Marina Gorbis's Blog, page 1592

New Research: Where the Talent Wars Are Hottest

Given the forecasts of uncertain global economic growth, we might expect companies to hold off from hiring new employees and to limit whatever international hiring they do to emerging markets. But our global survey of more than 1,000 corporate directors, conducted in partnership with WomenCorporateDirectors and Heidrick & Struggles, said otherwise. The vast majority of board members told us their companies are hiring in double-digits and across the globe.

So the war for talent is on. Are you and your company ready? Do you know what world regions and industries are generating the greatest demand for talent? Is your company prepared to defend your talent from aggressive raids by competitors?

The most active sectors in hiring will be materials and IT & telecommunications, with more companies planning to bring on employees and to add a greater percentage to their workforces. At the other end of the spectrum, we found the fewest companies plan to hire in the two industries most driven by uncertainty and regulation: financials and health care.

Geographically, the majority of companies in every region are hiring, but more companies in Australia & New Zealand, and North America plan to hire than many other regions.

And while companies are still hiring in emerging markets, more are committed to hiring in their home regions, especially in Asia where 100% of companies plan to hire within the region. We also find that companies in developed areas plan to hire in other developed regions (e.g., North America in Western Europe and vice versa) and many countries in developing regions are moving into developed regions (e.g., Asia into North America).

All this presents a special challenge for Western European companies. Our research found they are one of the regions struggling most to establish great talent management practices, among them hiring, assessing, rewarding, and firing talent. If companies do not hire well, they hire more because there are a higher percentage of hiring mistakes — an inefficient and costly undertaking. If, in addition, companies are managing their underperformers out poorly, the costs rise even further.

With the war for talent taking place on all fronts, companies must have great talent management practices and systems in place. But too many don't, according to our research. This is especially true in the high-growth materials sector, which is executing most poorly on many talent management practices.

Also, given the predominance of hiring across all regions, defending one's best and brightest against encroaching competitors must be a top priority. Their phones will assuredly be ringing. And companies also have to be prepared to not only attract, recruit and retain top talent — but diverse top talent. Our research found that companies are doing a very poor job leveraging diversity in their workforces. They are missing enormous opportunities and will have little chance of defending themselves and outpacing their competitors if they do not begin to tap into the great pools of talented women and other underrepresented groups in the workplace — and get diversity right.

Methodology

We surveyed to more than 1,000 board members in 59 countries. (U.S. boards made up 37% of the sample while 62% of boards represented were from outside of the U.S.) We analyzed the data along several dimensions including geography and industry. Specifically, we did a geographical breakout by eight major world regions: Asia; Africa; Australia and New Zealand; Eastern Europe & Russia; Latin America; the Middle East; North America; and Western Europe (due to low sample size or domination by one or few countries in a region we have excluded three regions, Africa, Latin America and the Middle East, from our findings).

The industry breakout was done using eight major sectors (similar to those in the Global Industry Classification Standard system): Consumer Discretionary (e.g., consumer durables & apparel, retailing, education, media, hotels, restaurants & leisure); Consumer Staples (e.g., food, beverage & tobacco, household and personal products); Energy & Utilities (e.g., oil, gas & consumable fuels, electric, gas and water utilities); Financials (e.g., banking & financial services, insurance, real estate); Health Care (e.g., pharmaceuticals, biotechnology & life sciences, health care equipment and services); Industrials (e.g., aerospace & defense, construction & engineering, industrial conglomerates, professional services, textiles); IT & Telecommunications (e.g., computers & peripherals, electronic equipment & components, semiconductors, wireless telecommunication services); and Materials (e.g., chemicals, metals & mining, paper & forest products).

Cyber Security in the Internet of Things

Every enterprise will be affected by the Internet of Things (IoT), the growing phenomenon by which not only people, but also "things" — vehicles, commercial and industrial equipment, medical devices, remote sensors in natural environments — are linked to networks that are connected to the internet. Expect the impact on your business to be profound.

