Marina Gorbis's Blog, page 1395

The Benefits of Bargaining with Your Customers

If you are selling something, you must often wonder how to determine your buyers’ willingness to pay (WTP), especially when you have many different kinds of customers. The more accurate your estimate, the more likely you are to sell or the less money you’ll leave on the table for the customer.

My recent experience of shopping for a quality leather coat in a Middle Eastern mall shows one powerful way to discover a buyer’s WTP. When on vacation, my wife and I came to a leather coats store and spent two hours trying different coats. Ahmed, the seller, was a sturdy 50-year-old Turk with penetrating brown eyes. He told me that his family had run shops for centuries.

A fluent Russian speaker, he asked us where we were from, and I replied that we were from Russia, but not from Moscow. I was not being dishonest, I was born in Russia, we speak Russian at home, but now we live in France. But I wanted to pay a price a Russian tourist would pay (not one from Moscow, though, which is known to be a rich city), which I expected would be less than the price a French tourist would end up paying.

When I asked for the price of the first coat that I tried on, Ahmed quoted about 2,000 euros but he also said that he would give me a good discount. After trying 15 plus different models, I realized that I loved a black coat that looked like the one worn by the characters in the film The Matrix, at a list price of 2,700 euros. It was too long for my taste, but Ahmed said that his tailor could reduce the length of the coat and we started bargaining over the price.

Ahmed wrote down 1,500 euros, I wrote 500. Then he wrote down 1,000, I wrote down 700, and then he wrote down 800, which turned out to be the price I was willing to pay. But then my sensible wife stepped in and told me that I should not be paying even 800 euros for the leather coat before it was actually shortened, as there was no guarantee that the tailor would do a good job.

Ahmed countered that he had a similar coat that was already shortened. He showed me a coat with a list price of 1,800 euros. I liked that coat too and we went back to the bargaining table. He wrote down 670 euros. Since my willingness to pay for the coat was already anchored at 800 euros (the price I was willing to pay to look a bit like a Matrix hero), I wrote down 600 euros and we shook hands.

On the way back home, I reflected on the experience. Someone told me that in such stores, Russian tourists could buy coats for 400 euros. But my brain had gotten anchored at a much higher list price (1,800), plus I had been willing to pay 800 euros for a different one, so 600 euros looked like a great deal compared to these two reference points.

In fact, despite my efforts to conceal my French residence and ability to pay a higher price than an average Russian, I had ended up paying a similar price to what I would have paid in France when buying quality leather coats on a reasonable sale. In other words, Ahmed’s negotiation strategy had forced me to reveal my French willingness to pay.

After concluding the deal I asked Ahmed why he preferred bargaining to having fixed prices. His reply was that bargaining was a part of Middle Eastern culture and it “helps us to communicate with a customer and to understand him better.” Which is just another way of saying: I want to understand the customer’s WTP. After all, when I entered the store, Ahmed didn’t know if I was a well-off Russian, a poor Russian, or a Frenchman. If the coat’s price had been fixed at 800 euros and my WTP were 600, then I would not have bought it. Had my WTP been 1,000 euros, but the price were 600 euros, I would have saved 400 euros. At 600, my WTP was exactly equal to the price and the market cleared.

What could I have done differently to get a lower Russian price? I should have done what my wife decided to do: after also trying 15 plus different models, she took pictures of the items she liked the most and said she would come back tomorrow. After looking at the prices that Ahmed wrote for these items on our way back in the car, we decided to come back the next day and ask for a much bigger discount. Taking time to talk through the reasons why we were prepared to pay a particular price for a product helped us to avoid being trapped by an “anchor” of a much higher price and revealing our true WTP.

When I teach competitive advantage or more advanced strategy topics, executives often ask how sellers can accurately assess buyers’ WTP. My Middle Eastern experience shows how effectively negotiations with a high starting price can achieve this goal. It’s an approach frequently used in B2B sales, but I expect it could also find its way to Western retail stores selling moderate to high-priced items. I suspect that in Western negotiation cultures the initial starting price will be closer to the actual price at which the seller is willing to sell the product, so that the buyer with a very high WTP doesn’t feel like he overpaid a great deal when hearing that another person (with a lower WTP) got a much better deal for a similar product. That said, Ahmed and his ancestors have been in business for a long time and we can learn some lessons from them.

Lead Without Trying So Hard

In early 2011, I gave a TEDx speech. Because I wanted my ideas around dreaming and disrupting to come alive in a way that’s not possible in writing – and because of my nagging performance anxiety – I started working with a speech coach. Since then, I’ve given a series of talks across the country. But it wasn’t until early in 2014 when I had a true breakthrough, one as much about being a great leader as it was about giving speeches.

