If asked what is the significance of Memorial Day, I suspect the average young American would answer: “It’s the beginning of summer”. Memorial Day is the national holiday on which we honor those who have died serving in the U.S. armed forces. The town in which I live puts a flag on the grave of each veteran on Memorial Day. I’m struck each year by the profusion of flags: most of the family burial plots include someone who has served.
Most of the burial plots shown above belong to people who were born before 1950. Military service has declined dramatically in the U.S.: among men, who are 92% of veterans, over half over age 74 have served. Almost 40% of men aged 65–74 have served. In the 55–64 cohort the percentage drops sharply to 15% and continues to decline to only 5% for men aged 25–34. The shared experience of military service is disappearing from our society.
The last 20 years have brought a sharp decline in the cohesion of U.S. society. Its current state is characterized by heightened tribalism, government gridlock, post-truth politics, disengagement from the rest of the world, Wall Street pushing the global economy over the brink in its blinkered pursuit of profit, major “customer service” businesses (Wells Fargo, United Airlines) abusing customers and employees to make their numbers and Silicon Valley firms (e.g. Uber) manipulating people with algorithms while maniacally focused on “blitz scaling” to achieve the next $100 billion market cap.
However, most businesses depend on teamwork and customer relationships. A service ethic — serving on a team, for the customer — is an essential enabler of success. Successful service businesses, like Boston Consulting Group where I spent my journeyman years, teach the same lesson the Air Force taught: it’s not about you. You are there to make the client successful. Notwithstanding the sad stories that appear in the media, most veterans do well in later life. As a group, Veterans are better paid, better educated and more likely to be in marital relationship than non-veterans. Female veterans do particularly well.
Let Memorial Day be a reminder to all of us of the power of service. It powers most successful businesses, and it powers successful nations, too. Service ethic is built by leaders, who teach it directly to young staff and stitch it into the culture of their organizations. Better service is always a competitive advantage, particularly when other forms of advantage fade. And it can help businesses come back from blunders, as United Airlines is doing by doubling down on service to its best customers.
Small businesses rate high in the Gallup survey cited above, right below the U.S. military, probably because they are usually service-oriented with senior management close to the front lines. Notch up your efforts to instill a service ethic in your organization. It will help your business run smoothly, and that will help you truly enjoy the summer.
First posted @ blogs.forbes.com/toddhixon on June 2, 2017.
Rosenstein makes the case for both showboating, disrespect of the chain of command, and violation of Justice Department norms quite clearly, particularly regarding Comey’s public announcement in July 2016 that the investigation into Hilary Clinton’s email server had concluded with a finding of no indictable offense, and that he would inform Congress if anything were to change. Comey went on to scold Ms. Clinton forcefully for her actions.
Rosenstein’s memo was written under suspicious circumstances: President Trump made his decision to fire Comey first and later asked Rosenstein to write the memo to justify the decision. However, Rosenstein has a strong reputation for professionalism, the memo is carefully argued and contains concurring opinions from several former Attorneys General from both parties and, reading it, I get the sense that Rosenstein strongly believes in the case he makes. And, last week Rosenstein showed substantial spine when, on his own authority, he appointed former FBI director Robert Mueller as special prosecutor to oversee the investigation of Russian interference in the 2016 election.
Rosenstein asserts that Comey had no business announcing that Clinton would not be prosecuted because the FBI’s role is to investigate; decisions to prosecute, or not, are made by prosecutors reporting to the Attorney General (the “AG”). Comey justified making the July announcement on the basis that then-AG Loretta Lynch was conflicted due to a conversation she had with Ms. Clinton’s husband. However, Rosenstein points out that there is an established protocol in the Department of Justice for handling conflicts of interest and recusal. In similar circumstances, AG Sessions recused himself from involvement in the investigation of Russian interference in the 2016 election. Comey’s argument that circumstances compelled him to go public with the results of the Clinton email investigation is shaky.
Furthermore, Rosenstein points out that Comey’s scolding of Ms. Clinton was a clear violation of Justice Department and FBI protocol, which holds that officials will not denigrate people for whom prosecution has been declined. Comey clearly violated this protocol and has offered no justification for doing so.
Rosenstein goes on to criticize Comey’s decision to inform Congress (and thereby the public) when the investigation was re-opened in late October 2016. I buy Comey’s argument that he chose a very bad option over a disastrous option then. But, he put himself in that position when he went public with the results of the investigation in July. If Comey had followed protocol and left responsibility for communicating those results to the Office of the AG, then his default option in October would also have been to let the AG’s office handle the decision to disclose, or not.
This matter is complicated by the strong, and sometimes controversial, tradition of independence of the FBI. In his parting letter to the FBI staff, Comey wrote that “the American people should see the FBI as a rock of competence, honesty, and independence” [my italics]. In a situation the FBI Director believes to be critical for the United States, this tradition creates pressure to act rather then rely on other parts of the government. Comey is said to have made his decision to write the October letter to Congress after consultation with senior FBI management. And, by almost all reports, he continues to be highly regarded within the FBI.
Bottom line: it looks to me like Comey stepped into the limelight and grabbed the microphone in July when he should not have, and that put him in a very tough spot in October. And when he testified before Congress about these actions in early May 2017, he struck me as disrespectful of questioners. His comment about the situation leaving him “vaguely nauseous” has a bad odor, and he seemed at times impatient or even superior in his attitude. Taking a raking over the coals from Congress is tough, but any senior federal official knows it can be part of the job.
