Popular Social Media Metrics - A Waste of Time?

I came across an interesting post in HBR today titled "Why Your Social Media Metrics Are a Waste of Time" by Ivory Madison. Popular social media metrics such as page views, unique visitors, registered members, conversion rates, number of Twitter followers, or Facebook likes are "interesting" at best. They're what Eric Ries, author of The Lean Startup, calls "vanity metrics." Vanity metrics look good but fail the "So what?" test. That is, vanity metrics are accurate, but irrelevant. Does it really matter if you have a million Twitter followers (an accurate number), if at the end of the day you cannot trace any product sales back to that metric (no relevance)?

So, Ms. Madison recommends the following four metrics as more useful alternatives:

1. Relevant revenue. Note the word "relevant," which refers to recurring sales in your core business. Don't count revenue from one-time or stagnant sources.
2. Sales volume. This can be a number like units sold or active subscriptions, something that shows whether or not enough people want to buy what you're selling.
3. Customer retention. Metrics like "new customers" can hide the fact that although you may attract 1,000 new users a month, you're losing 900, which means you're not going to scale.
4. Relevant growth. Too often, companies compound the stupidity of their choice of metrics by creating a metric tracking the growth of vanity metrics. You should be looking for a traceable pattern in which the actions of your existing customers create new customers. That's what Ries calls an "engine of growth."

My 2 cents - The above four metrics are "motherhood and apple pie." They are the holy grail of measuring the effectiveness of any activity; social media or not. The challenge is not that no one recognizes that these are the best metrics but that no one has figured out (or publicly announced) how to capture these metrics for Twitter or Facebook or any of the other popular social media sites.

The Bottom Line

As I said, an interesting post but unfortunately it falls short of presenting any new information. Most experts would agree that the current, popular social media metrics are less than optimal. The question is how do you measure the "right" stuff? And is this another example of not letting perfect be the enemy of good enough? 

Want to Innovate? Abandon Best Practices.

"Status quo is the enemy of innovation" is a concept I discuss extensively in my recent book, Living in the Innovation Age. In fact, that conviction is the basis of Principle #3 in my book - Innovation is "Where No Man Has Gone Before."

So, what have "status quo" and "innovation" got to do with best practices? Aren't best practices supposed to be a good thing? After all, best practices are the distilled essence of the learning of many individuals from years of experience, successes, and failures. Best practices are supposed to help ensure success and avoid past mistakes. Conventional thinking would agree. There are, however, two main problems with such conventional thinking and therefore with these so called "best practices."  

The first problem is that many best practices are rooted in past constraints and/or fallacies.  Freek Vermeulen explains this nicely in his recent blog posting titled "Which Best Practice Is Ruining Your Business?" in HBR. He starts the discussion with an excellent example of the best practice of printing newspapers on broadsheet format even though such a practice raised printing costs substantially. Despite the higher costs and inconvenience, newspapers were terrified of going against the established "best practice" assuming that customers equate quality newspapers with broadsheet. When finally, in 2004, the United Kingdom's Independent switched to the denounced tabloid size, it actually saw its circulation surge!

One reason why a best practice's inefficiency may be difficult to spot is because when it came into existence, it was beneficial. Decades ago broadsheet newspapers made sense since newspapers were taxed based on the number of pages. By using broadsheets newspapers were able to cut down taxes, lower costs, and make more money overall. But even when the tax per page was abolished, newspapers stuck to broadsheet printing as a best practice for quality newspapers and forgot that the real reason for broadsheets had nothing to do with editorial or content quality or even user convenience.

