tribal leaders) to turn down the alliance. So the more you can create a vision for someone, the more they are likely to buy in.
Any other example?
Here is one. Google wanted to put cigarette advertising and liquor advertising on cell phones. The legal department of Google did not want to do this because there was danger of kids getting access to it. We realised that whenever people think this is risky if you are more incremental you can be more persuasive. So then what was proposed was a limited experiment. We try with cigarette advertising in Britain and liquor advertising in the US for a small portion of the market and see if it can protected from under age people. Google would use that as a test to see how people self regulate. Google would be a leader in the industry as opposed to someone trying to get a heads up. So you can completely turn something around by being more incremental and by re-framing it in a way to capture the imagination of people.
In complicated situations do outsiders tend to be the best negotiators?
In fact, somebody without an emotional history is often the right negotiator. There are times when you can do it yourself but by the time it gets to a situation where the husband and wife are fighting with each other, you need a marriage counsellor. Before that point you can often do it yourself. But it is also true that sometimes the best negotiator with my wife is my son. So the right negotiator is the person who can make the best connection with the other side. The right negotiator is not the smartest, the most skilled and the most experienced. It might be the weakest member of your team.
That’s interesting. Can you give us an example?
I told this to the senior management of Morgan Stanley last month and they said that this flies in the face of a 100 years of investment banking experience. They are going to think of changing this. For 100 years, the most senior person did the negotiation. And that’s not often the right negotiator.
Because he has got too many things to do anyway. You need someone who does not come with a baggage…
Yes. Exactly.
“Men better do better at negotiations than women” you point out. Why is that?
And that’s only because men practice more. Women are instinctively better negotiators than men. They listen more. But they don’t practice enough and so they are not trained enough. And some training is better than no training. As soon as they get trained at negotiations they do very very well. In fact, 30% of the people in my classes are women and they get more than half the highest marks.
One of the things that you write about is that the lack of people skills is proving costly to technology firms…
Absolutely. I gave a talk four years ago to 400 people from Microsoft from the business development and legal departments. I started the talk by saying that this morning I googled Microsoft. I typed “Europe hates Microsoft”. Why did I get 10 million hits in a tenth of a second? I said you are thinking it costs you money because people don’t like you. People investigate you because they don’t like you. The notion is that it is not just about the technology, if people don’t like you they will find a way not to buy your products and services.
Hmmm. And that’s impacting technology firms?
The FBI in Washington tells me that they use Oracle. They hate Larry Ellison and they are trying to find a way to use something else. And of course if you have got $12 billion like Larry Ellison has, you can be an SOB, but the problem is when you get to an America’s Cup race, only two people show up, including you. So there are costs to that even if you can get away with it for a short period of time.
True…
Around 25 years ago I read a really an interesting quote from a treatise called The Myth of US Industrial Supremacy. though I am not sure of it.“There is no human organisation, institution or civilization, that cannot given enough time be ruined”. So I worry about it. However, powerful I am, if I make myself the issue over and over again, people are going to run away. The lack of people skills is the Achilles’ heal for the technology industry because it is not just about the technology. It is about how people feel about the technology.
The interview originally appeared on www.firstpost.com on October 1, 2013
(Vivek Kaul is a writer. He tweets @kaul_vivek)
How internet makes only a 'few' wealthy and destroys jobs
Vivek Kaul
In 1996, Kodak was ranked as the fourth most valuable brand in the world by Interbrand. In January 2012, it filed for Chapter 11 bankruptcy. A major reason for its fall was the inability of the company to go ‘digital’ fast enough.
Ironically it was an engineer at Kodak who invented digital photography. As Mark Johnson writes in Seizing the White Space – Business Model Innovation for Growth and Renewal“In 1975, Kodak engineer, Steve Sasson invented the first camera, which captured low-resolution black-and-white images and transferred them to a TV. Perhaps fatally, he dubbed it “filmless photography” when he demonstrated the device for various leaders at the company.”