Comey’s departure offers a valuable lesson to entrepreneurs and business leaders. The best business leaders know that they are not appointed to serve their own egos, they are appointed to act in the interest of the organization they lead. Leaders who are brilliant, driven, and forceful, but also narcissistically self-indulgent and undisciplined, get in trouble. There are many examples close at hand. By comparison, consider Steve Jobs in his mature years: he was a great showman, but he used his showmanship exclusively to promote the products and interests of Apple. The FBI appreciates Comey for his principled leadership and commitment to the institution, but I expect they wish he had not gotten them into political quicksand by going too far. Everything you do as a business leader, especially with third parties, should be about the company, not yourself.
First posted @ blogs.forbes.com/toddhixon on May 25, 2017.
Last week Amazon announced Echo Show, a major upgrade of its Echo “smart speaker” product line, which utilizes Amazon’s “Alexa” voice-driven digital assistant. Amazon already dominates the smart speaker category with 70% market share. Echo Show adds a camera and screen, raising the bar by bringing the voice-driven interface to video applications. Amazon’s announcement speaks of hands-free video calls, viewing shopping lists and lyrics from your music, monitoring security cameras, and many other things.
We could be on the cusp of another “iPhone moment”. The launch of the iPhone ten years ago began a fundamental transformation of the mobile device market from unwired phones to a new computing and communications platform which has now become dominant, especially with younger people. That in turn changed much of the business world and created a new set of tech giants. Something like that looks to be happening again now. Bill Gross, founder of IdeaLab, the original venture incubator, argues that Echo sales are on pace with 1st year iPhone sales, even though an Echo serves a household, while an iPhone serves an individual.
Voice-driven computing crossed a threshold a couple of years ago and became truly useful for non-specialized applications like smart speakers. I’ve been a Google Voice user for 5+ years. Google Voice will transcribe your voice mails and send them to you as emails, among other things. Five years ago, the transcription results were useful: you could generally tell who was calling and what about. But they were full of errors, some of them rather funny. Now Google Voice’s transcriptions are very understandable and often flawless. Voice to text conversion is the key technology that enables smart speakers to input voice instructions into a computer driven system that provides a service, like Echo. It is now ready for prime time.
Voice-driven computing is likely to greatly broaden the market for digital cloud-based services, which includes most of what Amazon, Google, Facebook, Snap, etc. do. Almost everyone in the first world has a capable smart phone now, but the big innovations in the mobile ecosystem occur most often among Millennials. They are not only digital natives but also mobile natives (at least the younger ones). A lot of that generation’s culture developed in the smart phone medium, and they are generally better at typing information into the phone than we older folks. However, the smart home, of which the Echo is the hub, appeals to people of all generations (see chart above). And, voice-driven devices liberate users from the on-screen keyboard. In my circle of friends, it’s not just the young geeks who proudly report buying an Echo and are eager to show it off; it’s a broad cross section.
Voice-driven computing is a powerful enabler of the Internet of Things (IoT). The technology pieces of IoT have been available for a decade or more. It has been waiting for a “killer app” to bring the market to critical mass, what spreadsheets did for PCs. Until recently, only a limited set of IoT use cases have been in any real demand. Now we see the general home-control application taking off with the rise of Echo/Alexa and similar. If this creates a critical mass of installed hardware and engaged users, then many additional IoT applications can emerge much more quickly.
Probably the biggest impact of voice-driven computing lies beyond IoT. Amazon makes it easy for Echo users to order products in the moment when they recognize a need: “Alexa, we need more diapers. Please repeat our last order. Make it next-day delivery.” The Echo enables Amazon to capture the household shopping list and have first shot at fulfilling it. We’re just at the beginning of discovering what can be done on this platform, where the smart phone was in 2008 or so.
So, for almost any entrepreneur or business owner, it’s important to consider what it means if voice-driven computing becomes the next big computing/communications platform — if we are at another “iPhone moment”. Here are some useful questions to explore:
How will e-commerce (or all commerce) be affected by the voice-driven platform? Mobile profoundly changed commerce, giving rise to Uber, for example. Amazon’s “shop in the moment” strategy is one example of a new kind of e-commerce created by voice-driven computing. What else?
How will communication be affected? Mobile gave rise to new communication modes based on photos, like Instagram and Snap. The screen and camera built into the Echo Show indicate that Amazon will target communication applications: it talks about making hands-free video calls and voice calls from any room in the house using Echo Dot extensions.
How will search and advertising change? Voice-driven search is already a key component of smart speakers. Advertising is profoundly different on mobile devices where data display is based on a feed or card paradigm rather than a web page, which has room for ads around the edges. Mobile media platforms like Facebook had to work out how to insert ads into the feed. Will my smart speaker start to broadcast audio ads, like some web pages? I’d be tempted to fix that with a hammer, unless of course I’m addicted to the value I’m otherwise getting from the platform.
Entertainment? Already Alexa plays music. With internet-connected displays, the same could be done for video. The Echo becomes the distribution channel for media, with Amazon giving its products prime placement and gathering the usage data. Netflix, take note.
This is a very early and incomplete set of questions. As voice-driven computing continues to grow, entrepreneurs need to keep a sharp eye out for the ways in which it will change their businesses, the threats it poses and, more important, and opportunities it creates. This could be another big bang in the information world, one from which we are already hearing the echoes.
