They’ll Be Back

Imagine for a moment that someone you know has just written his or her name, address and telephone number on the wall of a public building in a nearby park, so that their friends who live near the park will know how to get in touch with them. When you suggest to them that this might not be a good idea, since total strangers now have their contact information and could use it for various nefarious purposes, your acquaintance tells you not to worry; there is no way that anyone would use such innocent scribbles against them, and even if someone wanted to, those letters will soon wash off in the rain and be forgotten. If you just rolled your eyes and muttered something to yourself about people who live in a fool’s paradise, congratulations! You’re smarter than a number of businesspeople who have turned up in the news lately…

I’ve already brought you the story of the Abercrombie and Fitch CEO who was unwise enough to tell an interviewer that his company did not offer larger sizes because they only wanted customers who were within an unfortunately narrow standard of appearance – the “cool kids” as he called them – thus perpetuating negative stereotypes of both status-conscious teenagers and the fashion industry itself in one fatuous statement. What you may not have realized in the resulting media firestorm is that the original blunder was made in 2006, but it didn’t explode and start hemorrhaging money and market share from the company until December of 2012 (or earlier this spring, depending on your point of view). Even more remarkably, it didn’t actually come home to roost for the CEO himself until this week…

You can pick up the original story from the Huffington Post Business page if you want to, but basically the media storm and loss of shareholder equity resulted in 75% of shareholders voting to reject the company’s proposed executive compensation packages and demand lower ones. This is a non-binding vote, which means that so far the consequences are minimal – the company can still pay any of its officers anything it wants to – but if no action is taking the long-term effects are likely to get worse. At the very least, this will make it enormously more difficult to obtain any new investment (would you buy shares in the company at that point?), and if the stockholders are provoked enough they could move into some real stockholder activism, which could include suing the company and the CEO to recover their money…

Of course, we don’t actually know what the CEO of A&F was thinking when he made the original statement, but it seems unlikely that he thought there would be any consequences. The company had been reasonably successful to that point using that product development/marketing strategy, and it would not be unreasonable to suppose that their customer base shared those views about being cool, trendy and elite. At worst, one might expect that a policy statement with which the public and/or one’s customers did not approve would simply fall away into the void and be ignored by the end of the next news cycle. And, in fact, that might even have happened in a pre-Internet era…

It has often been observed that things you see cannot later be unseen, or things you hear unheard; now it would appear that anything you say publically cannot be unsaid – and anything that is recorded can make it onto the Internet and become public whether it was supposed to be or not. This is not to suggest that you can’t say whatever you like; freedom of speech is still a cornerstone of American life and hopefully it always will be. But the notion that you can make an offhand remark and never worry about who will hear it or what they might do as a consequence belongs to another time. If you are speaking publically, on the record, or even just where other people can hear you, be careful with your words. Because they will be back…

The Ethics of Beauty

A while back I brought you the story of a dating website for “beautiful” people only which is now branching out into an employment service, also for candidates who are (or believe themselves to be) of exceptional aesthetic quality. I’m not going to comment on the ethics of hiring someone on the basis of looks over any other consideration because there is no other side to that argument; any company that hires on any basis other than ability (and primarily on cognitive ability, at that) and retains/promotes on any basis other than performance is not likely to succeed – and we’ve got nearly a century worth of Management research to back up that contention. But what about cases where the only feature distinguishing two applicants is their appearance? Do we have an ethical responsibility to make the decision blindly – in this case, literally? It seems worth discussing…

The affirmative argument would appear to be that in almost any field of human enterprise there will be occasions where an attractive person has an advantage over an unattractive one. There are professions where this effect is exaggerated or even central to performance – acting, dancing, modeling, some forms of customer service or sales, travel (tour guides and flight attendants, for example) and so on, but even in purely white-collar business there will be occasions that favor a visually attractive employee. Again, this is supported by the research. If we accept that the role of any manager is to maximize performance and thereby increase profitability, and that the odds of achieving higher performance are better with a good-looking workforce, it seems reasonable that we should attempt to hire one. It could even be argued that we have a fiduciary responsibility to the owners of our company to improve its financial performance, if not in fact an ethical one as well…

The negative argument is somewhat more complex, as being visually unattractive does not yield any particular advantages in and of itself. In a broader sense, however, one could argue that such a hiring policy will almost certainly be viewed as elitist and/or discriminatory by other individuals and groups, since visual attractiveness is usually associated with economic class distinctions. There could also be issues with employees being insulted or even threatened by the idea that they were hired for their looks, and not because the hiring manager also believes that their abilities and skills were at least comparable to any other candidates. Whether this external resentment and internal erosion of confidence would be sufficient to offset the advantages of such a workforce would depend on a large number of variables, of course, but should not simply be ignored…

In reality, of course, it is highly unusual to find any two applicants for any position with identical skills and abilities, let alone experience, personality, networks and connections or other factors to the extent that the only identifiable difference between them is their visual appearance. Most of the time a hiring manager will have the unenviable task of assigning values, or at least priorities, to each of the assets that a given applicant could bring to the job, and trying to determine which of those applicants would be the best fit for their organization. There is also the issue that visual attractiveness is a matter of personal taste, and what appeals to the hiring manager may or may not be the appearance best suited to gaining a competitive advantage in the future circumstances. In fact, even factors such as charisma, leadership ability or management skills may be completely subjective – which is what leads me to today’s question:

Do we, as hiring managers, have an ethical responsibility to make personnel decisions based entirely on the objective skills, abilities as assets an applicant has, leaving aside all aesthetic criteria? Or, to look at it another way, does our responsibility to be fair and impartial in all management decisions require us to ignore a possible source of competitive advantage simply because possession of that resource is beyond the applicant’s control? Basketball teams hire tall players over ones of excellent moral character or with wonderful personalities, to take the obvious example. And certainly no question would exist in cases where a give applicant’s skills and abilities are clearly superior, regardless of his or her appearance. But do we have an ethical responsibility to ignore everything else about an applicant?

