Posts Tagged ‘transparency’

Customers want to know how businesses make money

Sunday, February 3rd, 2013

 

Strange things grow in the darkness of many businesses’ economic models. If you think that businesses serve the needs of customers and make money by earning their trust, think again. Businesses are platforms balancing the needs of multiple constituencies, and their economic model is rarely what you think. More importantly, businesses don’t want you to understand how they earn their profits, because if you found out, you’d know many are not telling you the truth.

When you go to a grocery store, you assume the products being offered are those that the consumers want. You envision a customer democracy driving shelf space. But the grocery store is responding as much to the spiffing from suppliers as to the needs of customers. Customers matter some (the grocery store cannot really do without the brands that people love), but shelf allocation is really driven by the rebate terms granted by suppliers to the store, not by what you want.

If you’re an investor who’s placed money with a large bank (or even more so a private bank), you may naively believe your advisor has your best interest at heart. But in many cases, your advisor is investing into assets managed by the asset management division of the bank, with the asset management division “retroceding” a good chunk of its profit to the banking division. How can you trust your agent when you have no idea what incentives he responds to?

Why are investment bankers so despised? Because nobody understands how they generate their money. Given the darkness in which they operate, we assume they’re making tons of money (which is largely true), using reprehensible schemes (which is sometimes true). The inability to identify the real costs and risks involved drives a general suspicion. If we were to understand costs and risks, corporate CFOs and treasurers (and the public at large) could start trusting investment bankers again.

At Google.com, you may think the search results you’re provided are the result of some objective assessment of the relevance to the question you posed. But Google makes money from its advertisers, not from you, so whom do you think they cater to when you ask your question? They have resisted any probe from regulators on how their search algorithm works (most recently in Europe), which would be the only way to figure out whether the search is indeed honest, or whether it tilts results to Google-biased suggestions? As a result, many of us may use Google as the dominant option, but few of us trust them.

At Internet sites like Lending Tree, TV advertising urges you to come to them because they will get lenders to compete to lend you money. But what they really do is “source” you as a customer and bring you tied and gagged to one of their chosen (often second-tier) suppliers based on some pre-arrangement they’ve struck with them.

All of that is as old as business. Newspapers, radio and television have always been financed by advertisers, while pretending to be accountable to their readers, listeners, or viewers. Large cultural institutions like symphonies, ballets, and museums routinely raise more money from grants and donations than from people paying for performances or visits at those institutions. As a result, the editorial or content integrity of those institutions is constantly in question, since the economic model does not match the purported consumer-oriented intent.

So what’s wrong with that? The lack of transparency is what’s wrong. Customers should have the right to know the economics of the businesses they patronize. They should understand the motivation of the store being spiffed by suppliers, or how much money the asset management division earns from their business with the retail banking division. If they did, they might decide to not buy from those businesses, go to more transparent suppliers who do the same thing but make it transparent, or choose to engage directly with the other members of the ecosystem. After all, grocery stores increasingly invite customers to talk to their suppliers on issues of sustainability for example, so why not do it on price or profit issues? They might help small suppliers struggling to break into the store shelves’ line up without paying a ransom, or punish spiffing suppliers who over-buy space.

I have repeatedly found that people, when confronted with the economic reality of business, make intelligent choices. Customers want their businesses (and their businesses’ suppliers) to be successful. They’re often eager to participate in the co-creation of the business’ economic model. The only time where they want to punish businesses is when they’re not honest with them, as has happened with car dealers playing back-room pricing games: consumers have deservedly pushed the industry close to zero profit on the sale of new cars through the power of Internet transparency.

In the future, economic models will be increasingly the result of a co-creation between customers and suppliers, with businesses earning their profit through the intermediation they create between them. Making your business model transparent is the first rule in the new economic order.

