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On the one hand, companies attempt to focus on becoming leaner, more efficient and concentrate on their core business. On the other hand, growth opportunities may demand that companies go well out of their core business comfort zones to reach distant markets, employ new technologies and adopt a wider range of skills.

Growth involves some risk, such as adding staff and investing in marketing, systems and capital/non-capital expenses. To alleviate some of that inherent risk associated with organic growth, companies might consider forming alliances with other companies that already have some of what is required for growth. Forming an alliance could provide many advantages of growth, but would not demand as great of a direct investment in time, resources and skill as it would to organically grow the business from within.

An alliance is an agreement between companies to collaborate by leveraging each other’s resources. The table below illustrates two dimensions against which all alliances can be described: ownership and commitment. To best understand the table, trace rows and columns from left to right and then from bottom to top. For example, along the bottom row from left to right, the relationship of one company to another goes from a simple purchase order, to joint marketing and advertising, to a purchase order with up-front funding. The row above that demonstrates a greater commitment than the lower row, and a higher level of engagement as you move from left (Multi-year purchase agreement) to right (R&D program partnerships). There is also a large variety of strategic alliances, which encompass many types of teaming too extensive to discuss here.

In looking at the table, a company may realize that it already has an asset or experience to share in an alliance. Or, it might notice a deficiency needing to be ameliorated, possibly through an alliance. Of course, specific circumstances might suggest particular arrangements. In my experience, companies often are guilty of not looking objectively at themselves. This tends to lead to two opposite issues: Companies overestimate the value of something that they possess, and thereby try to drive too hard a bargain in an alliance; or companies fail to even notice something which they possess but take for granted, which could have tremendous value to another company.

Reasons to form an alliance might include:

• Distant-market access: The Company does not have access to geographic markets.
• Market-segment access: The company does not have a presence in a desired market segment and cannot build access fast enough to leverage its strengths.
• Changing distribution channels: Destabilizing conditions are forcing a new look at delivery options.
• Management skills: The Company’s core competency is under pressure by formidable competitors.
• Value-added barriers to competition: The Company wants to strengthen its value-added skills and raise the level of competitive intensity within the industry.
• Risk sharing: The Company does not want to take on all of the risk in developing products or markets.
• Funding constraints: The investment burden is straining scarce resources.
• Technology base: Industry is requiring rapidly developing technology.
• Barriers to acquisition: Opportunities are limited because of size, geography, or ownership’s reluctance to cede control.

Except for joint ventures and acquisitions, two allied companies generally remain independent, while agreeing on increased commitments and dependencies. To be sure, alliances present significant challenges: boundaries need to be defined, people with unfamiliar skills need to be combined functionally, and communication across the alliance needs to be established.  This is all within the context of clearly communicating the value creation of the alliance.

Many companies are unfamiliar with the skills and approaches needed to form alliances, but an alliance may hold the key to growth that would be unachievable alone – and this holds true for both companies involved. I have worked to engineer a wide range of alliances of the types described in the table, but two absolute, inviolable requirements for success are: 1) clear communication about expectations and responsibilities, and 2) trust, because it is never possible to anticipate everything. This may be an unfamiliar, uncomfortable path to growth for some companies – but it might be the best and sustainable path to growth.

(Information for this article was derived from Smart Alliances by Harbison and Pekar, 1998 and Alliance Advantage by Doz and Hamel, 1998)

Much of business media celebrates innovators for developing the next new thing.  However, imitators, not innovators, usually generate the greatest value from the innovation. A broad study determined that imitators capture a whopping 98% of the total value of an innovation.

We have been socialized to consider imitation as undignified and objectionable, yet in the marketplace of value, imitators generally dominate. McDonald’s imitated a system pioneered by White Castle which invented the entire low-cost, efficient, fast food category; Visa, MasterCard and American Express all borrowed the Diners Club innovation of aligning customers and merchants with plastic cards; Walmart copied many of its ideas from predecessor companies like Korvettes. However, these were not direct mimics, but improvements over a predecessor’s idea to create a winning formula that creates more value.

Huge value creation might happen from simply copying an idea, but odds are that a modification to make it better or cheaper, (and better), can disrupt the innovator by investing in an offering that is based on the market reaction to the original idea. Take-away thought: Imitate to share the market with the innovator – but imitate and improve to be dominant.

Ideas for this article were taken from Harvard Business Review April 2010, “Imitation is More Valuable Than Innovation.

