Another excellent Uncommon Knowledge interview. This time with David Kelley, founder of IDEO and designer of Apple’s original computer mouse. It’s worth every second…

The Design Thinking process Kelley describes is fascinating … and incredibly challenging for incumbent organizations to adopt. Many large companies have tried and failed. Take particular note of the story of Pulse (owned by LinkedIn) starting at 20:14 in the interview.

The brisk cycle time and chaotic nature of Design Thinking simply doesn’t mesh with the structure and control systems that epitomize the modern corporation. So, before you get too excited, think for a minute how your buttoned-up CEO’s, CFO’s, CTO’s, etc., would operate inside such an untidy work process.

If you have been able to make elephants dance, please share the story!

Nov 17

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This morning’s developments suggest a mean winter approaches!

A remarkable and wide ranging interview with Peter Thiel, renowned Silicon Valley investor and co-founder of Paypal, talking about his new book, Zero to One. It is absolutely worth the time…

So read the Armistice order in November, 1918.  And the guns fell silent.

Today, the English speaking world Remembers … it is Remembrance Day, honoring the dreadful sacrifice of an entire generation on the fields of France and Flanders.

We in the US have broadened this holiday to honor all our military veterans.  Take a moment to thank them for their service!

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Advert in Dig

The fourth and final strategic conundrum facing the consumer products industry is perhaps the most challenging one.

While it is cliché to say that great marketing is more art than science, it is precisely that artistic quality of great marketing that makes or breaks great consumer brands. Lightening in a bottle happens when advertising delivers its amazing alchemy of engrossing, surprising, unexpected, humorous, even beguiling messages, and then the actual product delivers the promise in both physical and emotional terms.

And, of course, what is so utterly frustrating is that this secret marketing potion has no set recipe. It changes with every iteration.

In the salad days of CPG marketing, this was not a vexing problem. As with great art (i.e., real stuff, not modern garbage), the ability to practice helped. Spoil a canvas? No problem, grab a new one and start again. Ad campaign did not resonate? No problem, think up a new one and shoot new copy.

How the game has changed! Today, the ability to transmit campaigns is growing as difficult and fickle as finding the right message in the first place. In the digital universe grabbing consumer attention has become more difficult than generating foot traffic in an art museum.

How many people actually sit through television commercials? (Or, more precisely, how many busy middle-income families who buy lots of CPG products sit through commercials on their DVR’d sitcom or ball game, let alone watch any advertising at all on their on-demand, internet sourced programming?)

In the good old days, advertising and marketing could deliver its three great missions much more easily.  Those missions are:  Generate awareness; Communicate the brand’s message; and Promote the product.

The hardest, and arguably most important, of these is communicating the brand’s message:  What it does? Why it works? Why it solves your problem? Why you need it? Why you want it?

Make no mistake, packing the answers to all these questions in a 30 second TV commercial is high art. But it does little good if no one is there to see it!

If you are a CPG marketer, it has never been harder to find and reach your target and then stop them long enough to tell your story. Digital, for all its ability to build awareness and deliver promotion, suffers Attention Deficit Disorder (ADD) when it comes to content.

Of course miracles happen. Creativity shines through. Every brand has a story of the viral video or wildly successful promotion. Here is one of my all-time favorites in the viral department.

But even these little explosions typically do little to build or sustain brand equity or drive consumer loyalty. I doubt JC Penney saw marked jewelry sales increases because of the dog house video, no matter the millions of views. While clever and funny, and nearly 5 minutes of viewer concentration, it doesn’t really tell the story of the brand.

Bottom line, the realities of our digital age are turning successful CPG marketing into a Herculean task.

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Back last December I highlighted a piece about the sorry state of innovation in the Consumer Packaged Goods (CPG) space. It was all about how the word “innovation” is overused when breathlessly announcing the introduction of peanut butter pop tarts or age defying skin creams.

The problem of innovation in CPG is, however, daunting.

In the majority of product categories, the innovation well has run dry. Most of the fundamental problems are solved. The tale of the tape is a long and accelerating decline in new intellectual property (i.e., patents).

Yet, as if to prop up the myth that innovation is the lifeblood of their enterprises, CPG companies have gone hyperactive with the churn of new items. This flood of new items (typically measured in unique “stock-keeping-units” or SKU’s) is relentless.

In nearly every product category I’ve looked at, the rate of annual new item introduction has increased 2 to 3 times in the last 20 years ago. But the novelty of these items and their measurable improvement in performance is becoming increasingly rare and hard to find.

What has emerged is a business model whereby the lifeblood of CPG is NOT innovation but churn.

The problem is churn is expensive and it isn’t working. Big market share changes do not correlate to new item activity. They still rely on truly improved product experience (i.e., a product that really is better) or insightful new marketing messages that break through to consumers in unique and compelling ways.

