The reality lurking just behind the promise is somewhat darker: none of these benefits can be achieved without first developing a world class content strategy.  Don’t agree with me?  Consider this…

Last week a business colleague invited me to attend a marketing automation seminar here in Austin. Now normally I’m not a big fan of seminars, but in this particular case I happen to be very interested in the company sponsoring the event, so I decided it was worth the investment of a couple hours of my time.

Like most marketing tactics, seminars are based on the principle of an authentic value exchange. The attendees provide their names, email addresses and a small investment of time in return for some unique insight with respect to a particular area of interest. In this case, the event was advertised as delivering insight into social marketing best practices designed to:

• Increase audience engagement
• Create a 30% lift in sales ready leads
• Measure the ROI of social media
• Implement marketing automation within an integrated social strategy

The afternoon failed to produce the promised exchange of value. In fact, given that one of the main objectives of the session was learning how to “increase audience engagement,” I would have to say the session missed the mark completely. My claim is based on the observed behavior of my fellow attendees.

The woman seated to my immediate right spent the majority of the afternoon shopping for purses on her iPhone.  The gentleman seated to my left spent most of his time responding to email on his Blackberry.  The woman directly in front of me appeared to be working on a corporate presentation on her Mac.  A younger couple seated next to her whispered back and forth incessantly. So I ask you: does that sound like an engaged audience?

Now, given that this seminar was led by self-proclaimed “marketing automation rock stars,” it has to make you wonder where the breakdown occurred? If a group of marketing rock stars can’t effectively engage a marketing audience in a captive setting, why would we expect marketing as a function to be able to use software automation to effectively engage prospects in a way that cost effectively converts them to customers?

A disengaged audience is usually a solid indicator of poor content.  Ironically, within the context of a seminar designed to sell a marketing automation platform, content should have been king. After all, content is the fuel that powers automation platforms.

The Key to Authentic Audience Engagement: Content That Connects

Whether you’re a B2B marketer, a pop musician, a standup comedian or a physicist, there’s only one way to keep an audience engaged: by delivering content that connects with your audience. Anything less pretty much guarantees that your audience will opt out of any future engagement.

Really great content, like really great stories, provides the audience with an  emotional connection.  Engaging at an emotional level builds an authentic bridge between you and your audience. It establishes a bond -  a shared connection that says “you really do understand me!” And as human beings, we naturally prefer to do business with people we’re authentically connected to.

Great marketers employ the same techniques used by great story tellers: getting the audience to expect something (the setup), and then “satisfying” those expectations (the payoff).

From seminars to presentations to whitepapers, every piece of marketing content should be designed to tell a story. In the early part of the story, you need to setup the plot: introduce the characters, communicate the situation in which the story begins, and present your audience with some sort of problem or issue that generates tension. After the opening setup, buildup the tension, perhaps with events that challenge the characters in unexpected ways. Finally, after the buildup, you must provide the audience with some sort of payoff. And here’s the kicker: the payoff has to be consistent with the setup.

Let me give you an example directly from the seminar. One of the better presenters did a fantastic job of setting up her company’s overarching challenge. Here’s what I took away from her introduction:

My company sells a fairly expensive ($250,000) B2B technology solution to a narrowly focused market segment where the key economic buyers are clearly “laggards” within the technology adoption cycle. As one would expect, our sales cycles are fairly long and close rates are low. Additionally, our sales and marketing departments lacked the processes, infrastructure and resources necessary to operate effectively as a team.   

All in all, it’s a pretty good setup. The problem is something every B2B marketer can relate to.  As a senior business executive focused on revenue generation, it had me hooked. I was primed to hear how marketing automation played a key role in solving this particular business issue. (Even the woman next to me stopped shopping long enough to shift her gaze to the speaker.)

After a short buildup describing the steps the company took to purchase and implement a marketing automation platform, which included hiring an outside consultant (talk about tension), the speaker went on to detail the payoff. Her “results” slides highlighted:

• 23% open rate on follow-up emails sent to trade show attendees (but only when the title included “Gartner”).
• A positive spike in the company’s Twitter followers.
• A 15% increase in LinkedIn followers and 20% increase in Facebook followers.

Now, I don’t know about you, but I can’t imagine the CEO of a company walking into the office one morning, calling an emergency staff meeting and saying: ”We really need to figure out a way to increase our Twitter and Facebook followers before the next earnings call.” However, I can easily imagine a CEO saying something like:  “We either need to figure out how to shorten our sales cycles and accelerate revenue growth, or we’re going to have to significantly reduce our operating expenses – starting with headcount.”

For me, that was the point in the presentation where the train completely left the track. By describing a serious business problem in the setup, the presenter created an implicit expectation for a business-level payoff.  A business payoff would have included something like:

1. Increased revenue
2. Measurably shorter sales cycles
3. Higher prospect conversion rates
4. Any combination of 1-3

As a payoff, the typical social chatter around Twitter and Facebook followers not only completely failed to deliver, it alienated me. The opportunity to create a “Wow, you really do understand my business problem” moment was forever lost. The emotional connection that I was beginning to develop with the speaker (and her company) vanished.  Despite being a captive audience member, I mentally opted out on the spot.