Sasson’s new product was shown to the top bosses at Kodak. He was told “that’s cute – but don’t tell anyone about it.” The reason for the reluctance of the top brass to what would become digital photography was very simple. Kodak at that point of time was the world’s largest producer of photo film. And any camera that did not use photo-film was obviously going to be detrimental to the interests of the company.
So ‘Kodak’ missed the digital revolution despite having invented the digital camera. As marketing guru Al Ries wrote in January 2012 column, just after Kodak went bankrupt “In 1986, Kodak announced the development of the world’s first megapixel digital sensor small enough for a handheld camera, one that had 1.4 million pixels. In 1994, Kodak introduced the first digital camera under $1,000. Between 1985 and 1994, Kodak invested some $5 billion into digital research & development. As a result of its massive investments, Kodak holds more than a thousand patents related to digital photography. Kodak recently received, in patent-suit settlements, $550 million from Samsung and more than $400 million from LG Electronics.”
Despite being a pioneer in digital photography, the focus at Kodak was always on trying to sell ‘more’ photo-films. And that finally led to bankruptcy in the end.
The new face of digital photography is Instagram, a company which was bought by Facebook in 2012 for a billion dollars. Computer scientist and philosopher Jaron Lanier makes a very interesting point comparing Kodak and Instagram in his new book Who Owns the Future?
As he writes “Kodak employed more than 140,000 people and was worth $28 billion. They even invented the digital camera. But today Kodak is bankrupt. And the new face of digital photography has become Instagram. When it was sold to Facebook for a billion dollars in 2012, Instagram employed only thirteen people. Where did all those jobs disappear to? And what happened to all the wealth that those middle-class jobs created?”
So what makes Instagram so valuable, asks Lanier? “Instagram isn’t worth a billion dollars just because those thirteen employees are extraordinary. Instead, its value comes from the millions of users who contribute to their network without being paid for it. Networks need a great number of people to participate in them to generate significant value. But when they do, only a small number of people get paid. That has the net effect of centralizing wealth and limiting overall economic growth.”
And this is true not only for Instagram. Take the case of Google. It might be a great search engine but ultimately it’s the people (and not its employees) who are generating the content that Google helps throw up. What would Facebook be without the ‘time’ that people choose to spend on it? The same stands true for Twitter as well.
It is people like you and me who make these networks so valuable. As Lanier writes “An amazing number of people offer an amazing amount of value over networks. But the lion’s share of wealth now flows to those who aggregate and route those offerings, rather those who provide the ‘raw materials’…We want free online experiences so badly that we are happy to not be paid for information that comes from us now or never. That sensibility also implies that the more dominant information becomes in our economy, the less most of us will be worth.”
This concentration of wealth is one of the negative effects of the digital revolution. “The clamour for online attention only turns into money for a token minority of people, but there is another new, tiny class of people who always benefit. Those who keep the new ledgers, the giant computing devices that model you, spy on you, and predict your actions, turn your life activities into the greatest fortunes in history. Those are concrete fortunes made of money,” writes Lanier.
All that I have discussed till now stands true for music industry as well. It used to be a big industry until things started to go digital. “At one time, a factory stamped out musical discs and trucks delivered them to retail stores where salespeople sold them…There used to be a substantial middle class population supported by the recording industry, but no more. The principal beneficiaries of the digital music business are the operators of network services that mostly give away music in exchange for gathering data to improve those dossiers and software models of each person,” writes Lanier.
If all this wasn’t enough, the Moore’s law is still at work leading to negative consequences. As Lanier points out “The law states that chips get better at an accelerating rate…The technology seems to always get twice as good every two years or so…This means that after forty years of improvements, microprocessors have become millions of times better…As information technology becomes millions of times more powerful, any particular use of it becomes correspondingly cheaper…Moore’s law means that more things can be done practically for free, if only if weren’t for those people who want to be paid. People are the flies in the Moore’s law ointment. When machines get incredibly cheap to run, people seem correspondingly expensive.”
