MarketingMuses

Too Big To Control

The $2- to $5-billion loss by the Chief Investment Office of J.P. Morgan Chase is making it difficult for CEO Jamie Dimon to argue that the size of the bank does not contribute to systemic risk.

 

I’ve been writing a series of posts, Risky Business, that look at the U.S. housing market and financial crisis through the lens of risk management. J.P. Morgan Chase is one of the few banks that came through the crisis relatively unscathed in terms of its financial strength and reputation. Much of the credit is given to its brilliant, bold and brazen CEO, Jamie Dimon, and his emphasis on risk management.

In the aftermath of the financial crisis, he has been an outspoken critic of government policies and regulations designed to deal with the hazards of banks deemed too big to fail. He has argued that the size of a financial institution, in and of itself, does not make it more of a systemic risk. Revelations over the last few weeks of a $2- to $5-billion trading loss by the Chief Investment Office—which, supposedly, was responsible for taking charge of the bank's overall risks, and for managing what is now $360 billion of safe, highly liquid securities—is providing ammunition to those that believe size matters, and bigger isn't better.

In today’s Wall Street Journal, Monica Langley provides a revealing look Inside J.P. Morgan’s Blunder. Ms. Langley, author of Tearing Down the Walls: How Sandy Weill Fought His Way to the Top of the Financial World…and Then Nearly Lost It All, has followed Mr. Dimon’s career since his early days as Sandy Weill’s assistant at American Express in the early 1980s. She was able to leverage her relationship and interview him for the article. It’s worth reading the article and watching the video (below) of her discussing the article with Alan Murray.

 

A Unified Digital Marketing Operation

 

A unified digital marketing operation can help small and mid-size B2B companies:

Compete successfully with much larger companies

Produce a better return on investment (ROI)

Generate incremental revenue

Increase enterprise value

This short eBook describes how a unified digital marketing operation can be designed and built to fully utilize new digital marketing and communication technologies and achieve optimal demand generation performance.  

 

A Unified Digital Marketing Operation

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Praise for the Self-Aware CEO

In my experience, a self-aware CEO is very likely to increase enterprise value, while a CEO that lacks self-awareness will almost certainly decrease it.

 

Recently, I came across an interesting discussion on an executive forum. The topic was, “What is the most important quality for a CEO?” The question seemed rather vague to me, but it appeared that most people had interpreted it as, “What quality is most likely to help a CEO successfully lead a company?” And the most frequent answer, by a wide margin, was “competence.”

To me, this answer seemed about as vague as the initial question. The most prevalent definition of competence is the condition of being capable. This implied, to me, that a competent CEO is successful—and vice versa—but didn’t really explain why. So I began to consider: What makes a CEO competent and, therefore, successful?

One caveat: While I’ve worked closely with over a dozen CEOs and division GMs, in corporate and consulting roles, my perspective is limited, primarily, to companies that develop, produce, and deliver technology-based, business-to-business (B2B) products and services.

 

Measuring Business Success 

My personal experience includes 1) working with a startup on the verge of bankruptcy, where success was simply a turnaround and acquisition that recovered the VCs’ investments, 2) working with several public and private companies that achieved liquidity events (merger or acquisition) at desirable valuations (well above book value), and 3) growing revenue and profit at publicly traded companies where the market caps increased. Conversely, I’ve worked with a few small companies (public and private) where profitability was either stagnant or never achieved. This led to layoffs, restructurings, high employee turnover, and in one case an eventual sell for the value of the company’s assets.

The common metric in each situation was an increase or decrease in enterprise value, measured as a multiple of the company’s book value. In the short-term, a company’s valuation can be influenced by many factors (e.g., market, technology, regulation, irrational exuberance), but over the long-term (several years to decades), the success of a company is best measured by its increase in enterprise value.

 

Domain Expertise

I’ve read that a successful general manager must have deep domain expertise in at least one of a company’s major functions. Given my experience, the major functions are 1) research and development, 2) production operations, 3) sales and marketing, and 4) finance and administration. Using this framework, I can make two definite statements about the CEOs and GMs I’ve worked with: 1) everyone was capable in at least one of the major functions, and 2) none was highly capable in all four. Furthermore, when I force-ranked the CEOs and GMs by how well they increased enterprise value, there was no strong correlation between success and functional expertise: every domain was represented above and below the median. 

