Marina Gorbis's Blog, page 1403

How Africa Is Challenging Marketing

For the first time, Western stereotypes associating Africa with death, disease, poverty, and war are being replaced by the reality of demanding, brand-conscious consumers who happen to live in a challenging environment. For too long, “Africa” has been considered a homogenous mass rather than a multicultural continent of diverse citizens. The media-generated image of passive beneficiaries of international charity and financial aid is now giving way to one of active customers voicing their opinions on product performance, service quality, and advertising.

After all, the emerging affluent African consumer is as connected as the rest of the world, smartphone always in hand. As this untapped market captures global attention, it also offers marketers a chance to leapfrog the legacy of mass marketing and reinvent the field from the ground up. The insights that marketers currently rely on, such as what consumers value in a product price and how to best reach them, drawn from decades of consumer research and studies on buyer behavior, don’t necessarily apply to the fragmented African markets.

Take a look at what’s happening in Africa now: Kenyans on Twitter (#KOT) are among the most voluble and outspoken, directly asking CEOs why their customer service is not up to par and pressing for change during CNN’s coverage of their elections. The Mo Ibrahim Foundation’s statistics say 68% of Africans on Twitter rely on it for daily news – not surprising considering that the news of Malawi’s recent presidential shenanigans first broke as a tweet. And Ethiopian news reports the rise of Facebook as an increasingly important medium for everything from filling job vacancies to selling traditional dresses. African voices are clamoring to be heard, and now social media offers them control over their narratives.

This shift will play out most obviously in marketing communications and advertising. Television, the industrialized world’s traditional driver of mass-market brand awareness, has been trumped by mobile-driven word of mouth. But in Africa, a phone in every pocket has only scaled the way hyper-local and regionally fragmented markets were already communicating – through trusted referrals from family and friends, eyewitness stories, and first-hand experience.

However, a lack of formal retail distribution infrastructure and marketing support services, among other factors, means that conventional solutions for market analysis will not work effectively. Everything from estimating purchasing power of a market segment to the impact of conventional value propositions will have to be questioned and redeveloped from scratch. And as Ghanaian entrepreneur Bright Simons has pointed out, much of this new African middle class is emerging from the informal trade and services sectors, while university-educated youth still search for white-collar jobs. Understanding the values of this new emerging consumer class is crucial for developing successful marketing strategies. African market research consultant Vusi Vuma mentioned the challenge faced by Coca Cola when attempting to account for as much as 40% of their sales volumes in terms of final retail channels. How does one estimate the size and value of an opportunity when both the target audience and retail outlets are outside the documented formal economy?

More than 90% of retail transactions tend to be in cash, and this impacts everything from purchasing patterns and buyer behavior to retail inventory. It implies longer lead times for purchase decisions and seasonal variations in consumer demand and choice of payment plans.

Data shows that 96% of Africa’s rapidly growing mobile phone customer base is on prepaid or “pay as you go” payment plans. This does not reflect income level. Lower denomination airtime vouchers account for as much as 80% of sales in the mass market. Vuma says some subscribers in South Africa spend as much as USD $30 a month on airtime credit, but they purchase overtime in 50-cent increments.

Conventional pricing methods cannot be transposed without questioning the underlying assumptions (revenue generation or flexibility of the payment plan instead of utility value) from the established markets where they were first developed. For example, “The price is not the problem” was the most common refrain during an ethnographic study in Kenya of household energy consumption behavior for a solar product manufacturer (the now defunct Tough Stuff). And small business owners were more interested in the revenue generation potential of a high-tech mesh Wi-Fi router when surveyed for a pricing study.

Forward-looking marketers have the opportunity to build and experiment with new methods and means to create demand, reach their target audience, and develop offers that resonate. African consumer markets can provide the perfect laboratory for new solutions to the global disruption of traditional marketing.

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The Hidden Costs of Cash

Cash – by which I mean paper currency and coins — has many benefits. It’s safe from hackers. It doesn’t require any special hardware or software. There is no fee charged to retailers who use it and no exorbitant interest rates lying in wait for consumers. It’s accepted almost everywhere and it offers anonymity.

While it has been steadily displaced by a variety of competitors, such as credit and debit cards, mobile payments, and cryptocurrencies, there are many good reasons paper money has stuck around. There’s an assumption that cash is best when money is tight – best for the poor, and best for small businesses running on tight margins.

