Discovered a new book today.

Organizational realities:
studies of strategizing and organizing

By William H. Starbuck, Michael L. Barnett

This book is great and you can preview it Google Books. There's enough good stuff in here to transform even the hardest-nosed manager into someone who understands strategy, self-deception, and human capacity.

A partner at Palamon Capital talks about the inevitability of global financial regulation (to an extent we have this with Basel II). 

One interesting consequence of a more uniform global financial regulatory structure is a destruction of value through the creation of efficiency. Right now, the very differences between markets (capital markets, commodity markets, media markets) create wealth. This can happen through pricing arbitrage, creation of multiple product lines that generate overall more profit, and getting access to market information more quickly than your competitors.

I'm all for global financial regulations, incidentally, as long as they are meaningful. (That last caveat might be the sticking point.) Frankly, Africa and China did OK in the financial crisis, while the US and Europe - chief architects of Basel II - tanked. Something was missed. Credit, reserves, and their interplay got more intricate and smoky with securitized assets and a hunger by many organizations to sell-sell-sell mortgages during the real estate bubble. Many were, indeed, competing to see who could be stupider with their credit risk. 

In the customer experience management context, the same issues arise. Differences among cultures and countries can be key sources of competitive advantage. If you're Carrefour, you are more adept than Wal-Mart at adapting to local country norms, aspirations, supply chains, product strategies, and so on. The Carrefour "wet market" in China is an attempt to fit the cultural need for seeing your fish alive, not cleaned and neatly wrapped in cellophane. But as a global citizenry develops, thank to instantaneous communications, international education, frequent travel, and a brand ecosystem that's increasingly familiar everywhere, will the "glocal" strategy begin to lose value?

Perhaps, but really the "glocal" strategy was still a pretty ham-handed way to address your customers' needs. Micro-segmentation will prevail. Customer-defined services, products and experiences will generate a micro-segment containing just one person, over time. And I would argue that supporting such innovations will create more value than will be destroyed. 

Is there a parallel in global capital markets? Can products be so customized that the credit risk and financial profile of each individual can generate a unique product? 

Why not? 

Recall Egg, the online bank in the UK that Citi just about hacked to death. It moved from a customer-centric, happy bank with loyal customers to a shell of its former self, when Citi "fired" customers in part because they paid their credit card balances off on a regular basis. That makes sense in the old school way of optimizing customer profitability. It costs money to deal with customers who pay off their credit cards, but if they don't borrow money from you, costs exceed revenues. They're money-losers. Fire 'em by uninviting them to the party, closing their accounts, and calling them names. (Citi essentially accused them of being poor credit risks. What?)

Citi - and global banks - could have done this differently. But they needed first to see that their way of accounting for customer value (current, not future) was fundamentally flawed. Customers who pay off their credit cards can afford more debt. Keep 'em. If you ignore people with future value (as Citi did), and embrace people with future liabilities (as subprime mortgage sellers did), you're just asking for trouble.

So, to banks - and to other industries likely subject to future global laws - I say, fix the regulatory system, but make sure the real opportunity is still in your sights: create value the best way possible. No, not with interest rate arbitrage. I'm talking about the future spending capacity of your loyal customers. 

I've been doing a lot of work globally setting up big deals lately in my role as managing partner at Avos. It has given me a chance to dig into and improve success factors for the investments we're lining up. 

One client has a half billion dollar capital raise I'm helping with and a key issue there is how the Web fits into their strategy. They had a plan that sounded pretty good, but after some basic analysis, I've moved the conversation closer to what it needs to be: social, low startup cost, SEM compatible, full of experimental mini-value props that help us figure out what engages the target clientele. 

This brings up the evolving criteria used by the venture capitalist in selecting and shaping their portfolio.  I agree with much of Dave McClure's analysis (find it here) about the need for venture capital to move beyond its expectations of use of funds (build a darn expensive product and then find huge customers to buy lots of it). He proposes another angle, much more in line with how businesses succeed in the Web 2.0 world: 

• Build a product (cheap and fast)
• Market it (cheaply with SEM)
• Create revenue (integrating third-party payment systems)

His point is that the huge up-front costs in starting (certain kinds) of businesses are unnecessary and actually counterproductive to VC's needs for returns. This is a good analysis. VC will take too long to pick it up unless, as Dave says, they're innovative.