Rather than rushing headlong through my remarks, concerned that I would lose my place, I was able to rein in my fear, stop narcissistically worrying what others would think of me, and slow my pace. As I listened to and felt the audience, my speech became a dialogue, rather than a monologue. This interplay with the audience moved from laughter to sighs to tears – an animated conversation that felt as natural as breathing. For the first time in my life, I put aside the classical musician I was trained to be, and became the jazz musician I longed to be, an improvised connection flowing between the audience and me.

Edward Slingerland’s book, Trying Not to Try: The Ancient Chinese Art and Modern Science of Spontaneity, describes the importance of allowing our minds to let go and explore a less rigidly controlled state of being: a state in which you can only win if you don’t try to win, where you effortlessly respond to a situation. This is the Taoist concept of wu-wei (pronounced oooo-way). When a person experiences wu-wei, doing difficult things such as giving a great speech or smoothly negotiating a complex social situation, feels surprisingly easy. Wu-wei can be translated as “spontaneous action,” an action that is relaxing and enjoyable in a deeply rewarding way. During my breakthrough speech earlier this year, I experienced wu-wei. I wasn’t thinking about what I would say next, and I even lost my place a few times – just as I would in a one-on-one conversation. To my surprise, my audience of fellow conversationalists stuck with me. Perhaps because I wasn’t trying to “win” – I was just trying to be really present in the room.

“One of the signals that a person is in wu-wei,” says Slingerland, “is that the person has de (pronounced duh), translated as ‘virtue’, ‘power’, or ‘charismatic power.’” They don’t need to issue threats or offer rewards because others want to follow them. If you have de, people like you, trust you, and relax around you. This is the payoff of wu-wei. When your generosity is sincere, you draw people to you, and are, in effect, charismatic. If you can reach a state of wu-wei, you’ll get de. Quoting from Lao-Tzu:

“Demanding nothing in return for his kindness, the sage eventually obtains everything;

The sage does not accumulate things,

Yet the more he gives to others, the more he has himself.

Having given to others, he is richer still.”

My father-in-law was a farmer from a small town in Idaho, a quiet man of small means. He was no Taoist, but his seven children and thirty-five grandchildren trusted him completely and relaxed when they were around him. Having given much to others, he was rich with charisma.

For many of us, charisma is more of a struggle – or something that waxes and wanes over time. Another man very close to me, a James Garner doppelganger, is a charming law school graduate who married a model. At thirty, he was all wu-wei and de. But as he has grown older, this is no longer true. With age, he seems to have forgotten the power of giving.

Because trying not to try really is a paradox, there is no foolproof solution to experiencing wu-wei. But there are strategies. In an e-mail exchange with Slingerland, he advised, “Going into that important meeting? If you aren’t fully prepared, with your presentation clearly mapped out in your mind, a little Confucian carving and polishing is in order: try and try and eventually it will become effortless. If you are prepared, and your problem is nerves or expectations, you need more of the Daoist “not trying” strategy: relax your body beforehand with a bout of exercise, empty your mind, and focus on your breaths before you go in.” This allows you to stop worrying about yourself and what people will think of you, and be absorbed by the someone in front of you.

True leaders are absorbed in something much bigger than self. My husband’s father was a leader. I only really understood this after he passed away. Because he gave with no expected payoff, as he advanced in age, people were increasingly drawn to him, experiencing their own version of wu-wei in his presence.

The more we give, the more we have; the more we let go, the more we actually control. When we stop trying, we will have more charisma than we had imagined. And if we are real leaders, we’ll immediately give that power away.

The Future of Marketing, as Seen at Cannes Lions

Last year I wrote a post titled The Dinosaurs of Cannes about the scene at the Cannes Lions Festival, the ad industry’s star-studded annual awards show. I said, “As you walked down La Croisette the rest of the week, you could see lots of dinosaurs basking in their glory while asking what all the furry and feathered things running around at their feet and flying around above them were.” This year the new mammals and birds of the industry have begun to strut their stuff.

What these new species have in common is that they’re based on open systems. These systems are digital at their core, and leverage network effects and the ability of the “digital democracy” to find the best talent and ideas wherever they exist. Unlike closed marketing systems, characterized by agencies that wall off their in-house talent (creating a scarce and expensive resource), open marketing systems seek talent from anywhere in the world to solve problems, and then curate the best answers.

Such systems are taking on incumbents in every industry. Airbnb is not only challenging the biggest hotel chains but also challenging the bureaucracy, going after the New York City housing and tax laws that stand it its way. Now, with a valuation of $10 billion, Airbnb has the capital to take on the hotel industry and its supporters globally. The app-enabled car-sharing service Uber has also become a global phenomenon with a valuation of over $18 billion. In an ironic turn, cab drivers in London, Paris, Berlin, and Madrid decided to strike in June, 2014 to protest Uber. The result: Uber gained several hundred thousand new members. Quirky is disrupting incumbents in consumer product design and innovation, Local Motors in the automobile business, Relay Rides in car rentals and Kickstarter and AngelList in the financial sector. Name an industry and there is a new open-system player leveraging the power of the networked world to build a paradigm-shifting competitor.

