Pretzel Logic – Social and Collaborative Business

It’s fascinating how we consider New Product Development /Research to be investments (by implication, a return can be had on these) on one hand, but we allocate marketing and customer acquisition as an expense. In plain English that translates to: We’re ok with considering what we design, build and sell, an asset that will yield returns. But not the effort it takes to serve prospects and customers that may be interested in what we purvey. Baffling, no?

Marketing has this almost comical, inverted model of inputs and outputs that defies Economics 101. A business typically buys inputs at wholesale and sells products at higher margin retail thereby seeking to make a profit. In contrast, marketing uses big picture estimates such as ‘customer lifetime value’ to estimate how much you can make from the average customer (output). But excluding branding, cost inputs to acquire prospects and sell more to customers are at hefty, mind boggling, retail costs – point advertising spots to sell a product, product launch emails, webinars, promotions, and recently, SEO/SEM campaigns. Hell, we financed Google’s insane success thanks to this model, if you think about it! 

Moving from Transactive vs Relationship Elasticity

I see customer acquisition model as a mindset of ‘transactive’ elasticity. In other words your spend goes only as far as supporting each transaction. So, your spending over and over again to sell new products to the same target customer. And that tactical design can’t be treated as anything but an expense. Conversely, investments are nurtured over time, are less susceptible to cuts in a down market, and yield results at intervals or in perpetuity. 

Contrast this with a model where you invest in relationships with your customers by engaging authentically with them in communities. These communities give the money you allocate to customer acquisition far more elasticity by spreading the wealth across the life of the relationship with relatively smaller spikes in expense that correlate with new product awareness. They center on investing in fostering and facilitating a dialogue with your customers, your partners and your prospects. Dialogues that far outlast single transactions. And via a platform to engage with them between transactions. Sounds like an investment and not an expense to me now.

This is articulated really well in, “CRM at the Speed of Light”, a must read by the terrific Paul Greenberg:

“Transaction is not the paramount artifact of the interaction. Instead a transaction becomes the side effect of rich relationships that are built on conversation. This notion is fundamental, and is a radical switch in priorities for the interaction between customer and vendor”

Edge Relationships Don’t Scale

Creating true relationship networks, whether on third party participatory networks (such as Facebook or Twitter) or on your own branded communities require a clearly defined approach, mindset and interaction design.

Umair Haque, Director of Havas Media Labs and blogger at Harvard Business Review wrote a superb post “The Efficient Community Hypothesis”  (that I recommend you read in full):

“People, truth, identity, reputation, values are the five elements of an efficient community”

I agree with that and they apply to communities that foster these relationships.

That said, community building often gets limited to efforts managed by the “social media expert” or the community manager. Its no doubt a first, extremely important step and herculean at that, (just ask Rachel Happe) but edge efforts don’t scale easily. And if the effort is superficial, they quickly start reeking of old school spam marketing (just see many of the groups on LinkedIn, for example, that sport the same old marketing pitches).

To be truly valuable, customers want to bypass marketers and get to those that have the highest quality information. The best information, void of spin or marketing speak, are in the minds of your other customers, your channel partners who may interact with customers more than you do, and your suppliers who know more about individual components that make up your product.

To enable such a design you need a collaborative design and enabling technology infrastructure that allows for the right minds to wrap around the customers needs. Marketing needs to broker and facilitate that, and then get out of the way. That’s the new customer acquisition design for the 21st century enterprise.

For a more in-depth overview of how to respond to this new customer dynamic and to move from a transactive model to a relationship model, take a look at a recent piece I published with Oliver Marks and TechWeb (email required).

Getting There

I’m not suggesting we stop advertising products when they launch. But do we have to buy marketing, over and over again at retail prices to sell that same customer time and again? Instead, why not invest (not expense) in more elastic relationships that defrays a good chunk of that retail cost?

Customer Acquisition seriously needs a new name to affect any institutional change in how organizations consider the actions and investment behind customer engagement. Customers never gave us permission to acquire them and it’s a bloody expensive to acquire them at retail, anyway. Tomorrows winning CMOs and Marketing leaders will be making a case for this to their CFOs and CEOs, today. I’ve been fortunate to work with some of these forward thinking folks. It’s not about big bang, it’s about etching away at it piece by piece and having it emerge, organically.

I was very disturbed to learn about the passing of Professor C.K Prahalad this morning (hat tip to Shiv Singh).

There were a few books in the 90’s that had significant influence on shaping my personal thinking about how to accelerate performance in business. Three notable ones were The Ultimate Resource (Version One made the case for how entrepreneurship was the ultimate resource but that’s out of print now), Execution and Competing for the Future, by CK Pralahad and Gary Hamel.