The second problem builds on the first problem and serves to reduce a company's differentiation and hence competitive advantage. By default, best practices are well documented, accepted ways of doing things. Also, by default, it then follows that everyone is adopting these best practices, sometimes without even realizing that they are doing so. For example, software packages such as Enterprise Resource Planning (ERP) systems and Customer Relationship Management (CRM) systems that make up the backbone of many company's core operations come with best practices codified in their business logic and database tables. So, when a company implements one of these ERP or CRM systems and leverages the built in capabilities they are in fact adopting the same "best practices" that everyone else is using. Therein lies the issue - best practices only serve to solidify the status quo not challenge it. In an era when customers demand creativity and innovation, that's just not going to cut it. In the long run, relying on best practices will doom you to mediocrity. Instead of getting bogged down trying to reverse-engineer the strategies of others, your time will be much better spent finding your own path. 

The Bottom Line

Innovation requires challenging the status quo and going "where no man has gone before." That cannot be achieved by following best practices since such practices at best solidify the current state of knowledge. Innovation requires breaking away from best practices and creating "next practices" that can enhance differentiation and provide sustainable competitive advantage.  

Dealing with Disruption

In my previous posting titled Are All Reverse Innovations Disruptive?, I discuss two key factors that help determine whether a "reverse" innovation has the potential of becoming disruptive - the sustainability of a low cost advantage and the effectiveness at closing of the performance gap.  Both of these provide insight into not only how the disruptor might behave but also as to how the "disruptee" should counter behave in response. For example, by understanding the underlying cause of competitive advantage, the "disruptee" might be able to change the definition of what consumers perceive as "value" thereby "disrupting the disruptor."

The December 2012 issue of the Harvard Business Review (HBR) has a couple of articles that take the above discussion further. Dealing with disruption essentially consists of two parts - identifying the source of disruption and executing a strategy to overcome its potential impacts. In the first article, Surviving Disruption, authors Maxwell Wessel and Clayton M. Christensen explain how disruption is less a single event than a process that plays out over time, sometimes quickly and completely, but other times slowly and incompletely. Therefore dealing with disruption requires a systematic way to chart the path and pace of disruption so that you can fashion a more complete strategic response. They propose the following three steps to help determine whether the disruption will hit you dead-on, graze you, or pass you altogether, you need to:

1. Identify the strengths of your disruptor’s business model;
2. Identify your own relative advantages;
3. Evaluate the conditions that would help or hinder the disruptor from co-opting your current advantages in the future.

To help evaluate the relative sustainability of the advantages identified in bullets # 1 and 2 above, the authors propose a systematic assessment of five kinds of barriers to disruption, listed below from easiest to overcome to hardest.

1. The momentum barrier - Status quo is a difficult thing to change.
2. The tech-implementation barrier - Does existing technology suffice?
3. The ecosystem barrier - Also known as the platform advantage.
4. The new-technologies barrier - The technology needed to change the competitive landscape does not yet exist.
5. The business model barrier - The disruptor would have to adopt your cost structure.

Perhaps, most important though, according to the authors, is for the "disruptee" to understand and segment their customers by the "job" they want to get done. As an example, they discuss the ongoing battle between online grocery retailers and the brick-and-mortar grocery stores. Out of the three job categories the authors identify - "emergency item" shoppers, "dinner" shoppers, and "non-perishables & brand" shoppers - only the last category is currently susceptible to disruption based on the three step and five barrier analysis presented by the authors. The two crucial questions then become "what can the disruptor do to win over the other two categories of shoppers?" and "what can traditional stores do to keep all three categories of shoppers to themselves?"

The answer to the second question is provided in the next article titled Two Routes to Resilience in the same issue of HBR. The authors Clark Gilbert, Matthew Eyring, and Richard N. Foster explain that companies facing disruption (such as the grocery stores above) need to reinvent themselves in response to disruptive market shifts, technologies, or start-ups. But rather than a complete upheaval they propose that companies under assault pursue two distinct but parallel efforts: 

• Transformation A should re-position the core business, adapting it to the altered environment. 
• Transformation B should launch a separate, disruptive business that will be the source of future growth. 

Such an approach allows the company to realize the most value from its current assets and advantages, while giving the new initiative the time it needs to grow. Fueling both transformations is a “capabilities exchange” that allows both efforts to share resources without interfering with the mission or operations of either. The authors walk readers through the dual transformations of three companies that were facing massive disruption: the Deseret News, which was losing advertising to online upstarts; Xerox, whose copier business had been eroded by Asian rivals; and Barnes & Noble, which was threatened by e-books. 

