In 1985, a relatively unknown professor at Harvard Business School named Michael Porter published a book called Competitive Advantage, which explained that by optimizing every facet of the value chain, a firm could consistently outperform its competitors. The book was an immediate success and made Porter a management superstar.
In truth, neither view fully represents today’s business environment. Certainly, companies like Apple and Southwest are still able to dominate their industries, but the source of advantage has changed. We no longer compete in a resource economy, but a semantic economy where firms that can build, manage and widen connections win out.
Corporate leaders love to talk about values. They put them on web sites, frame them, place them prominently in boardrooms and proudly espouse them in media interviews. The notion of values has become so pervasive that it’s hard to find any CEO who doesn’t tout their importance.
Yet all too often, values are little more than window dressing. Key stakeholders, including employees, customers and partners are either completely unaware what the stated values are or don’t believe that they ring true. In some cases, corporate talk about values amounts to no more than a cruel joke.
I doesn’t start out that way. It’s hard to imagine even the most jaded executive team affirming values they don’t believe in. Rather, the problem is usually that values are easy to write down, but hard to live up to. So what begins with a sincere effort ends with a lofty checklist of anodyne virtues that don’t reflect reality. Here’s how to create values that stick:
In The Outsiders, William Thorndike argues that the most essential skill for a manager is capital allocation. To prove his point, he profiles CEOs such as Henry Singleton of Teledyne and John Malone of TCI who, while not household names, achieved outsized returns by wisely deploying their firm’s resources.
Thorndike also points out that most CEOs get their jobs not through exhibiting financial acumen, but for excellence in some other area, like production, marketing or sales. So capital allocation is a skill that many executives lack, having no opportunity to gain experience with it until they reach the top job.
It’s a interesting argument, but its fatal flaw is that he omits innovators like Steve Jobs and Mark Zuckerberg—and even Sam Walton and Herb Kelleher—because they represent “genius” that is too uncommon to replicate. That’s a startling omission. I would argue that while capital allocation is an important skill, innovation is the only true way to create value.
Ted Cruz wants to abolish the Department of Energy. Sarah Palin can’t decide. In 2008, she said that she wanted to get rid of it, but more recently she declared that she would like to run it and then abolish it. Eliminating a $27 billion agency is a big deal, so it makes you wonder what all the fuss is about.
On Cruz’s website he says we should, “cut off the Washington Cartel, stop picking winners and losers, and unleash the energy renaissance.” Palin says she thinks a lot about the department because, “energy is my baby: oil and gas and minerals, those things that God has dumped on this part of the Earth for mankind’s use.”
Those are strange objections, because they have very little to do with what the Department of Energy does. (It does not, as Palin implies, have anything to do with oil leases). In fact, I think most would agree that the main activities of the agency—nuclear defense, scientific research and empowering innovation—are essential programs that we couldn’t do without.
In a recent Businessweek article Jack Clark explains how Apple’s famously secret culture is inhibiting its ability to compete in artificial intelligence. Simply put, top scientists want to be able to publish openly and be recognized by their peers. At Apple though, they can’t even disclose their positions on social media.
This is in stark contrast to competitors like IBM and Microsoft, whose research divisions do attract world class scientists and allow them to publish openly. Tesla has even taken it a step further and open sourced its patents. Increasingly, technology is becoming less proprietary and more open.
So should Apple worry? Clearly, it remains the world’s most valuable company by far, with arguably unrivaled talent in design and engineering. What’s more, it’s latest earnings report shows that even with its massive scale, the company shows no signs of slowing down. Yet its inability to make headway in crucial technology areas exposes a flaw in how Apple innovates.
The majority of a company’s value is intangible, so a strong brand is a significant competitive advantage. As Philip Kotler wrote, “The art of marketing is the art of brand building. If you are not a brand, you are a commodity. Then price is everything and the low-cost producer is the only winner.”
Brands and communication have long been intertwined. From TV ads and press releases to events and endorsements, the way consumers view a brand will influence their decision making, so crafting and reinforcing a brand image has long been a top priority for marketers.
Yet historically, brand images were often only skin deep, the result of careful messaging and slick production values. Today, however, digital technology allows brands interact directly with customers and they, in turn, now expect more than talk. They demand positive brand experiences. Marketers need not only new strategies, but to adopt new mindset.
A few weeks ago, my little girl came down with a case of strep throat. From there, things followed a predictable pattern. My wife soon came down with it as well and then I did too. We took turns lying in bed unproductively, woozy from a high fever and struggling to swallow.
It was a silly episode when you think about it. Not only for my wife and I, who failed to take effective precautions but also, as Lewis Thomas noted in Lives of a Cell for the bacteria themselves. What was a few weeks of discomfort for my family meant utter eradication for the offending streptococcus colony.
All in all though, it was a minor affair. Our biology evolved over millions of years to deal with such events, not efficiently, but effectively. Sadly, most organizations work the opposite way. They are highly efficient at specific tasks, but often fail when confronted with a problem they weren’t designed for. The seeds of dysfunction are seldom recognized until it’s too late.
Every enterprise, no matter how big, successful or skillfully managed, will eventually have to deal with a challenge that represents an existential crisis. In meeting that challenge, every flaw will be exposed and every weakness will be pounced upon by competitors. A crisis is management’s ultimate test.
Last year eBay announced that it would be spinning off PayPal, the payments juggernaut that it acquired in 2002, into a standalone company with no ties to its parent. While the situation was not a crisis in the usual sense, because the goal was to unlock an opportunity rather than to avoid a catastrophe, it was an immense challenge.
Separating two highly integrated, data intensive technology operations meant that a decision would have to be made about every person, server, software protocol and database entry in the combined company. I talked to PayPal VP Kirsten Wolberg about how they did it and it is a model of crisis management that we all can learn from. Here’s what you should know:
From roughly the time of Jesus to Napoleon, life changed little. Then the industrial revolution replaced muscle power with steam power and human existence was transformed. Incomes, life expectancy and population, which had long been locked in Malthusian conflict, began to reinforce each other and rise in tandem.
It’s hard to overestimate how profound that change was. Prosperity, rather than being tied to land, became a function of the efficient use of capital. Physical strength was rendered largely irrelevant and education became a ticket to a better life. Technology, in effect, created the modern world.
Until fairly recently, the options for marketers were relatively limited. Mass media—TV especially—offered the opportunity to reach millions, but only in the form of short ads sandwiched between lots of other stuff. Other tactics, such as trade shows, offered high engagement, but low reach.
Digital technology and social media have offered the best of both worlds—the ability to reach millions of people with high engagement. Nike videos on YouTube routinely attract more than ten million views. Coke has nearly 100 million followers on Facebook. Red Bull has its own TV channel.
Yet despite these scattered successes, there is mounting evidence that most marketers’ content efforts are failing. The Content Marketing Institute reports that although most B2B and B2C marketers have some kind of content marketing program, less than 40% find those efforts effective. Clearly, things need to improve. Here are 4 things marketers need to know:
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, which explained that by optimizing every facet of the value chain, a firm could consistently outperform its competitors. The book was an immediate success and made Porter a management superstar.
, which argued that sustainable competitive advantage is no longer possible and advised firms to seek out transient advantage.
for the bacteria themselves. What was a few weeks of discomfort for my family meant utter eradication for the offending streptococcus colony.
