“When you expand your brand, you weaken your brand”

laura visual hammer

Laura Ries is a leading marketing strategist, bestselling author and television personality. In 1994, Laura founded Ries & Ries, a consulting firm with her father and partner Al Ries, the legendary Positioning-pioneer. Together they consult with companies around the world on brand strategy. With Al, Laura is the co-author of five books on branding that have been worldwide bestsellers. Her first solo book was Visual Hammer. Her latest book Battlecry was published in September 2015. In this interview she speaks to Vivek Kaul.


In the foreword to your new book Battlecry, Al Ries writes that “over time, companies drift sideways. They get into many different businesses and lose their focus.” Can you give us a few examples.

There are so many, but here are a few. Yahoo was the leading search engine, at one time worth $120 billion on the stock market. Then Yahoo turned itself into a “portal” by adding a host of new services. Yahoo Mail, Yahoo Games, Yahoo Groups, Yahoo Pager, etc.
Those additions allowed Google to move in and dominate the search market. Today, Yahoo is worth only $29 billion on the stock market and most of that value is due to its investment in Alibaba stock. (Google is worth $428 billion on the stock market.)

Any other examples?

Dell was once the largest maker of personal computers with 17 percent of the global market. Today, Dell has fallen to third place with 13 percent. Dell stock once sold for $60 a share. Two years ago, was Dell bought out by a private-equity firm for $13.75 a share.

What caused Dell to collapse?

Expansion. Dell once sold computer direct to businesses. That was it. Then Dell started selling to the consumer market, including such products as television sets, digital audio players, computer printers and smartphones. The company also made many acquisitions in such areas as storage, services, data centers, security, virtualization, networking and software. In the three years from 2009 to 2012, Dell spent $12.7 billion on 18 acquisitions.

IBM, General Electric and a host of other companies have tried to expand their businesses by introducing many new products and services. Today, these and other companies have gotten smaller, not larger.

Why does this happen?

Because when you expand your brand, you weaken your brand.      

How do you correct this mistake at the branding level?

First of all, a company should narrow its focus so it stands for something. Dell once stood for “Personal computers sold direct to business.” What does Dell stand for today? Nothing. As a result, Dell has to sell its products and services based on low prices.

Years ago, Dell had a powerful slogan. “Direct from Dell,” a slogan that implied that companies could save money by buying their PCs from Dell’s website. Furthermore, the slogan was memorable because it used “alliteration,” one of the five techniques mentioned in my Battlecry book that can increase memorability.

What is Dell’s slogan today?

“Better technology is better business.” That’s a generic slogan that could apply to any company.

Why is a narrow product line better than a broad product line? Because a narrow product line is needed to build a powerful brand.

Can you give us an example?

Take Subaru, a Japanese automobile brand. In the American market in the year 1993, Subaru sold 104,179 vehicles, but the company lost $250 million on sales of $1.5 billion. So a new president was hired. The new president found that 48 percent of Subaru’s sales were four-wheel-drive vehicles and 52 percent were two-wheel-drive vehicles.

So what did he do? He decided to focus on four-wheel-drive vehicles only. Sales declined the first two years, but then they took off. From 104,179 vehicles in 1993 to 515,693 vehicles in 2014, an increase of 393 percent. (The total automobile market in those 21 years increased only 19 percent.) In 1993, Subaru was the ninth-largest Japanese vehicle brand in the American market. Today, Subaru is the fourth largest, trailing only the big three: Toyota, Honda and Nissan.

So what is the moral of the story here?

It’s hard to find cases like Subaru because most brands are taken in the opposite direction. Companies expand their brands; they don’t contract them. That’s logical, but that’s not good marketing strategy.

Why do companies like formal words in their marketing campaigns? You recommend colloquial expressions. Why? A few examples would be great.

Formal words like “motion picture” sound important. But consumers invariably use shorter words like “movies.” Or “TV” instead of “television.” Or “SUV” instead of “sport-utility vehicle.”

One of the most-famous charities in America, organized by the United States Marine Corps, collects toys for children at Christmas time. Instead of calling the charity “Toys for Children,” they called the charity “Toys for Tots,” a colloquial expression that is also alliterative.

You also talk a lot about abstract words. Can you tell us a little bit about that and how they hurt a marketing campaign?

You have two brains. A left brain which handles words and a right brain which handles visuals. The right brain is also the site of your emotions. There are also two kinds of words, abstract words and specific words. “George Clooney” are specific words. “World-famous movie star” are abstract words.

So?

Both abstract and specific words are processed in the left brain. But specific words like George Clooney also conjure up images in your right brain, the emotional half of your brain. Emotion is the biggest, single, memory stimulant. What events do you remember the most? The day you graduated from college. The day you got married. The day you had your automobile accident. These “emotional” events are also visual. You can never forget them. That’s why slogans using specific words are much more memorable than slogans using abstract words.

Can you give us an example?

“The ultimate driving machine” made BMW the world’s largest luxury-vehicle brand. BMW could have said “The ultimate performance machine,” a broader and more inclusive slogan.

But “driving” is a word that can be visualized. (Two hands behind the wheel.) But “performance” cannot.               

What is the difference between slogans that consumers remember and the ones that they don’t? How is related to the concept of Battlecry?

