The UR Industry of Digital Transformation

This article first appeared on February 11th, 2014 on Social Media Today: The UR Industry of Digital Transformation

Regardless of how and when you think that your company and industry will be swept into the torrential flow of change that we call "digital transformation," I think you'll agree that the very first industry to have felt the pain of creative destruction from social, mobile, analytics and cloud (SMAC) was information, media, and entertainment (IME). And the pain is continuing to be felt today -- the means of production, distribution, business models, and the very core building blocks of how these companies operate are all being transformed by digital technologies.

It makes sense that this would be the first industry to be transformed given that the substance of the products that these companies sell are just information. Not that the publishing industry thought so -- they thought they sold papers and magazines and books. Or the music industry -- they thought they sold records and tapes and CDs. Or the film industry which thought they sold (or rented) VHS or Betamax cassettes. Or the game industry which thought they sold game console cartridges and PC diskettes...

And when they sold their information products wrapped in a physical distribution format they needed newstands and bookstores and record stores. A huge part of their businesses were devoted to how products were manufactured, distributed, and marketed in these physical venues. Thousands of people dedicated their careers to learning the skills needed to be successful in these markets.

And then everything changed. But those thousands of people and their companies have had trouble keeping up with this change. So we have seen the bookstores, the video stores, and the record stores close. We've seen newspapers and magazines go out of business. And after all of this change I still visit companies in the IME industry who are steadfastly clinging to the old ways of doing business, perhaps not even knowing (and certainly not acknowledging) that they are on the edge of disaster.

Ernest Hemingway is credited with coining the saying about change (he was talking about bankruptcy) that it happens:

"Slowly at first, and then all at once."

I heard this quote for the first time while attending a talk by Andrew McAfee, a professor at MIT with a new must-read book entitled "The Second Machine Age." In this book Andrew and his co-author Erik Brynjolfsson outline in detail how the world is rapidly being transformed by digital technologies. If you weren't convinced already, and even if you are, this is an excellent book to read to get details and pragmatic implications clear.

The basic premise of slowly at first and then all at once explains in part why companies and industries are not more clear on the change that is occurring and what they should be doing about it. In your company have you looked carefully at the fundamental changes that are occurring which will, slowly at first and then all at once, invalidate your current business and operating models?

For IME companies the changes can be summarized by three really important transformations having to do with production, distribution, and business models. There are also implications that these three things have on marketing, sales, and service -- all of the core interaction points that companies have with markets.

An interesting facet of the transformation that is occuring is that SMAC rewards the smallest producers AND the largest while invalidating the business models of those in the middle, at least those in the middle that continue to operate independently rather than forming new kinds of business ecosystems. In IME what this has meant is a growing movement across all categories of information products where individual producers have taken control of their own future and are self-publishing. Books, music, games, and even movies can now be produced by an individual or a small team. Distribution can be through social networks or can be accomplished by leveraging cheap or free digital infrastructure provided by an industry that is adjacent to the IME industry -- Internet companies like Google and computer companies like Apple.

But before we simply assume that all media companies will perish at the hands of small producers, its important to recognize that something else is happening as well -- companies that understand how to leverage at massive scale all of the information available about what people are reading, listening to, playing and viewing are also positioned well to succeed because they will become smarter and faster than their competition about what it is we want, what we will pay for, and how to curate our social communities around content in order to excel at the new digital distribution channels.

Big media companies need to recognize the change in the three areas of their business that drive a transformation in how they do business:

1) Digital distribution of content means that an entirely new set of capabilities are needed inside the company -- no more managing printing presses or boxes of books going on to bookstore tables. Instead companies need to understand how to correctly position content into the digital flows of their customer's lives. Its not just about knowing how to generate a Kindle formatted book. Its about how to engage in curating the social communities of interest around the book's topic so that the pull engine is created around each media element. That requires a rethinking of product packaging -- how can a book, song, game, or movie be deconstructed into hundreds of information elements that contribute ultimately to driving demand for the full product? How will these individual parts be distributed into all of the social and mobile distribution channels that exist and how will the be targeted to the right communities of interest? And how can the publisher partner with and empower the creators to collaborate in supercharging this distribution?

2) A direct result of the first point is that marketing and sales has to be radically transformed into an organization that is building communities -- if you are a book publisher, do you have a community of people who like science fiction mysteries with a romantic twist? There is a market and if you have built a community around this niche you can be of enormous value to the authors of such works, thus remaining in the middleman "publisher" role instead of being disintermediated by cheap or free digital distribution. What is the business of publishers anyway whether books, movies, games or music? It has always been to provide access to markets and social communities are the new markets. It will be a lot more valuable for media companies to look at community curation as a core capability than as something distributed down to the individual media property level as community knowledge and curation capabilities can be leveraged at scale.

3) And that means in order to succeed in this second area of transforming marketing and sales, companies need to start taking data and analytics a lot more seriously. This is where scale will continue to have an advantage. Why is it that Google still has better search results than any other search engine? It is because they see every search and know what we have clicked on, so they can do a better job than anyone else in learning what a good result for a given search is, based on our actual behavior. Apply this to every information type -- what can you learn about what people are reading, viewing, playing, or listening to and how much more valuable will your insights be if they are at a massive scale? Your media company can know exactly what the next hit will be if you have enough data to usefully apply predictive algorithms.

How many media companies have taken on these three challenges? Build digital distribution competencies, transform marketing and sales into community development, and invest in big data and predictive analytics... and make these core assets leveraged across the business, not isolated and independent efforts by different brand and product managers. How about your company and your industry? Are there lessons here for you as well? Every industry will be caught up in this torrential change. Are you ready for digital transformation?

2014: Year of the Code Halo

This article first appeared on Social Media Today on January 10th, 2014 - 2014: Year of the Code Halo

Is your social data a “digital exhaust,” a “data shadow,” or part of a “Code Halo?”

Pundits are enthusiastically predicting that 2014 will be the Year of the Internet of Things or the Year of the Connected Home or even just the most interesting year in technology for a long time. Yet, the one thing overlooked is how organizations can make meaning from data generated by all of our personal activities, as well as all the code that surrounds all of the people and organizations we interact with. In fact, making meaning from what we call Code Halos has passed an important maturation point and is now creating a whole new ecosystem of interconnected technology enablers and business opportunities for enterprises that see Code Halos as the essence of their competitive advantage.

