Managing Marketing Payoffs

One of the reasons I write this blog is to connect the dots between general strategy consulting and the day-to-day world of technology in which I work. It's particularly satisfying, then, when I see the messages I wrote in a white paper for a client connect with messages published in an article by a top strategy firm like Mercer Management Consulting.

"Customer experience management allows managers to trade off costs and benefits with new precision and make maximum-impact investments in their service."

--Mercer Management Consulting

First, the strategy article: "When Instinct Is Not Enough -- Using the right facts to shape the customer experience." It's written by Martin Kon, Catherine Kunkemueller, and Tom Russell for the current issue of the Mercer Management Journal. The article examines how subscription businesses (like ISPs and telecoms) can weight various investments designed to improve the customer experience of a brand. Those investments can help fortify the service itself or work on other factors that influence brand perception like marketing communications.

I am particularly intriged by how the authors see these investments falling into three categories:

• Hygiene are factors (like SLAs) that meet baseline customer needs
• Differentiation are factors (like a service bundle) that appeal to a particular customer
• Personality is the whole that's greater than the sum of all the other factors combined

Most managers accept that operating from facts is better than operating from instincts alone -- but which facts are "right"? And how do you get those facts in a timely and cost effective way? And how do you analyze those facts properly to come up with right answers? This is all particularly tricky in the high-risk, capital intensive world of ISPs and telecoms because as services roll out there often isn't a lot of time for reflection.



That's where the white paper I wrote for Brix Networks comes in: "Managing the VoIP Service Rollout: Why Service Assurance is Key to the Success of Converged Services." It talks about how and why you should build an effective fact base and analysis capability organically into the network itself rather than make this a separate activity.

As technologists, we like to talk about how products and services aren't just gadgets but have real strategic value. Well, here you go.

Marketing To Smart People

Is marketing to smart people different from marketing to everybody else? Or, to put it another way, should someone's IQ make a difference in the form and content of marketing messages you direct at that person?

Well, of course it should. That's why we write articles and put them on websites. That's why Harvard Business Review articles and technical white papers are used as selling tools. No kidding.

Okay, so I'm wondering about two marketing practices which seem intuitively counterproductive when the obvious intended target is the intellect. Perhaps someone can explain the theory behind them.



The first is the practice of citing figures that say your clients are more successful than non-clients. SAP is running a TV commercial that says its customers are 32% more profitable. Bain says on its homepage that its clients outperform the market 4-to-1. (I do like 4-to-1 better. It sounds like a score. I wonder: is SAP using Bain?) The obvious issue here is that correlation is not causality. The clients could be successful for other reasons. It's one thing to say that Crest users have 25% fewer cavities. But that's a much more specific claim than saying you make clients richer. (Which in another context -- like financial services -- would be illegal.) And the cause-and-effect relationship between toothpaste and cavities is easier to accept.

The other practice I wonder about is charging for content on marketing sites. McKinsey does this, for example, with its premium McKinsey Quarterly articles. A subscription to premium content costs $150 yearly. There could only be three possible reasons to do this. The first is to help McKinsey recover some of the costs for publishing these articles. The second is to limit distribution of the articles. The third is to create an image of exclusivity. When the point is to attract smart people with lots of money, all three reasons seem to fail on their face.

One of the advantages of marketing to smart people is that how you think becomes a legitimate issue -- as in a product demonstration where you are the product. Perhaps another issue is how smart you want your intended audience to be.

Regulation as Opportunity

Organizaions often have trouble writing about their own technology solutions because they think the problems being solved are a real turn-off -- or that the subject is just too boring -- or that it's already been covered ad nauseam. Here's a trick: Just fill in the blank in this title: " _____ as Opportunity." Say, for example, "Regulation as Opportunity."

You're challenging the reader by saying that all that stuff you thought was bad is really good. It's provocative and sets up a tension which, by the way, is something every good piece of marketing writing has to do.

