Category Archives: Michael Porter

Understanding when engagement is, or isn’t, the answer

What would competing solely on information look like? And if you did battle competitors with information, is “engagement” the best way to do so? To understand when and how to compete with information, let’s walk through four simple competitive frameworks.

First, consider that while we live in an age of information, few management experts consider it the basis of market competition. The classic tenant of marketing is there are just three ways to compete: product-focused, operations/cost control, or customer solutions. Each is a choice, and companies within the same industry with similar products can elect to compete on a different dimension.

In 1995 Michael Treacy summed up the old model for competition, drawing heavily from Michael Porter’s masterwork Competitive Advantage, in his book “The Discipline of Market Leaders.” Competition, as backdrop, is defined beyond the cliche of company-fighting-company to a strategy that provides a serious advantage — a structural position that competitors cannot easily duplicate. Treacy’s model looked like this:

Apple, for instance, is a product-focused competitor. You don’t chat with @Apple on Twitter because Apple really doesn’t give a damn about engaging with customers. Steve Jobs was notoriously skeptical of customer focus groups, and while Apple does a brilliant job of managing vertical operations, its real gift is product innovation. Apple has built such amazing products that competitors, even armed with thin flash drives and aluminum, cannot easily displace Macs or iPads or iPhones. Picking one of the three angles of Treacy’s competition leads you to success because it brings focus to your organization. (And you can pick any angle you want; within the same computer industry, Dell is known for customer-solution focus with extensive segmentation marketing, while Acer focuses on operational efficiency to sell inexpensive computers.)

However, this old model misses a new competitive position: Information. Like a fish swimming in water not perceiving H2O around it, or early humans breathing air not realizing oxygen existed, for centuries businesspeople ignored the information flowing around their organizations; information didn’t really have a name until the 20th century. Upon our discovery, we then treated information as a simple fluid, like money or electricity, to be managed in inflows and outflows. The rise of information technology systems in the 1990s sought to reduce the noise (waste) of information input and transmission, and accelerate the dissemination of output, but all the while information was categorized as a force, an ether, a thing, about as negligibly important to macro competition as paper supplies or office furniture.

But in the past 20 years, information has become a vital, focal entity of its own. Information is no longer a subordinate throughput, but an end goal to be desired. Wired magazine co-founder Kevin Kelly writes in his brilliant book “What Technology Wants” that the interlinks of all technology tools — computers, car dashboards, GPS systems, bar codes, television programs, printed materials — have created a global network now with more complexity and contact nodes than the human brain. Kelly does not believe, as Ray Kurzweil does, that information is about to wake up in a singularity of artificial intelligence, but he does note within computer networks a small percentage of digital traffic has no identifiable originating source. Our global information system is talking to itself. Something in there is going on. Information, at some level, has come alive.

Demand is the magnet pulling information forward. Consumers around the world have a seemingly limitless hunger for more content. In the United States, television is still king, with the average human watching 4 hours and 44 minutes a day; mobile and Internet and social media use is rising, but rather than eclipsing TV and radio, those new digital streams are additive, with consumers taking in or sharing from more than two information devices at once. Office workers are migrating to 2 computer screens. The typical U.S. home has 3 television sets. We can’t get enough information, and now with YouTube and iPhone videocams and Facebook, we’re creating our own.

In this chaotic information explosion, confusion reigns. ABC, NBC, CBS and Fox were first challenged by cable, and now by millions of video streaming options on Netflix, Hulu, YouTube, Google and Amazon. Businesses have the opportunity to become leaders via information dissemination with tactics such as “content marketing.” Individuals can arise quickly to become “thought leaders,” gurus, new nodes on the information playing field.

If we want information as badly as products, service, and low prices, then information can be laid on a new grid as a focal point for competitive advantage:

Information is no longer a commodity like electricity or cash to be flowed and managed, but a choice for strategic warfare. Google, Apple, Netflix, Amazon, Zappos, Oracle, HP, SquareTrade, Ford, Tesla, AT&T are all companies competing with layers of information that help set their products apart. You don’t have to be in the information business running a search engine to use information to attract consumers; you can instead position yourself as the information leader in your space to add a new electromagnet for customer attraction. Competing on information is why our agency Mediassociates has this blog and why I spend late nights writing columns for Bloomberg Businessweek.

