CMO Mondays: The Visionary’s Dilemma

visionarys-dilemma

The Wall Street Journal published an article yesterday entitled, “PepsiCo Wants to Sell Healthy Food, Consumers Want Chips.” In it, reporter Mike Esterl describes the dilemma that PepsiCo‘s CEO Indra Nooyi has been wading through for the last decade since she took the chief executive role: growing a business of nutritious foods while not cannibalizing its empire of sugar and salt rich foods.

When Nooyi came into her new role as CEO in 2006, she focused on capitalizing on the growing market and consumer desire for healthy snacks. But, after having to cut her profit outlook twice in 2011, PepsiCo refocused on its core business of “indulgent products”. The markets have supported this decision, as you can see from the below chart showing PepsiCo’s share price growth.pepsico-stock

In 2010, PepsiCo set a goal of tripling revenue from nutritious products to $30 billion this decade, but given its need to refocus on indulgent snacks, PepsiCo has had to adjust this goal. The new goal is to have sales growth of its nutritious products outpace the rest of its portfolio by 2025.

It shouldn’t be a surprise that visions to change the world and consumer behavior take time. A long time. Decades even. And, for a company like PepsiCo that generates over $60 billion in revenue globally, driving positive change (helping consumers eat healthier) while not cannibalizing its core business of indulgent snacks is a tough balancing act.

Perhaps the example that I think of most is Elon Musk and his companies, Tesla, SolarCity and SpaceX. All of them have big audacious goals – somewhat related and intertwined. In their own way, they’re each pushing towards better energy efficiency and to reduce our dependencies on fossil fuels. And, what Musk’s companies have faced is not unlike what PepsiCo has faced. Consumers say they want to be green, but the mass market of consumers is not actually willing to sacrifice their indulgences in order to be green. Consumers may say they want healthier foods and snacks, but the mass market of consumers are not actually willing to sacrifice their indulgences in salty, sweet goods in order to be healthier.

Musk recognized this in the energy sector and developed a long-term plan to evolve consumer behavior. With Tesla, he started out with a limited edition $100,000+ sports car and targeted wealthy, influential consumers as his customer. This created a luxury brand that consumers aspired to. Since then, he’s been moving down market to provide the same remarkable experience (beautiful car design, driving experience and ever-improving software) at a more affordable price. The main selling point isn’t that Tesla is an electric vehicle. It’s that Tesla provides a remarkable driving experience – and the cars happen to be better for the environment.

Similarly with SolarCity, recently Musk revealed three new styles of solar panels that are designed to replace your roof tiles (see video below). Not only are they beautifully designed, but they’re stronger and more durable than the roof tiles you have on your house today.

Musk recognizes that while consumers say they want to be green, the mass market won’t be willing to sacrifice the aesthetic of their house to be so. So, he’s bringing a solution to market that meets both the aesthetic needs of the consumer and the social desire to be green.

Over time, Musk and his companies will help meet a long-term vision of a self-sustaining house that is off the grid. Your solar panel roof will provide you all the energy that you need, including charging that Tesla you have in your garage. So, you’re fossil fuel consumption goes to near zero.

So, as I think about PepsiCo and Nooyi’s challenge of meeting consumers’ desire for indulgent snacks today, while pursuing a vision of helping consumers be healthier in the future, I think about those incremental steps that Musk has taken over the last decade across his companies to bring his vision to life – a vision that won’t become fully realized for at least another decade. Nooyi started out on her journey around the same time as Musk. She’s a decade in. What can she do to realize that vision in the next decade or more?

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Play and Innovation

play-is-the-mother-of-all-invention

All too often, I find that, in the scramble to keep up with our changing world and business environment, we let the stress of needing to innovate get in the way of the play that drives innovation. When I host a brainstorm, I make sure to structure it as a game or a set of games that we’ll play in order to arrive at a broad range of new ideas. From these ideas, we can then hone in on the one or few to move forward with. The book “Gamestorming” is a great resource for learning how to structure these brainstorm games. I find time and again that incorporating play into the business environment leads to innovation.