Two things make a slogan memorable: Money and memory-enhancing techniques. If you have enough money (and enough time), you can make any slogan memorable. “Just do it,” the Nike slogan, is memorable because Nike has spent billions of dollars to promote it over the past 27 years.

But most companies don’t have the resources of Nike. Nor do they have the time. What can they do?

They need to consider one of these five memory-enhancing techniques.

(1) Rhyme. Folgers became the No.1 coffee brand in America by focusing on breakfast with the slogan: “The best part of waking up is Folgers in your cup.”

(2) Alliteration. M&Ms became a leading candy brand by focusing on a feature of the brand with the slogan: “Melts in your mouth. Not in your hands.”

(3) Repetition. Federal Express, an air-cargo carrier, entered the American market to compete with the market leader, Emery Air Freight. FedEx (the current name of the company) decided to focus on overnight delivery. They could have said, “The overnight carrier.”

Instead, they used repetition to create memorability. “When it absolutely, positively has to be there overnight.” Within a few years, FedEx became the leader in the category.

(4) Reversal. Secret became the leading antiperspirant/deodorant for women with a simple reversal slogan: “Strong enough for a man, but made for a woman.”

(5) Double-entendre. This is perhaps the best way to create a memorable slogan. The two meanings contained in a single slogan oscillate back and forth in your mind, thereby creating memorability.

Can you give us an example?

“A diamond is forever” is a typical example. A diamond (the hardest substance known to man) can presumably last forever. A love symbolized by a diamond can also last forever, too.

You write: “Apple is an enormously successful company…But it wasn’t because of abstractions like “Designed in California”.” What is it that you are trying to say here?

Even successful companies can fall into the trap of using grandiose, abstract words instead of down-to-earth specific words. Apple’s “Designed in California” campaign had exceptionally-low viewer ratings and was discontinued within a year.

Three successful brands made Apple the world’s most-valuable company. And they all used specific words or concepts in their introductions.

The iPod: “A thousand songs in your pocket.”

The iPhone: “The first touchscreen smartphone.”

The iPad: “The first tablet computer.”

Yet when Apple introduced the Apple watch, the company did not try to position the brand with specific words on concepts. Many people, including me, think the Apple watch will not turn out to be nearly as successful as the three brands that came before it.  A sign of trouble ahead: Apple regularly provides data on iPhone sales, but refuses to disclose Apple watch sales.

Why are companies in love with the word “innovation”?

“Business has only two functions,” wrote Peter Drucker, “Marketing and innovation.”

Innovation, like many other abstract words, is both important and useless. Important in business and useless in marketing.

Inside a company, management should focus on innovation. Long-term, a company cannot be successful unless it is innovative. When it communicates to prospects on the outside, however, it should forget about innovation. That’s inside-out thinking. Instead, companies should practice “outside-in thinking.” Start with the mind of the consumer and try to fill an open hole in the mind. “Innovation” is a typical abstract word that has no real meaning for consumers. Instead, a company should look at its innovative product and try to express that innovation in specific words like “The first touchscreen smartphone.”

But that doesn’t seem to be happening…

Many, many companies, however, continue to try to pre-empt “innovation” in their marketing slogans. Some recent examples:
ASUS: Inspiring innovation. Persistent perfection.

Bosch: We bring innovation.

Firestone: A tradition of innovation.

Ford: Driving American innovation.

NEC: Empowered by innovation.

Nissan: Innovation that excites.

Siemens: Global network of innovation.

Toshiba: Leading innovation.
It’s highly unlikely that consumers will associate the word “innovation” with any of these companies. They will, however, associate “innovation” with Apple because Apple had launched innovative products with specific slogans.

How can a slogan provide protection from future competition?

A slogan can build a brand. And a strong brand is the best protection a company can have from future competition.

How do you build a brand that will last a lifetime?

There are four critical steps.

Step one: Be first in a new category. Coca-Cola, introduced in 1886, was the first cola. It’s still the leading cola today, 129 years later.

Step two: (Which isn’t a step at all, but it’s the most important thing you can do.) Don’t line-extend the brand. Keep the brand focused on its category. If you want to introduce another product or service, use a different brand name.

Step three: Create a slogan that communicates your leadership. Coca-Cola is widely known as “The real thing.” That’s the slogan the brand should be using because it communicates the fact that Coca-Cola is the original, the authentic cola.

Step four: Hammer the slogan with visual hammer. In Coca-Cola’s case, it’s the contour bottle which the brand has been using extensively.

You just talked about a visual hammer. Can you explain that in a little more detail?

The objective of a marketing campaign is to “own a word in the mind.” But the best way to own a word is to find a visual that can hammer that word in the mind. Marlboro was the first cigarette targeted to men only. But to drive that idea in the mind, Marlboro used a cowboy. The cowboy is the visual hammer that made Marlboro the world’s best-selling cigarette.

Corona beer is the only Mexican brand that has made Interbrand’s annual list of the 100 most-valuable brands in the world. How did Corona achieve this? With a lime. When Corona was introduced in the American market, the importers insisted that the beer be served with a lime on top of the bottle. (America is a lemon country. Mexico is a lime country.) The lime communicated the fact that Corona was the authentic Mexican beer.