Lanier gives the example of printing presses and newspapers. “It used to be that printing presses were expensive, so paying newspaper reporters seemed like a natural expense to fill the pages. When the news became free, that anyone would want to be paid at all started to seem unreasonable. Moore’s Law can make salaries – and social safety nets – seem like unjustifiable luxuries,” writes Lanier.
The internet essentially destroys jobs, even though it ‘seems’ to make things more efficient.
The article originally appeared on www.firstpost.com on August 10,2013
(Vivek Kaul is a writer. He tweets @kaul_vivek)
Why Brand Obama trounced misbranded Mitt Romney
Al Ries is a marketing consultant who coined the term “positioning” and is the author of such marketing classics (with Jack Trout) as The 22 Immutable Laws of Marketing and Positioning: The Battle for Your Mind. He is also the co-founder and chairman of the Atlanta-based consulting firm Ries & Ries with his partner and daughter, Laura Ries. Along with Laura he has written bestsellers like War in the Boardroom and The Origin of Branding. In this interview he speaks to Vivek Kaul and analyses why brand Barack Obama emerged stronger than brand Mitt Romney.
How would you define the brand Barack Obama? What are the three characteristics that you would attribute to him?
Consistent. The three characteristics I would attribute to Barack Obama are (1) Consistency. (2) Consistency, and (3) Consistency. He took office promising “change.” And the major changes he promised include creating jobs, reforming the health-care system and reducing the deficits by increasing taxes on the wealthy. He has never wavered from these three basic principles.
Brand experts talk about a strong story accompanying a brand. What do you think is Obama’s story?
His story is his climb from poverty to a law degree from Harvard, our most-prestigious university. It includes his birth to a Kenyon father and an American mother, one black and one white. He is unique. Very few politicians have a story quite like Barack Obama. One exception is John McCain, who was defeated by Barack Obama in the 2008 Presidential elections. John McCain’s story is the five-and-a-half years he spent in Vietnam as a prisoner of war and the torture he endured. This created a tremendous amount of sympathy for him. But he lost the election because he was handicapped by the negative reaction to the eight years of the previous President, George W. Bush.
What are the right things that Obama did to build brand Obama in the run up to the elections?
His entire campaign was built around a single idea and he expressed it with a “two-sided slogan.” A two-sided slogan is like a two-sided knife. It cuts both ways. It says something positive about your brand and something negative about the competition.
Could elaborate on that?
Take “Believe in America,” Mitt Romney’s slogan. It’s a nice thought, but it’s a one-sided slogan. It says something positive about Mitt Romney, but what does it say about his opponent?
That Barack Obama doesn’t believe in America? A country that educated him at Harvard. A country that elected him to the Senate and the Presidency. A country that made him wealthy and world famous. Barack Obama doesn’t believe in America? Highly unlikely.
What does Obama believe in? The number one issue among voters is “jobs,” but he couldn’t claim much progress on this issue because of the economy. His best approach was to plead for more time to “finish the job.” So he used the slogan “Forward.”
And what did that imply?
His “Forward” slogan implied that Republicans want to go backwards to policies that failed in the past. Forward is a great slogan because it cuts both ways. This makes two in a row for Barack Obama. His 2008 slogan, “Change we can believe in,” was also a two-sided slogan. With the Republicans in power, John McCain couldn’t exactly advocate “change,” because that would offend his base. The best he could do would be to imply that he would do the job “better than Bush.”
What are the things that went wrong for Obama?
Nothing. The American economy is in bad shape. Deficits are enormous. The Republicans should have won in an easy election, but their marketing strategy was bad.
Which is the brand that you think comes closest to brand Obama?
Virgin might come close because it’s a brand associated with Richard Branson, a unique individual with many stories.
When it comes to brand names the brand name Obama is fairly different from the usual. How does that work/not work?
