Competing like crazy makes you mediocre

Frameworks to make your brand stand out from the crowd

This is the third post in a series. The first was The Four Horsemen of Silicon Valley, followed by How ideas can be turned into path breaking innovation. Amazing how one podcast can lead you down the rabbit hole with so many books and ideas.

Different: Escaping the Competitive Herd is written by Youngme Moon, Professor of Marketing at Harvard Business School. The author sets the stage with a visit to the a department store’s shampoo section where one is spoilt for choice. If the variety of brands, colors, aromas, etc aren’t enough to confuse one, the shampoos are further augmented with such labels as “new”, or “new and improved” or if that is still not enough “new, improved and with added (insert a name of a plant or organic based ingredient)” etc. We are so used to this sight that we ignore all the augmentations and go for the shampoo we have been buying for years. The author points out that with shampoos, we know what we want. What if it was a new category? One would be confused to no end. Say you are in a market for a new TV. We no longer go for our parent’s trusted Sony. In a showroom, TVs are stacked from one corner of the wall to the other, each with a new or slightly different feature, all priced in similar range, with similar warranties. You could spend a lifetime comparing and deciding between them. In addition, you would read customer reviews online (there are always a few one or two star reviews that can put you off that brand forever) as well as various tests done by different tech publishers. If you are anything like me, after being totally confused now, you may finally ask the sales person “Which one do you recommend?” and come home with whichever brand he recommended provided there is a warranty behind it. This is what the author of the book was driving at. According to her, that competing brands have done so much feature augmentations that the brand name has almost become invisible. Brands exist to differentiate themselves from others yet we are at a point in quite a few of product categories that brand name doesn’t matter anymore. The book talks about how we come to this pass and how to differentiate oneself from others in such a scenario.

The challenge brands face that any feature introduced by one brand can easily be copied by competing brand. Hence, “new and improved with oil of quinoa seeds added” for a P&G branded soap can easily be offered by Unilever if the sales show that there is a demand for this type of soap. Any spurt in sales that P&G experiences in the first few months will gradually come down to the equilibrium level once Unilever introduces a similar feature. But product and marketing managers at companies will continue to augment their products with new features followed by other competitors copying it with the result that you are faced with store shelves full of soaps that all have similar features with no meaningful differentiation between them.

The author shared a insightful example of what happened when her students unintentionally followed the same behavior.

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We can very much see this in our daily lives as we strive for being a “well rounded” student, employee or a leader because that is how we are measured. According to the author, excellence comes from being lop-sided (as opposed to being well-rounded) yet all of us are trained to aim for well-rounded-ness. Similarly, when marketers and brand managers do focus groups, market research, surveys for their products, they strive to get an A+ in all the categories i.e., try to come up with a well rounded product.

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The author points out that adding so many features becomes a pointless exercise after a while adversely affecting company’s bottom line.  On a mobile phone or TV screen, you can increase the resolution to such an extent that the consumer’s eyes cannot register the difference yet brands are forced to do it at a significant cost because the competitor is offering this feature as a standard.

She proposes a couple of strategies namely Reverse Positioning and Breakout Positioning to breakout of this vicious circle which are explained later. I liked this book and the following book as the authors are humble enough to admit that there is no sure shot way of success. The multiple strategies mentioned in the books are just frameworks.

If you are in a Dogfight, Become a Cat” is by Leonard Sherman who is a professor of strategy at Columbia Business School and also moonlights as a management consultant. If you have read as many strategy books as myself, you will notice that all strategy books have the same few success stories that provide you with a framework. Every book you read talks the same old cases and you start to wonder whether it was sheer luck that led to success of these companies and then management consultants came along and tried to fit them into “a formula for success” that they can sell as part of their consultancy gig. The above two books plus all other strategy books are based around on the following examples:

  1. P&G vs Kimberly Clark (Pampers vs Huggies)
  2. Harley Davidson H.O.G. (Harley Owners Group) and/or Saturn Car Club
  3. Post It notes by 3M
  4. IKEA
  5. Reincarnation of Apple under Steve Jobs

These businesses achieved the successes without having management consultants or a tried and tested framework at hand. Afterwards management consultants came along, made case studies of these selected events and then tried to sell them as part of their strategy services. Recent books add cases about Amazon, UBER and AirBnB etc but I have yet to read a book wherein a management consultant was brought in and she applied the recommended strategies which resulted in a breakthrough successes repeatedly.