What’s my prediction for the future of B2B marketing automation? Until marketing teams learn how to develop content that authentically engages a target audience, the overwhelming impact will be an even higher degree of prospect alienation.

 The Grapes of Wrath derived its epic scope from the way that Steinbeck used the story of the Joad family to portray the plight of thousands of Dust Bowl farmers. He captured the dehumanizing impact of an industry in transition. Farms torn down, families displaced and dreams forever lost under the grinding forces of a system being driven by an impulse no one saw coming – not the farmers, not the eviction officers, not even the bankers. Caught in a hopeless situation, the Joads – along with hundreds of thousands of “Oakies” – set out for California, Oregon and Washington, seeking jobs, dignity and the possibility of a new future.

Another Industry in Transition

At the close of 2005 six major vendors comprised the competitive landscape which essentially defined the mobile phone industry: Nokia, Motorola, Samsung, Siemens, Sony Ericsson and LG. I can still remember walking through the exhibit halls at Fira de Barcelona on a cold February morning in 2006. 3GSM World Congress – in its inaugural year in Barcelona – was being hailed as the biggest mobile show on Earth, drawing some 50,000 attendees from across the mobile industry.

As I navigated my way through the packed exhibit booths, I remember thinking to myself: “wow, these vendors and their phones are all starting to look alike.”  What I failed to recognize that morning, was the vendors whose booths I was visiting were already on the endangered species list.  To be fair, I doubt that few of us in the industry did.

At the start of 2006, most of us were still caught up in the excitement and hype surrounding industry growth. The number of mobile subscribers had just surpassed the 2 billion mark. Motorola’s RAZR was completing a four year, 130 million unit run, becoming the best-selling clamshell phone in the world. Nokia was finalizing the acquisition of Intellisync for $430 million. Sony Ericsson had recently agreed to become the global title sponsor for the WTA Tour in a deal worth $88 million over 6 years. (In fact, the women’s pro tennis circuit was renamed the Sony Ericsson WTA Tour.)  Nokia and Motorola, with a combined market share of nearly 50% were believed to be unstoppable.

Like the Oklahoma wheat farmers in 1931, few of us realized that a major industry disruption was lurking on the horizon. An external impulse that would kick off a new S-Curve trajectory, transferring momentum to new entrants, leaving the likes of Nokia, Motorola, Sony Ericsson and RIM to agonize in an extended period of economic uncertainty, much like the characters in Steinbeck’s novel. Between 2006 and 2011, a total of 14 mobile phone vendors exited the industry, merged or were acquired.

In the 1930’s, hundreds of thousands of displaced farmers set their sights on the West Coast in hope of a finding jobs, security and a new life. Ironically, Motorola and Nokia are retracing that path.  In February, Nokia announced plans to cut some 20,000 jobs, far and away the largest structural change Finland has ever seen in the technology sector. Today, the promise of a new future for both companies lies west. For Motorola, it’s the  Mountain View headquarters of Google. For Nokia, it’s Microsoft’s campus in Redmond. And, like the future of the characters in Steinbeck’s novel, the ultimate fate of both companies remains unclear.

As human beings, our initial tendency was to blame the Dust Bowl on the drought. In truth, the conditions in the agriculture industry precipitating the event were sowed long before the drought of 1931 hit. The drive to continuously increase profits led farmers to adopt mechanized farming techniques. More than 5 million acres of previously untilled land was plowed between 1925 and 1930 alone, producing record crops during the 1931 season. The overproduction of wheat coupled with the Great Depression led to severely reduce­d market prices and razor thin profit margins.

Unable to earn back production costs farmers expanded their fields, replacing the natural drought-resistant prairie grasses with more wheat.  Unplanted fields were left bare, exposing precious topsoil to the winds of change. By 1934, an estimated 850 million tons of life giving topsoil was blown away from America’s heartland, along with the dreams of thousands of tenant farmers.

In 2005, 810 million mobile phones were sold, a 20% increase over the previous year. But quarterly earnings from Nokia clearly pointed toward the cloud on the horizon – lower prices and narrower margins. Motorola gained 2.6 points of market share, but a third of the phones it sold were RAZRs.  When anxious market analysts and investors suggested it was time for Motorola to rotate the crops, CEO Ed Zander said: “The year of 2005 was the RAZR and the year of 2006 is more RAZRs.“

In 1995, Clayton Christensen identified the most consistent pattern in business as the failure of leading companies to stay at the top of their industries when markets transition. The fundamental reason he proposed was the management dogma of “staying close to our customers.”

We have a term for that in physics. It’s called inertial mass: the overwhelming tendency of human beings to want to keep doing what we’ve been doing.  We have a knack for sowing our own Grapes of Wrath.

Descartes envisioned his idea of the conservation of motion as one of the fundamental governing principles of the entire cosmos. Newton’s laws of motion are, in fact, modeled on Descartes’ original concepts. Newton’s primary contribution was to restate Descartes ideas more fully, and with much better mathematics.

Today, we recognize that most of the fundamental laws of physics have to do with conservation principles. In particular, the conservation of energy, the conservation of momentum, and conservation of angular momentum.