First posted @ blogs.forbes.com/toddhixon on May 15, 2017.
Last week brought the spectacle of senators, mainly Democrats, grilling FBI Director James Comey for four hours, and last night President Trump fired him summarily. The cause in both cases was Comey’s decision to inform Congress on the eve of the 2016 election that the investigation into Hillary Clinton’s private email server had been re-opened due to new evidence. Many Democrats believe this revelation changed the outcome of the election. Mrs. Clinton made that argument last week. Nate Silver, a highly-respected pollster, agrees.
Comey defended his decision staunchly. He said his paramount objective was to keep the FBI out of politics, meaning to avoid actions that would favor one group of politicians over another. Common sense shows why this is important: we need the top U.S. police force to focus entirely on enforcing the law as interpreted by the courts. It would be a disaster if the FBI were to become captive to a group of politicians as an instrument to maintain and enhance their power, as happens frequently elsewhere in the world. And history shows why this is a sensitive issue. J. Edgar Hoover, who led the FBI for 48 years, is often accused of compiling files on U.S. politicians that gave him leverage on their decisions. In 1972 a very senior FBI executive (“Deep Throat”) leaked information to the press which led to the impeachment of President Nixon.
Comey also pointed out that he faced a decision between two bad options: disclosing the re-opened investigation, which he characterized as a “very bad” option, and concealing it, which he characterized as “catastrophic”. He chose to disclose. On October 28, 2016, when Comey made the decision, he did not know if the new emails would show that Mrs. Clinton should be indicted (or impeached, if she became President), and he did not know if revealing the re-opened investigation would cause her to lose the election. If Clinton had won the election, then the impact of the disclosure on the election would have been minimal. If she had won and the new emails led to indictment/impeachment, then disclosure meant U.S. voters would have been fully informed when they elected her. As it turned out, the new emails were benign, Clinton lost the election, and Comey stands accused of having influenced the outcome. That was the “very bad” outcome.
If Comey had concealed the investigation and Mrs. Clinton had won the election, he ran the risk that the new emails would become the basis for indictment/impeachment of a president recently elected by citizens who did not know that she was again under investigation. This might have led to a major political crisis and a huge loss of trust for the FBI. I suspect this is roughly what Mr. Comey envisioned as the “catastrophic” outcome.
And news of the investigation might have leaked, as is alleged to have happened. If the news leaked, then the attempt to conceal would be useless, and the leak would become a media circus and further politicize the investigation.
Comey had to chose between two options for which the likely outcome was highly uncertain in both cases. He chose the option for which the worst outcome was the least bad. This is a well-recognized risk management strategy for which game theorists have a name: “minimax”.
Politicians, narcissistic tribe that they are, have focused mainly on how Comey’s decision affects them. The Democrats object that Comey’s decision [may have] cost them the White House. President Trump first took the opportunity to fire a Twitter-jab at Mrs. Clinton, saying “FBI Director Comey was the best thing that ever happened to Hillary Clinton in that he gave her a free pass for many bad deeds!” He then fired Comey, and many such as Senators Schumer and Leahy have speculated that the FBI’s investigation of links between the Trump campaign and Russia was a major motivation.
Business leaders, however, should use a different yardstick. We must think about the well-being of the institutions we lead, not just our own loss or gain. Our job is to build long term value in our businesses for the benefit of shareholders, employees, and other stakeholders. We are well paid. We should we willing to make personal sacrifices to do so.
Comey says he made the choice that best upheld the duty of the FBI to be objective investigators and “stay out of politics”. Listening to his testimony, I got the sense that he was also very concerned for the future of the institution he leads: that it remain true to its mission and respected, that it avoid becoming a political tool. Lacking an option that would assure no political impact, he made the choice that promised the least political impact if the uncertain factors went against him, as they did. He has taken enormous flak for his decision; you can see this by typing his name into Google today. And now he is the first FBI Director to be fired for making decisions that frustrated politicians.
[Update: May 11, 8:15 am: See below the text of Comey’s departing message to FBI employees.]
But I think analysis of the facts shows that Comey has acted in the best long term interest of the institution he led and the customers he served: the citizens of the U.S. I expect he will be viewed respectfully by people in the FBI, by serious observers elsewhere, and perhaps by many Americans over time. Business leaders can take a valuable lesson from Director Comey: we are here to lead our institutions for the benefit of the stakeholders, and sometimes we have to take a bullet to do that job well. Political leaders should keep “Comey’s Choice” in mind when they talk about running government more like business.
First posted @ blogs.forbes.com/toddhixon on May 10, 2017.
ESPN, the highly successful cable TV sports network, recently laid off over 100 staff including Ed Werder, a long-serving and highly-respected reporter. Coverage of the layoffs and Werder’s own words make clear how painful and disorienting the layoff was: Werder compares it to “dropping in on your own funeral”. The news traveled rapidly through the football and cable TV worlds: NFL commissioner Roger Goodell reportedly phoned Werder and said he was angered by his layoff. How would you manage if you needed to implement a high-profile layoff in your company?
A lay-off is one of the most difficult passages for any company, and for everyone involved. It typically unleashes a storm of emotion. Often, the people laid off are surprised. They feel hurt, victimized, and cast out. They don’t show understanding of why the layoff has to happen. They feel they deserve a better deal and expect the company to take responsibility for their personal circumstances. Often they share these feelings widely inside and outside of the company. The emotions can reverberate through the industry, especially if others feel they face a threat of layoff too.
