How (23 page)

Soon these judgments will become pervasive and ingrained, affecting every evaluation of a company’s prospects and its ability to perform in the marketplace. People will habitually ask: Does this company have a culture that is nimble and responsive, or one full of friction and dissonance? Are its team members free to create and achieve at their top level or encumbered by a governing system and culture that discourages their best efforts? Is it a company of talent aligned with shared beliefs, attitudes, and aspirations, or one with competing interests who jockey for internal advantage? Due diligence will take on new and added dimensions, with these formerly soft issues weighing as heavily in the mix as balance sheets and assets.

ICU, UC ME

Technological transparency has lifted the veil of proxies and surrogates, leaving individuals and organizations exposed as never before. This new vulnerability has profound ramifications on how we do what we do. In an attempt to quantify the way transparency affects the HOWs of business, Professor James A. Brickley of the William E. Simon Graduate School of Business Administration at the University of Rochester considered a typical deal between a buyer and a seller. The seller contracts to buy a certain product, say a chemical compound, of a certain high quality. It is more expensive for the seller to produce a high-quality compound than a low-quality one. If the conditions of the world are such that the purity of the compound can be easily and cheaply tested prior to the transaction, the buyer probably will do so, so the seller, in these conditions, has little incentive to cheat on quality. The seller would be easily discovered and lose the deal. If testing is difficult or expensive, however, things get trickier. The seller gains a strong incentive to cheat on quality, especially if the gain by cheating exceeds the expected costs of delivering as promised.
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In other words, if it costs $10 to make a product of promised quality and $5 to make one of lesser quality, the seller will gain $5 if he is reasonably sure he won’t get caught before the deal goes through.

Testing, in this example, is information, and easy access to information changes everything. In a nontransparent world, it was generally far easier for a seller to look at each deal as an individual transaction, with few ramifications for future sales. For buyers, it was far more difficult for the right hand to know what the left was doing (i.e., to get information about the seller or the product). Thus the costs of cheating remained low and easily determinable. The more rapidly, widely, and inexpensively information about a product can be distributed, however, the higher the long-term costs of cheating. Cheating will quickly be discovered and broadcast, resulting in long-term loss of reputation and sales. Further, a high-information culture creates the expectation of high information. When sellers can’t provide reasonable and substantiated assurances about a product, buyers will want to pay less to protect against higher uncertainty.
The very presence in a market of cheap and easy information changes the costs involved in every transaction, providing the seller with a strong incentive to do the right thing
.

Although Brickley’s analysis uses quality as a variable, quality as a process is not the issue at hand; it is trust and transparency, getting your HOWs right. Whether it be recruiting the best talent, negotiating with a potential customer, or defending a workers’ compensation claim, more than ever companies now have to answer for their culture both in the courts and in the court of public opinion. Today, a company is no longer judged merely on the quality of its WHATS, but also on its HOWS. It is not enough to make a good tennis shoe if you exploit workers in Vietnam to do so. It is not enough to pay a good salary if you institute policies that make workers feel devalued. It is not enough to keep promises 80 percent of the time when your competitor keeps them 100 percent of the time.

If the company is a stadium and its workers fill the seats, the gates to the field have been thrown wide open and anyone can now wander in, look up, and watch how you do the Wave. They can see who is leading and how they are leading, who is or isn’t following, how section 38 communicates with section 52 and what they say. The way the outside world now views a company has irrevocably changed, and this new framework of understanding has profound implications for the way business is conducted in the twenty-first century. Now, HOW you do WHAT you do matters most.

THE MARKET DEFINES YOU

Nowhere in the internetworked world is our changing relationship to proxies and surrogates better illuminated than in the world of advertising. Advertising and marketing are proxies as well, up-front representations of a company’s best effort to reach out to its customers. Back in the early days of radio and television, when advertisers broke free of the printed page and began to employ images and sound, ads were by and large conversational approaches to the consumer, an attempt to replicate the experience of everyday life. People talked about things to one another, and those who could appear more sincere, more folksy and down-to-earth, were often most successful. Ronald Reagan, for example, then a B-movie actor, would come on the radio and tell you in his relaxed tone how Boraxo Waterless Hand Cleanser would clean everything from paint to grease from your hands. “The whole crew swears by it,” he said, “and so will you.”
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Messages were simple, informative, and direct.

As television grew in popularity, people began to realize the power of the image and manipulate it accordingly. Decade by decade over the next 40 years, ads became slicker, images more polished and manipulated, and commercials more frequent and overwhelming as marketers attempted to perfect methods to define their product identity in the market. The era of folksy friends evolved into the world of abstract icons. The Marlboro Man, Colonel Sanders, Joe Camel, and even real-life characters like Michael Jordan for Nike became highly evolved and crafted symbols representing the feelings and aspirations of consumers. Powerful “brand image” became the marketer’s goal, with “brand awareness” following close behind. By the 1990s, brand messaging had become so abstract and sophisticated that the product itself often became less important than the image or associations that our most talented marketers could wrap it in.

The connected world is changing all that. Easy access to information makes consumers smarter today; they can easily get past the image and get to the truth of a company’s product. In the United States, movie marketers were one of the first groups to feel this. Twenty-five years ago, the biggest movies of the year would open on a few screens in New York and Los Angeles, and then, buoyed by positive word of mouth and the praise of critics (themselves surrogates for the audience), would roll out across the country week by week, with foreign markets to follow. According to the
Los Angeles Times
, top box office hits made just 12 percent of their total gross in the first week of release.
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With the growth of the cineplex and the introduction of the wide release, studios became able to flood the market with their product, opening on thousands of screens on a single day around the world. Since only critics and a scattered few test audiences around the country actually saw a film before it was released, movie marketers could almost completely control the branding of a film, and no industry got better at defining its product for the marketplace. The power in Hollywood shifted from the creators of motion pictures to those who marketed them. Big films now routinely make one-third of their total gross the first weekend, essentially cashing in on their marketing before word of mouth can correct the perception in the marketplace.