The law of the conservation of momentum states that if no resultant force acts on a closed system of objects, the momentum of the system remains constant in magnitude and direction. This is true no matter how intricate the system and no matter how many components it has. Furthermore, the law applies to all objects in universe, from the largest spiral galaxies to the smallest subatomic particles.

Although the momentum of individual objects within a closed system may change, the overall momentum of the system will stay the same.  There are no known exceptions to this law.

If you recall from our last post (If Your Position is Everywhere, Your Momentum is Zero), the momentum of an object (p) is defined as the product of its mass (m) and velocity (v) by the equation:

p = m · v

The momentum of a system of “n” objects is simply the vector sum of the momenta of the individual objects in the system.

p _System = ∑ m_i · v_i  = m₁v₁ + m₂v₂ + m₃v₃ + … m_nv_n

This simple but powerful equation raises the question for today’s exploration: If (as Michael Porter suggests), an industry can be viewed as a complex system of forces, in situations where there are no net external forces acting on the system, does the law of the conservation of momentum apply?

Before we attempt to answer that question, it may be helpful (and even fun) to take a  quick look at the principle of the conservation of momentum as illustrated by Richard Garriott, a former game developer and the sixth private citizen to fly in space.  In the following two minute video blog, Richard demonstrates the principle from within the zero gravity environment of the International Space Station.

(As an aside, the basic physics behind the propulsion of the Soyuz rocket which carried Garriott into orbit is also based on the conservation of momentum.)

Industries as Isolated Systems

In addition to brilliantly illustrating the principle, Richard’s video blog actually provides those us who can’t afford a $30M ticket to fly to the International Space Station with a powerful “visual” model for thinking about industries as isolated systems.

In business school we’re taught that industries develop along a predictable, cyclical path, which includes the following five stages:

Each corresponding stage is characterized as follows:

Embryonic: new products, high price, slow growth, weak revenue and high-risk investments.

Growth: growing sales, significant profitability and lack of competition.

Shakeout: slowing growth, intense competition and early stages of consolidation and declining profitability.

Mature: little or no growth, industry consolidation and relatively high barriers to entry.

Decline: falling demand, sales and negative growth. Companies that have the strongest competitive advantages remain in the industry and fight for market share.

Industries tend to consolidate during the Shakeout phase, when emerging market leaders initiate mergers and acquisitions (M&A) in order to rapidly expand market share. Conversely, mature and declining industries consolidate in order to survive.

Garriott’s illustration of the two colliding tennis balls “sticking” together (an example of an inelastic collision), provides another model for thinking about industry consolidation.  When two organizations merge, the resultant mass of the new organization increases. Based on the law of the conservation of momentum, the velocity of the merged organization (which we previously defined as the time rate of change in revenue) must decrease by an amount inversely proportional to the sum of the masses as follows:

m₁v_i + m₂v_i  = (m₁ + m₂ ) v_f

v_f  = (m1+m2)^-1 · (m₁v_i + m₂v_i)

Overall changes in market share provide us with another “intuitive” sense that a conservation principle is is at work.  We readily accept that notion that once an industry matures, in order for one company to gain market share, another company must lose market share. One would reasonably expect the conservation of momentum to apply.  However, like René Descartes, we want to go beyond our intuitive sense. We need to validate the model mathematically to prove our hypothesis.

In our next post we’re going to dive much deeper into this exploration, analyzing the momentum of the mobile phone industry between 2002 and 2007 (prior to the introduction of the iPhone).  Our goal is to determine if the principle of the conservation of momentum can be applied from a mathematical perspective.

In classical mechanics, the momentum of a particle is defined as the product of its mass and velocity.  Think of it as mass in motion.  Momentum is usually given the symbol p (made bold to indicate a vector).  It is defined as:

p = m · v

All moving bodies have momentum, regardless of their size or velocity. The rules of momentum (which we’ll cover in far more detail later), apply to all objects in the universe,  including businesses.  When we see a train moving at high speed we have an intuitive comprehension of its momentum.  However, when we talk about momentum in a business context, the image can get a little fuzzy.

In business, when we talk about momentum we’re usually referring to the effort required to stop an organization in motion. Which is why teams or organizations said to have momentum are often considered to be unstoppable. Based on the mathematical definition, business momentum requires velocity, which we previously defined as the time rate of change in revenue. Substituting that definition back into the equation yields:

p = m · dr/dt

Our systems of units for a business context is:

p = employee · $ · s^-1

When we look at momentum this way, the definition is more intuitive.  Momentum provides the measure of how effective we are in leveraging our employees (mass) to generate a positive change in revenue per unit of time.

[From a purely mathematical viewpoint, there’s no restriction on the value that can be assigned to time (t) in the equation. While we used “dollars per second” above, we can just as easily use minutes, hours, days, quarters, or years.]

Tips for Building Business Momentum

Back in February we talked about the sheer volume of articles offering recommendations and tips for building momentum (Marketing’s Tower of Babel). If you’ve ever been part of an organization struggling to build momentum, you’ve probably experienced the corresponding wave of new initiatives, programs and tasks that employees are asked to undertake.

