January–February 2017

T-Mobile’s CEO on Winning Market Share by Trash-Talking Rivals

When he joined T-Mobile, in September 2012, the author writes, the most important thing he recognized wasn’t specific to T-Mobile; it was true for the wireless industry in general: People hated it. He saw that the best way to succeed in this industry was to do things as differently as possible from the existing carriers.

T-Mobile got rid of long-term contracts and replaced them with a transparent pricing model, made it easier to upgrade to a new smartphone, and eliminated charges for global roaming. Legere also began criticizing rivals Verizon and AT&T Wireless, which he dubbed “dumb and dumber,” at press events and on Twitter.

The result: T-Mobile has grown subscribers from 33 million when Legere came on board to nearly 69 million at the end of the third quarter in 2016.

READ FULL ARTICLE

• Save
• Share

Customer Loyalty Is Overrated

Why do companies routinely succumb to the lure of rebranding? The answer, say A.G. Lafley and Roger L. Martin, the authors of “Customer Loyalty Is Overrated,” is rooted in serious misperceptions about the nature of competitive advantage—namely, that companies need to continually update their business models, strategies, and communications to respond to the explosion of options that sophisticated consumers face.

Research suggests that what makes competitive advantage truly sustainable is helping consumers avoid having to make a choice. They choose the leading product in the market primarily because that is the easiest thing to do. And each time they select it, its advantage increases over that of the products or services they didn’t choose, creating what the authors call cumulative advantage.

Lafley and Martin offer guidance for building cumulative advantage:

Become popular early. Back in 1946, Procter & Gamble gave away a box of Tide with every washing machine sold in America.

Design for habit. When P&G introduced Febreze, consumers liked it but didn’t use it much. The problem, it turned out, was that the product came in what looked like a glass-cleaner bottle, so users kept it under the sink. When the company redesigned the bottle so that customers would keep it in a more visible spot, they ended up using it more often.

Innovate inside the brand. Efforts to “relaunch” brands can lead people to break their habits. Changes in product features should be introduced in a way that retains cumulative advantage. For customers, “improved” is much more comfortable than “new.”

Keep communication simple. A clever ad may win awards, but if its message is too complex, it will backfire.

READ FULL ARTICLE

• Save
• Share

Old Habits Die Hard, but They Do Die

Rita Gunther McGrath argues that although the theory of cumulative advantage makes sense in industries that are predictable, that condition no longer applies for many companies. Habits, like other elements of the environment, can shift.

Consider how Dollar Shave Club’s subscription model snatched market share from Gillette. Executives, McGrath says, must balance the power of cumulative advantage with the need to refresh their approach. One tactic is to leverage an organization’s core skills or capabilities, but in a new format—as Dayton Hudson did when it became Target. The better executives become at understanding the motivations behind unconscious choices, the more likely they are to succeed at building habitual behavior among their customers—and, just as important, the more likely they are to see how those habits might change.

READ FULL ARTICLE

• Save
• Share

“Habit Is How We Build the Connection”

How does the theory of cumulative advantage play out for companies other than Procter & Gamble? Jørgen Vig Knudstorp, cochairman of the LEGO Brand Group, built his company’s cumulative advantage by mining the emotional connection that so many people have with the colorful blocks. “If you can make your brand a value—a part of someone’s identity—you have a really powerful competitive advantage,” he says. “But it all begins with making your brand a habit.”

READ FULL ARTICLE

• Save
• Share

How Habit Beats Novelty

Research shows that our brains use heuristics and experience to decide what something is, often skipping over unexpected or novel aspects of a scene. We match input from the world to things we have encountered before. Since the goal of the marketer is to get the consumer to buy a brand quickly, constantly changing it won’t help. Change meant to freshen or energize a product line may actually cause consumers to overlook the new design as they search for what they are in the habit of seeing.

READ FULL ARTICLE

• Save
• Share

“A Product That Lets People Hold on to Their Habits”

Intuit chairman Scott Cook attributes much of his company’s success to an early decision to design Quicken, Intuit’s personal-finance software, to look and operate like a checkbook. As Cook puts it, Quicken is “a product that lets people hold on to their habits.”

READ FULL ARTICLE

• Save
• Share

Curing the Addiction to Growth

In pursuit of double-digit top-line growth, many retailers relentlessly open new stores, even when doing so destroys the profitability of their businesses. This addiction is fueled by Wall Street and a capitalist culture that’s obsessed with growth. It’s hard to kick, primarily because companies don’t know when or how to turn off the growth machine—or what to replace it with.