The Bottom Line

Dealing with disruption has no silver bullet. It is a complex undertaking with the appropriate response being vastly different on a case-by-case basis. Yet, there are guiding principles that can help. Understanding your consumers and their "jobs" is crucial to pinpointing the segment of your consumers that are most vulnerable to disruption. Next is identifying the source of the disruptor's competitive advantage and how sustainable it is in the face of the five barriers discussed above with respect to each consumer segment. Finally, executing the response strategy is best thought as two discrete and parallel transformations - rebuilding the core and disrupting the core - with a well thought out capabilities exchange fueling both.

Are All Reverse Innovations Disruptive?

Vijay Govindrajan is one of management's top thinkers today. One of his more recent insights lies within a concept that he has called "Reverse Innovation" in which innovation is driven from developing countries to the developed ones in contrast to the typical, and perhaps more intuitive, globalization model that drives innovation the other way around. The traditional flow of innovations in our economy has been from the developed to the developing nations. Vijay calls this phenomenon "glocalization" in which companies take successful products that they have created for customers in their Western markets and modify them, most often by stripping off many of their features, for distribution all around the world at lower price points. And while glocalization has proved effective in reaching the top segments of the market in developing nations – buyers with needs and resources similar to those in the developed world, it has not proved to be an effective market penetration strategy. The reason – most growth opportunities in emerging markets are not at the top but in the middle market and below, where the gaps between customers’ needs and those of their developed-world counterparts are enormous. While success in ripe developing markets might be reason enough to embrace reverse innovation, there is more good news. Because the global economy is richly interconnected, innovations developed for emerging economies can be extended to the developed world. Such "extensions" generally occur in two phases - first in under served, niche areas of the developed markets and then "disruptively" in the mainstream markets.

Hence the question - Are all Reverse Innovations Disruptive?

I found the answer to that question in a recent article titled "How Disruptive Will Innovations from Emerging Markets Be?"  in the MIT Sloan Management Review. In his informative article, the author Constantinos C. Markides eloquently describes the two conditions that any "reverse" innovation must satisfy to become disruptive. First, it must start out as inferior in terms of the performance that existing customers expect, but superior in price. Second, for the innovation to truly become disruptive, it must evolve to become “good enough” in performance (attracting mainstream customers from the earlier generation of incumbent products) while at the same time remaining superior in price. In other words, it must become “good enough” in performance and superior in price. So essentially, as the author summarizes, one must answer the following two questions:

1. Will the emerging-market innovators continue to have a significant price advantage over competitors from more developed countries?
2. Will the emerging-market innovators succeed in closing the performance gap so that customers in more advanced economies come to see their products as “good enough”?

There are many success stories that illustrate the disruptive nature of reverse innovations. Disruptive innovation has been credited as the strategy that led to Japan’s dramatic economic development after World War II. Japanese companies such as Nippon Steel, Toyota, Sony and Canon began by offering inexpensive products that were initially inferior in quality to those of their Western competitors. This allowed the Japanese companies to capture the low-end segment of the market. As the performance of their products improved, they began to move upmarket, into segments that allowed them more profitability. Eventually, they captured most of these segments and pushed their Western competitors to the very top of the market or completely out of it.

What many people do not realize is that there are many stories where reverse innovations have failed to be disruptive. In the razor business, Bic emerged as a huge, low-cost disruption to Gillette in the 1970s and quickly succeeded in capturing 25% of the disposable razor market by the early 1980s. Yet Gillette countered with its own line of inexpensive disposable razors, and Bic ceased being a major threat to Gillette in razors by the early 1990s.

So why do some reverse innovations disrupt industries while others don't? Once again, the answer lies in how well the reverse innovation stands up to the two fundamental questions posed by the author above.