About the professor, from Wikipedia:

Prahalad has been among top ten management thinkers in every major survey for over ten years. Business Week said of him: "a brilliant teacher at the University of Michigan, he may well be the most influential thinker on business strategy today." He was a member of the Blue Ribbon Commission of the United Nations on Private Sector and Development. He was the first recipient of the Lal Bahadur Shastri Award for contributions to Management and Public Administration presented by the President of India in 2000.

In this latest book, “The New Age of Innovation:

Professor Prahalad and M.S. Krishnan suggest an internal capacity to reconfigure resources in real time by focusing on clearly documented, transparent, and resilient business processes (the link between strategy, business models and operations) has become a strong differentiator.

As many of you know, I focus militantly on how the internal design of the enterprise need to be re-casted to meet the social customer’s demands and how to compete effectively. Technology differentiation as a competitive weapon played a central role in the last round of management thinking and strategy. Going forward its going to be about how effectively you can create and leverage people networks to solve business problems and get ahead by complimenting those discrete processes that have been unnecessarily fenced in by those very structured systems. Technology obviously has a critical role to play. But its a lot more than that.

Professor C.K. Prahalad was one of the few that not only pushed the boundaries on where organizations need to be interms of their thinking and wiring but he was one of the few that brought practical solutions that were cognizant of realities on the ground. More important he never lost sight of the “how” as he presented new thinking around the “what” and the “why”.

Here’s the professor on Innovation:

The Hindustan Times and Business.in have more details.

My deepest condolences to the Prahalad family and his loved ones during this difficult time. May he rest in peace.

If you’ve read this blog before, you know that the central theme here as well as in my work is centered around performance acceleration and so I love seeing quality stuff on this topic. Dion Hinchcliffe has a super post up on ZDNet addressing the topic of performance in the context of Enterprise 2.0.

Dion provides a very balanced score card on the results to date as far as Enterprise 2.0 is concerned:

In fact, I would propose that most of the theoretical discussion around the benefits and returns of enterprise social software is largely out of context. We still focus too much on the tools themselves (which are exciting), the potential for radical organizational change and/or transformation of traditional hierarchies (also very interesting, yet it unnerves those trying to run a business even though such transformation takes a time), and a focus on new collaborative approaches instead of looking for the best way to solve business problems. What is often lost when the primary focus is on Enterprise 2.0 — defined here as freeform social tools in the workplace, or the “Facebook imperative” — is a concentration on developing solutions to achieve specific business objectives. When you have tool myopia, it sometimes seems like every business problem looks like a nail for your particular software hammer.

Amen.

The topic of performance and alignment around business objectives has been covered by a number of thinkers and doers in the space, including Hutch Carpenter, Bertrand Duperrin and Oscar Berg. Over a year ago, I proposed a simple illustration for practitioners to consider, that differentiates between the notion of social computing (concepts and tools) and Enterprise 2.0 (a state the enterprise achieves), depicted by this diagram from a much older post:

Similar messages have come from a number of folks, calling feverishly for business justification and performance alignment. Some great examples from Bertrand, Oscar and Hutch here. That’s a sampler but these and other thinkers have contributed excellent thought leadership and grounded ideas on this topic.

Dion brings up a good point that there’s too much focus on tools. No question about that. But his second point about radical transformation is far more important:

There’s still plenty of theorizing and even calcified views around the promise of social for social’s sake where making the business social from the core out is just the right thing to do. I’ve firmly believed and consequently advised clients to look at it differently. At a time when organizations are looking to pull themselves up from a near death spiral by surgically focusing on set of needed business fixes, instead of providing the necessary depth to articulate what’s structurally wrong with a given mode of conducting a business activity and how enterprise 2.0 could be a possible performance enabler, the focus often is on the benefits of social towards more nebulous outcomes such as openness, information and email overload, sharing, and productivity. All of these are important but addressing these benefits need to be a means to some measurable business end.

Where it can get even more dangerous is proposing decentralized DNA changing models to move to social from structured and process, again with an under appreciation for business context, decision facilitation structures and other political and incumbent design realities on the ground. Not to mention, proposed decentralized governance models as amuse-bouche. To be clear, I’m not against proposing DNA changing business designs in principle, but boy you better be able to back up the justification behind that 24 month turnaround plan your suggesting that’s more substantive than the revolution that is socialized work without a cause. Right about that time, the CIO sitting in the room is quietly thinking, “I have a worldwide SAP upgrade to worry about, thank you”.