Those of us who got education and training in marketing more than 10 years ago are likely having a “Rip Van Winkle” experience as we try to grasp how marketing has changed in that period due to the impact of the internet and then more recently social media apps. Though the same ROMI (Return on Marketing Investment) is the key metric for marketing managers, it is much harder to actually understand and measure.

ROMI is the measure to which marketing dollars contribute to profits. In the old world (30+ years ago), it was hard to associate a marketing cause with the actual effect.  A question could be asked: “How much of sales was a direct impact of a single marketing effort, a billboard or an advertisement, for example”.  Even using a lot of assumptions to relate the cause with the effect, there were questions in the direct nature of the relationship between the cause and effect – but at least we knew that no one else could adequately relate marketing to results.

Internet purchases, that were preceded by a number of clicks, brought some never-before-available relationship between purchasing and the marketing chain that led up to it (the breadcrumbs). It is understanding the trail of breadcrumbs and developing real insight that can help marketing managers better understand and manage their ROMI. And for a while, it was adequate.

There is however a new complication in all of this – a huge complication. Metrics-driven marketing, powered by analytics, affords companies the opportunity to engage customers in entirely and personalized ways. However, companies need to a approach multi-channel marketing very differently than they have with traditional marketing. Marketers have unprecedented access to an enormous amount of customer data including search patterns, engagement patterns, demographics, social connections and campaign responses. The complication is that to access customers’ pocketbooks, they need to understand direct and an indirect interrelation between these data points to determine what is it that leads to a purchase. Only then can marketers effectively allocate their marketing budgets, and direct all related efforts to the right combination of activities that will drive ROMI.

And now, just as we are getting comfortable engaging customers with websites and SEO efforts, (Search Engine Optimization), the website-centric paradigm is being replaced by an application-centric engagement: Social and mobile apps are taking center stage. Leverage it or ignore it at your own peril.

Concepts for this article were derived from the article “Metrics-Driven Marketing Meets the Multichannel Challenge”. Cornell Enterprise, Fall 2012.

Gathering information and making quick decisions are at the core of management. Entrepreneurial companies welcome new ideas. But as the companies grow, they may be less accepting of initiatives that challenge the status-quo thinking. Status-quo thinking, also called a “company culture,” can be harmful. That’s because it’s really “groupthink,” a barrier to new and better ideas.

Groupthink occurs when the desire for harmony or conformity in the group results in dysfunctional decision-making. Group members try to minimize conflict and reach consensus without critically evaluating alternative viewpoints. Indeed, they can actively suppress dissenting viewpoints and isolate themselves from outside influences.

Avoiding groupthink is especially critical during periods of growth, when parts of the company are evolving at different rates and when lost opportunities or missteps can be devastating.

A cautionary example comes from a source we in business wouldn’t expect: the U.S. national-security apparatus.

I have studied how national intelligence-gathering and military and security decision-making have evolved in the past 15 years. I came to understand that flaws in making rapid decisions are applicable to businesses that are growing and changing.

In his book The Head Game: High Efficiency Analytic Decision-making and the Art of Solving Complex Problems Quickly, ex-CIA official Philip Mudd discusses failures in the agency related to information-gathering and decision-making. He cites as an example the agency’s seeing fundraising as a pretty good indication of a terrorist group’s likelihood of carrying out future attacks. However, by focusing primarily on fundraising, the CIA ignored a more acute problem of fighters being recruited. Fundraising and recruitment were not closely related at all, he writes. Making poor assumptions or asking the wrong questions narrowed the agency’s understanding of a situation and left it unprepared to detect activity that indicated a terrorist attack being planned against a government target abroad – one that was carried out but could have been prevented.

When faced with an ocean of information or apparently conflicting data, he writes, several key questions need to be asked:

• What is the problem?
• What are the “drivers” − the important characteristics that define the problem?
• How will performance be measured?
• What data will be collected in relation to the defined problem?
• What important information is missing?

The last question is most important. It’s the one managers tend to ignore, but it’s crucial because 1) we tend to overestimate what we know and 2) we often weigh information based on “availability bias”, that is we tend to consider information we know and weight it heavily, as opposed to leaving room in the decision process for what we do not know. The notion of asking oneself what is not known about a problem can lead to a completely different decision-making path. This was articulated a decade ago by then-Secretary of Defense Donald Rumsfeld as “unknown unknowns,” which I believe poses the biggest challenge for decision makers in many company situations, including growth.