But once on the churn train, CPG companies can’t get off. All of their operating activities, all of their marketing and selling, all of their budget and performance expectations, are tied up in spinning the new item wheel.

They’ve sold themselves to retail customers on the basis of delivering new items. Their brand equities are increasingly tied to their ability to generate “news.” Every brand’s message becomes: “We changed our product in some way you can’t notice, but trust us, it’s better! And because it’s new, we must be the better brand.”

Competitive advantage is fleeting. Distinctiveness and value starts to die. So along with the innovation well running low, relentless churn starts to suck the well dry on consumer trust and loyalty … the very essence of brand power.

What CPG firms are left with is a business model that starts to look like a death spiral.

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Here is a fantastic essay on the nature and problem of evil.  The Truth About Evil

I link it for two reasons. First, for friends and colleagues who are worried about the world and are having their faith in human nature tested. Second, for intelligence analysts and strategists who struggle to deal with and describe the baser and meaner motivations of human organizations.

The author of this piece calls out a universal truth: Evil exists and is and always will be part of human life.

For those of us who believe in the perfectability of human life …or merely that most people are somehow good… we would do well to step back and ask where does “good” come from? Why do we assume its existence? Why do we assume it is ascendant?

Let’s not be lulled into moral sleep by relativist thinking that says, on the one hand, do not judge but then assumes, on the other hand, that somehow good will prevail. It doesn’t work that way.

We may want to dismiss religious explanations for human behavior but the Fall is not mere allegory. Good is only a matter of your conscience and your accountability structure (i.e., whom you answer to). Bad is easy, attractive and always beckoning.

Islam, for all its wonders, is no religion of peace per se’. If anything, the doctrine of jihad promises a liberation from conscience. Do evil for the sake of the reward.

In this way, it is no different than the horrible ‘isms of the 20th century. German National Socialists promised cover for evil, parading as the good. It said crush these skulls, take that stuff and you will be like giants. Ditto Marxism.

Good requires a constant inquiry into its source and its demands. Evil is always there and far too often forms an attractive and logical opposite. Evil is necessary for us to understand and describe the good. It is not a psychological disorder, not a defect, but part of our nature.

No decent intelligence analyst can avoid this fact. We have to understand and account for the meaner or baser aspects of our rivals.

This is certainly true of the failures of those advising foreign and military policy. Looking for logical and good purpose behind bad behavior proves repeatedly fatuous. Evil cannot be placated with land deals, money, promises of rights, etc. It is serving its own purpose, not trying to solve the same problems by different means.

This is just as true in analyzing rival companies, customers or suppliers in the marketplace. Assuming that rival behavior is sane, logical and rests on some algorithmic certitude is as foolish as it sounds. Pride, envy, anger, greed and all the rest of our baser emotions are at play.

What makes the analyst job more difficult (and rewarding) is that the business world has erected so many mythologies to hide these base instincts. From GAAP to “sustainability” to “shareholder value”, companies are always trying to excuse less than good and logical choices with a cloak of good intention. Discerning this and describing it for our audience is a challenge, but critical to our success.

Now, all this does not mean we should not seek the good and not be optimistic about its promise. It does say, however, don’t let it tint your glasses!

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This is not your typical 4 quadrant chart. But it does reflect the growth challenge that faces the consumer packaged goods (CPG) industry.

Rapid expansion of the middle class in developing countries should present a windfall for consumer goods marketers. Unfortunately, harvesting this opportunity has proved more difficult than many imagined.

While the going for companies with legacy footprints -Unilever, for example, in Commonwealth countries- has been somewhat easier, most European and US CPG firms have run into real structural barriers trying to plant their brands in fertile developing market soils.

Lack of infrastructure and organization certainly present challenges. Less sophisticated retailing channels are harder to service and support. But the biggest problem is surmounting the high cost structure that comes with building a product portfolio that adequately serves emerging markets.

Organizing to sell large quantities of low to mid priced goods, often in smaller unit sizes, represents a major “trade down” in profitability for European and US CPG firms.

These firms have developed highly efficient money machines that sell large volumes of large sized and relatively high priced goods in their home markets. As growth in their home markets slowed, these firms goosed their profits by “tiering up” their portfolios. They added many “new and improved,” higher priced variants to their line-ups.

These product portfolios simply don’t match the consumer and retail needs of the developing world. The investment required to manufacture, sell, distribute and promote satchels of detergents, single ice-cream bars or trial size shampoo bottles diminishes the overall profitability of the firm.

Eventually, the consumer goods markets in many of these emerging countries will mature. But waiting is not an option if you want to establish a brand in the minds of consumers.

How long can a CPG firm accept margin-dilutive businesses on the hope of a bright future?

The fickle pundits on Wall Street are not known for their patience.

A little fun to start your weekend … From a land where the image is the message. Or where the power of fluff becomes real. LOL!