What many companies forget is that a brand name should be “unique and different.” The biggest mistake companies make is trying to create a brand name that says something about the product or service they are offering. A typical example is “Seattle’s Best Coffee,” a high-end coffee chain launched in America. But the competitor was Starbucks, a unique and different name unrelated to coffee. Starbucks is a far better name than Seattle’s Best Coffee, which is a generic name. Ask people, What is Seattle’s Best Coffee? And they are likely to say, Starbucks.
Could you give us another example from business to substantiate your point?
Google is a typical example. When you start with a unique name without any specific meaning, you can make the name mean whatever you want it to. Yesterday, Google meant nothing. Today, Google means “search” and it’s become one of the most valuable brands in America. On the stock market today, Google is worth $220.1 billion.
How would you define the brand Mitt Romney? What are the three characteristics that you would attribute to him?
Romney is a “business” leader and the attributes voters attribute to him are all based on his business experience. Businesses should (1) Make money. (2) Reduce expenses. (3) Avoid taxes legally.
What is that made brand Romney attractive to the white American male? And what is it that made him unattractive towards everyone else?
The white American male is focused on becoming a business success. He expects to work hard and be rewarded when his hard work pays off. The white American male resents having to share the rewards of his hard work with the government in the form of higher taxes. Women are more family oriented. They don’t mind sharing with less-fortunate individuals. That’s why many of them voted for Barack Obama.
Which is the brand (or even brands) of a product or a service that you think comes closest to brand Romney? And why?
You could list almost every American corporation from IBM to Microsoft. The general perception is that companies want to increase profits, reduce expenses and find a way to avoid taxes (legally.)
You have always said that marketing and branding are all about focus. So who do you think had more focus Obama or Romney? And why?
Barack Obama was focused on just one thing: “Let me finish the job.” That idea was expressed in his slogan “Forward.” Mitt Romney was focused on attacking Obama for the lack of jobs and the high deficits. All true, of course, but that’s a losing political strategy. A politician needs to first have a “positive” focus. I think Mitt Romney should have focused on his business experience and then used a slogan like “Let’s run the government like a business.”
I was reading somewhere that both Obama and Romney employed a technique called brand hijacking in the elections. People who type one candidate’s name into Google’s search box in some markets have seen ads for his opponent. A search for “Barack Obama,” for instance, has yielded ads for Romney, while entering “Mitt Romney” has resulted in ads for Obama. Romney has used a similar tactic on Facebook. How does that help? Would you advocate something like that in the future?
I would not advocate something like this. While it might be effective with some people, it might turn off others.
What are the branding mistakes that Romney make? How difficult was it to beat an incumbent President who was struggling with the economy and most of everything else?
Mitt Romney spent most of his time attacking Barack Obama. That’s the wrong strategy. What a politician needs to do is to offer a positive concept first (business experience) and then point out that his or her opponent lacks this concept. (Barack Obama has never worked in the private sector). It should have been easy to beat an incumbent President with his track record.
I was reading an article on Fast Company and it said “politics, after all, is about marketing — about projecting and selling an image, stoking aspirations, moving people to identify, evangelize, and consume.” Would you agree with something like that and why?
Absolutely. It’s all about perceptions, not reality. That’s what marketing is all about, creating positive perceptions in the minds of consumers.
What are the branding lessons that companies can learn from Obama’s successful campaign?
Years ago, Bill Clinton became famous for running a campaign which his consultants dubbed: “It’s the economy, Stupid.” Today, a company should adopt something similar. It’s what I call the KISS approach. “Keep it simple, Stupid.”
The article originally appeared on www.firstpost.com on November 8, 2012. http://www.firstpost.com/world/why-brand-obama-trounced-misbranded-mitt-romney-518734.html
(Vivek Kaul is a writer. He can be reached at [email protected])
‘Chance played a big role in the survival and success of Manchester United’
Paul Ormerod is the author of the bestselling The Death of Economics, Butterfly Economics and Why Most Things Fail. Most recently he has written Positive Linking – How Networks Can Revolutionise the World. “We are increasingly aware of the choices, decisions, behaviours and opinions of other people. Network effects – the fact that a person can and often does decide to change his or her behaviour simply on the basis of copying what others do – pervade the modern world,” writes Ormerod.In this interview he speaks to Vivek Kaul on why a small number of people can exercise a decisive influence on an eventual social or economic outcome, why copying others is a rational way to work in this world and why the football club Manchester United may have simply been lucky to get where they have.