The reason VCs will be slow to adopt this approach is that they distrust cheap assets. They want their money to buy expensive, protectable things, systems, and markets. The old way? Do patentable stuff, or to build a service ecosystem that's hard to copy just by being very expensive. 

And yet expensive and protectable are two concepts that can be separated. It's far cheaper to start a new company whose brand is strongly differentiated (trademarks, customer behaviors, etc.), and lawyer up on protecting the brand.

Dave - whose street cred is impeccable in understanding the increasing returns generated from socially connected customers - misses the spine that should be throughout his product-market-revenue model.

As I posted on his blog, I would want Dave to look at the root causes of increasing total return to shareholders. This is essentially what gives VC their exit ... it bolsters their argument for the future value of the venture's cash flows.

It's precisely this argument that VC can sell to people whose money will replace theirs (next tranche, IPO). Don't forget, your first product, market, and customer is venture capitalists.

So, the problem to solve is creating a company that measures how to create increasing total return to shareholders (TRS). Drive that, you will please the VC.

What are the drivers for increasing TRS? 

1. Compelling and engaging value prop - for social media plays, this means solving a problem, engaging the imagination, architecting a user experience that is easy to adopt AND YET NOT GENERIC (god, I hate those 'don't make me think' UI people who make everything so 'web 2.0' that it's all the same vanilla cr*p), lowering barriers to recommendation, allowing co-creation and sharing, and enhancing the customer's reputation. When possible, make vendors/advertisers a legitimate, welcome part of the recommendation, co-creation, and sharing network. This builds into the customer's mental model that the value exchange in the model might, occasionally, and when appropriate, include money. You don't want to introduce the revenue model later, after the customers have gotten used to "free", and even worse, have embedded their own "advertisers suck" values into the brand.
2. Cognitive sophistication in customer experience management. Most Web 2.0 business are woefully lacking in this. But that's because most business people are woefully lacking in this. 
3. Well-designed multitouchpoint ecosystem, including partner ecosystems, that is measurable. (Both behaviorally and attitudinally. This innovative voice of the customer systems. Most existing ones are terribly intrusive.)
4. Hella analytics. You cannot fix what you do not measure.
5. Lots of experiments, well-designed and targeted to increase customer engagement (see Gallup and Carlson). Got ten features? Six generate 90 percent of your income? Find out why by running more and better experiments. See step 4 above, lather, rinse, repeat.

Remember, the goal is NOT to make it cheaper, or to engage customers sooner, or even to get revenues. Cheap can be bad. Engaging early adopters is not enough. And revenues can be expensive: you have to have profitable revenues that are also early indicators of future customer value. (Whuh? If you don't know about total lifetime customer value, how to measure it, and how to create it, you've got some fun reading - and necessary hiring - to do.)

All that equals ... increasing total returns to shareholders.

THAT you can get funded.

Consumer Reports, the venerable US magazine with over 7 million subscribers and a product quality laboratory, has recently reversed its approval of the iPhone 4, saying they cannot endorse it because of real, measurable issues with its antenna reception.

But Apple has such a strong brand, will such an announcement harm it? iPhone demand has recently been announced to remain strong throughout the supply chain, with Apple still struggling to keep up. Clearly customers want what they sell. 

You bet Consumer Reports' refusal to endorse the product has hurt Apple -- for now. See the Google finance chart comparing Apple's stock price to NASDAQ (APPL trades on NASDAQ). 

Apple got hit by the news Tuesday, and its stock promptly dropped.

And who might be benefitting from Apple's woes? Take a look at Dell's and HP's stock prices, compared to Apple's.

Now, Apple-haters may find this really good news. Apple's loss is the PC world's win. A few extra points for Linux and Windows!

Ah, but as I contemplated this fiasco for Apple, I noted a silver lining, to wit: Apple is a consumer product company, right? Why would companies whose bread and butter is B2B benefit from Apple's decline?

My conjecture: Apple is increasingly being viewed by investors as a business products company. That, my friends, is a huge win for Apple. 

Provided, of course, they can restore their former luster by dealing with this PR issue and making up with their audiences - customers of all types, the media, and the pundits. Apple, you gotta pay the piper this time, I'm afraid. There's too much at stake.