All of these exciting new trends have their roots in the data that surrounds each of us, the physical objects we use, the places we use them, the organizations we interact with, and the “collisions” between them — but it is in the tools we add to understand this data that the real value emerges.

Code Halos is the term that we at Cognizant have coined to describe this new capacity for meaning making. And I am willing to predict that you will want to know a lot more about Code Halos during the course of 2014. They are going to reshape the way we develop company strategy, product development plans, define how we engage with partners and customers, and even how companies organize and manage employees.

I think the first time I heard someone referring to the data that accompanies our activities online as a thing in itself it was around 1999 — it was Ann Winblad who, in reviewing a company I was proposing as an investment to her, talked about how we might capture the value of the data left behind the use of our service as opposed to making money on the use of the service itself. More recently some have taken up using the term data shadows to describe the stream of information we each leave behind us as we interact digitally.

While the existence of the accumulating data itself has been understood for over a decade, we haven’t always thought clearly about how to make meaning from the evolution of this data it, nor have we considered and its importance to our businesses. Yes everyone has “big data” on their radar screen and some have even recognized the importance of little data. But what, you may ask, is new about a “Code Halo” and why should we be taking stock of this concept today?

The crucial difference between the way that we have been thinking about data and the way we need to begin thinking about Code Halos is in our understanding of the relationship between the data and the things, places or people that generate the data, and in what happens when they interact (or “collide”). You can unlock a whole new way of thinking about your company, your products, and your customers when you make this simple switch:

Rather than thinking of data as something we “leave behind” instead conceptualize it as something that “we carry with us.”

There is a progression here in thinking about “exhaust,” to thinking about a “shadow,” to thinking about a Code Halo. The richness of Code Halo as a metaphor is that it evokes something that is ethereal but at the same time surrounds and enriches the person, organization, place or thing. A shadow is a mere two-2-dimensional representation of who we are. But a Halo is a part of us and even makes us more than we are just on the physical plane.

At this point you might be saying, “so what, why are the words so important -- why do I care about the difference between exhaust or a shadow or a halo?” In my experience, how we use language is a crucial part of how we formulate our perceptions and creatively interact with one another. If I tell you that I have a phone, you might think that I am going to be able to make a call. If I tell you that I have a smart phone, you’ll know that I can also access the Internet.

If you imagine that that your business has access to all this “exhaust” from social interactions you might, as Ann Winblad did in 1999, imagine how that exhaust can be processed into “digital oil” and reused in aggregate to generate insights or “fuel” other value-creation engines. Knowing in the case of my long ago company how certain advertising worked online with certain kinds of content might, for example, improves the way advertisers plan their ad campaigns (yes, someone else beat me in building that idea into a company…)

If you instead look at your customers as having “digital shadows” you might look at their social interactions as being pale representations of each of them, perhaps informing you to some degree on how you can improve your sales pitch or increase a customer’s satisfaction.

But stop for a moment and imagine the data as a Code Halo around your customer — the rich and living combination of transaction data, social data, data held by third parties and a set of analytics that brings a layer of meaning about how we are interacting with other people, organizations, places, and things. And then recognize that each of those organizations, places, and things also has a rich and living halo around them — or could have one if we were smart enough to be able to create, share and derive meaning from them.

If you could see all of these halos, and even enable them in your own products and services, how would you change what your company delivers to your market, how you do sales and provide service, and even how your employees work?

If you could see these Code Halos and understand what happens when they intersect with one another, what new opportunities could you imagine?

Enterprise Transformation and the Role of Social

This article first appeared on December 10th, 2013 in Social Media Today: Enterprise Transformation and the Role of Social

Social is sending a shockwave through the enterprise and challenging organizations to rethink the way they are organized and how all of their processes work -- both internal and external. This is part of a bigger trend, often referred to as "digital transformation." In short digital transformation is the process by which organizations are rethinking all of their activities in light of the increasing capabilities of information technology, eliminating the non-digital elements of those processes, implementing new social, mobile, and cloud enablers, and retraining their employees.

But digital transformation is frightening because in rethinking our organizations and the way we work, all of the dysfunctional elements of our current organizations are surfaced. For the first time we are asking, why aren't the CMO and CIO on speaking terms? Why do we manage our service centers as costs to the business that need to be driven down as opposed to recognizing that they are marketing and sales channels to create a more positive brand image and upsell our customers? Why can't marketing and sales agree on the definition of a "lead" and have a consistent process for managing them? Why doesn't R&D ever speak to sales about what customers are saying about our products?

These and hundreds of other similar questions surface when we begin to use technologies like enterprise social networks to connect our employees to one another across organizational boundaries. The repercussions go all the way up to the C-Suite and require a thoughtful strategic answer from leadership to this question -- should our company work and be organized differently in a post-digital world? Not just a veneer of process changes but deep and fundamental changes that make us think differently about how value is created for our customers, how our products or services are created and delivered, what the motivations are for our employees to be engaged in and passionate about the company's mission? Should we be inventing a new organization and implementing a new set of measurements at the same time that we are implementing "digital" technologies?

The best companies have embraced this challenge and will look very different five and ten years from now than the way they have looked throughout the previous decades. The M-Form corporation has served its purpose and we now have the opportunity to create a new form - the connected enterprise. This challenge must be led by the c-suite to be successful because it will change the fundamental power structures in organizations -- how budgets are allocated, how people work with one another, and perhaps most importantly - how companies engage with their customers.

The future belongs to companies that are able to think Outside In -- understanding how their customers see them and organizing their business processes to suit customer needs and expectations instead of the "efficiency" of their own businesses. Every function within a company has a role to play and is a part of the network that creates value for customers. Every function will have to think through that role though the Outside In lens.

The role for social in this process is three fold:

1) Connect your employees - invite them to start working together to understand the connected enterprise future

2) Connect to your partners - they also have a critical role to play in supporting the future of the connect enterprise

3) Connect to your customers - listening and talking with (and not to) your customers is the key to knowing whether you are really understanding their needs and expectations, and are forming a realistic Outside In perspective.

Social media, public social networks, enterprise social networks, customer communities -- these all have a role to play in your journey toward becoming a connected enterprise. In my next article I will outline an incremental approach to success in transformation.

Paying for the Hyperloop

By this time you have certainly heard about Tesla founder Elon Musk's proposal for the Hyperloop -- "...a new mode of transport – a fifth mode after planes, trains, cars and boat..." and you might be wondering, as I am, when the darn thing is going to be built already! Are we really worried about the investment? Can't smart state political and economic players come together to make this happen?