Layoffs are tough on the employees who remain. Their jobs become more demanding with reduced staff. They need to do the work of giving emotional support to departing colleagues. They feel guilty because they were spared. And they worry that they will be next.
And layoffs are tough on management. They pit head against heart: you do what your brain says you must do, but your gut is saying it’s a bad thing. Doubts creep in: was it really necessary, was it done well? Trust in the company takes a hit; angry ex-employees may organize a backlash. The company’s reputation dims and competitors can use the layoff to make hay in the marketplace. And the firing manager can feel guilty: s/he took an action that hurt former employees and enabled the manager to be successful. When I’ve done that it made me feel selfish.
The company as a whole suffers a period of low productivity: people are depressed and pre-occupied with processing their feelings and what the new organization means for them. They are focused on the downside, not the upside.
Very few CEOs and managers will gain energy or satisfaction from implementing a layoff, which says a good things about their character. However, you can take steps before and during the layoff to make the pain shorter and less severe.
Communicate regularly to employees how they and the company are doing, well before a layoff looms on the horizon. ESPN is suffering a big profit squeeze for reasons largely beyond it’s control: subscribers are “cutting the cable” at the same time that new “streaming” delivery channels are bidding up the price of sports content. Much of the discussion of layoffs, for example coverage in The Washington Post, makes little mention of this. Putting the company’s business problems plainly on the table can improve the situation: employees will be less surprised when a layoff comes and management’s actions will appear more rational and professional.
Losing a job is big personal loss, and this is probably amplified for an echo-chamber job like sports journalism. People need to grieve before they can go on with life. Giving them early warning that company performance and/or individual performance put the job at risk can speed up the grieving process and enable employees to move ahead sooner. Psychologists speak of five stages of grieving: denial, anger, negotiation, depression and acceptance. You can see some of this play out in the coverage of Werder’s layoff. Experience with loss of important pieces of my life taught me that understanding what was happening and why helped me move through the stages of grieving and, most important, focus my energy on what I want to do next.
Once you know the layoff has to happen, get it done and put it behind you. One big layoff is much better than a series, even if you overshoot and have to hire back a bit. It’s important to move departed employees off the premises promptly, so healing can begin. Some companies summon employees to a conference room, tell them they are laid off, and send them back to their desk with a security person who lets them gather personal belongings, takes their pass, and escorts them to the door. I think this is overly harsh, as it allows no time to say goodbye, but it makes sense for departing employees to leave within a few days.
Honor your obligations to departed employees in full. This is just decency and common sense. ESPN is reported to be honoring Werder’s contract which extends to April, 2019. And likewise expect employees to honor obligations to the company. A professional relationship still exists, and all benefit from acting as professionals. Above all, treat the departed employees with respect.
Offer help to departed employees. To some degree they are unlucky. It helps departing employees heal if their more fortunate former colleagues make efforts to help them, or if the company pays for help. Helping can be awkward: managers and former colleagues may feel guilty and find it hard to engage. It’s the right thing to do, and facing the awkwardness is part of working through feelings about the layoff.
Be as generous as possible. A Welch-era division manager explained the GE philosophy: layoffs were part of the toolkit, but severance was generous. I have a number of friends who were forced out of firms but given quite generous transition packages. Their feelings are complicated, but the generous package usually gets mentioned and helps them speak positively of their former employer.
Respond to the feelings of those who remain. Make sure they understand the business necessity. Listen to their feelings and questions at town meetings, etc. Reassure them as much as you honestly can about their future. Hopefully you can bring some good news to the table and shift their focus to upside prospects to which they can work.
And acknowledge your own feelings. I like an informal SEAL motto that goes: “You don’t have to like it, you just have to do it.” It tells me that, when I have to do things that are seriously painful, it’s OK to admit I feel the pain. I just have to get the job done.
Then, having done your job as professionally and kindly as possible, focus on the future. We undertake layoffs so that the company and most of its employees can achieve a bright future. It’s time to start making that happen.
First posted @ blogs.forbes.com/toddhixon on May 3, 2017.
It’s all too easy for Americans who have done well to ignore the decline of less educated U.S. workers and their families, commonly called the “middle class”. Long-term neglect has led to a political crisis that weakens the system from which we all benefit. Entrepreneurs, as leaders and business people, need to own this problem. They can do much to reverse it and keep our system strong.
I had breakfast recently with a friend who came to the U.S. early in life, excelled in school, won admission to an “Ivy+” college, married another professional and is now a fund manager. He’s on his way to building wealth and thinking about how to help his children follow in his success. Our conversation flowed towards the irrationality of the anti-global, anti-immigrant sentiment and policies that are taking hold. We both appreciate the value of immigrants to the U.S. and the virtues of a system that allows unusually bright people to rise rapidly.
Real incomes for U.S. families near and below the median have not grown for almost 40 years (see chart above): middle class people have not shared in economic progress. Politicians like Bernie Sanders say that the system is “rigged” against the middle class. The U.S. is now often criticized for low levels of economic mobility. Hearing this, a successful entrepreneur might feel attacked and think something like this. I’ve done nothing wrong. I’ve played by the rules, worked far harder than most clock-punchers, competed intensely ever since I was 12, and had some success. No strings were pulled. The system is not fundamentally rigged; it’s simply demanding. I earned what I have.
