Is this the opening salvo in the war against social media?

By Richard Eichen

Which country purchased a copy of the ‘Social Network’ DVD? To paraphrase the best line in the movie, “You’re not an asshole social media, you’re just trying so hard to be.”

Silicon Valley companies are extensions of their founder’s personalities. Oracle is sharp-elbowed; Salesforce is innovative and fast-paced, Uber… enough said. Social media’s current problems are not about the founders’ personalities; it is about the effects of their platforms on a larger stage than harvesting user data.  They have created a data equivalent of a nuclear reactor, minus the core damage frequency KPI dial.

Their recent bunch of lawyers, well coached by the crisis PR firms, testifying before Congress on the retooling of their platforms into a propaganda and psych warfare weapon shows how essential they are as a source of news, ‘fake’ or ‘real.’  The word ‘source’ is intentionally used as they are more than just a pair of telephone wires, not responsible for whatever goes on them.

Pew Research Center has explored the reach of these platforms for presenting news, with not completely surprising results (http://www.pewresearch.org/fact-tank/2017/10/04/key-trends-in-social-and-digital-news-media/).  Their October 4th research findings show only a 7 point gap between the number of people who get their news from television (where there is hopefully some fact checking and editorial overview) and online, via a mix of news websites/apps and social media platforms (50% vs. 43%).  This is the tip of the reader/viewer iceberg as 67% of Americans get at least some of their news via social media. To further complicate this pool, 64% of adult Americans see fabricated news stories as sowing confusion about the most basic facts of current issues which assumes the same users can differentiate between ‘fake’ and ‘real’ facts when presented professionally by propaganda professionals.  If this is the result of psych ops, well, job well done.

Besides the national security and threat to democracy this poses, it may also affect the core valuation of these firms.  Those same Pew researchers found only 5% of web-using U.S. adults place much trust in the information they get from these platforms. Since the premise of most platforms is to bind you to their site for hours per day, low trust in what users see, except for those wickedly cute cat videos, can result in fewer ads and sales and less time on the platform itself. Less revenue will lead to lower valuations.

The underlying issue is with governance and internal standards, however the knee-jerk answer is to ask the social media firms to adult-up with a call for ‘transparency’ and systems to solve the underlying issue of exploitation by some smart, sophisticated and very bad people.   For example at an average employee age of 28, Facebook’s management does not have the historical or perhaps educational background to understand how their platform is manipulated  (many developers could care less about politics and more about their options and toys).  Most likely, neither does FB’s Board of Directors. Except perhaps for Donald Graham and Erskine Bowles, all other members all from the hi-tech echo-chamber or FB itself.

The solution is two-fold. First, add Board members with strong credentials in journalism and international affairs. Form a Committee for Journalistic integrity and oversight.

Secondly, the Government should create a variant of the systemically important financial institution (SIFI) enacted after the recent financial collapse to ensure ‘too big to fail’ banks’ don’t.  Declare the social media platforms a new form of ‘Systemically Important’ with sufficient safeguards and controls surrounding news content.

By the way, once again, Prof Scott Galloway of NYU nails it: https://www.l2inc.com/daily-insights/winners-and-losers/prof-galloway-grills-big-tech?utm_source=email&utm_medium=email&utm_content=winners-losers&utm_campaign=email

 

To innovate faster, organize around the human behind the data

By Richard Eichen

The 2017 Nobel Prize in economics went to Richard Thaler for his work on how humans, being irrational, don’t always follow economic theory and dogma.  Funny how the world changes.   Many years ago I studied Mathematically Oriented Macro Economics where we attempted to model the US economy by a series of complex equations. My favorite was the fudge factor component, to help adjust any long formula to retroactively ‘predict’ the past (and therefore presumably, the future).  The underlying assumption is we were all rational actors, making enlightened decisions, describable in the language of mathematics.  We just needed to find the correct equation. We never quite got there.