Mudd’s remedy is to bring in a fresh team of renegade thinkers (or a reputable consultant – hint, hint) who will purposefully challenge prevailing ideas. To get to “unknown unknowns” (assuming that they are knowable in principle, if not in practice), thinking needs to come from outside conventional boundaries. This means listening carefully to the outsiders’ questions and challenges, and probing their thoughts instead of defending one’s own point of view. I would go a step further and say that after bringing in fresh eyes, a company should prove the outsiders’ challenge to be correct, instead of attempting to refute it.

Admitting that your assumptions may not be appropriate – and especially saying, “I don’t know” – are first steps in correcting the decision-making process. I implemented this in the 1990s when I hired new staff. I told them, “I am the boss, but I am wrong at least half of the time – but I don’t know which half! It is your job to tell me when I am right and wrong.” I did that to prevent their descent into groupthink in which everyone becomes conditioned to think the same way and not let creative thinking influence group decision-making.

That approach didn’t always work, but it was a start.

There is an age-old argument of school smarts versus street smarts; that is, theory versus practice. In a provocative book, The Education of Millionaires, Michael Ellsberg argues that, especially in the ever-flattening world, formal education as a ticket to success is less of the sure thing it once was. He further argues that informal education is more important than formal education on a cost-benefit basis. Ellsberg argues that succeeding in the 21st century requires soft skills and attitudes like motivation, networking, passion, comfort with failure and persuading others to believe in you more so than what schools generally emphasize: content-focused information and, in some rare cases, reasoning. Cutting through the hyperbole of why college is a poor investment in time and money, which on its face is somewhat supportable, his real point is that every person should take responsibility for their own self-education. The approach Ellsberg recommends can be summarized as: Don’t show me your transcript or resume; instead, tell me who you are, what your attitudes are, how you can adapt, and what you can do. He argues that the grand bargain of getting into a good school and achieving good grades no longer is enough to guarantee success in the emerging world. Other skills that have always been important, he states are now the key factors in attaining success, especially in business. The bottom line in the college/advanced degree-or-no-college/advanced degree question is more relevant now, in a changed and rapidly changing business environment:  School should be approached as the student’s opportunity to be exposed to ideas, get inspired and gain basic, mostly theoretical, knowledge only. Ellsberg offers important – and, I think, valid – critiques of our educational system and how it establishes unproductive patterns that do not serve students well, especially in business: Start-ups, in particular, are creative endeavors by definition, yet our classrooms are geared towards preparing students to take tests on narrowly defined academic subjects. This stifles students’ creativity. Learning from failure, when not fatal, is reported by some successful people to be one of the key experiences that lead to future success. However, our educational system encourages students to play it safe and retreat from the first sign of failure, because we assume that failure will look bad on one’s college applications and on future resumes. Of course, such fields as medicine, law and engineering must continue to be highly regulated and licensed, and the educational and training paths leading to them must remain well-defined and rigorous. For most other fields, however, the notion that formal education is the only path to stable employment is misguided. As both an employee and a business consultant, I have worked closely with some excellent business minds. These were people lacking in formal education, whose other skills might have been ignored and neglected to a company’s very real detriment. Fortunately, those companies recognized the person’s brilliance and experience for what they were – vital assets – rather than typecasting based on limited formal education. On the flip side, educational credentials have a lower correlation with real business success than our venerated educational institutions would lead people to believe. In our highly chaotic, unpredictable economy, learning entrepreneurial skills will be more valuable than in the past, even for some highly regulated fields. This is because of the informal job market that employers know about and tap into, the one that operates thus: You need a position filled, so you ask employees and colleagues to recommend someone they know. In this market, one’s resume and SAT score, or the quality of school attended, actually is much less important than one’s enthusiasm, ability to work as a team member and creativity. Ellsberg’s book does not come close to settling the argument of education of theory versus other real-world skills and experience, but it does challenge some tightly held, historical assumptions and offers suggestions for developing “success skills.” It is a must read for college students (and their parents) and future entrepreneurs who need to understand that the content of their informal education could be a critical factor in contributing to their ultimate success.

 

One of the most vexing challenges for growing companies is how to deal with people – both current and new employees. While some of the former have the skills and are ready to increase or change their scope of responsibilities, others may resist. Reassigning existing employees who are not up to the task is only part of the problem. Another challenge is this: setting expectations for new employees.