As established players focus on exploiting opportunities by applying their tried and true business models, these new players, especially those being built on the Internet, take the opposite approach. They start with a market opportunity and explore ways to build a new business model that can be applied. Uber, for example, saw the gap between the demand for cabs and their availability and devised a novel and disruptive car-sharing model.

This year at Cannes it felt like the light finally went on. A slew of new open-system marketing startups made an appearance, but Cannes was also jammed full of newer tech companies built on open principles, from Spotify to Jingle Punks and MoFilms. All of these are taking a piece of the traditional marketing spend.

These open-system mammals and birds have evolved to a point where they are beginning to articulate and deliver on the new paradigm while the dinosaur guardians of the old, closed marketing world are starting to acknowledge the shift. Many of these dinosaurs – agencies in particular — seemed a bit panicked about being disintermediated. They are realizing that the open marketing systems gives brands the ability to do what agencies did themselves by creating their own marketing content and media channels. Brands can now build their own agencies based on connecting to the open marketing systems.

There are a few things that brands can do to take advantage of the emergence of these new open-system species.

1. Adapt your business models to exploit new opportunities rather than try to apply your existing one. As discussed, open-system species are agile in part because they see opportunities and create new models to go after them.

2. Take more control. It used to be that brands needed an agency to communicate with customers. Today, with the falling price of media and the real time nature of the two-way conversation with consumers, brands can do more of this themselves. Some of the best-known brands including Patagonia and Apple are building their own in-house strategic agencies, taking control of strategic and creative leadership while using an open system to collaborate with great outside talent. Those brands realize that one of their most important assets is their relationship with consumers. There will still be a place in the ecosystem for lots of players and collaboration, including agencies, but brands increasingly can take the lead.

3. Seek out great ideas wherever they are. Companies and their brands need to get away from idea myopia, the notion that one outside organization, usually an agency, must be the sole creator of marketing ideas. Not only do your most passionate fans have great ideas and the tools to communicate them but there are ideas to be found from retailers, distributors and other outside partners. Likewise, internal team members have some of the best creative ideas but are sometimes afraid to participate.

This year’s Cannes Festival proved that the new, open marketing world is much more sophisticated than it was even a year ago, with many more players fighting for the same space. We can expect that Cannes Festivals to come will be filled with even more species of open marketing organizations. While some of the old guard will go extinct, as in any ecosystem, more diversity will bring more growth and vitality to brands, and create relentless pressure for the remaining ones to adapt.

The New Marketing Organization

An HBR Insight Center




Why Marketing Needs to Hire a Corporate Folklorist
What Makes a CMO Powerful


Strategies to Attract Superpower Marketing Talent
Why Marketing Needs More Introverts

IT Has Finally Cracked the C-Suite

Recently I’ve been having a very hard time talking to students, executives, and business leaders about information technology.

Even though I’ve spent most of my life in and around technology, thinking about information flows and their implications in a business context, having to use the term “information technology”—even the abbreviation “IT”—fills me with dread, almost a self-loathing, because the term is no longer appropriate in a business context. To borrow a computer-science term, the denotational semantics are all wrong.

The “IT” label is part of the glass ceiling that has limited business technologists for decades. In too many companies, IT leaders, relegated to their cost centers, are subordinate to other C-level executives. “The folks in IT” are seen as providers of services, such as fixing people’s computers.

In other, more forward-looking companies, the situation is radically different. The Great Recession forced these firms’ leaders to recognize technology’s role in driving value. As a consequence, CIOs work on go-to-market strategies as well as on acquiring and retaining new customers.

Just recently, InfoWorld magazine pointed out that CIOs have split into two groups: those who are driving value and those who are still trapped inside the data center. Cloud computing has accelerated this schism, because of its capacity to take the technology group out of the business of servicing other units. With the cloud, business units can take responsibility for their own technology. Using services such as Microsoft’s Azure, they can set up their own servers, establish storage, put applications on virtual machines, configure disaster-recovery systems, and so on. Need more storage? No problem. Experiencing lower demand and want to shrink back? No problem. These services are simple to price and simple to use.

Freed from their service role and increasingly appreciated for their business knowledge, technologist executives are finally breaking down the walls that separated technology from the organization’s other functions. This new freedom will allow them to focus more on their role as enterprise architects, creating alignment between the organization’s technological and business processes in accordance with the company’s business model. They will also be able to focus more on providing governance leadership, ensuring, as Gartner Research defines it, the effective and efficient use of information technology in enabling the organization to reach its goals. They’ll no longer be at the periphery, but will be fully integrated into the core strategic work of the firm, the business itself.

This new leadership role is captured in the emerging title of chief business technology officer. An early mover was Forrester Research, which appointed Steve Peltzman CBTO in 2011. Peltzman told me his job is “helping define and drive our business strategy, as well as being responsible for how we use technology to ‘win, serve, and retain’ customers.”

