How to spot new trends

Once again I have Wired UK to thank for some great new ideas.
The June issue’s “How to spot the future” feature has sage advice from a host of tech success stories about spotting trends.
My favourites are:

• Look for cross-pollinators: ideas which have been taken from one area and used in another. And people who integrate ideas from different fields.
• Demand deep design: where it’s a core part of the simplicity of something, the way Apple and Facebook, for example, do it.
• Favour the liberators: those who liberate something for consumers and users (like iTunes pricing policy did) and those who allow liberate underutilized resources by giving easier access to them, making them more liquid in the financial sense.

Go read the rest of the article for the rest and some inspiring examples.

A-B testing isn’t a-bsolutely right for everyone

Not for the first time, Wired magazine has been responsible for exposing me to an exciting new idea with a range of possible applications beyond its original use.
In this case it’s the notion of A-B testing featured in the June 2012 issue of Wired UK.
Put simply, instead of deciding which of all the proposed website designs are best, some firms or organisations simply put both or all of them live, split the website traffic to go evenly between them and wait for the resulting sales/conversion/hits data to tell them which the users/customers say is best. Once that’s clear, the winner runs solus. Simples!
It’s a neat idea which could be applied in lots of other areas, such as direct mail (one or more test postcodes could receive different versions of a mailing and response rates compared), TV and radio advertising or even newspaper page design (different geographical editions could have different versions of a limited number of pages).
But there are some areas you wouldn’t want to use this approach. Principally, those where the audience isn’t homogenous (of equal value to you or your client) or is a group of high value, such as key accounts, who you can’t risk being exposed to anything other than the best possible representation of your organization or client as a bad impression from receiving the ‘losing’ design could cost you/them a lot of money.
Doubtless, there are lots more areas where this would work really well. But think carefully before using it.

Changing the banking culture — not quick or easy, but necessary

Out of the furore and fuss over Barclays’ under-reporting of its borrowing rates in its LIBOR submission and Bob Diamond’s management of the bank has come a loud and frequent call for the culture of banking to change.
On the face of it, it seems a fair, reasonable and probably necessary step. But how can it be done?
The answer is not quickly or easily, but it has to be done if the banks are to repair the reputational damage their behaviour over “pay for failure”, bonuses, misselling and the risk-taking that led to the global financial crisis over the last few years has done.
The problem is that changing in an individual organization is hard enough, let alone changing that of a whole industry.
The reason is how organizational and industry cultures are formed. Geert Hofstede’s work looking at the different cultures within the national subsidiaries of international organisations showed that an organisation’s culture comes only partly from the corporate culture (espoused values and behaviours) promoted from the top — the rest is derived from the beliefs and practices people bring with them from their upbringing and local culture, as well as the industry culture elsewhere.
So Barclays management alone can’t fairly take the blame for all of the flaws in its culture which led to the mispractices as some of them will have come with staff who joined from elsewhere or came in thinking cheating was ok.
The other complicating factor is that the industry culture is partially derived from the nature of the work, as Deal & Kennedy have shown. Their model shows that places with different levels of risk (uncertainty) and feedback (praise, bonuses, promotions) create different cultures and that the high risk, quick feedback situation encountered in trading in the City creates a “tough guy, macho” culture. Which is why those who enjoy managing risk, competing with others and receiving very tangible rewards fit in well with that kind of environment.
So what can be done? Whether or not you believe that the City’s leopards can change their spots, the least the banks can do is be seen to be making efforts to change their behaviour with culture change programmes both at each organisation and industry-wide through accredited training programmes.
Each needs to be seen to reward those who live the new espoused organisational values as well as reward (rather than attack or sack) the whistleblowers who report misdeeds. By rewarding and praising those who behave in the new way required, they can be seen to be pushing for positive change and encourage at least compliance, if not belief change, in the rest.
Whether or not individuals’ actual beliefs about what is and isn’t acceptable will be changed, compliance with the new way of behaving is what everyone wants to see. And only once behaviour is seen to have changed will the rest of society be happy and prepared to improve their view of the banks.