So: If you decide to compete using information, how do you do it? Different organizations have different customer structures, and your information flow has to support that framework. The first step is to map your “Information Ecosystem,” which breaks information down to its two basic characteristics:

1. Flow — whether information moves more often inbound or outbound
2. Scale — whether information is best deployed to a few or to many.

Flow and scale define the playing field for information strategy. Within the Information Ecosystem live four basic tactics, or information uses:

1. Broadcast. At the top right of the information flow/scale quadrant is broadcast, where information flows outbound to many parties. ABC, CBS and NBC were kings of this in the 1970s, but you’re likely broadcasting yourself if you use Twitter to send out “please click my blog post link” to 3,000 followers. Broadcast is a one-way ticket out, a selfish attempt to push a single message to as many people as possible. You need broadcast if you want to influence many to do one thing, or get many to receive one idea. The advertising industry, Hollywood, and yes, most social-media gurus are built on this model. Broadcast gets knocked about these days, but it is one of four completely valid information strategies, because at some point any organization has to influence the vast network around it.

2. Personalization. The inverse of broadcast is personalization — still an outbound flow, but a tailoring of information to the one or few people who receive it. Your Christmas cards,’s dynamically rendered e-commerce page, the direct mail on your counter are all attempts of various finesse to create the illusion of personal response; but it’s still an outbound push. Personalization is a valid strategy if you have many different constituent groups with varied needs, and if the cost of personalization is offset by corresponding sales increase via personalization. Netflix personalizes because the content presentation on its website is economical vs. the increased sales and usage customized movie recommendations generate; Nike would never personalize sneakers, because the marginal utility of custom shoes would not offset the high production costs.

3. Research. If a business model can leverage inbound flow of information from a mass of customers as a primary differentiator from competitors, research is the valid tactic. Typically this model only works for organizations that can repackage that group inflow as a key product, e.g. Pew, Arbitron, Nielsen, and Experian. However, many business-to-business consulting organizations such as McKinsey use inbound research as a key differentiator; management consultants who complete a deliverable for a European postal reorganization must also submit the findings to the internal knowledgebase, which can then be resold to other clients at hefty margins.

4. Engagement. And the last information strategy is the buzzword of recent years, “engagement,” the use of inflowing information from one or just a few customers. Engagement is valid only if your customer base has a high value skew — a wide range in value to you — or if small groups or individuals can wield great damage or gain to your organization. Ad agencies focus on engagement with their B2B client prospects, because one sale can build a new agency department. Financial service companies focus on engagement with their highest-value investors, because treating a Warren Buffett differently than Joe Sixpack can yield vastly different commissions. The more your customers differ in their needs from you and value to you, the more engagement makes sense. But as a core strategy, engagement only works if huge skews in customer value or influence are within your customer network.

When would engagement make sense? The table below shows the only scenario where engagement should be your core business strategy — where a few people can cause huge swings in your organization’s profits or public perception:

In this scenario above, a “few” have more value than the many — or a few have the ability to swing public perception about your company. Not every industry is like this — gas stations sell about one tank of gas each week to everyone — but others have enormous concentration of customer value or influence in their consumption base. Booksellers, airlines, high-end restaurants, hotels, coffee shops, and ad agencies all have some customers who use them much more than others, so treating this varied group in a different way provides value, differentiation, and competitive defense.

The engagement choice makes sense if a small group of customers could wield positive or negative influence across the majority of others. This is why big companies such as AT&T, Ford or Dell have built social media command centers to engage with a few people to prevent hot spots on the negative side (popular bloggers pissed at a product incident must be managed) and to encourage influence on the positive side (why not invite people with huge Klout scores to the next product launch?). But for many companies, this idea may be overwrought; Klout scores in essence are silliness, and the idea that a small group of bloggers/Tweeters might disrupt a massive business such as Pepsi, or drive huge lift in Pepsi soda and energy drink sales, is suspect.