After all, it is quite hard to argue with the basic point that Musk raises -- that a high speed train between LA and SF does little to change the state's economy since it is not faster than flying (though it certainly has better environmental qualities) while the Hyperloop value proposition, reducing travel time between these two cities to 30 minutes, would fundamentally alter the state's economics.

First of all because a fast link between these two metropolitan areas will radically increase human interaction - tightly connecting the center of global technology innovation and the center of global entertainment and increasing and accelerating interaction between them. This will generate new businesses, cause new ideas to be developed, make it easier to integrate technology and entertainment and sell the results to a global market. Hyperloop will be a substantial competitive advantage for California.

Second because whichever company first perfects the Hyperloop will have an immediate global market to deliver these systems to other "high traffic city pairs that are less than about 1500 km or 900 miles apart." This too will bring an economic boom to the state of California if we can build them here first and then sell our know-how to the world.

But these are long term economic benefits and are difficult to quantify. While they (like the benefits derived from many infrastructure projects) would justify the needed investment in developing and building the Hyperloop, it is difficult to form public policy on these general economic benefits. Thus Musk has reasonably built into his analysis how much of the ticket cost would be needed, over 20 years, to recoup the development cost (about $20 per trip). But I believe there is another path to paying for the Hyperloop, one that we can easily execute on with visionary State political leadership and aspirational business leaders.

In Elon Musk's proposal he envisions a system that connects San Francisco and Los Angeles and perhaps in the future Sacramento, San Diego, Fresno, and Las Vegas. But the specific location in those cities is not considered. It stands to reason though that Hyperloop stations will be exceedingly valuable real estate -- living and working directly over a Hyperloop station eliminates the time and trouble of getting from somewhere else in that metropolitan area to the Hyperloop in order to start the journey to another city. Ending your journey at the business you want to visit eliminates the trip out of the Hyperloop station to wherever you needed to get to.

So imagine for a moment the incredible opportunity that the state has to play property developer -- what is the value of a mega-complex with shopping, offices, and homes situated directly over and around each Hyperloop station and thus connected to mega-complex locations in each of the other cities?

As a benchmark, the developer Larry Silverstein is obligated to pay $102 million per year in base rent to the NY Port Authority for the space which holds the World Trade Center. The actual lease value of the Hyperloop stations might be significantly more than that, but a construction bond sold today against a 50-year lease for two stations with combined annual income of $200 million per year in today's dollars (with increases for inflation) would generate more than enough money to build the Hyperloop. In Musk's plan he estimates construction costs at $6 billion for one tube with 40 cars. At just the World Trade Center lease value, the station real estate is worth $10 billion over 50 years.

Realistically the footprint for a Hyperloop mega-complex should be much larger than just the World Trade Center -- something more like all of downtown Manhattan at many multiples of the WTC lease value. Developers would be eager to create these new cities within the cities. In the Bay Area the old navy airbase in Alameda is available. Near Los Angeles it might be the Los Angeles Air Force Base although many other sites exist and are in public hands already, avoiding the need to use unpopular eminent domain laws (although this might also be needed).

What are we waiting for?

The Customer Agenda is the C-Suite Agenda

If growth is the CEO's key agenda than the CEO should be asking the company's management team, "what are we doing to address the Customer Agenda?" And should be developing a dashboard of key initiatives that support three imperatives and measure the impact on the business -- (1) OUTSIDE IN, (2) INSIDE OUT, and (3) DIGITIZATION.

1) Who is looking OUTSIDE IN and understanding how our customers see us and what they want from us? Are we developing a rich customer experience strategy? Have we implemented customer journey management? Do we have a guiding consistent brand narrative?

2) Are we turning our company INSIDE OUT and breaking down the silos between the different teams that are customer facing? How are we doing on collecting information, developing insights, and improving our ability to experiment? Do we know what the new business models will be that we need to organize our company's processes and people to serve?

3) Have we started enabling our products/services and delivery experiences through DIGITIZATION? Are we embedding sensors, instrumenting services, providing controls and integrating rich information? What partners are we connecting with in a stronger ecosystem? How will we develop the discipline to continuously innovate?

Does it make sense for every company to have a "Chief Customer Officer?" Not necessarily. But every company should have someone in that ROLE even if the title isn't needed. As Paul Hagen wrote for HBR:

...these individuals serve as top executives with the mandate and power to design, orchestrate, and improve customer experiences across the ever-more-complex range of customer interactions.

Customers now expect to be able to interact with our companies through any channel at any time to achieve any objective and have us know who they are, treat them consistently, and serve their needs fairly, efficiently, and ideally in a manner that surprises and delights. Meeting that expectation will require integrated customer experience connecting all of the functions in the enterprise that touch the customer: marketing, sales, service and even R&D and operations. Getting all of those separate teams and leaders to work together toward this goal has to be the CEO's agenda.

Three Imperatives

Every company in every industry faces an imminent and urgent challenge to address three imperatives and respond to a once in a lifetime transition -- from an industrial economy to a computation economy. I don't mean to say that this is a change that will be apparent in one year or three years, but if organizations hesitate to embrace the change that is upon them they risk falling behind over the coming decade of digital transformation. These three imperatives are related to:

(1) Customer expectations are changing and with them the underlying operations of markets will transform.

(2) The definition of competition (and of competitive products and services) is changing and with it -- who competes with whom, where they compete, when they compete, and the business business models that govern that competition.

(3) How real value is created is changing and challenging all of our assumptions about how our organizations function in the process of innovating, producing and delivering products and services.

Many have recited the list of businesses that have fallen from leading positions to irrelevance. The leaders of those businesses failed to anticipate the macroeconomic changes that would engulf their industries. But we need not blame those leaders for their failure -- not while we ourselves are also failing to anticipate the impact on our own businesses.

It is easy to underestimate the transformation underway or to believe that it can happen to someone else but not to our own industry or company. While it might be that one industry (media, technology, retail...) is impacted why should we believe that another (automotive, industrial products, business services...) would be? We are simply not equipped to recognize the larger structures -- the macro trends that are remaking the very foundations of our civilization.

