The View from Harvard Business

With a nod to Malcolm Gladwell, social networking hit a Tipping Point this year. In Gladwell’s words, “Ideas and behavior and messages and products sometimes behave just like outbreaks of infectious disease. They are social epidemics.” By his definition, social networks and associated technologies have hit epidemic proportions. So David Armano’s look at social media trends in 2010 comes at just the right moment. Armano is founder of Dachis Group, an Austin based consultancy delivering social business design services, and I thought his observations quite insightful.

Here’s a summary of his six predictions:

1. Corporations look to scale. Big companies have experimented with social network marketing and support one-offs, but the prediction here is that corporate efforts will become much more programmatic and strategic in 2010.
2. Social business becomes serious play
. Social networking companies move much more heavily into entertainment.
3. Your company will have a social media policy (and it might actually be enforced. ) 
Expect your company to formalize its views on social media and rules of engagement for employees.
4. Mobile becomes a social media lifeline. Forget the cigarette break at work. In 2010 you will be taking social media breaks.
5. Sharing no longer means e-mail
. What we used to forward to friends and colleagues on e-mail we will now share across networks such as Facebook and Twitter.
6. Social media begins to look less social
. I discussed this in a recent post. The general idea: We will become much more exclusive in our social networking practices.

How do you think social networking will evolve in the coming year?

(Social media logos image by Ivan Walsh, CC 2.0)

Think of it as Diane Von Furstenberg Meets Netflix.

A pair of recent graduates from Harvard Business School have started a new business, Rent the Runway, that allows women to rent high fashion dresses for $50 to $200 for four nights. The dresses are mailed out and returned by mail much like a Netflix DVD.

Co-founder Jennifer Hyman tells the New York Times she got the business idea after watching her younger sister consider buying a very expensive dress to wear to a wedding, a frock she would likely only wear a couple of times.

Some interesting aspects to this business include:

• On-call stylists advise customers on material selection how a particular dress might hang on various body types.
• The service is invitation-only.
• For just an extra $25 customers can choose a second style as a backup.

Whaddya think gents? Would you rent a top-of-the-line designer suit for a special occasion?

Not every recession-squeezed business needs to lay off employees. But the alternative, becoming a proud and proclaimed “no-layoff company,” requires sacrifices that are shared by employer and employee.

Some firms are already making it work.

Take Hypertherm, in Dover New Hampshire. The company, which makes industrial strength cutting tools, has seen its business fall 50 percent. There have been no layoffs. But there have been personnel changes.

According to an account on NPR, employees not needed on the front lines are reassigned to other duties, which may even include grounds maintenance. The company is trying to move all its work in-house and staff it with current employees who otherwise might be out of a job. The goal is to hold on to as many people as it can for when business picks up again.

This can be a great strategy for companies that rely on highly skilled workers, such as Hypertherm. It would be even more costly and years in the making to have to hire replacements and train them to be as productive.

But even employers of lower-skilled workers can benefit by this approach. The Nugget Markets grocery chain, which boasts of never having a layoff in its 82 years, cross-trains to provide more work force flexibility. The benefit? If a deli worker’s hours fall,  she can make it up by training as a bagger, a job she performs at the higher deli pay scale.

There are other ways, of course, to avoid the ax. Many firms ask for volunteers to take extended vacations, a sabbatical, leaves of absence, or a shorter work week. Salary freezes and cuts are common as well. But these approaches still shift much of the burden to the employee. The best solution is when employer and employee can share the pain to, eventually, share the gain.

Jordan Siegel, an associate professor at the Harvard Business School, says he has seen this shared-pain model used in South Korea, but not much in the U.S.  “There has been this shared sacrifice, people sharing some reductions in compensation, in order to avoid layoffs,” he tells NPR.

Has your company taken innovative steps to retain employees?

On a recent weekend I took a Defriend Hatchet to my Facebook account, lopping out a good 50 people including a fourth grade classmate, a barber from a time when I had hair, and a colleague from a job 17 years ago whom I didn’t like even then.

Apparently I’m not alone in my desire to tame my online social world. David Armano, co-founder of social media marketing firm Dachis Corp., predicts that social networks will actually become less social in 2010. He writes on his Harvard Business Publishing blog:

With groups, lists and niche networks becoming more popular, networks could begin to feel more “exclusive.” Not everyone can fit on someone’s newly created Twitter list and as networks begin to fill with noise, it’s likely that user behavior such as “hiding” the hyperactive updaters that appear in your Facebook news feed may become more common. Perhaps it’s not actually less social, but it might seem that way as we all come to terms with getting value out of our networks — while filtering out the clutter.

That sounds right to me, but the question for BNETers is what does this winnowing mean for Internet marketers and service providers? If people become more selective about who they tether themselves to online, it might be harder for you to grab their attention. On the other hand, smaller lists usually present better defined potential customers.

Does this trend change about how you think of social network marketing?

By the way, read Armano’s entire post, Six Social Media Trends for 2010.