The interview originally appeared in the Forbes India magazine             

What Nokia could have done to prevent its fall

nokia-logo Vivek Kaul  
Companies like human beings have a limited lifespan. Professor Richard Foster of the Yale University estimates that the average lifespan of a company listed in the S&P 500 in the United States is only around 15 years now. This has fallen from around 67 years in the 1920s.
Why has the lifespan of companies shortened so dramatically in the last 100 years? Marketing guru Al Ries and his daughter Laura have an explanation in their book War In the Boardroom. As they write “The biggest mistake of logical management types is their failure to see the rise of a new category. They seem to believe that categories are firmly fixed and a new one seldom arises.”
The most recent example of this phenomenon is Nokia. The company was the largest seller of mobile phones in the world until Samsung overtook it in 2012. Even now it sells nearly 15% of the world’s mobile phones, but has only 3% share in the lucrative smart phone category.
Despite being the largest player in the market, Nokia did not see the rise of smart phones. In fact, this lack of foresight allowed brands like Micromax and Karbonn to rise in the Indian market. Nokia’s failure is not surprising, given that the history of business is littered with many such examples. RCA, America’s leading radio company, did not see the rise of battery powered pocket transistors which were first made by Sony in 1955. Sony changed the way the world heard music by launching the Walkman and the CDman. But it handed over the digital music player market on a platter to Apple and other companies.
Some of the biggest minicomputer companies did not see the rise of the personal computer. None of the big airline companies around the world thought there was a market for low cost airlines, until Southwest Airlines walked away with the market.
Closer to home, Hindustan Lever (now Hindustan Unilever) did not believe that there was a market for a low cost detergent. Nirma captured that market, though to its credit Hindustan Lever fought back brilliantly with its Wheel brand. Bharti Beetel, changed the entire landline market in India by selling phones which had buttons on them. But by the time it entered the mobile phone market it was too late.
So why do established companies fail to see the rise of a new category? Clayton Christensen, a professor at the Harvard Business School has offered an explanation for this, in the research that he has done over the years. Established companies have a way of doing things (their existing resources, processes, profit model, value proposition they offer and so on). Anything new that comes along threatens that status quo.
Take the case of Sony. The rise of digital music threatened the vast music catalogue that the company owned. And if it launched a digital music player, people would simply copy music instead of buying it. Kodak was the first company to make a digital camera. But it did not take the concept seriously because any camera that did not use “photo films”, threatened the ‘existing’ business model of the company.
What also happens at times is that the initial market is too small. Smartphones have been around since the late 1990s, but they only took off in the last few years. This ensured that Nokia did not take the new category too seriously because there was money to be made elsewhere.
Christensen feels that the only way big companies can be serious about the rise of new categories is to create a separate organisation within the organisation. He gives the example of IBM, which was the only big company around to benefit from the rise of the personal computers(PCs).
IBM set up a separate organisation in Florida, with the mission to create and sell PCs successfully. The organisation had its own engineers and its own sales channel, and thus did not threaten IBM’s existing way of doing things. When minicomputers went totally out of fashion in the late 1980s, IBM was the only big company around to compete in the PC market.
The moral of the story is that big companies in order to survive need to keep making small bets, which are not a part of the existing organisational set up, and see what works.
The column originally appeared in the Business Standard Strategist dated November 11, 2013
(Vivek Kaul is the author of Easy Money (Sage, 2013). He can be reached at [email protected])

Luck vs Pluck: The man who could have been Bill Gates

Michael J. Mauboussin is Chief Investment Strategist at Legg Mason Capital Management in the United States. He is also the author of bestselling books on investing like  Think Twice: Harnessing the Power of Counterintuition and More Than You Know: Finding Financial Wisdom in Unconventional Places. His latest book The Success Equation: Untangling Skill and Luck in Business, Sports, and Investing (Harvard Business Review Press, Rs 995) has just come out.In this freewheeling interview with Vivek Kaul, he talks about the link between success and luck and how at times it is difficult to separate one from the other. The interview will appear in two parts. This is the first part.

 