In particular, expect it to challenge your conception of cybersecurity and your ability to deliver it in IoT-enabled digital networks, your commercial operations, and your partner ecosystems. Paradoxically, the very principle that makes the IoT so powerful — the potential to share data instantly with everyone and everything (every authorized entity, that is) — creates a huge cybersecurity threat.

Just as the consumerization of IT spawned the BYOD (Bring Your Own Device) activity that is severely testing cybersecurity regimes today, so too will the IoT spawn an outbreak of "data democratization," where data will be shared more widely than ever, in real time. The IoT will demand another round of risk management strategy review, new network security evaluation tools, and business model revisions. Like all major changes in the commercial environment, this one will create challenges, but also opportunities for firms to benefit from new demands for IoT cybersecurity.

Why do we say IoT requires new thinking about cyber security? Mainly because of the level of data sharing involved. This is a fast-evolving feature of the IoT, around which industrial equipment markets have not yet aligned. Note that we can trace the origins of the IoT to the early efforts by engineers in Original Equipment Manufacturers (OEMs) to find ways to monitor, objectively and in real time, how the machines they designed for customers actually performed in the real word. They tended to use the terms telematics and mobile resource management. Soon, however, it became clear how valuable such data would be to their colleagues in product marketing, and in turn to customer service and technical support. As for the customers themselves, they received some benefits, such as maintenance alerts but, generally speaking, they had access to little real-time data, and it was difficult to work with when they did get it.

Today, growing numbers of customers recognize how that data could inform their own operations, and even feel it is rightfully theirs, leading to battles over who owns and has access to what data, who is responsible for securing it, and a long list of other related questions. What's more, as systems built by different OEMs interact, there is infighting among them as to what constitutes sensitive or competitive intelligence. Simultaneously, everyone must address the question of how shared access to data exposes them to new legal liabilities with their trading partners.

New approaches to cybersecurity are needed to address access to and deployment of this shared data. Participants need to guarantee each other that there will be no breach with so many moving parts across so many different networks and organizations.

At the same time that the IoT's shared data creates new issues for cyber security, its use in certain applications makes the need to ensure security all the more urgent. Consider that 85% of America's critical infrastructure — electric grid, gas and oil pipelines, bridges and tunnels — are in the private sector where cybersecurity is fragmented and uneven. These markets are aggressively interested in the IoT's proven cost savings and performance improvement potential. Yet this complex network can only be protected collaboratively as multiple stakeholders have shared interests in common assets. What's more, government resources, with their own unique cyber security mandates, are critical. It is no exaggeration to say that the functioning of society's infrastructure and our access to sufficient energy depend on our establishment of new cyber security regimes oriented to the Internet of Things.

Let's bring this down to how you as a company will experience the IoT as you begin to invest in it. We predict it will differ from your previous forays into traditional IT, mobile, and social networks in three ways, and all of them have implications for how you think about data security:

Your IoT business model won't involve "freemium" offerings. The IoT provides an irresistible opportunity for you to offer value-driven, and value-priced, services. But paying customers will demand greater access and control to "their" data, in contrast to their demands of most social and many mobile solutions, simply because "they" are paying.

Your usual privacy policies won't fly. Again, the IoT will be about data democratization. So the kind of opaque 'user agreement' that authorizes the service provider to remarket or redeploy user data will not be acceptable. Your new policy will be more akin to "those who deployed the devices determine access rights." The customers, that is, and not the service providers will determine who has rights to what.

You'll move beyond monitoring to control. Fully realizing the value of IoT will require connected devices do more than supervise, monitor, and report. They must also deliver new levels of autonomy to operations. But that autonomy will require devices to operate in independent, if coordinated, peer-to-peer mode, and support remote access to control functions. Deployers will have to ensure secure-two-way communications among devices.

As a business investing in the IoT you'll need to establish new standards of construct (that is, the technologies to secure the IoT) and new standards of conduct (the policies to secure the IoT). Your first step should be to acquaint yourself with Resilient Networking principles. Resilient Networking is a concept that explores network/cyber security in more connected, automated, and dynamic digital networks — in other words, IoT. Some of this work has been released to the public in a white paper [pdf] developed for The Department of Homeland Security.

