Harvard Business Review Notes by Frank Olsson- Jan/Feb 2020

Harvard Business Review Notes by Frank Olsson- Jan/Feb 2020

30 January 2020

Harvard Business Review Notes by Frank Olsson- Jan/Feb 2020

Harvard Business Review January/ February 2020

As always, a few interesting articles in this new issue. I found the one on political interference in international trade and business for no other reason than demonstrating raw power interesting and scary. The authors research suggests that American consumers are paying higher prices because of money influence on lobbying and regulation, favouring donors rather than the public and market efficiency. When rules and ethics and fair play go out the door it is time to reflect and be concerned. Another article points out that CFO run reporting and companies often lack the customer focus which is key for long term success. When anyone is buying a company, the customer base is a critical part of what they’re buying. Please find below a few lines from this issue.

Why boards should worry about executives’ off-the-job behaviour. The article makes the point that extravagance and opulence whether with corporate funds or private funds can be cause for worry. Likewise, infringements and propensity to break the law in private life may indicate lack of balance and judgment. Fraudulent accounting is much more common by people with a legal record than by those who don’t have one. People who prioritise material goods are less concerned about others and less likely to engage in environmentally responsible behaviour. 

Advertising makes us unhappy. In analysing life satisfaction by 900,000 citizens of 27 European countries, researchers found that the higher a country’s ad spend was in one year, the less satisfied citizens were a year or two later. 

Are you undervaluing your customers? by Rob Markey. The true purpose of a business is to create and keep customers (Peter Drucker). Earning customer loyalty is firmly in the interest of both share holders and management. /same as being a good corporate citizen is in the long-term interest of share-holders - my comment/. Companies at the top of their industries in Net Promoter Scores of Satisfaction rankings grow revenues roughly 2.5 times faster than industry peers and deliver 2-5 times shareholder returns over the next 10 years. Public-company financial disclosure rules and corporate accounting practices require little to no reporting on customer value; most firms lack the capabilities needed for managing it; and organizations’ traditional structure puts functional priorities ahead of customer needs. New tools and technologies are emerging and a fundamental shift in the way companies organize work and some investors are starting to realize that customers is the ultimate source of value. Companies should disclose reliable and consistent information about the progress they are making growing customer value, customers acquired, customers of a year or more and revenue per new and existing customer.

The goal is not simply to induce customers to buy. It is to improve their lives so effectively that the company earns their trust and continued business. /Any problem you solve for a customer related to your particular business or not, brings you closer – my comment/. 

It is easy to blame companies’ short termism on shareholder pressure and a bias toward quality financial reporting but managers share the blame when they fail to educate investors about the customer value their company creates.

How to Value a Company by Analysing its Customers by Daniel McCarthy and Peter Fader. A method for measuring a firm’s underlying value is called customer-based corporate valuation (CBCV). CBCV simply brings more focus to how individual customer behaviour drives top line. If you are an executive and you aren’t currently disclosing your customer metrics, start thinking about the story they would tell if disclosure were required.

Over Time, the Market Will Demand this Information by Jack Brennan. Managing for loyalty has gone from an intuitive idea to a conceptual goal to an operational practice. When anyone is buying a company, the customer base is a critical part of what they’re buying. The questions are: What is the nature of your customer base? How are you acquiring customers? How are you losing them? Which ones are profitable?

Competing in the Age of AI – how machine intelligence changes the rules of business by Marco Iansiti and Karim Lakhani. Scale, scope and learning have come to be considered the essential drivers of a firm’s operating performance. You don’t have to be a software start-up to digitize critical elements of your business – but you do have to confront silos and fragmented legacy systems, add capabilities, and retool your culture. As AI-powered firms collide with traditional businesses, competitive advantage is increasingly defined by the ability to shape and control digital networks. Organizations that excel at connecting businesses, aggregating the data that flows among them, and extracting its value through analytics and AI will have the upper hand. Strategy needs to focus on the connections firms create across industries and the flow of data through the networks the firms use. Industry expertise has become less critical – having experience of a digital firm is crucial. AI requires deep thinking about legal and ethical challenges, including careful consideration of what data should be stored and preserved – and what data should not. Navigating these opportunities and threats will be the real test of leadership for both businesses and public institutions.   

