Tag Archives: Business

Are There No Good Companies?

Nityanand Jayraman has a piece in Scroll.in which is a damning indictment of Hindustan Unilever’s role in contaminating a thermometer factory site in Kodaikanal with mercury.

The sordid story carries the usual villainy of an evil corporation that puts its commercial interests above the safety of its workers, the community around it and the environment. While this was a while ago, things haven’t changed much. Even today, we see this movie playing out, in company after company, around the world.

Unilever dumped broken thermometers at the site and let the mercury leach into the ground. It did not train its workers adequately in safety procedures. And when confronted with the clean up after the government shut down the factory, it argued for laxer standards and denied wrongdoing. Pretty standard fare for such cases.

What makes the story uglier though, is that this thermometer factory in Kodaikanal was moved from Watertown in New York state in 1980, after the US started cracking down on environmentally hazardous factories. The standards that the US was pushing for made it economically unviable to operate. However, environmental regulations in developing countries like India are either weak or weakly enforced. So Unilever moved the factory and its accompanying hazardous contamination to India.

This is called regulatory arbitrage. It takes a special kind of villainy for a company to do this.

The factory operated from 1980 to 2001, when the Tamil Nadu government shut it down and asked Hindustan Unilever (HUL) to clean up the site. HUL has done some work but is negotiating on the extent of the clean up required, which is what led to this video. The video, by the way, is brilliant – an example of how art can be put to work by activism. Without the video, the reach of this message would be a hundredth of what it is now.

Hindustan Unilever was my first job out of business school. Hindustan Lever or HLL as it was known in those days was the top Consumer Packaged Goods job for business grads in those days. I was proud to be working for them. They had the absolute best management training program in the industry. For 18 months we got the kind of cross-functional training that was the envy of every management graduate. As part of it, we had to spend 4 months in a village in rural Uttar Pradesh and work on a rural development project. HLL had a Rural Development Program that truly helped the villagers in a very backward area of the country. I thought I was working for a company that was not just a well managed company, but also a company that wanted to give back.

Soon the scales fell from my eyes. It wasn’t really managed very well. I was a junior manager and had very little visibility into top management decisions. But even from my vantage point I could see that the company treated its distributors very poorly. Dumping or channel stuffing was so common that the trade often had months of stock – ruining their economics and the stock of tea they carried (I was in Lipton). The top management knew this was happening but couldn’t bring themselves to stop the practice.

At the time, this was befuddling to me. Doesn’t someone at the top have the courage to tell headquarters that we have to reduce stock levels in the channel even if it means a bad quarter? But I was young, and naive. Now, of course, I have a better understanding of these matters. Managers are poor agents for shareholders. Shareholders themselves are poor long-term stewards of public companies. They can sell and get out at any time. But while they hold stock in the company, nobody wants a miss on a quarter.

You can look at management making self-serving short-term decisions that hurt the company in the long-term (while quoting Keynes “…in the long term we are all dead” with a smirk on their faces) and shake your head and say “Such is human nature.” But when they knowingly poison the ground and kill unborn children, it makes your bile rise to your throat.

I worked at HLL from 1989 to 1994. The thermometer factory was in full production at the time. The top executives that interviewed me and confirmed me from a management trainee to a manager – the Chairman of the company and several high-ranking executives – probably knew that mercury was going into the ground in Kodaikanal. It makes me sick, just thinking about it. If you want to be charitable to them, you might choose to think that they didn’t know. They just never went near it, never reviewed its operations, afraid of what they might find. Still, they are guilty of neglect and willful ignorance.

Screen Shot 2015-08-10 at 10.58.14 AM

Today’s Unilever is a very different place. Ironically, the company seems to have bet its future on its Sustainable Living Plan. Many of its brands are positioned primarily on what they do for the planet. The screenshot above is from Unilever’s company website. The blurb under CEO Paul Polman’s picture talks solely about Unilever’s Sustainable Living Plan.

All this is quite creditworthy and I hope they are successful. But they must pay for their past sins. I hope Hindustan Unilever cleans up the site and compensates the victims. It would be the right thing to do and it would be good business too. You can’t be betting the company’s future on Sustainable Living while fighting a PR battle about dumping toxic waste in a third world country.

But what I know will not happen is that no former executive will be held responsible. That just never happens. Pay a fine. Take a temporary hit to earnings. And move on. That’s not real deterrence. But that’s the best we can expect. Whether you are leaching mercury into the ground water or bringing down the world’s financial edifice, you can feel safe that the company you work for has your back.

Government Mass Surveillance Will Create a Surge in Technology Spend

How the NSA hacked Google in one simple graphic. Photograph: Washington Post
The Guardian has a presentation called The NSA Files that is the most brilliant rich media presentation of a complex subject I have ever come across outside of a museum. So go read it, even if it is just to see the presentation.

As technology races ahead, from time to time public debate and the law of the land must catch up to it. Government surveillance is one of the most important technology issues of our times. In the US, the NSA files have already had a profound impact on the perceptions of Americans about surveillance and civil liberties. Outside the US, Germany is aghast that the US and UK, NATO allies would spy on Angela Merkel and Germany. On the other hand, there is some evidence that the NSA has aided in combating Mexican drug cartels and prevented terrorism.