 

Self-Awareness

So, if all CEOs were capable (i.e., competent) in at least one functional area, and there was no strong correlation between any single functional area and success, what made some more successful than others? In my experience, the CEOs and GMs who honestly and accurately assessed their strengths and weaknesses, hired people with complementary strengths, decentralized decision authority, and built well-rounded executive teams achieved the greatest success. Conversely, the CEOs and GMs that lacked self-awareness were more inclined to closely control decision-making across all functions, and the companies were unsuccessful (did not increase enterprise value).

 

The Limits of Self-Awareness

Self-awareness, alone, does not ensure that a CEO will lead a company to its maximum enterprise value. For example, one CEO was self-aware, but avoided conflict. As a result, he delayed difficult personnel decisions during a period of transition. While the company was successful, it’s unclear whether it achieved a maximum valuation. Another self-aware CEO made several bad executive-hiring decisions. While he was able to increase enterprise value, the company might have achieved an even higher market cap with better hiring decisions.

 

Self-Awareness in Action

One of the most successful CEOs I’ve work with, whose domain expertise was in production operations, frequently said, “I don’t know much about selling, but I know a lot about buying.” During dozens of meetings over several years, he asked me numerous questions about various aspects of marketing plans, always from a buyer’s perspective. Many of his questions caused me to rethink and retune an initial approach, and the strategies were better and more effective as a result. But during all the meetings over all the years, he never once told me what to do or how to do it.

Another successful GM (who became a successful CEO), with domain expertise in finance, had previously led a product line to over 50% market share by emphasizing product performance. Shortly after I took leadership of the product line, the agency and I presented a new advertising campaign that was more edgy and image oriented. The GM asked several probing questions as to why we were shifting the message. We explained that we were now a dominant market leader (over twice the share of number two) with good brand awareness, and we wanted to build a strong brand image consistent with our target market: rock and country musicians, producers, and studio engineers. When I mentioned that he did not seem overly enthusiastic about the campaign, he said, “It’s not what I would have done, but you have sound logic for doing it. Just make sure you keep growing market share.” He was uncompromising about the goal, but very open has to how it was achieved.

By contrast, the least successful CEOs where more likely to describe exactly how they wanted something done, while often being rather vague as to the goals they wanted to achieve.

 

Observations and Conclusion

My experience is that:

• Every CEO and GM was capable in at least one of the company’s major functions.

• The CEO’s and GM’s functional expertise was not a factor in his success.

• No CEO or GM was highly capable in all of the company’s major functions.

• The CEOs and GMs who were able to honestly and accurately assess their own strengths and weaknesses most often hired people with complementary strengths, decentralized decision authority, and built well-rounded executive teams that increased enterprise value.

• Self-awareness, alone, may not have ensured maximum business success. CEOs and GMs who had difficulty with personnel decisions (hiring and firing) probably achieved less than they could have with better personnel decisions.

• All of the companies that did not increase enterprise value were led my CEOs that lacked self-awareness and tightly controlled decision authority.

Assuming that the CEO is competent in at least one of the company’s major functions, self-awareness is the primary characteristic that is most likely to correlate with his or her ability to increase enterprise value. A CEO’s self-awareness, alone, does not guarantee that he or she will maximize enterprise value; good personnel decisions are critical to adding people whose strengths are complementary to the CEO. However, a CEO who lacks self-awareness will not perceive his or her own weaknesses, the company’s strengths will never the greater than the CEO’s, and the company is unlikely to increase its enterprise value.

 

Good to Great (to Indispensible)

“You must never confuse faith that you will prevail in the end—which you can never afford to lose—with the discipline to confront the most brutal facts of your current reality, whatever they might be.” – Admiral James Stockdale

I recently led a 2-day offsite meeting, on the heels of a major restructuring, to align executives and middle managers across the company behind a new strategic direction and operational discipline.  In preparing to lead the meeting, I reread two books that I have revisited repeatedly since my initial readings: Crossing the Chasm and Good to Great.