To those who argue that titles are meaningless, he says: “As soon as I renamed my department BT and my title CBTO, it did a lot of things: It signaled to the company who we were and what we were focused on. It helped us recruit and retain our own staff because they were more interested in it.” He is also critical of technology leaders who still refer to themselves in terms of “working with the business.” “The problem with that is the minute you refer to them as ‘the business,’ you’re basically signaling that you’re not the business,” he says.

While Peltzman acknowledges that technology management still has to focus on classic IT issues, such as determining which systems are critical, managing security, and deploying technology, he does not see these functions constituting his primary role.

Business leaders who question the economics of the cloud are missing the point, Peltzman says: “It’s not about the money. It’s about focus and mental cycles: How much time and energy do you put toward managing in-house technology activities?”

He believes technology leadership is about to undergo a shakeout. “You can tell the ones who will thrive and survive and the ones who won’t,” he says. “It may be a year, it may be four, but many are not going to make it because they are so focused on old-school stuff that their competitors will focus on differentiating them and beat them eventually.”

Another CBTO is Arnoud Klerkx of Sanoma Learning, one of Europe’s largest media and learning companies. He reports directly to the CEO and is a member of the management board. “I’m not responsible for ‘just’ IT,” he says. Instead, he sees his role as moving the company’s products and services into the digital era in a profitable way.

Senior IT executives in other organizations are intrigued by his title and role, he says. “Most of the time, they would love to have the same type of role, but find it difficult to change their old position within their organizations.”

As the digital era advances, it is increasingly clear that we should no longer be talking about “IT” as a corporate entity. We should be talking about BT—business technology. It’s a term that does a better job of capturing the increasingly symbiotic relationship between the firm and its technology and underscores that technology has finally, in many cases, actually become the business.

Why So Many U.S. Firms Are Buying Smaller Competitors Abroad (Hint: Think Taxes)

A generic drug maker based in Pittsburgh has become the latest American company to undergo an “inversion”: By buying a smaller company abroad—in the Netherlands, in this case—Mylan will be able to incorporate outside the U.S. and pay lower taxes, according to The New York Times. In the past two years, nearly 20 large firms have announced similar plans. Although Mylan says its merger is driven mostly by strategic considerations, the tax benefits are large: The company’s effective tax rate on its operations abroad would decline from 25% to 21% in the first year, then to the high teens after three to five years.

In China, the Right Political Ties Count

No one who has done business in China will be surprised to learn that relationships with government matter. Executives in China devote a substantial amount of time to interaction with government, even with the country’s ongoing economic liberalization.

A new paper measures the return to firms from political connections in China, and sheds light on when they do and don’t pay off. Yes, political ties can sometimes improve firms’ chances of success, but not all connections are equally important.

Researchers from The Hong Kong Polytechnic University, Rotman School of Management, and the National University of Singapore Business School sought to quantify the effect of political connections in China, looking specifically at the TV manufacturing industry from 1993 to 2003, a period of significant liberalization. They looked at whether firms had a former government employee on their leadership team, or whether a former executive of the firm was now employed in government. With that data they were able to compare firm performance — whether the firm went out of business in a given period, as well as its revenue — before and after these political connections were formed.

Most interesting, the researchers distinguished between ties to local government and ties to national government. They found that ties to local government were associated with higher rates of firm survival as well as, in some cases, increased revenue. By contrast, ties to national government had no effect on either metric of success. These results held even after accounting for firm size, age, degree of state ownership, and level of diversification.

Notably, local ties were most likely to improve the odds of survival for poorly performing firms. And the positive effect on revenue was only found for firms that were already performing well. This suggests that political ties are more effective at keeping companies afloat — even struggling ones — than at helping them to excel.

The authors offer multiple reasons why connections to local government would matter more:

Local governments directly experience the benefits and costs of firms’ operations in their jurisdictions with, for example, stronger firm performance increasing local employment and tax revenues. Local governments often have greater discretion than their central equivalents and therefore are more likely to focus on local issues and to address the needs of local firms.

National government agencies, in contrast, have a wider breadth of concerns and interests to balance, making them less responsive to the interests of any one firm or even industry.

Another way of explaining this difference comes from a 2010 HBR article on doing business in China by Lynn Paine:

Executives often believe that obtaining government support for big business deals is just a matter of forging high-level connections or lining the right pockets. Connections are no doubt useful, but experienced leaders know that they must also demonstrate their project’s contribution to China’s development.

It’s impossible to discuss political ties in China without noting the widespread corruption of local government, and the bribery scandals that have resulted. It’s conceivable that some of what this study is capturing isn’t merely the impact of a revolving door between government and industry, but rather a proxy for that corruption.

Nonetheless, the takeaway for firms looking to build leadership teams or assess partners in China is that not all political connections are equal. Time spent cultivating local ties may yield higher returns, whereas for national government, offering strategic value is more critical.