IT is obnviously a huge enabler when it comes to helping organizations deal with the often crippling consequences of regulation -- witness Sarbanes Oxley. But the subject, to say the least, has been done and over done. So look at how McKinsey covers the topic in an article in the latest McKinsey Quarterly: The Role of Regulation in Strategy by Scott C. Beardsley, Denis Bugrov, and Luis Enriquez. (You have to register to read the McKinsey Quarterly.) This article doesn't happen to mention Sarbanes Oxley. But it does cite many other examples of how companies can turn the burden of regulation into an opportunity -- from Medicare to power deregulation to the Euro.

Specifically the article discusses scenario modeling, trading off stakeholdere interests, communication of stakeholder issues (including one's own), and formalizing and elevating the regulation management process.

As a professional communicator, I like McKinsey's presentation because it illustrates the lemons vs. lemonade approach very well. But I do have a couple of nits. First, all the actions mentioned (like modeling) obviously lend themselves to strong IT. Actually, entire tech sectors have been created around maximizing the regulation "opportunity." But McKinsey does not explore the IT angle.



For an example of an article that does explore this angle, take a look at the one I wrote for Lodestar Corporation in World Energy on just one aspect -- electricity billing.

My second nit goes back to the whole commoditization thing we've been talking about in previous blogs. Regulation management is a huge barrier to commoditization. The McKinsey authors cite an electric utility achieving an almost 2% higher return on investment thanks to its regulation coping strategies. These strategies by nature are highly particular to specific geographic and political regions. They are therefore inherently differentiating, as the utility example (a commoditized industry if there ever was one) demonstrates. I think the authors might have done something with this as well.

Free Software and the Environment

Yesterday I offered some initial impressions on Tom Friedman's new book, The World is Flat. Among those impressions is that tech is very good at looking inward but not that great at looking outward. One reason for techies to read Friedman's book, then, is that it provides great context, even if much of what he says may seem like the same old same old to technology providers who have been fighting the commoditization battle for a long time.

"It's time for the tech sector to think beyond itself . . ."
--Jonathan Schwartz, COO, Sun Microsystems

So, I was interested in reading an bylined article in yesterday's Business Week Online by Jonathan Schwartz, COO at Sun Microsystems, titled " The Tech Industry's Great Task." In the article he actually seems to take on a couple of tasks. One is to promote the use of free software. The other is to promote the idea of cutting back on the use of electricity to power computers -- a major contributor to polution. The connection is that both ideas are examples of looking outward. And that tech will only do well by doing good "outside" -- something it has to get much better at.

Free software means bigger sales of those things that play on free software -- like applications -- which have greater value add. Schwartz compares this to what the auto industry is doing with hybrids -- cars that cost more but also contain greater technology value add than do the gas guzzlers they replace. Ironically, as Schwartz points out, the markets most at risk from industrial polution (like Russia and China) are also the places most likely to buy more power-hungry commodity blade servers.

Okay, so making software free is not as good (probably in both senses) as making hybrids. But it's a start. Software is a much less mature industry than cars -- but it's also growing up a lot faster. As Schwartz says: "punch[ing] above its weight class." That's a good analogy. So is a willingness to step outside.

Should Techies Read Tom Friedman?

For those of you who may have missed it, I was away at the end of last week attending a wedding in Phoenix. I had intended to blog on the road, but never got past the good intentions.

For techies, Friedman's message makes no sense. We are all running as fast as we can.

Anyway, yesterday on the flight home, I started reading The World is Flat by Thomas Friedman. I'm only about half way through, but since there's a lot there, I thought I might venture some early comments. For anyone who is not familiar with the book, it's basic message is that forces with which all of us in tech are familiar have commoditized (or soon will commoditize) everything that can be digitized. (Friedman even points out that various components of apparently hands-on businesses, like restaurants, can become partially commodized -- for example, the taking of dinner reservations.) Those forces include globalization, the Internet, technical standards, over-investement in communications infrastructures, outsourcing, off-shoring, search engines, etc. -- all of which mutually reinforce each other to create a flat competitive playing field which is (hence, the title) global.

I have two questions, the answers to which should be apparent by the time you finish even a couple of chapters of the book: 1) Who is Friedman talking to? and 2) Should tech types read this?

The answer to question 1 is "smart, well-read generalists who may not have made the connections between trends in tech (probably because they were not aware of them) and what else has been happening in the world." The answer to question 2 is less obvious. Most people in technology know what's been happening in technology. But do we understand its broader societal implications? (Before you answer, read what Karl Marx says on pages 201-202.)