I’d like to offer a slightly different perspective on building momentum, one that’s tied to the quote from the Nobel Prize-winning chemist William Nunn Lipscomb, which served as the title of this week’s post:

“If your position is everywhere, your momentum is zero.”

To explore the perspective in more detail, we’re going to take a brief, allegorical trip back in time.  As Mr. Peabody would say: “Sherman, set the WayBack Machine for 0000.”

The Book of Genesis, Chapter One

As we walk through the door of the WayBack Machine and the scene unfolds, we find ourselves lost in a primeval abyss – a formless, shapeless, expanse of nothing. There is only darkness – the void. The chaos associated with absolute nothingness is both overwhelming and terrifying.

Suddenly, out of nowhere, there is an eruption of light. Light is followed by form.  Form becomes firmament.  When the scene ends six days later, we find ourselves in the midst of a universe brimming with matter, energy, light and life. Chaos has been replaced with order and structure.

Regardless of one’s particular faith or spiritual upbringing, chapter one of the Book of Genesis can be viewed as a powerful allegory for what it takes to build genuine momentum.

Read the first chapter with a focus on the protagonist’s “activity” and one thing becomes crystal clear: each day is dedicated to one task, and one task only. The Creator’s attention to the task at hand, whether it be manifesting light or the bringing forth of grass, herbs and fruit, is all consuming. The absolute discipline of focus exhibited throughout the process is awe-inspiring.  There are no distractions, no interruptions and not even the slightest hint of multitasking.

Each day’s task is undertaken with total attention. Each task is completed in its entirety before moving on to the next. And, equally important, each task is partitioned from the next by a period of quiet self-reflection focused around one solitary question:

“Was the result of today’s activity good?”

The secret to building business momentum is not found in doing “more”. It is rooted in the discipline of consciously giving up being “everywhere” in exchange for doing one thing tied to increasing revenue – and doing it to the absolute best of one’s ability.

Porter first proposed the model in 1979 as an alternative to traditional SWOT analysis, which he found to be highly subjective and less than rigorous. The five competitive forces considered in the model are illustrated in the accompanying figure.

To say that Porter’s model has shaped an entire generation of academic research and business practice is an understatement. Consultants and strategists alike most often use the framework to evaluate a firm’s strategic position. However, like all frameworks, Porter’s model has its critics, many of whom cite its qualitative versus quantitative nature.

In this week’s exploration, we’re going to attempt to bridge the quantitative gap by fusing Porter’s framework with the second most famous formula in all of physics.

Extending the Concept of Force to Business

In the physical world, when we push or pull on an object, we are said to exert a force on it. Most forces occur when two objects come in direct contact with each other. However some forces, like gravity and magnetism, can exert themselves without direct contact.

Force is a foundational concept in physics, characterizing any influence that can cause an object with mass to change its velocity. Quantitatively, Newton’s Second Law of Motion defines force as:

F = m * a

Let’s take a closer look at the concept of force in business using a real world example. For this scenario we’ll consider Nokia Corporation, a titan of the mobile phone industry. Nokia’s revenue from 2002 through 2011 is illustrated in the chart below.  We’re going to take a much closer look at one specific period, namely 2007 – 2009.

As the graph illustrates, 2007 was a pivotal year for the mobile phone industry.  Apple unveiled the first iPhone on January 9^th, after months of rumors and speculation. Google followed with a one-two punch, announcing its Android operating system in concert with the founding of the Open Handset Alliance – a consortium of hardware, software and telecommunications companies devoted to advancing open standards for mobile devices.  As Porter’s framework suggests, the force associated with these new entrants dramatically altered the industry’s balance of power. Nokia’s revenue has been in decline since.

Lets zoom in and take a closer look at revenue during the 2007-2009 time frame.

We can use regression to provide an equation for Nokia’s revenue from 2007 – 2009:

Revenue _(2007-2009) = -3.99x² + 8.08x + 70.47

Taking the 1^st derivative of revenue provides a model for business velocity (red), which in this case happens to be a linear equation of the form:

Velocity _(2007-2009)  = -7.98x + 8.08

Likewise, the 1^st derivative of velocity yields acceleration, which in this case is constant for the period in question at -$7.98B per year².

Now that we’ve derived valid models for velocity and acceleration, we can focus on mass. A few posts ago, we put forward the idea that in the context of business, employees served as the primary source of inertial mass (Mass Hysteria).  Nokia’s mass (based on employee count) is included in the table below.

At this point, we simply need to multiply mass by acceleration to yield a value for the force responsible for Nokia’s deceleration between 2007 and 2009. However, before we do, we also have to propose a system of units applicable to a business context.  In classical mechanics, the SI unit of force is the Newton (N). One Newton is defined as the force required to accelerate a mass of one kilogram at a rate of one meter per second squared, or kg·m·s⁻².

Within a business context, I would propose the “Business Equivalent Newton,” (N_B) pronounced “newbe”. I would further propose we define the standard N_B as the force required to accelerate a mass of one employee at a rate of $100,000 per year squared, or:

1 N_B = 1·emp·$100,000·yr⁻².

(While it may seem arbitrary, it’s no less valid then the SI kg·m·s⁻².)