And many immigrants still want to come to the U.S. and view it as the land of opportunity. Why? The U.S. has the best university-level education in the world, dominates that tech and biotech industries, hosts the the most important financial hub (post-Brexit) and has the strongest start-up ecosystem. It offers very talented, well-educated immigrants opportunities for training, jobs with employers who recruit aggressively for intellectual talent and a chance at riches. Most other immigrants to the U.S. come from low-income countries, so life at the low end of the U.S. income scale is a trade-up. It’s no surprise that both the poor and the extra-talented want to come.
But that does not equate to opportunity for people below the top income quintile in the U.S. They are often trapped for multiple reasons: they lack the skills to participate in the information economy and are too old to retrain; they live in a place where jobs have vanished; or they do not have the specific gifts prized by the STEM-dominated information economy. Meanwhile, the top 20% are marrying each other, reinforcing their talents, and working hard to prepare their children to achieve and stay at the top, and immigrants from poor countries will work for less. People in the middle have reason to feel trapped and squeezed.
All of us in the entrepreneurial ecosystem should care a great deal about the decline of the middle class. This decline has brought us to a political crisis that is impacting the U.S. and much of Europe. The crisis has created opportunity for a new generation of demagogues to gain power. They promote simplistic ideas that sound good to their base, like attacks on the globalist policies, particularly free trade and immigration. Economists believe that globalist policies have been a key driver of U.S. economic growth. They think that curtailing immigration of skilled people, raising tariffs, taking the U.S. out of NAFTA and Britain and France out of the E.U., etc., will reduce jobs and economic growth. It will create major disruptions for many companies: curtailed access to global markets when countervailing tariffs are put up, higher cost for materials and components, problems hiring for key skills. So all of us stand to lose what we’ve built if the system we depend on is torn down or degraded.
Globalist policies are also important to the security of the U.S. If we isolate ourselves, China will increase its influence regionally and globally, and act in its own interest. The European Union has helped Europe’s tepid economic growth and brought an end to European wars, which was its original purpose. If it shrinks or shatters, U.S. companies will have fewer opportunities to sell to Europe, and the world may become a more dangerous place.
We should also care because we are countrymen and women. For all its foibles, the United States is much greater than the sum of its parts. We benefit from being part of it even if we put more than the average into the pot. So it’s worth lending a helping hand to keep the country strong. And we need our electorate to trust the technocrats to govern in our interest, with the right checks and balances. Our economy is not simple. Ideas that sound good can produce disastrous results. When markets crashed in the 1930s our government made the wrong moves, including a big rise in tariffs, producing a decade of economic and political regression worldwide. When markets crashed in 2008 today’s technocrats made on-balance the right moves, and recovery happened relatively fast. If a large segment of the electorate believes it has been exploited and left behind, this trust will not exist.
And, speaking personally, caring about the fate of the middle class is a matter of decency. I don’t want to live in a country where all of the citizens and legal residents lack access to decent healthcare, decent education, opportunity to earn a living and dignity in the workplace, a safe place to live and a fair chance to compete for the elite roles in society.
I found myself making this argument passionately to my friend. We, the beneficiaries of the U.S. system, native-born or immigrant, own this problem. We’ve known for a long time that the economic system was working well for the elite, but the middle was suffering economic stagnation and despair. We mostly ignored the problem. Even the leaders of the Democratic party, the self-styled party of compassion, failed to win the trust of the distressed middle class.
Entrepreneurs and small business leaders can do a lot to help. We can develop our businesses in ways that create real jobs for our workers and that benefit, rather than suffer, from the rise of robots and artificial intelligence. We can make extra efforts to offer training opportunities to workers whose skills are out of date. We can push back tribalism (us-versus-them mentality) in our companies in multiple ways. We can make extra efforts to hire workers coming out of retraining, much as some companies make extra effort to hire a diverse workforce, by working hard to discover as many good candidates as possible (and not by lowering standards).
And, we can set a personal example: vote, talk to our elected representatives, write, teach our children and avoid cynicism, cheap-shots, and sounds-good proposals. We can take time to listen to the voices of our middle class workers. We can support and work for the candidates we believe in, particularly candidates with skills solving complex problems and working with diverse parties. That’s worked well here in Massachusetts. Finally we must keep firmly in mind that the U.S. is a great country, we need to nurture and improve it, and we have a lot to lose if we fail.
First published @ blogs.forbes.com/toddhixon on April 28, 2017.
It’s remarkable how often businesses forget the importance of trust. Last week United Airlines summoned airport security to drag a passenger off an aircraft when he refused to give up his seat to accommodate a United employee. The passenger, a 69 year-old doctor from Kentucky, was visibly bloodied and suffered a broken nose. It now appears this will land in the courts. Regardless of who wins there, United has lost already, because millions of United passengers are likely to wonder if this could happen to them, and more broadly, if they can trust United with their vacations, their business schedules, and their lives. A study published yesterday indicates many passengers would pick American over United even if the price is higher and a connection is required. United has spent decades and millions promoting itself as “The Friendly Skies”. That rings hollow now, and I suspect United’s ad agency is already thinking about a new brand positioning.