Crossing the Chasm is my handbook for guiding an emerging-technology company from early to mainstream markets.  I have covered important aspects of the book in prior posts; including Crossing the Chasm is Counterintuitive and Developing a Whole Product Roadmap for Applications Software.

Good to Great is my handbook for guiding organizational change in turnaround situations.  The Stockdale Paradox, succinctly stated at the beginning of this post, was an apt starting point for the meeting.  In fact, I used three of the four basic practices in the chapter, “Confront the Brutal Facts,” as ground rules for group discussions:

1. Lead with questions, not answers.
2. Engage in dialogue and debate, not coercion.
3. Conduct autopsies, without blame.

The principles of focus and discipline pervade Good to Great.  The “Hedgehog Concept” and “Culture of Discipline” have become fundamental to my leadership practices.  And getting the right people on the bus, while essential to an ongoing enterprise, is critical to a successful turnaround. 

As the book states, “First, if you begin with who, rather than what, you can more easily adapt to a changing world.  Second, if you have the right people on the bus, the problem of how to motivate and manage people largely goes away.  Third, if you have the wrong people, it doesn’t matter whether you discover the right direction.”

Good to Great has taken some knocks over the past few years as some of the example companies have fallen from grace, including Circuit City and, most notably, Fannie Mae.  However, of the many business books I have read, this is one of a handful that I return to again and again for direction and inspiration.  To me, it is indispensible. 

 

Developing a Whole Product Roadmap for Applications Software

“The point of greatest peril in the development of an emerging technology-based market lies in making the transition from an early market dominated by a few visionary customers to a mainstream market dominated by a large block of customers who are predominantly pragmatists.”

“Pragmatists evaluate and buy whole products.”

“Any company that executes a whole product strategy competently has a high probability of mainstream market success.”

     – Geoffrey Moore, Crossing the Chasm

 

Developing a Whole Product Roadmap for Applications Software

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The whole product concept, initially described by Theodore Levitt, plays a central role in Geoffrey Moore’s classic book on technology marketing, Crossing the Chasm: Marketing and Selling Disruptive Products to Mainstream Customers.  The whole product includes everything necessary for the pragmatic mainstream customer to derive immediate value without having to build or buy additional products or services. 

Application software poses special whole product issues, given its abstract nature. 

• Where does the whole application software product begin and end? 
• What are the complete dimensions of a whole application software product?
• What whole product capabilities should be built into the application software?
• What whole product capabilities should partners deliver?

While the whole application software product strategy includes documentation, training and services, it begins with a whole product roadmap.

 

The One Constant Is Change

“By any objective measure, the amount of significant, often traumatic, change in organizations has grown tremendously over the past two decades. Although some people predict that most of the reengineering, restrategizing, mergers, downsizing, quality efforts, and cultural renewal projects will soon disappear, I think that is unlikely.”

 

John P. Kotter, Konosuke Matsushita Professor of Leadership, Emeritus, at Harvard Business School, opens his book, “Leading Change,” with this statement.  In the book, he provides answers to two questions: Why do so many companies fail in their attempts to change, and is there a process to improve the probability of successful change?    

As to the first question, Professor Kotter states that, “The combination of cultures that resist change and managers who have not been taught how to create change is lethal.”  He supplies brief descriptions of eight common mistakes that can cause an organization to fail in its transformation efforts.

• Allowing too much complacency
• Failing to create a sufficiently powerful guiding coalition
• Underestimating the power of vision
• Undercommunicating the vision by a factor of 10 (or 100 or even 1,000)
• Permitting obstacles to block the new vision
• Failing to create short-term wins
• Declaring victory too soon
• Neglecting to anchor changes firmly in the corporate culture

But he spends most of the book describing an eight-step process that is the antithesis of the common mistakes. 

• Establishing a sense of urgency
• Creating the guiding coalition
• Developing a vision and strategy
• Communicating the change vision
• Empowering the employees for broad-based action
• Generating short-term wins
• Consolidating gains and producing more change
• Anchoring new approaches in the culture

He concludes the book by speculating on the characteristics of organizations prepared to successfully face the future, and the relationship of lifelong learning and leadership skills that define the individual’s capacity to succeed in the future.