It’s worth thinking about…

Digging

There’s an ancient joke – it must be at least a century old by now – that goes “Once you’ve done [specific outrageous thing] what are you going to do for an encore?” The basic concept goes back to Vaudeville, where any really good performance would call for an encore, and a performer would have to come up with something new to keep their audience’s approval, but the joke has been applied to everything from Internet start-ups (Once you’ve made several billion dollars before you turn 30…) to artistic accomplishment (Once you’ve won the Nobel Prize for Literature for your first novel…). I don’t usually use it in business, because it’s annoying and not very helpful, but in this case I have to ask: “Once you’ve offended a customer enough that he wrote and recorded a song about you, and the video of it has been viewed over 12 million times on YouTube, and people all over the world are mocking you, what are you going to do for an encore?”

In the case of United Airlines, it would appear that the answer is: “Run out of toilet paper during an International flight…”

You can pick up the original story from the Daily Finance site if you want to, but the basic facts are simple enough. On a flight from San Francisco to London a United Airlines flight ran out of toilet paper and had to put a stack of cocktail napkins in one of the lavatories. It’s one of those stories that would be a lot funnier in a business that doesn’t operate complex machinery at 520 knots flying 30,000 feet over major population centers. As it is, you have to wonder what other details the company is letting slip. Granted that servicing the lavatories isn’t as important as servicing the engines, or that running out of toilet paper isn’t as much of a problem as running out of fuel, hydraulic fluid, or even food and water, it’s not a good detail to forget – and it happened in an industry where a reputation for NOT forgetting the details is critical…

Now, I’m not going to suggest that the fact that one of the workers responsible for servicing an airplane forgot to check on a basic supply level means that the company is in any greater danger of a catastrophic crash than they already were. Nobody runs preflight checks on the toilet paper supply (the way they do on fuel and hydraulics and such) precisely because the penalty for failure isn’t nearly as high. Similarly, baggage handlers are not monitored and supervised as closely (or paid as well) as maintenance personnel or flight crews because if they screw up and damage a passenger’s $5,000 guitar the worst you’re going to have to endure as a result is 12 million views of a video that mocks you, not tens of millions of dollars in lawsuits from the families of the crash victims. The problem is that from a business standpoint this is a difference of degree, not a different concern…

If a company cares so little about my comfort and satisfaction that they can’t afford to have a supervisor with a checklist double-check the between-flight servicing of the airplane, why should I believe that they care about my health, wellbeing, property, on-time arrival or ultimately even survival? If they are willing to cut corners to this extent, where do they draw the line? Why should I believe that they care in the least whether or not I make my connecting flight? Given a scenario where it would be more profitable to settle a lawsuit with my heirs than it would to get me safely to my destination, how can I be sure they wouldn’t just take the higher profits?

It’s always a mistake to ask how much worse things can get, or how much lower someone would be willing to go – because there’s always someone who will go lower. In the case of United Airlines, however, I would have to say that they have now hit bottom – and are starting to dig…

Making Things Harder

I’ve been on record several times in this space saying that I believe that food service is the hardest industry there is, and nothing I’ve seen recently has changed my mind about that. Between issues that are completely out of your control (cost of ingredients, local ordinances, traffic conditions on nearby roads), unreasonable demands and entitlement from customers, outright fraud and the fact that people who have no knowledge of the industry will assume that what you must be easy, food service is almost a perfect storm of all of the things that are problematic in the retail, grocery, entertainment, health, child care, nutrition and personal service sectors. Trying to cut through the noise in this industry and actually get your advertising noticed by potential customers is even worse, frankly, and leads to lapses of taste and judgment like the “Freaky King” and food-as-sex fiascos I’ve already referenced. And all of that is assuming that you don’t specifically make things harder on yourself…

Consider for example the recent advertising series from the Red Robin hamburger chain, as referenced on the Yahoo News site this week. For those unfamiliar with the company, Red Robin’s menu is built around hamburgers, and specifically around 24 specialty types that include teriyaki sauce and pineapple, or bleu cheese dressing, or what have you. Some of these are kid-friendly, but the majority are targeted at young adults who have moved beyond fast food offerings but not past enjoying hamburgers – e.g. the coveted 18-35 demographic. Since any restaurant that is perceived (correctly or not) as a hamburger joint will have trouble drawing customers who don’t eat meat – or even getting parties that include a vegetarian member – the company has offered vegetarian and vegan versions of all of the burgers for years. What is baffling is why they should have chosen to make fun of those options…

Now, we should probably acknowledge that vegetarians are not part of the key demographic for a company that has positioned itself as a hamburger restaurant. I don’t know how much sales volume the company has in vegetarian dishes, but it clearly is not the focus of their operations. We should also note that the use of snarky, “edgy,” and somewhat mocking styles of advertisement have become popular across a wide range of companies and industries in recent years. But by the same token it does not require any great, in-depth knowledge of the issue to realize that many people in that community take the vegetarian lifestyle very seriously, and do not react well to anything they consider mocking or disparaging of their choices – anymore than any other distinct group likes being made fun of by an organization that is allegedly soliciting their business…