The dark side of co-creation: Lance Armstrong, Dominique Strauss-Kahn, and their country’s press corps

Sunday, May 29th, 2011

 

 

 

 

 

 

 

Lance Armstrong and Dominique Strauss-Kahn have long shared a common ability: both have parlayed their extraordinary talent into a relationship with the national press corps that has protected them from seeing their dubious ethical behavior exposed (at the minimum) or from being held accountable for their alleged crimes (at worst). It took many years and a recent CBS “60 Minutes” interview of one of Lance Armstrong’s team members on the Tour de France for the American press to finally realize what had been a fairly obvious reality to many observers of professional bicycling, namely that most professional cyclists, including Armstrong, have used performance-enhancing drugs for years. Similarly, Dominique Strauss-Kahn, the former head of the International Monetary Fund and ex-future President of France, was known to have behaved inappropriately with women for many years, with a suspicion of at least one outright rape attempt. Yet the French press corps had created a kind of omerta around him until he was recently arrested in a New York hotel for attempted rape. Why this journalistic conspiracy of silence for the two men in their respective countries?

As a humble student of communities of all types, I believe there is merit in studying even destructive communities. Journalists are an essential ingredient in a democracy. By exposing the secrets of rich and powerful people, they are supposed to “keep them honest,” as CNN advertises the late-night program of one of its journalists, Anderson Cooper. In the cases of Lance Armstrong and Dominique Strauss-Kahn, though, journalists became co-dependent with the subject they were supposed to cover. Instead of investigating the objectionable activities or crimes of their global sports or political star, they moved into a pattern of silence. This is the dark side of co-creation, and it behooves us to find out how such a negative form of co-creation develops.

For Lance Armstrong, American journalists seem to have wanted to believe the fairy tale: the inspiring story of Lance overcoming cancer, Lance becoming a global star in a sport traditionally dominated by Europeans, Lance mobilizing huge resources for a great cause with his cancer foundation. As a result, they deliberately ignored the growing evidence pointing to Lance’s doping, including some high-quality investigative journalism done by the French sports daily L’Equipe. Somehow, the US sports journalism community seems to have coalesced around a collective belief that accusations of Lance’s doping in the French press were the result of sour grapes because Lance had stolen the limelight from French cyclists in a major French sport. Instead of collectively rallying around this orthodoxy, wouldn’t their job have been to investigate these claims? Why didn’t they? Where were the Woodward and Bernstein of American sports journalism? Why weren’t they running around asking Lance’s team members, nurses, team managers, doctors, mechanics, hotel keepers, anti-doping authorities, and law enforcement officials about what they had observed? How could they miss a story with so many protagonists and involving so many daily interactions with prohibited products?

The Dominique Strauss-Kahn (DSK) story is equally troubling. Like many other people who occasionally travel in French power circles, I had heard stories of DSK’s womanizing behavior for years, including some rumors of outright predatory behavior. French people profess to be amused by the peccadilloes of their political and corporate leaders (but hopefully not their crimes!). They often blame the American investigation of inappropriate sexual behavior by powerful people on American puritanical tendencies, conveniently ignoring that these investigations often point to human weaknesses that degrade leaders’ ability to lead, or make them vulnerable to corrupt behavior to protect their shameful secrets. When US politicians are suspected of inappropriate behavior, a pack of journalistic hounds gets unleashed in quest of a scoop, and editors rejoice over the possibility of a page one exclusive on the topic. By and large, France does not have a tradition of investigative journalism, which represents a gaping hole for a democratic country of its size and importance on the international scene.

Even more worrisome is the lack of willingness on the part of French journalists to take on the country’s political and corporate leaders. The co-dependency that exists between journalists and French leaders is palpable. French power circles frequently interfere with journalistic independence and utilize access as a blunt instrument, and there have been numerous stories of phone calls being placed in strategic places to de-fang ambitious journalists who tried to practice American-style journalism. The sad thing is that intimidation of this kind has largely neutered the French press, producing more and more daring behavior by some of its leaders. I fear that DSK’s behavior at the New York Sofitel will turn out to be but the ugly head of a larger beast.