This brings me to a small digression (I hope it remains small) into Michael Maubossin’s
The Success Equation: Untangling Skill and Luck in Business, Sports and Investing“. I read it in 2014 and the lessons have remained with me since. Maubossin is widely read, a numbers guy,  and very insightful writer of investment research. In the financial and investment universe, there is a saying that a rising tide lifts all boats i.e., when the economy is doing good, all asset managers whether in equity, fixed income, private equity, alternatives etc. appear like geniuses. Under such a scenario, how can we figure out whether increase in asset values we are seeing is due to the skills of asset manager or is it because due to sheer luck, asset manager found himself in the right asset at the right time. Maubossin’s book is about how does one go about figuring this out as contrary to what people may think, it is very difficult. It is made more difficult as what he describes as “paradox of skill” which can be illustrated as follows.

In fund management industry, every company e.g. Vanguard, BlackRock, DynamicFunds, Fidelity, PIMCO etc is employing immensely talented Ivy League economics, business or quant graduates who are bringing best practices and new approaches to investments in each of these organizations. From consumer perspective, the performance on absolute basis is increasing (we get wide variety of products to invest in and lower and lower fees compared to previous years) but from the fund manager’s perspective, performance on relative basis is actually shrinking. One year in a particular category, Vanguard funds may do well and in the following year, BlackRock funds may do well (though this difference may be in few basis points). With both fund managers using state of the art technology for investing and army of highly talented asset manager and offering similar products, there may be some element of skill in the performance differential but luck is starting to play a bigger and bigger role.

The problem happens when we start misidentifying the role of luck in performance as skill. This is what these strategy books do. In “If you are in a Dogfight, Become a Cat“, the author does start with the premise that managers have been taking strategies as promoted by such books as Jim Collins’ Built to Last: Successful Habits of Visionary Companies and Clay Christensen’s The Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail (Management of Innovation and Change) as gospel. According the author, manager’s are not fully to be blamed as the authors of these books have been running successful consultancies by prescribing their theories. However, to really read a take down of these strategies, one has to read Maubossin’s The Success Equation: Untangling Skill and Luck in Business, Sports and Investing

Perhaps the best-known book about this method is Jim Collins’s Good to Great. Collins and his team analyzed thousands of companies and isolated eleven whose performance went from good to great. They then identified the concepts that they believed had caused those companies to improve—these include leadership, people, a fact-based approach, focus, discipline, and the use of technology—and suggested that other companies adopt the same concepts to achieve the same sort of results. This formula is intuitive, includes some great narrative, and has sold millions of books for Collins.

No one questions that Collins has good intentions. He really is trying to figure out how to help executives. And if causality were clear, this approach would work. The trouble is that the performance of a company always depends on both skill and luck, which means that a given strategy will succeed only part of the time. So attributing success to any strategy may be wrong simply because you’re sampling only the winners. The more important question is: How many of the companies that tried that strategy actually succeeded?

Jerker Denrell, a professor of strategy at Oxford, calls this the undersampling of failure. He argues that one of the main ways that companies learn is by observing the performance and characteristics of successful organizations. The problem is that firms with poor performance are unlikely to survive, so they are inconspicuously absent from the group that any one person observes. Say two companies pursue the same strategy, and one succeeds because of luck while the other fails. Since we draw our sample from the outcome, not the strategy, we observe the successful company and assume that the strategy was good. In other words, we assume that the favorable outcome was the result of a skillful strategy and overlook the influence of luck. We connect cause and effect where there is no connection. We don’t observe the unsuccessful company because it no longer exists. If we had observed it, we would have seen the same strategy failing rather than succeeding and realized that copying the strategy blindly might not work.

Collin’s was big on vision and mission statements. Personally I would credit him with the bringing in the vision/mission revolution into every organization. Over the course of my career, I have been part of multiple internal group discussions wherein we tried to come up with the best fluff for our employers. The book Good Strategy Bad Strategy: The Difference and Why It Matters by Richard Rumelt had a good critique of this revolution but hardly anyone has heard of this book much less read it. Some of the examples from the book:

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Here is the template of most such exercies and results:

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One of the companies that followed Collins’ mantra to the tee i.e. Enron died an ignominious death. Probably Enron was also affected from paradox of skill i.e., all the success till its downfall was attributed to the highly skilled manpower Enron recruited. Yet no one asks that didn’t Enron tick all the boxes required to run a visionary, world-class  company following Collins’ advices as well as Christensens’s by having many subsidiaries which innovated and disrupted. Finance curriculum has something akin to under sampling of failure. it is called “survivorship bias” but it is mostly used for performance measurement of funds, asset classes etc. However, when it comes to corporate strategy, financial sector is as guilty as other industries.