In its efforts to appeal to both young adults and families, the company has long cultivated a humorous and somewhat irreverent image; in theory this serves to help differentiate them from rival chains that make use of more conventional branding (and advertising) strategies. And they can with some justice claim not to have been mocking vegetarians in general in this ad, but rather gently poking fun at the sort of teenage drama that results in a single member of a family suddenly going vegetarian and then insisting on everyone else in the household conforming to his (or in this case, her) decisions. But given how common militant vegetarians are in our culture – and how vocal they are known to be about anything that appears to disparage them – it’s hard to imagine how any marketing advantage could be gained through these ads that would offset the resulting difficult they would create…

Baking Up Value

Let’s keep the product development and value theme going for another post and consider a new development in one of America’s most over-developed consumer products: the common hamburger. If you’ve been watching the news over the past few years – and I hope you are; it would be sad if the only place you get your news is from me – you’ve probably seen stories about the various crimes against nutrition and occasionally sanity perpetrated in the guise of specialty hamburgers. There’s a 5,000-calorie chili cheeseburger called the Landfill Burger from Max & Erma’s; various “challenge” burgers ranging from two or three pounds up to the 123-pound “Main Event” offered by various pubs; even the 9-patty tower of madness called the T-Rex Burger offered at selected locations by Wendy’s. But until now there have been very few examples that offered additional value for the customer without costing the company extra in terms of materials, labor, reputation or the occasional product liability lawsuit…

A story off the NBC News site brings us word of a new product being tested by Wendy’s for possibly deployment later this summer: an upscale burger with a pretzel-style bun. The company has been introducing a number of new products as they attempt to maintain parity with McDonald’s and Burger King in rolling out new food items, and it appears that Wendy’s is trying to position itself as slightly more upscale than the competition, much the way Target did in its three-cornered fight with Wal-Mart and K-Mart. Pretzel-style breads and rolls have been gaining popularity in several markets over the past few years, and if Wendy’s can get this product to market before the competition duplicates it they should be able to market the sandwich as an “upgrade” over more common burgers, and therefore worth paying a premium to obtain. What makes this concept so brilliant is that the value created for the customer isn’t going to cost the company much of anything…

Pretzel-style buns are somewhat more complex to produce than conventional bread rolls, but not that much more complex or expensive. Certainly not compared to the costs associated with adding extra cheeses, sauces, or worst of all additional meats to the sandwich as most previous “premium” burger products have done. But this addition will produce a tangible change in both the appearance and taste of the final product – an improvement, in fact, to anyone who likes pretzels – at very minimal cost to create and effectively no additional cost to deploy (the new buns can be produced at the same bakery, shipped in the same trucks, heated in the same warmers, and so on). All they need now is an effective ad campaign, and they should be off to the races…

Even if this does work it’s difficult to say how long any advantage the company gains will last. Pretzel buns are potentially valuable and are currently rare, at least in the fast food industry, but they aren’t particularly difficult to imitate. If Wendy’s is successful with their new product, I would fully expect to see other companies offering pretzel burgers (imitation) or some other kind of non-tradition hamburger bun (substitution) as soon as the impact of the value added becomes clear. On the other hand, McDonald’s has been selling the “McRib” product off and on for at least twenty-five years now, and Burger King only just brought out their equivalent sandwich this spring. This could get interesting…

Adults Only?

I’ve mentioned the idea of age-limited business models in this space before; the idea that there are some customers who would be willing to pay extra for the privilege of not having to worry about fellow travelers – literally, in the case of airlines or trains – who are unwilling to exercise any modicum of parental supervision over their children. This has lead to such concepts as adults-only sections on airliners, movie theaters that either do not show anything rated over PG or don’t admit anyone under 17 to an R movie (accompanied by an adult or not), and even entire communities with a minimum age requirement in order to live there. There have also been specifically child-friendly businesses appearing, notably including restaurants with built-in play areas and movie theaters offering showings specifically for parents (and nannies) looking after small children…

Naturally, this is a polarizing issue, with people on the pro-child side insisting that anyone who does not want to listen to the sounds of a toddler screaming or deal with a pack of small children running around as if they were at a playground is simply a horrible old curmudgeon who hates children, families, freedom, liberty, justice and possibly the American Way. Meanwhile, people on the pro-manners side insist that anyone who can’t afford a babysitter should just stay home with the kids, and that anyone who insists on dragging small children to events or venues that are not age-appropriate is a selfish, narcissistic, inconsiderate, delusional idiot. I’m not going to comment on the social, legal or psychological implications of the debate; as usual I’m going to leave those subjects to people who are better qualified. The question that interests me is whether age-specific (or age-segregated) businesses can be viable in this era…

One large-scale experiment going on right now in Virginia is a restaurant called “The Sushi Place” which is operating in Alexandria. The owners announced that the place would be 18 years or older only during the run-up to their grand opening, and have apparently stuck with that decision during the first weeks of operations. So far it seems to be working; they claim to have been operating at capacity every night so far, and the reaction (both from their local community and the majority of the online comments) appears to be very supportive so far. You can watch the story from the local CBS affiliatestation here if you want to, but at least in the early going this appears to be working…

Now, I’m not familiar with that part of Alexandria or with the restaurant itself; it’s possible that The Sushi Place is succeeding because they’ve chosen a location where their customer base is mostly childless, or because their food, quality, prices and/or service are exceptional, or just because the number of small children who are willing to eat raw fish in the first place is somewhat limited. And it is possible that they are still riding on the buzz from their grand opening, and that business will drop off over time – or that local pro-child activists will start causing enough trouble for the owners that they are eventually forced to change policy. But personally I hope they make it – and I would like to see someone extend the concept to other types of business and locations outside of Virginia…

It’s not that I have any problems with families or children, you understand. It’s just that sometimes I’d like to be able to eat a meal, watch a movie, or reach my destination in relative peace…

Green or Not?