The greatest perversion arising from this lack of transparency about the reprehensible behavior of French leaders is that women who have been victims of these behaviors have understandably refrained from speaking out, thereby allowing these horrendous behaviors to continue unchecked, and exposing more women to these predators. Why haven’t Le Monde, Le Figaro, or the major French TV and radio channels interviewed the women who have described DSK’s inappropriate behavior? Why haven’t they spoken to IMF employees, hotel front desk employees, members of DSK’s Socialist Party, or staff members at Socialist Party conventions? Why did news editors not encourage their journalists to follow up on the rumors?

There is no co-creation without transparency. Both the Lance Armstrong and DSK stories are illustrations of the fact that co-dependency can develop in the dark alleys of power. Journalists operate in a difficult economic world, with advertising revenues, circulations of major newspapers, and television audiences at major news networks all down. Finding the courage to take on the Lance Armstrongs and DSKs of this world and reinvigorating the old-fashioned investigative journalism tradition may be the profession’s best hope.

 

If I ran the business

Sunday, February 20th, 2011

If I ran the business,

I’d put engineers on the lot,

Invite them to discuss

Each customer’s thought.

Engineers would not mind

This input from mankind.

On the TV remote,

I’d take out most buttons,

And add one little note

Of simplification.

Engineers would love that,

This little bit of chat.

And when my car sputters,

I’d call the company,

Talk to designers

Out there in Germany.

“There’s a noise on the right,

Fix the darn thing in flight.”

They might protest a dab,

And do it in the lab.

I would have a big screen

Through which I’d call them all,

Engineers could be seen

Through my designer wall.

“Change this and that,” I’d say,

And they would all obey.

They would welcome my art,

For engineers are smart.

From my suburb nearby

To the farthest nation,

They would all amplify

Our co-creation.

And engineers would bring

Some new composition,

That customers would sing

In a grand jam session.

They would get a new pride,

And might well smile inside.

For engineers get healed

Once their hearts are revealed.

Personal road map to co-creation in six easy steps

Sunday, November 28th, 2010

I’m often asked at parties what individuals must do to engage in personal co-creation. It recently dawned on me that I only knew how to describe co-creation from the organization’s standpoint, producing quizzical looks from my relatives and friends who are not in the business world. After all, it is a lot easier for a consultant to generate fees from a large organization hiring you to make more money, than it is to sell co-creation one individual at a time. So let me pick up the gauntlet, try my best incarnation of Wayne Dyer or Steven Covey, and tell you how to get on the road to co-creation in six easy steps.

STEP 1: PEOPLE. Co-creation is about people, so start out by mapping out the people you interact with. This includes your spouse, your neighbor, your friends at work, and the kid with freckles who throws toilet paper on your lawn every Halloween. Depending on how social a creature you are, you’ll rapidly be able to define a list of at least 15 or 20 people (Ashton Kutcher has over 7 million friends on Facebook, which makes his network map a bit complex). Put yourself at the center of the map, draw three or four concentric circles to represent decreasing frequencies of interactions, and place everybody in those circles. You now have a map of your personal network.

STEP 2: INTERACTIONS. Starting with the people you deal with the most, list the main things you do with each of them. This defines the existing interactions you have with them. This will allow you to put together an integrated view of what interactions you have with everybody (typically something like 15-20 interactions typically drawn as columns, and 15-20 people you interact with, drawn as lines). This may include shopping with your daughter, attending meetings with your work colleague, discussing the existence of God with your spiritual adviser, or stealing hubcaps with that old college friend of yours every Saturday night in the city. You now have a map of the major interactions you have with members of your personal network.

STEP 3: EXPERIENCE. At the end of each interaction, describe the quality of experience you get from this interaction – good, bad, or indifferent. You may rate the experience of stealing hubcaps a 9 out of 10 (thrilling), the experience of discussing the existence of God exalting but tiring (say, a 6 out of 10), and the experience of shopping with your daughter a frustrating 2 out of 10, because you don’t really think the leopard-skin jacket and stiletto shoes she wants you to buy for her qualifies as business attire. Arraying these experiences in left-to-right fashion from low to high will yield an experience curve that describes your general dislikes and likes before embarking on the co-creation journey. Your job is now to lift this experience curve through co-creation, eliminating or reducing the negative elements, raising the positive ones, and inventing new ones altogether.