In this video, Steven Johnson, author of a wonderful book, “Where Good Ideas Come From”, debunks the idea that necessity is the mother of invention by explaining the history of how the computer came to be.

CMO Mondays: Marketing in the Post-Capitalist Society

I spoke to a class of advertising and PR students at University of Texas last week. Below is the Slideshare of the presentation that I gave. This is an updated version of previous presentations I’ve given on my Reciprocity Theory and The Purpose Economy. I dive into foundational human behavior, technological revolutions, socio-economic evolutions of the last fifty years, and what this means for marketers.

Managing for Collective Creativity

collective-creativity

Having spent my career working in creative industries from film and TV to marketing, I’m always interested in learning new ways to maximize the creativity in a team. This has become critical, not only in creative industries, but also in business at large. Collaboration is top of mind for CEOs as a need and skill set to drive innovation, and creativity is at the heart of collaboration.

Harvard professor Linda Hill, co-author of “Collective Genius,” has studied some of the world’s most creative companies. In this TED Talk, she shares a framework for how to harness a team’s creativity. This is an old favorite TED Talk that I thought I’d share with you today. Enjoy.

Welcome to the Post-Capitalist Society

welcome-to-the-post-capitalist-society

“In 2000, President Bill Clinton said in his last State of the Union address: ‘America will lead the world toward shared peace and prosperity and the far frontiers of science and technology.’ His economic team trumpeted ‘the ferment of rapid technological change‘ as one of the U.S. economy’s ‘principal engines’ of growth.”

I read an article in the Wall Street Journal entitled “The Great Unraveling | America’s Dazzling Tech Boom Has a Downside: Not Enough Jobs” by Jon Hilsenrath and Bob Davis. The premise is that the technology industry has not lived up to its promise of job creation – particularly since the year 2000. And, that this disappointment has led to political outsiders like Donald Trump and Bernie Sanders gaining momentum in this presidential race.

The article goes on to list some interesting facts and statistics:

“Google’s Alphabet Inc. and Facebook Inc. had at the end of last year a total of 74,505 employees, about one-third fewer than Microsoft Corp. even though their combined stock-market value is twice as big. Photo-sharing service Instagram had 13 employees when it was acquired for $1 billion by Facebook in 2012…

…The five largest U.S.-based technology companies by stock-market value—Apple, Alphabet, Microsoft, Facebook and Oracle Corp. —are worth a combined $1.8 trillion today. That is 80% more than the five largest tech companies in 2000.

Today’s five giants have 22% fewer workers than their predecessors, or a total of 434,505 as of last year, compared with 556,523 at Cisco Systems Inc., Intel, IBM, Oracle and Microsoft in 2000.”

On the surface, yes, it looks like the technology industry has failed to meet its promise. The younger technology companies founded after the year 2000 are employing less and less people. The jobs of the Industrial Revolution are being replaced by robots and software, and this will only accelerate with the long awaited maturation of artificial intelligence / machine learning. Every business today is (or should be) a technology business in some capacity to take advantage of the operational efficiencies (i.e. cost savings) that technology can provide.

But, a closer look shows that it’s not the technology industry that failed us. It’s our rhetoric and education that failed us. We read the tea leaves wrong about the transformation that technology would bring because we looked at the past to predict the future.

The First Four Revolutions
As I’ve written about before, economist Carlota Perez taught us that every half century, society has a “big bang moment” – a technological breakthrough – that ushers in a new technological revolution.

5 Successive Technological Revolutions of the Last 250 Years

If you consider the five successive technological revolutions we’ve had, starting with the Industrial Revolution in 1771, each created more jobs than the previous. And, this would make sense. With each revolution, we built more and bigger things, and we did it by hand. Physical labor was the currency of capitalism.

6th Technological Revolution Around the Corner

Why the Fifth Revolution Is Different
But, three things changed all that in our current revolution: the Age of Information and Telecommunications, which saw its big bang moment in 1971 with the Intel microprocessor, and which is at its tale end.