The Right Way to Unplug When You’re on Vacation

Vacations are for unplugging: we all need to escape the daily grind from time to time, after all. But that doesn’t have to mean unplugging from the entire internet. In fact, you may have a more enjoyable and meaningful vacation by staying connected–as long as you’re staying connected to fun, friends, and family, rather than to work.

That takes a combination of planning, tech tricks, and self-discipline. In an ideal world, you’d work-proof your devices and online activities so that you could use the phone, computer or internet without coming into contact with any work-related stuff.

But many of us simply aren’t in a position to take completely off-the-grid downtime, so you’ll need to figure out just how disconnected from work you can be so you can appropriately minimize the frequency and duration of your work-related check-ins and trigger each of those check-ins manually (so you won’t be tempted to respond to the ping of each incoming message). It will also be essential to draw a clear line between work and personal technology use.

Plan before you go.

Whether you’re planning to disconnect from work completely or simply to keep your work time minimized, you need a clear plan for how you’re going to use your devices while in vacation mode.  Ask yourself these questions:

What’s the least amount of work connectivity I can get away with? Understand your office culture and separate your colleagues’ expectations from your own anxiety. If the idea of ignoring all your work email fills you with fear, is that because you like to be in touch, or because you really could lose your job if you disconnect? What is the minimum connectivity that will be accepted at your job?

What do I still want to use technology for while I’m away? Make a list of the specific ways you want to use your phone, tablet or computer while you’re on vacation and limit your tech use to what’s on that list. (This will focus and constrain your tech use more effectively than making a list of online activities to avoid.) For example, I am using the fantastic app RoadTrippers to organize my family’s itinerary and activities, an Evernote notebook as my personal travel guidebook, Yelp as a travel journal, and Facebook to stay in touch with friends. (Read the rest of my list here).

Which accounts will I disconnect from? It’s easier to disconnect from entire networks or accounts than to ignore work-related correspondence once it hits your radar. So once you know what you want to keep doing—and how much you can stop doing—identify which accounts you’ll stay away from and plan accordingly, setting up vacation messages or alerts as necessary. If you use email, social media, or text messaging for a combination of personal and professional conversations, get clear up front about how you’re going to draw the line between what counts as work and what counts as play.

What do I and my fellow travelers expect from one another? Your work colleagues aren’t the only ones you need to consider. If you’re traveling with friends or family, get clear up front about your technology game plan. Agree on when it is and isn’t ok to use your devices – for example, you may agree that it’s fine to read the morning news on your tablet over breakfast, but not ok to check sports scores over dinner.  Setting shared expectations about tech use is especially important if you or your fellow travelers have kids you’re trying to keep offline or off-screen.

Prepare to leave.

The work of disconnecting begins well before your vacation. Here’s how to set expectations – and set up technology – to increase the odds that you’ll be able to unwind without unplugging completely.

Plan some out-of-cell-range travel. Whether it’s a few days at an off-the-grid cabin or a few hours in a wifi-free plane, it’s great to be truly incommunicado for at least some portion of your vacation. This allows you to sincerely set the expectation that you will not be reliably reachable, making it easier to assert control over how much or how often you’ll check in.

Set up a vacation email address. It’s hard to avoid your work email while you’re on vacation if opening your inbox is the only way you can access certain information or check if there’s a crisis with a key client. You may find it easier to avoid peeking if you set up a separate account to use during vacations. Share the address only with the people you really want to stay in touch with while you’re away (like your spouse, house-sitter, or traveling companions). Use mail rules and filters on your work account to automatically forward any travel-related emails to this address (flight confirmations, for example), as well as any key messages (like any email message from a key client or from the company CEO).  Just make sure you don’t reply to messages from your secret address, or share that address with more than a couple of people, or it defeats the whole purpose.

Set up a smart out-of-office reply. When you set up the vacation auto-responder message on your primary work account, write a message that helps you avoid the dreaded backlog that typically awaits your return: let your correspondents know that you may not review all the messages you receive in your absence, and that they should email you again after X date if they need a reply. As a courtesy, provide an alternate way of addressing their issue more quickly, such as contacting your assistant or colleague. If this isn’t a possibility given your clients or prospects, set up a more conventional message for external correspondents and then set up rules and filters so that their messages are automatically filed in a separate folder where you can review them promptly without being sucked into the rest of your inbox. (My ebook Work Smarter, Rule Your Email tells you how.)

Move travel info out of your email. TripIt is an itinerary manager that you can connect directly to your email account; it monitors incoming emails for anything that looks like a travel confirmation, and puts it into an itinerary you can access from the web or the TripIt app on your phone or tablet. Not only does this keep you out of your inbox, but it gives you a more convenient way of tracking travel details or sharing them with your fellow-travelers.

Set up a check-in schedule. If you are planning to check your business email or voicemail during you holiday, set up a schedule in advance. Maybe you’re going to look at your email for 15 minutes every morning, or twice a week after the kids have gone to bed.  Talk with your traveling companions about this schedule so they know when you’re going to be in work mode. And share your game plan with your colleagues, so that they know if and when you will be checking work-related email.