You should plan, too, to devote serious time and thought to developing policy around your IoT investments. Ask 'why' something should be connected before connecting it. Who will benefit? How? A set of key questions like these becomes a very useful framework for working with partners to frame mutually agreed policies.

Succeeding in the IoT era will depend on defining and deploying not only the right cybersecurity technologies, but also the right policies and operations. The potential of the IoT to yield value for you, your customers, and all of society is vast. We must rethink the cyber security regimes that threaten to limit it.

Data Under Siege
An HBR Insight Center





Is Anyone Really Responsible for Your Company's Data Security?
The Public/Private Cooperation We Need on Cyber Security
Embrace the Complexity of Cyber Defense
Why Businesses Should Share Intelligence About Cyber Attacks

Big Acquisitions Can Fall Apart Over Tiny Details

In September 2005, Alphahealth*, a large American healthcare company acquired the British company Pharmateam*.

Pharmateam was an ideal target. With just a few hundred employees, the company was relatively small and affordably priced, but it had a solid product portfolio, over a century of history, and healthy financials. Moreover, it was a private company so that at the right price, all the shares could be acquired quite easily and rapidly. Alphahealth expected it to be their entry point into the British market. Management proudly announced the deal as part of its strategy of foreign expansion.

However, the deal took the employees of Pharmateam by surprise. Although aware of consolidation pressures in the industry, the announcement came out of the blue. For a quintessentially English organization, suddenly becoming part of a large American multinational felt strange and eerie.

They noticed one other curious detail: the formal announcement of the take-over included a photograph of Pharmateam's managing director shaking hands with Alphahealth's CEO. But Alphahealth's CEO was not wearing a tie. More puzzlingly, their own managing director was not wearing a tie either; something clearly not in keeping with their traditional ways of conduct.

Two weeks later, Alphahealth's CEO issued a memo to Pharmateam's employees explaining the deal and declaring respect for Pharmateam's achievements and history. It also stated that employees no longer needed to wear a tie to work, in line with Alphahealth's "friendly" and "approachable" culture. Alphahealth had used this approach for all its acquisitions to date, because although it wanted to avoid cultural clashes and integration troubles, it sought a common corporate culture, and taking off the tie seemed a good place to start.

While the vast majority of Pharmateam's employees diligently obliged, albeit awkwardly,, a small proportion refused, stubbornly coming to work wearing ties. Although a small minority, they represented a broader sentiment: as one employee (who had removed his tie) stated, "For us, it represented professionalism. We were at work, not play. The tie allowed many of us to separate our work life from our private life". Although the managing director frowned upon the tie-wearing employees, they willfully persisted.

As Alphahealth introduced further simple changes (like changing the color of the walls of Pharmateam's offices from its traditional blue to the corporate red), several Pharmateam employees responding by putting their ties back on. In ensuing weeks, the group of tie-wearing employees kept growing.

Soon tie-wearing employees began to sit together on one side of the company's cafeteria, while non-tie-wearing people occupied the other side. Whenever another employee would appear back in his tie, a round of cheers and applause would erupt. As one employee recalled: "Each day, we would eagerly await the arrival of the employees to see if any more had decided to join our movement by turning up to work with a tie". In a show of solidarity, some of the female employees started to wear suits and ties as well. Some employees brought an extra tie to work to try to convince their colleagues to join them and become converts too. Before long, the majority of employees had their ties back on.

Within two years of the acquisition, Alphahealth decided to spin off Pharmateam, resulting in a management buy-out, after which the Managing Director was fired. One Pharmateam employee recalled how they had gathered around a computer screen to check out his LinkedIn profile — where he was listed as "in between jobs" — including a headshot photograph of him, wearing a tie.

