Sunday, January 10, 2021

Black Swans: What you don’t know CAN hurt you


There may be a piece of information consumers need that they don’t know exists - or even suspect is out there.  Black Swans suddenly change the way you see and assess situations, the “leverage multiplier” needed to redefine problems, revealing new sources for solutions.

“The unspoken breakthrough dynamics of a negotiation….  Factors you didn’t know about and were not accounting for.…the leverage multiplier.”

-- Chris Voss, Never Split the Difference (2016)

Black Swan events have become infamous factors in the global culture now emerging, the wider culture we all inhabit.  The pandemic of the past year 2020 is a leading example.  But the term is not a new one.* Once people thought that all swans were white, as those were the only ones they had ever seen. Their worldview changed when the first black swan in nature was actually sighted in Western Australia by the Dutch explorer Willem de Vlamingh in 1697.  From that moment of discovery, the swan of a different color at once became a metaphor for newfound potential.   In 17th-century London the term was used to denote an unforeseeable event, one with wide and usually unintended consequences. 

While the cues and markers might be around and even visible, until there is a verified sighting – real proof of existence that people can agree on—there is no mental file folder that can allow the mind to consider and build on an idea.  An example is the current Covid world crisis that, while predicted in theory, was nevertheless not seen or prepared for. Impossible ideas are relegated to fantasy, making it impossible to operate within the realm of creativity and innovation as possibilities with real potential.  Other examples of “impossible” inventions?  1) the theme park and 2) Assisted Living, both thriving institutions of consumer entertainment and senior living.

Founder of the Black Swan Group Chris Voss navigates corporations through the complex problem-solving process of negotiation, the key skill in multi-party actions. Voss has assembled a manual of problem-solving approaches based on his background as an FBI hostage negotiator.  His experience models the tactical uses of emotional intelligence to avoid compromise, ending with a resolution in the client’s favor.  

It is easy to imagine developing training along the lines suggested in the Voss book outside the more left-brained Getting to Yes approach, aimed at discovering the Black Swans in the equation to fill in vital information either missing or disregarded.  The simple recognition of these factors can result in summary resolution of problems that so far have been stubbornly resistant to a mutually satisfying solution.   

Part of the success outcome, of course, depends on the wits and experience of the negotiator to spot that piece of information, or its space in a familiar pattern, that will signal how the original problem got its start and kept on rolling.  As well as how to untangle and reorganize which facts and events are vital in order to redefine the problem and multiply the leverage to win.  

On the consumer front, these could be: A glitch in computer programming no one has identified or fixed: the Y2K crisis, the widespread EPIC (“disaster”) software failures in healthcare, or the JPMorgan Chase bank overdraft charges of $34 up to three times per day. These each took many months to recognize and uncover.  Or a company acquisition that blocks customer repairs and refunds; an offer to reduce a loan rate has been retired, but thousands of customers are still eligible under its terms—and the new service reps don’t know it even existed.  Most typically, the company’s own needs, rules, and liabilities are driving the negotiation, but the service reps are talking as if they have a “customer-first” ethic, confusing every interaction.  The credit card company, the health insurance company, the hospital, the doctor, the physician practice group, and Medicare each have different policies and practices, and they are not in alignment, creating chaos for the patient and family.  No one has an aerial view of the overall gridlock—the EPIC program failures are still on a roll as of this month. 

Finding solutions requires relocating the problem connection between the customer’s problem and the company’s problem.  It takes a wider vista to find the missing piece or pattern. 

Taken to a panoramic scale, in a recent Fortune issue ((Aug/Sept 2020), editor Clifton Leaf writes about the value of cross-cultural commerce in itself. Cross-border trade now is nearly two-thirds of world economic output; long before this, it made America the first world superpower. This emerging world is opening new markets for ideas as the key attribute of the Global 500, the planet’s top firms.  “You get to dip into an entire new world of knowledge and innovation activity that has been closed to you before,” says Fabian Trottner, economist at UC San Diego who explores the export / innovation connection.  This wider horizon can yield unsuspected swans in the form of new information leading to new frames of reference.  Just what is called for to solve intractable problems ranging from consumer issues to international crises. 

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*The Black Swan: The Impact of the Highly Improbable (NY: Random House, 2007) by Nassim Nicholas Taleb is the popular source for this concept.

Sunday, December 20, 2020

Negotiating for Yourself: The experts advise against it

 

 Part 1   

Acting as your own advocate - negotiating for yourself - is a difficult and often impossible role to play.  For the consumer, companies have all the vital information on their side, which is quickly evident in high-stakes deals like real estate and time-share, less evident (but equally clear) in lower-stakes contracts like cell-phone plans.  A national start-up navigator service for consumer issues raises this question as the core of their business model.  Our cultural research for them includes the following intelligence. 