Pack only personal devices. The easiest way to separate work from play is to leave your work phone and work computer at the office. This doesn’t mean having to go out and buy new hardware; for your phone, for example, you can buy a pay-as-you-go SIM card, so that you can use the device without using your work number. Similarly, you can set up a separate user profile and account on your computer. Another trick is to get a set of walkie-talkies: that way you can stay in touch with the rest of your travel party, even if you turn off your phone or go out of cell range.

Adjust while you’re away.

The moment your vacation begins, implement your disconnection game plan by making the following tweaks to your devices.

Turn off notifications. Disable any work-related notifications on your phone and computer for the length of your vacation. On a Mac or iOS device you can disable notifications on an app-by-app basis or by using do not disturb; Android users can turn off notifications for individual apps or download an app that lets them turn off notifications globally. Windows users can get away from notifications by using an alternate user account on their computer, or by turning off reminders associated with an individual application like Outlook. And don’t just do this for email and calendar reminders: I share Evernote notebooks with some of my colleagues, so even though I disconnected from email over my last vacation, my work brain got reactivated when Evernote notified me of a new note titled “Things to discuss with Alex when she gets back.”

Limit access to work-related accounts. You can go a step beyond turning off your notifications and disconnect from certain accounts altogether. For example, since all my work-related social media accounts are connected to HootSuite, I sign out of HootSuite for the duration of my trip, and use an alternate app to check my personal Twitter account – and only my personal account.

Get yourself on board.

The biggest obstacle to disconnecting isn’t technology: it’s your own level of commitment or compulsion when it comes to work. If you work 80 hours a week, 50 weeks a year, you may find it pretty hard to get your head out of the office – and even harder to break the Pavlovian association between hearing the ping of an incoming email and immediately shifting into work brain.

That association is exactly why it’s so useful to develop strategies that put your devices in vacation mode. You probably don’t leave Oreos in the cupboard when you’re dieting; for the same reason, it’s best to put work out of arm’s reach when you’re on vacation. Instead of relying on sheer willpower to keep you from checking in on work, you can use your vacation tech setup – and a little up-front planning – to support your efforts to minimize work time.

With that setup in place, you’ll be able to enjoy the benefits of online connectivity and digital tools, as well as the benefit  of disconnecting from work. And instead of apologizing for bringing a phone on vacation, you’ll be able to relax even with your devices in tow.

Speed Up Your Product Development Without Losing Control

It can often seem like digital technology is making every aspect of business move at warp speed. There are real benefits to this real-time business capability: getting to market faster, capturing value quicker, more immediate responsiveness to customer needs. For example, in a previous post I described how Amazon’s ability to continuously release software changes (8000 per day, one every 11 seconds) will crush competitors who are making a batch change every six weeks. But what about the risks? Doesn’t high speed carry the inherent risk of loss of control?

Not necessarily. As Andy Singleton, CEO at Assembla, explained to me, continuous deployment can be both cheaper and lower risk. It’s cheaper because of automation and because small development teams need less coordination and oversight. And the risk can be managed through a new kind of tool called “feature gates.”

Here is a quick look at how Google and HubSpot have managed to achieve remarkable speed in product releases while simultaneously reducing risk.

Google’s Automated Test Machine

For decades, large IT projects have crashed and burned because planners could not anticipate all of the interdependencies of new software in the extreme complexity of large software code bases. To test new software before release, managers of large projects use elaborate test procedures run by teams of “quality assurance” professionals.  This traditional testing takes weeks or months, and still misses errors. To manage new software releases at their huge scale, Google has replaced traditional testing systems that depend on people with a testing machine, known as a “continuous integration” system.  It is a copy of their production system that runs special programs that test the way component services work together. Continuous integration and automated testing is important for all modern, large scale software development.  Google’s operation stands out for its scale. Their test system is continuously compiling and deploying more than 5000 components (services), and running 100 million test cases per day.

Google’s test machine is built and run by a “test engineering” group, whose size is about 15% of their total developers. This group only builds the automated test systems – they don’t do the actual testing. The test engineers think a lot about creating incentives that motivate developers to fix bugs and write effective tests. For example, they provide dashboards that report on bug counts by developer. As developers make changes, they are tested with the most recent version, which includes all the other changes. If a test finds problems, it can tell developers whom to contact to resolve them – directly, without using middle managers.

Google combines automated testing with a related process that requires a human peer to review code changes. Together, the automated testing and peer review provide a high level of quality control that frees Google developers to actually work on the needed changes themselves. Every developer at Google has the power to make changes to any product – or multiple products – subject to the rules of testing and review. In some cases, they can go from an idea to a software release in 48 hours.