Related Reading:

Social Network Marketing: What Works?

Spending just $150, two MIT students recently launched what amounted to a styrofoam beer cooler equipped with a camera and GPS tracker to a height of 93,000 feet at the edge of space. That’s Long Island in the photo at left. Pass the Budweiser.

Great stunt, but so what?

Innovation expert John Sviokla takes inspiration from the simple creativity showed by the students to draw up a disruptive technology toolkit.

“Not only is this story inspirational to someone like me …  but it points out how the minimum efficient scale of doing fantastic things is getting orders of magnitude lower in some industries. This lower cost of entry can be magnified and accelerated when you have someone come to the design problem with an entirely new set of expectations.”

In other words, its becoming much easier to compete against the big boys.

Ready to get started down the road of disruption? Here are four ideas to chew on.

1. Simultaneously simplify a number of advantages together to create a new cost base.
2. Give away the other guy’s razor.
3. Look for new, radically cheaper ways to do the job.
4. Think about leveraging a very few individuals with extraordinary talent.

Read Sviokla’s full post on Harvard Business Publishing, Getting Started with Disruptive Business Design.

My favorite example of  disruptive process change (No. 3)  is UPS’ long-running  right turn doctrine. Routes are planned to make as few left turns as possible. No special technology or training needed. The company claimed in 2007 that the process helped it save 28.5 million miles, and three million gallons of fuel.

What’s in your Disruptive Innovation Toolkit?

We’ve had a great running argument in this space about the importance of manufacturing to the overall health of the American economy. My opinion — that it it is vital that we build things ourselves to better improve our products, has been supported by several Harvard Business School professors.

But HBS faculty are independent thinkers. And so comes David Yoffie, arguing that in the tech sector at least manufacturing smarts is not vital to the country’s economy. Writing in Harvard Business Review Yoffie declares:

“The future of U.S. competitiveness in high tech industries such as computers, software, communications, and electronics may depend more on the transition to services than trying to retain the country’s manufacturing base.”

His point: Today’s top technology companies make their money selling services on top of products, a group including IBM (technology consulting), Apple (music distribution), Amazon (cloud computing) and Google (search advertising).

“Maybe the most important point to make is that U.S. has been moving towards a service economy for the last 100 years. In the long run, services will become the core of the U.S. tech world as well.”

Read Yoffie’s argument, Why the U.S. Tech Sector Doesn’t Need Domestic Manufacturing. Then come back here and answer this question. If we become the world’s leading tech service provider, what prevents other countries from copying and eventually surpassing us in this arena as they have in others?

Related Reading:

Outsourcing Is High Tech’s Subprime-Mortgage Fiasco

HBS professor emeritus Robert Hayes argues that U.S. companies that outsource to lower their costs “have deluded them into thinking they are improving their profitability. In actuality, they are simply cashing out their intellectual assets.”

Even though I’ve heard him say it before, the words from Harvard Business School professor Clayton Christensen always bring me up short.

Speaking to a group of health care professionals recently, Christensen said:

“Competition doesn’t drive prices down.”

In fact, he said prices increase 8 or 9 percent a year in industries characterized by sustained innovation. Think of universities, where student fees climb year after year even though competition is fierce. That’s because, to compete, these schools have to build ever better athletic facilities, food services and other costly upgrades, all of which drive up their costs.

So what drives prices down? Those of you familiar with Christensen’s work know the answer: disruptive innovation. Essentially, the process whereby an upstart can win away customers from established industry leaders with a product or service that fills the customer’s basic needs in a simpler way and at a much lower price. PCs disrupted the minicomputer business, Japanese car makers disrupted Detroit, and now Korean automakers are disrupting Japan.

Health Care Debate

This theory provides an interesting lens through which to view proposed solutions to escalating prices that rely on the introduction of more competition.

The Obama administration’s proposal for the “public option,” essentially a government-operated health care program to compete with the private sector, will not meet its goal of controlling prices if it simply sustains competition, according to Christensen’s theory (He did not address this issue specifically in the talk I saw).   The public plan would have to fundamentally disrupt the current model in areas including patient information technology, payment, service delivery, and regulation to be successful in its goal.

What’s your opinion on this issue of competition versus disruption in setting prices? Can you think of examples where industry prices dropped dramatically without a disruptive innovation at the heart of things?

Economists, academics and business leaders are increasingly warning that America’s love affair with outsourcing manufacturing to cheaper labor in other countries is weakening the U.S. in fundamental ways. I wrote about this trend a few months ago in We Are Paying the Price for Outsourcing Manufacturing.

Now Business Week has taken up the cry this month in Can the Future be Built in America?

The good news, according to reporter Pete Engardio, is that the U.S. is a hub of  research and development in hot innovation areas such as fuel cells and flexible display screens. The bad part is we can’t build our way out of a paper bag:

“Unless the U.S. can magically resurrect its manufacturing base, the good-paying jobs from these breakthroughs will be offshore. Cheap Asian labor has little to do with it. Unlike other industries that fled to low-cost offshore havens, these emerging tech goods are made on highly automated production lines. The problem is, the U.S. is losing its lead in large-scale high-tech manufacturing.”