A recent LinkedIn colleague, in a sincere attempt to provide value to her audience, posted a link to a white paper that was equally sincere in its "common sense" observations about the value of "timely, quality customer service" for creating loyal customers and profit. 

Save me.

Common sense is not always correct.

"Don't treat customers with indifference," claims the white paper. Let's talk about indifference, and its antonym in the world of service, empathy.

When is an indifferent experience "on brand"? We've done studies that show that the indifferent treatment of a customer in a Louis Vuitton store is correlated with their purchase satisfaction. Seems contrary to logic. Until you remember that really hot girl (or boy) you were attracted to in college who wouldn't give you the time of day. A brand is not about service alone. It's about desire. I am not saying that Louis Vuitton's customer experience throughout the entire lifecycle should be indifferent. However, its brand values are not advanced by consistently being empathetic. This is not common sense, but it is critical to understanding their brand and how processes, people, and technology should be aligned.

When is an "arm's length" experience "on brand"? Ritz-Carlton's experience is far more collegial and subtle than Wal-Mart's (at Wal-Mart's best). But collegial, subtle experience is best for Ritz-Carlton's brand. (The Four Seasons, I think, would be called more deferential in its luxury service brand, contrasting Ritz-Carlton's collegiality. Ritz-Carlton's mantra is "We are ladies and gentlemen serving ladies and gentlemen. We can talk about masculine and feminine cultures in another posting - in the meantime, you might enjoy Gordon Rattray Taylor's coverage of the topic in "Rethink".)

When is an experience, even an enthusiastically empathetic service experience, OFF-brand? Wal-Mart's ejection from Germany was driven in large part because they were "too" service oriented. Germans have a different buying style. The last thing Germans want is a warm, extroverted welcome by a blue-smocked employee at the entrance. 

The white paper goes on: "Minor, incremental service improvements can be hugely profitable." True, but that does not mean that good customer experience is a "continuous improvement" process.

The interaction points between a brand/company/product/service and a customer do not uniformly create value. Some of these touchpoints - if they go badly - are "moments of truth" for the customer where experience is so bad they will not return. But the customer may not blame the brand.

Consider an incremental improvement in the wobbly, or even non-functioning, wheels of shopping carts. Surely, that's a problem worth solving. Many shopping carts have wobbly wheels. It's frustrating, but do customers blame Safeway over Giant? The effort involved in fixing something that has zero impact, positive or negative, on the brand, could be spent elsewhere.

Other touchpoints - if they go badly - also destroy brand value, particularly if the promise of the touchpoint - if it had gone right - would have been to deliver a key element of the DNA of a brand. The point is, if these touchpoints go well, they can make customers happy, and brands stronger - but not every positive experience is necessarily a "branded" experience. If you get valet parking at every hotel you go to, how does that build loyalty to the brand? In fact, "minor, incremental improvements" to arbitrary touchpoints can be a WASTE of money. Focus on what's good for the customer AND what's good for the brand.

"Timely, quality care is a crucial factor in retaining customers," says the white paper. This is true to a point, but timely, quality care for many companies is expected. What this adage says, then, is, "If you offer timely, quality care, you will not upset your customers, and therefore will not give them a reason to leave." But think about that - just because you don't give a customer a reason to leave, does that mean they'll stay? That depends on the competition, on convenience factors, and a bunch of other stuff out of your control. In fact, I would say that timeliness and quality should be appropriate to the brand and those brand values you most depend on should drive your allocation of innovation and quality assurance effort. 

Let me give you an example: I just rented two cars on a recent business trip to the West Coast. Two different companies - but the car return process was the same. Simple, easy, fast. But not memorable. Is this timely, quality care? Yes, and that's good. But have these companies wasted their money? Yes, because I will not choose one company over the other in the future. Now, suppose they had e-mailed me my receipt afterwards (as Apple Stores do after a retail purchase). Now I have an "end experience" that reinforces the brand. Suppose they pegged me as a "growable customer" in their CRM analytics. They could upsell me with a coupon. Suppose instead they pegged me as a loyal customer. They could reward me with a free upgrade on the next visit. And if their brand values were "fuel-efficient cars from a time-efficient rental company" (hey, it's not a tagline, it's a concept), then maybe I'd be offered a discount on a Prius if I joined their "save trees" club. 