For example, this month in Orlando I was subjected to a royal case of don’t negotiate your own deal – an upselling conference at my Sheraton (now owned by Marriott) timeshare resort, where I’m an owner.  Trying to master the fast-flying acronyms and case coding numbers was difficult enough.  Pressure from a hard-sell confrontational agent makes it impossible for even long-term owners to know what they are buying.  Even more difficult is determining the true cost to the family budget over a long-term future of juggling annual dues, reservation weeks, location options, and point credits within the system.  Things got heated when the agent did her best to make my existing title purchase sound as if it had lost most of its value, a common upselling gambit. 

I ended up walking out the office door and reporting the encounter to the sales manager, who apologized and promised me some points for pain and suffering.  But this hard sell experience left a bad taste, making me question why I had to put up with such grief just for some basic information about the resort’s latest deal.  I am sure other members signed contracts for thousands of dollars that won’t justify the expense.

This failed sales appointment wasted my time and energy and left me (I thought) with no option but to walk away, which I did.  I felt incompetent to bargain – which, up against the sales pro, I was. 

This would have been an ideal time to entrust negotiations to my own personal agent—if I had one.  A consumer-issues navigation team would make an ideal choice in this situation, parallel to a real estate buyer’s (rather than seller’s) agent.  The buyer’s agent works for you, not the homeowner, and has only the consumer’s interests in mind (working on salary, not commission).  This assures the buyer of unbiased advice, separated from profit motive. 

Consumers rely on companies for policies, services, and contracts they already own but don’t understand and can’t navigate.  They have a more difficult, ongoing problem: How to restore use and prevent losses they can’t afford to absorb.  If the issue is electricity, the power loss extends from appliances to alarm systems, including security, and “your computer, your life.”  The refrigerator goes lame—every item of perishable food is instantly at risk.  Your car gets towed and your entire transport system goes down—including work and school commute.  These problems can’t be fixed on your own.  They are built into larger systems that require negotiation savvy the average consumer can’t hope to acquire in hours, days, or weeks. Even a lifetime.

So now you are forced to advocate for yourself as your own negotiator, a position world-class experts like Kenichi Ohmae, in the classic The Mind of the Strategist (1982), advises something we don’t expect to hear: Giving up.  In his expert view, by using strategic insight, consumers operate better and more effectively by refusing to even attempt difficult or complicated negotiations with consumer services.  Instead they need to hire out to seasoned experts who navigate deep, dangerous, and turbulent waters on the customer’s behalf (p. 276). 

Ohmae urges the consumer to always “Question the prevailing assumptions of an industry” – that companies can and will take care of the needs of their customers in the face of promoting their own agenda, especially when the customer’s interests conflict with the company’s.  It is time to devise ways to take up the consumer cause as buyers’ agents as negotiators on the consumer’s behalf, cancelling the usual need to wonder where the agent’s interests and intentions actually lie.

Part 2  

Negotiation is a situation of understanding your own aims and position, and those of your adversary.  But the best person to advocate for your goals is not yourself, but a third-party guide knowledgeable about the territory, the ground rules, and your goals.  Not as the principal, but able to work objectively and without the emotional investment you bring to the table.

“Today’s world is one of acceleration and change, so even the future is holding its breath.  In this climate, the single most important skill is the ability to negotiate.” 

– Herb Cohen, Negotiate This! By Caring, but not T-H-A-T much (2003)

Whenever you are forced to advocate for yourself as your own negotiator, you find yourself in the position world-class expert Herb Cohen advises against.  This is the same warning given by Kenichi Ohmae in his work on the strategic mind for competitive advantage.  Negotiation is fundamental to all social relations, but has a special role in the strategy of being a consumer with the issues inevitably involved with that role.

In Negotiate This! the follow-up manual on negotiating since How to Negotiate Anything in 1980, Herb Cohen outlines the situations and players across many negotiating scenarios based on his broad experience as negotiator and a background in history, law, and international relations.  His aim is to discover the dynamics and rules of negotiation as a way to resolve the divergent desires and interests of two or more parties.  Affecting the attitude and behavior of the other players goes just part of the way toward achieving one’s own ends. 