While we’re waiting to see how the new status-water from Nestle (see yesterday’s post) turns out, let me direct your attention to the bottle itself, just for a moment. Coke has a new packaging idea that may or may not add value and certainly appears to be drawing some debate in terms of whether or not it is in fact a green, or environmentally sensitive, packaging. This new bottle actually keeps the beverage inside of it ice-cold and completely dissolves after you’re through with it, leaving no garbage to clean up, nothing to recycle, and no chemical residue or energy requirements to do either. It does have a little problem of melting in any situation where the ambient temperature goes above 32 degrees F (0 degrees C), though…

A story on the Ad Week site talks about a new Coca-Cola offering being marketed in South America that consists of “bottles” made almost entirely out of ice (they have a little plastic label so you can hold the bottle without freezing your fingers, and so there’s someplace to put the product name and the nutritional information). When you’re done with your Coke, you can just leave it in the sink and the bottle will melt and run down the drain – or you can throw it in the trash and let thermodynamics take its course. This would be particularly useful in a public venue, such as a beach (where broken glass in the sand is a constant hazard) or a park; although I’m not sure it would be a good idea in a sports arena (where there will already be enough puddles from spilled Coke and beer on the floor) or an amusement park…

On the down side, while it does require less energy to freeze water into ice than it does to make a plastic bottle, it does still take some – and the energy requirements to ship the bottles in a refrigerated truck and keep them in the freezer until needed is potentially much higher than that needed to make plastic bottles. And as the folks over at the environmentalist site Take Part note, these ice bottles also require pure water – a resource that most of the people in the world, and far too many people in South America, don’t have in the first place. Using thousands or millions of gallons of drinkable water from a limited supply for this purpose seems heartless, and that doesn’t even consider the contamination issues from dirt, germs or insects given that ice doesn’t really make a good food container in the first place…

You could get around some of these problems by shipping the beverages and the bottles separately – which is to say, not shipping either one; you’d just send the Coke syrup to the distribution point and have your agent on site mix it with water and carbonation (to make the product) and freeze water into bottle shapes and fill them as needed. At that point the product was clean and pure when you handed it to the consumer, and anything that happens to it after that is not your responsibility. But at that point the delivery vehicle you’re replacing is more of a cup than a bottle, and you still have the same issues with refrigeration and clean water supplies. In the final analysis, I don’t think the ice bottle (whatever Coke ends up calling it) is going to work out – but I still think it’s less ridiculous than marketing tap water as a prestige item…

Trendy Water?

Over the years I’ve brought you any number of stories about things that are supposed to add value to a product – or provide value to the customer – that are better examples of wishful thinking than they are of the value added concept. My favorite one is still the “Instant Ice Cube” product – “Just pop in the freezer!” – which turns out to be less hype than a disposable ice tray filled with purified water that you can freeze, take the ice out of, and then (hopefully!) recycle, all for just ten times the price of a regular ice cube tray and a bottle of purified water that you could use to make over and over again for days. The product never sold that well, partly because the price was completely ridiculous, but mostly because pouring water into an ice cube tray isn’t difficult enough that people would be willing to spend an extra $10 on it; hence, no actual value was added to the product. At the time, I could not imagine a more laughable attempt to add value to a product, but it turns out that there is…

A story this week on Salon tells the story of a new Nestle product called “Resource” – a bottle of purified water marketed at women who are looking for more of a lifestyle accessory than a hydration resource. That’s it; that’s the entire value added by this product. Apparently, the company has developed an advertising campaign that shows women doing things that would appeal to women who are (or want to pretend that they are) trendy, fashionable, and upper-class, in the hopes that customers will purchase the bottles and carry them around as an actual accessory or status symbol…

Now, as loopy as this sounds, it’s not the first time this sort of thing has been attempted. Many years ago there was a campaign by Perrier extoling its supposedly “natural” carbonation and the quality of its water as being superior to all other sparkling waters then on the market, and we have also seen companies try this with “still” mineral waters like Evian and Fiji Water. But in all of those cases the company added (or at least claimed to have added) something to the basic nature of the product; getting the water from exotic sources with superior taste or bubbles or whatever. Resource isn’t on the market yet, but so far there isn’t any indication that the company has any special argument for why you should buy it other than its value as a lifestyle accessory or a status symbol or anything else that you couldn’t also get by pouring water into an empty Resource bottle and then carrying that around with you instead…

I could be wrong about this, of course; there were apparently enough people out there who were buying the plastic water bottle with $40 worth of crystals hand-glued to the outside (and tap water on the inside) for that company to last a couple of years. And there is also no indication that Nestle plans to price Resource any higher than the drinking water they already sell, in which case this is no sillier than Arrowhead water or good old Sparklets water doing the same thing. But if Nestle is going to try to sell this stuff as a premium product they’d better start looking into anything else they can include to add some additional value…

The Ethics of Public Relations

A couple of weeks ago I brought you the story of Nike’s decision to end their support of the Livestrong charity group because of the fallout from Lance Armstrong’s admission of doping during his cycling career. It’s difficult to say how much these events have affected the company; Nike was only one of Armstrong’s sponsors, and he was only one of the company’s sponsored athletes. More to the point, perhaps, no reasonable person will hold any company responsible for what one of the athletes who endorses their product does on his own time. But since any company’s advertising budget is finite, and since there are any number of athletes available who haven’t just been dragged through the mud, it seems only reasonable for Nike to have attempted to distance themselves from Armstrong and everything associated with him. The question is, was it ethical for the company to have done so?