There is a precedent for this -- In 1776 Adam Smith published An Inquiry into the Nature and Causes of the Wealth of Nations a work which was itself derivative of a set of thoughtful contemporary economists. Together these early thinkers explained a transformation that was largely a product of mechanization. This process began perhaps as early as 1725 with Basile Bouchon's first improvements of the draw loom or even earlier with the first demonstrations of a commercial use of steam engines by Thomas Savery in 1698.

Today we can with 20/20 hindsight look back on these thinkers and see that if the leaders of that time, say George the III (King of England), had understood the macro trends of his day that he would have implemented a different course of evolution for his organization. Giving proportional representation to the American colonies in Parliament, for example, could have averted the American Revolution. But he didn't believe that these new ideas might fundamentally change the importance of the monarchy and so instead his "business" found that the "market" had moved on and his monarchy became irrelevant...

200 years later a new transformation began, the result of computation. We are now well into the new macro trends (think mainframe, minicomputer, personal computer, Internet, mobile computing...) and yet like George the III many business leaders are ignoring the implications of the new economy or think that somehow it won't apply to them.

But it will apply -- these trends will remake every industry and every company.

In order to navigate the transformation underway, leaders must make the right decisions to guide their organizations through the three imperatives or risk joining the ranks of those that have lost their footing and eventually fallen from success to irrelevance.

First - Customer Expectations - Leveling the playing field

The computation economy gives individuals information and connectivity that transforms the role they are capable of playing in the marketplace. Where the industrial economy was dominated by producers, the computation economy levels the playing field and gives individuals more power in the marketplace interaction. As a result there is a fundamental rethinking of what marketing is and the role it plays in an organization -- integrated and collaborative with sales and service in creating an overall integrated customer experience.

Second - Digitization of Products and Services -- Integrating information into everything

Every product, every service, and the ways in which those products and services are delivered and consumed by customers will be transformed by computation. Bring external information into a product. Collect information from the use of the product. Instrument the delivery and service experience... technology gives both customer and company new ways to enhance the usefulness and value of the product or service, connecting customer and company throughout that delivery and consumption experience. What new controls or insights can the customer have? Or the company?

Third - Operational Transformation -- Remaking how we work and who we work with

Organizations must develop a new set of competencies and disciplines and break down organizational barrier -- both internally within functional groups and also externally with vendors and partners. There is a new operating model, a networked organization that is agile and operates at a faster speed...

Over the next few posts I will detail the work that organizations must do to address these imperatives. Every company is somewhere on the journey toward a new condition, a new state of being. Accelerating progress toward that new state will be the measure of difference in success for organizations over the next decade. Maybe I'll even make T-shirts:

"Don't Be George III"

Building a Customer Solutions Practice

1. Features vs. Benefits

2. Three Imperatives

3. ...

Features vs. Benefits

Marketing professionals often struggle with the "feature vs. benefit" dilemma when developing a plan to promote their products and services. But the problem can be followed back one more step to the developers of products and services. Rory Sutherland in his 2009 Ted Talk "Life lessons from an ad man" provides a great example of this, comparing two different approaches to the length of the Eurostar train journey from London to Paris. The approach of the engineering mindset is to shorten the journey by improving the track quality to allow the trains to run more quickly. Rory offers an alternative scenario that gets at the underlying customer experience question. The "feature" may be length of journey, but the value is in the quality of the experience, so Rory proposes an alternative service improvement that creates a "benefit" for travelers without changing the trip time (watch the video to hear his suggestion).

Building a consulting practice presents a similar challenge. It is quite easy as a consultant to focus on the thing to be done for a client, for example "install a new CRM system." This is the feature, not the benefit. Sometimes consulting takes on an appearance of benefits by breaking down the task into other tasks that appear more focused -- "gather business requirements, CRM Strategy, vendor selection process..." but really these are just more features. The key to defining a set of services for a consulting practice is to identify the underlying business issues and how real value will be delivered. For example a company wanting to replace its CRM system might be evaluating how to improve sales efficiency, which could include a lot more than just a software package. Delivering the benefit (or shall we just say, the RESULTS) in this case is about reducing sales cycles, improving close rates, increasing customer satisfaction... and that might be accomplished through new collaboration models, compensation changes, sales training, connecting sales to other functional areas, changing the channel strategy...

So developing a "feature" service that offered a client a "CRM Implementation" would miss the real opportunity to serve that client through a focus on real results. Having a "home run" for a consulting business is about understanding your clients and what their real challenges are so that service offerings can be focused on delivering results.

Building a Customer Solutions Practice

1. Features vs. Benefits

2. Three Imperatives

3. ...

Building a Customer Solutions Practice

One of the people I have been very influenced by about marketing and the role of marketers is Yum Brands CEO and chairman David Novak. His thinking is applicable across brands and industries well beyond Yum's restaurant niche. Here in QSR magazine he gives one of his thought provoking statements:

My marketing mantra for the organization is, “What consumer perception, habit, or belief do you have to either change, build, or reinforce in order to grow the business?” I think that when you truly listen to the voice of the customer and answer that question, you’ll have a home run.

Unpacking this is a handful. Each word is worth savoring -- when was the last time you thought about your customer's "perception, habit, or belief" and how have you connected this to a set of customer experience competencies in your business that can "either change, build, or reinforce" them? To my mind this is central to the CEO-imperative of a customer-centric business. A business where all of the functional organizations that touch the customer are connected and working together -- leveraging shared capabilities toward a common purpose: grow the business. And I love the plain spoken colloquial advice that when you do this, "you'll have a home run." Follow along over the next few weeks as I think out loud about how to develop a home run for the Customer Solutions Practice at Cognizant...

1. Features vs. Benefits

2. Three Imperatives

3. ...

Vice President, Consulting - Customer Solutions Practice at Cognizant Technology Solutions

Today I begin a new adventure. I have the privilege to have been asked to join one of the fastest growing large companies in the world, Cognizant Technology Solutions, as the head of the Customer Solutions management consulting practice. For those of you who would like to contact me directly at my new work address you can do so here: ted.shelton (a) cognizant.com As this is my first day I am in listening mode and getting to know the terrific team of people here at Cognizant. Stay tuned for development!

Moving on from PwC

After almost two years with Pricewaterhouse Coopers I have decided to start something new. My last official day of employment with PwC was this past Friday, August 9th. I am taking a little bit of time off and will post information about my new position once I get started there. In the meantime, I wanted to thank all of the tremendous people at PwC for having given me the opportunity to work with them. I truly was honored to be a part of this great organization and it was a very difficult decision for me to leave. While I have quit jobs that I hated with no remorse, this is the first time that I have quit a job that I loved -- and I know I will miss many of the people I met and worked with over the past two years. PwC does a great job hiring people who are smart, hard working, care about one another, and care about delivering very high quality services to their clients. I learned a lot being a part of PwC and I wish the best for everyone who remains. Now for me it is on to a brief rest and then a new adventure which I look forward to telling all of you about very soon!