It is actually a mentality, a way of approaching this process, that Cohen’s professional experience reveals.  His case studies show how changes in your own thinking and action can be the leverage that transforms the attitude and approach of the other side.  The process is dynamic, complex, and learnable, and results in creative new outcomes neither side could initially envision.  Examples from the author’s portfolio include the seizure of the Japanese embassy in Lima in 1966, The Iranian hostage crisis of 1979, The Camp David Summit of 2000, and the worldwide terrorism epidemic, along with strikes, union negotiations, and class action suits. 

One of Cohen’s frequent lessons is that negotiating for yourself is often not effective or even a good idea.  As in his subtitle, the worst person to negotiate is yourself.  Why is this?  First, we care too much about the outcome and our position, which limits and distorts the perspective needed to understand our true position—and underscores the “me versus them” conflict character of the engagement.  It prevents seeing clearly what the field of options could be as well as identify the best and worst ones, as well as those that work best for both parties and so are more likely to get agreement.  As Cohen puts it, “When I negotiate on behalf of myself, it’s not a game anymore, it’s my life, my legacy.  So the result is often plainly pathetic” (p. 4).

Second, we give ourselves too much authority to accept or reject any terms we might be offered—without being confident that we know what those should look like.  This can be answered by limiting that authority by saying, “That sounds good to me but I’ll have to check with my board…or substitute the word banker, attorney, adviser, boss, or even spouse” (p. 54).  What you are looking to leverage is the deep knowledge of the industry expert adviser as the third party.  The goal is to find ways to hire out this level of authority for better, faster results than you yourself can achieve. 

To illustrate the wisdom of this stance, Cohen relates the case of Moses and Aaron freeing thousands of Jews from slavery in ancient Egypt in the Old Testament book of Exodus, calling this “the first hostage negotiation in the annals of history.”  Moses’ brother Aaron was delegated by the Lord to be the spokesman, rather than Moses, in bargaining with Pharaoh for the release of the Hebrews from bondage.  Aaron, more articulate than Moses and his stutter, was able to achieve the release because he stayed out of the direct deal-making, where the principal was emotionally invested and cared too much about the outcome. 

As Cohen put it in his first book, “Negotiation is a field of knowledge and endeavor that focuses on gaining the favor of people from whom we want things. It's as simple as that….The ‘winners’ seem to be people who not only are competent, but also have the ability to negotiate their way to get what they want.”

 

 

 

 

Sunday, November 8, 2020

Problem Types – Clear to Chaotic


Cynefin (the Welsh word for habitat) is a conceptual framework developed out of IBM during the early 2000s and has been labelled a “sense-making device.”  This framework has continued to evolve through the work of David J. Snowden and colleagues of the Cynefin Centre for Organizational Complexity.


 “In the face of greater complexity today, however, intuition, intellect, and charisma are no longer enough.”  -  - David J. Snowden, HBR, Nov. 2007


Snowden’s typology of the Four Cs of problems – Clear, Complicated, Complex, and Chaotic -- is intended to focus on disorder, complexity, and uncertainty in the assumptions that can be made about certainty, stability, and confidence in accepted best practices to frame the problem and arrive at solutions. 

Not all problems are created equal.  Any problem-solving venture should begin with the question “What type of challenge are we facing here?” In order to determine the level of difficulty—as well as how it can be framed for a solution—a problem typology defines the territory of the problem—smooth, rough, varied, or steep—as a way to force a kind of profiling to differentiate it from others.  

As a consultant to IBM Global Services in 1999, Snowden developed a typology of problems whose purpose was to impose a new perspective on problem-solving: one derived from complexity science.  Knowing that context drives problem perspective for decision-making, Snowden’s “Cynefin” framework (named for “habitat” in Welsh – don’t worry, this is noncritical) sets up a way to formulate problems of varying difficulty and urgency on a scale that points to the different needs for action and expertise among four types – including an outlier, “Disorder,” that informs each of them with a slightly different “unclear” “jagged” or “tangled” edge.

 

Clear Problems (also known as Simple or Obvious)- these contain no unknowns. You’ve seen them or similar problems frequently, so you understand how they are constructed. There are obvious answers and easy fixes available.

Domain: Best Practice.  A simple answer might be in calling your State Rep to take care of an insurance problem you can’t figure out your way around, under the rule, “If unsure, delegate to an authority with clout.” Request an extension if your taxes aren’t ready.  Ask your credit card to reset your credit limit.  This is the simple “fill in the blank with X” and you have the missing information—the information you already know you need. 

 Complicated problems - The cause of the problem is not obvious. You need to identify the key parts of the equation but you already understand the underlying system, which has multiple parts and a clear sequence. You need an expert solution to address this problem. 