Reflecting on how they had felt when asked by Alphahealth to remove their ties, and why they had resisted, that employee added: "It made clear to us that the Americans had no respect for our rich history. It was with great joy that we would remove our ties in the car park on a Friday afternoon as we get into our cars to drive home — sometimes via the pub. This small weekly moment of joy was about to be removed by our American owners who think they can come in and bully us with their 'culture.'"

Most executives are aware of the dismal track record of mergers and acquisitions; academic studies have shown that 60-80 percent of all acquisitions fail. Most executives will also emphasize that integration problems and cultural clashes can be fierce, disruptive, and persistent. Yet, despite this widespread awareness, acquisitions still overwhelmingly fail to create value and cause major problems.

Part of that is because companies continue to underestimate the impact an acquisition can have on the individuals involved. Beyond the fact that the new employer has a different culture, habits, and processes, being acquired affects someone's identity.

For many of us, our identity is in large part determined by our profession and our employer. One of the first things we're asked at a party, for example, is "What do you do?" and "Who do you work for?" Having to change that answer represents a fundamental shift in our identity, and when the shift is not self-imposed, it may lead to confusion, anger, and obstruction.

Research on identity consistently shows that seemingly minor details can have big consequences. For example, in an experiment, Professors Christopher Bryan, Gabe Adams, and Benoît Monin urged people to either "don't cheat" or "don't be a cheater." Using the latter phrasing ("don't be a cheater") would reduce the number of people cheating by more than 50 percent. In other experiments, using the noun rather than the verb eliminated cheating altogether. Although it seemed a trivial change in wording, it had such a big effect because "don't be a cheat" alludes to a person's self-image and identity, where a verb does not.

Similarly, seemingly trivial changes in the way people are expected to dress or behave when at work can have a profound impact on their feelings of identity — and the extent to which they perceive that their identity is under threat. We express the invisible values and beliefs that comprise identity through observable practices. As in the case of Alphahealth and Pharmateam, even a practice that seems of little consequence can become a symbol of identity — or resistance.

Pharmateam's people rallied around the humble necktie. It provides a cautionary tale of why many executives — at their peril — still underestimate the profound impact an acquisition can have on people's self-image and identity, and why so many acquisitions still struggle to succeed.

* Not the company's real name.

When You're Trying to Persuade, Consider the Seating Arrangement

People in a circular seating arrangement had a more positive impression of a travel ad urging them to make family and friends a priority than of an ad saying "Make yourself a priority" (3.78 versus 2.75 on a 7-point scale); but people in an angular seating arrangement, such as in rows at right angles, favored the self-oriented ad (3.82 versus 2.41), say Rui (Juliet) Zhu of the University of British Columbia and Jennifer J. Argo of the University of Alberta, both in Canada. Seating arrangements affect persuasion by activating fundamental needs: Circular seating highlights the need to belong, whereas angular arrangements prime the desire to be unique, the researchers say.

The Black Swans Circling P&G

If you stand in the plaza of P&G's Cincinnati headquarters and look up, you will see something circling. Birds. Locals say they've been gathering for the last several years now. They're hard to see. And really who cares. But now that A.G. Lafley is back as CEO, it might be time for everyone at P&G to go out onto the plaza and look up.

Those birds are Black Swans. Any one of them would be bad for P&G. Should they all prevail at once, God spare this once mighty corporation. These black swans are dangerous for two reasons: they represent changes that have the potential to overturn P&G's business models, and they are impossible at present for P&G to see clearly. Should these swans come down to earth they will feast on P&G the way eagles went to work on Prometheus. It won't be pretty.

How do I know A.G. Lafley and co. can't see these black swans? I can't be sure, of course. But I do know that what I am about to tell you would never show up in the kind of research Lafley and P&G typically rely on. Unless he has some other source of intelligence, A.G. Lafley cannot see the black swans gathering.

1. The new branding. We are watching the death of the big brand. It's a huge change taking place over many years. Big brands used to be guarantors of quality, consistency, solicitude. We trusted big brands, especially Crest, Tide, Gillette. Beside these airships, little brands looked like unscrupulous, fast-buck, con artists.