But along came such web sites as
aintitcool.com
(or Ain’t It Cool News), accompanied by blogs and boards catering to those who loved to talk about movies. Members of a test audience in New Jersey who saw a sneak preview of a film still in production could go online and share what they had seen. Even films that had just opened could suddenly become widely discussed. Marketers lost control of the message. “Instant communications technology has completely changed the role of word of mouth,” Nancy Utley, COO of Fox Searchlight Pictures, told the
Los Angeles Times
recently.
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“Word of mouth used to be confined to cities. Now, thanks to e-mail and text messaging, it crosses continents. It’s revolutionized what word of mouth means.” A recent
Los Angeles Times
poll backs up this notion, revealing that nearly 40 percent of teens and young adults (the largest percentage of the movie-going audience and the most wired generation) share their opinions during viewing, right afterward, or on the same day they see a film. Instant communication can build an almost immediate national consensus about a film, creating an instant hit or dooming it to a quick DVD release almost before opening weekend is over. In other words, you no longer define yourself in the market; the market defines you.

This trend is pervading other areas of society as well. Yelp, a web site that touts “Real People. Real Reviews,” is building a community of nonprofessional reviewers who log on and share their immediate impressions of everything from hot dog stands to five-star restaurants to corner hardware stores. When it launched in San Francisco in late 2004, it had an almost instant impact. Unlike the anonymous reviewers of the Zagat and Michelin guides, Yelpers post detailed profiles of themselves and bond around common interests. This transparency builds almost immediate trust, and a “good Yelp” can get cash registers ringing almost overnight. “No longer is each customer transaction a one-off interaction,” media analyst Ken Doctor of Outsell Inc. told the
Los Angeles Times
.
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“Any customer who has a great or horrible experience now has, as soon as they walk out the door, a megaphone to tell the world they had a great or horrible experience, fairly or unfairly.” Rather than being passive beneficiaries or victims of this new trend, smart businesses there are taking advantage of the feedback to instantly improve their products. “It’s changed the way I run my business because I get feedback right away,” said chef-owner Ola Fendert of restaurant Oola. “You used to find out too late, when your business was slowing down. Now it’s almost instant: Something happened, you see it on Yelp the next day, and you can fix it.” (Interestingly, as an even greater sign that we are reaching a critical mass of these trends, both of these
Los Angeles Times
reports—on movies and Yelp—appeared in the same day’s paper, August 25, 2006, in completely different sections edited by different people.)

The easy explanation for the trend toward the increasing effectiveness of word of mouth would be to assume that people are just overwhelmed and cynical about corporate messages and Big Media. After all, why should someone believe Joe from Berkeley over a reviewer from the
San Francisco Chronicle
or their own experience of a movie trailer? But if you dig deeper, the reason is far more profound. Proxies succeed in their function as messengers only when those receiving them endow them with trust and have no other sources of information with which to compare them. In a world where everyone is connected and has ready access to a flood of information, people can look past the proxies to get at the truth. Why accept what Hasbro says about how much your child will enjoy their newest toy when you can go online and read reviews by other parents who have already bought it describing the real-life experiences of their kids? In a time where the Certainty Gap is large, people yearn for a more immediate and authentic impression before they part with their hard-won dollars.

Today’s leading-edge companies know this, and are putting their marketing money where other people’s mouths are. They spend less and less each year on big television ad campaigns and more and more on direct approaches enabled by new media. In 2005, advertisers spent about $47.4 billion on newspaper advertising, according to the Newspaper Association of America. That is comparable to $46.2 billion for broadcast television and $52.2 billion for direct-mail advertising. These mass media outlets are seeing meager year-over-year growth of about 5 percent. By comparison, year-over-year spending on targeted interactive advertising—dialogic marketing—is projected to be up nearly 30 percent, from $9.7 billion to over $12.5 billion, according to industry estimates.
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Smart companies are targeting more and more marketing dollars to efforts to connect more intimately with their markets—efforts like word-of-mouth marketing, defined by the Word of Mouth Marketing Association (WOMMA) as “Giving people a reason to talk about your products and services, and making it easier for that conversation to take place.” WOMMA joins together cutting-edge efforts to perfect “the art and science of building active, mutually beneficial consumer-to-consumer and consumer-to-marketer communications.”
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New and innovative strategies for reaching the market seem to pop up each day.
Viral marketing
focuses on creating entertaining or informative messages designed for customers to pass along in an exponential fashion, often electronically or by e-mail.
Evangelist marketing
cultivates advocates or volunteers and encourages them to take a leadership role in actively spreading the word on a company’s behalf.
Cause marketing
involves supporting social causes to earn respect and support from people who feel strongly about the causes.
Mobile marketers
use cell phones to achieve a huge range of objectives—from text-to-win competitions to direct-response handling, customer service management, and brand building—to build a two-way conversation with new or existing customers, “extending the brand into the pocket.”
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Interestingly, these more direct, personal approaches are in many ways a throwback to the early days of media, when people got their messages from people they trusted, like Ronald Reagan.