And yet cash does carry costs. My colleague Benjamin Mazzotta and I have been studying the costs of cash across a wide range of countries: U.S., Mexico, Egypt and India.  With the exception of the U.S., these other countries represent economies primarily conducted in cash.  The U.S. offers an interesting case study in what happens when only about a third of all transactions are conducted using cash payments.

The use of cash involves several social costs to individuals — especially the poor — as well as business and the government.

For individuals, cash usage imposes a regressive tax with the highest impact on the unbanked. By FDIC estimates, 8.2% of U.S. households are unbanked and 20.1% of U.S. households are underbanked.  The unbanked pay four times more in fees to access their money than those with bank accounts, and they pay $4 higher fees per month for cash access on average than those with formal financial services. Examples of such fees are those charged for payday lending, buy-here-pay-here auto loans, and check cashing. The unbanked have a five times higher risk of paying cash access fees on payroll and EBT cards.  Poorer consumers have to spend far more time getting cash. On average, Americans spend twenty-eight minutes a month travelling to get cash, but that time isn’t evenly distributed. People who don’t use a bank spend about five minutes longer getting to the place where they can get cash, and unemployed people spent nearly nine minutes more.

For businesses, paper money has to be managed: it must be stored, guarded, and accounted for. It can be difficult to transport and is inherently insecure. U.S. retail businesses lose about $40 billion annually because of the theft of cash alone.  This cost is also disproportionately borne by mom-and-pops, many of which operate in poor neighborhoods and rural areas. These cash-dependent small businesses cannot afford sophisticated security and cash transportation services.

For the government, the annual value of under-reported taxes in the United States is $400 billion to $600 billion. According to the national taxpayer advocate’s estimates, 52% of this gap is because of under-reporting by self-employed taxpayers. If even half of this under-reporting is directly enabled by a cash economy, the U.S. Treasury loses at least $100 billion annually because of cash.  The implications for a shortfall in tax revenues are quite direct in terms of their impact on the poor (even after accounting for the fact that many of those who under-report are themselves poor).  About 12% of the federal budget in 2012 supported programs that provide aid (other than health insurance or Social Security benefits) to poor families. Such government safety net programs kept some 25 million people out of poverty in 2010. The existence of the tax gap puts pressure on the government to cut back on safety net programs, because they are the ones that are among the first to get cut.

What about the costs of cash in developing economies, where cash use is much more prevalent?  We have been analyzing cash usage behavior in emerging markets on different continents and experiencing different socio-political and economic challenges through our research in Egypt, India, and Mexico.  While all of these countries have their own idiosyncratic challenges, all have an overwhelming reliance on cash and a very low penetration of alternative payment systems.   In Egypt, only 10% of adults have a bank account and less than 2% have a credit card; therefore, it is not surprising that 94% of financial transactions are conducted in cash. With the political instability in Egypt, financial institutions themselves face questions about their own future, a factor that will further deter consumers from embracing their services in the near-term.  India, where about 60% of adults are unbanked according to McKinsey, is also a cash-heavy economy for transactions and high in its use of gold as a store of value.  Not only is cash prevalent, its use as a percentage of GDP has been increasing by about 2% over the past two decades, possibly because of concerns about inflation.  In Mexico, 53% of the value of consumer payments are cashless, according to studies done by MasterCard Advisors.  However, this proportion is not growing; it has remained relatively static over the period 2005-2011, even as Mexico’s economy has grown. How can this be?  Well, a sizable proportion of the transactions remain unrecorded because of the prevalence of the drug cartels in the country.

Each of these countries pays a price for the heavy usage of cash. Much like the U.S., the lion’s share of this cost is borne by society at large because of the lost tax revenues due to the under-reporting of earnings and transactions.

While the overall costs of cash usage in all these markets are daunting, the U.S. pays a price as well of a different kind.  In cash-dependent emerging markets, people and businesses at every level face the same challenges. But because in the U.S. it’s primarily the poor who use cash, they are the ones who disproportionately bear the burden of its costs. This observation should be a call to action for decision-makers who care about social justice and inclusive policy.  It is time we acknowledged the cash paradox: while cash may be considered the poor man’s best friend, it also places a disproportionate burden on the poor.