  1. Moore’s Law: An observation in 1965 by Intel’s co-founder, Gordon Moore, states that the number of transistors per square inch on integrated circuits had doubled every year since their invention and would continue to for the foreseeable future. This has decreased the size of our computing devices while simultaneously increasing their processing power exponentially for fifty years. And, it is only now beginning to slow.
  2. The Internet: Have you heard of this thing? It’s pretty amazing. Throughout history, innovation has been driven primarily through physical locations. “Hot spots”, as they’re referred to in network science, were typically found where there was a concentration of people and ideas colliding. These hot spots have popped up throughout history from the coffee houses in the Age of Enlightenment to the Parisian salons of Modernism. Some of these hot spots have also been industry specific like Silicon Valley for tech, Los Angeles for film and TV, and New York for finance. The Internet (and the World Wide Web) distributed the hot spot, so that its not restricted to a centralized location. The hot spot became decentralized, and has led to innovations like Safecast, which I mentioned in yesterday’s blog post.
  3. Cloud Computing: Then, cloud computing came in and decentralized computing infrastructure. Suddenly, you didn’t need to buy or lease expensive on-premise servers to build software. You simply rent what you need – and only what you need – when you need it. The price of software development dropped exponentially. Not only do you save on hardware (server) costs, but you save by not needing expensive people that know how to service the hardware.

So, what does this all sum up to? Since the rise of capitalism and throughout the first four technological revolutions, capitalism created more jobs because the primary economic resources were physical assets: gold, land, ships, railroads, skyscrapers, cars, etc. and the labor that was needed to build and manage them. But, while the fifth revolution started this way, it is ending by headed in the opposite direction. The economic force of capitalism, combined with Moore’s Law, the Internet and cloud computing, is driving a reduced need for employees. Today, one can build a highly valuable business with exponentially lower (near $0) infrastructure, supply chain and employee costs. Every non-critical resource simply becomes dead weight.

Capitalism Has Hit Its Tipping Point.
Consider this observation that Tom Goodwin shared in a 2015 TechCrunch article entitled “The Battle for the Customer Interface”:

“Uber, the world’s largest taxi company, owns no vehicles. Facebook, the world’s most popular media owner, creates no content. Alibaba, the most valuable retailer, has no inventory. And Airbnb, the world’s largest accommodation provider, owns no real estate. Something interesting is happening.”

something-interesting-is-happening

The Wall Street Journal article mentioned above highlights that Instagram had only 13 employees when it was acquired by Facebook for $1 billion in 2012, and WhatsApp had only 55 employees when it was acquired by Facebook for $19 billion in 2014.

The winners in the new capitalism are those that can create value with the least resources – including employees.

Why Our Rhetoric and Education Is Wrong
For longer than I can remember, political rhetoric around economic growth has been about job creation and good education to fill those jobs. This made sense given our history. But, what you see today is a frustration that those jobs aren’t being created – at least not in the technology industry. If anything tech is displacing those jobs.

In our new economy, employment looks more like a shorter long tail. As Chris Anderson, author of The Long Tail describes…

“The theory of the Long Tail is that our culture and economy is increasingly shifting away from a focus on a relatively small number of “hits” (mainstream products and markets) at the head of the demand curve and toward a huge number of niches in the tail. As the costs of production and distribution fall, especially online, there is now less need to lump products and consumers into one-size-fits-all containers. In an era without the constraints of physical shelf space and other bottlenecks of distribution, narrowly-targeted goods and services can be as economically attractive as mainstream fare.”