The notion of emergence where adoption of these E2.0 concepts and tools comes from the bottom up just never sat well with me. But, ironically, if there’s one place where I consider emergence to be totally applicable is in fact the DNA change process, built off of the success of discrete business outcomes and subsequently federated across the enterprise. That’s a topic that I deal with all the time, but I won’t get into it here.

And culture, whilst certainly a common adoption barrier, is often cited as a huge deterrent to adoption, when in actuality, the required business alignment was missing in the early stages resulting in fuzzy understanding around participation incentives by end users to give enterprise 2.0 a real chance of success to begin with. Practitioners are beginning to see that culture and behavior can actually be harnessed to drive adoption and ultimately performance. Change is scarce currency in any enterprise context.

Not that it matters too much, but the process pundits will continue to barf on social as long as these altruistic benefits of the enterprise social web command the airwaves. To their credit they have a point in that its going to take a lot more to unlock those business initiatives (and budgets) that are enabled by structured ERP systems or Microsoft SharePoint that conveniently shows up with Windows Server on every Sys. Admins desk.

Ultimately, a central problem lies is measuring or estimating performance for Enterprise 2.0. As Dion says it is in fact notoriously difficult.  But it shouldn’t be done in the first place. Performance or return needs to be calculated and measured at the programmatic level around business solutions your trying to affect. Enterprise 2.0 approaches and technology are but one part of the overall strategy, investment, return and risk model.

Social because its better than anti social is hard to argue with, but it just won’t cut the mustard in the long run, especially on Mahogany Row. Focusing on business performance, and a credible, honest assessment of where social and collaborative concepts actually can in fact move the needle, will.

Talking about honest assessments, here’s a quote from Chris Yeh, a vendor and investor in Enterprise 2.0 software that speaks volumes:

Customers who buy PBworks as an experiment in “social software” tend to see an initial spike in activity, but disengage over time.

My good friend (and fellow competitive swimmer, back in the day), Dina Mehta, wrote an insightful post based on her research work around the topic of product durability. Though she refers to her findings based on the Indian market and the changing nature of durability, locally, there’s no question that this is a global phenomena.

The central theme of the research is that consumers value product durability less and less as time goes on. It used to be that when we bought products and services, life of the product was an important consideration and products were advertised as such. In Dina’s post, Stuart Henshall provides the most well known example:

When I think durability I think of Maytag – the washing machines that go forever here. Yet today that “durable” isn’t expected to last 20 years and new features, energy efficiency etc are changing the definition

Dina provides some great local examples of how consumers look at durability today. Based on her research, she concludes:

Thinking thru current Ads on tv – only the infrastructure and paints guys seem to talk about Durability in their communication today.

As Dina points out, its obviously not the case that customers don’t want products that last; it’s just that the markets in India finally afford choice. When I grew up there, you could only by one of 2 types of cars, a handful of electronic or appliance brands or for that matter, chocolate (yes, a travesty). All that’s changed now. And with choice comes the desire and willingness to swap for newer, shiny models at a more frequent pace.

There’s plenty of parallels to be drawn in the rest of the world where choice has been standard for decades. However, the marketing approach to this was to turn up the volume when it comes to badgering the customer with more marketing emails. Or to throw in the towel and compete on price with promotions that were often loss leaders or just a way to empty out the warehouse.

Durable Relationships

The truth is that in this age of transparent and open marketing which is moving to influencer and peer to peer modes, one sustainable approach to respond to this consumer trend is to focus on building durable relationships with customers. Existing customer relationship programs and enabling technologies (CRM) often enforce a fenced-in transactive model where its about that individual sale. That needs to move to a relationship model that can outlast that single transaction. And with the proper strategic planning, create an interaction environment that results in durability. Choice is here to stay. All you can do it make the customer comfortable with the notion that your first in line when they are looking to exercise choice. And one way to do that is to preemptively help them understand exactly why and when you should be in consideration. Thats done through effective customer Networks.

From a programmatic stand point, the answer is not jut Social Media or some other over intellectual way of looking at public or consumer relationships. Social Media is part of the larger tapestry. The answer lies in reworking the process of building and sustaining relationships with customers via social and collaborative forms of engagement. That comes from revisiting the mode of engagement that extends far beyond the nominated “social media leads” but permeates the walls that today, omit interaction with traditional sales, marketing, internal and partner experts who truly have the most substantive knowledge. Anything less will come of as plastic.

In turn, from an enabling technology standpoint, that means rethinking how your Social Media, CRM and so called ‘SocialCRM" and ‘Enterprise 2.0‘ efforts come together to build and foster genuine, durable relationships.