Social Media Maturity Model

We have been working closely with PRTM (now a part of PwC) to analyze our experience in working with clients on Social Media implementations and combining them with the results of a survey we recently completed on global enterprise adoption of a wide array of social technologies. Attached is a presentation providing a quick overview of our results:

Social Media Maturity Model

View more presentations from Ted Shelton

All About Gemz Loyalty Program

One of the most exciting projects we have undertaken during my time as a consultant with Open-First was to work with Bryan Pearson, CEO of Loyalty One, on thinking through the future of loyalty programs. For 30 years Loyalty One has run a program in Canada called Air Miles Rewards. The question we began to wrestle with was whether the coalition model that Loyalty One had pioneered could be applied to local neighborhoods.

To try and answer this question we have launched the Gemz Loyalty Program. Focusing on locally owned businesses in neighborhood shopping districts, we have designed the program to be easy for shoppers and merchants to connect in a mutually beneficial relationship that encourages people to spend more money in their own local neighborhood.

Put simply -- every neighborhood wants main street to be successful. And yet, every day we find ourselves spending money online or at a chain store where we might get a slightly better price or more convenience, but we lose the benefits inherent in supporting local merchants. What are these benefits you ask? Civic Economics is one organization that has studied this question extensively and has conclusive evidence from multiple cities that shows the enormous economic impact that locally owned businesses have on local communities.

If our local merchants are more successful, we will have more vibrant cities, with higher sales tax revenues, leading to more city services and thus higher property values. The perceived savings of buying online or at a chain comes at a huge local cost.

Gemz aims to change all this by giving local neighborhoods a tangible benefit from shopping at local merchants on their own main street. By using the Gemz Application on a mobile phone (currently only Apple's iPhone) while shopping, customers of local stores can accumulate loyalty points (or Gemz) each time they shop at participating merchants. Think of it just like the airlines where every mile you fly earns points -- in a Gemz neighborhood every dollar you spend earns points. Shoppers save up for rewards, that are also offered in the local neighborhood.

For a merchant interested in offering the Gemz Loyalty Program, signing up is very easy. Any merchant can offer points to local shoppers through a printed coupon or from a mobile device.



Merchants can also elect to offer rewards to Gemz shoppers which can be in the form of free or discounted products or services. When local merchants accept Gemz from a customer though, they can redeem the points for cash -- making this a sale for the merchant even though it may be a free offer to the shopper.

In the months ahead we expect to launch dozens of neighborhoods but we have started in the Elmwood shopping district of Berkeley CA. Our second neighborhood is Menlo Park and we are expanding every few weeks. We know there is a lot for us to learn still about the loyalty business and how to help local merchants succeed, but what started out as a small experiment is now thriving and producing exciting results for everyone involved.

Zero Labor

Back in January I wrote of the difference between "silicon valley" and Detroit and compared two different visions of a resurgent US economy -- one in which we "get back" the manufacturing jobs we have lost and the other where we recognize that the real driver of 21st century economies is innovation. This morning I saw two articles from Seth Godin (care of my friend Brett Bullington via Facebook) that made me want to revisit this conversation.

In the first, The realization is Now Seth writes:

...we're realizing that the industrial revolution is fading. The 80 year long run that brought ever-increasing productivity (and along with it, well-paying jobs for an ever-expanding middle class) is ending.

In part 2 Seth talks about how The opportunity is here:

The exchange of information creates ever more value, while commodity products are ever cheaper. It takes fewer employees to generate more value, make more noise and impact more people.

This is of little consolation to someone hoping to have a good job using their muscles to create value. But we can understand what is happening to the industrial economy by examining what has happened in the agricultural economy over the past 100 years. In these graphs (from this site) the decline of employment in agriculture in the US can be seen in the context of the simultaneous increase in farm productivity:
At the same time that employment was plummeting, farm productivity was exploding, resulting in enormous growth in output from US farms.

The underlying transition was a technological one -- from the physical labor of man and beast to the technical "labor" of tractors and chemicals (fertilizers, insecticides, etc). And fortunately for the health of the human species these advances continue and are being replicated throughout the world -- without this productivity improvement we would not have the means to support our global population of 7 billion people.

The same productivity enhancements that have transformed agriculture have also, for the past 100 years, been transforming manufacturing. Machines are increasingly more sophisticated and are informed by computation, not just mechanization. While the trend in the last few decades of the 20th century was to move manufacturing to economies with low labor costs, the trend in the next few decades will be to eliminate labor altogether.

An example of the sophistication of computation applied to tasks traditionally requiring human labor can be seen in this IEEE Sprectrum video on warehouse automation:

Kiva's robotic warehouse pushes human labor to the edges, and isolates their contribution to just that portion which requires the most intellect -- visually confirming that the selected objects are correct and match the customer's order.

In this same way we will increasingly see manufacturing coming BACK to the US, but with ZERO LABOR as the core model for making things profitably. We have exhausted the "cheap labor force" model - mechanization, automation, computation, and robotics are the chain that progresses manufacturing productivity into the next few decades. And where does that leave human beings in the new economy? Back to Seth Godin:

Right before your eyes, a fundamentally different economy, with different players and different ways to add value is being built. What used to be an essential asset (for a person or for a company) is worth far less, while new attributes are both scarce and valuable.

What are these new attributes? "Art and novelty and innovation." Seth writes. That is going to require education, engaged thinkers, and a new set of disciplines (and structures) for our society. This is the world we need to be investing in and the US can be a leader once again if we seize the opportunity provided to us by the computation economy.

Silicon Valley Vs. Detroit

There are two very different ideas in the USA about where value is created in our economy. I frequently hear what I will call the "Detroit" perspective that we need manufacturing jobs in the US because, gosh darn it, everything is being "made" in China (or some other country). When Barack Obama was running for his current job I attended a fundraising dinner (in Silicon Valley) for him and he defended Detroit, the auto industry, and all of the jobs there when a question came up about his commitment to the environment (and anticipated policies toward electric cars). So it was nice late last year to hear Barack Obama say that "Steve Jobs is living the American Dream."