First of all, we’ve established that a company’s first responsibility is to its stakeholders – to the ownership group, whoever they are, but also to the employees, vendors, customers, and all of the other people who make their living interacting with the company. If further association with Lance Armstrong or any of his works would run counter to generating revenue for any of those groups, the company clearly has an ethical as well as fiduciary responsibility to cut those ties. Second, if we believe that the company has a responsibility to the cause of eradicating cancer (for whatever reason) that does not mean that supporting Livestrong is their only option; there are many other anti-cancer organizations that would be delighted to have their support. And third, there is reason to believe that Nike has already gotten Livestrong established well enough world-wide (by helping the charity distribute their iconic yellow wristbands) that withdrawing future support shouldn’t be a catastrophic blow. But even in this case the loss of a major supporter will not do the charity any good, and the potential for future harm is even greater…

For the sake of discussion, let’s assume that Lance Armstrong has done all of the things of which he has been accused; he has certainly admitted to some of them. Let’s further stipulate that Armstrong’s conduct runs counter to the spirit of athletic competition and fair play, and is thus a perversion of everything the company and its core customers stand for. This does not change the fact that the charity he founded has contributed to the eradication of cancer, or that its mission and activities will be unchanged regardless of any crimes that Armstrong or anyone else associated with it happens to have committed. Moreover, the loss of a major supporter isn’t just a question of money; it’s also one of legitimacy. Just as a celebrity endorsement lends credibility to a company’s product, so too does sponsorship from the company lend legitimacy to the celebrity – and in this case, his charity group. People who were inclined to discount Armstrong’s wrongdoing will be less likely to give him a pass knowing that his sponsors are ditching him, and people who were going to continue supporting Livestrong will be less likely to do so when they learn that the charity is losing its major backers…

Which leads me to the question: does Nike (or any other sponsor) have any responsibility to continue supporting Livestrong knowing that doing so may not serve their own interests? Does any corporate sponsor have any ethical responsibility to maintain support for a charitable organization after the founder of that charity has fallen out of public favor? Do the needs of the public outweigh the needs of the company’s ownership and other stakeholders? Does our answer to that last question change if the continued support touches off a stockholder’s rebellion that ultimately costs all of the parties involved missions of dollars in legal fees (which will also not go toward eradicating cancer or supporting any owners)? Or should every company allocate its charitable donations to whatever agency has the greatest need of support and/or the most critical mission, and let the public’s opinion fall where it may?

It’s worth thinking about…

In the Resource-Based View

Some time ago in this space I brought up the concept known in Management theory as the Resource-Based View of the Firm, or RBV. It’s a staple of strategic-level Management classes which suggests that it is the resources a firm controls – and how well they are utilized by the management team – that determines how successful a given business is going to be. I could tell you that the concept derives from the work of Edith Penrose in 1959 but is more commonly associated with Wernerfeldt in 1984 and Jay Barney’s definitive work in 1991, but if you actually cared about any of that you’d probably be studying it already. A more useful discussion would be how this concept can be of use to your business now. Fortunately, a possible example turned up in yesterday’s post about hiring decisions based on physical appearance…

In the Resource-Based View, any given resource must have four basic characteristics in order give you a sustainable competitive advantage: value, rarity, inimitability and being difficult to substitute for or work around. Needless to say, perhaps, there is considerable disagreement over what “sustainable” means in terms of time frame, as well as how each of these characteristics should be defined, but in general the structure holds up surprisingly well. If a give resource isn’t valuable it probably can’t help you; if it isn’t rare, everyone else will probably have one just like it; if it is easy to imitate you can count on the competition doing just that, and if it is easy to find something else you can substitute for it you can probably assume that people will consider a cheaper or more readily available substitute. What a lot of people seem to forget is that this model can be applied to more than just physical assets…

It would be facile, I think, to deny that in many fields of endeavor there is a definite advantage to being visually attractive. The research is fairly conclusive that people will tend to respond to someone they think of as good-looking in a number of useful ways, many of which are not conscious or even obvious. Most occupations will require the use of various skills in addition, and those that do not involve personal contact will provide minimal opportunities to capitalize on appearance, but in general I believe it is safe to say that an attractive appearance has value. It is also, by definition rare, at least in the sense used in yesterday’s story (e.g. the top 10% of applicants on the basis of appearance only). Whether or not it can be imitated is highly debatable; an individual person’s appearance might be unique, but within any given population you would expect to find multiple attractive people. Substitutability is also highly debatable; there are some advantages that can be achieved another way, but nothing that exactly replaces a good-looking workforce…

In theory, if a given resource can be imitated or a substitute for it can be found, it will only be a matter of time before some competitor does that and your competitive advantage is lost – hence a temporary, rather than sustainable advantage can be gained. With reference to yesterday’s story, the more complex issue here is whether the temporary advantage you might be able to gain by using this service to recruit a more visually attractive workforce is sufficient to offset the disadvantages you will incur by passing up better-qualified but less attractive workers, decreased morale when your employees realize they’ve been hired for their looks, not because you have confidence in their abilities, and the fact that your competition will almost certainly hire the more competent but slightly less attractive workers…

That’s a decision you will have to make, of course, based on your experience, judgment, and knowledge of your industry. And this still does not address the ethics of the situation…

An Ugly Truth, or a Beautiful Lie?