Domain: Experts. Auto mechanic, health specialist, CPA, roofer.  Call your appliance brand to get a fix on the phone or internet.  There is a code or sequence you don’t understand. It must be clarified by a knowledgeable expert.  You are calling the wrong office for the right reason; find the system expert who knows that person or number is obsolete, then get the right one.  Alexa won’t connect to Amazon radio. You don’t know why. Get an expert fix simply by asking her, “How do I reset you?”  Unplug and replug.  Fix, case closed. 

 Complex Problems – Cause is not clear or there are multiple causes or relationships that are not apparent. They form a problem chain or linked system that’s not easy to separate in order to see how they are related, or find the gaps. Another job requiring expert solutions or, failing that, some form of elegant tweaking—involving analysis from outside the system. 

Domain: Emergence.  A multi-system problem, like medical procedures on one side and insurance on the other, yields conflicting advice from different entities (appeal/don’t appeal).  Multi-party, multi-issue spanning 2, 3, 4 or more systems.  Define the problem—search for an entry point to clarify that definition, then move forward while looking to see where the solution links might be. 

 Chaotic Problems – These are crises, requiring immediate action. Change one dynamic parameter and the crisis might be resolved in a ripple effect. The ideal goal is to first tweak them back to the Complex category, stabilize them, iterate the response, and define the new environment.

Domain: Rapid Response.  This is the domain of the ambulance, the fire brigade, security, police, Red Cross, the Marines.  Global response to the Covid pandemic works like this – but in slow motion, as social distancing is tried out worldwide on different schedules, then recalibrated when cases spike.  

Saturday, October 10, 2020

Change Management on a Cultural Scale



Some thoughts on Change –  From an interview by Peter de Jager of Technobility:

Cultural Studies & Analysis principals Margaret King and Jamie O’Boyle field his expert questions on change—as a cultural concept.  Hear the entire September 2020 power-point interview at https://1drv.ms/v/s!AndfYpyVsX3z2QpXKH9h9v9MHoWJ.  Here is a summary of the high points.


1.   What is CS&A, and what does it do? – Our research group tracks and studies group choices over time to identify consistent patterns of behavior that reveal how people think, make decisions, and act--to find value in products, services, concepts, and ideas.

 2.    Why study behavior rather than just ask people what they want?  - Because people cannot tell you what they want with any degree of accuracy, but those same people recognize what they want when they see it with 100% accuracy.  So what people tell you they want is unverified testimony. It’s basically a guess. If something better comes along, then everything changes. But since they don’t know that something better exists until they see it, they can’t tell you about it in advance. The buy decisions are made below our conscious horizon. Then our brain invents a story to validate that decision. So what people habitually do becomes reliable evidence of underlying beliefs that drive our decisions. Without examining the evidence of consistent patterns of behavior to compare to the verbal testimony, you are working without the critical information to make informed strategy, planning, and tactical decisions.

3.      You say “what people habitually do,” but what happens when the context or the environment changes?  What happens when circumstances change? Don’t people intuitively resist change?  - People change all the time – we grow and age, for instance, and our wants and needs change with that process. What we have problems with are sudden changes, and even more so, changes that are forced upon us. That’s why change management is so important. Change managers are like guides who lead expeditions through unknown territory. They may never have been in that particular wilderness before, but they know how to survive in the wilderness in principle – they know what a pitfall looks like.  They know what a safe haven looks like. They know what resources like water look like. It may be a rough slog, but they’ll get you through it.

4.     What is change in terms of culture?  - It’s the main mechanism by which culture occurs, by adjusting to changed circumstances, evolving alongside new needs, altering our reality by means of new visions of the present and future.   Cultural change is a constant, either fast or slow, and in fact is what creates culture.  That makes it hard to study; it doesn’t stand still for anyone.

 5.  What does that say about human activity at any one time?  - We spend a lot of our time and attention on “adaptation energy,“ adapting everything we do to changing conditions, even micro-changes like who’s at home and who’s not, travel, study, socialization.  Where we put our attention is dictated quite a lot by what is going to happen tonight, tomorrow, next week, next year, and so on. We don’t do nearly as much long-term thinking because things might change, and (our attitude says) then all that long-term planning will be for nothing. 

 6.    What do you do with this kind of knowledge?  - Understand what the human cultural motivators are that are driving our collective thinking, values, and behaviors.  We’re in a forced state of change now, which makes it harder to predict or plan what we’re doing – no one even knows six months out how the pandemic will shake out in all fields of endeavor beyond health – the economy, foreign relations, education, entertainment, work, and recreation.  Nothing is going to return to pre-COVID normal.