This penalty is not just fewer jobs, or us losing the ability to make things and learn from that experience. It’s also adding to the country’s balance of trade deficit. Harvard Business School professor Willy C. Shih reports that in 2000 the U.S. exported $29 billion more high-tech products than it imported. But, “owing to a legacy of underinvestment in manufacturing,” that surplus had turned into a $54 billion trade deficit.

What’s Next?

The interesting question is what we can do about the situation. Despite growing reluctance for government intervention in private enterprise, an Uncle Sam solution may be the best way to catalyze a rebirth in manufacturing through tax incentives or even outright federal investments.

President Obama started to address this issue last week with the appointment of top Treasury official Ron Bloom to oversee an effort to revitalize American manufacturing.

What’s your opinion? Should government get behind a push to reclaim our manufacturing smarts? How important is this problem when stacked up against health care, financial regulation and other pressing issues of the day?

(Manufacturing plant image by erix!, CC 2.0)

Harvard Business School professor Mikolaj Jan Piskorski is attempting to answer three questions about social networking sites such as Facebook, and SN tools such as Twitter:

1. Why do people open up their lives on them?
2. What do people do when they visit these sites — what’s the draw?
3. What do the answers of #1 and #2 tell businesses about how to market to these audiences?

Some perhaps surprising conclusions from the research so far, as reported in my interview with Piskorski on HBS Working Knowledge:

• Online social networking became popular by filling needs that face-to-face networking couldn’t provide. Example: Developing business contacts can be done more efficiently online with such services as LinkedIn.
• Men and women behave much differently online. Men tend to “follow” women, while women follow other women. The biggest usage category: Men looking at women they don’t know.
• Photos are the killer app.
• Social networks are places where voyeuristic behavior is OK, within norms.
• They also provide plausible deniability, or “covers,” for folks who say they are doing one thing online (building business relationships, catching up with old friends) while really doing something else (looking for a new job, looking for a new mate).
• MySpace users, and there are 70 million of them, are largely concentrated in the south and midwest, away from large cities and media centers.
• Businesses by and large have no clue how to use these sites to reach prospective new customers. Traditional “channel marketing” is the wrong approach.

Read the full story, Understanding Users of Social Networks.

Creating a Social Strategy

I’m particularly interested in how my readers are trying to market to SN users. Statistics show that advertising links on these pages are rarely successful at generating much traffic. So what does work?

One piece of advice Piskorski tells his corporate clients: “To be successful, you need to shift your mindset from social media to social strategy.” Online social networks became popular by solving social failures in the offline world. Firms should begin to do the same and help people fulfill their social needs online.

Companies should change the products themselves to make them more social, and leverage group dynamics, using technologies such as Facebook Connect, Piskorski says. Using technology to help people build and leverage their own affinity networks is one interesting area for businesses to explore, he mentions.

“But I don’t see a lot of that yet. I see (businesses) saying, ‘Let’s talk to people on Twitter or let’s have a Facebook page or let’s advertise.’ And these are good first steps but they are nowhere close to a social strategy.”

How do you make money in a recession? Marshall Goldsmith suggests three basic methods in his Harvard Business Publishing blog, Making Money in Chaotic Times:

1. Lower your prices.
2. Introduce a low-cost version of a product you already offer.
3. Add additional benefits to your offering.

Your strategy, of course, depends on what you are selling. But in general, I find alternatives #1 and #2 problematic. If you lower your prices, it will be very difficult to raise them again on the other side of the recession. And a low-cost version of what you already sell can end in cannibalization of your existing offering with a lower-margin product.

But adding additional benefits to your offering, that sounds exciting on a number of levels.

First, it’s an attractive proposition for consumers who are looking for more value for the dollars they spend. Throwing in free shipping, for example, helps create a relationship with customers built around value rather than price. My local auto service shop offers a free tire rotation when you get an oil change. Incremental cost to the shop, but I appreciate that I’ve just saved $20 on a service I usually pay for.

Another advantage: Your existing business plan remains in place without as many adjustments as alternatives #1 and #2 require. Adding a low-price product to your portfolio, for example, might require new agreements with vendors, additional retail channels, new messaging, additional support, and the list goes on. And in the end your customer knows she is getting a cheaper product, no matter how you position it.

Whatever recession-selling steps you take, heed Goldsmith’s advice and don’t undercut the strengths of your business.

“In taking any of these steps, make sure that your company doesn’t dent the favorable aspects that have drawn customers to prefer and respect it. For example, a company that is admired for its level of service should never cut its service quality and risk losing this point of differentiation and preference. The key is to understand your customers’ new problems and to consider how you can help them solve or resolve these problems. You have to coach your customer about possible solutions.”

How are you adding value with your customers? How will your business change post-recession because of these actions you are taking today?