The best businesses are built on trust. When customers trust your company, they rely on your products, services and advice; they make you part of their business or personal lives; they share important information; they allow you to hold and manage their assets and they keep coming back for more with little need for sales or marketing. They are likely to ignore competing offers at lower prices. As a result, revenues are more predictable and margins are higher for trust based businesses. And, on a modern note, trust-based businesses are less vulnerable to disruption by robots.
The cost of losing trust is high. In recent years Volkswagen and Wells Fargo Bank were each forced to admit they had abused customers’ trust. VW sold a half million cars in the U.S. that it represented to be legal to drive, when in fact they did not meet legal standards for tailpipe emissions, because VW had cheated on the government tests. Wells Fargo opened millions of new accounts for customers without their consent or knowledge, causing them to pay additional fees, and it intimidated employees who protested. Soon after these scandals broke into the public domain, the CEOs of both companies were fired, and stock prices took a major hit. Wells Fargo’s stock price has since been up and down; VW’s price is still far below its pre-scandal level.
Automobiles, airlines, and financial services are among the businesses in which trust matters most. Customers entrust their lives to airlines and car manufacturers and their fortunes to banks and other financial businesses. These businesses make large investments in customer loyalty. Airlines offer elaborate, even Byzantine frequent flyer programs. Car companies give loyalty discounts to repeat buyers. Banks give free checking and interest holidays to acquire accounts. This is justified on the basis of lifetime customer value, which only exists if the customer relationship is maintained. Still, leading companies forget the importance of trust.
How does this happen? In the Wells Fargo case it’s clear that bank executives put severe pressure on employees to achieve growth goals and ignored the unethical/illegal behavior that resulted. Why the VW and United situations occurred is less clear, but I speculate that overly “by-the-book” culture, operational pressure, and the sense of invulnerability big businesses engender were contributing factors. In his statement to employees following the Chicago “re-accommodation” incident, United CEO Oscar Munoz said: “Our employees followed established procedures … I want to commend you for continuing to go above and beyond to ensure we fly right.”
[UPDATE: On the April 27 Marketplace Morning Report Podcast, United CEO Munoz explained: “We allowed following policies and procedures to overcome common sense and doing the right thing.” He went on to describe new operating procedures including raising the maximum “give up your seat” bounty to $10,000, and not calling law enforcement unless safety or security are in jeopardy.]
These companies were too concerned about a short term objective — a revenue goal, a cost goal, or an operational requirement — and lost sight of a strategically vital objective, keeping the trust of customers, and also regulators who act on customers’ behalf. United compounded its problem when it gave control of the situation to Chicago Aviation Security, which it turns out has no protocol for use of force. Three of its burly, young officers were far too ready to beat up a 69 year-old man.
Entrepreneurs face the same issue, although in my experience it takes a slightly different form. Small businesses are less likely to mistreat customers in routine operations, as Wells Fargo and United did, because top management is closer to the front lines and hence better positioned to balance the importance of immediate operational goals and relationship goals. But small businesses striving to grow and establish reputations are apt to overpromise results to customers and investors, and if they fall short too many times, they can be hard pressed to recover.
CEOs can reduce the risk of trust breach by taking these steps:
Educate employees to understand the strategic importance of earning and maintaining customer trust. Show them what kinds of actions build trust versus destroy it. Help them understand the importance of treating customers with sincere respect in every interaction.
Give front-line supervisors authority to do what their heads (and hearts) tell them makes sense in the situation they face, versus following the book by rote. Delta did this when it gave local supervisors ability to pay up to $10,000 to clear seats. This was both smart policy and a big PR win.
Create metrics for customer relationship strength and put them alongside metrics for operational success. Relationship metrics include customer retention, net promoter score, quality of customer feedback, etc. Managers who achieve high scores on both dimensions should earn the greatest rewards.
Gather feedback from front-line customer facing employees and consider it carefully: they will know if customer relationships are in jeopardy. Wells Fargo had many warnings from employee protests.
Set the example at the top. Make visible decisions that reward honoring customer trust over seeking advantage, and praise managers and employees who do the same.
Like charity, trust starts at home. If your employees trust management to make the right call when company and customer objectives conflict, they will be empowered to earn customer trust.
First posted @ blogs.forbes.com on April 19, 2017.
Despite what we hear from certain prominent politicians, most serious commentators tell us that robots, much more than imports, are the main root cause of disappearing jobs. [I use the term robot broadly to include software based on artificial intelligence (AI) and machine learning.] If your job can be performed by every-more-capable robots, you are at risk. And, if your business is based on jobs that robots can take, you are at risk too. Your margins will be squeezed and you will be forced to push out a lot of employees, or lose to robot-enabled competitors. It’s time to evolve your business model to one that makes robots a force multiplier.
Dr. Mukherjee notes that the core diagnostic task for both specialties is to distinguish diseased tissue from normal tissue by examining visual information: diagnostic images for radiologists and skin for dermatologists. In simple terms this means determining what the doctor is seeing, and what it means for the health of a patient. These tasks, recognizing patterns in visual information (“what I am seeing”) and, having classified the object, determining its significance based on the accumulated body of medical knowledge (“what it means”) are exactly what AI does better and better. AI is already out-performing human doctors in certain diagnostic situations, and it is not hard to envision that in the near future it will be equally or more capable at delivering diagnoses in a large percentage of situations.