STEP 4: TRANSPARENCY. Now comes the action part. Assemble members of your network together in your living room and get them to start sharing their experience of life with each other in transparent fashion and help them imagine new interactions between them to produce a better experience for all parties involved, possibly adding new members to the network. How much visibility does member A have about the broad experience of life of member B, and how could they interact with each other in new ways? What do you wish A knew about B and vice-versa?  The more transparent everybody’s experience of life becomes, the more new connections are likely to happen, so your job is to structure, activate, and grow your network. If my spiritual adviser and I start sharing our experience of life with each other, he may be able to dispense more relevant advice after understanding that he and I are essentially in the same business of ministering to communities (OK, his ministering may be more altruistic than mine, but we’re both selling ideas we’re passionate about). This will constitute a new interaction for both of us (and the source of a new experience for both of us). I may learn a lot from hearing my wife describe the tour she gives at the Isabella Gardner Museum in Boston, get to know her work colleagues, and, who knows, dispense a bit of free business advice to the management of the museum and learn how the museum’s management model may apply to business. Ultimately, my job as a co-creator is also to enable new interactions between the spiritual adviser, my wife’s friends, and my daughter’s friends at the museum, independently of me.

STEP 5: PLATFORM. Beyond the one-off opportunities to create new interactions and new experiences between members of your network (including yourself), you will eventually have to set up a more permanent engagement platform linking everybody together. It may start as ad hoc conversations or meetings in your living room or by phone, but you will eventually have to utilize or build a larger scale, more formal engagement process tool between the members of the network. This will typically require a mix of a physical place and virtual technology platform. For example, I may have to invite my spiritual adviser to come on one of my business trips with me, or the spiritual adviser may have to enlist me in preparing a sermon for his congregation, but beyond the first event, we will need a means to continue engaging with each other. The platform may consist of a personal journal, a blog, or a social network platform such as Facebook or Twitter. It’s best to start live and move to tech enablement once you’ve gotten the live network going. If you don’t, you’ll run the risk of having nobody show up. Also bear in mind that you’ll need to structure the discussion along specific interactions if you want to avoid producing an oatmeal of unfocused ideas. You don’t necessarily want the spiritual adviser to interact with your old college friend on the details of how to steal hubcaps every Saturday in the city.

STEP 6: CO-CREATION. Once you’ve established your engagement platform and people start coming to it, you may find yourself having reached the true co-creation stage where the growth of the network becomes self-sustaining. At that point, the universe of your network starts expanding naturally. Your role has now become one of orchestrator, rather than generator of energy as was the case in the early stages. You now have more and more people joining in your network. The range of experiences being discussed is perpetually expanding, with members of the network continuously generating new interactions between them. You have now become Ashton Kutcher, attracting millions of friends, but with interactions that are less self-absorbed and more meaningful to you and your friends. Your wife, your minister, and your daughter all coach your friend into no longer stealing hubcaps on Saturday night in the city, and he talks to them about God.

You are finally at home in the expanding universe of co-creation. Co-creation in six easy steps…

Doping transparency in cycling: celebrating Floyd Landis

Friday, May 21st, 2010

Floyd Landis the bicycle rider finally came clean yesterday. He admitted he’s been taking performance-enhancing drugs his entire professional career, including the year he won the Tour de France (2006), got caught and was disqualified. He gave specifics of his doping activities (EPO, human growth hormone, blood transfusions) in emails to cycling authorities and former teammates, and has now spoken to ESPN on the subject. He also ratted on several other bikers, including his former team leader Lance Armstrong, explaining that Lance taught him how to do it.