Which is somewhat short of understanding that the driving factor for the US economy (and job creation, Mr. President) is NOT manufacturing jobs, but instead is intellectual property.

First lets take manufacturing. Atoms. What differentiated value is there in the labor component of manufacturing?

Virtually nothing.

Therefore labor will first move to the lowest cost provider and second be eliminated (eventually altogether).

What you say? Eliminated?

Yes - the history of the industrial revolution (and the agricultural revolution) has been to replace the need for human beings by automating and mechanizing production. Produce more with fewer hours of human labor. Eventually robotics will eliminate 100% of human labor and routine and repetitive tasks will be done by machines so much more cheaply than humans can perform them that our children's children will wonder what we were thinking when we talked about manufacturing jobs (just as our generation has no idea what people on farms do anymore).



Furthermore, and now let us switch to intellectual property (bits), the majority of the value in the goods we consume in the developed world comes from the BITS and not the ATOMS. We pay a lot to Apple for the DESIGN of the iPhone, not for the physical atoms used to construct the phone. We pay more for blueberries prepared in a smoothie than in a bag from the freezer aisle. We pay to see Sandra Bullock win an oscar for her performance in Blind Side and not for some physical medium delivering the movie.

We need to understand how to build an economy that does a better job of promoting the creation of (and appropriate protection for) intellectual property. This is the 21st century imperative -- not manufacturing jobs. We need more products DESIGNED in the United States -- wherever they may be manufactured.

If you really want more things MADE in the US (as opposed to designed here) then one of the things we should be designing (and investing in as a country) is the fully automated manufacturing technology that brings production back to local markets - with zero labor.

But Detroit is not going to lift our economy to the next level. Silicon Valley will.

Silicon Valley comes to the UK (SVc2UK)

Folks following me on twitter (@tshelton) know that for the past week I have been sporadically commenting on #svc2uk or sometimes #svc2c (Silicon Valley comes to Cambridge). Last week was my third time joining this trip, organized again by the fabulous Sherry Coutu (@scoutu) and Reid Hoffman (@quixotic). 4 days and series of events that puts us in touch with 2200 people in London and Cambridge from government to industry to education... it is truly an amazing experience. As Teamly founder and CEO Scott Allison (@scott_allison) tweeted:

What makes #svc2c special: the accessibility and willingness to help of the experts. Quite unlike other conferences!

I think that is a key to what makes this event so special for both the folks from Silicon Valley and the UK attendees. When you look at the amazing group of people that came over (speakers list) you can understand something about how special this event is -- sitting at a table with the head of engineering for Facebook, the head of engineering for LinkedIn, senior folks from Google, the executive director of Mozilla, CEO of creative commons... and the list goes on.

A few things I learned about my follow SVc2UK attendees:

August Capital venture capitalist David Hornik (@davidhornik) has a degree in criminology from Cambridge University (and is happy he has never had to use it as an investor!)

Nancy Lublin's (@nancylublin) organization dosomething.org has motivated over 1 million kids to become active toward some social good this year.

Creative Commons CEO, investor, and all around amazing guy Joi Ito (@joi) went to the University of Chicago during the exact years I was there (he was in the physics department and I was over in philosophy...) and also didn't graduate! I told him about how I successfully completed my degree 25 years late (class of 2009, yeah!) and he is now going to try as well...

Google's Megan Smith told us that Google is spending $140 million this year alone on socially relevant activities through their non-profit arm google.org

Other funny moments and quotes:

Megan Smith at NESTA's "Big Data" discussion "Get your data online and don't get caught in the PDF ghetto!"

UK Minister Willetts supporting more open immigration policy: "More than half of new tech from Silicon Valley were built by people not born in US"

Reid Hoffman: "Trust relationships between people are key to how business is done"

Also Reid: "'A startup is like throwing yourself off a cliff & build a plane on the way down"

And one last one from Reid: "Work fast to solve the hardest problem first. Because if you can't solve it, you need to pivot"



Other great links:

Mozilla Exec Director (and now Greylock VC John Lilly's Talk at the House of Commons

Mark Littlewood of BLN blogged the panel about what the world will look like "If my company is massively successful..."

NESTA put up videos of a bunch of the speakers...

The Telegraph's Milo Yiannopoulis (@nero) "Cambridge starts taking the internet seriously"

Looking forward to next year!!

Five Modalities Model of Community Development

When considering community development as a part of marketing activities, corporations often forget the most basic requirements of inter-dependency and value creation. In 1986, researchers McMillan and Chavis wrote about defining a sense of community that it must have the following elements:

1) membership, 2) influence, 3) integration and fulfillment of needs, and 4) shared emotional connection.

Too often companies simply believe that a "community" is a cluster of people who expressed interest in their products or services, and that this can constitute a sufficient connection to continue to communicate AT these people.

Instead, companies must consider how they can bring value to the people of a community, not just expect value from those people. We have identified five core ways that companies can bring value to people and can develop this sense of membership, influence, integration, and sharing that is crucial in community formation. The first two, the easiest and most common, only allow a company to earn attention, even when they are accomplished in a context of "co-creation." But the other three modalities are much more powerful and can form the basis of a long-lasting relationship for a company with its customers and prospects.

These five approaches can be used both when a company elects to create its own community and when it engages with existing communities. While we have developed the use of these approaches in online environments, they are as valuable to consider when engaging in the physical world.



ATTENTION
There are two modalities useful in earning the attention of an audience, we call them "entertain" and "inform" although often (as with all five) they can be used in concert. The better the content, the more valuable it will be to an audience member, and the more likely it will be to result in some sort of response -- whether it is through sharing (passing the company's message to one's social graph) or through co-creation. A "better" content will be one that is in itself more entertaining or more informative, but also one that is more tuned to the needs of the people consuming the content as opposed to the desires of the company to achieve some transaction.

• INFORM -- In its most basic sense, informing communications are ones that help educate people about something whether it be a product, service, or the problem that such product or service addresses. For example, a company that sells do-it-yourself home repair supplies might simply advertise the low price of lumber available at their store. While this would be a form of "information" it is of transitive value and only relevant to those immediately in need of the particular goods on sale. Instead such a company could construct a website answering questions about how best to do various repair or construction projects. How, for example, to use that lumber to build a treehouse.

