Story: Many of the 2010 World Business Forum presenters spoke authoritatively about what we know about business and economies.  But Steven Levitt (author of Freakonomics and Super-freakonomics) highlighted a systemic blindside in what businesses and leaders know.  In his discussions with companies, Levitt found that business people fear saying, “I don’t know.”  Such an admission seems to them like a reputation-damaging weakness in the eyes of their coworkers, bosses, shareholders, and customers.

Yet being unwilling to admit ignorance carries at least three types of stiff penalties.  First, the arrogance of presumed omniscience leads to hubris, which is the first stage of downfall, according to research by Jim Collins, author of bestsellers Good To Great and How the Mighty Fall.

Second, by not admitting ignorance, companies underinvest in gathering and creating knowledge. If we claim to already know something (e.g., “we know our customers”), then why invest in gathering more knowledge about them?  Third, and ultimately, willful ignorance are leads to mistaken decisions and failed innovation.  No wonder 90% of new product launches fail, according to data cited by Martin Lindstrom (author of Buyology).

Admitting ignorance need not signal weakness.  Saying “I don’t know” isn’t the same as saying “I can’t know.” A number of the presenters described four concrete ways of reducing ignorance.

First, A.G. Lafley (former CEO of P&G) stressed the value of reducing ignorance about customers simply by listening to them and watching them as they naturally interact with the company’s products.  P&G spends a lot of time and money trying to understand the two moments of truth — when the customer chooses products in the store and when the customer uses products in the home.  Even as CEO, Lafley made a point to visiting ordinary consumers and stores when he traveled.  These visits demonstrated to all P&G employees the importance of learning more about customers from the customers themselves.  The point is the listen more and go out in the real world — admitting (and resolving) ignorance about how customers really use products and services.  Charlene Li, author of Open Leadership and Groundswell, likewise stressed this point and cited the new-found power of social media to let companies hear what real people are saying about the company (see previous post: Getting CEOs on Board with Social Media).

Second, Martin Lindstrom showed exciting new tools such as fMRI (functional Magnetic Resonance Imaging) and SST (Steady State Topography) that can trace the activity of the subconscious parts of the brain.  With these tools, innovators and other business researchers can answer previously unanswerable questions about people’s innermost reactions to brands, products, and sensory cues associated with new or existing ideas.  With these tools, Buyology researchers can show how just the red color of a Marlboro cigarettes pack or the angular shape of a McDonald’s restaurant roof triggers a reaction in consumers.  These new technologies help business resolve age-old ignorances about why people really buy.

Al Gore (former Vice President of the US and Nobel Peace Prize-winning creator of An Inconvenient Truth) gave an impassioned plea for responding to global warming before more dire effects take hold of the planet.  His presentation illustrates a third tool for reducing ignorance: developing deep models to estimate the direct and indirect effects of various phenomena.  For example, climate models help predict the ongoing rise of humidity and the concomitant rise in the severity of storms such as those that caused this year’s floods in places like Nashville and Pakistan.

Modeling does come with risks.  Levitt criticized prevailing economic models for focusing too much on what was mathematically easy rather than what was relevant to real economies.  People need to validate the model by showing, for example, that the last 60 years of temperature increases track the increase predicted by climate models.  Good modeling helps people reduce ignorance about what might happen without the full costs of making it happen.

Finally, testing represents the natural culmination of the other ignorance-reducing tools:  will an innovation or new idea really work? Levitt recommended doing more experiments — testing the effects of changing the price, changing the advertising, changing the product features, and so on. Levitt also suggested leveraging accidental tests.  For example, when an intern at a consumer electronics company forgot to submit newspaper ads for three months in one local market, the company discovered that the lack of newspaper advertising had caused no corresponding drop on sales.  Lafley likewise encouraged managers to test new ideas, even if they couldn’t get permission beforehand. Resolving ignorance is too important to be stymied by bureaucracy. Moreover, testing need not be expensive these days. A.G. Lafley noted how much easier it is to test new packaging and merchandising innovations in a computer-based virtual 3-D simulation. P&G can create an accurate 3-D model of a consumer’s favorite retailer and graphically add and test new designs. Changing the color, shape, size, graphics, etc., only takes the click of button. Cost is no longer an excuse for ignorance.