The political issues surrounding mass electronic surveillance are complex and do not lend themselves to quick fixes. The issues at stake involve civil liberties, anti-terrorism efforts and international spying, among other things. It might take a decade of public education and wrangling in courts, legislative bodies, NATO and perhaps even the UN, before policy, practice and the law around surveillance settles down.

Leaving aside the political issues, the NSA files will feed a long surge in surveillance and anti-surveillance technology. Snowden’s leaked files are like the Trinity test – the first detonation of a nuclear bomb. Prior to that governments knew that a nuclear bomb was feasible and some were feverishly working on making one, but the public did not really know much about it. The Trinity test, first brought the power and potential horror of a nuclear bomb to the attention of people around the world. And just like Trinity set off a nuclear arms race that lasted for decades, the NSA files will set off a “Snoop Brawl” which will lead to a burst of technology spending around the world. But unlike the nuclear arms race, which was a race principally between nations, this Snoop Brawl is going to be multi-faceted; many players and many fist fights.

Country vs Country
Countries now realize, if they hadn’t actually known it all this while, that the NSA gives the US almost unfettered access to their secrets – those of their governments, politicians and companies. Dilma Roussef, Petrobras, Ban Ki-moon and Angela Merkel were all targets of the NSA; none of which can be justified by national defense. Surveillance is not a single-purpose (e.g. protect the country against terrorism) tool. It is an arsenal of weaponry to project a country’s power and further its interests. And no country has a bigger arsenal than the NSA.

Not China for sure. A few months back, China was pilloried for not doing enough to stop Chinese hackers, allegedly sponsored by the Red Army. That doesn’t seem so egregious anymore. If all major countries decide to bolster their electronic espionage and counter-espionage capabilities, that itself is going to be a lot of hardware, software and thousands of tech jobs.

Country vs Citizens
The NSA collectes metadata on all phone calls in the country – who called whom, when and from where. It is easy to see how this data could be very useful in tracking the networks involved in illegal activity. Or political opponents. If information is power, this is the hammer of Thor (Thor 2 was so-so by the way). Which country that isn’t shackled by its laws, can pass up the opportunity to gather this data?

Outside of a few advanced democracies with active civil liberties protection groups, there is no countervailing force to stop a government from collecting and using this data. The only hurdle is the technology and skills to mine a massive data set like this. Which money can buy. Expect countries to spend a lot on this and other Big Brother technology.

While this gives the government a valuable instrument to catch the bad guys, the very same instrument, in the wrong hands could be used to suppress democracy itself. Or give more power to despots. Expect big orders from tin pot dictatorships as well as big nations where ruling classes are trying to quell democracy.

Companies vs Governments
The US is a hub for internet companies and cloud companies that carry the private data of people and businesses around the world. Much of this data travels through pipes in the US or sits in databases controlled by US companies. Courtesy of Snowden now the world knows that US companies have been cooperating with the NSA with no disclosure to the customers.

European and other advanced nations are likely to enact laws that prevent companies like Google and Apple from becoming listening posts for the US. They may require these companies to “fragment their clouds” and keep the data of their, say, German customers in Germany with restrictions on who can this data be shared with.

On the other hand, companies like Google will have to work hard to regain the trust of their customers. Google is already taking measures to prevent the NSA from eavesdropping without them knowing. Apple is making noises that they might challenge the legality of not allowing them to disclose when information has been shared with the government at their request.

Companies vs Companies
The other things that all companies will realize – not just cloud companies with user data – is that their IP is not safe. In the past year, the Chinese hacking incidents being reported have already raised awareness of this issue. But what the NSA files make clear is that ethics and national interest seem to have no intersection at all. Every country may be spying on foreign companies that can bring value to leading companies in that country. Protection of IP and confidential information will become a key concern for companies. Much more than it is today.

Consumers vs Companies and Governments
Consumers are going to increasingly want to know how their communication and confidential information is protected by online services. Now that they know that “Enemy of the State” is for real what steps should they take to protect themselves? Encryption and information security are complex technical issues which most people don’t understand or even care about. Perhaps there is a need for “information security rating agencies” that rate online services on how they protect users’ confidential data – from hackers and governments everywhere. Perhaps people will increasingly want to roll-their-own email rather than use Gmail or Yahoo mail.

Like the nuclear arms race, the Snoop Brawl will create a flood of spending from both governments and companies. And exactly like the nuclear arms race, it leaves no positive impact on the human condition.

I Want My Customer Data

Tug of War
For the last few years, I have been using Mint (mint.com) to keep track of our household expenses. My needs are very simple. I want to be able to answer simple questions like “How much are we spending on regular monthly expenses?” and “How much is going towards discretionary expenses like eating out?”.

But I find it difficult to answer the simple questions above. It takes a lot of time and effort to get to a point where I can say that I am reasonably close to the real answers to these questions. As I describe the problems that make it so time-consuming, it actually throws light on a new battleground for consumer services – customer data in the hands of customers.

Except for a tiny fraction of cash expenses, all of our expenses are in the form of transactions – debit cards, credit cards, electronic transfers, bill pay transactions, and yes, a few, hand written checks. We try to keep things simple so we don’t have too many accounts. All these accounts are hooked into Mint. Mint pulls all these transactions so that I can see everything in one place. So far so good.