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Coming back to If you are in a Dogfight, Become a Cat, the book has a very good anecdote that I haven’t read elsewhere so it is worth mentioning. My guess is a management consultant led Honda down this path but since the author didn’t mention any consultants, let me not bring in my biases. In US, Honda wasn’t doing as well among the young generation. So Honda decided to carry out a marketing research for a new kind of car targeting the summer youth. They took cameras with them and went to beach parties as well as events like X-Games taking pictures, making videos, conducting focus groups to determine what are the aspirations of this demographic. What features they like i.e., roof should be able to carry surf boards, cup holders should be able to hold large size drinks, interior should be roomy enough as the guys like to hang out and travel together in a same cars plus it should have some off road capability. Honda got the designers to design the shape and curves of the car to appeal to this demographic. The result was Honda Element introduced in 2003.

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It was a failure. It had better than expected sales in the first year but it was followed by tanking sales in subsequent years. The analysis showed that most of the cars were being bought by older generation of upper income tiers because of the safety and reliability it afforded. The target demographic, the surfing kind with offroad driving aspirations, didn’t have the income to afford this car. The 9 to 5ers with their steady income wanted boring sedans or family SUVs.

Honda was taking a page out of Christensen’s book. The New Yorker magazine did an amazing analysis of the “disruption” mantra that has become so pervasive on account of Christensen’s book and consultancies in the excellent long form piece titled The Disruption Machine: What the gospel of innovation gets wrong. (Highly recommended piece to be read in full)

Things you own or use that are now considered to be the product of disruptive innovation include your smartphone and many of its apps, which have disrupted businesses from travel agencies and record stores to mapmaking and taxi dispatch. Much more disruption, we are told, lies ahead. Christensen has co-written books urging disruptive innovation in higher education (“The Innovative University”), public schools (“Disrupting Class”), and health care (“The Innovator’s Prescription”). His acolytes and imitators, including no small number of hucksters, have called for the disruption of more or less everything else. If the company you work for has a chief innovation officer, it’s because of the long arm of “The Innovator’s Dilemma.” If your city’s public-school district has adopted an Innovation Agenda, which has disrupted the education of every kid in the city, you live in the shadow of “The Innovator’s Dilemma.” If you saw the episode of the HBO sitcom “Silicon Valley” in which the characters attend a conference called TechCrunch Disrupt 2014 (which is a real thing), and a guy from the stage, a Paul Rudd look-alike, shouts, “Let me hear it, disss-ruppttt!,” you have heard the voice of Clay Christensen, echoing across the valley.

……..

The theory of disruption is meant to be predictive. On March 10, 2000, Christensen launched a $3.8-million Disruptive Growth Fund, which he managed with Neil Eisner, a broker in St. Louis. Christensen drew on his theory to select stocks. Less than a year later, the fund was quietly liquidated: during a stretch of time when the Nasdaq lost fifty per cent of its value, the Disruptive Growth Fund lost sixty-four per cent. In 2007, Christensen told Business Week that “the prediction of the theory would be that Apple won’t succeed with the iPhone,” adding, “History speaks pretty loudly on that.” In its first five years, the iPhone generated a hundred and fifty billion dollars of revenue. In the preface to the 2011 edition of “The Innovator’s Dilemma,” Christensen reports that, since the book’s publication, in 1997, “the theory of disruption continues to yield predictions that are quite accurate.” This is less because people have used his model to make accurate predictions about things that haven’t happened yet than because disruption has been sold as advice, and because much that happened between 1997 and 2011 looks, in retrospect, disruptive. Disruptive innovation can reliably be seen only after the fact.