The book evolved from an article entitled, “Leading Change: Why Transformation Efforts Fail,” that was published in the March-April 1995 issue of Harvard Business Review.  Unlike many books that are expanded from articles through redundancy or by adding content of questionable value, Leading Change succinctly delivers all of this information in 186 pages that should be required reading for anyone in a position of change leadership.   

 

What I Learned in School: Making Marketing Relevant (Again)

 

Hamid Ghanadan, President of The Linus Group, is one of the brightest and most thoughtful marketing practitioners I know.  He and his company specialize in marketing to scientists, especially in the biotech and pharmaceutical industries.  I am attending a dinner and roundtable discussion this evening on “The Future of Science Marketing—Emerging Models for 2011 and Beyond,” hosted by The Linus Group, and I’ll post a review within the next few days.

The reason I mention Hamid today is due to a recent post by him on his blog, Linus Report, and how it intersects with a subject I recently covered as a member of the 2010 Strategic Marketing Management executive education program at Stanford GSB.  Here is a link to Hamid’s post, “Do We Know What’s Expected from Marketing,” and here is my comment (in italics):

 

"The business enterprise has two and only two basic functions: marketing and innovation. Marketing and innovation produce results, all the rest are costs."

Peter Drucker wrote the Practice of Management, which included this statement, in 1954. My 20+ years experience with scientific and technology marketing is that "marketing" has at least faded, if not completely disappeared from this statement for most companies. The five responses focus mainly on the role of marketing in product management. No one mentions marketing's role in generating demand and creating enterprise value.

In many science and technology companies, product management has been separated from marketing and placed in the R&D function with an emphasis on technology and product development. The rest of marketing is viewed, generally, as a service function providing tactical sales support and marketing communications. Unfortunately, marketing personnel have not done much to change this perception.

Most surveys of CEO's concerns list many "marketing" issues near the top, including identification and engagement with prospective customers and loyalty and retention of present customers. However, most CEOs do not look to marketing, but rather to sales, service and other functions, to address these issues.

Marketing needs to demonstrate that it can produce end-to-end results throughout the marketing value chain, and strategically assist the CEO in meeting his or her top priorities for customer loyalty and retention, revenue generation and enterprise value creation.

 

While the quote at the beginning is from Peter Drucker, I initially read it just over a month ago in, “From Marketing as a Function to Marketing as a Transformational Engine,” by Nirmalya Kumar, excerpted from his book, “Marketing as Strategy: Understanding the CEO’s Agenda for Driving Growth and Innovation.”  Here is a short description of the book:

“CEOs are more than frustrated by marketing's inability to deliver results. Has the profession lost its relevance? Nirmalya Kumar argues that, although the function of marketing has lost ground, the importance of marketing as a mind-set—geared toward customer focus and market orientation—has gained momentum across the entire organization. This book challenges marketers to change their role from implementers of traditional marketing functions to strategic coordinators of organization-wide initiatives aimed at profitably delivering value to customers.”

If marketers want the respect and responsibility so many say they deserve, they have to change their role in the enterprise.  If marketing acts like a service organization, that’s the way it will (and should) be viewed.  If you want to change the situation, expand your marketing vision, knowledge and goals.  Quoting from the book, “Transformational marketing efforts should focus on initiatives that:

• profitably deliver value to customers;
• require a high level of marketing expertise;
• need cross-functional orchestration for successful implementation; and
• are results oriented.”

Is Your Social Media Strategy Ready for 2011?

 

Yesterday, I attended a half-day forum presented by Tony Jaros (Research SVP) and Jim Ninivaggi (Research Analyst) of SiriusDecisions, titled Balancing Change and Results: 2011 Planning Assumptions.  SiriusDecisions provides research and advisory services focused on the operational intelligence sales and marketing executives in B2B companies need to maximize top line growth.  Each year SiriusDecisions looks at the top issues of its clients during the year, analyzes these issues, and presents its insights for the coming year.  This year the insights focused on three goals:

1. To improve the productivity of the sales organization
2. To build a robust, repeatable demand generation engine
3. To have communications make more of a defined, concrete contribution

For each goal, SiriusDecisions presented a progress report, a gap analysis and action items for 2011.  I was pleased to see that three of its four recommended actions for communications involve social media.