 7.    Can you give an example of this ongoing crisis mode, our brains on sudden and anxious change? – The question is; how do we get through this event – working with depression, anxiety, apprehension, uncertainty.  Especially uncertainty.  Our brains don’t like it.  We can’t plan.  It’s mental and emotional limbo.  Without a time frame we can count on, our accustomed sense of what’s real suffers week after week as the timeline stretches out indefinitely.  We can deal with continuous, steady change.  We can’t deal well with change that is sudden, discontinuous, unconnected and unexpected.  Uncertainty sounds like the main problem we have with change.  – It is, because if we can’t chart forward movement, therefore how do we identify opportunity in what’s going on now to survive and thrive?  How will my social resources change?  These are “CIS” questions – “Can I Still--”  (do X)?  What we need are intelligible ways of connecting our past and present to our sense of what kind of future we need to start living--now. 

8.    What are we able to be certain of, then?  - Lots of things, how we develop from child to adult – we see this as progress which is welcome, expected, and planned-for.  It’s evolution.  Even aging has a gradual, expected character – which we know how to deal with because it is so familiar and incremental.  We are all adapting to our life stages --- except for middle-age crisis, which does throw people, because it isn’t consciously planned-for behavior. It’s about our subconscious comparing where we are to where we expected to be. Our brain does this in about twenty-year cycles. If we are pretty much where we expected to be, no problem. If there is a disconnect between where we expected to be and where we are, this is the set-up for a mid-life crisis.

 9.      What is our problem with change, then? – As humans, we view changes – even positive changes – in terms of their potential for loss, not gain. We always look at new ventures first in terms of what we have to lose – it’s called loss aversion and we all have it to varying degrees.  Starting a business is risk-loaded, and many people aren’t prepared for what’s required to be an entrepreneur, and incorrectly think that if they are innovators, they can also run the show.  Role confusion is part of anticipating things as they are going to develop because we also exaggerate our own sense of competence around new circumstances.

10.   What’s an example for business?  - When a business moves, or merges, or mounts a major initiative, they may think it’s enough to mandate change.  It rarely is. This is because change is not just a move or merger or new software – it’s a human dynamic, running on human factors, like loss aversion.  Loss of status, loss of a role or even a job, and the one humans really hate-- loss of competence. That’s a function of being out of touch with things (as in the current crisis) because it isn’t clear what the new rules are, or how people relate to each other under those rules.  That’s why change management is such an important discipline, and it goes far beyond the processes or technology of a new operating system.  People need to reexamine an entire range of things to pay closer attention to, re-assess, and re-evaluate.  But they must be able to understand any detail in terms of the big picture, which means new themes and demands.

 11.   This is the reason we are adaptable as a species?  - Yes, and that adaptability has to be more than individual – it must include strategies we can deploy in groups with a changed reward system under new ways of getting things done.   It’s called AQ (Adaptability Quotient), but it goes beyond your abilities or mine to be flexible and take risks for the future.  It requires a skill set that must be internalized, shared, and managed as an effective new thinking style.

 12.    What’s the current big question about change?  We think it is this:  “Can we think about the future while at the same time undergoing unexpected broadband change in the present?”  That’s the current challenge – it’s difficult to think about getting through school, promoting your career, even just doing the work you are used to doing, while at the same time having a vague, but unsettled, speculative idea to imagine what the world is going to be like even a few months away. 

Saturday, September 26, 2020

Life-Time Value and Sudden-Death Sales Syndrome

“Customer centricity can allow your organization to make far more money from your most valuable customers who will buy from you more often and spend more when they do buy from you.”   --Peter Fader, Marketing Professor, Wharton School

 

Customer Lifetime Value (CLV) is a concept that describes the total worth of a business customer over the life of the relationship.  According to an article in Harvard Business Review (Jan/Feb 2010) CLV is the basis for marketing geared to serving the customer as opposed to selling brands and products. This approach is developing as the core concept for business long-term health and valuation (along with competitive industry equity). 

CLV makes a 180-degree shift: from quarterly profits on sales to focus on long-term customer metrics, limiting spending to acquire new customers by placing a premium on the existing customer.  Customer profitability (CP) measures the past profit; CLV looks forward to the future value that results from active cultivation and deep knowledge. In this scheme, the relationship is lifetime, not short-term, calling for a bird’s-eye view of every transaction as having effects not just in the present but into the far future. 

