Bain Bets on Bad Profits

"'Bad profits' are generated when a company fails to deliver on a promise. They shortchange customers and lead to defections in the long term while currently reaping rewards at the expense of customers and creating detractors in the process."

--Bain

Bain & Company issued a press release Thursday saying that new research finds that companies earn bad profits from one-third of their customers. The research was done by Fred Reichheld, whose forthcoming book, The Ultimate Question: Driving Good Profits and True Growth, was also announced in the press release.

The research isn't actually new. Bain began publishing results of the research well over a year ago (as I said back in July). That's ironic, given that the thesis this time is about companies not doing what they say they do -- and the resulting profits therefore being "bad," or harmful to companies' long-term prospects.

Calling something new when it isn't is an old device and not the most sophisticated. However, the press release does display some very sophisticated thinking marketers would do well to study in their own thought leadership campaigns.

The term, "bad profits," for one, is brilliant. It's the juxtaposition of two opposing ideas -- and immediately provokes the response, "How can profits be bad?" Explaining how (i.e., responding to the reader's need to know) offers the opportunity to present the whole case the firm wants to make. It reminds me of when Regis McKenna, the master high tech public relations strategist, announced that PR is dead. Of course, what he really meant was . . . . And therein lay hundreds of pages of editorial copy about Regis McKenna.

But bad profits also illustrates another powerful marketing tool. That is to present multiple facets of the same insight as if each were an insight all its own. That's clearly at work here. Earlier, the facet Bain developed was that customers may say they like you (and even believe it) even if they really don't and therefore would actually be a detractor if asked to provide a reference for you. Bain said that this promoter versus detractor index was the most important number companies can manage. Even though the content of the basic idea is the same, the idea's branding has now changed. It's gone from "most important number to manage" to "bad profits." Which do you think is more powerful?

Thought leadership is very expensive -- so companies need to get as much mileage as possible. Most efffectively, that is not done by using different words to say the same thing. "Bad profits" is more than just relabeling. It is saying something new. More importantly, it is also thinking something new.

There are other ways marketers can grow the return they receive on thought leadership investments -- and I review some of them in the winter edition of my new newsletter (pdf), Writing & Strategy.

Carlota Perez

"Have you noticed how good taste has suddenly become fashionable and is moving right down the income scale?"

--Carlota Perez

This morning I read a wonderful interview with Carlota Perez conducted by Art Kleiner, editor-in-chief of Strategy+Business, Booze Allen Hamilton's magazine. It is prefaced with a nice summary of long-wave theory, which, as the editor notes, is making a comeback in an age focused on short-term results. A shining example of the theory's proponents, Perez is a research fellow at the Cambridge Endowment for Research in Finance at Cambridge University.

As have other thought leaders, Perez says that our current period is a transition between when new technologies are first introduced (the 1990s boom) and when their true economic benefits are realized as more sustainable prosperity. She calls this period we're in now a turning point (although "point," as she admits, might be misleading since in previous cycles it has lasted anywhere from two years to 15.) It's also pretty much what Tom Friedman is talking about with his "flat world" metaphor. But she sees beyond this period to a future potentially brighter than Friedman's. For example, she says: "It all seems impossible now, but things always seem impossible at this point in the surge. Between 1934 and 1946, a lot of economists believed that high unemployment was inevitable . . . ." But that, of course, was right before the "Happy Days" of the post-World War II expansion.

Perez sees early signs we are moving beyond the turning point again to sustainable prosperity: "Have you noticed how good taste has suddenly become fashionable and is moving right down the income scale?" She could have also cited how consumer price brand leaders are moving more into image-driven marketing and public relations. The well-publicized economies of scale inherited from the 1990s tech boom only took retailers so far in their quest to grow profits (even if, in many cases, that was very far). That this efficiency-driven expansion could not go on forever was both disappointing (hence, the recent retrenchment) and foreseeable. From now on, the more retailers commoditize their brands, the more they will simply look like everyone else.

I think you'll see this fashion-friendly mentality start to shape b2b marketing too. Now that anyone with a few hundred dollars worth of software can create and distribute content, it's no surprise that b2b marketing is drowning in a lot of me-too content that is also getting ignored.

Writing Your Career

This problem isn't what most people think of as "writers block" -- it's really "career block."

When I began this blog last summer, one of the things I swore I would not do is fall into the trap typical of most professional writers' websites -- which is to offer readers advice on how to become better writers. Obviously, the reason they do this is to showcase skills, not to help potential clients do it themselves rather than outsource. As a professional pen for hire, my biggest competitor is the client who thinks anyone can write compelling, well organized, and technically competent copy -- and, hey, no one really reads text anyway.

[Actually, that's not true. People read more text now than ever before -- they simply have less time to read your text.]

Okay, but there are a lot of other things I could say about writing besides how to do it. One glaring example is the executive who has pinned his or her career on a specific strategy and needs to communicate that strategy in as many diffrent ways as possible again and again to all kinds of audiences internally and externally. So what do you do, write the same speech or white paper over and over again? That simply won't work, no matter how well the paper is written. One thing you'll notice in reading some of the strategy consulting firms' content cited in this blog is that they have to be good at slicing the same apple multiple ways.

This problem isn't what most people think of as "writers block" -- it's really "career block." And it's the subject of one of the articles in my new newsletter called Writing & Strategy. I invite you to download a pdf version by clicking here.

