What an MBA can teach you about managing people

So I’m going to start off-topic and go back to a question that I faced when I was deciding whether to do an MBA; why do an MBA in the first place? For me, one of the big reasons was that what I was doing in my job role wasn’t really what I studied. That will be a problem for some people (like me) who feel like if they aren’t formally trained in the area, they don’t really have a handle on what’s going on. For other people, picking it up on the job is fine so one of the first things to ask is which one are you? One of the big things an MBA can offer is an introduction to and basic proficiency with a range of management functions that you need to be effective. One of the areas that I felt my technical degree really didn’t prepare me for was managing people.

For the first few years after you graduate your role as an engineer is mostly technical, you draft,  you go to internal planning meetings and design reviews and as your competence grows you get your own piece of the project to work with, first as a designer with drafting support then taking on more and more responsibility until you’re the lead engineer doing process and conceptual stuff, general assemblies and layouts and supporting the team of designers under you. This transition is gradual and takes place over a decade or more (your mileage may vary) but all of a sudden your in your 30’s and you’re no longer “engineering”, instead you’re managing an engineering team.

There are a lot of things that go into being a good manager of a technical team and I’ve been fortunate enough to work under some really good technical managers. Which is a really interesting thing to say because what makes a “good” technical manager? This was one of the things that I puzzled over pre-MBA, I could identify specific instances where they handled things really well or behaviors that were really effective but I had no idea how they all tied together. For example, one manager was always able to deliver on-time regardless of the resources he was given (although that did impact quality). Watching him work, he’d do a lap in the morning, sit at each team members desk for a couple of minutes (took about an hour and a half which meant he got the early ones early and the late ones when they came in too) and asked about tasks for the day and if there were any roadblocks, when he’d get out of the way. You didn’t see him until lunchtime, he worked in his office which was at the entrance to the teams work area and anyone from outside the team, wandering down the hall, got called into his office.

The reason it was so effective was because he understood what motivated those guys, they wanted to do a good job and being engineers and designers, they needed a couple of solid, uninterrupted hours to get into it. He asked his guys what they needed, then went and (to the best of his ability) did it. Meanwhile he ran interference, both up the ladder protecting the guys from other division that would poach and down the ladder from those one-thousand-and-one little attention grabbers that crop up during the day. His teams productivity was higher than anyone else’s in the company, by a lot. Engineers fought to get in his team so he got the best talent and it became a self reinforcing cycle.

The moral of the story here is pretty clear but when I was watching, the cause and effect was as far as I got, once I got into the MBA I understood that it ran deeper that that, the insight being that he understood what motivated his guys. Some of them wanted to do their best because the environment he created allowed them to get their best work done, some saw a winning team and wanted a piece, some appreciated being left alone to do what they knew needed to be done but the common thread was that he understood what motivated all of them and gave it to them. During the MBA I came across this model which was developed by Vroom and expanded on by Porter and Lawler (called the expectancy theory model) explaining how feedback on performance via the rewards system drives motivation.

A lot of time we see the word reward and we think compensation but it’s so much more than that. When you’ve got to turn up to work every day for the next 40 years, having somewhere you can turn up to and have a working environment you enjoy vs. having a working environment that causes you to develop a nervous twitch is worth a lot of money. This notion of extrinsic and intrinsic rewards also has to be equitable. When I compare my rewards with others I need to feel good about them, otherwise I don’t value them. In the same vein, Lawler and Porter did some pretty interesting research around how we value rewards and when a reward isn’t a reward. eg: a $20k bonus doesn’t mean as much to the CEO as it does to a drafty in fact it might demotivate a CEO because they look around and see the other people at their level getting a whole lot more in terms of bonus.

Having a framework like this is really useful for someone like me. When I’m looking at a teams performance I can use a model like the one above to analyze the components that can be tweaked to increase performance. When you want to be good at something you practice, you learn about it and you try and improve what you’re doing. An MBA is one way to do this, it helps you organize your management strategies and apply a system to what you do. If you’re struggling because your current job role has migrated from technical to managerial ask yourself whether that’s what you want, if it is then maybe an MBA can help.

Data Analysis and Stats

A common theme across MBA programs is exposure to and at least basic skills in, statistical analysis. The value of this can’t be understated, if you’re already working as a quant or did significant amounts of stats in your undergrad you’re not going to be exposed to many new concepts here but for those that haven’t done a lot, this can be a real eye opener. I noticed it particularly with friends that came from the more qualitative industries, marketing or legal, they all highlight that this is where their industries are headed. Gone are the days when a marketer could say “give me a product and I’ll sell it to everyone”, the industry is driven by analysis: what defines a segment in your industry; what is their willingness to pay; how price price sensitive are they? No one is going to invest in your campaign unless you can demonstrate what you expect to achieve and how you are going to measure the results and the answer to both of those needs to be statistically rigorous.