How the tables turn. Some big brands continue to wow us. But many more look slow, clumsy, and unresponsive. Now it's little brands that look smart, fast, and there for us. And now small players make all the things that once could only be made at scale: beer, soft drinks, watches, razors, clothing, make-up, laundry detergent. With a webpage as their store front and FedEx as their channel, they can reach consumers anywhere. And, yes, of course, these are tiny operations. But large always starts small. And as Chris Anderson pointed out in The Long Tail, if we aggregate enough smalls, we end up with heterogeneous larges even larger than homogeneous larges. (Anderson put it more elegantly. )

P&G is the captive of its own models, addicted to the billion-dollar brand. This guarantee of efficiency may well now be the mark of the dinosaur. If perfection is sometimes the enemy of the great, large can be, too.

2. The new marketing. We are watching the death of the hard sell. The Cluetrain Manifesto suggested we think of it as a conversation. This marks the end of bang-the-drum marketing, of the shameless recital of unique selling propositions. Those Swiffer ads tell us that P&G is trying, but too often their efforts are like watching your uncle tell a joke at a wedding. Laborious, bad timing, horrific metaphors, all in all, too painful to watch. If branding has gone artisanal, marketing has too. With smarter audiences and new media, we want to work not with the hard sell, but with something more like a murmur. We want to invite the consumer in, not shout at her until she makes the purchase. Famously, P&G has a system for everything. (That could just be the problem.)

3. The new consumer. We are watching the death of the old model of consumer taste and preference. Consider those farmers' markets . This should put a chill of terror down the spine of P&G. For the farmers' market contradicts perhaps the most fundamental assumption of P&G manufacture and marketing: that consumers want their goods immaculate, appearing as if by magic in the local supermarket and drug store. Done and done. Now consumers actually want to meet the producer, to see imperfections, to see the dirt still attached. They actually want to say hi to the farmer, or at least to have some picture of the people who made their fashions or grew their coffee beans. The industrial era of production has come and gone. And it's departure puts the P&G proposition at risk.

4. The new home. We are watching the death of the suburban home. Once this was a ceremonial enterprise, in which moms, mostly, labored to show that they were keeping up with the Joneses, riding the thermal of post-war prosperity, that this family was, in a phrase, "going places." Homes, meals, children, husbands, lawns, and especially living rooms were kept in a state of relative perfection. In the event that the day of status judgment was now upon us. Moms were ready. And they spend a small and constant fortune on P&G brands to remain so.

Upward mobility isn't what it used to be. The home has new purposes. Moms have new responsibilities. One way to suggest the dimension of this change is to note the installation of a "great room" in millions of American homes. Down came the walls between living room, dining room, kitchen, and up came a new regime of child rearing, entertainment, food preparation, and family life. P&G looks on with complete astonishment here. Who knew the bedrock of American family life could shift so far, so fast? I mean, really. Well, millions of moms knew exactly what was happening. This was no "black swan" for them.

5. The new beauty. If farmers' markets are frightening, The Dove campaign for Real Beauty should be much worse. This marks a fundamental shift in the way women are prepared to think about beauty and the products with which they represent this beauty. With some ambivalence and some back sliding, Unilever gets it. P&G is struggling. A.G. Lafley is famous for his nuanced view of the consumer. It's not clear that all his research suppliers share this subtlety. One particular challenge, the Millennial shift. Millennials have been very kind to beauty products but there is a better than average chance that their idea of beauty could change completely in the next couple of years. Is P&G ready for this one? Or will this be another moment of strategy astonishment where the corporation slaps its hat on its overalls and says, "Who knew that was going to happen?"

It's not as if P&G couldn't ever see these black swans. Even when visible, these black swans will challenge the fundamental assumptions of the corporate culture and adaptation will be formidable.

The good news is that black swans, if you can grasp them, turn into opportunities for category and product innovation. And innovation has been one of Lafley's great strengths. To be sure this is a guy with intellectual agility to rise to the challenge. The real question is whether he can take the rest of the corporation with him. If we see him marching everyone out to the plaza, that would be a good sign.

