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.

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. 

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.

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.

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.

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.

Shining eyes, people.

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"?

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.

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.)