SiriusDecisions identifies five critical marketing tasks for generating demand.  The first recommended action for 2011 is to build a social media strategy that uses the most appropriate social outlet at every stage of the cold-to-close process.  Here’s a definition of the five tasks, and a modified reproduction of the graphic that accompanied the recommendation.

• SEED  The use of traditional and social media to set the stage for demand to be created.
• CREATE  The generation of “original” demand, with the focus on quality versus quantity.
• ENABLE  Helping reps move marketing-created demand, and to source their own demand.
• ACCELERATE  Efforts geared to help sales move deals more quickly through the pipeline.
• NURTURE  Care and feeding of prospects that have fallen out of the funnel.

  

TASK	BLOGS	SOCIAL SITES	COMMUNITIES	MEDIA SHARING	PODCASTS	WIKIS
SEED	X	X	X	X	X
CREATE		X		X	X
ENABLE	X		X	X	X	X
ACCELERATE			X	X	X
NURTURE	X	X		X	X

 

The second recommended action is that a balance of centralization and decentralization is necessary to enable functions to best leverage social media.  Many companies have initially placed social media in their marketing communication functions.  However, as companies better understand the role of social media and develop integrated strategies for its use, the communications function will retain centralized responsibility for policies and procedures, while content development will be decentralized throughout a broader range of marketing and sales functions.  This will enable more active involvement of subject matter experts and more timely creation and deployment of subject matter important to prospects and customers.

The third recommended action is to leverage social media internally for collaboration and knowledge management.  This could include:

• Wikis for content creation and offering roadmap collaboration
• Podcasts for product training of new sales reps hired
• A sales and marketing collaboration community
• Internal sales and marketing blog

Most current providers of marketing automation and CRM are working to integrate social media capabilities into their platforms.  While Jive, a relatively new company, is offering social business software they claim 1) fosters employee collaboration, 2) connects customers across disjointed channels, and 3) monitors social media.

My major takeaway from the forum is that companies are beginning to recognize the power of social media for business, and vendors are providing more capable and effective tools to harness and focus the power.  However, as with most marketing technologies and tools, the key to achieving measurable value creation and ROI is developing and executing a comprehensive marketing strategy that integrates social media with other communication and demand generation tools, rather than simply bolting it on to your present (and probably outdated) strategy.

Back to School

I am learning all the time.  The tombstone will be my diploma. – Eartha Kitt

This week I’ve been reading through 300 to 400 pages of articles, book excepts, and case studies in preparation for 10 days at a Stanford GSB Executive Program in Strategic Marketing Management.  It’s been about 20 years since I last attended a course there (Marketing for Technology-Based Companies), and I’m looking forward to the experience. 

Two-thirds of the 49 participants work in marketing and sales, with a range of job titles (10% CEO/COO, 18% GM, 10% VP, 18% director, and 33% manager) from a mix of industries (25% oil and gas, with 8% each in food and beverage, retail and software) and global locations (69% from countries outside the U.S.).  Participants are housed on campus in the Schwab Residential Center to accommodate an intense schedule, with classroom participation from 8:00 am to 3:20 pm, followed by 2 hours of individual study, dinner, and 1.5 hours of group study.

Given the schedule, I doubt that I’ll post another blog entry within the next week.  But I’ll try to post an update on Saturday or Sunday (August 14 or 15), and I’ll recap the whole experience when the course ends the following week. 

 

An Essential Handbook for Senior Managers

True general managers understand how actions taken in one functional area impact all other areas of the business. – Rob Waite

In The Lost Art of General Management, Rob Waite says these nine elements constitute the general manager’s basic skill set:

1. An understanding of how your company makes money.
2. An understanding of how your customers makes money.
3. An understanding of the market (necessary to add value to customer relationships).
4. An understanding of how your competitors relate to the customers.
5. An understanding of the industry beyond customer relationships.
6. Customer relationships at multiple levels.
7. Solid technical knowledge of your company’s processes.
8. Solid computer and internet skills.
9. A sincere interest in developing your employees and yourself.

In an age of specialization, executives and senior managers need more than expertise in a specific domain to fully contribute to an enterprise.  This quintessential handbook is a great place to identify what additional expertise is needed, and how to acquire it.