There are times when I’m out wandering around the Web, looking for business news to mock, ridicule or praise, when I come upon a story that makes me wonder if someone is having a joke at my expense – if I am being trolled, to use the current expression. Some of these are fairly obvious (like the genius that was PenguinWarehouse.com), and some are actually disappointing, like the site that claimed to be offering “pirate hunting” cruises off the Horn of Africa (complete with your choice of gun and ammo!). But some just aren’t clear, like the one about the dating web site catering exclusively to visually attractive subscribers…

I’m not going to link to it; even if it’s not actually a scam or a practical joke, I don’t really think they should be encouraged. But you’ve probably seen the story, or heard about it some other news source. Unlike most dating sites, which will generally accept anyone who swears they aren’t a sex offender and lets their membership work out who is attractive enough for whom on their own, beautifulpeople.com claims to screen applicants for aesthetic quality before allowing them to join, and promises to de-list anyone who is found wanting by a significant percentage of their members. How they do this profitably isn’t clear; nor is how they keep people from sending them doctored photographs or re-applying with one if they have been previously voted off…

The story which broke this week and eventually percolated up into the MSN Nowwebsite indicates that this stunt (or joke, if it is one) has now been taken to the next level: the site is now offering a recruitment service as well. Prospective employers who specifically want to hire the most attractive people available to fill an open position can use this service to select applicants for interview based on their appearance. Again, it isn’t clear from the news stories what recourse you would have if the applicants you called in for interview were not as attractive (or skilled) as advertised – or, for that matter, what recourse the applicants would have if someone asks them to come to an interview solely for the purpose of propositioning them…

Whether any of this would actually be legal isn’t clear either. Visually unappealing people are not a protected class under Federal law, and the company behind this site isn’t imposing any standards about what is or is not attractive in the first place. If your interviewees included people from all ethnicities, ages, backgrounds and so on (all of whom happen to be visually attractive) it would be difficult to claim discrimination on any of those bases; it would be even harder to prove if you actually hired a diverse cross-section of demographics. And even if discrimination on the basis of attractiveness was actionable, there really are jobs for which visual appearance is a factor...

A more immediate question would be whether you can get the best employees for any particular position if you are limiting the applicant pool to this extent. The popular image of attractive people being less capable because they get by on their looks is a myth; I’ve met some exceptionally talented good-looking people, and some completely incompetent ugly ones. But if you are only interviewing the top 10% of all applicants based on their appearance, you probably aren’t interviewing the top 10% of all applicants in terms of ability. Unless looking good is their single most important duty there is a non-zero chance that you are deliberately impairing your company’s performance by doing this…

Of course, this whole concept is also questionable from a moral and ethical standpoint, both for the hiring manager who uses this service and for the applicant who posts a resume (and, one assumes, a picture) to this database. But that’s a discussion for another day…

Get it Right!

In our discussions of airline customer service failures last year and the year before I noted that some carriers were apparently spending more time developing new and innovative ways to stonewall customer requests than they were in finding new ways to improve customer satisfaction with their services – or even with, you know, doing their jobs in the first place! Things like discontinuing the Customer Service telephone number and requiring people to put all complaints and request into mail or email, for example, or using a series of call centers to pass the customer from one operator to another for hours or days until they give up and go away. Decades of consumer behavior research confirms that this sort of thing was stupid to begin with, and is only getting worse…

In general, the data indicates that you can expect a happy customer to tell about four people how great your company was, while a disgruntled one will tell between twenty-five and thirty about how bad you are. That was bad enough a generation ago, when a single angry customer could offset the favorable impression created in seven or eight happy ones. But today, when anyone with Internet access can, at least in theory, tell somewhere over a billion people their troubles in a matter of minutes – or, at least, get 12,000,000 hits on a protest video in only a few weeks – any customer service failure as taken on far greater importance…

Consider, for example, the story that turned up on the NJ.com news aggregation site this week. Apparently a retired Army officer went to buy a new car, and on finding a model he liked was told that there was a small discount available to him because of his military service. He purchased the car and was quite satisfied with it until a notice arrived a few weeks later saying that his military discount had been denied by Corporate, and he would have to pay the dealership back the $500. No explanation was forthcoming, and even after he provided documentation to prove his status as a Veteran, the company continued to demand repayment and refuse to explain why. The customer turned to the consumer affairs reporter for the Star-Ledger, and the story eventually ran in the paper, the NJ.com news aggregation site, and from there onto FARK.com and dozens of obscure blogs like this one…

Now, this story isn’t exactly an atrocity; it’s not as if the company repossessed the man’s car, trashed his credit, or even prevented him from buying it in the first place. There is no law that required the company to provide a special discount to Veterans or anyone else, and no indication that the extra money made any difference in the customer’s ability to afford the car. In fact, it doesn’t appear from the online story that the customer even knew there was a possibility of a discount until the dealership people told him. All the company had to do was avoid having such a program in the first place, or failing that, provide an explanation of why they weren’t going to honor it in this case. But then, that’s exactly the point…

The same decades-old research indicates that the vast majority of customer service disputes (somewhere around 75-80% depending on various factors) can be resolved if addressed openly and directly; the number is even higher where credits or other monetary incentives can be used. And while companies have traditionally disputed whether the improvements in customer relations and public relations warranted the cost of such programs, I have to ask whether those calculations should be changed when millions of potential customers might end up reading about your decision…

The Medium is the Message

One of the topics we cover in my strategic management class is environmental scanning and monitoring, which is less hype than it is a reminder that keeping an eye on what is going on around you is a good idea regardless of the industry in which you happen to be. Most people can grasp the idea of competitive intelligence, or keeping track of your direct competition; if your primary competitor introduces a new product or technology that renders your product obsolete it would be nice to know about it in time to make plans of your own. But the idea of watching the world for changes that will affect our company can be intimidating, and my students frequently have trouble understanding how this is even possible. After all, where can you get the data to perform such an analysis?