I highly recommend you read Dina’s original and follow up post on the implications of durability taking a back seat in the context of purchasing behavior. She’s got a very passionate community of intelligent folks that have provided comment.

This morning my favorite business journal, the Economist, has a good article on how the recession has had an impact on productivity and the differences in fall out in the United States vs. the European Union.

First an extremely interesting and arguably polarizing difference in how productivity is defined. The economist says:

Producing more by working less is the key to rising living standards, but in the short term there is a tension between efficiency and jobs.

Whether right or wrong, I don’t believe organizations at least in the United States consider this the goal. Here, its generally about get people to cram more work per hour so we can get more out of their eight hour day. Contrast that objective with them being able to go home early and have a life. But I digress.

On to the the central theme of the article:

Analysis by the Conference Board, a research firm, shows just how different the recession was on either side of the Atlantic. America’s economy shrank by around 2.5% last year but hours worked fell at twice that rate, so productivity (GDP per hour) rose by 2.5%. The average drop in GDP in the 15 countries that made up the European Union before its expansion in 2004 was larger, at 4.2%. But hours worked fell less sharply than in America and, as a result, EU productivity fell by 1.1% (see table). Workers that held on to jobs in America and Europe had their hours cut by similar amounts. The reason total hours worked fell by more in America was that there were more job losses there: employment fell by 3.6% last year, compared with a 1.9% fall in the EU.

Productivity has generally been one of the central themes when it comes to showing benefit from social and Enterprise 2.0 concepts. Often adopted from Knowledge Management. If you’ve read this blog since its inception about 15 months ago or you’re one of my clients, you’ll know that I have a fever-invoking aversion to casting productivity as goal of Enterprise 2.0 design (as opposed to an enabler). This, IMO, results in the colossal short sell of the promise of Enterprise 2.0. Its always been about performance acceleration here, where enterprise 2.0 concepts we know of today are enablers toward established performance goals.

Sticking with the productivity benefit argument since it is used a lot in the context of Enterprise 2.0, is it the case that Europe is seeing slower adoption of Enterprise 2.0 concepts because of the sheer people capacity that still exists in organizations? In other words, the need to do more with less is not as strong in Europe as compared to what’s seen in the United States? If people are the ultimate producers and you have an abundance of labor, being productive by finding experts faster, searching for data and content less, reducing time consuming meetings and email, etc etc don’t seem to be strong, budget-shifting value propositions.

What do our European management thinkers and product vendors think about this and what are you seeing on the ground?

Moving on to a stinging conclusion that should be a wake up call for us all in the Enterprise 2.0 space, whether in the United States or Europe, the Economist says:

Much of the expected slowdown reflects changes in technology, says Mr Jorgenson. The burst of strong growth in American productivity after 1995 was spurred by advances in the semiconductor industry, which led to sharp falls in the price of computing power. The technology is still improving but at a slower pace, and productivity trends will soon reflect that. The global outlook is brighter, because the benefits of IT are far from exhausted in big emerging economies, such as China and India. But that is no longer the case in America, says Robert Gordon of Northwestern University. “We’ve already picked the low-hanging fruit,” he says.

Wow. The benefits of IT are exhausted in America? I don’t buy the conclusion that we’ve wrung all the possible value out of productivity angle in the west. But being objective, if this is what the market perceives as the state of affairs with respect to productivity, those that continue to beat the productivity drum as end value better step up their game. Alternatively, lets stop playing defense, go after those fenced in processes policed by rigid ERP systems for decades and focus on how to accelerate performance by reducing cost, driving revenue and mitigating risk.

Not the IT case, the Business Case – for sales reps, product managers, marketers, support and service teams considering and debating the virtues of a SaaS enabled business platform.

Obviously it won’t make up for an allegedly ill-conceived product and Google Buzz is getting a lot of heat for being excessively social without consent.

That said, whether it’s a mode of operating your business or a way to sell software, THIS is agility.

DAY 1: Google Buzz is Announced (Feb 9th)

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DAY 2: Ferocious Customer and Media Backlash (Feb 10th)

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**DAY 5** Immediate Problems Addressed (Feb 13th)

‘nuff said.

p.s if you want the case study on how Google operational-zed this, Nicholas Carlson on Silicon Alley Insider has the lead story.

Earlier this month I did a presentation with my Sovos colleague, Oliver Marks, at the Enterprise 2.0 virtual conference. The focus of our keynote was to  frame the discussion around social and collaborative concepts in the context of business value and performance. We coverd critical issues that are on the minds of executives at large enterprises that are grappling with the tanglble value of social computing in the context of the enterprise.

The slide deck is pasted below.