To get a handle on our household expenses, each transaction needs to be categorized correctly into categories like Entertainment or Restaurants.

That’s where the problems start. Every time I log into Mint, I have a whole bunch of transactions that are labeled “Uncategorized”. I then have to manually go through each transaction, try to figure out the merchant to whom I made that payment and then categorize it. Often, the name of the merchant is completely garbled. If my wife made the payment, I have to wait for her to be around so I can ask her. It takes time and is annoying as heck.

It shouldn’t be that difficult to get this right. A typical card transaction is passed from acquirer to network (like Visa) to issuer (my bank or credit card company) and then to Mint. On the way, nobody seems to care enough to categorize the transaction intelligently, and ensure that the merchant name is represented correctly. It’s all left to Mint to do whatever it can with the data it has.

Mint tries. It allows you to categorize recurring expenses automatically. But non-recurring expenses are far too high in our family to ignore. Mint uses very little intelligence to extract the meta data from transactions. A typical transaction would show up on Mint like so

CHECK CRD PURCHASE 02/18 LYFE KITCHEN OF PA PALO ALTO CA 434256XXXXXXXXXX 08304975697XXXX ?MCC=5812 on Feb 19

In this case Mint extracted the merchant name as “Lyfe Kitchen Pa” (correct) and tagged it “Uncategorized” (missed opportunity).

It so happens that the string “MCC=5812” refers to the Visa merchant code for “Eating places and restaurants”. A simple google search will tell you that. Why Mint would choose to leave it Uncategorized is difficult to fathom.

In other cases, while extracting the merchant name it applies no intelligence, it appears. It just pulls out the first two or three words that are not numbers. It typically fails for merchants like 23andMe or 37 Signals or 76, the gas station.

Ultimately, no one in the entire chain of merchant-acquirer-network-issuer/bank, all of who are making money because I am spending, care enough to do anything with my data, except the bare minimum to complete the transaction. They don’t recognize the value that I put in my data. Mint does. Which is why I spend a lot more time on Mint than on my bank account website. But even Mint doesn’t do enough.

Next, consider Simple (simple.com), a new banking service that I started using a few months ago. It is still by invitation only but if you can wangle an invitation, you won’t be disappointed.

Activity | Simple

This is a screenshot of what I might see on the Simple website. Simple extracts the merchant name quite well. And the automatic expense categorization works quite well. I don’t know how it does it, but I have never had to go in and change the category on a transaction. In fact if I had to, I wouldn’t know how to do it.

But that’s not all. It will put the address on a little embedded google map. That can be a big help in identifying where you were. If you went to a restaurant, it will tell you how much you tipped.

It’s not perfect, but I feel like they are putting the information that they have to the best possible use. To do more, they would have to get more information from upstream sources over which they don’t have much influence.

I have been comparing Simple with Mint which may not be a fair comparison. Simple has to deal with its own transactions (bill pay or their own debit card). Mint aggregates across many different sources of transactions each presumably with its own idiosyncrasies.

But if you were to compare Simple with any other bank that I am aware of, the difference in the use of customer data (and user experience) is vast. It is light years ahead.

Consumer services today offer a lot of choice. One of the most important ways in which consumer services will compete with each other is what they let their customers do with their data. For a long time, the focus of these companies has been on the use of customer data to extract insights for themselves – how to cross sell more, how to identify loyal customers to serve them better and so on. But this is different.

Customer expectations are rapidly changing. They are being shaped by companies like Apple and Amazon.com that set the standards, not just in their industry, but across industries. Customer data is now part of the customer experience. This is the new battleground.

So what are these customer expectations? Here are mine:

1. That my service provider will obtain and share the data with me in a timely fashion.

I’ll illustrate this with an example. Today’s smart meter technology allows my utility to obtain the power consumption at my home in at a resolution of 15 mins. At this resolution, the data can tell me a lot more than what my monthly bill tells me, which is almost nothing, other than the fact that it is high or low. (Currently mine is running too high and I don’t know why!)

But deploying smart meters costs money. Lots, in fact. Will it be worth it? It might have been hard for utilities to justify the cost. After all, they are all monopolies. Luckily, regulators in most advanced nations have been nudging utilities in that direction.

In every industry, there will be similar challenges. How do you justify the cost of gathering more data that is useful to the customer? Expecting new revenue from additional services to justify giving customers more data may be too short-sighted.

2. That my service provider will understand that that data is mine.

I shouldn’t have to pay just to get that data. Although I will gladly pay for a service using that data that is of incremental value. I should be free to take that data out myself, or allow another service provider to pull it out on my behalf.

Today, my bank charges me a fee if I want to see a used check image older than 6 months. Tax filing time must be quite profitable for the bank. I don’t have a problem with the bank trying to turn a profit. But not on my data. If your storage costs are too high (really?) allow me to easily export it to my Evernote or DropBox account. (New feature idea – managing check images!)

3. That my service provider will take the utmost care to secure my data

This is generally well understood. Because of laws and the damage that negative publicity around loss of customer data can do, most services try hard to protect it. Try harder! Lately, the hackers seem to be winning.