• ENTERTAIN -- Getting people to laugh has been a mainstay of advertising since virtually the first commercial messages were distributed. Whether as humor, spectacle, or narrative the notion that an advertising message can be coupled with some kind of entertaining content is well worn and works in the social space as readily as in other mediums. Finding those opportunities to create an entertaining envelope for your ad message which is also adopted by a community is somewhat more difficult than the onanistic pleasure we get from a good commercial on primetime TV. But a number of simple mechanisms are evolving.

ENGAGEMENT

But far more interesting than merely using this new social "channel" to recapitulate the attention models of old marketing, social technologies provide the opportunity to shift the model -- from one in which you as the marketer are seeking an audience, to one in which interested parties find you. This reversal is truly the core of understanding the current marketing revolution and why the old mechanisms will continue to decline in effectiveness while a new science of market engagement is needed.

The new engagement modalities provide a circumstance for a relationship to develop between a company and its customers (or prospects). Broadly speaking there are three possibilities:

• SUPPORT -- Facilitating the customer's experience of a product or service, typically by hosting an open collaborative space for customers to interact with each other. This can be moderated, mediated, or merely contributed to by the company with the objective in any such participation being to enhance the quality and credibility of the discussions. So for example, providing more accurate information is good, deleting an accurate (though negative) comments is bad...

• CONNECT -- Helping members of your market connect with one another hopefully toward some purpose that is related to the company's product or service. This can be as simple as hosting content and community on related topics or as sophisticated as providing a matching system that allows participants to identify themselves to others with compatible interests or objectives.

• COLLABORATE -- Truly the most powerful of the engagement modalities, when you can collaborate with your market, or at least help them to collaborate with one another, you provide the greatest (and most lasting value). As with any of these approaches, it is more powerful when directly related to the company's products or services, but this is also a place where "corporate social responsibility" elements often can appear.

These five approaches to building community should be used in combination, and the "devil is in the details" in getting the right strategy and execution. But this brief outline is at least a useful filter to apply to your organization's social activities and a useful starting point to ask questions about whether your current strategy is right or whether it is time for some new thinking. If the latter, let us know as we'd love to help -- Open-First.

The More You Give The More You Get

Last week I had an opportunity to present one of our client projects at the Social Fresh conference in Charlotte, N.C. (Slides below). One particular item that came out of this project (slide 17 if you want to jump ahead) is worth exploring in more detail because I think that it illustrates a general principle of networked systems, what I'll call "The More You Give The More You Get."

For this project we needed to contact a large number of food bloggers and explain this crazy idea we had to publish a cookbook filled with appetizers, entrees, deserts, and snacks that use "brain healthy" foods. The result by the way is beautiful, the ThinkFood Cookbook. In the course of talking to hundreds of food bloggers we contacted some who had an enormous number of regular readers all the way to bloggers who had virtually no readers but we liked their style and recipes.

In communicating with all of these different bloggers we started to see this fascinating corollary which ran contrary to our expectations. We had thought that the bigger the blogger (in terms of readers) the less likely they would be to want to participate in our project. Whereas we thought that small bloggers would jump at the chance to participate in a high profile project which might bring them new readers.

The opposite was true.

The larger the readership, the more likely the response was positive! And even when the answer wasn't a "YES" the response was always positive and supportive. By contrast the most vitriolic "NO" emails that we got were from bloggers with the smallest readerships. Like this one (no need to give the person's name)

"You want us to provide you with free content in exchange for exposure? Do *you* work for free? No thanks."

Well yes, unnamed blogger, I do often work for "free" if by "free" you mean without compensation in the form of sovereign currency immediately exchanged for my labor. But I also recognize that when I work for "free" that the exposure IS a form of compensation. And that through the exposure I am likely to trigger a variety of network effects that will pay dividends in the future.

And so I put this question to you to research -- is it the lack of relative success in blogging that makes these people who don't want to give so unfriendly? Or is it their unwillingness to give (and unfriendliness) that makes them unsuccessful?

My guess is that there is a connection between being willing to freely give in a networked economy, and the success one achieves through that network -- that the more you give, the more you get.

Here are my slides:

Community Engagement Fundamentals

View more presentations from Ted Shelton.

Inaugural Techonomy Conference

This coming week we will see the birth of Techonomy a new conference and a new organization dedicated to one of the most important things we do as a species -- the exchange of ideas in search of collaborative engagement that takes those ideas further... what Matt Ridley recently called at TED Global "ideas having sex." Techonomy, like TED, brings together an amazing group of the top thinkers in the world, people like Bill Gates and Dean Kamen who are making substantive contributions to the improvement of our planet and species. But unlike TED, the founders of Techonomy are on a mission. From their website:

...here is what techonomy promotes: a rational, optimistic, forward-looking, technically savvy work ethic that celebrates technological achievement, human ingenuity, and sustainable living.

Technomic thinking -- understanding the relationship between technology and economy -- is key to the way in which our economy will develop in the 21st century. The pace of innovation, driven in this generation by the computer chip, now greatly exceeds the capacity for our linear human experience (and institutions) to comprehend. When we look at the problems we have today and calculate in 19th or 20th century terms the length of time it will take to solve these issues, we miss the profound change that the computation economy brings to our civilization.

As I prepare to travel to the Techonomy conference, I am reading and thinking about the recent Harvard Business Review blog post by Umair Haque, "Three To-Do's (And To-Don'ts) of 21st Century Strategy." In this compelling post, Umair begins his thoughts with a welcome:

Welcome, finally, to...today. The 20th century ended a decade ago, but the 21st century never began...

He goes on to explore a set of social dynamics that, he suggests, business needs to re-organize around in order to prosper in the 21st century. He identifies a strong middle class, a sustainable use of natural resources, societies which respect and protect human rights, and a need to reform the way corporations manage themselves as the key principles of the next era. To these I would add Techonomy attendee Andrew McAfee's voice and his separate HBR blog post, "IT's Three Key Organizational Transformations." He writes:

I see companies in all industries using computers to accomplish three broad and deep transformations: they're becoming more scientific, more orchestrated, and more self-organizing.

Techonomic thinking asks us to reflect on the kinds of challenges that Umair poses through the lens of technology and its capacity to transform our organizations and the very possibilities we have for solving humanity-wide problems. Andrew gives us the next few steps for how we prepare our organizations to participate in this new technology driven economy. Techonomy the conference encompasses both of these ideas and brings them together, Matt Ridley's "sex of ideas," and asks its attendees to spend the next several days working together to imagine a better world, to whose creation we can all contribute.

