I’ve had the opportunity to read an advance copy of The Logic of Life by economist and journalist Tim Harford, aka The Undercover Economist. Harford is no dry ‘dismal scientist‘. His earlier book was an international success, explaining the micro-economics of coffee, the cost of pollution and the dynamics of auctions. Highly informative and educational, it was an entertaining read, and a hard act to follow. Can he repeat his success with this new book?

Harford draws on academic research from around the world to explain why so much of what makes up modern (and ancient) society is based on rational behaviour. It’s no dull read, as he repeats his ability to both educate and entertain. I should warn you, however, that he begins by exploring the rise of oral sex among teenagers, and that’s just for starters. Idealogues of gender, morality or class may find some of Harford’s subjects and arguments hard to take, rational though they may be to those of more classic liberal persuasion. The Logic of Life is full of rich pickings for an idea-magpie like me - too many to list here, but including why cities exist, and why your boss is paid more (it’s to encourage you!)

One example I’ve already used to show off at the lunch table was how prejudices can arise. A simple laboratory experiment divides the participants into ‘employers’ and ‘workers’, and the workers into ‘Greens’ and ‘Purples’. Workers can opt to spend ‘money’ on ‘education’, which will improve their ‘test results’ (determined by dice throw with weighted odds favouring the educated). Employers only know the person’s test results and colour code (which has no significance). Employers are rewarded when they hire someone who has been educated, and penalised when they hire someone who has not.

By statistical fluke, slightly more Greens gambled on education in the first round. Employers picked this up through the test results, and started to see Green as a positive indicator, albeit slight, The workers also started to notice this: Purples started to not invest in education, while Greens tended to invest. Through 20 repetitions, what had been a slight statistical fluke turned into a self-perpetuating prejudice that affected the behaviours of nearly all participants. By the end, Purples were uneducated and had no faith in education, and employers were rationally shunning them. Powerful stuff.

I’d recommend The Logic of Life to anyone, including business people, with an interest in why things are the way they are. However, the people who absolutely should read this book are our elected representatives and the policy analysts who serve them.

As well as being an entertaining and informative author, Tim Harford is an award-winning speaker, he writes a regular column for the Financial Times FT magazine, he presented the BBC TV series Trust Me, I’m an Economist, and he now presents the BBC radio series More or Less. He won the 2006 Bastiat Prize for economic journalism and he also writes an entertaining blog. Tim Harford is on an international speaking tour and will be in Wellington in late February.

A British blog - The Fat Pink Pig - has published two tongue-in-cheek articles which I’ve added to my list of daft business book titles:

• The Michael Corleone Guide to Business

• The Simpson’s Guide to Personal Finance

When I close an account with someone, I nearly always tell them why - usually simply because my need for that service is over, thankfully rarely for bad service. So it’s astonishing how many businesses with otherwise good service processes handle account closures badly. Bureaucratic forms, non-standard processes, fumbled service terminations, over-billing, and slow repayment of credit balances are often made worse by lack of acknowledgement of the closure request and surly treatment not shown at other times. Don’t they realise that I might be a customer again at some future date? Even if not, that’s no excuse.

So it’s pleasing when someone does it right. When I emailed Fairfax to close my newspaper subscription because we’re planning to be based overseas for a while, I got a very fast response confirming cancellation of my usual subscription invoice, confirming the last date of delivery, and promising a revised subscription invoice near then, finishing off with a cheery “Have fun overseas!”

I’m impressed by the process and the personal touch. Well done, Fairfax - and especially well done, Michelle Davison.

Most Much so-called green marketing is either preaching to the converted or tokenism. However, Steve Bishop from design firm IDEO has written for HBR about a green marketing initiative that turned into a classic “blue ocean” strategy, reaching people who aren’t in traditional customer segments.

..while the traditional marketing answer to the question, ‘Should we market to the green consumer?’ has been ‘Yes’, the better answer is this: ‘Instead of focusing on a green niche, focus on green behaviors that everyone can aspire to’.

… Shimano (the bike parts maker)… didn’t focus on cycling enthusiasts—the biggest segment in this market—or on the green niche. Instead we focused on a growth strategy with a “green outcome”—more people riding bikes and enjoying it. As a result, we turned our attention to the 161 million Americans who don’t ride at all.