It’s all a choice on how you compete. Pick your focus from product, operations, customers, or information. And if information is your weapon, pinpoint the corner of the Information Ecosystem strategy matrix that matches your customer structure. In your evaluation process, it is vital to distinguish information as a tool to be managed (and it must be managed by everyone) and as a weapon for competitive advantage (defined as going to market in a way that stymies competitors). Every organization may need a Twitter presence, research, broadcast, or some personalized content, just as you need a website; but information is only a strategic focus if its sets you apart in a way that builds barriers to competitor response.

If products, or low prices, or total service do it better, information need not be your focus.

Like customers, not all information strategies are created equal.

Ben Kunz is vice president of strategic planning at Mediassociates, an advertising media planning and buying agency, and co-founder of its digital trading desk eEffective.

Facebook should have seen it coming

In the past two weeks Facebook must have been shocked to see Google+ attract 10 million users and apparently be on track to double that number by the end of July. It’s a stunning achievement, yet the signs of weakness have been there: Facebook’s cumbersome interface, constant stumbles over privacy, and the inability to get users to adopt new Facebook services such as Messages (do you remember you have a email?). Facebook like many businesses grew fat and happy with its wonderful business model, neglecting the cracks that gave Google an entry point.

Students of Michael Porter know you can fit all of competition into five boxes: You with your competitors in the middle; customers who buy from you and suppliers who help you build what to sell; and the dastardly product substitutes and market entrants. The current slow demise of the publishing industry is modeled above, with the lock-keepers of content being eaten up by substitutes (the Internet and Google search) and entrants (social media, mobile and tablets).

In July, Facebook became an old-school publisher and Google became a surprising market entrant. This is nothing new: Google+ is doing to Facebook what Wikipedia did to Encyclopedia Britannica, the Prius did to the VW Bug, Napster to the music industry. When you least expect it a competitor pops up with a revolutionary idea … but if you think about it, the new idea is always based on flaws in the old business model. Facebook could have avoided the G+ explosion if it had overhauled its design to address privacy concerns and made Facebook Groups something as easy as Circles to manage. Instead, it left Groups buried and difficult to use. Why change, if things are going so well? Oh, um…

It’s a cautionary tale. What gaps have you been neglecting in your business that could allow a competitor to take everything away from you?

Ben Kunz is vice president of strategic planning at Mediassociates, an advertising media planning and buying agency, and co-founder of its digital trading desk eEffective.

Google, stuck in the middle

We won’t bore you with predictions of whether Google+, the new me-too social network, will make it. Instead, we’ll suggest Google faces a classic mass-marketing, mainstream-media problem. Branding.

More than 20 years ago Harvard Business School professor Michael Porter wrote the landmark book “Competitive Advantage” (heard the term? the book coined it) and in it he suggested most companies, as they grow, face a classic challenge. They start out as a niche player — a specialist, something that customers can easily pigeonhole in their mind — and then decide to grow. A consulting boutique decides to take on McKinsey; an online bookstore decides to sell all forms of goods. Some companies, such as Peppers & Rogers Group (1to1 consultants), fail to make the transition; others, like (once only online books), leap over the confusion to grow to the next level. Porter suggested the challenge in this transition is to not become “stuck in the middle.”

Stuck in the middle is what happens when you lose your focus, and your correlated customer brand perception of you, and become nothing to no one as you try to grow to the next level. You aren’t perceived as the next big service; yet your customers forget you used to be special. It’s exceedingly difficult to make the leap from specialist to market leader not due to your product-design aptitude, but instead because most consumers don’t give a damn about most products. We all have limited attention spans as customers, and it’s easiest to keep companies, like people, in their place. If you were once known as the maker of Product X, like a girl or guy in high school who gets a bad rap, customers may remember you as That Product X forever.

When a company such as Google, known as the leader in online search, tries to become a social network, human beings get confused. Google+ has hoards of features emulating Facebook, GroupMe, Instagram, and Twitter. So we go hmm. “Where do you fit in this complicated, crowded space?” we ask. We already have locks on where Facebook and Twitter fit. They are snapshots in our mind on the scale of private-to-public, boring-to-fun. Instagram, a newcomer, has rapidly gained traction by carving out a unique position. LinkedIn, the cold porridge of social media, is no fun to visit but you know you need to post your resume there. In the world of communications, specialists rule.