When to Schedule Your Most Important Work

If you work with a team, chances are your inbox is often flooded with invitations. Internal meetings, client conference calls, the occasional lunch request. Assuming you have some control over your calendar, how you respond to these offers generally depends on two factors: the value of attending the meeting and your availability.

Rarely, however, do most consider a third factor in our decision-making criteria: the time of day when you are at your most productive.

By now, you’ve probably noticed that the person you are midway through the afternoon is not the same person who arrived first thing in the morning. Research shows our cognitive functioning fluctuates throughout the day. If you’re like most people, you’ll find that you can get a lot done between 9:00am and 11:00am. Not so at 2:30pm. Later in the day, it often feels like we’re moving at a fraction of our morning pace.

That’s not an illusion.  Recent studies have found that on average, people are considerably worse at absorbing new information, planning ahead and resisting distractions as the day progresses.

The reason this happens is not merely motivational. It’s biological. Our bodies run on a circadian rhythm that affects our hormone production, brain wave activities, and body temperature. Each of these variations tinker with our energy level, impacting our alertness and productivity.

Importantly, we don’t all follow identical patterns. While most people do their best work in the morning (and our preference for mornings tends to increase with age), others are night owls who are more productive later in the day. Research suggests that our fondness for morning or evenings isn’t simply a personal preference—it’s directly tied to the time of day when our physical and cognitive abilities peak. And one new study has even found that morning people are more ethical in the morning – and night owls, more ethical later in the day.

To get the most out of every day, you need to guard the hours when you are at your most productive. Think back to yesterday and the day before. At which points of your day did you feel at your most energetic? (If you’re not sure, tools like RescueTime can help.)  Chances are, these are times with the highest productivity potential.

Once you’ve identified high-potential hours, consider treating them differently—for example, by blocking them off on your calendar. This discourages colleagues with access to your availabilities from suggesting these times for meetings. An additional advantage of having high-potential hours blocked off is that it prompts you to think twice before suggesting your own non-essential meetings at that time.

Proactively setting aside your best hours to get work done saves you from having to scramble later on to compensate. Use these hours for working on high-priority projects, making decisions you’ve been avoiding, or initiating a difficult conversation.

And, if you’re the owner of a dull, 10 a.m. staff meeting, do your team a favor and reschedule it for after lunch. The afternoon is when most people’s energy levels naturally dip. Lower energy levels can be disastrous for work that requires deep focus, but is considerably less detrimental in the context of other people. Having others around also naturally increases our alertness levels, helping counteract the slump in energy.

Fatigue, it’s worth noting, is not all bad. In fact, the findings of a 2011 study suggest that when our minds are tired, we are more distractible and less adept at filtering out seemingly irrelevant ideas. The free association that ensues makes “off-peak” hours an ideal time for finding novel solutions.

Ultimately, the best way to schedule is to take our natural energy fluctuations into account. You can maximize your productivity by calibrating activities to the right time of day. If a task requires willpower and complex thinking, plan to do it when you are at your most alert. In contrast, if what you’re after is a fresh perspective, use fatigue to your advantage by looking for solutions when your energy drops.

In either case, protect your best hours. If you don’t do it, who will?

If a Firm Declines Under a Female or Minority CEO, a White Male “Savior” Will Soon Arrive

When Fortune 500 companies are performing weakly, white women and people of color are more likely than white men to be promoted to CEO, say Alison Cook and Christy Glass of Utah State University. But if these leaders’ tenure is marked by declining performance, they are likely to be replaced by white men, a phenomenon the researchers term the “savior effect.” In only 4 of 608 transitions over 14 years was a woman or minority appointee succeeded by another woman or minority CEO.

Firms Far from the U.S. Write More Clearly

The further a company is from the United States, the clearer its press releases and financial disclosure statements are, according to a recent paper by Russell Lundholm, Rafael Rogo, and Jenny Li Zhang, all of the Sauder School of Business at the University of British Columbia.  

Startled by this finding, I called up Professor Lundholm and asked him to explain. Here’s an edited version of our conversation.

Why are far-flung firms seemingly more motivated to make their communications clear?

It’s related to the “home bias” problem. For a variety of reasons, investors have a bias against firms outside their home country, which makes them less willing to hold their stock. The bias increases with the distance between the investor and the firm. For instance, US investors are pretty happy to hold Canadian stock, but less inclined to hold UK stock, and even less inclined to hold Australian stock. Now flip it around and look at it from the point of view of the firm. If you’re in Australia and want to attract U.S. investors, you have to go the extra mile.