… 1) everyone fondly remembers biking as a kid; 2) highly technical sports bikes and lycra-clad salespeople in bike stores put off would-be everyday riders. So Shimano pitched a concept bike to manufacturers that was intuitive and inviting. Mechanical components were hidden, handlebars were stripped of complex controls, and pedals, were well, just pedals. …. Nothing to learn, just jump on and go, like when you were a kid. That’s what gets people riding.

… Shimano is addressing a human problem… appealing to a mass market increasingly aware of our impact on the planet…. tell the green story implicitly by inviting people to engage in new, positive behaviors—like reducing greenhouse gases by pedaling—instead of driving.

For a company that wants to go green, then, the green consumer niche is almost irrelevant. I’m reminded of HBS professor Ted Levitt’s old marketing axiom that people who buy drills don’t need drills; they need holes. Consumers—whether they are green or mainstream—don’t simply want green products, they want solutions to their day-to-day problems that also make sense for our environment.

‘Green’ is like ‘quality’ and ’service’- necessary but not sufficient.

A while ago, I recommended Tim Harford’s best-selling book The Undercover Economist. Now it’s your chance to meet the man himself. Tim’s on an international speaking tour, coinciding with the launch of his new book The Logic of Life. He’s the guest speaker at a lunch in Wellington (his sole public appearance in NZ) hosted by the Chamber of Commerce

Tim’s no dry ‘dismal scientist‘. As well as being an entertaining and informative author, he is an award-winning speaker, he writes a regular column for the Financial Times FT magazine, he presented the BBC TV series Trust Me, I’m an Economist, and he now presents the BBC radio series More or Less. Tim won the 2006 Bastiat Prize for economic journalism and he also writes an entertaining blog.

I’ve already booked my seat. See you there if you’re in town.

Date: Friday 29 February 2008
Time: 12.15pm - 2.00pm
Venue: WRCC, Level 28, The Majestic Centre, 100 Willis Street, Wellington
Invest: $65.00 Members; $90.00 Non-members
Table of seven: Members $455.00; Non-members $630.00 incl. GST
RSVP: register and pay at www.wellingtonchamber.co.nz

Yesterday I wrote that strategic thinking shouldn’t be complicated, providing simple answers to basic questions about your market offer (to customers, staff, business partners and investors):

• What is your market offer?
• Who is your target market?
• Why are you making that particular offer, why that audience, and why will they accept it?
• How will you make your offer and how will you fulfill it?
• Where will you make your offer and where will you fulfill it?
• When will you make your offer and when will you fulfill it?

One of the most powerful strategic thinking tools I know is NOT thinking. No, I don’t mean that you shouldn’t think. Just ask yourself the same questions, but with the word NOT inserted:

• What is NOT your market offer?
• Who is NOT your target market?
• Why are you NOT making that particular offer, why NOT that audience, why will they NOT accept it?
• How will you NOT make your offer and how will you NOT fulfill it?
• Where will you NOT make your offer and where will you NOT fulfill it?
• When will you NOT make your offer and when will you NOT fulfill it?

Deliberately spelling out what you won’t do helps you to better define what you will do, and importantly it helps to keep you and your team on track.

What you’re not is as important as what you are.

Strategic thinking shouldn’t be complicated. When I run strategy sessions, I often start with a well-known quote from Rudyard Kipling’s Just So Stories for Little Children:

I keep six honest serving-men
(They taught me all I knew);
Their names are What and Why and When
And How and Where and Who.

- from The Elephant’s Child

You need simple answers to questions like this for customers, staff, business partners and investors:

• What is your market offer?
• Who is your target audience?
• Why are you making that particular offer, why that audience, and why will they accept it?
• How will you make your offer and how will you fulfill it?
• Where will you make your offer and where will you fulfill it?
• When will you make your offer and when will you fulfill it?

Actually, I have a seventh serving-man, but I’ll introduce Mr Not tomorrow.

A few days ago I wrote about the risk of being trapped by perfection in product development, Now marketing writer Seth Godin has written about the problem with perfection in execution. Once you reach a certain point of perfection, it ceases to be distinctive. Either your perfection becomes taken for granted (like water from a tap) or your competitors catch up.