The first line in your book goes “my career was launched by a trash can”. Can you take our readers through that story?
When I was a senior in college, I didn’t really know what I wanted to do with my career, but I knew I needed a job. Drexel Burnham Lambert, an investment bank that was very successful at the time, came on campus to interview and I did well enough to be invited to New York City for a final round. So I put on my best suit and made the trip.
The day of the interviews, we candidates were told that we would have six long interviews and just 10 minutes with the executive who ran the division. My interviews went fine, and then it was my turn to meet with the executive. Upon walking into his office, I noticed that he had a trash can that carried the emblem of the Washington Redskins, a professional American football team. Being a sports fan and having spent my last four years in Washington, D.C., I complimented him on the trash can. That comment hit in an emotional spot, and he launched into a discussion of his time in D.C., the virtues of sports, and the link between athletics and business. I sat and nodded, as 10 minutes stretched to 15.
You got the job?
I got the job, and accepted it. Indeed, my time at Drexel Burnham was extremely formative. After about six months into the program, one of the leaders pulled me aside. “You’re doing fine in the programme,” he started, “but I have to tell you something. The six interviewers voted against hiring you. But the top guy came down and insisted that we bring you in. I don’t know what you said, but it sure worked.” So I like to say that my career was launched by a trash can, and that was pure luck.
What was the broader point that you were trying to make through that example?
The broader point is that luck permeates many aspects of our lives and we’re frequently unaware of its role. So this book is about skill and luck, and includes the definition of each term, tools and methods to quantify the role of each, and what to do about it.
“Most of the successes and failures we see are a combination of skill and luck that can prove maddeningly difficult to tease apart,” you write. Can you explain that in detail?
I open a chapter with the story of an entrepreneur who was born near Seattle who was a brilliant programmer and wrote code that effectively launched the personal computer revolution. He started a company that by 1980 had a dominant market share in the software that ran on the Intel chip. But the company’s fate was sealed in 1981 when IBM came calling and sealed a deal.  Now if you know a little about Bill Gates, you can see how that series of facts fits him pretty well. But then I share the end of the story: this tech pioneer walked into a bar in California in 1994 and hit his head bluntly as a result of a fight or a fall—the details were never clear. He died three days later. His name was Gary Kildall, and he has a floppy disk etched on his tombstone. Chances are you’ve never heard of Gary Kildall but you have heard of Bill Gates.
That’s very interesting…
When IBM executives first approached Microsoft about supplying an operating system for company’s new PC, Gates actually referred them to Digital Research (Kildall’s company). There are conflicting accounts of what happened at the meeting, but it’s fairly clear that Kildall didn’t see the significance of the IBM deal in the way that Gates did.
And what happened then?
IBM struck a deal with Gates for a lookalike of Kildall’s product, CP/M-86, that Gates had acquired. Once it was tweaked for the IBM PC, Microsoft renamed it PC-DOS and shipped it. After some wrangling by Kildall, IBM did agree to ship CP/M-86 as an alternative operating system. IBM also set the prices for products. No operating system was included with the IBM PC, and everyone who bought a PC had to purchase an operating system. PC-DOS cost $40. CP/M-86 cost $240. Guess which won. But IBM wasn’t the direct source of Microsoft’s fortune. Gates did cut a deal with IBM. But he also kept the right to licence PC-DOS to other companies. When the market for IBM PC clones took off, Microsoft rocketed away from competition.
So what is the point?
The fact is, Kildall played his cards much differently than Gates did, and hence did well but enjoyed financial success vastly more modest than Gates. But it’s tantalizing to consider the possibility that with a few tweaks, Kildall could have been Gates.Now the book acknowledges that untangling skill and luck can be imperfect, but even some sense of the relative contributions of the two can really help you understand history and, more importantly, make better predictions of the future.
You write that “most people have a general sense that luck evens out over time. That may be true in the grand scheme of things. But the observation doesn’t old for any individual, and the timing of luck can have a large cumulative effect.” What do you mean by that? 
In some activities, the outcomes are largely independent: what happened before doesn’t affect what happens next. This is true, of course, in classic games of chance such as dice throwing or roulette wheels, but it also applies to relatively stable systems like sports. You can model the batting average of baseball players, for example, using a simple, independent model. In these cases, luck does tend to even out over time. In other activities, the outcomes are path dependent. What happens next is affected by what happened before. This is relevant in realms that are socially driven such as sales of books, music, and movies. That fact is if you ran the universe over again, it is very unlikely that the same products would be commercial smash hits. We know this through examining the results of some clever sociological experiments.
Can you explain it through an example? 
One example I give in the book is the income of college graduates. It turns out that men who graduate during times of relative prosperity earn more than those who graduate during more challenging conditions. That is not so surprising. What is more surprising is that that effect remains in place for 15 years (and perhaps more) following graduation. So two students of identical ability can have substantially different incomes over a long period by dint of when they graduated. So luck is not evening out in these cases. There is a large cumulative and apparently irreversible effect.
Why do we vastly underestimate the role of luck in what we see happening around us?
Especially when social processes are at play, it’s really hard to know how things are going to unfold. In other words, luck is a very large variable. You often hear executives in the entertainment industry lament how hard it is to manufacture hits. And that is true. When social processes are at play, there’s an inherent lack of predictability and generally high inequality.
Any examples?
One story that captures this is that of a young singer named Carly Hennessey. Music executives were looking for the next Brittney Spears, and Hennessey had everything they were looking for—a great voice, charisma, and drive. They spent millions on her first album, which ended up a commercial flop. In the first three months the album sold a grand total of 378 copies, earning less than $5000. There is simply no easy formula to predict success. The flipside is true as well. When Michael Eisner, then CEO of Disney, saw the pilot of the show “Lost,” he gave it a 2 on a scale from 1 to 10, with 10 being the highest. He later called it “terrible.” But “Lost” was a huge success and was very profitable for Disney. When the top executive at Disney has no idea what’s going on, it’s easier to accept that it’s really hard to anticipate hits.
Why are we so bad at distinguishing luck from skill?  
There’s a module in your left hemisphere that neuroscientists call “the interpreter.” Its job is to create a narrative that explains cause and effect. For most of mankind’s existence, cause and effect was a pretty straightforward affair: a rustle in the bushes likely signaled danger, for instance. This module has conferred extraordinary advantage, and some scientists argue it is at the core of what distinguishes humans from other species. Now, here’s the fascinating component. Studies of split-brain patients reveal that the interpreter will fabricate a cause whenever it sees an effect, even when the cause makes no sense. For example, researchers would feed information into the right hemisphere—largely absent of language—and ask the subject to explain what is going on. Since the hemispheres in these subjects are severed, there’s no way to communicate. The interpreter simply makes up a story.
So here’s the answer to your question. The interpreter doesn’t know anything about luck. When it sees an effect, it searches for a plausible cause. Once a cause is found, your mind puts the issue to rest. In fact, you start to believe your own story and dismiss any other possibility, a concept psychologists call “creeping determinism.” So once something has happened, we tend to grossly underestimate the role of luck.
Could you give us an example?
I’ll mention quickly a paper by Professor Andrew Lo at MIT. He studied about 20 accounts of the recent financial crisis—half of them by journalists and the other half by academics. He found that there was no common explanation for the crisis, and in fact some of the explanations contradicted one another.
 The interview originally appeared on www.firstpost.com on November 28, 2012.
(Vivek Kaul is a writer. He can be reached at vi[email protected])