longtail

Anderson wrote his original article about the long tail in 2004, describing the effects of the Internet on commerce. iTunes and Amazon are prime examples in the music and CPG categories respectively. But, twelve years after the original article, we can now see that the same effects are happening to employment.  At the head of the tail are the largest employers – slow, lumbering legacy companies with immense overhead. Further down the head are the new class of technology companies – except that they are employing less people than their predecessors. They look more like a small, passionate and nimble tribe – with a minimal number of full-time employees supplemented by an army of flexible, contract workers (to whom you don’t have to provide expensive benefits). Consider companies like Uber, Lyft, Instacart, Luxe and Favor. Then, you get into the long tail. And, these are less so companies; more so, individuals that have learned to make a living through the digital economy. They’re building mobile apps for iOS and Android, creating subscription e-commerce businesses through Cratejoy, or selling craft goods on Etsy. They may even be content creators on YouTube, Instagram or podcasting. Indeed, the Wall Street Journal article highlights that “An Apple spokeswoman says it is ‘creating jobs in new industries like the App Economy.'”

Peter Drucker predicted such a change. In his book “Landmarks of Tomorrow”, he talked about the shift to the “post-capitalist society” where knowledge would become the primary economic resource over land, labor and financial assets. This gave rise to the concept of “knowledge workers” that is so common in management and consulting today. 

Where We Go from Here

“Give a man a fish and you feed him for a day; teach a man to fish and you feed him for a lifetime.”

So, our rhetoric needs to shift away from “get an expensive education, so you can get a good job and have a nice, long career” to “learn to learn, so that you can create your own income and be self sufficient.” The United States was built on entrepreneurship – on life, liberty and the pursuit of happiness. If we want to prepare our people for the pursuit, don’t give them a skill and hand them a job; teach them the game of business and let them play.

From Futurist to Nowist

Director of MIT Media Lab, Joi Ito gave TED Talk on becoming a “now-ist” instead of being a “futurist”. In this talk, Ito describes how he was in Cambridge at MIT when a magnitude 9 earthquake hit off the coast of Japan. Ito was panicked, as he watched the news and the press that was coming from the Tokyo power company about the explosion at the nuclear power plant that was only 200 kilometers away from his home where his family was at that time.

The people on TV weren’t telling Ito anything that he wanted (needed) to hear regarding the nuclear reactor, levels of radiation, etc. So, he went to the internet for information instead, and there he found people in similar situations. So, they formed a community called Safecast to measure the radiation and get the information out to everyone else because the reality was that the government wasn’t going to do it for the people. Today, Safecast has 16M data points (the largest open database of radiation measurements), data visualization tools, an app that shows radiation in Japan and around the world, and other resources for the open community.

It’s remarkable to see how people can come together so quickly under a shared purpose to build something of immense value like this. One year ago, I was in Nuevo Vallarta with my family – my wife, three kids and parents – when Hurricane Patricia hit the west coast of Mexico, just 180 miles south of where we were staying. For twenty-four hours we monitored the hurricane from our mobile devices, getting access to news from the U.S. because the Mexican government wasn’t providing any information. All we got from U.S. news outlets was fear-mongering about how deadly the hurricane was going to be – not just because of the winds, but more so because of the tsunami-sized waves that the hurricane would bring ashore. Not at all comforting when you’ve been evacuated under ground (sea) level in a bunker. Having factual, open-sourced data like this in that situation would have been invaluable. The closest I could find was the National Hurricane Center, which became my main source for information during that period.

Ito goes on to discuss his perspective on innovation. Three key takeaways are:

  1. “Deploy or Die” motto – Moore’s Law made the cost of trying new things (innovation) virtually zero. So, innovation has moved to the fringes where makers can make and test things first before they need to hire MBAs and raise funds.
  2. “Learning over Education” – A perspective that “education is what they do to you” whereas “learning is what you do to yourself.” This particularly resonates with me, as I’ve practically googled my way into the career that I’m in. I wasn’t a marketer by training. I stumbled into this six years ago when I left the movie business. But, curiosity and the willingness to test and try new things accelerated my success as a marketer.
  3. “Compass over Maps” – You can’t expect to plan things from beginning to end at the beginning. But, if you have a strong compass, you can discover your way to the outcome you seek. This speaks to being resourceful, which is the first thing I look for in a team member after culture fit. 

Below is Ito’s TED Talk. Hope you enjoy.