I’ve often said that, in the long run, an average idea well executed nearly always beats a great idea averagely executed. But I also fervently believe that every company need to ask itself the big question - just what is it that you offer the market that is genuinely distinctive, and how will you develop and maintain that distinctiveness?

As a strategy consultant, I have been involved in dozens of businesses where the board and executive team’s sole idea for their future direction is to improve execution. Let’s improve quality, let’s hire better sales people, let’s eliminate waste, let’s improve customer service, let’s improve the way we manage our people. Now these may all be good things to do, but while they may be necessary, they are not sufficient for long term success.

If you blank out your name and product from your business plan, can you tell it isn’t from any of your competitors, or from say a cardboard box manufacturer? (That’s not to denigrate box makers by the way). You need a distinctive market offer, which essentially defines what is is you offer (tangibly and intangibly), to whom, how you will fulfill that offer, and why your customer will buy it.

Perfect execution may be part of your market offer, but is it enough?

Over on SaaS Blogs, Apprenda’s Sinclair Schuller has been written one or two articles recently about pricing strategies for Software as a Service. I’ve got another perspective, based on my experience as a corporate user of SaaS. The prevailing price model is a “one size fits all” approach, perhaps with some modular add-ons, but still based on the assumption that all your users want all features that you have subscribed. This causes a) the cost competitiveness of SaaS to fall away rapidly as you add users, and b) bizarre ideas for cost saving. Two genuine suggestions I’ve heard are:

• Let’s hire a part-timer to enter everyone’s timesheets and expenses over the weekend, and we’ll have just one user not 200; and
• We can build a cheap and simple web app that will record everyone’s timesheets and expenses, and it can upload them as a single user.

When someone makes earnest suggestions along those lines, you know there’s a serious pricing problem. The pricing model for the service ideally should reflect the value to the user, which will reflect the true pattern of usage. There are some users who need every function under the sun, there are some who need a lot, but just in their area of responsibility, and there are many who need just a few simple applications. The “one size fits all” model means that many perfectly good applications simply don’t get past the approval process on cost grounds, which is bizarre for SaaS, where the marginal cost per basic user is close to zero. (By the way, the same issues apply to on-site software charged per seat, and that doesn’t have the cost of operations in its charges).

I see five possible solutions (there are probably more):

• Allow full access for all users, but have a very rapidly diminishing price per extra user (far more aggressive that the feeble discounts most offer).
• Charge separately per function or group of functions accessed by different classes of user (which would require some thought; in the examples I used - the timesheet and expense function - most users input just once or twice a week, but the power comes from the reporting and processing of that data).
• Charge based on resources used (e.g. screens accessed, reports run, data held, akin to group mobile phone plans)
• Make input low cost or free but charge for output.
• Some combination of the above.

Whatever approach is taken, though, it needs to be easy to understand, easy to implement, and above all, predictable.

Tech entrepreneur Rod Drury neatly analyses the latest Apple announcements and thinks Steve Jobs has parlayed iTunes into the ultimate global uber-ticket clipper. How long before business darling Apple becomes the new bogeyman (a la Microsoft and, more recently, Google)? Not very long, I’d suggest. Let me hasten to add, what a problem to have!

Sorry - couldn’t help myself with that headline. I’ve enjoyed a stimulating lunch today with fellow business bloggers Jack Yan and Mark Di Somma. We only recently realised we all live in the same city, and this was my first meeting in person with them (at Vista on Oriental Parade, on a beautiful sunny day in Wellington; I recommend the smoked fishcakes and the coffee is superb).

There was no agenda for our meeting other than getting to know each other. Both Jack and Mark have lively bubbly personas and the conversation somehow covered how we got into blogging, the emotions we felt when visiting major battlefields, funny stories about airport incidents, and much mutual shaking of heads over timid strategy making.

We all feature branding strategy in what we do, albeit from different angles. Jack is publisher of fashion magazine Lucire, co-author of “Beyond Branding” and a consultant. Mark is a also a branding consultant, especially in business sectors facing seismic change. I focus on “the market offer” and how that is carried through into every aspect of strategy and execution.

Will anything come out of this? Who knows, but we’ll definitely meet again soon.