Welcome to today!

Rethinking Software Patents

When I was at Borland at the beginning of the decade, I was amazed to discover that the company held patents for the "tab" user interface element and even the right mouse click, amongst hundreds of others. Few of these patents ever really helped the company and we had long debates internally about what to do with them, and whether there was really anything that could be done with them. Here we were, a very successful software company, inventing many new technologies, and really getting no credit (and no protection from competitors) from the software patent process. At the time I felt that software patents were probably at best a waste of time.

Well I have just had a very frustrating few months. And my experience is causing me to rethink (or maybe to think through for the first time) my position on the software patent debate.

I am coming to see some value in issuing patents to innovative young companies in order to protect them from the abusive behavior of large companies. An established company, like Borland, was capable of pursuing market opportunity through execution. But small companies are too often frozen out of the market by bigger companies. But they can also be an enormous source of innovation -- if we want to foster this innovation from small companies, shouldn't we find a way to provide them with protection?

One client I am working with right now clearly invented something four years ago that a number of large companies have now studied and learned from. My client applied for patent protection in 2007 and the application is slowly moving through the various government processes and will likely be issued in 2011 or 2012.

But in the technology world 5 years is a lifetime. And in those 5 years a dozen companies have now taken this startup's invention and implemented their own versions.

There is one particularly egregious example of a large tech company that asked the startup for a version of the software for testing back in 2008, spent a good deal of time actually using the product, and now has (a) shipped their own version of the technology and (b) refuses to meet with the company.

So how will my client ever recoup the time and money invested in creating the innovation in the first place? The most likely outcome sadly is to sell the patents to a specialty firm, often derisively called a "patent troll." One might look at such firms as being the worst kind of lawyers - those that create no value and just seek to take value out of other, "legitimate," businesses.

But stop for a moment and think about how the firm that enforces patents is actually doing our system a favor -- they are saying to the big company that abuses its power and steals from small companies that there WILL be a reckoning day and a price to pay for this abuse. While they keep a lot of the money from the patent infringement cases, they are at least one way for a small company to someday make something back for their innovation.

And the patent enforcement practice is byzantine at best, with numerous places for a small company to go wrong and lose their ability to effectively prosecute their case. They need someone who specializes in such knowledge to help them.

I'm afraid our world DOES need patent lawyers -- as long as big companies are willing to treat small ones with such reckless disdain.

Relentless Focus and a Data Driven Culture

Wondering what Google, Facebook, Foursquare, Twitter and Zynga might have in common? Hint: something other than the creation of incredible new businesses that are enormously valuable and growing at an unbelievable pace? I have been asking myself this question and thinking about how the lessons of these five could be applied to every business. A few nights ago I had dinner with an old friend who is now a senior executive with Zynga and I put the question to him. His answer?

"Relentless Focus"

But over the course of dinner he admitted it wasn't that simple. Sure, dedication and hard work and staying on top of the right issues and opportunities was a critical factor, but how did you know what the RIGHT things are to focus on? Couldn't you just as easily fail by having a relentless focus on the wrong stuff?

Zynga is an amazing success, how amazing we can only guess until they file for an IPO though we do know they have grown to 1250 employees already and are continuing to grow fast. But my friend didn't claim that he and the other executives were just so smart that they had simply known the right things to do as they gre the company. And while he admitted that there is an element of luck, when pressed he began to talk about something very interesting, something that probably is the difference for all five of those companies. He said,

"we have one of the best data analytics guys in the world"

Why is this important? Because it represents an enormous sea change in the way business is conducted. There are companies that have truly embraced a data-driven culture, and they are rewriting the way decisions are made, issues are surfaced, and on what we should relentlessly focus on to succeed.

The hierarchical decision making process of the twentieth century promoted the best decision makers into positions of greater decision-making authority so that the smartest and most experienced (although sometimes the best political players) made the important decisions for our companies. But that isn't what happens in data driven businesses.

At a lunch with some friends on the Google campus recently one of them gestured around the Mountain View lunchroom and asked me, "do you think anyone in this room knows what our stock price is?" He went on, "most of them don't, but they do know the data on how many users are actively using their products." And people at Google relentlessly focus on this metric. Looking at "7 day actives" or how many people used your product (or feature) in the past week means that you can, each week, establish experiments and evaluate the impact that making one or another change has on usage. As has been discussed elsewhere (How Google Works infographic), virtually every search you do on Google is either part of an experiment or control group. This iterative product improvement method is well understood in web businesses because data is an inherent part of the customer experience. But the principles can be applied much more broadly.

The first task is to understand what data a given business needs to have to make better decisions. This in itself is an iterative process, with the definition of what data is valuable evolving over time. The second task is to develop the right processes to collect this critical data. Web businesses are swimming in data but often the wrong kinds, so even here there is an important job to be done which we call "incentive design." In short, how do you design your customer interactions in order to obtain the data you need to make decisions? And how do you use new social and mobile interactions to collect data you never had access to in the past.

Exposing this data inside the company is a critical step in the process -- you don't know who will need access to the data to make a decision so in a data-driven culture the company provides a powerful dashboard for all employees to explore and interrogate the data being collected. This is where the name of our company, Open-First comes from -- employees need open access to complete and accurate information in order to make good decisions. So change your culture to be open first, before you do the next step. The next step though is all about the data.

Once you have the data you can start talking about experiments that let you rapidly and inexpensively test your ideas and give you the feedback loop you need to find your focus. Andrew McAfee talks about this in his recent HBR article titled "IT's Three Key Organizational Transformations" in which he says

I see companies in all industries using computers to accomplish three broad and deep transformations: they're becoming more scientific, more orchestrated, and more self-organizing. None of these is complete yet, and I doubt that they ever will be. This is because innovation keeps opening up new opportunities to go further with orchestration, self organization, and science, and companies keep taking advantage of these opportunities.

These three elements are all critical, a scientific approach (we call our methodology PHAME) and devolved decision making (self-organizing which is at the same time coordinated (or orchestrated) results in an organization that is capable at moving at a speed that hierarchical twentieth century business is incapable of duplicating. So companies like Zynga will run circles around traditional businesses.

Your business needs this - a deep understanding of the data that you need to make decisions, the right processes for gathering that data, tools for presenting the data to your employees, and an experimental methodology for learning from the data and decisions.

And oh yeah,

Relentless Focus