What is positive linking?
It is basically the principle that ‘to him that hath, more shall be given’. The fact, for example, that a particular brand of smart phone has been selected by one of your friends makes it more likely that you yourself will make the same choice. It doesn’t mean that you will definitely make the same choice, but the more of your friends who have chosen the same phone, the more likely it is that you will.
You suggest that a relatively small number of people can exercise a decisive influence on an eventual social or economic outcome. Could you explain that through examples?
This is one way in which positive linking can work. It is by no means always the case that this the process by which people are influenced. Often, the way in which behaviour spreads is through ‘friends of friends’ networks, in which no single person has a strong influence. Ideological or religious movements are ones in which a small number of people often exercise decisive influence. Think, for example, of Hitler in Germany, or Osama bin Laden in our own times. But these ‘influentials’ can be found in other situations. For example, Gene Stanley and colleagues at Boston University found that the distribution of the number of sexual partners across a sample of individuals essentially had this structure. Most people had relatively few, and a small number had very many indeed. This latter group exercise a decisive influence on the spread of sexual diseases.
You write “we have inherently less control over situations in which network effects are important than we would like”. What is a network effect?
A network effect is a very important example of positive linking. Network effects, the fact that a person can and often does decide to change his or her preferences simply on the basis of what others do, pervade the modern world. This concept is just as crucial for companies and markets as it is for people. In September 2008 Lehman Brothers went bankrupt, precipitating a crisis which almost led to a total collapse of the world economy and a repeat of the Great Depression of the 1930s. It was precisely because Lehman was connected via a network to other banks that made the situation so serious. Lehman’s failure could easily have led to a cascade of bankruptcies across the world financial network, first in those institutions to which Lehman owed money, then spreading wider and wider from these across the entire network.
Why does network effect lead to less control?
A key point about network effects is that there is inherent uncertainty about how far any given effect will spread. We have some guidelines about what determines this. So, for example, if a person adopts a new product, and the people in his or her social circle are easily persuadable, it is likely that some of them will adopt it as well. But if it is hard to get them to try new things, they will not. In the former case, there is a chance that the product will get taken up on a large scale, in the latter it will not. But in any practical situation we simply cannot gather the incredibly detailed information which would be required in order to know for certain what the impact will be. We need to know the exact structure of the relevant network, who influences whom. And we need to know the degree of persuadeability of everyone in the network. We can get approximations to these, but we cannot know them for certain.
What is preferential attachment ?
Preferential attachment describes a particular way in which a person might copy the choices which others have made. Given a range of alternatives, he or she will choose between them with a probability equal to the proportion of times each alternative has been selected by others. So you are more likely to select the most popular choice, simply because it is the most popular.
Could you elaborate on that?
The basic idea is straightforward. Suppose there are just three choices available to you, whatever these may be, and you are wondering which one to select yourself. One has been already chosen 6,000 times, one 3,000 and the final one just 1,000 times, making a total of 10,000 altogether. If we assume for purposes of illustration that the only rule of behaviour you are using when making your choice is that of preferential attachment, the rule says the following. You may actually choose any one of the three alternatives. But you are twice as likely to select the most popular rather than the second most popular, and six times as likely to choose this as the least popular. You are paying no attention to the attributes, to the features of the three alternatives.
Any examples of this phenomenon?
Thetop three sites which are followed up on a Google search typically reflect exactly this pattern. The three of them get almost 100 per cent of the subsequent hits after the search, and the top one of them all gets 60 per cent of the total.
You say copying the best policy in this day and age. Why is that?