Action:

• Admit ignorance and document what you don’t know but would like to know.
• Watch and listen by going out to customers and the world to glean potential insights and innovations.
• Use new data collection technologies to answer previously unanswerable questions.
• Build models to predict the impact of innovations and other changes in products, processes, and business.
• Test innovation hypotheses via various methods such as virtually, in test labs, or in select markets.

Story: Charlene Li, co-author of bestselling Groundswell: Winning in a World Transformed by Social Technologies and Open Leadership, spoke at the World Business Forum in New York City on October 5, 2010. Before the conference, I had the chance to ask Charlene if she had any tips for convincing the C-suite of the value of social media. Her answer: “Traditional ROI is not the way to go yet. Instead, ask the CEO his or her goals for the year.  Then, put social media in the context of that, explaining how social media can help them achieve those goals.”

For example, if one of the CEO’s goals is to increase customer satisfaction, then show the C-suite executives how social media can be used to listen and converse with customers and respond to customer problems. Shoe company Zappos is often mentioned as a paragon of this strategy, but even mainstream companies can use social media successfully. For example, entertainment and communications company Comcast, founded in 1969, uses Twitter (@ComcastCares) to respond to customers tweeting about Comcast problems. In one year, the company handled more than 21,000 customer service requests (official tickets) through social media.  Half of those were solved through Twitter, and that figure does not include the thousands of simple inquiries which Comcast customer service reps have responded to on their own.  Frank Eliason, Director of Digital Care at Comcast, also sees Twitter as a great early warning system.

Another important point Charlene made was that CEOs are often hungry for hearing what customers are saying about their company, especially because they’re often removed from those direct conversations. Social media monitoring tools give executives an opportunity to listen in. The CMO of Best Buy, for example, put a big plasma screen up on his wall to see all the mentions of Best Buy. “It’s powerful to be so connected to what your customers are saying,” Li said.

Action

• Ask top executives about their top goals for the company
• Cast social media strategy and benefits in terms of addressing those strategic goals
• Show executives how social media can give them the pulse of the customer and a deeper connection to the marketplace.

For Further Information:
Twitter Success Stories, MarketingProfs 2009.
Charlene Li, Open Leadership: How Social Technology Can Transform the Way You Lead

Story: GE Healthcare sells sophisticated medical imaging devices around the world. Historically, they have sold these high-end machines in emerging economies like India. But only 10% of Indian hospitals can afford a $10,000 ECG machine. Reaching the other 90% of the market takes more than simply cutting a few costs. It requires radical innovation and an in-depth understanding of local conditions.

For example, most Indians live in rural areas. That means they don’t have a local hospital to go to. Rather, the machine needs to go to them, and no rural healthcare clinic is going to lug a $10,000 machine into the field even if it could afford the device. Achieving the goal of a lightweight, reliable, simple-to-use ECG machine took radical re-thinking. GE built a device, called the MAC i, that could fit in a shoulder bag, has a built-in replaceable printer, and cost only $500. In addition, because the device would be used in rural locations with scant access to electricity, GE designed a battery that could do 500 ECGs on one charge.  To make it easy to use, GE designed the machine to have only three buttons. Finally, just because the device is inexpensive doesn’t mean it’s dumb.  Because the cost of a copy of software is zero, GE installed professional-level analysis software to aid rural doctors.

With its new MAC i, GE has unlocked a whole new market in developing countries.  Beyond that, GE has also opened up new opportunities back home — and that’s the reverse innovation side of the story.  How? The portable ECG machine with a $500 price tag is ideal for use in ambulances, saving lives of accident victims in rich countries as well.  Cheap, portable, and easy-to-use devices are desirable in any country.

Action:
Reverse innovation means designing a product for a developing country and bringing that innovation back home.

• Make the product extremely low in cost so that it is price-acceptable in developing markets and opens up new sales opportunities in developed markets
• Start from the ground up with a radical rethinking. (See also the Tata Nano example.)
• Plan for intermittent electricity
• Make the product modular to facilitate remote repair
• Make the product easy to use, like GE’s three-button ECG machine

Sources:

Vijay Govindarajan, “Reverse Innovation: A New Strategy for Creating the Future” HSM webinar March 18, 2010

Prof. Govindarajan will be speaking more on this topic at the World Business Forum in NYC October 5-6, 2009

India Tech Online

Story: “I feel good when I see that engineering, advertising and manufacturing are really surfacing and talking about their differences,” said the VP of Technology at a successful $100 million firm.  “It’s my job to keep the dialectic alive.”