Companies are the sum of its people, not rational actors in of themselves, and so we have to apply human economic behavior to make them work effectively.  The key speedbump hindering innovation and new product launches in large established companies is what Mr. Thaler termed the ‘endowment effect,’ where people most value (and therefore defend to the death) that which they already own. By changing the definition of what is owned, companies can turn this current form of internal resistance from speedbump to accelerator.

Look at any established company’s org chart, and you will see Brand Management, Product Management, Engineering, Legal and Sales groups.  One owns marketing and messaging with its definition of success; another owns bringing products and new iterations to market with its definition of success, while the others have still additional definitions of success.  The Senior Leadership Team is where the all these definitions of success converge into the common definition of success, be it top-line revenue, or EPS. However, what would happen if, leveraging the endowment effect, we defined success not as an entity to be produced, marketed and sold, but as a specific product domain derived EBITDA flow over 12+ months to be filled with a mix of products and messages?  It moves the common definition of success down at least two levels.

By reconfiguring the Product, Brand, Engineering and other groups to focus on their assigned EBITDA, employees would own, and therefore most value a commonly defined outcome.  This approach is by its very nature, initially disruptive, as giving teams a financial target and not product specifics requires mental agility and deprogramming from the way they were hired, trained and operate. It also requires the company to give them room to think.

Much like economics, it is time to refocus Management Theory on human nature, not forcing people to act in theoretical ways. How many MBA’s would that obsolete?

Are Facebook’s full-page ads a dead end?

By Richard Eichen

Today’s WSJ has a full page ad from Facebook with a set of bullets on how they are attacking their latest PR nightmare. Facebook generally maintains they are a platform, the phone company defense; they just supply a message delivery platform. As Professor Galloway of NYU wrote, that means a fast food chain can serve fake meat because it’s just a meat delivery system?  No, Facebook is responsible and has to step up and solve its problems by a well thought through approach, not piecemeal.

The first problem is not the technology, but a reduction in Facebook’s extremely high operating margins every time they add resources and layers of technology to beef up security and fake news detection. It goes against their low-cost scalability model. Their second issue is when does responsibility transfer to them for knowingly propagating fake news, opening the door to ‘trouble’ and settlements.  These are the price to pay when you mature – you become a company with responsibilities. ‘Break things’ has to include ‘fix things’.

Other industries have solved similar problems and herein lay the solution. Banks and other Financial Services firms have strict Know Your Customer (KYC) requirements, and therefore internal rules, procedures, and systems. They also have extensive Anti-Money Laundering (AML) detection and risk avoidance capabilities.  Facebook can form strategic relationships leveraging existing infrastructures to identify bad actors via named entities and payment flows.  They can then append a notification to the end of any flagged article, or ban the content completely, just as a bank cannot process transactions from known bad actors.

So if the issue is not one of existing capabilities and emerging technology (AI and Cognitive analysis of free-form data), then why the resistance or blindness to solving this issue by going outside the Silicon Valley echo-chamber?  It’s culture. Silicon Valley’s culture is winner takes all, mixed with a level of moral disengagement that would make Attila the Hun queasy. There’s also a fair dose of NIH – Not Invented Here, and that made sense in an industry where it had to create so much from scratch.  However, as these companies mature, such as Facebook, it’s time to adult-up, become a member of the larger community and reach out to already proven solutions to solve already solved issues. They can do it now, or wait for regulators to force them to do it. Which is more palatable?

My engine is spinning, I’m burning gas, but I can’t make innovation progress

By Richard Eichen, Return on Efficiency, LLC

Companies need to innovate, as their once stable, well defined markets evolve from CPG to FCPG (Fast CPG) and then morph into consumer electronics. Banks are going from long-term retail relationships to online and Digital presences, nameless and faceless with a race to the bottom on fees.  Still, companies move too slowly, are comfortable with incrementalism, and leave space for upstarts to enter the market, some to grow, and most to be acquired and buried in Big Corp.