At MBS I did two primarily statistics based subjects (a core data analysis subject and an elective on market research) which, content-wise, can effectively both be split into two parts. Firstly you have the number crunching component: how do you run a regression, how do you test for correlation? The second (and in my opinion far more relevant component for managers) part is what questions do you ask and what you do with the results? Understanding the mechanics behind how data analysis works is handy but lets face it, most people don’t enjoy crunching numbers. I’m convinced there’s something behavioral in there that links back to primary and secondary school and the finality of either getting the right or the wrong answer that pushes people away. I see why there needs to be a component of this in the course but even as an engineer, I’m rarely going to do this kind of analysis myself, I’m going to hire someone who does it professionally and let them do the math. Where an MBA grad can add value is in the interpretation.

I’ve learned that interpretation of statistics is a dark art, far more qualitative than you would expect and, like anything where subjectivity is involved, this sets up a system that can be manipulated by those with the will to do so. Nowhere is this more evident than in media polls; read through a newspaper and look for the headline that screams “Labor drops 2% in two party preferred rankings” then look for the fine print. What was the sample size, how was selection controlled for uneven distribution of voting preferences, what’s the standard error? Unless it’s backed up by rigorous analysis, a headline like that is at best crap and at worst outright misleading. Print media in Australia still plays a major role in shaping public opinion in Australia but its that kind of reader manipulation that destroys the trust of the public when the realize that they’ve been had, the problem is, without an understanding of how statistics works, people miss the deception.

I was talking about this with a friend and he pointed me to a TED talk by Arthur Benjamin where he suggests that the problem is that we’re teaching maths wrong. He argues that the progression we have in schools at the moment (arithmetic -> algebra -> calculus) is going in the wrong direction. Calculus is great, as an engineer or a physicist it’s fundamental to our professions but for 90% of the population, it’s completely irrelevant but statistics (and the associated field of probability) is something that we use every day of our lives. I won’t steal his thunder, it’s only 3 minutes long and like most TED presentations, it’ll leave you thinking.

But back to the value that a stats course adds to an MBA… One of the things that an MBA does really nicely is combine the general knowledge and some big picture perspectives with the specialist insights that you have from your experience prior to the MBA. The ability to look at the micro and macro levels of things is one of the core skills that an MBA pushes you to develop and statistics knowledge helps you ask the right question, get more valuable insights when you interpret information and understand the difference between opinion and something that’s statistically significant. You may not have the best maths skills in the class but that doesn’t matter, being able to understand how the information is relevant and how you can use that information is what is important. Some schools understand this difference and finding one that does will help you have more than a primary/secondary, right/wrong  experience. Looking back, it’s one of the key things I would look for (content wise) in an MBA program.

Making a Decision

One of the first units that MBS runs is a subject on decision making. By putting this early in the course, MBS tries to help students come to grip with making hard decisions which is something that you have to do regularly. Whether it’s deciding which bits of material are the most relevant to a decision (I’m convinced that one of the aims of the MBA core is to give people far more information than they can process so they have to develop the skill of quickly assessing a lot of information to find what they absolutely need) or figuring out which discussion tactic to use in a class to convince the room that there’s another side to an issue, exploring what drives the decision making process is essential.

So what makes a decision “hard” to make? The general consensus is when it involves one or more of the following:

• Complexity: this can be obviously complex problems such as which school should I go to or subtly complex problems such as should I raise a contentious point in the classroom? As an engineer, I often find myself doing a lot of scenario modeling and assessment of ripple effects to try and handle this, even if it’s only a couple of seconds worth, because it’s the way I have been trained to think about problems
• Inherent Uncertainty: this can be risks that you know are present, but you aren’t sure how they will turn out (which way a coin will land when flipped) but could also be risks you had no idea you were taking (someone was flipping a coin?!?)
• Balancing Trade-offs: not so bad when you can quantify the value of the items being traded off. Much more difficult when you are trading off things that are hard to quantify (time spend with a partner vs. putting in extra time on an assignment) or when they are measured in different ways (time spent with your partner vs. the extra pay you get for doing overtime)
• Different Perspectives: this one was especially difficult for me because at times I struggle to see other peoples points of view, particularly when they are driven out of culture or experience that I haven’t shared. This has lead to one of my key learnings during the MBA, the value of diversity. Diversity isn’t just a buzzword, there’s real value to be had where people bring different viewpoints to the table but more on that in another post…

In addition to this, there are a couple more things that I think influence the decision making process. One is time: if you are under time pressure then the chances of one of those other risk factors above is more likely to cause you to make a bad decision. The other is whether you’ve seen the problem before: this is a bit of a double edged sword really. As humans, we develop habits or patterns of response to shortcut the decision making process. This is generally a good thing (we’d be paralyzed by choice otherwise) but the problem is that sometimes we get into a habit and then things change but the habit doesn’t (I’m thinking of my late-night studying 2 minute noodle addiction which was fine during undergrad when I had the metabolism of a 20 year old but during the MBA, is just making me fat!). Along side this habitual response is the idea of assumed knowledge, the fact that you are familiar with something doesn’t actually necessarily mean you are better equipped to make a decision about it which might not make a lot of sense but bear with me and I’ll give you an example.