What they fail to consider is that, for our purposes, every report you can find on the behavior of consumers is data we can use to develop and refine our strategy – and that includes political, social, religious, cultural, fashion, sports, technology and educational reporting. A classic example is the way beef and pork futures took off when the Atkins diet was big – because somebody figured out that if millions of people were going to an all-protein, mostly-meat diet all at once there wouldn’t be enough capacity in the pipeline and the price would soar. But sometimes there’s even better information to be had just by observing what people care the most about – what they post about, what they argue about, and how often they contradict each other…

A story being reported on the Fox News site details the results of a new study of the “Edit Wars” on Wikipedia – providing in one article excellent examples of both the point I’m trying to make in this post and why teachers are always telling our students not to use Wikipedia as a research source. Apparently a team at Oxford University got access to the Wikipedia metadata and ran statistical analyses of which topics are the most often edited and re-edited in English and 12 other languages. Religion and politics were the most commonly edited topics in all 13 languages, but from there things differed – scientific topics were the most common on the French and Czech language Wikipedia sites, while Spanish-language pages on sports are the most edited, the Romanians argue about music and art, and so on…

Now, most businesses are not going to have as much traffic to examine as the various Wikipedia sites, and even if they did their own customer information statistics would probably be of more immediate use than this sort of analysis would be. But just looking at who is buying your product does not consider who is looking at it and declining to purchase it; who is looking at it and then finding ways to obtain used versions (or knock-off versions) from private sellers, who is slamming it in online discussions or defending it in comments sections, or even who has created Facebook pages (or entire websites) dedicated to hating your product and trying to destroy it and you…

By the same token, everyone who works for you is a potential source of business intelligence, based on who they speak to, who they email or text with, what they watch and what they see, just by paying attention during their daily lives. But that’s a topic for another day…

Not as They Appear

From time to time in this space I like to bring you updates on products that aren’t quite what they appear to be – low-priced products that are not actually economical for the user, time-savers that are actually time-sinks, medications that don’t cure what they were developed to cure, and such. I also enjoy bringing you gross-out stories about food items that are supposed to be healthy (and aren’t) or one that are supposed to be “acceptably” bad for your health and aren’t. But it is a rare and wondrous day when I find something that fits into both of these categories…

An article on the AP website today tells the story of the new breakfast product from Dunkin’ Donuts: The Glazed Donut Breakfast Sandwich. As far as I can make out from the linked article, it’s less hype than it is a glazed donut cut in half and used as a bun for a fried egg and bacon – rather like the breakfast sandwich available at most fast-food franchises, except that this one is housed on a doughnut instead of a bagel, muffin or biscuit…

This isn’t the first sandwich product to be offered using something other than bread, of course; we’ve seen everything from the infamous “Double-Down” from KFC (a sandwich using two pieces of chicken in place of a bun) to various restaurants and food stands around the country using two jelly doughnuts in place of a bun. But this is the first national donut chain to attempt such a thing, and all of the people who usually start expressing outrage at about this point in the release of a quick-serve industry food product that isn’t specifically healthy are raising cane as usual. What makes this story really interesting is that this time they’re wrong…

A quick check of the nutrition information on this new product reveals that the Glazed Donut Breakfast Sandwich has 360 calories per serving, which stacks up well against McDonald’s products like the Sausage McMuffin with Egg (450), the Bacon, Egg and Cheese Biscuit (460) or the Bacon, Egg and Cheese Bagel (630). In fact, this new product is actually 30 calories lower than the company’s own turkey sausage breakfast sandwich, which was specifically developed to appeal to people attempting to eat healthy – or at least select something healthier than a donut for breakfast…

Now, I’m not saying that there is anything wrong with putting an egg and bacon into any particular bakery product and calling it a breakfast sandwich. At this point in a life during which I have been forced to learn more about nutrition than I ever really wanted to know, I can honestly say that I can’t see anything wrong with anything you want to eat that conforms to your nutritional needs and does not contribute to any particular health problem. The Glazed Donut Breakfast Sandwich itself is no more problematic than many other breakfast offerings, and almost certainly offers more protein than you would get from just scarfing down glazed donuts on their own. One could even argue that if it keeps you from eating a large number of regular donuts (or other fried and/or sugary foods) in the morning it could actually be a superior choice…

Or, as I have often said in other contexts, the map is not the terrain – and you can’t judge a book by its glazed, sugary cover. Sometimes, things are not as they appear to be…

The Ethics of Celebrity Panhandling

Long-time readers of this blog (assuming that there are any) will already be familiar with a common complaint around my house: “Another beautiful idea – ruined by people!” Most of the time this is my acknowledgement of the fact that no matter how pure and idealistic any inventor’s intentions might be, no matter how altruistic any organization starts out being, eventually someone will attempt to exploit that idea for selfish purposes, use it to do harm instead of good, or just spray-paint obscene words or pictures all over it. This unfortunate human tendency has done in any number of worth-while programs over the years, and placed many others in jeopardy – the most common being the popular “crowdsourcing” site called Kickstarter…