All in an email - which kills no trees.

So, the end experience is far beyond "timely, quality care". It is a moment of truth for the brand - and in this scenario, a moment of truth for me and my personal values. 

The efficiency of the rental car return REDUCES the opportunity for a warm thank-you. For this kind of brand, it needs a human face. Otherwise, car renters will just think of all these companies as "rental car" companies. Which, sadly, is how they think of themselves, because they're leaving a lot of loyalty, and profit, on the table.

J.J. Abrams, the Hollywood director-writer-producer wunderkind responsible for a seemingly unending stream of successful TV and movie products, is beginning filming on Super 8, a movie set in 1979 with an aliens-among-us theme.

The interesting part is that a well-organized alternate reality game (ARG) has already been launched. It got on people's radar with the appearance of the movie's trailer shown during Iron Man 2's run, and now it's taking off. 

If you missed the Cloverfield movie and its viral marketing, you're in for a treat. In the latter case, the viral marketing helped make Cloverfield's January 2008 debut the strongest January opening ever.

Expect series box office on Super 8. It's got what they call in Hollywood "pedigree", and it's got Paramount on the viral marketing ARG job, and boy howdy, they're good.

It works for a simple reason: When a person becomes curious about something, chemicals are released in the brain that feel so good, you become "addicted" - perhaps not literally addicted, but it sure feels good. If you need the studies backing that up, let me know.

Classical music. Just the idea of sitting through two hours of symphonic music puts many to sleep. It expects a lot of us, for sure, but with someone like Zander, it can be transformative. Not because it's classical music, but because it speaks to something universal in us. 

Shining eyes, people.

Check this out. Then review the points/questions below the vid. I love Bobby. 

1. How much info did Bobby have to communicate to set the pattern?

2. If he had used words instead of his body, would the pattern have been as clear, or the audience as engaged?

3. What was the audience's visceral reaction to their "discovery" of the first note that Bobby did NOT explicitly teach them?

4. When Bobby split his legs across two notes, what was their visceral reaction? Could he have divided the audience to handle that situation? 

5. How much is a "split signal" likely to confuse and disturb an audience, or customer? What does this have to do with brand extensions?

6. When did Bobby cease to be a leader and turn over the reigns to the audience? Or did he?

7. Why did the audience like this experience?

8. Why is this experience intrinsically time-based?

9. Why is this experience intrinsically incremental? What is built incrementally? Roles? Trust? Empowerment?

10. The topic that inspired this moment was "expectations". We talk about expectations in CEM all the time, as related to satisfaction. But is this what inspired Bobby to do this demonstration? What does he mean by expectations here? 

11. How much is Bobby leveraging deep cultural knowledge? If he had asked anyone BEFORE this demonstration to sing a pentatonic scale, what do you think would have happened? How would the experience have been different?

12. How is this like the Apple Store? Like Twitter? Like the Facebook feed? 

13. What is Bobby's brand? Where was it shown? Where was it created? 

14. What makes this memorable? Valuable? Repeatable? Universal? 

15. Once you've done this as an audience member, would you enjoy it as much the second time? If not, how does Bobby (the brand) reinvent/transform the experience into something that delivers a similar "wow" to the first event? What are the deep brand values in play with a company that are separate from its brand "tactics"?

James Cameron, in previewing scenes from his new movie Avatar during preproduction, was looking at a digitally-rendered version is his lead actor, who in the story had been transformed from a paralyzed human into a tall, strapping, blue-skinned alien. Above all else, James needed for this scene to feel real. 

It didn't. 

And so he found himself in what is called the uncanny valley, in the world of artificial intelligence and robotics. This is the place where things seem almost right, almost true - almost believable - but there's something weirdly wrong. And so the effect is ruined.

Sound familiar? 

It should, if you're in business trying really hard to create personalized, personal, interactions with your customers. There's a limit on how authentic your love for your customer will feel to the customer. And that's the standard, isn't it? You can fake love (most companies do), or you can really feel it (some companies do), but neither of those matter as much as what the customer him/herself believes.

How do you get customers to believe your passion for them is authentic?