We found that the further the firm is from the investor, the more effort the firm puts in. That’s true whether it’s a regulatory statement, and MD&A disclosure, or a press release.

Is the home bias effect just limited to US investors?

No; you could do the same study in any country. For instance, a previous study found that Finnish investors have a bias against Swedish firms, and even had a bias against Finnish firms that wrote their financial reports in Swedish.

Back up a bit; how did you measure the clarity of these statements? 

We measured clarity with something called the FOG index, which has been around forever and is the go-to measure of readability. Basically it looks at the number of words per sentence, and the number of complex words (which is defined as a word containing three or more syllables). You add those up and multiply by .4 to get a score; if the score is 14, you need 14 years of education to read that. The readability of the US firms’ statements was about 18 — and yeah, you pretty much need a college education to read those documents.

We also looked at the number of numbers in the statements – after all, we are accountants! We wanted something tangible to add to the somewhat foggy FOG index.

It’s not perfect, but the FOG has been used for decades and is widely used. And of course there are facts that aren’t numerical, and there are some numbers that are redundant, but we looked at thousands of documents from companies in 45 countries and the effect was consistent.

From the headline, I’d assumed your finding was just tied to geographic distance, but when I read the paper, I was surprised to see you’d focused on five other types of distance, as well as physical distance. Why do that?

[A bias based on] geographic distance makes no logical sense [for an investor]. If we were shipping goods that weighed something, then yes, you’d predict a bias. But financial assets have no weight! There’s no reason geography should matter at all. But it’s by far the most powerful predictor of bias. So we thought, it’s clearly proxying for a collection of other things – let’s look for some of those other, maybe more logical, things.

So we started looking at differences in accounting practices and in investor protection — those were two that we studied quite a bit. We created these measures called accounting distance and investor protection distance, which basically measure how similar or different the laws (or the enforcement of them) are. And we found that these variables predicted the same behavior; if you’re from a country with different accounting rules then your communication is better, again to overcome the distance an investor might feel. Think of this kind of distance as “unfamiliarity.”

So which kind of distance mattered post?

Even though it’s the least logical, geographic distance. Even when we controlled for factors like accounting practices, investor protection, even language, there was still a home bias problem.

So do these efforts at clarity pay off?

The short answer is yes. The home bias still exists, but firms that provide more readable disclosures have more institutional investors. We compared companies within the same country — two firms inside South Africa, for instance — and the one that provides the more readable disclosure got more institutional investors.

What about the possibility that the US firms might just have hired terrible writers?

Actually since the US is biggest capital market in the world, with the best investor protections and very good accounting rules, we were expecting the US would be the best! When we found that the US firms had less clear communications and used fewer numbers, we sort of scratched our heads and went back to the drawing board. Then when we figured out it was the home bias effect, it made more sense.

Of course, another explanation could be that US firms are dominated by lawyers writing in legalese, which would ramp up their FOG index score.

But basically, if you don’t need investors from other countries, then you’re not as motivated to be clear or detailed in your public statements. Foreign investment may not be as important to US firms. If you’re a small country, then getting US dollars is a big inflow of capital.

But why doesn’t every company try to make their communications as clear as possible?

That’s a good question. Probably because there’s a thousand other forces at work. Clarity of these statements has to exist in an equilibrium with all the other things a company has to get done.

And the world inside these firms is complex. If you’re a big pharmaceutical company, you can’t just write, “We invented a drug; it was good.” We did try to control for complexity in our regression, to avoid punishing firms that are just more complicated in their structure.

You can also only put so many numbers into a report before you hit overload. We have some evidence from work we’re doing right now that there is such a thing as too many numbers.

Aereo and the Strange Case of Broadcasters Who Don’t Want to Be Broadcast

The Supreme Court’s big Aereo decision today came down to whether the company’s internet TV service more closely resembled a cable company or “a copy shop that provides its patrons with a library card” (the quote is from Antonin Scalia’s dissenting opinion). A majority of six justices decided it was more like the former, which seems pretty reasonable. But that led them to declare that Aereo’s business of giving customers access to free, over-the-air television programming via the internet amounted to a copyright violation, which seems a little crazy.