Rowan Simpson, successful web business product strategy guy (Trade Me and Xero), has written about the development choices for web businesses:

1. Spend months and months (perhaps longer?) trying to make the site perfect before letting it see the light of day.
2. Throw it out there, and follow quickly with a huge marketing campaign hoping that people won’t notice that the site itself isn’t all that you’re cracking it up to be.
3. Launch quietly, get a few users, watch closely to see how they are using the site and how you can make it better for them, be patient, continuously improve the site, and focus on making sure that those people who discover the site have a good experience and tell their friends.

He argues that, while each option has flaws, option 3 worked for the web’s big successes (Google, Yahoo, Facebook, You Tube, Amazon, eBay, My Space, etc, etc).

Rowan’s article reminded me of our incremental development approach at Deltec (now part of Commscope). Deltec’s first Teltilt cellular base station antennas were clunky, requiring skilled soldering of complex components and precise lengths of coaxial cable. The unique actuator mechanism to vary the length of the signal pathway and change the beam pattern was a large, clumsy, brass trombone structure, adjusted manually or by an electrically driven screw drive, with an inflexible, hardwired user control unit. It was difficult and costly to make - just as well we only made 10 a day. Three years later, the antennas comprised enormous (1m long) printed circuits with almost no cabling, snap and fit assembly, a tiny precision actuator mechanism, a PDA control unit, and we were shipping hundreds a day - with a similar workforce. Today, the Teletilt technology is licensed to most of the leading antenna makers. If we’d waited to get everything perfect, we’d have not created the market we did, and missed the window of opportunity that enabled us to compete successfully with companies 50 times our size.

One instance of not getting trapped by perfection was dual band antennas (a 900MHz antenna and an 1800MHz one mounted in the same enclosure). Everyone said that these had to be no bigger than the existing 900MHz antennas (lower frequency = bigger antenna) to minimise visual impact and cell tower loading. That would mean fitting the 1800 MHz elements in the gaps between the 900 MHz elements. We could have done it, but it would have taken us another year or more to develop and redesign. Instead, despite the sales team’s objections, we focused on the primary need - antennas with both frequencies. We just mounted a 900MHz antenna alongside an 1800MHz antenna inside a 50% wider enclosure, and launched it within a few months. For a long time, we had the only dual band adjustable beam antenna on the market, which helped reinforce our place as the leader in our niche.

And guess what? No-one was worried about the 50% bigger size, and we never did develop an interleaved version. There’s another lesson there - the customer might tell you something’s important, but it ain’t necessarily so!

“There is a market for everything — even dead bodies.” One of the odder things I read over the holiday was a thought-provoking article on the Harvard Business School Working Knowledge site. “Having a cadaver for a medical student to practice on is something we like to see happen, but few really want to know how the cadaver was procured,” according to Harvard professor Michel Anteby.

Medical students use cadavers to gain experience, and their future patients are better off for it. Traditionally, cadavers have been obtained through university programs, but now entrepreneurial ventures are springing up to meet the growing demand for cadavers in medical training, in medical research, and for the development of new medical devices.

Given the sometimes uneasy feelings around the topic, it’s easy to understand how such entrepreneurial organizations (both for-profit and nonprofit) could make some people apprehensive, even raising instinctive fears of bodysnatchers looking for a quick payday.

Anteby studied the different strategies adopted by a not-for-profit academic organisation and an entrepreneurial venture. Both operated ethically but differently - the academic program provided “healthy” cadavers to medical schools while the entrepreneurial program provided “diseased” cadavers to research labs and medical device makers. Anteby wanted to see if there were any insights from the different approaches which could enable an increase in the availability of cadavers for research and education (a serious problem).

For me, the interesting point was this:

“There are many assumptions that can be made around ‘gray zone’ entrepreneurial ventures that bring up issues of legitimacy and moral order,” Anteby says. “Some of these assumptions are probably justified, and some need to be revisited.”

Society frequently changes its view on ethical/moral issues and money. Witness New Zealand’s decriminalisation of prostitution, or conversely, the Netherlands overturning its previously laissez-faire attitude to cannabis “coffee shops”. Protecting the disadvantaged from exploitation is important, but should that exclude reasonable ethical entrepreneurial endeavour? Why shouldn’t a healthy, well-informed and fully-consenting surrogate mother be paid for her services.