………

The handpicked case study, which is Christensen’s method, is a notoriously weak foundation on which to build a theory. But, if the handpicked case study is the approved approach, it would seem that efforts at embracing disruptive innovation are often fatal. Morrison-Knudsen, an engineering and construction firm, got its start in 1905 and helped build more than a hundred and fifty dams all over the world, including the Hoover. Beginning in 1988, a new C.E.O., William Agee, looked to new products and new markets, and, after Bill Clinton’s election, in 1992, bet on mass transit, turning to the construction of both commuter and long-distance train cars through two subsidiaries, MK Transit and MK Rail. These disruptive businesses proved to be a disaster. Morrison-Knudsen announced in 1995 that it had lost three hundred and fifty million dollars, by which point the company had essentially collapsed—not because it didn’t disruptively innovate but because it did. Time, Inc., founded in 1922, auto-disrupted, too. In 1994, the company launched Pathfinder, an early new-media venture, an umbrella Web site for its magazines, at a cost estimated to have exceeded a hundred million dollars; the site was abandoned in 1999. Had Pathfinder been successful, it would have been greeted, retrospectively, as evidence of disruptive innovation. Instead, as one of its producers put it, “it’s like it never existed.”

Now that I have taken all the digressions, we come to the conclusion __ how do we stand apart from the crowd. The author of If you are in a Dogfight, Become a Cat gives us three frameworks to differentiate oneself from the crowd. These are not mutually exclusive frameworks. Rather there is a significant overlap between them.

Framework 1: Breakaway and Reverse positioning

He derives the first one from Youngme Moon’s book Different: Escaping the Competitive Herd which I had skipped earlier to avoid repetition. Reverse positioning refers to dumbing down the product by stripping away certain features and offering that as a value proposition.

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Breakaway positioning refers to adding features from a different category such that the product now becomes a different product altogether.

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Framework 2: Blue Ocean Strategy

Blue Ocean Strategy is a marketing theory from a book published in 2005 which was written by W. Chan Kim and Renée Mauborgne, professors at INSEAD and co-directors of the INSEAD Blue Ocean Strategy Institute where they argue that leading companies will succeed not by battling competitors, but by systematically creating “blue oceans” of uncontested market space ripe for growth. The strategy represents the simultaneous pursuit of high product differentiation and low cost, thereby making competition irrelevant. The other ocean is red  because competitors are having a bloody battle over a stagnant or shrinking market share.

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Framework 3: Disruption Innovation

Expanding on Christenson’s famous term of art coined in his book The Innovator’s Dilemma: a process by which a product or service takes root initially in simple applications at the bottom of a market and then relentlessly moves up market, eventually displacing established competitors.

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Conclusion

I hope the explanation of three frameworks make the title of the book If you are in a Dogfight, Become a Cat self explanatory i.e., when competition has become a dogfight (intense bloody competition over similarly features products), it is wise to become a cat (introduce a different category of product or create a new market).

Both the books Different and If you are in a Dogfight, Become a Cat are recommended as their is much to learn in these books. In addition, I recommend you pick up The Success Equation: Untangling Skill and Luck in Business, Sports and Investing (I might as well re-read it again).

Tailpiece

What all these strategy books agree on is that Apple is in a class apart as it has been able to disrupt its way into smart phones and differentiate itself in such a way that on one hand you have iPhone (running iOS) and on the other you have the Android phones (Samsung, LG, Xiaomi, Pixel etc). And despite having lesser features than many Android phones, still commands 90% of the profits of smart phone sector.  Apple’s genius is explained well by the following ad from its competitor Samsung yet suckers (including myself) keep throwing money at buying an overprice phone.

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How Tech is going to disrupt the Canadian real estate industry

Notes from the Toronto Real Estate Forum 2016

I attended the Toronto Real Estate Forum which was held from November 29 to Dec 31, 2016 in Toronto. Herewith are the notes I took on the Panel that talked about tech disruption awaiting the Real Estate Industry.


Moderator
John Ruffolo, Chief Executive Officer, OMERS Ventures

Panel
Sheila Botting, Partner & Canadian Real Estate Leader, Deloitte LLP
Amy Erixon, Principal & Managing Director, Investment, Avison Young
Dave Kim, Co-Founder & CEO, Harbr
Chris Matys, Chief Analytics Officer, Georgian Partners

Though the moderator tried to keep a focus on real estate but due to pervasive nature of technological disruption, the discussion was wide ranging (read: all over the place)

Opening Remarks by each panelist

Avison Young: 
If you do not believe tech is going to disrupt the real estate industry, your head is in the sand. Like the frog in boiling water, by the time you realize that market is changing, it will be too late.

Harbr:
Construction industry hasn’t been disrupted so far. What Harbr and startups like it are bringing to the market is how to disrupt the construction industry by having sensors, data analytics, 3D models, Just in Time (JIT) for goods as well as labor.