The culprit here, not surprisingly, is the U.S. Congress, in particular the amendments it made in 1976 to the Copyright Act. The Supreme Court had ruled in 1968 in Fortnightly Corp. v. United Artists Television and in 1974 in Teleprompter Corp. v. Columbia Broadcasting System that cable companies should be free to pass on broadcast signals to their customers. The broadcasters — at that time much bigger and more powerful than the cable companies — objected, and Congress, which has a habit of siding with business incumbents over upstarts unless those incumbents are overtly nasty and monopolistic, changed the law to effectively reverse the Supreme Court’s decisions. Since then, cable companies have had to get permission to rebroadcast over-the-air TV, and in recent years the big commercial networks have been increasingly successful in getting them to pay for it. At the same time, less in-demand broadcasters are able to force cable providers to carry them. Nice work if you can get it.

All this has contributed (it’s certainly not the main factor, but still …) to rising cable-TV prices, which are driving growing numbers of consumers to “cut the cord” and get all their entertainment via streaming services like Netflix and Hulu. But there’s still stuff on broadcast TV that people want to see. Like the Super Bowl.

One way to watch broadcast TV is really simple — get an antenna. And in fact over-the-air TV has been making a comeback in recent years, to the avowed delight of broadcasters. But in a spread-out land of mountains, valleys, and skyscrapers like the U.S., lots of people don’t have access to clear over-the-air TV signals, which is why the cable TV industry got started in the first place and why Aereo came up with its ingenious solution. With Aereo, the antennas are located in a data center with good TV reception, and the signal is transmitted to your TV via the internet.

That seems like a really smart, consumer-friendly technical solution. Cable providers understandably hate it because they don’t get to carry broadcast TV without permission. As for broadcasters, at first glance you might think they’d like Aereo. They’re no longer the all-powerful giants they were in the 1960s and 1970s, and should presumably be in favor of anything that has the potential to expand their shrinking audience.

Except … all the major commercial broadcast networks in the U.S. are owned by companies that also own cable channels — and, in Comcast Universal’s case, cable systems. So they’re deeply compromised, and they’re also trying to shift their purely ad-supported broadcast business models to something closer to cable’s mix of user fees and advertising.

This raises some profound questions. If the big commercial broadcasters will go to such lengths to keep others from retransmitting their programming, should they really be treated as broadcasters?  Should they continue to get cheap access to the broadcast spectrum — the “public airwaves” – and the right to force their way into cable system lineups? The whole structure of broadcasting that has grown up in the U.S. since the 1930s seems increasingly at odds with consumer demand and modern technology. But as the Supreme Court made pretty clear today, it’s most likely going to be up to Congress to bring the rules in line with new realities. I’m not holding my breath.

Good Managers Look Beyond Their “Usual Suspects”

In the movie Casablanca, there’s a famous scene where Captain Renault, the head of the French police, avoids investigating the murder of a Nazi officer by telling his people to “round up the usual suspects.” The implication, of course, is that everyone should look busy and professional, even if the routine doesn’t really accomplish anything.

I’m always reminded of this line when I see managers respond to performance challenges by putting together a task force of the “usual suspects” to deal with the issue. These task force members usually end up with multiple specialty assignments piled on top of their regular duties. And because these few go-to people are spread so thin, they ultimately don’t accomplish all that much.

Managers sometimes “round up the usual suspects” because they only trust a small number of people to handle key projects or initiatives. Every organization has its “glue people,” the ones who don’t show up in organization charts but are assigned to every task force or initiative because they are respected and trusted. For example, in one organization undergoing a major restructuring, each division designated a “transformation leader” as its point person for the work. However, each person also had significant managerial responsibilities, regularly represented the company at customer and industry forums, served on standing committees, and juggled other major project assignments. So while they were all capable and willing to do what was needed, the effort suffered due to lack of time and bandwidth.

Here’s another case in point: A financial services company was struggling to turn around a large business unit. One of the key initiatives was a new customer-service approach that involved a combination of new systems, training, and process changes. However, after almost a year of work and significant investment, very little had changed. In fact, the effort had generated some fear and resistance in the customer care centers and, if anything, performance was now worse. In response to pressure from the CEO to get the turnaround back on track, the business head “rounded up the usual suspects” into a task force to recommend how to accelerate progress. Of course, the members of this team, while all very capable and well-meaning, were the same ones who were leading the various project work streams – and they all had full-time “day jobs.” So due to the limited time available, they merely rehashed their recommendations for the project, and progress continued at a snail’s pace.