Read Fiction and Be a Better Leader

An interview with Joseph Badaracco, Harvard Business School professor.

Download this podcast

A written transcript will be available by June 28.

What Inspiring Leaders Do

What do top executives want from their leaders? IBM recently asked this question of 1,700 CEOs in 64 countries. The three leadership traits that most mattered were the ability to focus intensely on customer needs, the ability to collaborate with colleagues — and the ability to inspire.

Our own extensive 360° feedback data, which we've gathered from just under 50,000 leaders who have been assessed by approximately a half-million colleagues, strongly confirms the importance of inspiring leadership. Of the 16 leadership competencies we most frequently measure, it is clearly the one that stands out. In our data, the ability to inspire creates the highest levels of employee engagement and commitment. It is what most powerfully separates the most effective leaders from the average and least-effective leaders. And it is the factor most subordinates identify when asked what they would most like to have in their leader.

Yet, when you talk with leaders who want to be more inspiring, you often get a deer-in-the-headlights reaction. They simply do not know what to do.

What inspiring leaders do. To address this question we engaged in what some might refer to as a reverse-engineering exercise. We went into our database and looked for those leaders who received the highest scores on the competency of "inspires and motivates to high performance." We found 1,000 such leaders and then analyzed what they did that separated them from their less-inspiring counterparts.

Some of what they did was specific and tangible. For example, they set stretch goals with their team. They spent time developing their subordinates. They engaged in highly collaborative behavior. They encouraged those about them to be more innovative.

Other things we identified were somewhat less specific and less tangible. These inspirational leaders were more adept at making emotional connections with their subordinates, for instance. They were better at establishing a clear vision. They were more effective in their communication and willing to spend more time communicating. They were ardent champions of change. They were perceived as effective role models within the organization.

Our data send a clear message: In this case, more is more. That is, the more of these behaviors a leader exhibited, the more inspirational that leader is perceived to be.

How they go about it. We next turned our attention from what these inspiring leaders did to the manner in which they did it. We've found that many leaders equate being inspirational with being enthusiastic and outgoing, and that can be so, but we also found that leaders could take any number of other approaches that didn't necessarily require them to be extraverted.

That is, a leader could be inspirational in setting a stretch goal, say, in a number of different ways. She could, for instance, do it by creating a compelling vision (which we dubbed, unsurprisingly, as the "visionary" approach). Alternatively, she could meet with team members and have them, collectively, set the goal (taking what we call an "enhancing" approach.). Another inspiring leader might set stretch goals by tossing out a challenge to the group and setting a specific deadline by which to make it (taking a "driver" approach). Or maybe he encouraged the team to find an ethical goal that focused on the organization's mission (in which case he took the "principled" route). Yet another of the inspiring leaders might have convened a meeting and delivered a classic half-time locker room speech to set the goal (which we think of as the classical "enthusiast" style) , or finally, he might take the "expert" route and interview team members to determine what skills each might best contribute to the effort.

Inspirational leaders might apply these different approaches to any of their leadership responsibilities, taking, for instance, a visionary approach to championing change by painting a compelling vision of a future in which the company was implementing a new strategy or taking an enhancing approach by encouraging team members to develop an innovative strategy together. Similarly, a leader could go about producing peak results by painting an exciting vision of the future or by marshaling the enthusiasm of the team to aspire to a higher goal.

Although merely 3% took the expert approach, perhaps more surprising is that only 12% went the enthusiast route. Each approach was equally effective, our data indicate, but leaders who were able to master multiple approaches did significantly increase their effectiveness.

Learning to be Inspirational. Finally, we turned our attention to the question of whether leaders could learn to become more inspiring. To find out we did another study of 882 executives from data collected over the last three years, who were measured on the 16 different competencies and encouraged to focus efforts on improving one of them. Focusing on the 310 who chose to improve their ability to inspire others we found that as a group they made impressive strides — moving from the 42nd percentile (that is, below average) to the 70th percentile. This is a statistically significant positive gain, and compelling evidence that when leaders use the right approach they can learn to become more inspiring.