To explore the problem, the authors studied the financial data of 37 U.S. retailers with recent sales of at least $1 billion whose growth rate had faltered. They found that the less successful retailers had continued to chase growth by opening new stores far past the point of diminishing returns. By contrast, the more successful retailers had drastically curtailed expansion and instead relied on operational improvements at their existing stores to drive additional sales. This allowed them to increase revenues faster than expenses, which had a powerful positive impact on earnings.

This article lays out a framework for determining when to switch to a low-growth strategy and how to put it into practice. If retailers execute well, they can stay in the maturity stage of the life cycle for a very long time, forestalling decline.

READ FULL ARTICLE

• Save
• Share

Are You Solving the Right Problems?

In surveys of 106 C-suite executives representing 91 private- and public-sector companies from 17 countries, the author found that a full 85% agreed that their organizations were bad at problem diagnosis, and 87% agreed that this flaw carried significant costs. Fewer than one in 10 said they were unaffected by the issue. What they struggle with, it turns out, is not solving problems but figuring out what the problems are. And creative solutions nearly always come from an alternative explanation for—or a reframing of—your problem.

The point of reframing is not to find the “real” problem but, rather, to see if there is a better problem to solve. The author outlines seven practices for effective reframing: (1) Establish legitimacy. (2) Bring outsiders into the discussion. (3) Get people’s definitions in writing. (4) Ask what’s missing. (5) Consider multiple categories. (6) Analyze positive exceptions. (7) Question the objective.

READ FULL ARTICLE

• Save
• Share

The Neuroscience of Trust

Managers have tried various strategies and perks to boost employee engagement—all with little impact on long-term retention and performance. But now, neuroscience offers some answers. Through his research on the brain chemical oxytocin—shown to facilitate collaboration and teamwork—Zak has developed a framework for creating a culture of trust and building a happier, more loyal, and more productive workforce.

By measuring people’s oxytocin levels in response to various situations—first in the lab and later in the workplace—Zak identified eight key management behaviors that stimulate oxytocin production and generate trust: (1) Recognize excellence. (2) Induce “challenge stress.” (3) Give people discretion in how they do their work. (4) Enable job crafting. (5) Share information broadly. (6) Intentionally build relationships. (7) Facilitate whole-person growth. (8) Show vulnerability.

Ultimately, Zak concludes, managers can cultivate trust by setting a clear direction, giving people what they need to see it through, and then getting out of their way. In short, to boost engagement, treat people like responsible adults.

READ FULL ARTICLE

• Save
• Share

The Stretch Goal Paradox

What executive hasn’t dreamed of transforming an organization by achieving seemingly impossible goals through sheer force of will? Indeed, in countless business narratives, the practice of setting such objectives has been celebrated as a key source of achievement.

But in practice, stretch goals rarely work out, the authors’ research shows. Consider Yahoo. When Marissa Mayer took the helm of the ailing internet giant, in 2012, she announced a number of wildly ambitious targets, including the exceptionally difficult objective of achieving double-digit annual growth. Five years later, she’d fallen far short on them all, and Yahoo was still struggling.

The problem is that organizations that would most benefit from stretch goals—those with recent wins and slack resources—seldom employ them. But businesses in trouble often adopt them in a desperate attempt to turn things around—and they nearly always fail. This is the stretch goal paradox.

In this article the authors explain how to determine whether stretch goals are right for your organization and, if they are not, what alternative strategies you can pursue.

READ FULL ARTICLE

• Save
• Share

Getting Your Stars to Collaborate

By pooling their know-how and resources across internal boundaries, organizations can solve problems more creatively, increase their productivity, and reap higher profits. But collaboration is not easy, given how time-pressed managers are, how reluctant they are to cede control over projects and relationships, and how tough it is for them to stop working in silos when they’ve been doing it for ages.

About 10 years ago, leaders at the Dana-Farber Cancer Institute realized that the growing complexity of the problems its experts were charged with solving meant their fiefdoms couldn’t last forever. In developing a case study about Dana-Farber, Gardner saw firsthand how difficult it was for the organization to move away from a star-based system to one that got researchers working together across specialties and facilities. She demonstrates that its story has clear parallels with business and outlines how executives can pull the levers of change in a wide range of companies.