The bottom line is: companies move at the pace of their largest revenue stream and only when faced with an existential threat.  Apple did not develop the iPhone because they thought phones were a great idea (actually, they thought the opposite).  Phones were becoming platforms to download music, threatening the iPod which was then their halo product.  Potential extinction facilitates clarity and focus.

Innovation is about audacity.  On this 73rd anniversary of D-Day, let’s see what was innovative and therefore broke the centuries old static siege mentality mold:

  • Big Data analysis to predict the exact time and day for the right tide.
  • Floating artificial harbors, providing a logistics capability where none existed before D-Day
  • A 3 inch pipe under the English channel providing vehicle and aircraft gas in quantiles to keep the advance moving post initial invasion
  • The Higgins landing craft, created iteratively by a startup, and including the IP contributions of African-Americans and women
  • With water behind them, the Allied soldiers were fully committed in every sense of the word

It took having their backs to the wall, no room for failure or a second go at it.  Successful startups are like that, all-in, innovate big; no way back. Maturing technology companies retain that culture until they get too large and outgrow their founders. Big companies typically live behind their ramparts, feeling safe from a siege, until an innovation D-Day occurs.

How to recognize if your company has a siege mentality:

  • Your Executives, especially the SLT, self-reinforce how great the company is, how crazy the competitors are and who are these upstarts anyway?
  • Middle Management thinks long-term revenue is solid (for now), so they can focus on short term tactics
  • Executives are promoted through the company’s culture filter, absorbing any risk aversion or fear of failure and adopting the velocity associated with your best selling products.
  • Engagement and commitment to ideas have a political cost if they do not support or even challenge that biggest revenue stream. Promote these radical ideas – to a point, but don’t fight for them without paying a price.
  • New product initiatives are run through open-spaced new product teams; nonlinear breakthroughs are typically not funded beyond 1st stage exploration.
  • Innovation by acquisition usually buries the innovation but it does keep a competitor from having it. At best, acquired IP is leveraged into other initiatives.

So the question I’m often asked is, “OK, do I hire an Innovation Leader from outside the company?”  The expected answer is “yes, even from outside the industry”, but a more practical answer is “search high and low for a leader who has the mental agility to be promotable but not so ingrained in your culture they are self-limiting. Put them under a different compensation plan, and put their back to the water.  Tell them if they start to do too many things ‘our way’, they’re toast.  And finally, tell them you want 3 breakthrough products to fail fast in the next 6 months, and 1 breakthrough game changer in 12.”

One last D-Day reference, proving our point:

“This operation is not being planned with any alternatives. This operation is planned as a victory, and that’s the way it’s going to be. We’re going down there, and we’re throwing everything we have into it, and we’re going to make it a success.” — General Dwight D. Eisenhower

Eisenhower was not known for being  a tactical genius, he was a deep and methodical planner. He knew how to get leaders with crazy off the scale egos to cooperate, if grudgingly.  And he had an absolute sense of mission and timing, and doing it big. His boss, Marshall, instilled a culture of rapidly identifying and replacing failing or underperforming commanders, i.e. Generals who followed the book but could not win.

Who else falls into this category, who was also truly innovative? Steve Jobs. On this 10th anniversary of the iPhone, here is a summary of what is was like to work on this breakthrough project:

“Because you created a pressure cooker of a bunch of really smart people with an impossible deadline, an impossible mission, and then you hear that the future of the entire company is resting on it.”  – Senior Apple Engineer.

Combine audacity, creativity, an existential threat, smartest people, 1 year to roll it out – this is how a leader turns organizational energy into innovation motion.