Airmiles agony

http://www.independent.co.uk/travel/news-and-advice/simon-calder-free-flights-that-now-cost-a-small-fortune-2348214.html
I was rather shocked, if not surprised, to hear on Breakfast News this morning about the devaluation British Airways has announced for converting Airmiles into credits with its new scheme Avios. Simon Calder’s full piece for The Independent is above.
BA says it’s introduced the new scheme to have one common frequent flyer name across all its brands (it can’t use the name Airmiles outside the UK).
But although Airmiles will be converted into 10 times the number of Avios credits, the actual redeemable value will drop by 25% AND you will have to pay towards flight costs too.
Which will leave many long-time Airmiles members, such as me – I even used them to decrease the cash cost of our honeymoon in New York – feeling somewhat cheated.
So why the devaluation?
Well, firstly BA would look to be wanting to tidy up its legacy loyalty scheme by transferring everyone into the new one (it already has another called BA Miles).
Second, this should encourage Airmiles members to use them for flights, or other things, before the November transfer and devaluation – which would provide more BA with more activity and profits.
Finally, what I suspect is the main driver and unpublicised reason – reducing the contingent liabilities on their balance sheet.
Basically, the more customers build up loyalty points but don’t spend them, the more a company has to put aside money in case lots of them decide to use them. Similarly, car firms have huge amounts set aside in their contingent liabilities in case of expensive recalls or lawsuits. It’s “rainy day” money.
In BA’s last annual accounts the company (rather than the group) had £385 million set aside for contingent liabilities (http://bit.ly/nUvIIi). Which is a lot of money you could be doing something else more profitable with.
It seems to me that the new boss may be wanting to free up some of this by reducing the need for it through having fewer unused Airmiles hanging over the company’s head.
It’s a fairly sensible business decision, but from a longtime member’s point of view, a hardnosed and somewhat unfriendly one. How many people with whom BA has a long-time relationship will spend their miles and not join the new scheme? Many will probably transfer over but feel somewhat aggrieved.
But maybe that’s just the harsh reality of the airline business in a recession.
Whatever, PR-wise it’s not looking very customer-friendly.
And it makes using the phrase “the world’s favourite airline” a little harder.

The two key words to beat the credit crisis

Why are there continued jitters on the world markets?
1) Uncertainty over who will lose how much from mispriced CDOs/CLOs has led to unwillingness by banks to lend cash they may need to solve their own problems as a result of the credit crisis.
2) Lack of trust after credit rating agencies mispriced the risk of the CDOs/CLOs has led to a lack of trust in ones still being sold.
So, as with the last crisis from similar uncertainty and lack of trust — the crisis of faith in corporate results and their auditing after the Enron and Worldcom collapses — the key is renewal of transparency which can lead to renewed trust.
Markets can only be efficient if they’re truly transparent and trusting.
And efficient markets are good for us all as they’re the building block of economic growth.

A lesson to us all

I was interested to read the lead opinion in The Economist this week, on the lessons of the credit crisis.
Most obviously it’s been a lesson to all involved in the markets about the dangers of not ensuring well enough that you’ve priced the risk of assets accordingly. It’s also shown there are structural defects in the regulatory system which allowed the risk of this event having wider, more catastrophic, implications for the wider economy to exist at all. And not just in the US — given the enormous interconnectedness of the global economy, for all of the world’s major economies too.
It’s also further proof that anyone who believes in the strong version of the efficient markets hypothesis (the idea that all available information is factored into market prices so quickly there’s no room for arbitrage or fraud) is clearly wrong. Or at least it can’t be true all the time, especially when risks are mis-priced, as the CDOs based on sub-prime mortgages clearly were here.
Once again, the semi-strong version of this idea seems to hold truer to reality. The fact that the Fed had to intervene at all is proof. That said, the efficiency of the markets is now providing the necessary correction.
The other lesson I would draw is that old one about not allowing familiarity (or habituation, if you want to give it its Sunday name) to allow you to become desensitized or complacent about the risks your business is taking every day.
If you’re a tightrope walker and succeed in not falling off from January 1 till December 30, you surely don’t want to allow yourself to become complacent enough to think the risk of falling off is any less on December 31. Of course it’s just the same as every other day.
The other problem with some of the big US banks involved in this crisis was that because they had complex theoretical and computer models created by very smart people based on assumptions that worked 364 days a year, or every days for many years, they allowed themselves to fall victim to the kind of “boiling the frog” attack (where risk and danger increases so slowly you don’t see it coming) that famously brought down Long Term Capital Management in 1999. Their model didn’t allow for the possibility that Russia might default on its sovereign debt. But it did and it cost LTCM billions.
Financial strategy text books will tell you there is no risk only where there is absolute certainty. We all need to remember that every day.