Hurray for Floyd Landis, I say. At last, a star (albeit tarnished) athlete had the courage to break the conspiracy of silence that surrounds cycling. Transparency at last! Now, the process of co-creating the future of the sport can start in earnest, with collective denial out of the way. Finally, bikers, sponsors, sport regulators and the press can interrupt their shameful co-dependent embrace. Journalists can stop feeding their readers cancer-survival myths about Armstrong rather than write about the evidence that has been mounting against him for years (a sulfuric Italian doctor, testimonial of a team nurse, tests whose results have been known but never made official for procedural reasons, a systematic peloton intimidation toward anybody expressing doubt about Lance’s integrity). Sports regulators can feel excited that their role has now been legitimized.  Good reputable sponsors can step back in – most of the good ones have left – knowing their names won’t be muddied any longer by repeated scandals. And young athletes can now join the sport, knowing that it now has a level playing field.

So everybody’s waking up humbled this morning and doing his mea culpa, right? Well, not quite. Since I was in transit between Boston and Paris, I watched what people say in both countries about the Floyd Landis revelation. Believe it or not, most articles and TV segments so far express doubt about Landis’ motivation and truthfulness. Landis has not helped his case by spending four years and $2 million fighting the allegation and his disqualification from the 2006 Tour de France, including a book on the topic. So, he’s not exactly been jumping out of the redemption starting gate, but better late than never! There’s probably some revenge motivation in Landis, but like mafia witnesses, we shouldn’t expect him to only have pure intentions. And he may not be the sharpest knife in the drawer, but he can describe a syringe when he sees one.

A fellow called Pat McQuaid, head of Union du Cycliste International (UCI), the organization charged with regulating cycling and enforcing its performance-enhancing drug policies at the international level, was telling anybody who’d listen last night that Landis was not to be believed. UCI has been out to lunch for years on the doping issue and if it were not for cops in a few countries and some national federations stepping in, we’d have even more junkies in cycling than we do now. Why would UCI attempt to discredit Landis if not to excuse their own incompetence over the last 20 years?

The cycling system is so broken that nobody’s even attempting to reinvent the sport as it should be. We need to put in a room a small cadre of honest people that includes some riders and managers, a few sponsors, a few race organizers, a few regulators and medical people, and a few journalists who care. It’s time to co-create the new cycling ecosystem. Let me recommend they invite Floyd Landis to the first meeting to get them focused on the right issues.

OK, enough about this European sport nobody cares about! Time for some baseball! Big Papi, Matsuzaka, Boston Globe writers, Boston Red Sox management, Senator Mitchell – it’s your turn to come clean and tell us what you really know.

The worst and best out of Cleveland

Thursday, March 18th, 2010

This week, Forbes.com named Cleveland, Ohio, the most miserable city in the United States. The article explains that the city achieved this dubious honor “thanks to its high unemployment, high taxes, lousy weather, corruption by public officials and crummy sports teams (Cavaliers of the NBA excepted).”

I will not attempt here to defend the city, but some good things do seem to come out of Cleveland. The Cleveland Clinic is one of them. In a recent Fortune magazine article, Geoff Colvin interviews Dr. Delos Cosgrove, its CEO, on what allows the hospital to be both among the highest-rated hospital in the country – most notably for cardiac care – yet display great efficiency and cost control discipline.

Dr. Cosgrove shares many best practices in the interview: doctors are salaried and receive a yearly review, the Clinic is physician-led, and it works to provide a hassle-free experience for the doctors who work there, among others. But what really caught my attention was the dialogue, triggered by an insightful question by Colvin, on how patients at the Cleveland Clinic are allowed to look at their own charts. Here is the exchange:

Geoff Colvin: You do something at the Cleveland Clinic that I’ve never heard of elsewhere – you let patients look at their own charts. What led you to do that, and what have the effects been?

Dr. Cosgrove: I thought, “If I’m in the hospital, I want to know what those guys are writing about me.” Why should it be the hospital’s chart, as opposed to the patient’s chart? It’s really about the patient. So I said, “Why can’t we do this?” So we did.

We have an electronic thing called MyChart, where you can go on the Internet and read your record. Few other hospitals around the country have done it. But we think it’s the patients’ information. It’s about them. We’re working for them. Why shouldn’t they have the data?