Deloitte:
– Canada is 26% less productive in US and Canada spends 56% less on tech than US. Canada is not prepared for the future.
Deloitte carried out a study which found out that 40% — 60% of time there are no “bums on the seat” in Deloitte’s offices. So now Deloitte has 4,500 people with laptops with no dedicated workspace in their new office building. They come in, set up their laptop at any available place and then move out. This makes Deloitte more agile and nimble.
– Capital savings that Deloitte made from the above step was reinvested back in technology and that is what others are doing too
– The office is evolving from a place of paper pushing to place of collaboration and transfer of knowledge. Deloitte’s new office is greatly suited for this.

Georgian Partners: 
People talk about technology disrupting low wage work such as drivers, cashiers etc. But technology is coming very rapidly for the white collar work such as lawyers, doctors, bankers etc. Technology is coming for the stuff that requires vision i.e., sorting, handwriting reading, visual inspections, site visits etc. Going forward all such activities will be automated using drones, robots, AI (artificial intelligence).

Open Discussion

Millenials

Real estate due to its long term nature (60 years of life for a building, 10–15 year long leases) likes status quo and is not open to change. Millennials don’t like this:

  • They don’t want to be stuck with the 25 year mortgage for a place
  • They want to have the flexibility to move to a different location (city, country etc.) quickly if the job changes
  • They want to work from home one day a week
  • They are looking for experiences
  • They don’t like email just as the generation before them didn’t like snail mail. They are into messaging/conversation. Initially the conversation will move to services such as Slack, WeChat etc. It may be something entirely different 5 years from now.

Real estate industry and other industries have to change to accommodate the millennials. Allowing them the option of remotely working, working from home, and have offices like Deloitte which allow for collaboration etc.

This will mean that these companies will require less office space and lesser employees. Deloitte saved 25% office space and associated maintenance expenses. In a few years, other corporate entities in downtown will eventually do the same. They are already downsizing. This may lead to glut of office space in downtown.

Breather is a company that is working on short term commercial sub-leasing for 1 to 30 days. They have just started and raised around $20 million in Series B round. They have just started out and are flush with cash. Pretty soon other companies will jump into fray. 5 years down the line you can bet that these companies will be disrupting the commercial office leasing market as AirBnB and Uber are disrupting hotel and taxi markets respectively.

Downsides of technology

  1. Very distracting: Emails, messages, Snapchat, Slack, chat rooms are all fighting for attention. Just grabbing attention isn’t important, but also how to continue holding it. People need to know when to “turn off”.
  2. Current training and education system not set up to cope with technological disruption. Urgent training and education reform is needed to counter the following adverse impacts:

– Remote working/working from home can employees make less collaborative. They need to be educated on how to collaborate when not sitting face to face.
– As seen recently during elections that when people hide behind technology such as social media accounts etc., their filters come off. They are more aggressive and abusive. Education and constant reinforcement will be required to keep people and environment conducive to work
– A different ecosystem needs to be developed to measure performance of employees and their output. If they are working remotely, measuring work punching in and punching out 9am and 5pm will not work.

Immediate disruptions / trends on RE horizon

  • The lowest hanging fruit is brokers. There will always be room for brokers but not this many brokers. Think of brokerages as travel agencies before Expedia arrived on the scene.
  • Crowd sourcing of investors for commercial real estate is picking up pace in US and UK. You have Breather on tenant side and crowd sourced investment in CRE on the landlord side and a layer of intermediary brokers is no longer needed.
  • Retail — As many bank branches and shopping stores no longer needed. People may go to shops to try stuff but will not carry it. It will be delivered to their home directly from warehouse or manufacturing facility
  • Internet of Things (IoT) and Artificial Intelligence (AI) — Doesn’t need to be ground breaking inventions. Small stuff like the NEST thermostat which constantly monitors the environment, learns and changes its behavior. Jobs that will be destroyed due to this: drivers, administrative assistants, and those requiring visual inspection such as radiology, site inspection, sorting etc.
  • AR / VR: Kids don’t like to read anymore. AR / VR will be used for education, training, real estate model visualizations etc.
  • Technology will make suburbs popular again with Millennials. They like downtown living when they are young. Once they start a family, they would like to move to the suburbs. They don’t have to commute anymore as they would be working from home.
  • AI is coming for white collar jobs. As a closing statement, MD of Avison Young recommended that we read the article that appeared in fastcompany website These Will Be The Top Jobs In 2025 (And The Skills You’ll Need To Get Them)

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