The key question is: what does this mean for the individual doctors and the businesses that employ them? Many think the future for radiologists will be difficult. Geoffrey Hinton, a computer scientist quoted in Dr. Mukherjee’s article, puts it rather bluntly: “I think that if you work as a radiologist you are like Wile E. Coyote in the [Road Runner] cartoon … You’re already over the edge of the cliff, but you haven’t yet looked down … I said this at a hospital. It did not go down too well.” Hospitals that employ radiologists may see this differently, however. If scans can be obtained faster at lower cost, it will help other doctors give better care and eliminate unnecessary procedures. By comparison, Lindsey Bordone, a dermatologist quoted in the article, welcomes AI with a shrug: “If it helps me make decisions with greater accuracy, I’d welcome it.”
Dr. Mukherjee points to two key differences between dermatology and radiology. Radiologists are mainly concerned with “what” they are seeing and its medical significance. They typically have little involvement with why something happened or what to do next. Dermatologists provide diagnoses, and they are also concerned with the cause of skin disease they are seeing, because that often indicates a path to a cure. AI systems, while very good at making classifications, provide no information that indicates how they come to a conclusion, and hence they shed little light on the cause of the condition they identify. They are deep black boxes.
And, dermatology is a very personal type of medicine. Some problems are better identified by touch than sight, so a skin exam typically includes a laying-on of hands. Dermatology affects one’s appearance: a very personal matter. The discussion with the doctor is often about what caused the problem, and what behavior change (as well as medicine or procedure) can cure it. Many blemishes are benign and many common problems can be helped, so the experience is often reassuring. And there is often a follow-up: e.g., a person with a skin cancer diagnosis will be followed for life. It’s not surprising that dermatologists see AI as a tool to help them practice better, not a threat.
These examples offers lessons for every business. AI is becoming good at many cognitive tasks such as lesion classification that are high on the human skill hierarchy today. But AI based on machine learning, the main force driving the current AI revolution, is not good at determining cause and effect. AI has made inroads in aspects of human interaction such as cognitive behavioral therapy. However, I’m confident that humans will outperform AI in most complex, sophisticated human interactions, for a long time and maybe forever.
So if your business is based on developing rich relationships with customers, and helping them manage key parts of their lives and businesses over time, then you will probably find AI to be a force multiplier, not a threat. This is the dermatology example. If your business is knowledge-based (even deeply so) but transactional and impersonal, AI may well take over: e.g., radiology. Similar change has already happened in securities trading and routine customer service. And if your business is a mix of the two, you need to be shifting your value-add to the relationship-based activities, and taking full advantage of the AI revolution in the transactional activities. This is how hospitals should see radiology.
Viewed this way, the AI revolution is déjà vu: another wave of commoditization, like many in the past. Companies that survive commoditization and prosper do so by building strong customer relationships getting ahead of the change in their cost structures. Companies that don’t get squeezed. This is nothing that cannot be overcome. Time to get to work.
First posted @ blogs.forbes.com/toddhixon on April 11, 2017.
Business leaders’ concern about customer opinions is a good thing. But the way many companies collect data does more harm than good. Keep two principles in mind: bad data does not foster good decisions, and customers want you to listen.
Businesses of all size seem to be obsessed with surveying their customers. For example, every time I fly on United, and every time I log out of my Bank of America HSA, I am asked to complete a web survey. A lot of Amazon vendors (usually small businesses) send a survey after every purchase, too.
My portfolio companies all measure NPS now and put the data in their board of directors materials and investor pitches. Simple and useful ideas like NPS often wash through the business world, doing a lot of good, but also some harm, because the devil lurks in the details.
There’s no way a typical customer can respond to all the surveys to which s/he is subjected currently. They take too much time and they interrupt the user’s flow. I expect that the typical response rate is low, perhaps single digits. And, many of these surveys are not mobile-friendly.
Who is responding? No doubt a typical customer occasionally responds when s/he is not busy. Probably a high proportion of responders are outlier customers: older people with more free time, or customers with an agenda such as frustration with a recent service experience. Millennials and other mobile-centric groups are probably under-represented.
Data as described above is tricky. If you gather and track this data regularly and see a spike in complaints, you should look for a problem in your product or service. But, this data probably does not tell you what your core customers are thinking or how loyal they are to your brand. Non-representative response is a big problem: core customers’ voices can be drowned out by the outliers who are over-represented in the response. Statistical tools can mitigate this problem, but they require significant background data on each survey respondent, which is usually not part of the survey. Big companies probably have this data and may be able to connect it to the survey response and use it to improve the data. Small companies often lack the skills to perform this level of analysis.
And, there is no “average” customer, because everyone is unique in some way, and the customers who make up the core of your franchise can fall into two or more distinct groups. One of my portfolio companies performed customer research for a high-fiber cereal brand. They learned quickly that this brand has two very different core customer groups: young, mostly-female adults who care about controlling weight, and older adults concerned about intestinal health. The average customer for this brand, a forty-something androgynous person, is not a helpful construct.