Case Study: Health Club Memberships.  For nearly 20 years I’ve belonged to the Bellevue Sporting Club, the premier health club in Center City Philadelphia.  It carries a hefty monthly pricetag, which I’m always trying to work around by shopping some less expensive options around town.   But pool and indoor track are hard to find downtown, which are the main club attractions.  When I heard that the pool is now narrowing use to three lanes and requiring timed reservations for swimming, I thought this was my signal to leave—after two decades.  (For the Sporting Club, this represents over $30 K in membership and monthly fees.)  I decided to disenroll.

I entered the sales office and spoke with two young sales agents, explaining that the pool core of value to me now seemed too unwieldy for my schedule.  I was sorry to withdraw my long-term membership, but it looked as if I wouldn’t be getting much pool use (the track would be collateral damage because it could be replaced elsewhere, at least 80%, by a treadmill).  Without missing a beat, the girls cheerfully explained how I could easily quit online (no in-person apologies needed!) and handed me a multi-step instruction card.  Could I just sign something, now that I was here in person? I asked.  Not really.  Perhaps I’d like to go up to the business office, maybe get some help there.  Were they really saying goodbye to a long-time loyal member so easily?  Clearly they wanted to close my case in order to get back to bigger things—like signing up brand-new members. 

In the business office, Bridget proved more helpful. First, she asked what the problem was—something Sales didn’t really seem to care about.  That was easy; the pool.    She pointed out that the lane shrinkage and reservations to swim laps were temporary, imposed only as COVID measures.  At some point, pool life would return to normal.  The freeze I requested when the club closed down in mid-March could be extended to January (I hadn’t even thought to request such an extension).  Here was the Business office more aware and proactive in customer retention than the sales team downstairs.  The three-month grace period allows me more time to re-think leaving and preserves my CLV – all to the club’s benefit.  Why didn’t the gang in Sales do the same—assure me that the pool program was only provisional?  Did Sales even probe to see why I wanted to leave—or care?  Did they do any math, realizing it is five to seven times more costly to recruit a new member than to retain and cultivate those already on the rolls?

A health club is a great example of an experience-based offering that benefits members for life.  The club is just the stage set shell of space and equipment; none of this has any value without the energy supplied by the user.  But blocks like COVID can interrupt lifetime value unless companies appreciate their threat—and appropriate interventions--to the User Experience equation.

These quitting points are known and predictable.  Health clubs are well aware that New Year’s resolutions last about six weeks, then wind down as the expected progress isn’t rewarded in any quick progress toward goals. Far less than half of all members even appear regularly. Currently, for many, the nonstarter is masking up while exercising; for others, suspended showers or even towel service.  Still more just don’t welcome the viral risks of shared water or locker rooms. 

In the Sporting Club case, this customer didn’t want to quit the club—she just wanted someone to discover how to stay enrolled, and keep those payments coming in.  In this case, the Accounting office showed a superior grasp of the long-term benefits of customer retention.  They apparently know where the money comes from.   

Plenty of companies pay lip service to a customer-centric culture, but their behavior shows their ongoing dedication to sales rather than service, and marketing those products versus cultivating their buyers.  Social media has revolutionized interactive (not one-way) communications.  This is a dynamic that deserves a totally revised orientation to the purpose of business—to create value for its customers. This is the root of success for IBM (B2B), American Express, and Nokia (with its Beta Labs in Asia) in understanding and serving customer needs as they evolve by paying close attention to the plentiful interactions that contain plenty of intelligence – when you know how to read them.

 

 

Saturday, August 8, 2020

Innovation and Consumer Values [Entrepreneurial Value-Raising]

 


“Creativity involves breaking out of established patterns in order to look at things in a different way.”   -- Edward de Bono

 

Innovation is the engine of entrepreneurship.  It is also more than a technical term.  Defined in consumer terms, innovation can be defined as “changing the value and satisfaction obtained from resources by the consumer” (Peter Drucker, Innovation and Entrepreneurship, 1984, p. 33).  Innovation is the process of creating new technologies and putting them to economic use.  Jean-Baptiste Say, the French economist who first coined the term Entrepreneur around 1800, defined it: “The entrepreneur shifts economic resources out of an area of lower and into an area of higher productivity and greater yield.”  Innovation is a matter of exploring and recognizing where the higher-productivity arenas are in order to do this, typically by (but not limited to) inventing and instigating new technology or applications.