4. That my service provider will add value to the data

My online brokerage service has always given me a CSV download of my transactions. But till two years ago, they did not have a decent performance analysis of my investment portfolio. So I had to go and put my entire portfolio in a Google spreadsheet which would look up prices from Google Finance and calculate the rate of return. But with reinvested dividends and what not, it took a lot of work to keep the portfolio up-to-date. How you can be an online brokerage and not offer the most basic use of my data – portfolio performance – is beyond me?

Performance analysis, alerts, suggestions – they are all possible. And expected. If my credit card hits me with a foreign transaction fee, I want to know about that in an alert (thank you Mint!).

5. That my service provider will understand that the reward is mostly my loyalty

There was a time, when online retailers did not give you a transaction history. I stopped shopping on those sites. I don’t want to spend the time to search for the same item all over again, if I want to buy another one.

For service providers, this is going to become the cost of doing business. So if you think that you will invest in giving me more value from my data only if I pay you more for this value, your competitors who think differently will get my business.

But, if you are clever about it, you will discover value points that I will pay for. You see, the work that you do to help me get more value from my customer data, in turn helps you understand me better. And when you understand me better, you will be able to design services that I will want to pay for.

Why is That Ad Following Me Around on the Internet?

Forbes has a piece on Why Wall Street Likes LinkedIn More Than Facebook. The difference in how well the two companies monetize user interest is quite significant.

And when it comes to making money, LinkedIn packs a much harder punch than Facebook. LinkedIn manages to rake in $1.30 per user hour spent on the site, while Facebook scrapes by with a measly 6.2 cents per user hour.

The article’s explanation of this gap is that professional data is more important to enterprises than personal data to consumer advertisers. But I don’t know if it is just about that. Somewhere in there lurks a question begging to be asked? Does Facebook monetize user attention as effectively as it could?

Take me. I use Facebook regularly. Not a whole bunch, but I will check in a couple of times a week, mostly over the weekend. Here are the typical ads that I see.

I can link each ad back to something in my profile. I live in the Bay Area, am liberal, married and male. Is this kind of broad-brush targeting the best Facebook can do?

The ads are uniformly unmotivating. They are shown repeatedly. As if there was a very limited stock of ads to show and they had to show half a dozen on every page. So sorry, but we will subject you to the same insipid ads over and over again.

You might point out that I’m not a typical Facebook user. I share a little but not a whole lot of information. I never use my Facebook login on 3rd party sites. So FB doesn’t have much to work with.

But that wouldn’t be true. FB has a ton of personal data for me – my social graph, my status updates. If it still serves up ads that don’t result in any action, is it a wonder that their monetization is at 6.2 cents per user hour?

In contrast look at Google advertising. Comparing Google search advertising with FB advertising is perhaps not fair. Search clearly declares intent which makes targeting much easier. Display ads will find it tough to compete with that.

But Gmail ads are perhaps as close as it gets contextually, to FB. I find Gmail ads to be very relevant. Google’s algorithms are clearly analyzing my email content to determine which ads to serve up. FB isn’t doing that with status updates.

Users want to see ads that are better targeted. I am interested in seeing relevant ads. And advertisers want to reach interested users. The right economic model (a la AdWords) and some clever computer algorithms should get you there. It can’t be that difficult if you have Facebook’s resources. So I wonder why it’s taking them so long to get this right.

Twitter too is trying hard to get their advertising model right. Promoted tweets in my timeline show up from time to time. They are using the social graph cleverly and I find many of their promoted tweets relevant. I spend a lot more time on Twitter than I do on FB, so I do hope they find a non-intrusive but successful advertising model.

Meanwhile, an ad for a certain watch has been following me around wherever I go on the internet. It so happened that a couple of months ago I clicked on an ad for the watch. I then went and read a whole bunch of reviews and so on and then actually bought the watch. But now, the ad networks think that since I clicked on the watch ad, I am interested in it. So now I am bombarded by the same ad everywhere. All wasted advertising since I’ve already bought the watch. And very annoying.

So now I have done two things. Both of them are detrimental to the ad networks’ and the advertiser’s interests.

One, I opted out of all interest based advertising. They don’t make it very easy for me to do that, but I patiently went to all the websites and opted out.

Two, I will never click on a display ad again. If it interests me, I will google it and get to its website through search.

I am positive that I am not the only person who is doing this. Some may want to but don’t know how or don’t have the patience to. But many will opt out. Soon there’ll be a video on YouTube on “How to Stop That Ad Following You Around on the Internet”. And then the game’s over.

The Trouble With Powerpoint

Wrong tool, right idea

A couple of weeks ago, I was walking someone through a Powerpoint deck on the phone. The discussion was going well. But every now and then she would skip ahead. I’d be on slide 12 expounding some gory detail of our actions in Q1 and she would say “I have a comment to make about XYZ on slide 14”. Just a little unsettling.

So I thought about it. I had sent the deck to her the previous evening. It had a lot of detail – stacks of bullets and in places, full sentences. I wanted her to be able to understand the slide deck by reading it without my voice over. She did exactly that, and then the next day, I subjected her to my voice over anyway. No wonder she was skipping slides.

The number one problem with how Powerpoint is used in companies is that the same deck is used for different purposes. And it doesn’t work. Dual-use powerpoint decks are the single most important reason why the powerpoint slides used in stand-up presentations are so terrible.