If any of this sounds familiar, take a step back and think about how to expand your talent pool to get the actual results you want. Do a quick mapping of your committees, task forces, and other special assignment groups, to see if you have a “usual suspect” bottleneck. Although individual executives may engage in this dynamic intentionally (like Captain Renault), most do not; it just happens. By sketching out these responsibilities, and looking at them holistically, it’s possible to see whether the same names come up again and again. If that’s indeed the case, then consider lightening the load for some by prioritizing assignments, consolidating teams, and, most importantly, adding other people to the list. Are there other capable people who would welcome additional assignments? Perhaps some high potentials who are not being fully challenged? Is it possible to trust some other people outside of your “usual suspects” circle?

On the flip side, if you feel that you are one of the overburdened few who gets called on over and over, speak up. In my experience, many of the “usual suspects” suffer in silence. They are flattered by the attention and the opportunities, but they become overwhelmed by the amount of responsibility and frustrated by the lack of time to get everything done. And because they are good corporate citizens who don’t want to disappoint, they don’t push back, which reinforces the “usual suspect” scenario.

Most organizations have ambitious agendas that are limited by the availability of key people. There may indeed be times when calling upon a few trusted people is the right approach, but doing it too often can be severely constraining. That’s why thinking outside the roster of “usual suspects” can help you distribute responsibilities in a more even, efficient way.

The Only Viable Strategy Is Adaptation

Most managers take it for granted that the world has become much more volatile and complex and that we need to constantly adapt.  The days when we could simply plan and execute are long gone.

So it was notable, to say the least, when Roger Martin recently wrote in Harvard Business Review that he thinks that all the talk about adaptive strategy is a cop-out.  In his mind, it is just a way for managers to get out of making hard, dangerous choices.

Martin, a former partner at the Monitor Group and Dean of the Rotman School of Management, has been one of the sharpest strategic thinkers for over two decades.  While I don’t agree with much of his argument, he makes some salient points that cannot be ignored.

Martin’s first objection is what he sees as an obsession with VUCA (volatility, uncertainty, complexity and ambiguity).  While there has been much discussion about these forces increasing over recent decades, Martin doesn’t buy it.  What about the Black Death killing 25% of Europe? Or Pearl Harbor?  Those were volatile, uncertain events weren’t they?

This is a somewhat facile argument.  Clearly, uncertainty and disasters are nothing new, but I don’t think anybody is arguing that they are.  Just because events were never fully predictable doesn’t mean that volatility, uncertainty, complexity and ambiguity haven’t increased. And just because some strategists have argued for a more nimble approach doesn’t mean they’re saying we ought to throw strategy itself out the window. So on logical grounds, he’s beating a straw man.

The simple fact is that managers talk of increased VUCA because that is what they see every day. We’ve seen these changes in our own lifetimes, and even over the span of a single career. Since 1960, the average lifespan on the S&P 500 has fallen from 60 years to less than 20.  Technology cycles have begun to outplace planning cycles. Increasingly, we need to manage not for stability, but disruption.

However, Martin’s rant against volatility is only a prelude to his larger point, which he says is that “people arguing that strategy needs to change are making the fundamental mistake of assuming that strategy is planning. This has never been the case.”

Here, he is on much stronger ground.  For too long, managers have confused planning for the hard work of strategy.  As Jack Welch put it, “the books got thicker, the printing got more sophisticated, the covers got harder and the drawing got better,” but none of that improved how enterprises performed.

In his book, Martin defines strategy as making an integrated set of choices about “where to play and how to win,” which is a very reasonable way to go about it.  I’ve previously defined strategy as “a coherent and substantiated logic for making one set of choices rather than another,” which amounts to much the same thing.

Yet to make decisions about “where to play and how to win” we need to make assumptions about the state of the world, the state of our competitors, and the state of technology. But today, billion-dollar businesses can be built and entire categories redefined in a matter of months, so these assumptions need to be constantly revisited.

While I agree with Martin that strategy and planning are two different things, they are undeniably linked.  Both require us to make predictions and prepare for future opportunities and challenges.  In a fast moving world, where technological cycles outpace planning cycles, we need to continuously reevaluate the context in which we operate.