When we see companies moving swiftly, anticipating changes in the marketplace and developing new products or services to meet the change, we’re tempted to think of the company as moving in harmonious agreement toward that new product or service.

But the surprising fact is that companies that innovate the fastest are actually those that invite debate over ideas.  It’s not a destructive conflict, but an airing of different views on a topic.  Whereas conflict based on personality differences is destructive, healthy conflict focuses on refining a proposed idea. Healthy conflict gets a team out of group-think. It tests and challenges assumptions. Team members share different points of view.  As Patrick Lencioni, speaking at the 2009 World Business Forum said, “productive debate over issues is good for a team.”  Disagreeing on issues make things uncomfortable but it builds clarity. “If you don’t have conflict on a team, you don’t get commitment,” Lencioni said.  “If people don’t weigh in, they won’t buy in.” When team members challenge assumptions and point out the flaws of an idea, they improve the idea; the end result is a more robust idea.

To ensure that the conflict stays at the level of idea, not personal attack, Lencioni advises using a team assessment.  Using an instrument like Myers-Briggs, team members learn their own communication styles and the styles of others. Knowing each other’s personality style helps avoid personal conflict. If you know that Joe is generally quiet or that Jane always bulldozes in, you’re less likely to take offense at what is actually that person’s communication style.

Action:
* Don’t suppress or circumvent conflict – the best ideas are forged during the “working out” of such conflicts.
* Give the team an assessment tool like Myers-Briggs to help member understand each other’s styles communication styles, strengths and weaknesses
* Encourage healthy debate.  Peter Drucker recounted  how Alfred P. Sloan, legendary CEO of GM, handled this:

“Gentlemen, I take it we are all in complete agreement on the decision here,” Sloan said. After everyone around the table nodded affirmatively, Sloan continued: “Then I propose we postpone further discussion of this matter until our next meeting to give ourselves time to develop disagreement and perhaps gain some understanding of what the decision is all about.”

Story: At the World Business Forum last week, former President Bill Clinton was asked about his lessons on leadership.  His answer was threefold:

• It begins with a vision of where you want to go: you have to articulate where you are, where you want to go, and how to get there
• A leader has to continually communicate and sell the vision
• Leaders need to understand people, not just policies

That last point about leaders needing to understand people was the comment that was most retweeted during the live-tweeting of Clinton’s talk. It was the point that resonated the most deeply with the audience.

Fittingly, Clinton’s closing comments provided the perfect circle back to Bill George’s opening keynote the day before.  Bill George, former Medtronic CEO under whose leadership the company’s market cap grew from $1.1 billion to $60 billion, spoke about authentic leadership during a time of crisis.

Being authentic builds trust and helps people understand who you are as a leader.  “In a time of crisis, you need people who tell you the truth,” George said.  Authenticity requires strength because it means, at times, revealing vulnerabilities. Although revealing vulnerabilities seems counterintuitive and very hard for leaders who want to seem all-knowing, George has said:

“When you open yourself up to others and share your fears and shortcomings, you connect with people at a deeper level.  Exposing your vulnerabilities is an open invitation for others to share openly with you. In the process, you gain a higher level of support and commitment from people, as well as their respect.”

How much do you share? Bill George offered an example from his own life:  As Medtronics’ CEO, he regularly sent out emails to all the employees about the state and health of the company. In 1996, seven years into his tenure as CEO, George’s wife was diagnosed with cancer.  George found himself writing an email to employees revealing his wife’s personal health rather than presenting the company’s financial health.  To George’s surprise, 18,000 employees (more than half the company) replied to his email, offering their support and sharing their own stories of loved ones who had battled cancer.  “It was a personal connection,” George reflected. “We’re hungry for those connections.”

Action

• Build personal connections with those you lead
• Create, communicate, and cultivate a vision
• Be authentic, revealing both weaknesses and strengths

For More Information

Bill George is the author of the new Seven Lessons for Leading in Crisis and bestsellers Authentic Leadership
and True North

Bill George’s blog is at http://www.billgeorge.org/blog/

[Bill George shared the email story during a pre-forum reception he held for World Business Forum Bloggers on Oct. 5, 2009]

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