I'd be happy if you joined the CEM Professionals Group (that's the exact name, not to be confused with the other Customer Experience Management Professionals Group) on LinkedIn, and tell me what you think.

Here is a hint of my point of view: mimicking "love" or "humanity" has the wrong goal. The goal should not be to mimic (copy), because the result will always be compared to what we know is authentic (consciously or unconsciously), and any consistent difference will be noted as a failure. The goal is not to copy "love" or "humanity", but to create a learning relationship where subsequent interactions combine relevance and surprise ... [Surprise? Well, that's a surprising addition.]

More about the uncanny valley here and here.

I've done a fair amount of consulting, teaching, and even experience management design for my own bosses, focusing on the concept of "mythos". Mythos is a way of looking at the world as playing out a story that defines what is sacred and profane, and looking for where energy exists (or can be created) in people's perceptions. I know, sounds abstract, but I've got a framework that makes it really easy to be creative in this realm.

Another area I work in is "global experience management". You might think this is just experience design and management in locations connected by airports, itineraries and generic hotels. Ah, but no. The reason is that cultures vary in the ways they (explicitly and implicitly):

- interpret signs (red=lucky in China, red=danger in the US)

- define and empower symbols (cute little girls are favored in Japan, sexy girls in the US)

- value events and interactions (service failure generates a "face" issue in Asia, a money issue in the West)

All of which means, of course, that the content of experiences designed by a CEM professional needs to be culturally specific.

Ah, yes ... but.

A key observation made by my heroes, Durkheim, Eliade, and Lévi-Strauss (who just passed away) relates to the similarities in the formal structures myth takes on across cultures. Think Joseph Campbell's The Hero with a Thousand Faces. This issue of mythos similarity in the context of cultural differences is a source of power in this force of customer experience management. (Keep an eye out for my video series on my framework for the five forces of CEM.)

What that means for high-level experience management and branding is that the cultural variability in the items I bulleted above may nevertheless rest with a formal structure that serves a common purpose. I mention this merely as an introduction to the example of the Barbie Doll that launches this fantastic TED talk. (I love TED.)

Great article about Average Handle Time (a call center metric, often linked to customer service representative incentives) here, from Tripp Babbitt, a bright guy posting on the Customer Management IQ site (a must-visit). (In the ever-spaghettifying nature of the Internet, Tripp is commenting on a blog posting from Blake Landau. And now, my comment on that comment on a comment.)

I have two sayings. (Well, I have more. But for right now ...) They are really rules of the road for any and every company, consulting firm, pundit, non-profit. It doesn't matter who you are, these are the rules.

First, a company's job is to create greater perceived value than their competitors. 

Second, a company should do this by managing complexity on the backend while handling variability on the front.

The AHT metric is a perfect storm where using it as an incentive violates both rules.

rule one: greater perceived value than competitors

Perceived value is essentially a scorecard. In the old days, it was a utility function (Bradley Gale's original approach, since modified by him, his firm and many others to be broader). My approach is really to break apart the number of things you measure into three groups: product, service, and experience. These are fairly arbitrary at times (is a McDonald's hamburger a product, a service, or an experience? Yes.) But with some discipline and an up-front clarity about who "owns" which key performance indicators, you can create a scorecard. It may be articulated into your systems by hooking it up into Balanced Scorecard (BSC) - or not. The key thing is to measure how customers perceive your value along those three dimensions, and to give people responsibility for fixing what's broken. 

TIPS:

• Make sure the scorecard is relevant to the customer, and revealing about their true wants and needs. 
• Then, compare your performance with the performance of your competition.
• Subtract your score from your competitors' score. (I'm oversimplifying - but stay with me.)
• Pray that the difference puts you on top.

And if you need to improve your scores, look at the next section. 

But look here first at average hold time (AHT). If your CSRs are handling customer problems - moments of truth where total lifetime customer value can be created or destroyed - the last thing you want is to disrespect them by having CSRs hurry the call along, or even (gasp) hang up on the customer. Yes, that shameful activity happens all the time. 

Instead, you want to make sure you create greater perceived value in your call centers than your customers have come to expect. Ideally, you'd do this "on brand" as well, so that you don't overspend trying to make every little thing about that customer call perfect. Just make it effective and memorable - and better than they would expect from competitors. 