We’re now in a position to quantify the force associated with the “Threat of New Entrants” during the period in question.

The force behind Nokia’s deceleration in 2007 was -8.858 billion N_Bs.  The corresponding forces for 2008 and 2009 are listed in the table above.

In addition, now that we have a valid model for business velocity and acceleration, we can also determine if the standard equations of motion can be applied to calculate revenue:

r₂₀₀₉ = r₂₀₀₇ + V₀t + ½ at²

r₂₀₀₉ = $74.56B + $0.1B (2) + ½ (-$7.98B) (2²) = $58.80B

Why is any of this relevant?  For starters, we’ve quantified the concept of force in a business context by incorporating some basic tools from classical mechanics. In addition, we’ve opened the door to expanding the capabilities of Porter’s 5 Forces framework  beyond simple qualitative analysis. Finally, we’ve demonstrated that the equations of motion can be used to analyze the behavior of business systems within a defined set of boundary conditions.

While we’re still at the very beginnings of our journey, we’ve actually come a long way in just a few posts:

• We’ve descended from Marketing’s Tower of Babel to begin building a shared vocabulary predicated upon some basic concepts and definitions.

• To Lord Kelvin’s delight, we’ve given concrete definitions to a set of previously undefined and overused business terms like velocity and acceleration.

• We’ve established rules for calculating these quantities in terms of other measurable quantities.

• We’ve answered the long-standing question: “What happens when you cross Michael Porter with the second most powerful formula in all of physics?”

We’ve reached a point where we’re ready to tackle another important business concept in more detail: momentum.

Given the symbolic roles apples have played throughout history, it seems only fitting to focus this week’s conversation on another famous apple: Apple Inc. We’ll take a look at Apple’s revenue growth and see if we can derive the equations for business velocity and acceleration.

 iGravity

The United States officially plunged into what’s being called “The Great Recession” in December of 2007. Most of the world’s developed economies followed in 2008. By December 2010, the U.S. unemployment rate was hovering around 10% and throughout 2010, banks ended up seizing over one million U.S. homes.

Yet during the same period, Apple’s financial performance appeared to defy gravity (maybe we should call it iGravity). The company’s revenue growth from 2002 to 2011 is illustrated below.

Interestingly, in 1996, when Steve Jobs returned as CEO, the company was on the verge of bankruptcy. Today, Apple represents more than 4% of the S&P 500. Its market capitalization outweighs that of the entire materials sector, more than the telecom sector and more than the utilities sector. Generating $108 billion in revenue in one year is the equivalent of selling $3,424 worth of product every second.  Just thinking about it can make you dizzy.

As the graph’s trend line clearly illustrates, Apple is experiencing “exponential” revenue growth. One of the more interesting aspects of an exponential function is that its derivative is also an exponential function. In other words:

d[e^x]/dx = e^x

With that in mind, let’s take a look at the 1^st and 2^nd derivatives of Apple’s revenue curve. In an earlier post we defined business velocity as the time rate of change of revenue (1^st derivative) and acceleration as the time rate of change in velocity (2^nd derivative).

In this case we’ll leverage Excel’s regression capabilities to fit a 5^th order polynomial to the revenue curve.

Revenue = 0.02x⁵ – 0.4601x⁴ + 3.8843x³ – 13.411X²+ 20.972x – 5.44

Taking the first derivative of the revenue function gives us the equation for Apple’s velocity:

Velocity = 0.1x⁴ – 1.8404x³ + 11.532x² – 26.822x + 20.972

Taking the second derivative gives us the equation for Apple’s acceleration:

Acceleration = 0.4x³ – 5.5212x² + 23.064x – 26.822

The three functions are plotted together below, along with their corresponding trend lines.

One of the first things you’ll notice is that Apple’s velocity (red) and acceleration (yellow) also resemble exponential growth curves – which they should, since the derivative of an exponential function is an exponential function. Based on the model, Apple’s business velocity in 2011 was a staggering $65.552 billion per year. That’s equivalent to increasing top line revenue growth by about $2,078 per second. Its acceleration was $51.698 billion per year², which translates to $1,639 / s².

In some ways, it’s actually difficult to wrap our minds around the magnitude of these numbers. From a supply chain perspective, assuming the company can continue to meet market demand, we could reasonably predict 2012 revenues approaching $200 billion. (A number of market analysts are actually forecasting at least $157 billion.)

Even more impressive, nearly 75% of Apple’s revenues come from just two products: the iPhone (53%) and the iPad (20%). The first iPhones began shipping in June 2007 and the iPad only became available a year ago, on April 3, 2010. I don’t know about you, but I’m not aware of any other company that generates nearly 75% of its revenue from products that didn’t exist five years ago, while doing it during a global economic downturn.

Which raises the question: Given the number of consultants offering books and seminars on how to achieve “breakthrough” business performance,  why aren’t there more Apples? The question behind the question is: “What’s at the core of Apple’s success?”