Google+, however, faces a basic challenge. We already know who Google is. Google, we love you, we use you daily … and unfortunately, you’re stuck in the middle.

Bonus points: If you’re not familiar with Michael Porter, get started.

Ben Kunz is vice president of strategic planning at Mediassociates, an advertising media planning and buying agency, and co-founder of its digital trading desk eEffective.

What social media gurus miss: Forecasting

MIT anthropologist Grant McCracken has published a book arguing firms need Chief Culture Officers. His view is social media tools alone won’t cut it; society is now changing so fast that companies that don’t track and predict trends risk disaster. Case study: Levi Strauss missed a billion dollars in the mid-1990s when it failed to see the urban baggy-pants craze coming.

What we like about this is Grant talks about watching society, not technology. Companies enarmored with Facebook and Twitter might rethink their approach: Are they focused on gimmicky channels that build revenue for their ad agencies, or are they deploying strategies to see what people will be talking about tomorrow?

It’s the future, not today, stupid.

Social media gurus always talk about listening, but rarely about trend forecasting. Which is silly, when you consider most corporations need a year or two to put any new products or services into the pipeline. Most social media buzz metrics track conversations of the moment, but the horizon is woefully short — even when messages go viral, the downside of the bell curve of interest is just as sharp as the spike upward. Here’s a look at this summer’s balloon boy interest within Twitter, a meme that shook the nation and was just as quickly forgotten. If you don’t really listen to society and then build coherent forecasts, your 2010 social media tools may be akin to a bad 1999 web site: all digitized up and nowhere to go.

(Via Charlie Quirk.)

The forces driving The Economist to Facebook

Word came across the pond today that stiff-upper-lipped plans to acquire half a million Facebook fans in the next six months. Publisher Ben Edwards told The Financial Times that making The Economist more social is “the core of our strategy.” What gives?

Let’s view the world of publishing competition as a play in three acts. Act 1 began 100 years ago with Michael Porter’s classic five forces model. (If you haven’t read Porter, the genius who coined the phrase “competitive advantage,” all you need to know is five things act on any organization — suppliers upstream, customers downstream, competitors in your space, and potential substitutes or entrants. This works in marriages, too, but we digress.)

Publishing thrived in this model nicely, with the nuance that it really served two sets of customers, the audience who watched TV or read the magazines and the advertisers who in turn chased that audience. Since advertisers fund 90% of any publishing venture (subscription fees are but a pittance), the size of the audience was paramount.

And then, in the late 1990s, the Internet and Google reared their heads … and audiences began to move south.

This second act of the publishing era gave us the Andersonian Long Tail, or what we call “The Era of Search Substitutes”: readers rushing from paid subscriptions to millions of free web sites, anything you desire found via Because audiences were so vital, publishers gave away a portion of their wares online for free in hopes of luring readers back, opening a Pandora’s box of declining print circulation and ad revenue.

And then in the past two years, audiences moved again — to Act 3, “The Era of Social Entrants.” What at first seemed online games for flirting teenagers became tools attracting millions of users, who could follow breaking news inside Twitter faster than CNN and network professionally with thousands of new contacts without the onerous ping-pong of email. The iPhone, the first portable device with easy Internet access, pushed the trend, and next year both Apple and Dell are set to release larger-screen mobile tablets that will take portable interactivity further.

Can publishers rebuild subscriptions in a new sharing world?

Once again, publishers face a threat, but there is also hope of more control … since marquee brands can sound their own voices in social media forums. Tablets are being eyed especially closely, since they provide a narrow window for publishers to improve their content in exchange for new paying subscribers. (See this Sports Illustrated tablet demo for a sneak preview at their tempting tablet layouts.) The trick will be to move beyond gimmicks to give users some skin in the game; The Economist, for instance, will encourage commenting inside Facebook and Twitter by building a new “reputation system,” similar to the rank-scoring mechanisms of “follower counts” that make Twitter so popular.

Since social propagation can’t be controlled and requires constant experimentation — there is a Talebesque randomness to the fads that “go viral” — The Economist is making managing its social media presence a full-time job. Major retailers are moving this way, too: Pepsi just announced it is skipping SuperBowl advertising in 2010 to instead drop $20 million on social media experiments, and now provides widgets helping bloggers link its online products for a cut of the sale.