Creating More Credible Content

Yesterday I wrote about an article titled "Learning to Live with Paradox," by Mercer Management Consulting's Stephen Rhinesmith. It offers so many different lessons in writng thought leadership pieces, that I could not resist going back and mining it again. Yesterday, I looked at how it frames a presentation -- specifically, by using a device I call "the big hairy concept" -- and how that approach can be extended and applied elsewhere. Today, rather than look at form issues, I want to look at content.

When you boil it down, what most readers want from thought leadership content is a solution to their problems. (It's also one of the hardest things to provide.) What's fascinating here is that Rhinesmith flies in the face of that expectation by starting from a premise that you can never solve some problems because they're not really problems, but paradoxes (the big hairy concept). A good manager will recognize a paradox when he or she sees one and adroitly balance opposing interests (like local operational autonomy versus standard global best practices). As he says:

"For example, moving products close to the customer in order to achieve fast delivery times may result in excess local inventory. if both sides can agree on an acceptable level of inventory they can manage the tension. On a global level, an agreement might call for 70% of new products to have global branding and applicability, with 30% of new products customized for local consumption."

The issue for the reader is whether the offered solution is credible. That comes up all the time in technology marketing where it's common practice to use thought leadership to push proprietary products. Too much proprietary content and the white paper is a sales brochure. Too little and the paper doesn't say anything new. Too much and you're giving away trade secrets. Too little and you're asking readers to accept what you're saying on faith. One way you can tell if a writer has not successfully solved this dilemma is if the paper or article spends most its length defining the problem and has little space left for the actual solution -- perhaps with a sidebar highlighting the author's product.

Rhinesmith shows how content is more convincing the more it has the logic of the reader's own experience behind it. Prsented in that light, most readers will intuitively accept the abstraction that optimizing a part of something can often suboptimize the whole. That's just life — from which it's possible to draw numerous examples, which are at the heart of Rhinesmith's case. His five recommendations on how to strike appropriate balances also square with everyday experience -- as in the 70/30 inventory example just cited. Tech marketers take note.

Invoking objective reality (in this case, the reader's) is probably the best way to build credibilty -- the extreme example of which is scientific peer-reviewed research. Often that's not available, and even it it were available it might not be the most persuasive content since it might have to be translated for lay readers.

Even so, there are ways that thought leadership authors can build more persuasive content by grounding it in rigorous scientific methods. Take Rhinesmith's example of striking a 70/30 optimum global/local inventory allocation. Advanced quantitative methods exist for solving exactly these types of optimization problems. My client, Analytics Operations Engineering -- an MIT spinoff -- does this kind of thing for a living and I am currently writing 12 client case studies for the firm. You don't make cases like this persuasive to a general business audience by walking through the math. You do it by successfully conveying the underlying logic and showing the result in a business context (see chart).

Objectifying problems has benefits beyond making content more credible. It also helps manage the tension when these balancing discussions come up. Making it a math problem is a great way to save face -- and go on living with the paradox.

The Paradox Problem

Today I want to talk about an article in the latest edition of the Mercer Management Journal, now posted on the Mercer Management Consulting website. It's titled "Learning to Live with Paradox." The author is Stephen Rhinesmith. I like the aritcle's topic and what the author says about the topic; but I am particularly interested in how it illustrates well a couple of key points about articles written to showcase thought leadership.

First -- what the article is about. Basically, the article says that many of the problems global organizations face actually express themselves as paradoxes. Paradoxes consist of opposing needs that don't go away. If you organize to fully satisfy one of these needs exclusively, then eventually you will be forced to confront its opposing need -- like family versus work.

"The test for identifying a paradox is that it has no final solution."

--Mercer Management Consulting

The author frames the discussion in terms of intellectual and emotional maturity -- for example, that managers should learn to be comfortable holding two opposing ideas in their heads at the same time and that they should also seek out those with opposing views. Doing so develops a manager's emotional intelligence and cultural empathy -- especially important qualities in global operations where one size seldom fits all.

The article also offers more practical hands-on advice such as to create what the author calls paradox alarm metrics:

"For example, moving products close to the customer in order to achieve fast delivery times may result in excess local inventory. if both sides can agree on an acceptable level of inventory they can manage the tension. On a global level, an agreement might call for 70% of new products to have global branding and applicability, with 30% of new products customized for local consumption."

As a writing approach, the article illustrates what I call "the big hairy concept" article. It's very effective as a way to think creatively about topics or generate new topic ideas. The approach is to take an intellectual abstraction and say what it means and how to deal with it in a specifically management oriented context. Here the concept is "paradox". Another good one is "complexity." (You can see my previous blog posts on how Boston Consulting Group and Mercer Management Consulting did this.)

An offshoot of this is the "style" article -- where you create the big hairy concept by linking the noun form of a verb to the word style -- as in marketing style, interaction style, and so on. (The links are to blog posts on examples from Booze Allen Hamilton and McKinsey & Company, respectively.) What's interesting is that you can usually use the style technique to extend or develop any big hairy concept. In the paradox article, the author sort of does this by invoking an "anatomy of a paradox" grid adapted from Barry Johnson's 1996 book, Polarity Management. Each quadrant in the gird represents a different set of priorities (and consequences) that must be appropriately balanced in managing any paradox.

What would also be interesting is to take Rhinesmith's paradox balancing idea and apply it to various style articles. For example, in the BAH article on marketing styles, you could use paradox modeling to further develop that author's thesis that no one marketing style fits every organization equally well -- but a mix of style attributes must be somehow balanced.