A few posts ago we took at quick look at a video of Steve Jobs addressing an audience of developers and engineers, pre-iPod, iPhone and iPad.  The 1997 clip was offered as an example of someone lowering the inertial mass of an organization as the precursor to achieving a higher level of acceleration.

This week, I’d like to offer a different clip. This one features Steve Jobs clearly articulating the vision that is Apple’s “klokhuis”.  In just under seven minutes, with no props, no slides, no charts and no statistics, he reminds us all of something amazingly easy to lose sight of: despite all the technology at our disposal – the most powerful tool we have for changing the world around us is still the human voice.

At a first glance, Steve Jobs may not have fit precisely into Jim Collins’ model for Level 5 Leadership, but in looking back at Apple through the portal provided by these videos, you can clearly see the major components of Collins’ framework brought to life though his voice. Given that we now have a reasonably valid mathematical model for Apple’s acceleration, we’re in a position to begin quantifying the Force associated with that unique voice.

The question arose: “If that’s the case, how can I effectively lower the inertial mass of my organization, given that I need employees to run the business?”

Oddly enough, I don’t think we ever suggested eliminating people as the solution to effectively lowering an organization’s inertial mass. Before we go further in our conversation, let’s take a look at a simple video demonstrating the concept using everyday objects.  I  like to refer to this video as the Eggpression of Discipline.

Eggs as a Metaphor for Business

Consider the two eggs in the video as a metaphor for two seemingly identical businesses. Both have the size, same shape and same mass (i.e. same number of people).  Yet in response to a force, Egg_A behaves very differently than Egg_B. For starters, Egg_A clearly does not spin as fast as Egg_B (less velocity). And, when we attempt to stop both spinning eggs, Egg_A clearly wants to keep doing what it was doing (greater inertia).

Since we know that the mass of both eggs is identical, how do we account for the difference in behavior? I’m sure by now you’ve guessed the answer.  Egg_B behaves differently because it’s hard-boiled.

A Culture of Discipline

Eggs are rich in protein (strings of amino acids). When you heat an egg, the proteins gain energy and literally shake apart the bonds between the parts of the amino-acid strings, causing the proteins to unfold. As the temperature increases, the proteins gain enough energy to form new, stronger bonds (covalent) with other protein molecules. These new, stronger bonds produce a much tighter structural alignment. The egg transitions from a liquid state to a solid state. The individual proteins behave as one.  To reference Jim Collins’ framework, the hard-boiled egg has achieved a culture of discipline.

How can you tell if your organization has reached the hard-boiled state? Here’s a simple test. Pick a regularly occurring meeting. Any scheduled meeting will do.  Count the number of people who arrive on time, prepared.  Divide that by the number of people invited.  The result will correspond to the organization’s “coefficient of discipline” (Cd). Now take the reciprocal of the coefficient of discipline.  This is your “mass multiplier” (mm).

For example, consider a meeting where 4 out of 10 attendees show up on time and prepared.

Coefficient of discipline = 4 _{on time, prepared}  ÷ 10 _attendees = 0.4

Mass multiplier = 1 ÷ 0.4 _cd = 2.5

[There’s just one more thing, if any of the people who arrived late were either part of the senior team (for example,  CxO, VP, GM, Department head, etc.), or the meeting organizer, your coefficient of discipline is automatically set to 0.1 ]

High performing organizations are like hard-boiled eggs. They consist of tightly aligned people (mass), with strong bonds. They do what needs to be done when it needs to be done, usually without having to be asked or told. Their coefficient of discipline, and hence their mass multiplier, is very close to unity (1).

Low performing organizations are like raw eggs. They may have exactly the same mass (number of people) as their high performing counterpart, however the linkage between mass molecules is weak, resulting in a lack of structural alignment.  Their coefficient of discipline is always less than 1; hence their mass multiplier is always greater then 1 (sometimes much greater than 1).

Based on Newton’s First Law of Motion (F/m = a), when subjected to an external force, the organization with the lower mass multiplier wins every time.

At the core of his research was a systematic process of comparing companies with average performance to companies with great performance by always asking, “what’s different?” Why do some companies achieve breakthrough performance while others don’t?  This is really just another way of asking: “Why are some companies capable of achieving acceleration, while others are not?”

In the physical world, it is the natural tendency of all objects to resist changes in their state of motion. Said another way, objects tend to like to keep doing what they’re doing. Newton accurately described this tendency in his First Law of Motion (also known as the Law of Inertia): an object at rest remains at rest unless acted on by an external force.

The tendency of an object to resist a change in its state of motion varies with mass. In physics, inertial mass is defined as the quantitative measure of an object’s ability to resist a change in its velocity. Expressed in the equation: F/m = a, the more mass (m) an object has, the less it will accelerate (a) when exposed to a force (F).  

So, back to the question expressed in Collins’ illustration: what’s inside the black box?  The answer is mass.

Hence, good is not the enemy of great – mass is the enemy of great. Where does mass exist within a business?  If you guessed people, you’re right.

The tendency of people everywhere (myself included), is to keep doing what they’ve been doing. As a result, people are the principal component of inertia in every organization, from the smallest start-up to the largest multinational corporation.