This does not imply high-tech solutions:  It can be low to no-tech at all.   It can be a concept of a symbolic environment (the theme park), a new way of symbolizing relationships (jewelry), or a new approach to working (remotely, on virtual teams, by zoom).  Such solutions are not always immediately recognized.  Among the unanticipated innovations that were at first totally dismissed by the public are the plow, the umbrella, automobiles, the electric light bulb, telephones, cell phones, space travel, mosquitos as the carriers of malaria, anesthesia for surgery, personal computers, and the theory that the earth is round. 

The creation of a new value source can come about just by “combining existing resources in a new and more productive configuration” (Drucker, p. 34).   The information age has created an entire economy devoted to entrepreneurship from about 1980, in the midst of a giant recession.  The technique was the application of knowledge to human work – both high and low-tech.  The term for this applied knowledge is techne—making or doing.  As the father of 20th century management theory, Drucker calls this the dynamic disequilibrium that informs all aspects of society.  Creativity works as a major destabilizer that, despite its heavy fallout of problems we weren’t ready to deal with, is the new basis of economic expansion driven by managed creativity.  This is the thought movement which took hold under that label around the same time in the late 70s, as the engine of entrepreneurship. 

This renaissance holds a positive view of change as healthy and the basis of opportunity, relocating innovation at the central reality for economic thinking.  Examples are Bell Labs, IBM, and 3M, which created 100 major new product lines at an 80% success rate by the mid-80s. Not everything worked as planned – the Segway, DuPont’s Corfam shoes, hoverboards, and Google glasses.  Yet doing something differently is the impetus behind the American university, the economic engine of technology transfer worldwide.  The re-invention of the hospital on the specialty service model and the creation of the mass market food service industry by McDonald’s are other case studies.   

These institutions, says Drucker, are at the heart of innovation by increasing the yield from resources, discovering new markets, optimizing value for the customer, and redefining the values around the customer “experience” – the latest definition of meeting customer needs and values.   This is the major transmutation of value that makes the markets creatures of what the consumer, not business, needs and wants.

Economists use a comprehensive definition of technology. When they are talking about innovation, they are not thinking just about new machines or inventions, but any new way of doing things.  This includes finding gaps in consumer demand and devising ways to fill them.  Any innovation that increases the value consumers derive from everything they buy and use – provides ways to do away with pain---of cost, time, energy, loss of use, and inconvenience—which can cause obstacles to fulfillment that are considerable and prolonged.

A few years back actor and science promoter Alan Alda hosted a three-part Nova program called “The Human Spark,” a search for what makes us uniquely human. In this exploration Alda marvels at the importance of innovation to homo sapiens in our evolution from homo erectus 1.3 million years ago as we became hunter-gatherers making tools and operating in groups by virtue of language.  From 200,000 years ago homo sapiens were the leading humans on earth, having mastered fire, then jewelry made from our ancestors’ teeth.  Jewelry was and is far more than ornamentations; it operates as a form of wearable symbolism made of bead, bone, seeds, then metals, a form of communication signaling our alliances with others living outside the immediate band or village, widening our leverage by affiliation with—theoretically—anyone and everyone on the planet. 

While Neanderthals relied on a generalized set of tools and processes (hand ax production prominently), our group surpassed these fixed methods by a steady ongoing practice of innovation and change.  The result can be seen in the cultural development of technology and social communications we now enjoy.  Our culture was developed by ongoing challenges and the change management we invented to meet those challenges, from ice age art 20,000 years ago, agriculture 10,000 years ago, to today’s information age.    

 

 

Monday, July 20, 2020

Hierarchy and Stress



“The important issue is not how much inequality there is but how much opportunity there is for individuals to get out of the bottom classes and into the top….If you have opportunity, there is a greater tolerance for inequality.”
-- Economist Milton Friedman

Opportunity

Friedman’s perspective is the American popular stance on the exchange of the egalitarian model for social mobility and the potential gains it represents.  Americans more or less constantly imagine ourselves as upwardly mobile—hence the current focus on the “fact” that we are the first generation fated to do less well than our parents.  Ambition causes us to ignore the many insults to our status at the lower end as we work our fortunes up the progress ladder.

This upward identification also explains the popularity of luxury brands in designer clothing, accessories, beauty, and housewares for a large and growing middle class—the 90% of Americans who identify this way.  That is quite a range of occupation, income, and education (the way the US government defines social categories) that all consider themselves middle of the curve.  As Americans, that’s just our start point.  Almost every decision we make is in the service of moving our status upward, or at least holding it steady against slipping downward.  That includes the career we hope to build, the money we hope to make, and the school and working experience we bring to the first two.