Replace Your Product Features Mindset with Building an Experience Platform

By Richard Eichen, Managing Principal, Return on Efficiency, LLC

Yesterday, I purchased a replacement electric toothbrush, which came with a Quick Start Guide showing placing the device in one’s mouth near the teeth, and 12 pages of illustrated instructions.  It also has multiple settings accessible from the front via button selectors.  The better version has Bluetooth, and I assume the best version includes a satellite link and mouth-cam to post the experience. Still, like a toothbrush, it attacks the same problem as its predecessors, oral hygiene. It looks like a product overloaded with dubious features, probably intended to differentiate a tooth cleaning apparatus from a toothbrush, following this evolutionary path:

Product User Goal When Introduced to Market Conceptual Breakthrough Required of Customer # of Features Usefulness Lifespan
Twig Oral Hygiene 3000BC Ability to identify poison oak and ivy 1 Short
Stick Toothbrush Oral Hygiene 1498 Use over longer period of time 1 Medium
Synthetic Stick Toothbrush Oral Hygiene 1938 Purchase rather than make themselves 1 Medium
Electric Toothbrush Oral Hygiene 1954 Overcoming fear of having a plugged in device near their wet mouth 1 Medium
Rechargeable Electric Toothbrush Oral Hygiene 2000 Recharging so it becomes another personal electronic device like a phone 1 Medium
Overthought Electric Toothbrush Oral Hygiene 2015 Why is this a customizable experience? Can’t AI do it better? 3 Medium

 

When we develop new physical products, especially those controlled by software (and hence easily updateable), we have to be very careful to manage our urge to brainstorm a large set of features and settings to be whittled down later.  The issue, as pointed out by Jason Perez and the Interaction Design Foundation, is by thinking options and possibilities, the internal focus remains within established processes of proposing and delivering a set of product attributes and then seeing which the customer prefers.  It is classic inside-out thinking.

Tradition-bound companies assume a fixed customer expectation set to satisfy and do not understand when their customer and market have changed, particularly regarding velocity and continuous comparison by customers to their related, if not the same,  experiences.  Many of these companies have unknowingly transcended industries to consumer electronics, and have to adjust to a new customer relationship, rather than continuously trying to leverage existing manufacturing and distribution investments.

Tradition-bound Product Management functions have been successful for decades building discrete products, rather than having an updateable platform, but can experience fear of the unknown since the expected software refresh cycle in their new market is unfamiliar and faster than their usual cadence.  Car companies’ cabin technology around nav systems is an example, where customers compare their experience to Waze and other continually refreshed products.  As a Porsche owner recently said, “how come my 911 can’t get new software features just like my phone?”

Companies in markets under transition from physically instantiated features realized per a roadmap to software driven continuous improvement have to start with the customer’s goals and realize their product is a User Interface platform for a continuously evolving experience journey with their customers.

Getting it right and wrong about CIO’s and the Cloud

Richard Eichen, Managing Principal, Return on Efficiency, LLC

This morning’s WSJ CIO Journal  blog posting, ‘The Morning Download: Cloud Computing’s Hazy Meaning Creates Confusion for CIOs’ shows where Gartner is right and wrong regarding the evolution of the Cloud and how it affects internal IT, and more specifically, the CIO.

Our recent experience shows the influence Business-side perceptions of the Cloud is having on IT strategy and contracts regarding infrastructure. CIOs are increasingly asked by Senior Team leadership why internal IT cannot scale rapidly up or down at reasonable cost, or why DR is so expensive, or why millions of dollars have to be budgeted for a hardware refresh every 3-4 years.  CIO’s increasingly have to justify decisions and sunk costs more than participate in forward looking strategic discussions. It doesn’t help that ‘The Cloud’ is still a bit of a fuzzy term depending on the audience – technical vs. business.

Interestingly, this post also shows where Gartner got it wrong:

‘The politics of saying no. As IT shifts from service provider to revenue driver and everyone, from the CEO to new customers, offers input on the digital business, the ability to deliver an assertive ‘no’ is among the most powerful tools available to the CIO. Done right, it sends a leadership message while keeping lines of dialogue with the other party open. Done wrong and collateral damage can ensue’

CIO’s already have a nasty generalized reputation for saying “no,” fueling the Business to embark on Shadow IT.  Especially when a Cloud-based infrastructure is available, the Business increasingly responds with a shrug and then goes off and does their own thing.  We have seen clients with robust infrastructure, decent developers, and a growing Shadow IT presence because the Business is dealing with market dynamics while IT and the PMO talk about project portfolios. Concurrently, the internal IT Innovation Group is all about vision statements, cost analysis, and gate meeting after gate meeting rather than User Journey Mapping and rapidly prototyping.  The Business’ brain starts to hurt when discussing strategy with IT.