HubSpot’s Small Development Teams and “Feature Gates”

HubSpot provides “inbound marketing” software tools to small and medium-sized businesses to attract prospective customers to their websites. Singleton told me how HubSpot reengineered their aging, single software application into a vibrant matrix of 200 small software “services” (an architecture like Amazon’s and Google’s), which has enabled them to go from traditional new software release cycles, measured in weeks, to a stream of 100 changes per day. HubSpot replaced their old software with new code in about one year, incrementally ramping up new services and steadily winding down the effort on the old codebase. The new HubSpot product quickly surpassed the old product, and is now adding features and invading related categories at a rate that makes it a serious threat to competitors.

HubSpot has organized its developers in small teams (a “tech lead” and two programmers) around small software functions (“services”). There are about 20 of these teams, each of which maintains about 10 services. The teams are empowered to do as much as possible, as quickly as possible. They have end-to-end responsibilities, including design, programming, testing, release, monitoring, and responding to production problems. They get operational information about the services they own — such as speed and errors — on a real-time dashboard, and they get customer questions and complaints.

“Feature gates” are a sophisticated, proprietary tool they use for configuration, release, and monitoring. The tool enables them to turn specific features on or off, for everyone, for groups, or for individual customers. A switch decides who can access new software depending on its status, such as “hidden” (nobody sees it), “test” (only internal testers), “beta” (selected external testers), and “unveil” (everyone sees it). New features may go through an extended period of various kinds of testing (beta testing, usability testing, or “A/B testing”). Feature gates both provide support and manage risk by letting developers build and release hidden features continuously without waiting for reviews by testers or product management.

To remain competitive, almost all “Software as a Service” and online service providers will need to move to continuous delivery like Google and HubSpot have. The leaders, such as Amazon and Facebook, have already made the switch, with major transformations going on at places like LinkedIn and Netflix. Industries that rely to a great extent on software-based services, such as banking, are not far behind, with a rising number of competitors building and testing new products online.

It is just a matter of time before we see these models being applied across industries, in hardware and other products. For example, chip designers are running continuous integration through their chip simulations, and adding optional features to their chips that can be switched off or on during manufacturing. More broadly, as more and more management practices are transformed by digitization, cutting-edge software development tools and practices such as these will facilitate more open and flexible product management generally.

Why Marketing Needs to Hire a Corporate Folklorist

Early last year, I helped craft a presentation for a gathering of senior managers at a clothing company. Looking for a hook, I asked questions about previous eras when its leaders faced challenges like the ones they face today.

“Oh, you need to talk with our corporate historian,” their head of communications told me.

The historian held the keys to drawer after drawer of artifacts from every era of the company’s existence — sewing machines, product sketches, vintage ephemera, love letters from fans, even the world’s oldest pair of dungarees. It was stuff with a story to tell, and she used it precisely for that purpose. She traveled the world giving presentations that featured these artifacts to illustrate the company’s brand promise through a visceral experience that no brochure or blog post could match.

Given how fashionable storytelling is today, you’d think every market-centered company would have a person like this on staff to manage the collective memory of its brand. But in my experience, not many do, and that’s a shame. Artifacts and stories articulate a company’s identity, purpose, and value to customers and communities in a very real, powerful way. Making these past and present narratives accessible to current and future audiences is an important role because it captures the spirit of the organization and uses that to develop an even stronger brand. This role is so important, in fact, that companies should give it executive-level visibility, authority, and resources.

Who do you hire for this critical function? Certainly you need someone with the research and communication skills to collect, curate, and publish stories and their associated symbols (visuals, audio, video, spoken and written word, and more). But the job also requires a “macro” perspective: the ability to weave historical accounts, cultural practices, and current events into a cohesive corporate canon.

You could think of this role as a “corporate historian,” “official archivist,” or “chief storyteller,” but I prefer “folklorist.” Folklore, in a cultural sense, is the sum total of anecdotes, artifacts, and rituals that unite a group of people — the common language that creates shared meaning. Part journalist, part librarian, and part storyteller, the folklorist is much like the cultural anthropologist who studies the language, myths, and rituals of a society, or the ethnographic researcher who investigates the habits and mind-sets of target audiences. Using similar methods of observation, analysis, and documentation, the folklorist would be responsible for capturing and publishing the oral, written, and visual history of a company and how it serves its constituents — customers, partners, influencers, and employees.

Given the skills and span of responsibility required, this function should sit in the marketing department. Every touch point in the marketing mix — including advertising, executive communication, demand generation, sales enablement, and customer support — benefits from an injection of folklore because stories are a potent vehicle for persuasion. And, of course, marketing is in the best position to integrate the stories into a holistic content management strategy for the organization.

The problem is, organizations’ stories are usually scattered far and wide. R&D and engineering teams know the chain of events that led to important innovations, but those anecdotes remain locked in status reports that rarely reach other departments. Sales teams glean quotes from customer conversations about product impact, yet these testimonials often travel without the richness of scenery and symbols that lend drama to a narrative. Marketing copywriters craft content all day long that converts corporate messages into compelling vignettes fed by insights from social media and market research. But the long view — how the company originated, how its markets evolved, and what lessons it learned along the way — often lives in the memories of veteran employees who may tell their tales to coworkers over coffee but don’t necessarily have a pulpit for broader communication.