READ FULL ARTICLE

• Save
• Share

Kick-Ass Customer Service

Why are consumers increasingly dissatisfied with the quality of help they get from customer service departments? The authors’ surveys and interviews with contact center personnel worldwide suggest that companies don’t hire the right people as frontline reps, nor do they equip them to handle the increasingly complex challenges that come with the job.

Every rep can be classified as one of seven types, say the authors. Supportive “Empathizers” constitute the largest group, and managers prefer them. But take-charge “Controllers,” who make up only 15% of all reps, actually do best at solving customers’ problems.

To expand their numbers, companies need a fresh approach to hiring—one that involves crafting job postings and screening applicants differently. Companies should also revamp their training practices, using new curricula and on-the-job coaching to help all types of reps learn to act more like Controllers. Another key step is building a culture that values and rewards Controller behavior. That might mean evaluating reps on their ability to use good judgment rather than follow a script, and soliciting their ideas to improve the organization.

READ FULL ARTICLE

• Save
• Share

The Truth About Blockchain

Contracts, transactions, and records of them provide critical structure in our economic system, but they haven’t kept up with the world’s digital transformation. They’re like rush-hour gridlock trapping a Formula 1 race car.

Blockchain promises to solve this problem. The technology behind bitcoin, blockchain is an open, distributed ledger that records transactions safely, permanently, and very efficiently. For instance, while the transfer of a share of stock can now take up to a week, with blockchain it could happen in seconds. Blockchain could slash the cost of transactions and eliminate intermediaries like lawyers and bankers, and that could transform the economy. But, like the adoption of more internet technologies, blockchain’s adoption will require broad coordination and will take years. In this article the authors describe the path that blockchain is likely to follow and explain how firms should think about investments in it.

READ FULL ARTICLE

• Save
• Share

Africa’s New Generation of Innovators

With a young, urbanizing population, abundant natural resources, and a growing middle class, Africa seems to have all the ingredients necessary for huge growth. Nevertheless, a number of multinationals have recently left the continent, discouraged by widespread corruption, a lack of infrastructure and ready talent, and an underdeveloped consumer market.

Some innovators, however, have succeeded by building franchises to serve poorer consumer segments; tapping the vast opportunity represented by nonconsumption; internalizing risk to build strong, self-sufficient, low-cost enterprises; and integrating operations to avoid corruption.

The difference, the authors believe, lies in the choice between “push” and “pull” investment. MNCs seek growth by pushing current products onto emerging middle-class consumers. They retain some large portion of their existing cost structure and operating style, and thus set prices that limit market penetration. The winning strategy diverges from this approach in almost every respect. When innovators develop products that people want to pull into their lives, they create markets that serve as a foundation for sustainable growth and prosperity.

READ FULL ARTICLE

• Save
• Share

Energy Strategy for the C-Suite

Many companies spend millions or even billions of dollars on energy every year. This is not just costly, but also represents an often overlooked opportunity to reduce risk, increase resilience, and add value across the board. As environmental concerns grow more urgent and new technologies emerge, companies must respond to these shifts with a robust energy strategy. This article offers a five-step framework to revamp your company’s energy policy: Create a C-level mandate, integrate energy goals into the vision and operations, track progress companywide, tap new technologies, and engage stakeholders.

READ FULL ARTICLE

• Save
• Share

Buying Your Way into Entrepreneurship

An increasingly popular route to success as a small business owner is “acquisition entrepreneurship”—buying and running an existing operation. If you’re considering such a path, the authors offer practical advice for each stage of the process.

Think it through.

Do you have the right qualities for the job (managerial skills, confidence, persuasiveness, persistence, a thirst for learning, and tolerance for stress)? Are you willing to trade the benefits of working at a large organization for the chance to be in charge?

Search diligently and efficiently.

Plan to spend six months to two years—full time—following leads and systematically vetting business prospects. Focus on companies that are consistently profitable and have annual revenues of $5 million to $15 million. During this phase, you can self-finance or establish a search fund to recruit potential investors.

Strike a deal.

When you’ve settled on a target, do preliminary due diligence to confirm the business’s viability and arrive at a fair offer. If the seller accepts, you’ll have about 90 days to work with your accountant and attorney on confirmatory due diligence.

Transition into leadership.

After the sale closes, your priorities should be building relationships (with employees, customers, and suppliers) and setting up processes to ensure steady cash flow.

READ FULL ARTICLE

• Save
• Share