 

‘Many managers are suckers for the guru who can provide the philosopher’s stone’


Managers like all of us are also suckers for easy answers. “Management as a discipline is in very early stages of development. The equivalent would be the subject of chemistry as it was in the fifteenth-sixteenth century when it was alchemy. For centuries people were looking for the philosopher’s stone which was some kind of catalyst which could turn base metal into gold. Management is a bit like that. So many managers are suckers for the guru who can provide the simple answer,” says Robert Grant. He is a professor of strategic management and holder of the ENI Chair of Strategic Management in the Energy Sector at Bocconi University in Milan, Italy. He is currently in India teaching a course on strategy to the first batch of students at the Mumbai International School of Business, an initiative of the SDA Bocconi School of Management in India. In this interview he speaks to Vivek Kaul.
You have talked about the fact that the knowledge and insight needed to make sound strategic decisions and guide the development of their organisations is best served by strategy teaching that is rooted in theory. What do you mean by that?
Some people would reject the whole notion of business education. Some would say that the best way to become a successful manager is to learn on the job i.e. there is no substitute for experience. Part of the whole notion of having a business school is to say that actually there are principles, and there are things that can be learnt from an analytical approach.
Can you explain this through an example?
You have individuals who appear to be successful managers and the question is what can we learn from them. Can we in anyway generalize about this? So you look at Apple and you say is Apple all about Steve Jobs? Then what was his leadership style? Here is a quirky individualistic, unconventional and a very autocratic management style. And you ask why has this worked? You look at a different company like IBM and its former CEO Sam Palmisano, who had a very different leadership style. You start looking at all these examples and say can we see patterns. Can we see something that we can generalize? Soresearch tries to generalise for this diversity of experience and then the teaching says that here are some principles that we can start applying.
You talked about Steve Jobs and Sam Palmisano two people with very different leadership styles. Which style works more often than not?
Palmisano fits in with a more observable trend you are seeing in large companies where leaders are becoming less the people who make the key decisions. The problem is that most organisations are so complex that the CEO knows maybe 2% of what is going on in that organisation. Also these days businesses have to respond so quickly that they can’t wait for the stuff to get to the CEO level before decisions can be made. So you have to have highly decentralized decision making. So what then is the role of the CEO? Increasingly the role of the CEO is to manage culture and manage the development of people within the organisation, rather than to take the role of the decision maker.
So where does that leave the likes of Jobs?
In many ways Jobs may well have been the one of the last of the old school. This was somebody who was very very hands on. In the early days he was the designer. At one level he was the Chairman of Apple Computers but he was also the project leader on the projects. He was very deeply involved in tiny details which he was incredibly emotionally attached to. So I think in terms of models of leadership probably companies are making some serious mistakes if they say the Jobs way is the way to go.
At some level he was also the biggest marketer of his company…
Yup. He was a great marketing guy because he was the founder of this incredibly successful company that was a major part of a social revolution that took computing, something that had been dominated by governments and large corporations, and taken it down to young people. He empowered young people.
So how do you see Apple performing now that he is not there to lead them?
The case with Apple is like all companies that have visionary powerful founders who go on to be their leaders. The key is can that intuition and vision of the founder, become embodied in the capabilities of the firm. The fact is that Jobs had from several years before his death increasingly distancing himself as the chief decision maker of the firm. This must mean that in terms of the culture of the company, the systems by which the products are designed, how they understand the market, technology, their users, and many of the intuitive level skills that Jobs had, have actually become embodied in the capabilities of the organisation. It’s the same with every entrepreneurial company. Can the company make the transition from a company which is entrepreneur led, family led, into an organisation which is professionally managed but has managed to embody those skills.
Does that happen?
It does happen. You look at Walt Disney. The values and the quest for quality entertainment orientated towards children and families is something that has become embodied in the set of capabilities at Disney. Wal-Mart has a culture where cost efficiency is almost like a religion. Avoiding all waste and looking for new solutions to keep costs down, was something that was a part of the protestant upbringing of Sam Walton. But it has been transferred into the company. So I think it does happen. And it has to happen if the company is going to make that transition.
In one of your research papers you write “I frequently observe a propensity to fall back on ideas and beliefs that amount to little more than folk wisdom.” Could you talk about that in a little detail?
Management as a discipline is in very early stages of development. The equivalent would be the subject of chemistry as it was in the fifteenth-sixteenth century when it was alchemy. For centuries people were looking for the philosopher’s stone which was some kind of catalyst which could turn base metal into gold. Management is a bit like that. So many managers are suckers for the guru who can provide the simple answer. Hence, all the time you have people coming up with the philosopher’s stone. These fads in management come and go. Go back to the late 1970s and the early 1980s market share was the in thing. If you need to get anywhere in business you need to have market share was the in thing. The way to get market share is penetration pricing. This is what the Japanese companies were doing. So that was the sort of thinking that dominated that era. It made sense but not in others. Since then we have had wave after wave of notions, typically given tremendous appeal by the fact that people espoused them are usually fantastic performers. People like Tom Peters for example.
I was about to take his name…
HaHa. To give them their credit most of them have a key value but it is all within a context. One of the ones that was most influential was CK Prahalad and his core competence of the corporation. For many business leaders this was a kind of a revelation that rather than going out there thinking about what does the customer want, it made more sense to start looking inside, what the hell do you well as a company? The article was written 22 years ago and now you look back and say, core competence, that is just one single thing. Now when you look at companies you say there is a whole network of things and the key is the way in which they all fit together. The tremendous danger is this belief that there can be a single idea that provides a universal solution.
How does folk wisdom prevalent in organisations at various points of time influences decisions made by senior executives in companies?