We are faced with a vast explosion of such information compared to the world of a century ago. We also have stupendously more products available to us from which to choose. Eric Beinhocker, formerly at McKinsey, considers the number of choices available to someone in New York alone: ‘The number of economic choices the average New Yorker has is staggering. The Wal-Mart near JFK Airport has over 100,000 different items in stock, there are over 200 television channels offered on cable TV, Barnes & Noble lists over 8 million titles, the local supermarket has 275 varieties of breakfast cereal, the typical department store offers 150 types of lipstick, and there are over 50,000 restaurants in New York City alone.’
That’s quite a lot…
He goes on to discuss stock-keeping units – SKUs – which are the level of brands, pack sizes and so on which retail firms themselves use in re-ordering and stocking their stores. So a particular brand of beer, say, might be available in a single tin, a single bottle, both in various sizes, or it might be offered in a pack of six or twelve. Each of these offers is an SKU. Beinhocker states, ‘The number of SKUs in the New Yorker’s economy is not precisely known, but using a variety of data sources, I very roughly estimate that it is on the order of tens of billions.’ Tens of billions!
So what does it tell us?
The customer has tens of billions of options to choose from. Compared to the world of 1900s the early twenty first century has seen a quantum leap in the number of choices available. And rather obviously the time taken to evaluate and choose rises with the number of choices. Many of the products available in the twenty-first century are highly sophisticated and are hard to evaluate even when information on their qualities is provide. Take the case of mobile tariffs that are available in the market. How many people can honestly say that they have any more than a rough idea of the maze of alternative tariffs which are available on these phones? The range and complexity of choice are so vast that the only way in which people can cope is by adopting behavioural rules which spectacularly reduce the scope of choices available to them. This is the key reason that ‘copying’ has become the rational way to behave, the rational way to make choices in the twenty first century. The word ‘copying’ is , I should stress being used as a shorthand description of the mode of behaviour in which your choice is influenced, altered, directly by the behaviour of others.
How much difference can the copying motive make to the outcome?
It can make a huge difference. Duncan Watts, a professor at Columbia, ran some experiments in 2006 and published the results in Science, probably the world’s top scientific journal. He set up an experiment where a student could listen to 48 songs, and download for free any which he or she wanted. A number of students carried out this experiment. The end result was that the most downloaded songs were about three times more popular then the least. The experiment was repeated, with just one difference. The student was told the number of previous downloads which each song had. The impact was huge. This time, the most popular songs were over 30 times more downloaded than the least popular. A few songs got lots of downloads, most got very few. In addition, the connection between quality and success was very weak. As Watts noted ‘The best songs rarely did poorly, and the worst rarely did well, but any other result was possible.’
You talk about economist Brian Arthur’s urn experiment. Could you tell our readers about it?? What is the practical significance of this experiment?
This seemingly abstract piece of work has great practical significance. It is another way of illustrating why the Watts’ experiments have the outcomes which they do. Arthur’s initial work was on a highly abstract concept in non-linear probability theory, something called Polya urns. Imagine we have a very large urn containing an equal number of red and black balls. (The colours are immaterial.) A ball is chosen at random, and is replaced into the urn along with another ball of the same colour. The same process is repeatedly endlessly. Within this enormous urn, can we say anything about the eventual proportions of red and black balls which will emerge? They start off with a 50/50 split. Can we say how this split will evolve?
Can we?
Indeed we can. Arthur and his colleagues showed that as the process of choice and replacement unfolds, eventually the proportion of the two different colours will always – always – approach a split of 100/0. It will never quite get there, because at the start there are balls of each colour, but the urn will get closer and closer to containing balls all the same colour. The trouble is, we simply cannot say in advance whether this will be red or black. Arthur’s equations also show that the winner emerges at a very early stage of the whole process. Once one of the balls, by the random process of selection and replacement, gets ahead, it is very difficult to reverse.
So what is the practical implication of this?