My verdict for now is that if you want to get a great view of technology from the outside in, this is it. Most technology commentary is written by people on the inside who occasionally look out. Friedman makes no pretentions about being a technology expert, but he clearly could be if he wanted to. And it may be better that he's not.

His message to the general reader is: "Learn to run faster." For techies, however, that message makes no sense. We are all running as fast as we can.

So, I think you have to look at the publication of the book itself as a message. And, for techies, this book that informs the general reader about the direction of technology trends is for us a history -- recent history, I grant you, but still a history -- and for technology innovators there's some comfort in that.

Here's why: The crushing dislocations of super-fast commoditization have themselves become commoditized. (And I think we're seeing signs of that in lower growth numbers for commodity players like Wal-Mart and Dell.) And so too have the lessons in Friedman's book — now that they've been repackaged and resold for general consumption.

So Much for Generic Technology

Productivity was up last week, Dell's numbers were down. And Apple's are way up. All signs point to a resurgence of high-tech innovation as a driving force for economic expansion. Witness the rise in Silicon Valley commercial real estate and occupancy rates.

You can take it as a given that the opportunities of commoditization have been reached.

Ever since the bubble burst, the way most people made money in tech has been by being boring. It is becoming clearer now that boredom only takes you so far. Sooner or later, you can't drive real growth by just doing the same old things more efficiently. You have to be dramatically different -- or different dramatically.

Executive Agenda is the online magazine for A.T. Kearney. This month features a cover story called Spending Smarter: Rebalancing the IT Budget. It pretty much sums up in one convenient package all the things IT managers can do to bring technology costs to the minimum. It's great advice for IT managers trying to save money. But there is a big lesson also for technology companies looking to make money from IT managers.

You can take it as a given that the opportunities of commoditization have been reached. There's no better sign that something is over than when an article like this appears -- offering the kind of "perspective" that's possible only from a distance (as in hindsight). Any IT manager who is NOT already doing most of the things listed in this article would probably be considered out-of-touch and at risk of losing his or her job.

Yet, real growth is happening. As the article states, managers can spend the savings from commoditization on technology that really makes a difference. Evidently that's exactly what many are doing.

Another View of Smart Services

Take a look at the October issue of Harvard Business Review. There's a great article by Harbor Research founder Glen Allmendinger, and Ralph Lombreglia, vice president. The article, titled "Four Strategies for the Age of Smart Services," (registration required) explains four business models for product companies who want to leverage networking technology to grow service business profits. They are: embedded innovator, solutionist, aggregator and synergist. Whether a strategy fits one category or another depends on where it sits on two scales: 1) how much of the profit the product manufacturer controls (versus controlled by others) and 2) how much profit comes from the product (versus from the networked information the product provides).

"What seems to be missing is a good script that communicates the opportunity to senior management in a compelling way."

The basic idea is that previously "dumb" products like air compressors, diesel engines, and uninterruptible power supplies can now report back to headquarters things like whether a part is wearing out. This avoids downtime for the customer, which is worth paying extra for -- sometimes a lot extra, especially if the product itself is really expensive or if it serves a really critical role. The authors identify dozens of ways companies, or their channel partners, can make money off this kind of information.

While I think most people in technology are aware of the "smart services" concept -- having it mapped out in front of you in such a pristine and granular way is fascinating. The article should be a real help to manufacturing companies looking to figure out how network-enhanced products might enhance their service businesses.

But what I found even more fascinating came at the end where the authors recount their attempts to sell this concept to product company execs -- who aren't buying it! How is that possible? I wonder. The case for smart services seems intuitively obvious and the trend seems absolutely inevitable. It's a classic case of you-either-get-this-or-you-get-left-behind.

"What seems to be missing," the authors say, "is a good script that communicates the opportunity to senior management in a compelling way."

That's not all that's missing. If business customers aren't buying this concept, imagine what it will take to get them to buy any new idea -- which would probably be even less straightforward than this one. That's the challenge most sellers of technology innovation face.

Before you can find great scripts, you first have to find great scriptwriters. Now that would be a really smart service.