If you look at the lead up to the financial services crisis a phenomenon that you saw particularly among the retail banks was internationalizing. So nearly all the US banks, and major European banks said, we have to have a position in China. They bought minority stakes typically in Chinese banks. Look at Royal Bank of Scotland, which was a Scottish bank, and present only in Scotland. Then it acquired NatWest in Britain. Then they started acquiring banks elsewhere in Europe, in United States and Asia as well. Bank of Santander did the same thing. HSBC internationalized as well. Other banks like the UniCredit Bank started to say we need to get into the game. I remember having this executive seminar with one of the Italian banks and I asked them what are you doing right now? And I was told we are internationalizing. And when I asked them why? Because we are living in a global world, was the answer that came along. So what? This sort of notion of globalisation just takes hold of people and it almost becomes an excuse for not really thinking about what really makes sense.
So globalisation is the current fad…
It is one of the current fads. The question that needs to be asked is globalisation creating any value for many businesses? In the case of retail banking you acquire banks in different countries. Then you ask are there any benefits of having them under common ownership? For starters you have to put them under the same brand. But then the regulations in different countries are different. Hence banks in different countries have to be separately funded. They have to meet the reserve requirements specific to that country. The markets are very often different and so you can’t launch the same products. So you say, well hang on, does this make sense? The same is true about telecom. Vodafone is the most international company and yet in every country it has to acquire licenses, has to establish structure etc. So the question is where are the economies of scale? So they say, maybe the economies are in sourcing. And then you start sourcing phones on a global scale. But in Japan they want Japanese phones simply because those phones had higher standards than what consumers in the UK were happy with. So you start saying where is the value being added here?
Vodafone hasn’t been doing terribly well in India…
Another of the link to this globalisation is to say where do we need to be internationally? Emerging markets. Why do you need to be in emerging markets? Because that’s where the growth is. But growth doesn’t necessarily mean profitability. All those banks that went into China most of them have sold of their holdings now. The car companies are still rushing into China building plants. In China they growth of capacity in automobiles is faster than the growth of demand. So you have the same excess capacity that you have in Europe and North America and so most of these companies are not making money in China. When it comes to telecom the emerging markets are pretty much close to saturation. India has a brutally competitive market in telecom. This is not a market where France Telecom or AT&T can say hey if we move in we are going to make a lot of money. To a lot of extent there is this sort of naïve thinking that just because you are in a growth market you are going to make money.
What has been the impact of increased volatility and unpredictability of the business environment in the last few years upon the strategic planning processes of companies?
What this means that you can’t forecast. So you have to have a planning system which is based upon the notion that actually you don’t really know, what is going to happen next week, let alone next year. And that is a major challenge. Though you don’t know what the environment is going to be you still need to make investments. The oil companies are making investments in oil fields and majorly into gas fields. These fields aren’t going to come on stream for another six, seven, eight years and then they are going to last for another 20-30 years. But nobody knows what the price of gas is going to be in six month’s time, let alone in ten years.
So the companies need to function more and more like venture capitalists?
I think you are onto something here. What companies increasingly need to do is not so much as manage a portfolio of major businesses necessarily, but at least have a portfolio of options. So they are looking at the future and saying we don’t know what is going to happen. But maybe we can engage in some in alternative scenarios now and make relatively small investments, so that if the market develops in this way, we can expand on that base and really exploit that opportunity.
Can you give an example to explain that?
Some of the technology companies are quite good at this. If you look at Google and ask what is it doing, you realise that wow it’s all over the place. And yet it is doing things that make sense in an environment of uncertain change. It started Android its mobile device operating system with the realisation that even though it was dominating search within PCs, laptops and so on, the internet access was increasingly going to move to mobile devices in the days to come. So that was a threat to Google because the question was that would these mobile devices be compatible with the Google search engine? So they decided that maybe if we have our own operating system then we can ensure all our applications are going to run on it. Then of course RIM and then Apple became the dominant players in the mobile business. Apple likes its close garden. It likes to control its own applications through its own app store and so on.
So what happened?
Google exercised the Android option, which was basically an embryonic protocol operating system. It then said we are going to launch this, we are going to invest in this, we are going to talk to major handset makers and provide them with the necessary tools to support it and so on. This despite the fact that Android was free and Google wasn’t making any money out of it. But it became a way of ensuring that their Google search engine and other Google products could make their movement into the mobile sector. Then they start saying what are the threats that we face in terms of our desktop applications? We are dependant upon Microsoft because our search engine runs on the Microsoft browser, internet explorer. It also runs on the Microsoft operating system. So again they said lets introduce Chrome. It’s an option. It’s not a massive investment. But it’s their own browser. And then they came up with the Chrome operating system as well. And it becomes an alternative. In fact they haven’t had to make a massive investment in rollout because Firefox’s Mozilla has eroded Microsoft’s clout and Microsoft is no longer dominant in the browser business. That’s one way of interpreting what companies are doing.
This approach you talk about might be possible in technology because expenses are not huge. But what about other businesses?
You look at the oil business. Nobody knows what the price of oil is going to be. Nobody knows if the House of Sa’ud is going to fall. Maybe that could be next domino. Nobody knows if the Israelis are going to bomb the hell out of Iran. So there is all that uncertainty in this business. So companies are hedging their bets. They are making investments in shale gas. They are taking minority stakes. The Chinese are taking stakes in the oil sands of Canada. But most of those are just minority stakes. But it’s enough for them to say that if it looks like that we are going to lose a lot of our upstream oil reserves, if the price of oil is going to rocket, then we are in a position now to understand enough about this business either to expand it internally or acquire a majority stake. Just looking at the options approach it means that you are building flexibility. It is building your ability to adapt.
(The interview originally appeared in the Daily News and Analysis on August 20,2012. http://www.dnaindia.com/money/interview_many-managers-are-suckers-for-the-guru-who-can-provide-the-philosophers-stone_1730122))
(Interviewer Kaul is a writer and can be reached at [email protected])