Let’s say that the manager determines that a new employee needs to be hired. The relationship of that new employee to the company might need to have a different understanding than the employee-employer relationship which has historically been in in place. This is especially true when hiring young employees who have different expectations of what the employer-employee relationship should be, as will be highlighted below.

In the books The Startup of You and The Alliance, Reid Hoffman, the founder of Linkedin, demonstrates clearly that while the actual relationship of employees to companies has changed dramatically, the legalistic and transactional nature of the relationship generally has not. Whether regarding the idea of lifetime employment, the expectation of moving up within a company (the corporate escalator) and providing training to the employee in exchange for loyalty, both employers and employees know full well that in the new economy, neither party is really that invested in the other – no matter what each says. Employers have short-term horizons that might mean dramatic and rapid changes to the current business, including altering the staff and eliminating positions. Knowing this, employees, if they know what is good for them, are in a constant “scouting mode,” seeking the next, better opportunity because they never feel secure. This is really a “lose-lose” situation..

So what should the relationship be between a no-longer paternalistic company and the employee, not wanting to make a full commitment for fear of being jilted down the road? In The Alliance, Hoffman and his co-author argue that the relationship should be similar to a “tour-of-duty”: a relatively short-term assignment that gets the employee to focus and support the company’s goals for a defined period of time, in exchange providing the employee with additional skills and experiences that make them more valuable at the company or with a new employer. It is also a way to build trust incrementally and bi-laterally so that the most valuable employees have a path to longer-term retention if they want to make a commitment to the company.

Implementing a tour-of-duty relationship requires moving past the lifetime employment expectation framework. For example, employers operating in the paternalistic mode once viewed job hopping as negative, demonstrating either a performance or commitment issues. Presently however, job hopping may signal something very positive – that the individual is constantly pursuing new challenges and could be a short-term asset, which might indeed grow into a longer term asset after their tour-of-duty is completed. Human resource departments need not have a largely obsolete discussion that uses terms like “team” and “family” when doing so is disingenuous.

A popular Kelly Clarkson song, “What Doesn’t Kill You Makes You Stronger,” contains the age-old message that dealing with adversity builds resilience and character. A more in-depth and nuanced understanding of this notion is presented in a recent book by Nassim Nicholas Taleb, Antifragile: Things That Gain from Disorder. Antifragile is not quite resilience or robustness, but really connotes something that gets inherently stronger under pressure.

Taleb argues that antifragility is the secret to success in a world full of uncertainty. Using nature as a model, he points to evolution as a system in which seemingly random mutations lead to a lasting advantage. To be sure, “bad” events often contain useful information that enables future advantage. Pain teaches us to avoid things that might cause more serious injury. Business start-up failures steer those who learn the lessons from making the same mistake again.

Most interestingly, he argues that trying too hard to avoid shocks is a big mistake. The argument goes as follows: Long periods of stability allow risks to accumulate until a major disaster occurs, while volatility means that things do not get too far out of kilter.

Examples are plentiful. Eliminating forest fires leads to large-scale ones. Economies that cut interest rates store up more trouble for later. In markets, getting rid of speculators means that prices are more stable in general, but any fluctuations cause major panic. In political systems, artificial stability brought about by autocratic regimes can lead to instability once a credible challenge to the status quo is mounted. Career choices also demonstrate the principle: A secure job in a large company disguises a dependency on a single employer, but losing that job will cause a sudden and steep drop in income.

The heart of antifragility is that being in a position where the unexpected allows improvement, where the potential gains from surprising events, outweigh the potential losses. I listen very carefully to how people articulate the situation when confronted by a significant challenge. That enables me to better understand how fragile or antifragile they are. I reach my determination as follows:

• If someone calls a challenge a “problem,” he or she seems to define the challenge as being counter to an existing structure that needs to be preserved; defending that structure becomes the goal, which limits the opportunity to change and grow. This person, therefore, is “fragile.”

• If someone refers to it a challenge as an opportunity, I interpret that as a revealing insight into his or her ability to adapt and change. This person definitely is antifragile.

Nobody needs me to tell them that not only is change a constant in the business world, but the rate of change continues to increase. Attitudes that embrace change as a means to morph into what they want to become will be winners. Those who doggedly defend the status quo, and yearn and plan for the return of the good old days, will almost certainly become extinct much sooner.

Where are you on the fragile/antifragile scale, and are you satisfied with your positioning?

This article is excerpted, in part, from “The Economist,” November 12, 2012, page 76.