Companies that want to survey their customers after every touch point often don’t want to listen to customers. Suppose you are a typical and good-value customer for United Airlines or Bank of America, something goes badly wrong, and you want to call them up, talk to a person with a reasonable level of knowledge and authority, and discuss the problem. I searched the United web site for the word “complaint”, hoping to find a way to discuss a complaint with a United staffer. The best thing I could find was a web form to fill out for customer service, amidst many documents declaring United’s operational policies. If you call Bank of America, you will spend a long time keying in identifying numbers and listening to recordings that steer you to a robotic response, through two or three tiers of menus, before you get the opportunity to wait on hold to talk with a junior customer service rep. That does not feel like “listening to customers” to me. Small businesses are often better at this, because they lack the technology to fend off customer calls. And if you are a very high status (“1K” or “global service”) United customer, you can call a passenger service desk staffed by old pros who do a good job with flight and reservation issues.
When a customer is unhappy, they usually want to talk with someone who can make them feel heard and respected and help with the problem to some degree. I recently heard a friend call housekeeping at a resort about a problem. The person at the other end listened politely and offered a step to mitigate the problem. After a few minutes, my friend said: “That [the mitigation] will be fine. I appreciate the chance to tell you how I feel about this. That’s all I need.” My friend felt fairly treated and will be back.
Web surveys are appealing because they are “scalable”: they are done with software that collects data and boils it down to a dataset executives can analyze. This produces good PowerPoint backed by “real data”. The data may be real, but if it is unrepresentative, the results are suspect: “Garbage In –> Garbage Out”.
Keep these two things in mind as you work on better rapport with your customers. Pay close attention to the quality of the data you collect and analyze. There are many pitfalls in customer survey data. Both professional help and caution interpreting data are often warranted. And still there can be surprises, as happened to the best pollsters with the 2016 election.
Listen to customers the old-fashioned way. This is expensive, non-scalable, and often tedious, as there will always be cranks and bullies. However, in business, as in most other parts of life, if you want to have strong relationships, there is no substitute for listening.
First posted @ blogs.forbes.com/toddhixon on March 17, 2017.
Healthcare impacts the morale and effectiveness of your staff. Employees cannot perform their duties well if they or their loved ones are seriously ill. And the cost of healthcare is often financially painful or prohibitive, especially for lower-paid employees.
Speaker Paul Ryan says the ObamaCare (the ACA) is the law of the land for the foreseeable future. And, serious observers such as the CBO say the insurance exchanges are stable. Following the embarrassing defeat of its healthcare proposals, the Republican party needs a victory badly and will likely turn its attention to areas where it thinks it has a good chance of putting points on the board before the mid-term election. Right now, they are talking about tax reform. They may move on to other, easier challenges. It’s not likely they will come back to healthcare soon.
But that does not mean that the future of the ACA is assured. Secretary of Health and Human Services Tom Price observes that there are over 1,000 passages in the ACA that empower him to define or elaborate what the law really does. Within the ACA, the Republicans object most strongly to the expansion of Medicaid, the “individual mandate” which coerces Americans to buy insurance, and the subsidy and coverage-requirement aspects of the insurance exchanges.
Each of these programs can be degraded by executive action. The administration can grant waivers to states to “experiment” with alternative Medicaid programs which, if launched in red states, might amount to less funding or tighter eligibility requirements similar to the Medicaid proposals in the Republican health care bill. It can make enforcement of the individual mandate looser, allowing healthier people to opt out of insurance, driving up premiums for those that remain. (The IRS is now accepting “silent” 2016 individual tax returns that omit information about health insurance coverage.) And it can degrade the exchanges in many ways: by failing to provide usability upgrades to the website or advertising to bring in users; by fostering uncertainty and failing to address technical problems, causing insurers to withdraw from the market; by watering down the benefits that must be provided by exchange health plans; and most powerfully by ceasing to defend against a court challenge to the program that provides financial assistance with deductibles and co-insurance to the lowest-income exchange customers. The loss of this program would cause many lower-income customers to withdraw from the exchanges.
Hence, the exchanges have no upside and plenty of downside with the Trump administration in office. And Medicaid may get trimmed as well. The two programs that have increased coverage for lower income people are at risk of shrinking. This puts more burden on employers, and particularly on small employers whose employees typically earn less.
What strategy makes sense in this very uncertain environment?
Use commercial group insurance if possible. This part of the healthcare system is strong and will be least affected by the administration. If your company is big enough to self-insure you can escape a great deal of regulation, and new offerings are bringing self-insurance to smaller companies. A strategy based on sending employees to the public exchanges with a stipend, which made sense for some companies when the exchanges had the government’s full support, will be risky until we know how the new administration will implement the ACA.
Explore offering a health savings account (HSA) in combination with high-deductible insurance. Trump has said he favors HSAs and wants to expand their use. He can make regulatory changes that will make HSAs more broadly available and more attractive. High deductible health plans produce savings, but studies have shown that the savings often come from avoidance of needed care. Adding an HSA, which the employer can fund, makes money available for necessary care that falls into the deductible, and it gives employees incentives to spend wisely because they are spending “their own” money.
Get creative by investing in new approaches to wellness that are showing strong results. This includes comprehensive programs targeted at chronic diseases like Omada Health and digital tools that help people adopt healthier lifestyles and eating habits. There is a lot of noise in the latter space, however, some of the products are producing strong documented results. These programs attack the root cause of the chronic disease epidemic that drives the bulk of our healthcare bill.
The next few years are likely to be difficult for health benefit sponsors: when the gods are at war mortals need to stay out of their way. In such periods it makes sense to stick with the things that are working and watch the change carefully, looking for the opportunities that emerge and well as the threats.
First posted @ blogs.forbes.com/toddhixon on March 30, 2017.