These individual story streams don’t converge in most companies. In nearly 25 years as a marketing consultant, I’ve encountered only a few organizations with anything like a folklorist on staff. Those that have one are usually industry titans like IBM, Boeing, and GE, whose category-defining legacies warrant historic preservation; consumer-focused brands like Nike, Levi Strauss, and Coca-Cola, whose many cult followers justify the creation of a tourist destination; or startups with an ambition to build a lasting culture, like Zappos or Airbnb. (Perhaps not coincidentally, these companies also have created brands that are highly valued in the marketplace and beloved by their customers.) But a corporate folklorist’s work goes beyond documenting innovations, entertaining visitors, or even building a culture. It’s also about promoting a common understanding of the organization’s values and purpose.

That’s a goal all businesses should have.

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How Valuable Are Your Customers?

Not all customers are created equal. If you’ve ever run a business (or even just been a customer yourself), then you know that some customers provide more revenue (and incur fewer costs) than others. Figuring out which to focus on and invest in is critical if you want to maximize your profit.

Many companies use a calculation called customer lifetime value (CLV) to determine how much a customer is worth in comparison with others. Even if you don’t have to calculate CLV yourself (there are lots of tools that will do the math for you), it’s important to understand the concept so you can decide whether to use it when making marketing and sales decisions.

So what exactly is CLV? Here’s a basic definition: The amount of profit your company can expect to generate from a customer, for the time the person (or company) remains a customer (e.g., x number of years). At its core, CLV is the present value of all future streams of profits that an individual customer generates over the life of his or her business with the firm.

This is a useful number to have. By comparing the CLV across customers, you can determine which are more or less profitable to you, thus segmenting your customer base. Knowing each customer’s profitability is the first step to managing them. You can then decide on where to focus your marketing, product development, customer acquisition, and retention efforts.

The math behind CLV is not something you can do on a cocktail napkin, but the interactive illustration below can calculate it for you — and help you understand how the various elements of the calculation influence the final number. (Note: There are multiple ways to calculate CLV. This interactive illustration shows you one way.)

To use the interactive, adjust the sliders on the left hand side to see how each factor influences the CLV over five years and expected customer contribution margin for each year. 

Now imagine you own a print shop and you’d like to figure out which set of your customers are more valuable to you: small businesses that buy from you semi-regularly or larger businesses that only use you a few times a year for significant purchases. Start by figuring out the CLV for the first group.

On average these smaller businesses purchase from you 10 times a year and spend $200 on each order. Set the average number of purchases per year slider to 10 and the average spend per purchase one to $200.

Your average gross margin on these orders is 41% (set the slider accordingly). Now the question is how much do you spend marketing to your customers and how effective are your efforts? Your total marketing budget is $10,000 for the year and you have a total of 500 customers, so your direct marketing costs per customer per year are $20. You send out postcards to local businesses to acquire new customers and you find that for every 100 cards you send, you get two new customers. So set the acquisition response rate slider to 2%.

You’ve done a nice job retaining customers over the years, so you have an 80% retention rate for this type of small customer. (Set the average customer retention rate slider to 80%.)

Now the last thing you need to determine is your discount rate. When you calculate a CLV, you assume an average annual revenue from a customer for a certain number of years. But the revenue you receive in the future is less valuable than it is today. The discount rate in the CLV equation calculates the present value of that future revenue and is tied to the current cost of money. Different companies will use a different rate, but let’s say you feel optimistic about where the economy is headed so you choose a 10% rate.

You can see that for this set of customers the CLV over five years is $699.

To compare that with your larger customers, adjust a few things in the interactive illustration:

These businesses only purchase printing from you once a year, so move the average number of purchases per year slider to 3.
But they spend almost twice as much, so adjust the average spend per purchase to $400.
Your margin on their orders is slightly better so move the average gross margin slider to 50%.
Your mailings to these businesses yield a higher response rate so adjust the acquisition response rate to 4%.
Direct marketing costs per customer per year, average discount rate, and average customer retention rate all stay the same.

Now the CLV is $732, slightly better than the other group. This may mean you want to spend more time focusing on these large customers, perhaps setting up a customer loyalty program or making other efforts to retain even more of them.

And perhaps more importantly you can use the interactive before to see how you might influence the CLV by doing things like increasing the number of purchases per year (just one additional purchase yields a CLV of $1,157!), decreasing marketing costs, or improving your acquisition response rate.

This post adapted and reprinted material from Core Reading: Customer Management, HBP. No. 8162, by Sunil Gupta, which is part of Harvard Business Publishing’s Core Curriculum in Marketing.  Copyright © 2014 by the Harvard Business School Publishing Corporation; all rights reserved.