What Team Anna can learn from Nirma, Sony, Apple and Ford


Vivek Kaul

The decision by Team Anna to form a political party has become the butt of jokes on the internet. A Facebook friend suggested that they name their party, the Char Anna Party and someone else suggested the name Kejriwal Liberal Party for Democracy (KLPD).
The jokes are clearly in a bad taste and reflect the level of cynicism that has seeped into us. Let me paraphrase lines written by my favourite economist John Kenneth Galbraith (borrowed from his book The Affluent Society) to capture this cynicism. “When Indians see someone agitating for change they enquire almost automatically: “What is there for him?” They suspect that the moral crusades of reformers, do-gooders, liberal politicians, and public servants, all their noble protestations notwithstanding are based ultimately on self interest. “What,” they enquire, “is their gimmick?””
The cynicism comes largely from the way things have evolved in the sixty five years of independence where the political parties have taken us for a royal ride. Given this the skepticism that prevails at the decision of Team Anna to form a political party isn’t surprising. Take the case of Justice Markandey Katju, who asked CNN-IBN “Which caste will this political party represent? Because unless you represent one caste, you won’t get votes…Whether you are honest or meritorious nobody bothers. People see your caste or religion. You may thump your chest and say you are very honest but you will get no votes.”
Former Supreme Court justice N. Santosh Hegde said “Personally, am not in favour of Annaji floating a political party and contesting elections, which is an expensive affair and requires huge resources in terms of funds and cadres.”
Some other experts and observers have expressed their pessimism at the chances of success of the political party being launched by Team Anna. Questions are being raised. Where will they get the money to fight elections from? How will they choose their candidates? What if Team Anna candidates win elections and start behaving like other politicians?
All valid questions. But I remain optimistic despite the fact that things look bleak at this moment for Team Anna’s political party.
I look at Team Anna’s political party as a disruptive innovation. Clayton Christensen, a professor of strategy at the Harvard Business School is the man who coined this phrase. He defines it as “These are innovations that transform an existing market or create a new one by introducing simplicity, convenience, accessibility and affordability. It is initially formed in a narrow foothold market that appears unattractive or inconsequential to industry incumbents.”
An excellent example of a home grown disruptive innovation is Nirma detergent. Karsanbhai Patel, who used to work as a chemist in the Geology & Mining Department of the Gujarat government, introduced Nirma detergent in 1969.
He first started selling it at Rs 3.50 per kg. At that point of time Hindustan Lever Ltd’s (now Hindustan Unilever) Surf retailed for Rs 15 per kg. The lowest-priced detergent used to sell at Rs 13.50 per kg. The price point at which Nirma sold made it accessible to consumers, who till then really couldn’t afford the luxury of washing their clothes using a detergent and had to use soap instead.
If Karsanbhai Patel had thought at the very beginning that Hindustan Lever would crush his small detergent, he would have never gotten around launching it. The same applies to Team Anna’s political party as well. They will never know what lies in store for them unless they get around launching the party and running it for the next few years.
Getting back to Nirma, the logical question to ask is who should have introduced a product like Nirma? The answer is Hindustan Lever, the company which through the launch of Surf detergent, pioneered the concept of bucket wash in India. But they did not. Even after the launch of Nirma, for a very long time they continued to ignore Nirma, primarily because the price point at which Nirma sold was too low for Hindustan Lever to even think about. And by the time the MBAs at Hindustan Lever woke up, Nirma had already established itself as a pan-India brand. But, to their credit they were able to launch the ‘Wheel’ brand, which competed with Nirma directly.
At times the biggest players in the market are immune to the opportunity that is waiting to be exploited. A great example is that of Kodak which invented the digital camera but did not commercialize it for a very long time thinking that the digital camera would eat into its photo film business. The company recently filed for bankruptcy.
Ted Turner’s CNN was the first 24-hour news channel. Who should have really seen the opportunity? The BBC. But they remained blind to the opportunity and handed over a big market to CNN on a platter.
Along similar lines, maybe there is an opportunity for a political party in India which fields honest candidates who work towards eradicating corruption and does not work along narrow caste or regional lines. Maybe the Indian voter now wants to go beyond voting along the lines of caste or region. Maybe he did not have an option until now. And now that he has an option he might just want to exercise it.
While there is a huge maybe but the thing is we will never know the answers unless Team Anna’s political party gets around to fighting a few elections.
The other thing that works to the advantage of disruptive innovators is the fact that the major players in the market ignore them initially and do not take them as a big enough force that deserves attention.