In other words, with awareness, good feedback, and a plan of development, leaders are able to improve this most important of all leadership competencies.

QR Codes Aren't Dead Yet

My favorite mobile device isn't my phone, my iPad, or my car. It's my Canon digital SLR camera. What makes that camera different from all the others Canon makes is not its serial number, but a QR code like the one on the left, called a TalkTag. Canon didn't put the code there. I did. For both of us.

Think of the TalkTag as a cloth on the table I've set between Canon and myself — a table across which we can both share whatever we like. (What matters is not the QR code, but the table itself. There are many other possible tablecloths, all of which can also be TalkTags. More about the QR code choice below.) For example, I can share links to all the photos I've shot with the camera, or notes to service people saying, "Be sure to fix the fracture in the eyepiece lens." Canon can share and update the owner's manual and service records, provide links to firmware updates, make lens recommendations, or share whatever makes sense for both of us.

In addition to Canon, other parties sitting at the camera's table might include the retailer, the repair center, and anybody else I welcome — such as the person who finds the camera if I lose it. If that person scans the QR code on my camera today, they will see a public-facing message saying it's my camera, with instructions for reaching me. (In fact this has already happened once.) Messages back and forth are also private and can take many forms, including texts, instant messages, email, phone calls, or whatever.

The camera's table sits in a virtual cloud, running on an operating system called CloudOS, which is programmed with KRL, or Kinetic Rule Language. The OS and the language are open-source, and the brainchildren of Phil Windley and his team at Kynetx, a start-up in Utah. Phil is the former CIO of Utah and a veteran entrepreneur with a Ph.D. in computer science. His ambition with CloudOS is not modest. "I want the products I buy to be under my control and connected to the companies that made and sold them, so we can keep each other informed, work together, and learn from each other."

As Phil sees it, this does not require that every product have built-in smarts, but that they have their own clouds in virtual space — clouds accessible through TalkTags. These clouds can be as smart or as dumb as we need them to be. If manufacturers are also smart, they'll put a TalkTag QR code next to the serial number. That way they set the table for a two-way relationship with the customer — a table the customer will buy along with the product.

The manufacturer, in fact, can make that table an integral part of the experience of owning the product — especially if the company actually listens to the customer, and engages in respectful dialog with the customer.

Now, about QR codes. Most of us are familiar with them as marketing gimmicks: "robot barf" in the corners of ads. But those gimmicks are early experiments, like much of what we saw with domain names and URLs in 1995. In fact there is no limit to what QR codes can do. Denso Wave, which owns the patents on QR codes, chooses not to exercise them, and they are already an ISO standard. As a result, QR codes are free to generate boundless uses, such as the one I describe here.

What actually matters here is that products become platforms for relationships, rather than just a SKU deposited at the end of a distribution chain.

My camera's cloud is just one among many others in my personal cloud. Think of my personal cloud as "The Internet of Me and My Things," containing the clouds of everything I own. TalkTags on my things give me a table to talk across with the companies that made or sold me those things.

This makes the personal cloud a platform for VRM (Vendor Relationship Management). VRM lets customers scale many relationships with many companies, the same way a company can scale many relationships with many customers through its CRM (Customer Relationship Management) systems. When the two connect, CRM for the first time becomes a way for a company to truly relate, directly, with customers. That is, talk to them, two-way, as equals. This will prove far more useful than today's CRM techniques, which are conversational only in the scripted and controlling manner of call centers.

Once products themselves become platforms for relationships, companies will get much better market intelligence, in addition to genuine loyalty. And once personal clouds (and components such as TalkTags) become widespread and standardized, all CRM systems will have one simple way to relate to customers, rather than as many different ways as there are companies in the world. (Which today is another severe inconvenience for customers and companies alike.)

This will cause a profound shift in the marketplace: one in which relationships between demand and supply become both personal and real — also, live and mobile.