Hierarchy

Humans are the most hierarchical of the primates.  We live in the most complex universe of ways to be ranked by competence, esteem, resources, relationships, and power.   This is the reason that everything we engage in involves some range of unequal opportunities and rewards (Cecilia Ridgeway describes this world as a “struggle for precedence.” (2013, American Sociological Review)

Fear and aggression are not just consequences of living in difficult times or environments, but natural outcomes of the anxiety humans experience because of our hierarchies; the way we need to think about, and interact with, others. This state is based on our higher or lower relationship with them. This is why we spend most of our time in “social thinking,” trying to determine our standing, our potential standing, and the intentions of others by navigating our way through social situations, real, contingent, and imaginary.  Its extreme form is Social Anxiety Disorder, a distraught condition in which these thoughts are highly anxiety-producing.

Stress anxiety

The psychic outcome is social anxiety resulting in negative effects on GI functioning, sleep, sex drive, and blood pressure acted on by adrenaline and cortisol.  Our large social brains are always subconsciously addressing complex social situations and transactions.  The resulting stress correlates well with our relative place in the social pecking order. What keeps this stress loop going is the difficulty of predicting what constitutes either a social threat or promise, and to what extent we can determine these are either real, likely, or projected by our own fears, doubts, and uncertainty.
 
For example, social media leads to insecurity because everyone is posing and posting their own lives as better than others.  Poverty is connected with a lower level of neuronal connectivity in the frontal cortex (inhibition control and restraint, focus, decision-making ability).  Chronic and generalized stress leading to hypertension and depression is an expression of feeling subordinate or less powerful.  Our feelings of self-efficacy—how competent and confident we are—are tied to the way we perceive our social rank. 
Social rank and dominance are directly linked to feelings of confidence, self-possession, optimism about the future, relatedness to others, and ability to navigate the social landscape.  The American values of mobility and choice are tied into a lack of connection and obligation to others—but only the positive side of that ethic, that of being free to make autonomous choices, to make up and then change our minds, and choose our associates as we see fit without loss of stability and support.
   
Neurobiologist Robert Sapolsky comments in an interview on stress in primates that “Up until 15 years ago, the most striking thing we found was that, if you're a baboon, you don't want to be low ranking, because your health is going to be lousy. But what has become far clearer, and probably took a decade's worth of data, is the recognition that protection from stress-related disease is most powerfully grounded in social connectedness, and that's far more important than rank."  (3.7.07, Stanford News)


Analog:  Alpha-companies versus Beta-consumers

Is there an operational analogy between being one-down on the social hierarchy ladder and being a consumer?  Why do consumers feel so contentious and adversarial about systems they have bought into that are pledged to “work with you” to resolve problems? Our current research with a consumer rights agency has inspired some digging into the company-consumer relationship, which has become more and more complex and difficult to navigate.
A major clue can be found within the legalese of contract language.  This is the elite code that requires a lifetime of education and experience--just to read through. Outside the legal profession, almost no one is able to accurately and with facility read the most basic contract – for example, an insurance policy for home appliances, the home warranty agreement.  These contracts specify long lists of conditions under which the policy holder is NOT covered and the policy not in force, making only the most basic statements about when coverage will be granted for repairs and replacements.  This is the start-point for policy-holders feeling incompetent, outranked, and swindled.
   
This is also how consumers learn about what they are entitled to.  It isn’t by careful preparation for the worst situations—those are too abstract and uncertain, and also too numerous, to imagine in detail or even guess at.  The way we do learn is by failing.  We make an unsuccessful claim, ending in denial of payment.  At that point our frontal brains get busy at focusing on the small print, trying to work out what happened, why and how, and what we can do about it now.
 
The real problem is this: The company holds all the cards—it is their contract, and so they will read it to their own advantage, not ours. They are the alpha party as the arbiters of what gets covered and what ends up out-of-pocket.  The consumer is quickly one-down on the social ladder and stressed by the self-esteem loss. This is why customer service is more accurately termed “customer management.”  The goal is to control and contain customer demands, not to meet them. Consumer advocates are always having to assure clients that their problems are not unique and they are not alone.
 
Consumer advocates are hired expert guns.  They take over the job to define the problem, negotiate between the parties (often from two to ten involved), and understand how to work toward a solution that defends the rights of the beta, the consumer, and still plays within the alpha rules. In this role, the advocate acts as a counter-balancing social connection, an equalizer. Its role is that of the third party coming to the table with the authority of expertise and the standing to negotiate between adversaries. This role in itself mitigates the disparity between unequals. This process acts to form a bonding alliance with the consumer-client that reduces the normal hierarchical stress symptoms while improving self-efficacy by actually enhancing the beta’s status.