If CIO’s  want to participate in the move towards Digital as a full strategic partner and not as the leader of a captive utility,  saying “no” is not a wise strategy – the correct response is “let’s partner and figure this out together.”

Corporate Culture is a Continuum You Define For Yourself

By Richard Eichen, Managing Principal, Return on Efficiency, LLC, www.growroe.com

It’s circular – companies have cultures, attracting and retaining a type of employee who reinforces the culture, good, bad, or OK.  This is why some established companies struggle with becoming agile except in name only, or agile companies scale into inflexibility.

Based on our experience, here’s a quick view of where companies place themselves on the Continuum.  Note – the key phrase is ‘place themselves’.  What do you do? I worked for a Tech manufacturing company with a strategy and mandate to hire smart, already successful ‘oddballs’ (OK, this is self-incriminating but it’s true), compensate very well, and where no organizational unit could be over 500 employees. Innovations required a mix of new employees without internal history and a select few insiders who knew their way around the organization to get things done. Yes, it made for a messy org chart, but we could turn on a dime.

Here’s a visual summary of our take on the Corporate Culture Continuum :

Slide2 Slide3 Slide4 Slide5 Slide6

Can a company move their circle to ICI? Yes it can, but it requires dedication, hard work, a Board Mandate, and a willingness to live in the new and uncomfortable.

 

 

Does your company have managers or entrepreneurs running innovation?

From my experience, the difference between managers and entrepreneurs boils down to personality and therefore corporate culture (the aggregate of employee personalities). This is why many acquired companies soon have culture clashes with the new parent organization.
Managers will work within the system, no matter how bats**t crazy that system’s rules and processes. I did a project at a major police dept where there were over 100 forms to arrest someone, including a form on where to take the suspect’s horse (approved livery stables, long out of business). Each Chief implemented their own focus with rules, procedures and forms, and over the decades, it added up. We simplified it to a more ‘reasonable’ number. Another organization implemented a ‘modern’ innovation process, utilizing the ‘stage gate’ method from the 1980’s. More agile competitors are eating their lunch. However, all the right forms and docs are being used to control the process to avoid failure.

 

Who’s to blame? Blame the Board of Directors who often would rather have predictability over progress. Blame the major management consultancies who make a fortune by adding processes and controls to their clients because they are employees and managers as well, afraid of taking a potentially career-ending risk. It’s a beautiful cultural fit.
Entrepreneurs, since childhood, hate rules and limits and therefore see opportunities where managers see risks. I worked directly with the founder of a very successful tech company who made the mistake of hiring a ‘big company’ President so we could grow to the next level. All we got were forms, processes, rules, procedures, and slowness. Oh, and slick Board presentations. Oh, oh, and new management levels and layers. It sucked the oxygen out of the company in just a few years. A bunch of us used to joke we couldn’t go out of business because we didn’t have the right form to request permission.
In each company’s lifespan, there’s a need for the entrepreneurial founding team, followed by managers to execute but there has to be a pivot back to entrepreneurial culture before entropy sets in.
This post describes the difference very succinctly:
https://www.quora.com/What-is-the-difference-between-managers-and-entrepreneurs/answer/Peter-Baskerville?srid=tts6

Internal New Product and Innovation Groups Fail When They Fear Their own Board More Than The Competition

By Richard Eichen, Managing Principal, Return on Efficiency, LLC

In-house new product and innovation teams often fail due to a lack of boldness and self-limited creativity, afraid of damaging their careers when their ideas are shot down by their Board. I just saw this at a car show where everything looked the same.