Why Sony is repeating strategic mistakes with the PS3

http://www.wired.com/wired/archive/14.09/sony.html
This is a very interesting Wired article which raises real concerns that with the PS3 Sony is not only betting the whole company’s future on it, but also making the same strategic mistakes it made in the past.
The thing that triggered the notion of Sony repeating strategic mistakes in my mind was the section about the PS3’s revolutionary Core processor. Although its performance is a step change ahead of the one in Microsoft’s X-Box 360, until games developers can work out a way to make best use of it the PS3 gaming experience won’t be noticeably better than that of its rivals, despite the console being sold at a premium price. Which brings us back to the adage that pricing is transparent, but value is opaque.
Sony’s problem is they’ve been here before — with Betamax. It was sold at a premium price (compared to VHS machines) as it was technically better, but its value was opaque to domestic consumers (only professional users could perceive the higher quality and continued to use the format for broadcast-quality news cameras for many years).
Sony also failed to build the network effects the VHS alliance managed by ensuring there was content support for it through availability of Hollywood movies to rent in VHS. Sony later tried to make up for this by buying Columbia Studios (interestingly, recently criticised as a mistake by recently retired Sony boss Nobuyuki Idei).
Now with PS3 Sony’s trying not to make the same mistakes by ensuring content from Columbia and other studios for the Blu-ray high-definition discs the PS3 will launch, getting games made by major independent firms and building a wider network of firms supporting Blu-ray.
But the Wired article importantly points out that Sony is dangerously ignoring the “fun quotient” in the control mechanism, unlike Ninentdo’s Wii console — which uses a gyroscopic wand to let you control by waving your arms around.
So why is Sony making the same mistake again? The answer can easily be seen in its organisational culture, which is an engineer-ruled product-centred one because (as the article says) it was founded by engineers who wanted to make technically great things rather than marketing men who wanted to meet known human needs.
This culture (typically introvert and not very socially-oriented) has also, I believe, led to the tendency not to see networking for shared gaming over the Web as important (a senior figure admits they see it as an extra, rather than a core feature for the PS3 — unlike Microsoft with the X-Box).
Unless and until Sony can change its culture to get its engineers to ask people what they need and want before they go off to develop products, it will be condemned to make the same mistakes again and again.

Peter Day – more great work

Peter Day is one of the few journalists who, if I come across something by them by chance, I have to sit up and take notice (the others include the BBC’s John Simpson, Evan Davis, Mark Urban and Charles Wheeler).
Why? Because they are all experts in their fields and each can take a deep and insightful analysis of a subject and make it fascinating and entertaining or informative, or both.
Aside from doing the excellent Radio 4 business programme In Business, Peter Day writes an occasional column on BBC News Online called Work In Progress about business issues. The following article is typical of his great work and a valuable lesson on the importance of managing consumers’ expectations.
Enjoy!
http://news.bbc.co.uk/go/pr/fr/-/1/hi/business/4702995.stm