AHT at worst works against this goal by not giving the CSR the time needed to deal with the customer's moment of truth in an emotionally effective, memorable way.

Even at its best, AHT reduction misses the point. The problem is that it includes the word average. The real gold in data mining your call centers is to determine the causes of call time variability. Averages squash out any of that corporate value. 

Why do you care about the causes of variance in call times? See the next section.

rule two: manage complexity on the backend and variability on the front

So, let's focus on variability on the front end. What causes such variability? 

1. You cannot execute consistently on the same challenges.
2. Challenges you thought you needed to address are wrong, and so tools and training are non-existent.
3. There exists at least one challenge you never thought of.
4. The same customer has a variety of needs at different times.
5. You have a variety in your customers and stakeholders you have not yet modeled or dealt with.

You are looking at the following "stable objects" in your management world in these circumstances: process variability, challenge variability, and customer variability. 

What you want is to be able to handle these variances from the "norm" well. And Six Sigma/Lean is not necessarily the only tool - nor even the best tool, particularly when you really want to address customer challenges and variations. After all, a customer changes in their needs over their lifetime; if you want customers for life, you must provide a combination of variable service and branded experience. You want variation in your output!

So, what kind of variations should you address? How complex are your customers' challenges? Where are they within their lifecycle as they define the relationship with you? 

If you only had that information.

But you can get it, can't you? From your call center. Because where also are you going to look first for the hard realities facing your own customers at moments of truth ... where your longterm profitability is at stake? 

The call center should not necessarily be a customer therapy opportunity, although empathy does help. Instead, it should be an opportunity for managers (call center management and others) to determine the root causes of the variability in phone call durations, and without judgment ask what the consequence of these insights are to product, service and customer experience. 

And then, go back to rule one.

Update on Thursday, October 22, 2009 at 8:18AM by Paul K. Ward

Blake at Customer Management IQ just posted a comment on my comment on a comment about her comment. In the interests of post-modern self-referential content, I am obligated to comment on what she said... 

Seriously, the distance among Seth Godin (mentioned in Blake's entry here), Tripp and me is very small. Empathy matters (per Seth), not just in human terms but in terms of developing customer engagement (see Gallup and Carlson); Tripp might say, "Don't manage to the metric unless it actually helps you do your job", and average handling time doesn't help CSRs actually do their job; and I say that AHT artificially pushes your stats to the "norm" and thus destroys information and indicators that are critical to improving everything at your company. You should seek out variability where it happens - always - and instead of squashing it right away (as you might with Lean and Six Sigma), ask about what's causing it. 

Another one of my sayings: "Make regular what you can, but don't make regular what you must not." Making things "regular" (turning them into consistent systems) lowers costs and helps make a scalable business model. But at some point, the variety of interactions you have with customers is exactly right. You're handling their situations, at a reasonable cost to you, in ways that reflect their wants and needs, moments of truth, and the values of your brand.

Now the challenge is not to let this variability creep too high again as you desperately seek out more and more customers who want a wider variety of products and services from you which you cannot possibly execute well. Then you're pushing your overall customer satisfaction stats down (probably to the norm of your sector) and losing potential differentiation. And it's differentiation that both companies and customers ultimately want. It makes for profits, and a clear brand that people can love. 

Remember when Target was indistinguishable from Wal-Mart? Talk about a disciplined approach to variability ... just look long and hard at Target.

I'm a perceived customer value guy (PCV-G?) since perceived value is really the only thing that ultimately matters. This is not to say that quality means nothing, merely that perceptions influence our assessment of a product, service, and experience, and even how we define "quality". Good PCV scorecards also allow you to compare your performance in these dimensions with competitors (what Bradley Gale called "customer value added") - and with some good econometrics, you can determine the impact of an improvement in your PCV on your profitability and/or marketshare improvements. Magical stuff.

What I really like about this TED presentation by the powerhouse Rory Sutherland: it's vastly entertaining, right on all the facts, and frames perceived value as a potential solution to the problem of the world's impending poverty: even first world countries will be unable to consume at past rates because of the high costs of commodities trickling throughout our economy. The suggestion here is: don't think of the future as one featuring greater poverty.

The details are here: