Category: Business Tools

The trouble with being SMART

January 30th, 2016 — 1:41am

2016 is here. Worldwide, managers are setting SMART – Specific, Measureable, Achievable, Relevant, and Timely – performance goals. Even though the underlying theory – Management by Objectives (MBO)– has lost credence, this catchy mnemonic, which George Doran coined in 1981, has not. The time is upon us to retire SMART for all managers and executives from whom we need discretionary effort.

MBO lost credence because “The boss knows best” paternalism no longer works well. Global companies are transforming structurally to free emerging businesses from top-down strictures. Open source communities, coordinated by respect for expertise, not central authority, are creating technologies and products. Innovative workplaces are giving employees time off the clock and free resources, and benefitting from their unmeasured, untracked tinkering. Such environments thrive on distributed leadership and decentralized, uncounted action, and SMART goals can’t add to, and inevitably subtract from, them.

The problems with SMART run deeper and can damage even organizations that don’t need to unbundle business units or use open source approaches. The business environment has fundamentally changed. Companies no longer compete individually, but as members of networks: Apple couldn’t create the iPhone, or Airbus the A350 aircraft, without collaborating with others. Network members may be located half a world away, and inevitably have their own strategies, processes and cultures. So, complexity, uncertainty, and ambiguity abound, which allow problems and opportunities flash across these networks with blinding speed, meaningfully affecting performance. SMART goals implicitly assume staid environments that are far removed from these realities and can keep executives from responding appropriately.

Problems with SMART arise from virtually all elements of the acronym. ‘Specific’ goals, clear-cut and definite, are easy to articulate and act on. They enable quick assessments of individuals’ successes. However, when used extensively, they reduce discretionary activity and limit broader action. I once facilitated a meeting between two groups of senior executives, each from a well-known global company, whose businesses had merged. One group described how its corporate values drove performance evaluation and gave it freedom to act. The other retorted that its values were the five tasks set for each by his/her boss; each manager could, and did, decline to work on any initiative unless specifically tasked to do so. Guess which company had acquired the other? Guess which one’s stock price has usually outperformed the other’s?

‘Measurable’ goals have become an unshakeable article of faith, commonly justified by physicist Lord Kelvin’s dictum, “If you can not measure it, you can not improve it.” Such goals make it is easy to decide not just whether someone has performed, but how well. In so doing, they implicitly emphasize efficiency (doing something optimally, even if it is the wrong thing) over effectiveness (doing the right thing, which may be hard to discern). To make this point, I often ask senior executives to identify a single factor whose absence would destroy their businesses. They inevitably – and quickly – converge on ‘Trust.’ They are right – how much would you get done if you had to personally check every single word you were told? I then ask, “How do you measure trust?” They don’t – and can’t: this critical driver of business success is immeasurable. Instead of spouting Lord Kelvin out of context, executives should internalize the words attributed, perhaps aphoristically, to Albert Einstein: “Everything that can be counted does not necessarily count; everything that counts cannot necessarily be counted.”

Since ‘Achievable’ may produce inadequate outcomes, many companies set ‘Ambitious but achievable’ goals. Regardless, this criterion disregards our knowledge about human motivation. As Daniel Pink has brilliantly summarized in a YouTube video popular in business schools, carrot-and-stick approaches improve performance only when work is physical. Intellectual work benefits from allowing people to develop mastery in a field and giving them the autonomy to act therein. So, the quintessential carrot-and-stick nature of Achievable goals limits their relevance to managers. To drive supernormal performance, we should instead give people responsibility for accomplishment, and allow them to set their own targets consistent with organizational goals.

Goals are supposed to be ‘Relevant’ – not just to the organization, given its environment – but also to specific individuals and groups for whom they are set. The first criterion is undoubtedly reasonable, and on a prima facie basis, so is the second: why set a goal that isn’t applicable to, or deliverable by, the people in question? In reality, ‘relevance’ inevitably results in an enduring, widespread problem: organizational silos that hinder collaboration. For example, a sales team accountable for customer satisfaction is likely to have conflicts with a supply network team accountable for minimizing inventory. However, these silos would collaborate in their own interest if each was assessed (in part) on the other’s accountability – in effect measuring them for something that wasn’t relevant to their daily work.

How could ‘Timely’ not be legitimate? Very simply because it has become code for “as soon as possible.” We have made a virtue of speed to the exclusion of every other meaningful, and important organizational goal. Business textbooks assign critical importance to “first mover advantage” even though irrefutable examples of its falseness are readily available. When was the last time Apple launched a truly first-in-the world product? Was Google the first search company? Was Facebook the first social media offering in its niche? How are Chinese and Indian multinationals, Johnny-come-latelies to international markets, giving established Western firms a run for the money? When ‘timely’ equates to solely to speed, creativity, effectiveness and yes, even efficiency, suffer, sometimes irreparably.

What should executives do? They should reserve SMART goals solely for people who have limited discretion. For everyone else, they should begin goal setting with non-specific, qualitative, “can’t be done” diffuse and “time is one of several criterions” goals that give people autonomy and mastery. Indeed, they should urge them to propose goals for themselves. They should add SMART goals, only where they are truly unavoidable, and there too, with enough fudge-factors to ensure they don’t become limiting or constraining.

In effect, throughout the goal setting process, they should ask themselves: Am I paying attention to issues that truly matter? Am I truly leading an organization of people, or am I merely checking boxes to show that my job matters? Being SMART is easy, but that doesn’t make it right.


A shorter version was published by Forbes on January 12:

Comment » | Business Tools, Company Performance, Corporate Culture, Leadership

The Duel of the Physicists

April 11th, 2011 — 3:21pm

Peruse any forum on business and sooner or later, you will find a discussion on the value of metric-based performance appraisals. Almost inevitably, you will also find a reference, attributed or not, to Lord Kelvin’s famous dictum, “If you can not measure it, you can not improve it.” (Here’s one example: Metrics, metrics, metrics. “If you don’t measure it, it won’t happen.”) Finally, you’ll also probably note that the discussion’s initiator heavily favors measuring. In my example, the next lines read, “Do you believe that every department/function and employee should have measurable goals? Can you share your successes?” Quite possibly, because of this aphorism, Lord Kelvin is better known to managers than physicsts.

Now consider Albert Einstein. True, he wasn’t a “Lord”, but surely his various other achievements compensate for this deficiency? He said, “Everything that can be counted does not necessarily count; everything that counts cannot necessarily be counted.” As managers and students of management, if we must turn to physicists for insights, can we not cite him with equally often? We don’t and this is sad, for we need this particular insight very, very badly. Consider just two examples:

In a world in which most businesses rely on others for core products and services, as a manager you rely on work done by people you don’t know, who work for other companies with different goals, cultures, and risk tolerances. Here, you have two choices: You can base your hopes for a mutually beneficial relationship on tightly structured, measurable Service Level Agreements that your teams of lawyers can help enforce. Or, recognizing that if you have to rely on lawyers to enforce the relationship, you can’t possibly succeed at it, you could choose to invest in building a a level of mutual trust (which you could never measure) which would smooth the imperfections of your “good enough” SLA.

How about innovation? How many of the greatest products or services you use today (or those that were used in the past) were created in workplaces that operated under the philosophy, “If you don’t measure it, it won’t happen?” Some of the most innovative workplaces of the world have long given employees free “off the clock” time and free resources – and benefited from the results of the unmeasured, untracked tinkering they did.

One and even two generations ago, the doyen of quality, Edward Deming, tried to use statistics to convince managers that measuring the performance of individuals often made no sense. Most weren’t willing to consider this advice. Now they need to follow it more than they did then. (And no, Google’s recent efforts, to which I will devote a separate post soon, doesn’t obviate this opinion.)

Metrics and measures have a place in business, just not a central one. A manager who firmly ascribes to “If you don’t measure it, it won’t happen” will most likely make sure only one thing will definitely happen: he/she will be outperformed by those who understand that at the very least, not all statements about physics should be applied to management, and more correctly, management is most definitely not physics.

3 comments » | Business Tools, Leadership

On Being Prepared to Walk Alone

September 28th, 2009 — 11:11pm

Between 1994 and 1998, I was first a senior consultant and then a Director (partner) at Arthur D. Little. ADL was really a technology consulting company and the majority of the people I worked with were highly skilled, hard core engineers and scientists, many of whom held Ph.D.s. (ADL ran into trouble – after I left – because the people who ran it forgot its essence and decided to compete head-to-head with McKinsey. But that’s a story for another day.)

One day, infuriated at a “McKinsey wannabe,” I turned to an outstanding engineer. “Dave,” I said, “One reason companies run into trouble is that everyone believes that he or she can do strategy. No one questions the fact that to do what you do, you need years of specialized training. There have been great inventors who never ever attended school, but they were few and far between. In contrast, there are many more examples of people – like Bill Gates – who became brilliant strategists without any training. So, everyone seems to believe that they too can be great strategists – without investing any time or energy or creativity. What utter nonsense!” Dave made sympathetic noises and returned to his work.

This story has a link to my last post on competing with “free” on the Web. A key reason why media companies are hemorrhaging money is that few have true strategies.

All the great thinkers in strategy agree on two issues. First, a strategy must be unique and hard to effect. Recall that in the heydays of the dot com companies, every website had a page entitled, “Our Partners” which – invariably – named IBM, Microsoft and Cisco. For years, I’ve told executives, “If IBM is everybody’s partner, then IBM is nobody’s partner.” Generalizing, if every company has the same strategy, no one has a strategy. This is definitely true of most media companies: most have the same content; all are reliant on advertising; all have roughly comparable technical capabilities; all can be accessed from around the world; and only a handful have true brand names which could give them great advantage.

Second, a great strategy is about fit – lots of little factors are designed to work together as one seamless entity. Thus, simply copying the most prominent and visible of these factors does not help a competitor. For example, in my post, “Time to Re-read ‘What is Strategy?’” I argued that simply copying Apple’s retail strategy won’t help Microsoft, just as it didn’t help Sony. Apple’s retail stores are a seamless part of the “digital culture” that pervades all its products and services.

Media companies will not thrive if they all rely on advertising. This funding mechanism worked for newspapers and broadcast TV since they differentiated themselves first by content and second, by distribution. It also work for Google for pretty much the same reason. Since there’s really nothing unique in the online personas of most media companies, an advertising based model will inevitably reduces competition to a dog-eat-dog level, forcing them to compete with “free.”

A different solution can be found; it only requires creative thinking. After leaving ADL, I became the Chief Technology & Strategy Officer of a high tech company, TurboChef, which still manufactures a device which I’ve always described as “a computer which cooks.” When I was creating its online strategy, I deliberately eschewed advertising. No person who could afford to buy a TurboChef was going to spend endless time sitting in front of its control screen watching advertisements.

In its place, I focused on the one thing we controlled that no one else, regardless of size, could duplicate – at least as long as our patents were valid. I asked my engineers to design the device so that its operating system would be upgradeable for several years. This required, for example, the use of flash memories, which were just appearing and very expensive. Nevertheless, I mandated the use of flash memories. We would give consumers a “free” upgrade (naturally downloaded directly into their TurboChef ovens) if and only if they participated in the online community we were creating – where they could buy exotic foods, high end kitchen artifacts and yes, exchange recipes (by downloading them directly into each other’s ovens). We would make money online through this community – without relying on a single advertisement.

We would also be able to do something no consumer durable company has ever been able to: keep in constant touch with our consumers. That way, in five or seven years, when we told them that their hardware (the physical oven) could no longer handle the latest versions of the operating system, they would virtually be compelled to buy the latest TurboChef available.

Much of the “strategy” churned out by companies stinks (and that’s putting it mildly) because people who formulate them think it is a mechanical exercise. Creating good strategy requires creativity comparable to that which underlies the output of a good artist or a top-notch engineer. And so, the worst possible time for companies to create strategies is in conjunctions with their annual business planning cycle. At that time, the only creativity observable is in the “massaging” of budget numbers to produce a pre-determined output!

Since childhood, I have loved Bengali song that says, “If no one hears your call, then walk alone.” (Trust me, the poetry is much more lyrical in the original language!) Creating anything, particularly something unique, requires the courage of conviction and the willingness to walk alone.

1 comment » | Business Tools, Online Business Models

Time to Re-read “What is Strategy?”

July 22nd, 2009 — 4:45pm

For the uninitiated, “What is Strategy?” is the name of a best-selling Harvard Business Review article that Michael Porter, a “University Professor” (i.e., the highest of the high) at the Harvard Business School and the Grand Poobah of Strategy, wrote in 1996. I will address only one of its many ideas in this post. I thought of it because of a recent visit to an upscale mall – and an announcement by a major company.

The visit was to an Apple retail store. I needed to connect my Mac to our Sony plasma TV, but could not remember the exact pin-configuration of the TV’s socket. The Apple employee helping me suggested that I ask at the Sony Style retail store located nearby and so, there I went.

You may recall that Sony began opening these stores when Apple started eating its lunch. The stores would make the vast array of great Sony products accessible to consumers. The moment I told a salesperson – who looked like a supervisor – that I was there for information, not to buy, he visibly lost interest in me. Not that the store was busy; you might have been able to hear a pin drop if you cupped your ear. Undeterred, I asked my question. The salesperson responded, “Do you have internet access at home?” “Yes,” I said, “But how does that help me now?” “Well,” he replied, “When you go home, look up the answer on our website.” “You can’t do that here?” I asked. “No,” he said, walking away. The ludicrousness of the idea that I would search their website instead of looking at the back of my TV did not even occur to him. And he is supposed to convince affluent consumers how to spend their money? In the time he spent losing a once and future customer – perhaps for ever – my teenager used my iPhone to get the information.

At the Apple store, the same salesperson greeted me again. He apologized for not thinking of going online and gave me the cable I needed. My wife asked for his help in selecting a graduation gift for my niece, who was finishing her high school. He showed us several fun software, but my wife picked up an expensive productivity program. “Oh gee,” he said sarcastically, “I just finished school and in the Fall, will start college. And my aunt gets me a productivity software! How nice!” We laughed, saw his point and decided to defer the purchase. He lost an immediate sale, but he reinforced the link between Apple and me.

Porter’s article says that strategy is about “fit.” Multiple small, individually inconsequential items must work together seamlessly for a strategy to be successful. The reason why Apple’s retail stores work – one in two purchaser of a Mac in an Apple store is new Apple customer – is that they are a seamless part of Apple’s corporate strategy. From the Genius Bar to the highly knowledgeable, non-pushy employees, everything fits together perfectly, just like the components of any Apple product. (Even the employees’ clothes match those of the Steve Job-like pitchman on its highly effective advertisements, “Hello, I’m a Mac” “And I’m a PC.”)

Sony once knew this lesson, but has forgotten it. Retailers speak of “location, location, location.” Sony’s location did not help it seal a relationship with me.

It is in this context I have been waiting to see how Microsoft’s newly announced retail stores will turn out. So far, this venture has been defined by location: the stores will be near Apple stores to give consumers non-Apple options. This is strategy?

For the sake of Microsoft’s shareholders (of which, regretfully, I’m one), I hope that the people in Redmond have thought this out a bit more. And if they haven’t, they should take this opportunity to first read Chan Kim and Reneé Mauborgne’s book, “Blue Ocean Strategy.” The essential thesis of this book is that too often, companies compete head to head with each other, leaving blood in the waters (“Red Ocean”) instead of seeking “Blue Oceans” where there are no established competitors. The Redmond strategists should also remember Porter’s message about fit: business history is full of examples of companies which tried to copy an effective strategy of a competitor, but failed miserably. The copying was typically superficial and small, seemingly inconsequential elements did not fit together. The Sony Style stores are a great example. Oh wait, Wintel machines and Windows Vista are even better ones.

1 comment » | Business Environment, Business Tools, Company Performance, Corporate Culture

What’s $700 Billion Among Friends? – Part 2 of 2

September 28th, 2008 — 5:07pm

Like the last one, this lengthy (sorry!) post is also written jointly with Sanghamitra Dutt.

Even if the Administration got a $700 billion blank check, no one could guarantee a resolution of today’s crisis. Network effects can still bring down others. For example, so far GM has only wanted a few measly billion dollars of a separate bailout to make investments that it has ignored for decades. If the financial crisis hits GMAC (see the last post), that amount will quickly become a few measly tens of billions. Add a few more incidents and we’ll be in “We don’t remember ever saying $700 billion would be enough” territory.

The question we should discuss in depth is whether a successful resolution of this crisis will automatically forestall another similar one. Not by a long shot! Irrational exuberance is not rare (think of the 17th century “tulip mania” and the tech bubble a decade ago). Indeed, given our networked world, new crises will emerge much more often and with devastating effect unless we strengthen the role of our financial regulators by explicitly making them responsible for managing negative network effects.

Had the House Republicans objected to the bailout because of the lack of such regulatory measures, I would have sympathized with their position. (Strengthening these as a part of the conditions attached to the bailout bill would have been easier than trying to get these adopted once the crisis fades from public view.) Instead, their finding religion after facilitating the dismantling of existing regulations (see, “S.E.C. Concedes Oversight Flaws Fueled Collapse” in The New York Times, 27th September), is nothing but a cynical election ploy.

Simply restoring the status quo will not help; the problem with how our financial networks operate is that individual players have very little visibility across it expanse. So no one sees problems arising early enough and even innocent bystanders get dragged down. To correct this situation, Congress should authorize/enable five critical steps, which are based on my “Design Principles” for networked organizations:

1. Unify the structural relationships among the myriad of regulators. Some time back, recognizing that the lack of cooperation among intelligence agencies was problematical, Congress unified the intelligence agencies under one national office. Though the execution was flawed, the idea was sound. We need a similar step now. If one financial regulator has weaker standards than the others, in a networked world, all financial institutions will still be exposed. I am not recommending centralization of all regulators; I am arguing in favor of legally mandating a coordinating structure that can drive the next four steps.

2. Require regulators to create processes to identify possible emerging crises and empower them to mandate proactive corrective action. In a networked world, seemingly local events traverse great distances rapidly and strike with devastating power. No one pays them attention initially, and even when some get affected, others consider themselves safe. Chairman Bernanke identified (“sensed”) this crisis a year ago; earlier this year, their was much wider awareness of the sub-prime crisis, but most people did not expect AIG to go bankrupt. Today GMAC and others are still at risk.

Assembling coherent corrective actions (“respond”) to head off a growing crisis is even harder. No individual company can do so; collectively many can, but few CEOs would be gutsy enough to expose their own companies if they did not have to. JP Morgan Chase bailed out Bear Sterns only because the Treasury protected it against losses. It is anyone’s guess whether its acquisition of WaMu without similar government protection will help or hurt it.

Moreover, and this is critical, in a networked world, responding to a specific effect of a crisis does little to stop it. That is why the rescue of Bear Stearns, Freddie Mac, Fannie Mae and AIG did not calm the markets. WaMu got liquidated calmly, but now Wachovia looks like the next domino. Stopping the entire crisis cold requires enormous power. That is the real value of the $700 billion. It is large enough to send a strong signal that the government is ready to tackle not AIG or Freddie Mac or Fannie Mae, but the whole enchilada.

To prevent future crises, we need regulators armed with strong sense-and-respond capabilities. Which is why in the last post, I took Secretary Paulson and Chairman Bernanke to task; they sensed (how?), but did not respond (why not?). The how must be analyzed and turned into a robust, replicable process not dependent on the Chairman’s brilliance; that process should be used by all regulators. The why not may have embedded in it serious policy and legislative implications, which must be addressed. For example, if the regulators had no authority to order AIG or Freddie Mac or Fannie Mae from acting in ways that put everyone at risk, they should be given such authority. Note also that the other “safety net” built into the system – the rating agencies like A.M. Best, S&P and Moody’s – also missed the emerging crisis. Were they all asleep at the switch, or were there fundamental underlying issues to which no one paid attention?

3. Require the Treasury and the Fed to immediately begin negotiations with major foreign regulators to create a consistent set of ground rules. The media has reported that European governments are demanding cooperation from the US and the Fed is responding. (E.g., it helped the European Central Bank and others, contributing to a $60 billion liquidity injection to ease the tightness in the LIBOR market.) The real question is: what should the Treasury and the Fed do proactively for the future? America’s financial networks don’t end at its borders. So, it will be difficult to sense the next emerging crisis without the collaboration of foreign regulators. Recent media reports have indicated foreign regulators, even from other G7 nations, grate their teeth at the patronizing behavior of senior US officials. Without a sea change in attitude among US officials, we will continue to be at risk. We must negotiate with them rules and regulations that are consistent across national boundaries. We have to ensure that robust, replicable processes are adopted by everyone. And we have to ensure that knowledge of impending crises are passed on to other regulators quickly. When UBS earns a huge chunk of its revenues and profits in the US, it is no longer a European bank. When Bank of America earns a huge chunk of its revenues and profits outside the US, it is no longer an American bank.

4. Create new analytical tools to better predict effects of market events. National Public Radio reported on the 27th that when he was a professor at Princeton, Chairman Bernanke, co-developed a computer simulation (“Financial Accelerator”) with the type of analytical capabilities mentioned in the last post. If Princeton has this, I sure hope the Fed and the Treasury do too. And yes, let’s share this knowledge with foreign regulators – or adopt their tools if they have better ones. Equally importantly, we need to authorize the regulators to mandate the adoption of such tools by every major financial institution. We have to get past the “one lender – one borrower/one lender – one sector of borrowers” mindset criticized in the last post. I am mindful of the fact that in the post “Beware the Model All Logic,” I cautioned against blind reliance on models; nevertheless, not using essential decision-making tools is equally bad.

5. Use modern information technology to cross link approval structures. As our financial institutions are becoming larger, lending silos make approval decisions about risks in their market niches without talking to each other. Consequently, it is not unheard of for different arms of an institution to offer the same creditor different types of debt with inconsistent legal rights and responsibilities. As such the institutions are losing the ability to see and understand their total exposure across their networks. When crises loom, they can’t tell how they could be affected. (This is a manifestation of a problem that affects all networks: distribution of work across time and space compromises visibility.) This confusion is mirrored externally by the existence of a myriad of (albeit defanged) regulatory bodies with overlapping jurisdictions.

To assure better visibility and to facilitate analysis of complex decisions, we must use modern technologies more effectively. For example, technology can flag problems that could arise from inconsistencies far more quickly and more thoroughly than a human can. Being forewarned, decision-makers can now act – or be held accountable for not doing so. Regulators should be empowered to demand the implementation of modern IT both within their own bailiwicks and also to transfer critical information on a timely basis to regulators. The regulators should be able to use the information to question executives about actions that could threaten the network – and force them to cease-and-desist.

Implementing this guideline will raise all sorts of difficult policy questions about protecting proprietary information, the governance responsibilities of Boards and the like. But that is the fundamental conundrum we are not wrestling with today: modern technologies have created the networked world. We have embraced the networks with both arms because of the benefits they offer, but we have not re-thought how our laws, strategies, processes, values, analytical tools and yes, even technologies, must be updated to function within them.

There’s no question that many executives involved in the present crisis were rapacious and deserve to be penalized. There is also no question that many policy setters are ideologues who would like to do nothing better than demonize each other rather than solve problems. But unless we actually reform the underlying mindset, processes, tools and technology, we – and other major economies –will be doomed to shelling out trillions of dollars of pocket change ever so often.

Comment » | Business Environment, Business Tools, Company Performance

Membership has its privileges (and should be privileged) Part 2 of 2

September 7th, 2008 — 8:43pm

Visa’s failure to honor its promises on the Upside program (See the post “Visa – We Aren’t Even Where We Promise to Be.”) left us desperate. S was borrowing cash from her cousins to pay her bills (many youth hostels only accept cash, and the types of eateries they were patronizing prefer it). And we were losing valuable time on our vacation.

I am an American Express Platinum card member. With little hope, I called them for help, telling them up front that I did not expect them to be able to do so. The customer service staff who heard my tale raised my hopes by saying that she was sure Amex would be able to do something. She connected me to an got “Amex Global Assist” agent – after she had relayed to him accurately my entire tale of woe.

Immediately on taking over the call, the Global Assist agent proposed a solution. Since S was by now in Salzburg, Amex would wire the money to Western Union and S could pick it up at any of its 50 locations there. “Only €250?” the agent asked me, “Are you sure? You can send much more. Mr. Mukherjee,” As he delved deeper into his solution, he realized that Austria did not allow minors to receive money. So he asked me if there was anyone over 18 in Salzburg whom S trusted? If not, he’d craft a different solution. I told him about S’s cousin. No problem, he said, we will send him the money. And then, he set up a 3-way call with S. He wanted to see if he could find a Western Union near her youth hostel that was open at that time of the night (10 pm), so that S could get the money immediately. After getting S on the call, he described the forms Western Union would ask my nephew to fill and the responses my nephew should give. He said that if anything went wrong, S should call Amex immediately (collect, of course) from the Western Union office. He provided a case file number to quote to whichever of his colleagues took the call. Then he told me – casually – that since this was an emergency, Amex would waive all fees. Truly, membership has its privileges.

In my last post, I argued that Visa could not deliver baseline Plan and Execute effectively. Moreover, I noted that it was tarnishing its brand by allowing partners to use it to sell services that Visa/they could not – would not – deliver. A different way about thinking about the second point is: membership in a network should be privileged — it should be restricted to those who are capable of upholding the network’s branding.

In contrast, American Express flawlessly displayed its mastery of the other three critical capabilities of a great networked company: Sense, Respond and Learn. It was ready to Sense the occurrence of a type of event that could happen to any of its members, though it could not anticipate who would be affected, to what degree, when, where, why or how. Once it sensed an individual occurrence, it immediately Responded with a semi-custom solution. No one told the Global Assist agent what to do; Amex’s culture, processes, technology and yes, network, enabled him to find a solution for my specific problem, even though it had nothing to do with Amex. And then, the very next day, Amex contacted me to get my views on how well it had met my needs. Undoubtedly, someone will analyze its handling of this event to see what Amex could Learn from it for the future.