IT Services companies are the worst perpetrators of the dual-use crime. We make illustrations with lots of boxes and arrows and inscrutable terms and acronyms. We put them in proposals. Then we take the same illustration and slap it onto a slide. In all its 14 point font glory. During the presentation we will actually turn towards the screen and read the whole thing out. Or sometimes you’ll hear “I won’t take you through all this information, but…”. Well then, why put it on the slide?

Dual-use crimes occur in other ways too. At Infosys, with globally dispersed teams across vastly different time zones, it is very common to exchange powerpoint files with the expectation that the other party will read the powerpoint and understand its contents. A typical email might read “Please find attached a deck that explains XYZ. Let me know if you have any questions.” You open the deck and it’s the same boxes-arrows style of presentation. Sometimes its useful because you already have the background and this is incremental information. At other times, you don’t understand a thing, or even why it was sent to you.

When you want someone to understand a document without a voice over, an email or Word document might work better. Because unlike a few paragraphs of a long email, a Powerpoint slide with boxes and arrows has no narrative thread.

I hand-wrote my transparencies at b-school, at my first job and even for my interview for Infosys in 1994. When Powerpoint was introduced, or rather when I was introduced to it, I thought it was an amazing invention. It completely changed the process of preparing for a presentation. The text on the slides was crisp, clear without having to send the slides to be done by an agency. Editing was so much easier. You could make changes right to the last minute before the presentation. You could draw diagrams and mix them with text easily. Later, we got fancy looking transitions too.

Powerpoint radically changed the overhead presentation. But somewhere along the line, it took over all forms of communication within business. The long form of writing just went away. I don’t know if we are unique at Infosys, but I don’t see much use of MS Word. It is all Powerpoint or Excel.

Dual-use is not the only reason why Powerpoint is overused and misused. The truth is that Powerpoint has become a crutch for the overworked modern-day employee. Its use makes it acceptable to not write full sentences, paragraphs or in fact, have a narrative at all.

As a consultant Powerpoint comes in handy in other ways too. If you aren’t sure about how a client will respond to some parts of the proposal why spell it out in detail. A brief bullet in the deck allows you wiggle room that you use based upon the body language of the client in the meeting.

Consultants also regularly create too many slides and too many words on each slide. This is a universal phenomenon. Why this is so, is not clear to me. It’s as if they are OK with any outcome in the meeting including the client passing out from sheer boredom. But god forbid, they should ever be accused of not working their butts off on the presentation.

Engineers are of course far worse at this than consultants. Most of us receive an education that equips us to solve problems, not communicate the solution to someone else. The engineering school I went to put a high premium on getting the funda (fundamental principle). Explaining how you figured it out was just wasn’t our thing.

Then we join a company where we see consultants flinging out decks with 50 fancy box-and-arrow slides. And we say, we can do that too. Thereafter all slides have boxes, arrows and 14 point text. And of course, tons of jargon and acronyms, because we engineers love them. It makes us look smart. All our formative years have been spent yearning for those small shots of dopamine to the pleasure center of the brain, when I get something that you don’t. Or when I say something that forces the listener to ask, “What does that mean?”. Now suddenly, you’re asking me to communicate simply. That just fries my circuits.

And of course it is also well known that most engineers are color blind. So our 50 box-and-arrow slides in 14 point text display all colors of the rainbow. The final product can be quite awesome to behold. Something that can kill a domestic pet at 20 paces. Clients are advised to wear protective eyewear.

In Indian IT Services companies I believe this is now a crisis. Not just the use of Powerpoint but all of business communication. And with the SMS generation now getting into mainstream business communication, the future doesn’t look too gr8 either.

Rules and Rituals

chain

Matt Richtel investigates the mystery of why laptops and not iPads need to be pulled out of bags for the X-Ray machine at airport security.

From the New York Times

What’s the distinction between the devices? Similar shapes, many similar functions, the tablet is thinner but not by much. Is the iPad a lower security risk? What about the punier laptop-like gadgets, the netbooks and ultrabooks? What about my smartphone?

Richtel contacts the TSA and security experts, but doesn’t really get a good answer. The TSA said that it had its reasons but declined to share them saying that “the agency didn’t want to betray any secrets.” Another security expert called it “security theater”, implying that making passengers go through some inconvenience makes it look like the government is taking their security seriously!

The problem of course is that electronic devices come in all sizes. Rules are best applied to clearly defined categories. Categorization of devices based upon size is just not practical. There has to be an easy way for TSA and passenger to unambiguously agree on the categorization that then leads to the application of the rule “the device comes outside the bag for the X-Ray machine”.

Is it a laptop? (Y/N) is an easy way to categorize. Is it more than 1 cubic foot? (Y/N) will just not work.

The real world presents a lot of ‘continuous functions’. Sometimes you have rules based upon categories like single/married or male/female that are clearly defined (more in some states than in other). But most of the time you categorize by drawing a line on the graph of a continuously varying function like age. You can vote when you are 18. You can drink when you are 21 etc.

What is the right age at which you can vote? Actually age may not have much to do with it. Education, mental maturity may have more to do with it. But those are harder to measure or indisputably agree on. So age is the best proxy.

The voting age does differ from country to country, so obviously there isn’t one right answer. But once it is in place, a rule like the voting age, just digs itself in. It becomes very difficult to change. Status quo itself has inertia. Additionally, there may be vested interests that are pushing at it from both sides. It becomes very difficult to change. Greece’s early retirement age, for instance (55).