That’s why I’ve argued for a more Bayesian approach to strategy in which we’re not trying to “get it right” as much as we are trying to become less wrong over time.  That requires a more adaptive approach, but also substantive differences in how we operate—less hierarchical, more agile, and more sensitive to changes in the marketplace.

It also compels us to make important changes to our business systems that enable us to integrate prediction and planning into normal operations.  It’s no longer possible to separate strategy work from everyday activities – something both Martin and adaptive strategists like Rita McGrath actually agree on.

Clearly, Martin has made some weak arguments, but as I noted above, that shouldn’t obscure his underlying point, which is an important one.  Strategy has always required us to make hard choices in an uncertain context and managers have shown a disturbing tendency to seize on any pretext to avoid making those choices.

As he describes in an earlier piece in Harvard Business Review, VUCA is only the latest in a long line of such pretexts.  However, as he also writes in that article, “the natural reaction is to make the challenge less daunting by turning it into a problem that can be solved with tried and tested tools” and that’s where he veers off course.

Bayesian strategy is not a reversion to earlier toolsets, but a recognition that our present ones are woefully inadequate.  In effect, we must continue to define “where to play and how to win,” but on a radically compressed time frame.  That doesn’t make strategy easier, it makes it exponentially harder.

Yet still, it must be done.  In an age of disruption, the only viable strategy is to adapt.

Don’t Play with Dead Snakes, and Other Management Advice

“If you see a snake, kill it. Don’t play with dead snakes. And everything looks like a snake at first.” This sounds like it might be advice from a paranoid outdoorsman. But its author, Jim Barksdale, meant it as a guide to the business world — that dangerous environment where, famously, only the paranoid survive.

During a long and illustrious career that is far from over (you can read all about one of his most recent ventures — building the most direct fiber-optic connection between Chicago and New York – in Chapter One of Michael Lewis’s new book), Barksdale has become a big believer in the value of the folksy aphorism as management tool. The Mississippi-born former IBM salesman, FedEx COO, and CEO of AT&T Wireless and Netscape Communications argues that funny sayings, especially if they involve animals, stick with people in a way that PowerPoint strategy slides usually don’t.

There are whole collections of Barksdale sayings online. Lots of them aren’t original to him, but former colleagues still tend to identify them with him. Which is why, when I got Barksdale and his fellow former Netscaper Mark Andreessen on the phone recently to talk about Barksdale’s pithy take on the role of bundling and unbundling in business strategy, conversation inevitably turned to some of his other proverbs. What follows is the continuation of that discussion, edited for readability and length:

HBR: Marc, are there any other Barksdale sayings you can think of with key strategic implications for today’s business leaders?

Andreessen: Well, how about this one? “In the battle between the bear and the alligator, what determines the victor is the terrain.”

Barksdale: I heard that from somebody, somewhere, way in my past life, and used it repeatedly in trying to push people to figure out the right terrain to take on a competitor.

HBR: What do you mean by the terrain, then?

Barksdale:  Well, in the animal world, a bear is not going to whip an alligator in water. And an alligator isn’t going to whip a bear on dry land. So, it’s not just the fighter, it’s the terrain that they’re on, the market they’re in. You know, who’s your customer base that you want to take somebody on in? Where do you want to be in this strategy? I like animal analogies to get the point across, just like parables. People can remember that, they can’t remember some long strategic discussion with a lot of PowerPoint pictures.

HBR: Well, here’s another one. There are lots of these Barksdale sayings online; one can find them pretty quickly. This is Barksdale’s three rules of business. “One, if you see a snake, shoot it. Two, don’t play with dead snakes. And three, everything looks like a snake at first.” What does that mean?

Barksdale: Well, when we were first getting started at Netscape, and I was the old man working with Marc and all of his 18-year-old buddies, it seemed like they used to love to have get-together meetings to discuss problems that could have easily been resolved at the base level. They could have just taken care of it.

So, the first rule of snakes is, if you see a snake, which is a problem — I had to explain that to one lady who accused me of not liking snakes — you kill it. You don’t shoot it, by the way, you kill it. It’s hard to shoot a snake. Anyway, you kill it. Just take care of it.