The vast majority of people in business don’t have to deal with such deep issues very often, if at all. But all business people need to think about the appropriate ethical base (whatever it might be) for their own business. Have you?

Update: Just a few hours after posting this, Tim Harford (of Undercover Economist fame) posted an article on organ donations: “The obvious - and sadly unacceptable - solution is a market for organ donations”.

It is an enormously sad time in New Zealand. Sir Edmund Hillary, conqueror of Everest and traverser of Antarctica, has died. Sir Ed, as he was known with great affection, is a New Zealand icon, the man alone, the staunch ordinary bloke, not too intellectual but thoroughly decent, who’d always look after the other fellow, and who was always far bigger than his physical feats. Ed Hillary epitomised how Kiwis see themselves. He was the “ordinary joker” that “knocked the bastard off”. Farewell, Sir Ed - New Zealand incarnate.

Everyone’s heard of the Swiss Army Knife, made by Victorinox. Most boys got one for a birthday or Christmas. I remember my father explaining all the tools on my new knife, and telling me with a straight face that the big spike tool on that particular model was for getting small boys out of horses’ shoes.

Victorinox was seriously sideswiped from an unexpected development - heightened security measures at airports -which killed off a large part of its sales: airline passengers buying a Victorinox knife as a souvenir or present before boarding a plane.

Victorinox overcame this major challenge to its survival. Now Mark Di Somma has written an article on Victorinox as a symbol of the dilemmas and opportunities faced by iconic brands when they seem to have passed their use-by date. It’s not a long article, so read it for yourself, but Mark’s six learnings from Victorinox are:

1. Competition comes from the strangest places.
2. Country of origin can be a powerful product advantage if it is compatible with your values and the way that people perceive you.
3. When the visual association with your brand is as strong as the bond that people have with Victorinox, you can diversify successfully.
4. Your most powerful association may not be the most important part of your business.
5. A labour-intensive production process can be a competitive advantage.
6. One of the great rewards of great combination of legacy and idiosyncrasy is that one day another generation will discover you and be just as intrigued as their forebears.

Businesses spend a fortune protecting themselves from outside security threats, but too few recognise that their biggest threat is from those already inside the security fence - i.e. their own staff. While 99.99% of staff are honest (give or take the odd dubious “sick day”), now and again someone on the company payroll may do some damage. The biggest corporate thefts are perpetrated by insiders - from simple pilfering of retail stock (women’s fashion retailing is particularly bad) through bogus invoicing all the way up to stock option manipulation.

One area of risk that’s often overlooked is IT. Malicious programming which steals a cent here and there over time can cost millions. Disgruntled employees can do nasty things to your systems, e.g. stealing your data, corrupting it, or building “logic bombs” to bring down your systems.

While you can manage most of these risks (many don’t), there is one group of IT staff that is almost impossible to monitor - your system administrators. They have the keys to unlock everything - because that’s what they need to do their jobs. They can read your emails, payroll files and personnel records. They can access your payment systems. They can install spyware behind your firewall. And they can cover their tracks easily, because their tools enable them to change just about anything that is recorded electronically.

I’ve heard many times that”our people wouldn’t do that”. In most organisations, that is absolutely correct. Most system administrators are decent, hardworking, honest people (and I include my recent colleagues in that category). Many have a deeply ethical approach to their role. However, as a recent US court case reported by Computerworld shows, you never can be absolutely sure.

There’s no magic bullet for this problem. Some organisations only use long-term trusted employees as system administrators. Others vet new hires very carefully before appointment. Smart businesses deliberately cultivate an ethic of trust and integrity, carefully screen and select staff, manage them well, and oversee change processes very closely. But in the end, you still rely on your staff’s personal ethics and the alertness of other staff. Don’t kid yourself. The risk may be lower, but the risk is still there.

Global car giant Toyota occasionally announces key projects to enter or create new markets. Toyota doesn’t make such project announcements lightly - it means to deliver. The Lexus project took Toyota successfully into the luxury car market, at least in the US and Japan. The Prius project was a very serious move to develop fuel-efficient vehicles. (They don’t expect to make money on Prius yet. They’re building a long term vehicle technology capability to replace current mainstream technology.)