My wife and I resolved to talk about Amex’s performance to our network of friends and business partners. I have already urged several people to upgrade to a Platinum if invited to do so by Amex; the $400 annual fee is worth it. And yes, while we cannot stop using Visa cards because of its wide acceptance, we can – and will – use our Amex cards whenever we have a choice, and particularly for all large purchases (our MasterCards will get next priority and Visa the last). Given our travel and spending patterns, there’s no question that whatever Amex invested in its Sense and Respond effort to help us, it will earn back – and a lot, lot more – in a handful of months, maybe even weeks or days.

Now if only I could interview the people who designed this capability for my next book …!

If you’ve had experiences similar to the ones described in these two posts, do let me know. I would be really interested in understanding what you learnt from them and how they affected your subsequent behavior.

1 comment » | Business Environment, Business Tools

Visa – We Aren’t Even Where We Promise to Be, Part 1 of 2

September 7th, 2008 — 8:39pm

This tale of two companies operating in the same networked world fell into my lap when I didn’t want it to do so. To keep it digestible, I will tell it over two posts. Even so, each is long; bear with me, for there are key issues here for today’s companies.

While my wife and I were vacationing in Switzerland and Italy, my daughter (“S”) (17+ years), niece (17+) and nephew (19) were backpacking through Switzerland and Austria. Our paths crossed for only 2 nights, in Wengen. Each teen had a debit card; after searching extensively, we loaded $1,000 of S’s hard earned summer-work money on “The Upside Visa Prepaid Card,” a program “specifically designed for the younger generation and their family (sic)” ( The website, with its prominent Visa logo, explicitly said, “The card can also be used to withdraw cash at the tens of thousands of ATMs which have the Interlink or Cirrus logos. In a nutshell, it combines the safety of an FDIC-insured bank and the universality of the Visa® network …” The possibility of cash withdrawal is also discussed under FAQ.

In Wengen, S told us that she had not been able to get money at any ATM. We called the customer service number (which promptly charged the account $0.99) and were told that S had the wrong password – even though Visa/Upside had provided it. It took us a couple of days to get a new password, since we did not have with us the information needed for a change. By then, we were in Milan and S was in Innsbruck. She called us; the card was still not working. We paid Visa/Upside $0.99 to talk to an agent named Sami, who told us categorically that the Upside program did not work with ATMs. After a long argument, he personally verified from the website that our complaint was valid. Chastened, he promised to email Visa technical services (relevant fact: everyone involved spoke of “Visa”). In exactly 4 hours, he said, we would hear from a person with more authority than he had about what could be done.

7 or 8 hours later, we called back Visa/Upside ($0.99 again, plus our international calling charges) and after arguing with the agent, got to speak to the call center manager, Taylor. Taylor cried crocodile tears (“Do you think I like hearing about your 17 year old being stranded?”). Yet she continued imply that that we were wrong the Visa/Upside program; it was not designed to work at ATMs. She supposedly could not access Sami’s work files. Visa’s policy only promised customer responses to in 48 hours and so, Sami she said, could keep his own promise of a faster response when he returned for his next shift (in 7 hours). And no, we could not speak to her boss.

Our suggestion of a human-to-human intervention (e.g., authorize a correspondent bank to pay S €250 across a teller counter) just couldn’t be done, “even by Visa’s CEO;” our request for such help simply meant that we did not understand modern financial systems. My wife, who was until a few years ago, a Managing Director of a money center bank, took that one well! I too learnt a new lesson about the powerlessness of a CEO of a global institution; this one had escaped my understanding in all my years of working with top executives. Taylor, however, did authorize a credit for $0.99 to S’s account. Her generosity warmed our hearts.

The baseline performance requirement for any company is Plan and Execute well. Visa/Upside failed to deliver even at this level. It had not given Sami – and what is worse, its call center manager, Taylor – the capabilities to address a genuine problem created by its own inability to execute its website promise (plan). Moreover, 3 weeks after these incidents, Sami’s “4 hours” and Taylor’s “48 hours” have still not elapsed in the time that ordinary mortals experience. And if either did let anyone at Visa/Upside know about the untruth on the website, no one has acted to rectify it.