When you distill the six components of Collins’ entire framework (Level 5 Leadership, First Who – Then What, Confront the Brutal Facts, The Hedgehog Concept, A Culture of Discipline, Technology Accelerators), what he’s really talking about is finding a way to lower the inertial mass of an organization to a threshold where acceleration is possible.

In upcoming posts, we’ll explore the concept of organizational mass in more detail, leading to a quantitative definition and proposed system of units.

Until then, if you have a few minutes, I would encourage you to take a look at the following YouTube video. It was recorded in 1997, 4 years before the first publication of Good to Great. See if you can spot the moment where the speaker effectively lowers the inertial mass of the audience (who clearly want to keep doing what they’ve been doing).

Reducing Inertial Mass

If films can truly be considered as mirrors into the world of human behavior, then my vote would have to go toward the Wizard of Oz as a metaphor for new business meetings.  Here’s why.

Consider the scene where Dorothy and her companions, having finally reached the Emerald City, are granted an audience with the great and powerful Oz. The team enters the wizard’s inner sanctum through a cavernous hallway only to be met by an ominous, disembodied head floating above them in smoke and fire.  A frightening voice reverberates through the great hall.

The Great and Powerful Oz

“I am OZ, the great and powerful.  Who are you?  WHO ARE YOU?”

Dorothy and team step forward, trembling: “I am Dorothy the small and meek, and we’ve come to ask you….”

“SILENCE!” shouts the floating head. “The great and powerful OZ knows why you have come. Step forward…”

One by one, the wizard calls out each member of Dorothy’s team, interrogating them until finally, the Cowardly Lion faints. When Dorothy rebukes the wizard for traumatizing the lion, the great Oz responds angrily:

“SILENCE!  Know this all of you, the beneficent OZ has every intention of granting your requests, but first you must prove yourselves worthy by performing a very small task.”

Does the scene sound familiar?

In the business world, this is the point where we rush back to our offices to produce that Pulitzer prize-winning presentation designed to prove our worthiness.  Often, before we even realize it, that presentation takes on a life of its own. We add slide after slide as if we were making stone soup. Everything gets thrown in, from market research to analyst predictions to case studies and roadmaps.

Let’s pause here for a moment and go back to the movie.

After proving themselves worthy by accidentally liquidating the witch, Dorothy and team return to Emerald City, broomstick in hand, for their triumphant, follow-on audience with the wizard. To their surprise, their second reception is no warmer than the first.  Still billowing smoke and fire, the wizard barks:

“I can scarcely believe my eyes, why have you come back?”

As meek as ever, Dorothy steps forward and respond: “Please sir, we’ve done what you told us…so we’d like you to keep your promise to us, if you please sir.”

The disembodied head bellows: “Not so fast! NOT SO FAST. I’ll have to give the matter a little thought. Go way and come back tomorrow.”

Dorothy and her companions protest strongly, to which the wizard responds:

“Do not arouse the wrath of the Great and Powerful Oz, I said come back tomorrow.”

Right about now, Toto begins to sense something is amiss. He scampers across the great hall and pulls back a curtain revealing the source of the wizard’s booming voice – a small man standing in front of a console shouting into a microphone. The ruse is revealed. The wizard is nothing more an ordinary fellow. Dorothy can no longer contain herself.  Angrily, she confronts him: “You’re a very bad man!”

Humbled and embarrassed at being discovered, he responds: “Oh no my dear, I’m a very good man – I’m just a very bad wizard.”

"Pay no attention to the man behind the curtain."

In the moments that follow something magical happens.  Once the wizard lets down his guard, a clearing is created for an entirely new conversation – a powerful, human conversation that includes an authentic exchange of value. The Scarecrow gets his brain, the Lion get his courage, the Tin Man gets his heart, and Dorothy and Toto receive the promised of a return trip home.

Back in Kansas, in our rush to close new business, we tend to forget (myself included) that behind our respective corporate curtains, we’re all just men and women. For the most part, we’re all very good men and women. Yet, like the great and powerful OZ, none of us want to expose our shortcomings.

When we can approach a new business meeting with this scene in mind it tends to yield a different kind of interaction. There’s no longer a need for 47 slides, 12 product engineers and a complicated pitch full of benchmarks, case studies and testimonials. There’s no need to prove our worthiness. And, contrary to the wisdom dispensed in so many popular business books, there’s no need to “talk powerfully so that other people will listen.”

What’s needed in most new business meetings is a willingness to connect with our audience at a human level, before we attempt to convince them we can solve their business problems. We can’t “present” our way into a prospects world – we have to be invited. The ability to generate an authentic invitation doesn’t reside in a presentation; it resides in our ability to listen powerfully so that other people feel safe to pull back the curtain and talk openly about their situation and their challenges. 

Which takes us back to the final moments of Dorothy’s stay in Oz.  The wizard experiences a premature launch of the balloon that is supposed to take Dorothy and Toto back to Kansas.  Dorothy, feeling stranded and helpless, is once more reduced to despair.  Suddenly Glenda, the good witch of the North, appears out of nowhere.

Dorothy implores her: “Can you help me, won’t you help me?”

Glenda responds calmly: “You don’t need to be helped any longer my dear. You’ve always had the power to go back to Kansas.”