Geoff Colvin: Inside the organization what were the fears about this?

Dr. Cosgrove: The fears were that patients would get information they weren’t ready for – diagnosis of cancer, for example, or psychiatric information. So we put filters on that; the doctor has a week to get to the patient and let them know about this sort of thing. But what happened was doctors then improved their communication with patients, and patients got the information better, and it worked well all the way around.

What is most intriguing about this practice is the transparency it conveys about the care being provided, and the attention placed on the quality of the patient’s experience that it highlights. This little exchange exemplifies the value created for both sides when a company decides to make itself into a glass house. Fears of misinterpretations and anxiety about misuse of the data by laypeople are common. Over time, though, both sides work out the process through which the data should be shared, and both sides end up with a better experience and a reduced cost and risk.  Transparency is the mother of co-creation.

And there may be hope for Cleveland after all.

Co-creation in the fish tank

Thursday, July 2nd, 2009


“I’m not like them” this attractive young branch advisor tells one of her customers. “I’m much more like you than I’m like them. I invested in the same shares you did. I too have lost 40% of my assets.”

The “them” is the management of her French bank. Or any bank for that matter, for she hates them all. “They” are the ones that took excessive pay, invested in subprime and derivatives and caused the global financial crisis. That she might be lumped with these high-fliers galls her no end.

The bank has become concerned about this Stockholm syndrome for advisors. Advisors and customers are increasingly co-dependent and advisors are progressively distancing themselves from the bank. In its desire to reengage advisors and customers, the bank has decided to start with two test regions. In the North, the regional marketing manager is in charge: he’s a classically-trained person. He’s eager to offer his region as the test bed, but wants it done classic market research-style, with no management interference. He wants a well-lit aquarium and a comfortable chair from which he can observe the fish.  In the Center region, Raphael, head of the region, has decided to come to the workshops himself in order to engage directly with advisors and customers. He wants to dive in the tank and swim with the fish.

“But we want unfiltered data” the Marketing Manager of the North states, upon hearing what Raphael, the Head of the Center Region, wants to do. “If I or any of the senior managers come to the workshops, our advisors and customers will be intimidated and their responses biased. I’d rather come to one or two focus groups and observe what’s going on behind the glass. Or maybe I’ll look at the films.”

A few days later, Raphael and his team find themselves involved in a passionate discussion with advisors and customers. It’s about midnight and they’re still going. Advisors challenge him openly in front of customers about the incentive system that occasionally drives them to push products onto unsuspecting customers at campaign times. Raphael pushes back by outlining the economics of the retail banking business, the need for campaigns to create the volume effect required to maintain branches in smaller towns and villages, and the fact that these campaigns pertain to products people happen to need. So where is the conflict? Paradoxically, customers start reassuring advisors that there’s nothing wrong with what Raphael just explained. They’re cool with the fact that the bank has its own economic imperatives, as long as they’ve been made transparent.

The customers in attendance are young people who would typically never come to a bank branch. They have a cynical view of banking, no particular loyalty to any brand, and simply do not care much. There are many yawns in the early part of the conversation. When Raphael starts talking about the community he wants to build in each town, though, chins come up and SMS texting under the table mysteriously stops. He shows them a project he’s doing, restoring one of the stained glass windows of the Chartres cathedral. They deem the project “awesome”. He then lets them see how the mutualist structure of the bank could allow them to participate in its governance and promote their own community projects. Now, they’re positively enthusiastic. They start building with Raphael what the process could be like. that would draw young people to the bank’s mutualist activities.

“But you’re leading the jury” the Marketing Manager of the Northern Region utters one last protest, looking at the film of Raphael interacting with advisors and customers in Chartres. “You’re interfering with the process.”

“That’s the point” Raphael tells him. He has a broad smile on his face. You can tell he’s fully energized by the encounter. “And I’m going to get back together with these kids as soon as we have a concept of that new community process” he announces, almost giddy. Straight back to the tank, swimming with the fish.