Rules like clean categories. If the real world presents continuous functions, rule makers chop up the continuous function to create clean categories. Once these categories are created, they are very difficult to change.

There is another property of rules. You can always add more. They are very much like things carved in stone. You can’t erase them, but you can always add more.

It’s tax season here in the US. The US tax code is a labyrinth of rules and loopholes and rules to close loopholes that is impossible to deal with. Everyone agrees that it is far too complex. But somehow law makers keep adding more deductions, more rules to the tax code.

The most interesting thing about rules is how they eventually become rituals. Rules endure, and outlive the rule makers. On the way, generations of rule makers keep adding more rules, but they never take anything away. One day the rule makers no longer know why the rules exist. But they keep enforcing them. They have become the priests and the rules, rituals.

Here’s a Zen story that hits home

When the spiritual teacher and his disciples began their evening meditation, the cat who lived in the monastery made such noise that it distracted them. So the teacher ordered that the cat be tied up during the evening practice. Years later, when the teacher died, the cat continued to be tied up during the meditation session. And when the cat eventually died, another cat was brought to the monastery and tied up. Centuries later, learned descendants of the spiritual teacher wrote scholarly treatises about the religious significance of tying up a cat for meditation practice.

I recently met the CIO of a leading news media company. He said that over time their Marketing department had added so many “special offers” for their newspaper that they now had 1200 of them in their system. Nobody really understood all of them. But they were afraid to remove them. Why change something that wasn’t broken? Apparently there was a rogue link in some forum which gave readers a free 3 month trial period even if they were current subscribers! But that was a small price to pay.

Businesses, especially big business, has its share of rules and rituals. Some of it is necessary. Some of it isn’t. The cost to business from unnecessary rules is enormous. It slows down progress. It gets in the way of much needed change. It saps the energy of people. They end up spending so much of their passion attacking and defending rules and justifying exceptions, which could be used constructively.

The only way to keep business agile is to constantly subject its rules to the sunlight of logic. Why do we have this rule in place? Did we make this rule when the conditions were different from what they are today? Do we completely understand the costs of this rule and have we weighed them against the benefits? Does anyone even remember why we have this rule?

Like zero based budgeting, we should be talking about zero-based rules.

Everything’s a Game

I recently crossed a 100 miles per gallon with my Chevy Volt. For those of you who live in “advanced” societies that follow the metric system, that would be 42.5 km per liter.

If you fell out of your chair at that number, that’s probably because you don’t know that the Chevy Volt is an electric car with a back up gasoline engine. A full charge takes me about 30 miles after which it switches to the petrol engine. So if I keep driving on my battery, the mileage keeps improving.

I crossed a 100mpg after some effort. I charge the car using a standard 110V outlet which takes 10 hours for a full charge. Which means that I have to remember to plug it in at night, otherwise the next day I’ll be driving on gasoline. I now regularly forget to charge my iPad, but almost never, my Volt.

So when I crossed 100 mpg, I was naturally quite thrilled about it. I posted this tweet

To which I got some responses that were humbling. Like this one

https://twitter.com/GeorgeRobison/status/170950408829800449

After which I joined voltstats.net and kept at it. My mileage is now 104mpg.

Why would I spend any time pushing my mileage up? And then joining a website with a bunch of people who are similarly engaged? I get nothing out of the deal. Yes, there is some satisfaction on doing my bit to save the planet, but anything over 17mpg (my previous car) would have been an improvement. Why go for a 100?

This behavior, that would make no sense to economists, is driven by what is called gamification. Apparently we are all wired to play games.

There’s a lot of action around gamification of the enterprise. SAP is investing in this area. Salesforce.com bought a company Rypple that uses gamification to improve employee performance.

Outside of the enterprise Stackoverflow uses badges and so on to reward certain activity. My daughter does Math exercises on Khan Academy, which awards badges after you win a certain number of points. It certainly keeps her going without much complaint. We offered her a reward for every 10,000 points. But she has never claimed it. Achievement is its own reward?!

But I wonder if the psychology at work here is the same thing that makes us play silly games, board games and basketball? Does that capture what is going on here?

I think there is something else at work here. If you can measure something and if you can influence it, that something automatically becomes a challenge, a contest. Is it the overachiever in you that compels you to better your best score (or someone else’s)? Or is it your playful, game loving side? Perhaps they are all at work here – play, achievement, competition – just in varying proportions for different people.

Whatever it is, we will see more and more of it in our companies. For a game to be successful, the measurement of outcomes should be largely driven by game play not by random or extraneous circumstances. As life gets more digitized, such opportunities will keep popping up.

Ten years ago, you could never have had a contest on how many friends you had. Now I can say that I have more Facebook friends than you.

Is Simplicity a Winning Strategy?

If such an award existed, Ron Johnson would be a Hall of Famer retailer. He was instrumental in making Apple Stores what they are today – the biggest sales per sq ft of retail space and a wake up call for the rest of the retail industry. Now he is the CEO at J C Penney and he’s shaking things up there.

Mr. Johnson is currently meeting the media, rolling out his new strategy for J C Penney (the video interview is worth watching). There’s a new brand identity, a major redesign of stores which will now be organized around stores-within-stores for major brands. But the thing that struck me as particularly bold and perhaps risky was a fundamental change in pricing strategy.