The Scarecrow chimes in: “Then why didn’t you tell her before?”

Glenda’s answer?

 “Because she wouldn’t have believed me.  She had to learn it for herself!”

“Marketing video for AT&T. They handed me a bunch of boring interviews and the title “Business Velocity” and asked me to make something out of it…I still have no idea what these people are talking about!”

David, the good news is you’re not alone! Business velocity is one of those marketing buzzwords generally used to hawk a wide array of products and services, ranging from Business Process Management Software to Cloud Computing. From large corporations like AT&T, to self-proclaimed business futurists, everyone  talks about business velocity, but to my knowledge, no one has actually defined it in quantitative terms.

Those of you who read my last posting know how I feel about business terms that lack quantitative definition, so I thought this would be an ideal opportunity to explore the concept of business velocity through the lens of Newtonian mechanics.

Isaac Newton’s three laws of motion established the basis for classical mechanics. They describe the relationship between the forces acting on a body and its resulting motion. Loosely translated, Newton’s first law states that an object in motion will stay in motion unless acted upon by an external force. The concept is best illustrated by Newton’s cradle, which most of us have seen at one time or another.

Largely a restatement of the law of inertia originally formulated by Galileo, Newton’s first law proclaims that an object cannot change its velocity spontaneously. If something is moving along at a constant speed, it will continue to move along at the same constant speed unless acted on by an external force. It cannot, on its own, speed up, slow down, or change direction.

Velocity is a vector quantity. It provides an indication of how fast something is moving in a given direction. In mechanics, velocity is defined as the ratio of the change in distance (d) per change in unit time (t).

v =  ∆d / ∆ t

Defining Business Velocity

Being generally concerned with the motion of bodies, Newtonian mechanics uses a change in position (distance) as the basis for defining velocity. When we shift our context from mechanics to business, we’re forced to propose a new basis.

Businesses exist to make a profit. Profit is defined as revenue minus expense.  If we equate the concept of top-line business revenue (r) to distance (d) in mechanics, we can propose a reasonably valid way to define business velocity in quantitative terms. What we’re suggesting is to define business velocity (V_b) as the ratio of change in top-line revenue (r) per change in unit time (t).

V_b = ∆r / ∆t

or

V_{b (avg)} = r₂ – r₁ / t₂ – t₁

Notice that our proposed definition also provides us with a system of units.  If our unit of revenue is 1 dollar, and our unit of time is 1 hour, the unit of business velocity is 1 dollar per hour (1 dph). Stated simply, a revenue increase of $60 in a period of 1 hour equals a business velocity of $60 per hour.

While seemingly arbitrary, our choice of units (dph) is no less valid than miles per hour (mph) or feet per second (fps) in the realm of mechanics.

From a purely mathematical viewpoint, there’s no restriction on the value that can be assigned to t in the equation. We can use seconds, minutes, hours, days, quarters, etc. Practically speaking, business reporting is done on a quarterly basis.  Since the average calendar quarter is 91 days, we can divide quarterly changes in revenue by 2,148 (91 days per quarter • 24 hours per day) to yield a unit system of dollars per hour.

Examples of Business Velocity

To help illustrate our definition of business velocity, let’s examine top line revenue growth for three of the largest U.S. wireless carriers: AT&T, Verizon and Sprint.  The following graph contains revenue (rounded to billions of dollars) as detailed in each company’s annual report.

Notice that Sprint’s revenue is constant at $8.3B per quarter. Based on our definition, Sprint’s average business velocity across any quarter can be calculated as follows:

v_Sprint  = ($8.3B – $8.3B) / 2,184 hours  = 0 dph.

The result: Sprint exhibits no business velocity across any period measured. This appears to be entirely consistent with Newton’s first law of motion: an object moving along with a given velocity will continue to move along at the same velocity, unless acted on by an external force.

What about AT&T? For the period 30-Dec-2010 to 31-Mar-2011, AT&T’s reported revenue is also constant at $31.4B.  Therefore, AT&T’s business velocity during the period is zero.

v_AT&T  = ($31.4B – $31.4B) / 2,184 hours  = 0 dph.

Verizon, on the other hand, demonstrates revenue growth across all four quarters. We can calculate Verizon’s business velocity across the entire period as:

v_Verizon  = ($27.9B – $26.3B) / (2,184 * 4) ≈ $183,000 dph.

In addition, notice that from 30-Dec-2010 to 30-Jun-2011, the graph of Verizon’s revenue is linear, indicating constant acceleration.  In mechanics, acceleration (a) is defined as the time rate of change of velocity. The same definition should also hold true in the business context. Therefore, we can propose a quantitative definition of business acceleration as follows:

a_b = ∆v / ∆t

In situations where acceleration appears to be constant, the equations of motion can be derived algebraically, without resorting to calculus, as follows:

  v₂  = v₁ + at   or  (v₂ – v₁) / (t₂ – t₁)  = a

Using the equation, we can calculate Verizon’s business acceleration as a function of velocity within our proposed system of units.

($27.5B – $26.3B) / ( 2 • 2,184)  =  a ≈ $274,725 dph²

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