But in a networked world, the Visa business unit responsible for the Upside program is guilty of an even greater sin: lending its brand to partners who are at best incompetent and at possibly, dishonest. A couple of days ago, I finally noticed the very small print on the website: Upside is offered by a no-name bank under license from Visa. Had we noticed that the first time, we would not have put S’ money in its care, just as we don’t make online purchases at no name websites. A very brief online search effortlessly revealed other instances of failure by other Visa partners offering similar peace-of-mind programs to teens and their parents (“They still haven’t returned my son’s money”).

I wanted to complain to Visa itself, here’s what I found on its website: “If you have a question about your account, please contact the financial institution that issued your Visa card.” In other words, go complain to the people who did you wrong! I am sure that Visa can escape legal liability for the failure of its partners, but I have no doubt that it is compromising its most important asset: its brand name. In The Spider’s Strategy I urged executives to adopt the Hippocratic oath when dealing with consumers in a networked world. In a world in which the logos of blue chip companies can be mortgaged for billions of dollars, some executive officer at Visa should review the processes and decision making culture that is allowing such shoddy business practices to thrive. Individual consumers may not have much power against the huge financial resources of a large company, but they have their own network – the Internet – to tell their tales to the world at large.

Comment » | Business Environment, Business Tools

Beware The Model All Logic

August 22nd, 2008 — 4:16pm

On returning from a 2-week “electronic silence” vacation in the Swiss Alps and in Milan, I saw The New York Times magazine (Aug 17) article, “Dr. Doom.” It profiled an unconventional economist, Professor Nouriel Roubini, who on Sept 7, 2006, predicted for an audience of peers at the International Monetary Fund that the US financial markets would be rocked by a major crisis. The attendees snubbed him for basing his case on comparisons to other recent economic crises instead of mathematical models. Dr. Roubini, who reveres the great John Maynard Keynes for being “the most brilliant economist who never wrote down an equation,” went on to co-write a 400-plus page book on the crisis without using a single equation,

I don’t know Dr. Roubini or his work at al. Even so, I immediately granted him “street cred” because I had written an 800-page (double spaced! Double spaced!!) equation-less doctoral thesis and had experienced significant difficulty in convincing many academics of its value. Several had proudly proclaimed that though they were professors of manufacturing, they had never been inside a single factory. Yet, they were sure that without math models to back me, my 4 years of research in labs and factories, my work as an engineering intern and my “asset review” visits to numerous plants (as a junior banker) could not teach the world anything interesting about manufacturing and technology. Ironically, while most theses lie unread, I received royalty checks for about 5 years for mine and a major consulting company built a successful business around its ideas.

Don’t get me wrong: math models are very important. As an engineer and a doctoral candidate, I chose to study math/applied math for over 8 years. I am very thankful that my computer and the aircrafts that bore me to Europe and back are backed by math models. Finally, at Ishan Advisors, I have built complex statistical models that a blue-chip client is using to drive strategy decisions worth hundreds of millions of dollars.

However, executives and business academics should never forget that a model is a simplification of reality, it is not reality! A model includes a handful of factors that govern the real world, but excludes many, many more. Hopefully, the choices made are correct, but that is not always true. For example, in 1988, the top-tier peer-reviewed journal Management Science published the its first math model of Just-in-Time – 30 years after Toyota started implementing the capability. The model’s complexity challenged the understanding of several top-notch mathematicians at the Harvard Business School. Yet, in the interest of “mathematical tractability,” it assumed away the only thing that makes JIT truly valuable – uncertainty.

Another major problem with math models is that for most part, they are “steady state” models: they compare the world at state B to the world as it had been in state A. What they ignore – the path (the “transient states”) from A to B – is often as important (if not more so) because the “real world” spends more time transitioning than staying steady.

The networked world will make both these shortcoming serious impediments to the building of good models: It will be increasingly hard to isolate a situation from all the influences that could affect it. Executives should be wary of any “expert” who bases his/her views solely on mathematical models, just as they should be wary of anyone who ignores the insights of models. They should work hard to combine “gut feel” and qualitative insights with models. In other words, they should turn more to people like Dr. Roubini (who said that his comparions had been based on his deep understanding of standard economic models) than the model builders who criticized him.

Rabindranath Tagore, the philosopher who won the Nobel Prize in literature, had once written, “A mind all logic is like a knife all blade. It makes the hand bleed that uses it.” Truly words to live by.

Comment » | Business Environment, Business Tools

Back to top