At the NY Auto Show, every car manufacturer had lots of shiny objects and a powerful combustion engine on display (this is a car show, after all). The sizzle-dollars went to pitching their claims to innovation – hybrids and a few electric vehicles. Since the Prius was first introduced in 1997, hybrids are now “me too”, not innovative. Even Toyota, with its full range of hybrids, is refining this now standard technology while innovating with fuel cells.

Electric vehicles are still an evolving art and here is where the innovation lesson is learned. Earlier in the week, Tesla announced their $35K+ Model 3 with 200-300 mile range, depending on the configuration. At the show, we took a test drive in a Ford Focus Electric, which was very comfortable and priced very attractively, but with only a 76-mile range at best. It is as if the engineers were striving for a Tesla killer but were pulled back from the brink of a breakthrough by the New Product Process Police. The Focus Electric is a nice car with a powertrain replacement, not anything new and exciting, i.e., not innovative. It’s what you would expect to see in the far corner of a dealership. It will not make your brain hurt, but won’t excite you either. This car reminded me of the famous US auto industry quote on innovation, “give them leather, they can smell it”, and yes, it had leather-trimmed seats. Ford’s Board could see the car pre-production and immediately gotten it and smiled. It fit their world view. I don’t know when the Focus Electric was announced, but I suspect it didn’t gather the more than 270K pre-intro deposit reservations Tesla received for the Model 3 in less than a week.

When we look at innovative companies, even larger ones such as Apple and Alphabet, there is one noticeable differentiator between the experience-repeaters and innovators. Innovative companies have a healthy mix of a high percentage of Independent Directors on their Boards, and a significant proportion of those independent directors are experienced in fast moving, innovative and creative industries. Sure enough, Morningstar lists Ford as having 1 Independent Director whose bio points towards innovation experience with the remainder having slower product refresh cycle – big organization backgrounds. Alphabet has almost half of its Board in the innovation and creative category and Apple has more than a third of its Board with direct innovation and creative backgrounds.

The combined innovation-obsessed Board and CEO, both with forward vision, are essential to creating the necessary innovation culture and excitement. Apple has a creative and dynamic Chairman, who repeatedly lobbied a resistant Steve Jobs to open the iPhone SDK for independent app developers. The first iPhone was not that innovative, there already were smartphones around in various flavors; the innovation and excitement came later with ‘there’s an app for that’. Alphabet has a similar Chairman and CEO. Tesla’s Board is a mix of backgrounds, but it’s really Elon Musk’s company, as is Bezos’ Amazon. Similarly, you can argue Apple without Steve Jobs is less innovative and more derivative.

What role does the Board play in innovation? Innovation flows from outsiders unshackled to past decisions and investments. The Board and CEO have to grant a company-wide ‘License to Innovate’ for those ideas to be heard, potentially obsoleting their own previous decisions, and only a Board can set that tone.

 

Can Samsung Actually Become a Startup?

Samsung and other companies are trying to morph to startup culture. By dressing down, working in hotel/open spaces, cafeteria banners? How do you get thousands or even hundreds of thousands of employees you hired into a particular culture to reject it and come to a new culture? Industries and verticals have different product and innovation refresh cycles, and so the organizational cultures and employee personalities are different, For example, hardware and software, or traditional CPG and electronically enhanced CPG.

Is Google’s restructuring into Alphabet the way of the future? Not automatically as we have worked with several companies where a new products innovation division has the same tempo and culture as the parent, cluttered with key resource sharing, multi-layer matrix management and processes slower than their target market is moving. Competitors with scrappier cultures, equally large and venerable, are beating them into new product areas, defining the market, becoming the default leaders.

Is the solution creating a new organization, located far away from the parent, with a balance of freedom and senior executive level oversight? In effect, the parent becomes an angel investor, but does the parent’s Board have angel investors’ risk tolerance?

We created this diagram based on our experiences; does it apply to yours?