J C Penney is moving to what they call “Fair and Square” pricing. There will no longer be the deep discount sales that its customers have come to expect.

Why are they doing this? In Mr. Johnson’s words

Pricing is actually a pretty simple and straight forward thing. Customers will not pay literally a penny more than the true value of the product. And as I have been watching the department stores for the past decade, I have been struck by the extraordinary amount of promotional activity, which to me, didn’t feel like it was appropriate for a department store. My instinct was that it wasn’t a good thing.

Last year J C Penney had 590 sales events. A whopping 72% of their sales came from merchandise discounted at least 50%.

From this, they are moving to where there will be only three kinds of prices – Everyday, Month-long Value (back to school type sales) and Best Prices (clearance).

This is a pretty gutsy move.

An HBR blog post is down on the timing of this strategy and thinks Penney should wait for when its new brand and stores vision has been fulfilled.

Quite simply, J.C. Penney lacks the differentiation to make this pricing strategy successful. J.C. Penney’s products are fairly homogenous. When selling a relatively undifferentiated product, the only lever to generate higher sales is discounts. Even worse, if competitors drop prices on comparable products, J.C. Penney’s hands are tied — it is a sitting duck that can’t respond.

In my opinion the new pricing strategy is an inherent part of the new J C Penney strategy and can’t be disassociated from the store makeover and the new brand identity.

Undoubtedly this is a risky gambit. But is it the right strategy? At the heart of it, the new pricing strategy is about simplicity.

Customers like simple, stable pricing. A busy housewife would love to be able to do her shopping at the Penney store near her place of work on weekdays, instead of fighting for parking space at the mall near her home on the weekend when the sales are on. When she is in the store, she can confidently buy any product with the assurance that its price isn’t going to be halved the next sale.

There is another aspect to simple pricing that Penney won’t be able to control and that is to ensure that prices on merchandise are the same everywhere. Apple does this very well on their products. When I buy from Apple online or in an Apple store, I am pretty certain that I don’t need to do any comparison shopping on the internet.

Customers like simple pricing. But they also like low prices. We don’t know where Penney’s prices will end up, but if 72% of merchandise is sold at 50% or more off full price, we can safely say that there is a lot of headroom below full price. Will that be enough to keep their customers or not is the key question. How they withstand the pressure of weekend sales from competing department stores must be giving sleepless nights to Penney executives.

After years of weekend sales, customers now expect them. They expect to see those flyers in their mailboxes with astonishingly low prices. How will Penney pull in the customers? Local marketing will probably have to completely change.

Besides the fact that customers like simple pricing, there are other benefits to having a simple pricing strategy. Highly volatile prices create highly volatile demand. Volatile demand creates its own set of problems. From store work force scheduling to inventory management. High volatility in demand results in either stock outs or higher inventory costs or both.

The fact is that simplicity in product and pricing results in simpler business operations.

Take Southwest Airlines for instance. From an earlier post The Virtue of Simplicity

Southwest Airlines is a company that I truly admire. The genius of SouthwestAirlines is in how they have become the most important airlines in the US by simplifying it for their passengers and for themselves. In the morass of complexity that is the American airlines industry, Southwest Airlines is a shining beacon of hope. Not only is their pricing dead simple, everything about the airlines is that way. They fly only Boeing 737s. This simplifies, crew scheduling, training, aircraft maintenance and spares. They have only one class – coach class. There is no seat assignment. It’s first come first serve [Update: This has changed but in a uniquely Southwest fashion]. And their frequent flier program is a tribute to simplicity – 8 round trips and you get a free roundtrip to anywhere they fly.

I hope J C Penney is successful with ‘Fair and Square’. Taking a leaf out of the book of their neighbor in Dallas – Southwest Airlines – might be just what the retailer needs.

And then we shall hope that this might inspire banks, telcos and cable companies to adopt simpler pricing strategies. And pigs will fly.

Robert Scoble ko gussa kyon aata hai

With due apologies to my non-Hindi speaking readers. A Bollywood film with a similar title just fit so nicely. It means “Why is Robert Scoble so angry?”

And boy is he angry. A couple of days back, Robert Scoble, who hopefully needs no introduction to readers of this blog, posted a rant on the usability of Workday which his employer, Rackspace, uses for employee travel expenses. A quote is below. The video is far more telling. In that, Scoble is visibly frustrated and angry.

It’s not everyday I complain about software, but, sorry, Workday really sucks. If you are considering an expense reporting tool, get Expensify.
Why? What’s wrong with Workday?
It’s slow.
It constantly gives me errors and doesn’t let me enter data.
It isn’t easy to enter lots of data.
It doesn’t hook up to my credit cards.
It doesn’t have a mobile app to upload photos of receipts.
It doesn’t let me do milage by entering in a start and end point on a map.
Expensify is far superior. It takes 1/100th the time for me to do an expense report there than in Workday.

Commentators have wondered about Scoble’s motive here. Workday Rising, Workday’s annual user group meeting roughly coincided with his rant. Was it designed to stir up controversy at just the right moment for controversy to strike? Bloggers thrive on controversy, do they not?