A great example is the Apple personal computer. As Clayton Christensen told me in an interview I carried out for the Daily News and Analysis (DNA) a few years back “Apple made a wise decision and first sold the personal computer as a toy for children. Children had been non-consumers of computers and did not care that the product was not as good as the existing mainframe and minicomputers. Over time Apple and the other PC companies improved the PC so it could handle more complicated tasks. And ultimately the PC has transformed the market by allowing many people to benefit from its simplicity, affordability, and convenience relative to the minicomputer.”
Before the personal computer was introduced, the biggest computer available was called the minicomputer. “But minicomputers cost well over $200,000, and required an engineering degree to operate. The leading minicomputer company was Digital Equipment Corporation (DEC), which during the 1970s and 1980s, was one of the most admired companies in the world economy,” write Clayton Christensen, Michael B Horn and Curtis W Johnson in Disrupting Class —How Disruptive Innovation Will Change the Way the World Learns.
But even then DEC did not realise the importance of the personal computer. “None of DEC’s customers could even use a personal computer for the first 10 years it was on the market because it wasn’t good enough for the problems they needed to solve. That meant that more carefully DEC listened to its best customers, the less signal they got that the personal computer mattered — because in fact it didn’t — to those customers,” the authors explain.
That DEC could generate a gross profit of $112,500 when selling a minicomputer and $300,000 while selling the much bigger ‘mainframe’ also didn’t help. In comparison, the $800 margin on the personal computer looked quite pale.
Another example is Sony. “In 1955, Sony introduced the first battery-powered, pocket transistor radio. In comparison with the big RCA tabletop radios, the Sony pocket radio was tiny and static laced. But Sony chose to sell to its transistor radio to non-consumers – teenagers who could not afford big tabletop radio. It allowed teenagers to listen to music out of earshot of their parents because it was portable. And although the reception and fidelity weren’t great, it was far better than their alternative, which was no radio at all,” write Christensen, Horn and Johnson. Sony went onto to come up with other great disruptive innovations like the Walkman and the CDMan. But did not see the rise of MP3 players.
The point is that incumbents are so clued in to their business that it is very difficult for them to see the rise of a new category.
So what is the learning here for Team Anna? The learning is that their political party may not take the nation by storm all at once. They might appeal only to a section of the voters initially, probably the urban middle class, like Apple PCs had appealed to children and Sony radios to teenagers. So the Team Anna political party is likely to start off with a limited appeal and if that is the case the bigger political parties will not give them much weight initially. Chances are if they stay true to their cause their popularity might gradually go up over the years, as has been the case with disruptive innovators in business. The fact that political parties might ignore them might turn out to be their biggest strength in the years to come.
Any disruption does not come as an immediate shift. As the authors write, “Disruption rarely arrives as an abrupt shift in reality; for a decade, the personal computer did not affect DEC’s growth or profits.” Similarly, the Team Anna political party isn’t going to take India by storm overnight. It will need time.
Business is littered with examples of companies that did not spot a new opportunity that they should have and allowed smaller entrepreneurial starts up to grow big. The only minicomputer company that successfully made the transition to being a personal computer company was IBM. “They set up a separate organisation in Florida, the mission of which was to create and sell a personal computer as successfully as possible. This organisation had to figure out its own sales channel, it had its own engineers, and it was unencumbered by the existing organization,” said Christensen.
But even IBM wasn’t convinced about the personal computer and that is why it handed over the rights of the operating system to Microsoft on a platter. Even disruptive innovators get disrupted. Microsoft did not see the rise of email and it’s still trying to correct that mistake through the launch of Outlook.com. It didn’t see the rise of search engines either. Nokia did not see the rise of smart phones. Google did not see the rise of social media. And Facebook will not see the rise of something else.
Team Anna is a disruptive innovation which can disrupt the model of the existing political parties in India. There are three things that can happen with this disruptive innovation. The Team Anna political party tries for a few years and doesn’t go anywhere. That doesn’t harm us in anyway. The Team Anna political party fights elections and is able to build a major presence in the country and stays true to its cause. That benefits all of us. The Team Anna political party fights elections and its candidates win. But these candidates and the party turn out to be as corrupt as the other political parties that are already there. While this will be disappointing but then one more corrupt political party is not going to make things more difficult for the citizens of this country in anyway. We are used to it by now.
Given these reasons the Team Anna political party deserves a chance and should not be viewed with the cynicism and skepticism which seems to be cropping up.
(The article originally appeared on www.firstpost.com on August 4,2012. http://www.firstpost.com/politics/what-team-anna-can-learn-from-nirma-sony-apple-and-ford-404843.html)
(Vivek Kaul is a writer and can be reached at [email protected])