The New Analytics of Culture by Matthew Corritore, Amir Goldberg and Sameer Srivastava. Cultural fit is important, but what predicts success most is the rate at which employees adapt as organizational culture changes over time. Cognitive diversity helps teams during ideation but hinders execution. The best cultures encourage diversity to drive innovation but are anchored by shared core beliefs.

TRANSFORMER CLO – the role of chief learning officer isn’t just about training anymore by Abbie Lundberg and George Westerman. Organizations should cultivate every employee’s ability to explore, learn and grow. The objective is not only to train people but to position the company for success. Focus less on currently needed skills and more on mindsets. You learn the most when you actually have to teach somebody what you learn. /Every manager and every employee need to plan for and execute learning – in a small nimble company everyone understands that – one has to ask if the very concept and title of CLO isn’t a sign of bureaucracy and centralization – this needs to be disseminated – my comment /.

When Data Creates Competitive Advantage, and when it doesn’t by Andrei Hagiu and Julian Wright. New technologies make data-enabled learning much more powerful than the customer insights produced in the past. They do not, however, guarantee defensible barriers. Buying data is easier than buying customers. Often alternative sources of data can significantly level the playing field by removing the need for a big customer base.

The Elements of Good Judgment – how to improve your decision-making by Sir Andrew Likierman. McKinsey has long included the obligation (not suggestion) to dissent as a central part of the way it does business. Amazon’s Leadership Principles specify that leaders should “seek diverse perspectives and work to disconfirm their beliefs.” Major decisions should require that biases be on the table before a discussion and, when necessary, that a devil’s advocate participate. Acknowledge that mistakes will occur – and doubt the judgment of anyone who assumes they won’t. Good judgment is paramount. Those with charisma but no judgment, lead their followers in the wrong direction. Those with passion but no judgment, hurl themselves down the wrong paths. Those with drive but no judgment, get up very early to do the wrong things.

Taming Complexity – Make sure the benefits of any addition to an organization’s systems outweighs its cost by Martin Reeves, Simon Levin, Thomas Fink and Ania Levina. If your industry is prone to technological change and rapid obsolescence, then the package of resilience, adaptability, coordination, and inimitability becomes more attractive than the package of efficiency, understandability, manageability, and predictability. Maintaining complexity within productive bounds is a difficult task involving challenging trade-offs.

Choke Points – Countries are turning economic infrastructure into political weapons, and that poses a major risk to business by Henry Farrell and Abraham Newman. Both the Bush and Obama administrations pressed US based internet-communications firms not only to provide data on suspected terrorists but also to help spy on US adversaries, rivals and even partners. As other powerful states respond to and even model the US strategy, a war is quietly being waged through manufacturing ties and business relationships. US officials are concerned that Chinese-produced components could be compromised and then deployed in surveillance activities or even sabotage. Chinese leader fear that the US will use the ZTE playbook against more Chinese firms. They worry that America sees Chinese economic strength as a security threat and will do everything it can to hamper and even cripple the Chinese economy. This is one of the reasons they’re trying to accelerate their ability to develop and manufacture advanced chips: so that they won’t be at the mercy of the US government.

Although EU has officially identified China as a rival and begun to pay much closer attention to Chinese acquisitions, it is still far less belligerent toward China than the US is. Indeed, it is beginning to create ways to work around US economic power and perhaps even oppose it. EU has started to experiment with alternative financial channels that are far less exposed to US pressure. Businesses are being forced into involuntary service in purely political disputes. Companies that lie at emerging choke points are likely to also come under pressure. Behind the US case against Huawei is a straightforward fear: the America will lose control over 5G networks and the internet of things. US security would be threatened in a world where everyone depends on Chinese communications technology. 

Apple is spearheading a global initiative known as the Digital Geneva Convention to develop core norms of cybersecurity. The goal is to persuade private companies to collectively commit to limiting offensive cyberattacks – including those by the US government.

notes by frank@olsson.co.nz 19 January, 2020

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