The Financial Times notes “broadcasters … are finding that mingling with the huge audiences gathering on Twitter and Facebook can be a source of traffic to rival that of search engines.” Perhaps this is a wake-up call for your business, if you’re still focused solely on your advertising, web site, or search presence. What are you doing to attract the rising crowds in the social entrant space?

Economist photo: Suttonhoo

The ROI of now vs. later

Today we defended Seth Godin in BusinessWeek over the debate, if you missed it, of whether he should post public conversations about brands without their permission. Some said Seth was brandjacking. We say, get over it, let him play with public data. The issue is really much broader — of how controlling any idea is an outdated mindset, and how letting go of control of your brand, methodology, or secrets is required if you want to scale within the new networked world.

Call it the ROI of now vs. later. In the 20th century companies profited in the moment by controlling their concepts — because, after all, if you owned Coke’s secret formula, you made a killing adding sugar to water. Control made you money, and because communications to the public were also easily controlled, there was little incentive to worry about the ripples outside your boardroom walls.

But in the 21st century the new networked world creates huge opportunities outside your office or factory. A common marketing dream is to “go viral,” but as we know from watching Skittles or Subservient Chickens, viral requires letting customers play with your concepts. What happens if you release your ideas into the wild and let strangers abuse them? Why, you might spark conversations among millions of people, all of whom could become customers. You give up making money today for a broader impact tomorrow. The economics of open systems require a huge leap of faith, and many companies may never get there (we can’t imagine Coca-Cola giving up its secret formula anytime soon). But if you think about the millions most companies spend on advertising, it is silly not to add a free component to the mix that could have 100 times the impact — or, at least not to evaluate the financial upside carefully.

Idea manipulators as the fifth force

The reason ideas must be free is the competitive landscape has tilted toward a new entrant — the public, holding video Nanos and editing software, hungry to play. In his Five Forces model, management guru Michael Porter suggested that companies face five gravitational pulls as they try to make a profit: competitors in their space, suppliers and buyers who are upstream or downstream, substitutes that customers might flee to, and potential entrants. Companies in the past locked up information because they feared competitors might steal it, match them, and thus kill their business. They wanted tight control over costs from suppliers and margins from customers. In Porter’s theology, “potential entrants” would be the OxiClean guys popping up out of nowhere to give P&G a run for its money. But what if in the new networked world, consumers repurposing ideas are the potential entrants? What if their tide is unstoppable, a fifth force with exponentially more impact that the old supplier-competitor-customer loop? Is ignoring it an option?

Or, to use another metaphor, like children trying not to eat a marshmallow today, perhaps trying not to control you message tightly will give you more rewards tomorrow.

Talbots gets unstuck from the middle

Talbots’ stock soared 30% today with news that the retailer was finally ending the Talbots Mens experiment. At face value, the expansion of a women’s luxury clothier to the rougher sex in 2003 seemed a fair idea; why couldn’t a brand known for making women shine do the same for men?

We think Talbots got stuck in the middle.

Michael Porter, in his landmark 1985 book Competitive Advantage, said that firms could succeed only by finding focus. He outlined four basic strategies — you could have narrow or broad scope, and low or high-cost products. Walmart is an example of a firm focused on broad scope with low cost — you can buy everything there, and cheap. Talbots was the opposite — narrow scope, clothing that makes women look really good, and high cost, clothing with quality for which you have to pay.

Porter warned that companies who are niche players risk getting “stuck in the middle” when they expand. You want to grow; so you decide to add on new services or products; and the people who loved you for what you were begin to lose interest. Instead of bacon or eggs, you become oatmeal. It’s a cautionary tale for any business, organization or agency that tries to get too big too fast, and leaves what made it special behind.

We love Talbots; it’s a store that could have been designed by Santa Claus for women, with red and gold logos, shirts and suits tailored to highlight grown women’s figures, and a reference pricing strategy that is brilliant in using “40% off” and “outlet stores” to spur purchases. Talbots is so good at being the ultimate affluent-women’s store that the men they are married to couldn’t think otherwise.

So, welcome back, Talbots. Here’s to growing up just the way you are.