But I totally get where Scoble is coming from, foam-flecked tirade and everything. I call it Enterprise Rage. It is similar to road rage. If you have it, you feel like stepping out of your constrained space (car, cubicle whatever) and punching somebody in the face. Or screaming your head off, if that takes your fancy. But you can’t because you’ll get fired or run over. So, those who can, make videos and vent. Others take up hobbies or rack up therapy bills.

Enterprise Rage can be caused by many things. For instance, things that are wasteful and frustrating and don’t have to be. Like submitting an expense claim.

Workday is a new breed of enterprise software company that I hear does care about usability. And expenses is not central to what they do (but then does that mean you can put just anything out there?) But even so Workday would be an exception. Enterprise software vendors, in general, don’t care about usability.

Why? Because enterprise software does not have to bother about usability. Their software is demoed and sold to executives. Executives care about dashboards and business intelligence. Will I be able to use it from my iPad? How many hours before I can get that report? Ooh, that pie chart looks so good. Can I have it?

Feature, function matter of course. But usability in the hands of employees is rarely a selection criterion. Executives have assistants to log expense statements. They don’t even know there are usability or performance issues with the expenses system. And the employees, poor sods, can’t get their expenses reimbursed without using the system.

The problem of bad enterprise software never rises to become a big issue in companies. Mostly because employees are not given a choice. If the software isn’t working, work stops of course. But if it is, there is no other way of getting your work done. It might be difficult to learn, difficult to use and slow as molasses but hey, who said you had to work just 8 hours a day. Besides, if a company has already spent millions on the software and its implementation, airing grievances about its usability is generally not encouraged.

There is one area, though, where usability already greatly impacts the value the company gets from the software – CRM. Unlike with other workflow type software, where there is no way around, with CRM, if the salesforce doesn’t like the CRM, information just doesn’t go into the CRM. Sure there’ll be some mandatory pipeline updation, but not much else. The rich, stream of customer meeting notes which are invaluable to team-selling are all lost to emails and phone calls. Or just plain lost. I’ve used at least half a dozen CRM systems extensively in my career and the best one in my opinion – Highrise from 37signals. Not surprisingly it was designed for small sales teams. It wouldn’t work for any large enterprise, but it is so easy to use for the sales person, there is no need to coax, cajole or threaten them to just “use the damn system”.

Enterprise software vendors need to wake up. Employees now know what a good, performing user experience feels like. They use a whole bunch of great software in their personal lives from companies like Google, Apple and Twitter. Also, for every Workday, there is an Expensify that is born in the competitive cauldron of small business software where assistants are rare and software with sucky usability won’t survive.

Two, productivity in the US and other advanced countries has been inexorably rising even through the recession. Which means that higher output is expected from employees. You can’t expect more out of employees and give them crappy software to work with. They tend to get upset and go vent on their favorite social media site. If they are someone like Robert Scoble with a big megaphone, the software vendor better watch out for its reputation.

There will soon come a day, when prospective employees will first inquire about compensation and benefits. And then they will ask “What system does your company use for collaboration/crm/expense reimbursement?” Maybe not while we are in this economy. But the time will come.Till then, expect more of the same.

What Apple Means to Me

On Wednesday, as I trudged out of Oracle Open World after Larry Ellison’s keynote, I learnt that Steve Jobs had passed away. It threw a pall of gloom over me and most of the attendees.

The world is poorer without Steve Jobs.

On Thursday I was talking to my 15 year old son about the significance of Steve Jobs and how he was being compared to Thomas Edison. He was curious. “Was Steve Jobs an inventor like Edison?”. No he wasn’t but in Edison’s days, a single invention like the light bulb could directly become a product. Today, there are hundreds of patented inventions that go into a new product. They come from different companies that have scientists in many different streams like material science, semiconductors, manufacturing technology and software.

No Steve Jobs wasn’t an inventing genius. But he was a creative genius like Edison. And they were both great businessmen. Apple at the height of its market power (today?) is as awe inspiring as General Electric ever was. Probably more.

In 2008 I switched from a Windows laptop to a MacBook. Before that the only Apple product I ever owned was an iPod. My experience with my MacBook was so superlative that I became a fan. In the short time since my first MacBook I acquired an iMac for my son, an iPad, an iPhone, Airport Express, AppleTV and Time Capsule.

To me, Apple is exceptional in two ways. First, it melds, like no other company, these often conflicting objectives – functional design and visual design, usability and feature/function, software and hardware, engineering and beauty.

Two, it seeks to excel, to set the standard in whatever it does. Look at the way it reinvented retailing in Apple Stores. And in a field that it entered in the last decade. Today retailers around the world look to Apple stores as their role model.

Steve Jobs was essential to both these things. When conflicting objectives collide and trade offs had to be made, he made the important ones. And when a product was not up to snuff, it went back to the drawing board, again and again until Steve thought they had it right.

Apple may still have all the same creative geniuses that they had last week. But how do you replace this dynamic of a “Chief Designer & Chief Executive Officer”?

In 1994 when I came to the US my great regret was that I had not been able to see Michael Jordan play. That was soon remedied as he came back to the NBA. But this time, there are no comebacks. I can only wish I had gone to an Apple conference to see Steve Jobs on stage in his element.

R.I.P. Steve Jobs. This Macolyte mourns you.