For those unfamiliar with the concept, the idea behind crowdsourcing is that while many entrepreneurial projects are beyond the budget capacity of any individual whose parents didn’t leave him a billion-dollar trust fund, very few projects are beyond the collective finances of the entire Internet. If every person on the planet with Internet access were to contribute a single penny to a given cause, that would be something on the order of $20 million US – and even if a tiny subset of all Internet users (a million or so people) did it we’re talking around $10,000 US. Kickstarter itself is essentially a clearinghouse for people who are trying to gain this sort of mass public funding to connect with people who are looking to help fund products or services that they themselves would like to purchase or use. Unfortunately, the public nature of the site creates the potential for several kinds of abuse – among the most visible of which is sometimes referred to as high-profile electronic panhandling…

Consider, for example, the case of actor Zach Braff and his attempts to use Kickstarter to fund a sequel to one of his earlier movies. As the guys over at the Onion A/V Club correctly point out, Braff almost certainly has the industry connections to find conventional backing for the project, given that the original film was a commercial success, and could probably afford to fund the whole thing himself (if the folks over at Celebrity Net Worth.com are correct). But by using crowdsourced funds, Braff was able to achieve a level of artistic freedom that would not have been possible using traditional financing, while at the same time generating up-front interest from tens of thousands of potential customers (over 46,000 people contributed to the Kickstarter campaign). This could be seen as going a great amount of potential good for American Cinema, or at least for Zach Braff fans, but it ignores the darker aspect of these events…

First, there’s the fact that not all movie projects on Kickstarter are going to be (arguably) legitimate cinema – you are also going to get requests like the (apparently failed) Melissa Joan Hart romantic-comedy vanity project. But much more to the point, most Kickstarter projects are launched by obscure entrepreneurs who do not have the resources available to a successful movie and television actor. Every dollar contributed to an actor’s vanity project on the basis of his or her star power is a dollar that can’t be extended to deserving inventions and businesses, some of which could actually create new industries, produce dozens (or thousands) of new jobs, or even (in rare cases) actually make the world a better place…

So I have to ask: Do Kickstarter and the other sites like them have any ethical obligation to the more obscure entrepreneurs who come to them looking for funding, or to all of the stakeholders who might benefit from the creation of these products, services and companies? Should they give special priority to projects that have the potential to change the world for the better, at the expense of applicants who have other resources available? If so, how do they make those decisions, and where do they draw the line between entrepreneurial haves and have-nots? Or should they just allow any lawful enterprise to put forward its requests for funding and let the public vote with their wallets?

It’s worth thinking about…

You Wouldn’t Think

I was reading through some of the news aggregation sites this week, as I frequently do when I’m looking for more blog topics, when I came across a listing that some of the people in the comments were making fun of: a think piece by a regular contributor to the Forbes site, who was talking about what it really takes to start a new company – and how different that is from the material we’ve seen being hyped in the media in recent years. My immediate reaction was that this mockery was stupid – this gentleman is a regular contributor to one of the country’s premiere journals on business and economics, and the people mocking him are a bunch of scruff Internet commentators no one ever reads. My second thought was that this whole kind of mockery was stupid – in that it’s generally a bad idea to go around mocking former Navy SEAL officers. Quite apart from the attendant risk of getting your living daylights punched out, the odds strongly favor such an individual having better information and better analysis of whatever issue he is discussing than would a random Internet wag. But once I had read through the article, my firm conclusion was that all of the mockery of it was stupid – because he’s undoubtedly correct…

You can read Eric Basu’s original article here, if you’d like, but the basic point he is making is that none of the increasingly elaborate instructional material about entrepreneurship is really going to tell you anything you need to know, because the basics of a start-up company are not and have never been any deep, dark secret. In fact, there’s nothing even remotely complex about how to start a successful entrepreneurial venture: just find something that people want to buy, sell it to them at a profit, and then expand your operations as needed. Note that I didn’t say it was easy; complex and difficult are not the same thing, or even close. What makes this whole situation worth repeating – and worth calling your attention to – is the reaction of all of those people online, who have been deriding this point as obvious. As a former management consultant and current management teacher, I can only respond by asking why, if these points are so obvious, do 90% of all entrepreneurial start-ups fail?

First of all, people assume that any product you offer for sale must be one that people will want to buy – or else why would you try to sell it? Unfortunately, this is often not the case; much of the time people start a business on the basis of what they would like to buy (or services they would like to use), not because there is any demand or because they know anything about that industry. Thus, most specialty retailers (online and in real life) fail because there aren’t enough customers to keep them in business, and most food service businesses fail because the people starting them have no idea how difficult that industry actually is. Bars are the worst; most bars and nightclubs are started by people who like hanging around in bars – a skill set that does not lend itself to many business enterprises. But even those problems are not as devastating as the ones cause by not making a profit…

Probably the single most common cause of failure I’ve seen in entrepreneurial ventures was failure to consider how the business will turn a profit. In some cases this is literal, as in ventures where it’s not clear how the company will receive revenue in return for its operations; in others, it’s not clear how they will convince customers to pay enough for the products or services provided to cover expenses, let alone make a profit. And probably the most common error entrepreneurs make is failing to consider their own salary; if the business turns a profit but you can’t live on the proceeds, long-term success is almost impossible…

I don’t have much to add to Mr. Basu’s excellent summation of the case – and, indeed, I’m not actually commenting on the article so much as I am the response to it. By now you’ve probably encountered people (they’re far too common online) who have never written a story, but sneer at how easy it is to do; who have never drawn a single image but insist that anybody could do better than this; who have never made a movie but could certainly blow Hollywood away – according to them. It would be pretty to think that such people would at least have the sense to respect the simple truth when they see it written, or at least to shut up about things they have never actually done. However, that does not appear to be the case…