So when, according to the Huffington Post, Toyota announces a new project to address the world’s biggest growth market - the old - it’s worth paying attention.

Toyota wants to investigate a swathe of technologies which will make driving easier and safer for elderly drivers. That’s all fine and good. However, as I’ve argued before, I hope they don’t market the resulting products as “cars for old people”. Marketing something as a “senior” product rarely works. Most seniors are “normal” people in most buying decisions and find the idea of senior products patronising, even insulting. So the marketing of senior products has to be very subtle. It’s no accident that grandmother’s Kumfs shoes are advertised by attractive younger women. Kumfs target customers know virally that those shoes are for them, with the messages of “style and comfort”.

It’s my opinion that most people buys cars on pure emotion (albeit under a thin veneer of rational analysis) - e.g. prestige, security, or “I like the colour”. Create negative emotions and you’ll lose the customer. So I’d market these “senior ” safety features as just that - safety features. Let the customer join the dots.

PS I hold in Toyota securities. 

Update: Irv Miller (Toyota US VP and corporate blogger) comments below that, at 277,000 hybrid vehicles a year, Toyota doesn’t do it for charity.

I wrote yesterday that the UK’s GDP per capita is forecast to outstrip the US in 2008, which hasn’t been seen since the 19th century. On the same day that the BBC reported this prediction, it also reported that UK business confidence is at a 2 year low. What’s going on here?

The thing to remember is that business confidence surveys are very short term in focus. The global credit crunch and overdue corrections in housing are causing some serious ripples in the world’s economic fabric. Have a tough quarter, with no immediate sign of let up, and you tend to respond to surveys in a grumpy mood. Everything is relative - having had a long run of reasonably steady growth, of course the short term outlook looks less attractive by comparison with what’s gone before.

That doesn’t alter the fact that the UK economy has substantially improved, and there’s a lot going on. The world is still awash with cash looking for a productive home (actually even more so, now that property is on a slide). The BRIC countries (Brazil, Russia, India and China) are unlikely to be derailed, as they experience long term economic expansion similar to the West’s expansion in the 20th century. In the same way that Australian miners and New Zealand, farmers will continue to benefit from the growth of the BRICs, so too will Britain’s bankers.

Why? London sits at the heart of the financial and trading systems for the world. Through greater innovation, flexibility and smarter regulation, it has stolen New York’s clothes over the last 15 years. One further reason - putting it crudely, no other major finance centre has London’s level of trust. Nations and cities have brand values too, and like any brand, they’re hard to build and easy to lose. The Americans have seriously damaged their reputation, other European centres don’t have the systems or scale, and the BRICs don’t trust each other or the Japanese.

All that financial and trade flow through London will spin off into the broader economy. So yes, there will be short term fluctuations, but the longer term UK outlook is rosy.

The BBC reports that the UK’s Gross Domestic Product per capita will be higher in 2008 than that of the USA, something that hasn’t been seen since the 19th century. According to forecasting firm Oxford Economics, the UK’s GDP per head of population will reach £23,500 - £250 higher than in the US. UK GDP per capita will also be higher than Germany (£21,665) and France (£21,700), it has predicted.

While this has to be taken with a pinch of salt (most notably, the figures have not been adjusted for local prices, and US prices are lower than European ones), it does reflect a remarkable turnaround. Only 15 years ago, UK GDP per capita in the UK was 34% lower than the USA, 33% lower than Germany, and 26% lower than France.

Oxford Economics says that the UK’s improvement isn’t mainly due to the USA’s weak exchange rate, but rather reflects a prevailing multi-year trend. For those bewailing the relative economic prospects for countries like New Zealand, the UK (like others before it) shows that national economic performance can be radically improved in a relatively short timeframe (in macro-economic terms). As the Pantene shampoo ads say, “It won’t happen overnight, but it will happen”. The big question: how much of this improvement is down to long term consistent government policy, how much to individual firm excellence, how much to economic cycles, and how much to simple good luck? Probably a mix of all four, but there are bound to be lessons in here for governments.

Since I’m planning to spend a lot of time doing business in Britain, this prediction is good news for me!