Suppose a new technology emerges. No one really knows how to evaluate the various products associated with it. The principle of copying seems entirely rational. Someone makes a choice. In the abstract model, this is the extraction at random of a ball from the urn. The fact that brand A has been chosen rather than brand B tilts ever so slightly the possibility that the next choice will also be A rather than B – this is the replacement rule in Arthur’s model. And so the process unfolds. In practice, of course, as one of the brands gains a lead over its rival, factors other than consumer copying will come into play and reinforce its dominance. There will be positive feedback, positive linking, so that success breeds further success. The more successful brand may be able to advertise more, for instance. Retailers will give more shelf space to it, and may even, in the splendid language of retailers, delist its rival, so that it becomes harder and harder to obtain. Technologies and offers which piggyback on the brands – think of apps and iPhones here – become increasingly designed to be compatible with the number-one brand.
You write “the most popular , the most successful, the biggest, does not stay there forever”.
Success is self-reinforcing, but it does not last forever. Indeed, even as I write these words, the West’s press is full of speculation that Google may be about to go into decline. The most popular video on YouTube today is rarely the most popular tomorrow. The song which is at number 1 this week does not usually stay very long in this position. Over the entire period from 1952 to 2006, no fewer than 29,056 songs appeared in the Top 100 chart in the UK. Of these, 5,141 were in the chart for just a single week. Almost exactly a half stayed in for less than a month, so four weeks was the typical life span, as it were, of a song in the Top 100. In contrast, fifty-nine remained popular for more than six months. The typical life span at number 1 was just two weeks.
Any other example?
At the other extreme is the ranking of the world’s largest cities. Mike Batty, a distinguished spatial geographer at University College London, published an analysis of this in Nature in 2005. He begins his work with the largest US cities from 1790 to 2000. Over the 210-year period, 266 cities were at some stage in the top hundred. From 1840, when the number of cities first reached one hundred, only twenty-one remain in the top hundred of 2000. On average, it takes 105 years for 50 per cent of cities to appear or disappear from the top hundred, whilst the average change in rank order for a typical city in each ten-year period is seven ranks.
How important is the element of chance and randomness in any successful enterprise or outcome?
In a world where network effects, where positive linking exists, chance and randomness are important. A lucky early break sets up positive feedback. Once you or your product have been selected, it makes it more likely that you will be chosen again in future. It is easy to see now, for example, why Manchester United are so successful. They possess global brand recognition and can attract massive sponsorship. But this was not always the case. Chance played a big role in their very survival, and in their subsequent success.
How was that?
Manchester United started life as essentially the works team of the Lancashire and Yorkshire Railway company, based in – and called – Newton Heath, then as now a poor district in the eastern part of the city. Just over 100 years ago, Newton Heath were served with a winding-up order. A consortium of local businessmen paid what in today’s money is around £750,000 to rescue the club, and changed its name to Manchester United. Despite some fleeting success, the club languished. In 1931 they were effectively bankrupt again and were rescued even more cheaply than before: for some £400,000 in today’s money. Yet in 2011, the value of Manchester United is of the order of £1 billion!
And chance had a role to play in it?
Chance elements also played a role in United’s subsequent success. Just before the end of the Second World War, the club offered the position of manager to Matt Busby, a man who built not one, not two, but three extremely successful teams during the course of his career. But Busby’s appointment itself was to a considerable degree one of chance. Thirty miles to the west of Manchester lies its great rival, the city of Liverpool. The antipathy between Manchester United and Liverpool FC, the second most successful English team ever, is intense. No player has been transferred directly between the two since 1964. Yet Busby almost joined Liverpool, who had been courting him for some time. The clincher appears to have been that Busby was friendly with a member of the United board through their membership of the Manchester Catholic Sportsman’s Club.
The interview originally appeared in the Daily News and Analysis on October 29,2012. http://www.dnaindia.com/money/interview_chance-played-a-big-role-in-the-success-of-manchester-united_1757253
(Vivek Kaul is a writer. He can be reached at [email protected])