Cloudstore, Kynetx, Personal, Respect Network and other personal cloud developers are committed to making these clouds as open and interoperable as possible, so the network effects will be as vast and uncontained as what we got from the PC, the internet, and the smartphone, when each of those grew from niche to mass adoption.

And, just as the PC, the internet, and the smartphone led to more personal empowerment and freedom and opened vast new marketplaces, "The Internet of Me and My Things" will do the same. The difference this time is that every product can become a platform — for real relationships, rather than relationships in name only.

Innovations in Digital and Mobile Marketing
An HBR Insight Center





Don't Let Paper Paradigms Drive Your Digital Strategy
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Reverse Innovation in Tech Startups: The Story of Capillary Technologies

At its core, reverse innovation describes solutions adopted first in poorer, emerging nations that subsequently—and disruptively—find a market in richer, developed nations. But can reverse innovation be relevant in the world of high-technology? The very definition of "high-technology" hints at something typically reserved for the developed world. Furthermore, for the past half-century, technology solutions have inevitably come from developed nations and occasionally "trickled down" to the emerging markets.

However, the story of Capillary Technologies portends a global shift of technology "trickling up" in the opposite direction. In 2009, two bright, young entrepreneurs in India saw a key pain point with local retailers, who had no ability to engage with their existing customers. So they developed an "emerging market" technology solution centered on mobile phone text messaging and low-cost cloud server networks. This new solution enabled retailers to better understand their customers, track their behavior, and deliver personalized offers based on Capillary's predictive analytics capability. As an example, Raymonds, a famous clothing retailer in India, utilized Capillary's solution to create a sophisticated mobile loyalty program for 1.6 million customers without using any paper forms or plastic loyalty cards.

Capillary grew their business rapidly across India and other emerging nations, generating solid revenues. Capillary's connection to local retailers also helped them understand the deeper needs of their existing customers. This enabled them to build a full CRM (customer relationship management) solutions suite, specifically targeted towards retailers, that included associate applications, analytics, tablet/smartphone applications, and social components.

In 2011, Capillary began looking beyond emerging markets for further growth. They discovered that many of the retailers in developed nations had similar pain points as their existing retail customers. More interestingly, they realized that the retail software solutions available in developed markets were far too complex and expensive for most retailers' segments compared with Capillary's simpler, bottoms-up CRM based-solution.

They quickly found traction in developed nations. Retailers liked several aspects of Capillary's solution: it elegantly focused on their core pain points, was not cumbersome to deploy, and was available on an affordable pay-as-you-go monthly pricing model with no upfront licensing fees. These disruptive advantages were primarily feasible because Capillary had initially designed, built, and deployed a cutting-edge "Big Data" solution—typically associated with developed nations—in an emerging nation.

Capillary now powers more than 10,000 stores globally for over 140 brands servicing more than 50 million consumers across 16 countries. Clients include Marks & Spencer, Nokia, Brooke Bros, Courts, Puma, Neilson, and Pizza Hut. In fact, Pizza Hut leveraged Capillary's predictive intelligence technology to drive purchases via targeted, real-time CRM campaigns across 17,000 unique customer clusters.

Capillary's case study illustrates that focused high-tech solutions can now be designed, deployed, and fine-tuned cost-effectively in emerging market nations. These "tried and tested" solutions are ripe for disrupting various developed-nation market segments with shorter deployment times and lower cost structures. Capillary could very well be at the forefront of a reverse innovation trend in the high-tech startup sector.

Math Anxiety Affects Consumer Preferences for Discounts

People who suffer from math anxiety prefer easier-to-process dollar discounts ("$10 off the regular price of $50") over percentage discounts ("20% off") and sometimes make suboptimal decisions because of that preference, says a team led by Rajneesh Suri of Drexel University. The math-anxiety effect gets worse when consumers are more highly motivated to process information, such as when a reward is offered. Math anxiety is a condition in which people fear situations requiring the use of math skills and harbor worrisome thoughts about math.