As the author explains in his article, the first indicator of success lies in the source of the "low cost" advantage of the reverse innovation. If the source of the cost advantage is low labor costs or a reengineered product that requires fewer or cheaper components, incumbents can find a way of neutralizing these advantages. However, there is one source of cost advantage that is more sustainable than others. This is the business model of the disruptors. A cost advantage that comes on the back of a business model that is not only different from but also conflicts with the business model of the established companies is more sustainable than other cost advantages. This explains, for example, the success of low-cost airlines over traditional airlines.

The second indicator of success is the reverse innovator's ability to close the "Performance Gap" between their innovation and the mainstream product/service. As the author explains, reverse innovators have a number of options in how they go about closing the performance gap. However, less obvious is the proposition that whether the reverse innovator's products come to be seen as “good enough” depends not only on what they do, but also on what incumbents do to influence consumers’ expectations of what is “good enough.” As an example, consider how Nintendo dealt with the onslaught of gaming consoles in its bread and butter market space. Nintendo’s response to all of this was a classic strategy of shifting the basis of competition and changing consumers’ perceptions of what is “good enough” in this market. Rather than follow Sony and Microsoft down the performance trajectory, Nintendo introduced the Wii on the basis of family entertainment, a benefit that the disruptors were not paying attention to. Nintendo’s strategy was essentially to expand the market by developing consoles that would support simple, real-life games that could be learned quickly and played by all members of the family, including the very youngest and the very oldest. By 2007, the launch of the Wii led to household penetration of consoles rising for the first time in 25 years. The console outsold the PS3 three-to-one in the Japanese market and five-to-one in the United States.

The Bottom Line
Reverse innovation is a powerful force for good in developing countries. Not only does it benefit the innovator but it serves to uplift the lives of all those to whom mainstream products were simply inaccessible or impractical. Longer term, many (but not all) reverse innovations have the potential to disrupt mainstream markets and incumbents. Success, however, depends on two critical factors – 1. basing the cost advantage on a sustainable and "hard-to-imitate" source (such as a business model) AND 2. becoming "good enough" in the eyes of the "mainstream market." Conversely, incumbents must constantly be on the look out for reverse innovations that have the potential to be disruptive and proactively undermine them by redefining "good enough" and/or changing the rules of the game.

Are all "Big Ideas" really that "Big"?

Today I finally got a chance to catch up on some reading. First up was my November 2012 issue of the Harvard Business Review (HBR). I quickly turned to the "Big Idea" section that had caught my attention earlier. Titled "Accelerate!" and written by the well-regarded author, John Kotter, the "Big Idea" he discussed was how the most innovative companies capitalize on today's rapid-fire strategic challenges and still make their numbers. Frankly, I was not too impressed with the article. It seemed to primarily regurgitate and re-package concepts that we have been talking about for close to 20 years.

Here's my paraphrased version of the basic premise of the article:

• Companies are designed for efficiency not innovation.
• Companies must find a way to manage the present while also creating their future.
• In a rapidly changing environment, what is value-adding "context" today can quickly become "vanilla" core tomorrow.

This premise should be of no surprise to anyone who has not just crawled out from under a rock. So, what is Kotter's advice to deal with these obvious conditions? He recommends creating a second "operating system" devoted to strategy and innovation. Kotter defines a company's operating system as the collection of its organizational hierarchies and processes. Since the primary operating system is too focused on day-to-day tactical operations, a secondary operating system is essential to ensuring that an all important focus on strategic initiatives is not lost. Here's why I am not at all excited by these suggestions - there's nothing new here. For decades companies have had a "second operating system" to deal with the "new and unexpected." This second operating system has been called many things including the all too famous "skunkworks". And based on years of various success (and failure) case studies, we now know that such skunkworks initiatives can be made much more effective by integrating them within the core of an organization's culture and strategy. In fact, even I talk quite extensively about this in Part two of my recent book, Living in the Innovation Age.

So, I am sorry Mr. Kotter. Although, I am still a fan of your writing, I am unimpressed by your latest article in HBR.