The second rule is, once it’s taken care of, don’t keep having debates about it, which is don’t play with dead snakes. And one time, Marc may remember, I cut off the heads of a bunch of little rubber snakes and threw them out in the audience of Netscapers. They loved that and stuck them on their cubicle walls to remind them. Just keep moving forward. Even if you’re wrong, just keep moving. We were so anxious to get products out the door, and we were at lightning speed, thanks to Marc and his folks, we just wanted to keep moving. So, don’t play with dead snakes.

And the last point, which is to me the most important and salient: all opportunities start out looking like a snake. If it wasn’t a problem, there is no opportunity. Because opportunities come from solving problems. So, kill it, don’t play with it, and then they all look like snakes in the beginning. The great business successes have all come from solving some seemingly insurmountable problem. Or non-obvious problem.

HBR:  Any thoughts on that, Marc?

Andreessen:  Well, I’ll give you one more if you want it.

HBR:  Sure.

Andreessen:  It’s not the size of the dog in the fight, it’s the size of the fight in the dog.

Barksdale:  That’s very old, and again, not original, but it was useful at some stage. I heard a great speech the other day, the commencement address by this admiral at the University of Texas. He talked about the boat men of the SEAL teams, and how it was not necessarily the biggest guys who could get the boat out and back as quick, but the smaller men who just had more heart.

Andreessen:  Well, if you’ve ever actually spent time in a dog park, you see this all the time, which is, the dominant dog is invariably about 15 pounds soaking wet.

HBR: I want to try one more that’s much more specific than these, about experimenting on the Internet. It goes: “First you try something. Since it’s just software, there’s no need to bend any sheet metal or trouble the guys on the loading docks. Second, you post it on the net. If it works, it’s a product. If it doesn’t, it’s market research.”

Barksdale:  It’s market research, that’s right.

HBR: That’s something that you encountered back at Netscape. It seems to have become very much the ethos of modern digital business, right?

Barksdale:  As an old-line business guy, the most profound thing that hit me when I got to Netscape was that it was so easy to do things on the Internet that were so hard in the hardcore world of transportation or communication.

One of which was market research. Companies used to spend a ton of money testing products with focus groups and market research teams. On the Internet, just put it up. If people hit on it, it’s a product. If they don’t, it’s market research. It didn’t cost you anything, or it didn’t cost you very much.

In other words, you were immediately international. As soon as we brought the Netscape browser up, the beta version, we were worldwide. That was so hard to do in the real world, nobody could even conceive of it. Companies would go 30 years before they’d try their first international businesses. We were immediately international. There were so many things that the Internet brought, and we, being one of the early companies, were able to observe it like it was some new law. It was profound, and it was fascinating, and it was a lot of fun. It also allowed us to move very quickly.

HBR: So, Marc, that ethos of, you just throw something out there and try it, that is sort of becoming this dominant ethos, right?

Andreessen:  This is a really big deal. The changes have continued. Once we were up and running as Netscape, we were able to do new things very fast. But it still took a lot of effort and a lot of money to get Netscape itself, as a company, up and running.

I would say the biggest change is, if you wanted to start a new Internet company 10 years ago, you probably needed to raise $20 million, just to get started. You would spend $5 million on Cisco routers and $5 million on Sun Servers, and $5 million on Oracle software, and then you’d write Yahoo a $5 million check to get distribution. And then you could try all your new ideas.

Today it’s advanced to the point where entire companies can get up and running — to provide global services, in some cases to millions or tens of millions of people — for less than a million dollars. It’s become routine, to a shocking degree. A lot of the Internet startups that we see coming through here raising money are startups that raised a half million dollars, that still have most of it in the bank. It’s four kids and their laptops, and the entire company is run on the cloud, on Amazon Web Services, on Salesforce.com, NetSuite, and Gmail. These companies have effectively no capex. It’s literally their laptops and their ramen noodles, and that’s it. And they walk in the door, and sometimes they have five million users in 170 countries. And that’s just a phenomenon that’s never existed before.

HBR: Do you think it’s a potentially temporary phenomenon? Like, it’s this moment when everything’s wide open? Or, do you think conditions are permanently changed?

Andreessen:  I think it’s permanent. I mean, I’m a believer. You’d have to believe the Internet itself fundamentally shuts down or gets much more restricted and controlled, you know, which is why battles around things like net neutrality are so heated. But, as long as the Internet keeps working the way that it fundamentally does, then this is a permanent state of affairs.