Brand perception management - a key corporate competence

http://media.guardian.co.uk/marketingandpr/comment/0,,1545579,00.html
I read this article and immediately thought of companies like Innocent Drinks, Nokia and Starbucks — who are not only good at being good (ethical) but also good at managing the perception of their brand by customers and potential customers.
Innocent is very open about its ethically-driven mission statement and lives that through its donation of 10% of its profits to projects in the countries from which it sources its fruit and its annual free festival, Fruitstock. It's cheeky, fun, brand personality comes through in the silly jokes on its packaging, adverts, e-mail newsletter and website.
Nokia, being more corporate, manages things through its marketing and CSR (corporate social responsibility) activities, including its participation in a brilliantly honest and transparent (but also hilarious at points) BBC4 Storyville documentary about its CSR audit of the Chinese manufacturer of its phone chargers - http://www.bbc.co.uk/bbcfour/documentaries/storyville/made-in-china.shtml
Just by doing the film they showed how much they really mean all that stuff - it wasn't just tick-the-box for them.
Ditto Starbucks, whose approach to CSR has been deliberately low-key. While they do Fairtrade-like programmes to ethically source all their coffee and a lot more besides (http://www.starbucks.com/aboutus/csr.asp ), they don't make a big thing about it in their marketing activities, perhaps for fear of being accused of being a big Janusian American corporation by the anti-globalisation folks, even though Starbucks can prove everything they claim.
So much of their perception comes down to the other stuff they do in their marketing and the actual experience itself, which inclues the whole thing about making it "The Third Place" in your life (with everything instore, including the muzac, carefully planned to match the brand - don't forget Mr Starbucks, Howard Schultz, is a marketing man!) and by selling cool music through its Hear Music label.
So where is this going to?
I believe some customers and potential customers assess their potential for a relationship with a brand based on their existing perception of it - functionally and ethically. How much price plays a part depends on how ethically-motivated they are.But the more transparent they're seen to be, the more trustworthy they're perceived to be and the greater is their opportunity to start a new brand relationship with that ethical consumer.And that's why managing the perception of your brand is a key corporate competence in the 21st Century.

Why do we hate Wal-Mart and love Innocent?

It's a simple enough question - why do ethical-thinking folks (and that, IMHO, should be all of us) hate market-dominating firms like Wal-Mart and Tesco but love Innocent, even though its share of the UK smoothie market went from 37% to 61% between last year and this?
Well it clearly isn't about their "ownership" of their market spaces - Tesco and Wal-Mart are just as dominant and have just as much market power in their areas.
So why is Wal-Mart seen as "The Beast from Bentonville" and Tesco "The Creature from Cheshunt" (my own phrase!)?
The simple answer is their perceived behaviour — how they're seen to use the market power they've gained through success with customers.
Do any decent Internet news search and you'll find scores of stories coming up about how Wal-Mart and Tesco are said to be Janusian (two-faced) in being nice to customers and promoting themselves as helpful and friendly in their advertising to them (c.f. Tesco's long-standing "Every little helps" slogan and use of the voices of well-loved celebrities in their UK TV ads) while at the same time being horrid to their suppliers (see countless examples of Tesco being accused of forcing down prices paid to farmers and demanding payments from suppliers just to stock their products, supposedly to cover the costs of in-store promotions) and staff (see the long-standing stories surrounding Wal-Mart's use of low-paid, sometimes illegal, immigrant staff supplied by agencies).
So why are we bothered? My view is that, from our own personal experience, we hate bullies, particularly disingenuous ones who pretend to be nice while actually being nasty. Like the "Things It Took Me 50 Years To Learn" item - "If someone is nice to you and nasty to the waiter, they're not a nice person."
But, as I suggested, not everyone is bothered. Some folk don't care about how Tesco behaves to its suppliers - they just want it to give them the lowest prices and best service. Who cares how they come about?
But as the number of ethically-motivated consumers grow, perceived behaviour will become an increasingly important part of corporate strategy as a source of competitive advantage and differentiation for long-term market leaders.
P.S. Note from my little black Ideas notebook - "1/3/04 - Ethical is the new organic." I may not have published it then, but it's increasingly proving to be true.

I'm back!

Well it's been way too long since I last posted, but I'm coming back!
All to do with the heavy weight of family commitments, but that's more under control now.
And while I've been offline blogging-wise I've been taking notes about business issues which have caught my interest and made me think.
So expect the results here soon.