The current dean of the Melbourne Business School, Zeger Degraeve is a professor in his own right and his primary area of expertise is risk and quality decision making (how to make good decisions). We were lucky enough to have him come in and give a two hour guest lecture and during that time, he ran an experiment to help make his point. He got a thumbtack (just a regular one, no tricky stuff) and a cup and saucer, put the thumbtack in the cup and then placed the cup upside down (with the thumbtack underneath) on the saucer. Then he shook it and asked one of the class members to make a guess: was the tack sitting on it’s flat top (with the point sticking in the air) or was it sitting on its side (with the point and the edge of the tack both touching the saucer). The reason that Zeger uses a thumbtack is because although it looks like a simple problem, in fact it’s complex (due to the uncertainty as per this previous discussion). But we all recognize a thumbtack, we’ve used them a thousand times before but despite all that knowledge we have no idea what the likelihood is of a thumbtack ending up pin up or pin down. So how do we make a decision?

At this point Zeger introduced a framework that we could use to help to sort through the information called ICACI

• Information – What do I know
• Criterion – What am I trying to get out of this decision
• Alternatives – What Choices do I have?
• Consequences – What are the possible outcomes of each alternatives
• Intuition – What do I feel. Do I trust this?

 

So we worked through the model and tried to apply logic (we tried a couple of simulations and then discussed the likelihood of pin up vs. pin down) but we still didn’t have anything that allowed us to make a better decision than when we first looked at the problem. But now the class felt like we were failing at decision making because the we’d just agreed that the most important part of being a decision maker is that if you are the responsible person, you have to understand what the likelihood of failure is and here we were making a decision based on no data, just intuition. So we moved on to trying to understand what the consequences were for being wrong (in this case, a student had made a $50 bet with Zeger about whether they’d be right or not) which meant that the decision makers job is not just to work out the likelihood of failure but also to work out if you can stand the pain if the decision is wrong and accept responsibility for the consequences.

This lead to the last lesson of the day: managing to results causes crises. If you look only at the result then you ignore decision quality and consistently good decision making gives the best chance of success. This was demonstrated when we eventually looked under the cup. The student had picked pin up as their decision as to which way the thumbtack was sitting but when the cup was raised, the pin was on it’s side. There was a general air of disappointment around the classroom but Zeger took us back to the model. We’d done everything we could to make a good decision and in the end, our decision was wrong. The fault wasn’t with the process (we couldn’t have done anything better and given those circumstances, no-one could’ve made a better choice) and so if we judge the decision based on the outcome we’ll end up punishing someone for the wrong thing.

This was really salient because when you think about it, a lot of the things we do in at work are judged based on the results, not on the way we get to the results. Someone can get lucky (or unlucky) and get a good (or bad) outcome but if we want repeatability then it’s the process that matters, and that’s what you should be judging people on.

The most useful thing I learned in Accounting class

There are a lot of reasons to do an MBA but one of my big drivers (and one I hear a lot from other people) is financial literacy. For those of us who come from a world outside of accounting and finance, our interactions have often been limited (maybe budgeting and cost tracking or maybe just small business BAS once a quarter) and self-taught through necessity.

MBS introduces accounting and finance from an external perspective, starting you off with balance sheets, cash flow and income statements and looking at the interactions between them. Internally, you’re unlikely to see these during day-to-day operations (unless you work in the accounting department) but these are also the basic tools that are used to assess a companies health and performance from the outside. When you are looking at investing in a stock this is a place that you can start. Using the Annual report of an organization, you can see the story told by the numbers. The other main component of a good annual report is the strategic plan or outline which tells you what the company plans to do to create value for shareholders. Investing is effectively betting whether or not the company can make good on the execution of this plan and the past performance and financial statements are their to help you decide whether their plan is credible or not.

There are bunch of tools that can be used for stock analysis but one that we’ve used consistently throughout the MBA is the 4 component Dupont model. This takes Return on Equity (which is a common metric for comparison of financial performance) and decomposes it to show you what the company does well and needs to improve

As you can see, the fact that all of these multiply across means that if a company has a really high value in one area (say leverage, because they’ve borrowed a lot of money) you can see how that’s skewing the ROE metric. Taking the leverage example, 4 companies in the same industry might have the same ROE but one has a much higher leverage value. As an investor you now want to ask a couple of questions: why are they underperforming on one of the other ratios (if ROE is the same for all 4 companies but leverage is high for one then that same company must have one, or several, low metrics to balance the equation) and more importantly, what are they doing with all that extra money that they borrowed (are they operating unsustainably or did they borrow to invest in a new facility that isn’t operational yet etc.)

Likewise it’s difficult to compare two companies from different industries. An industry like banking, where there are a lot of assets like branches and ATM’s and IT infrastructure is going to have a low asset turnover value as opposed to a consulting firm which needs office space & IT but not much else in terms of assets. This is why it’s important to compare banks with banks and even while you are doing that, be aware that different businesses may have different models. One bank might want to own all the branches it has where as another might only want to lease the real estate (or might operate predominantly online like ING direct here in Australia). Eitherway, drilling into this information will help you understand both performance and strategy.

That said, the Dupont model is not the most advanced tool for analyzing companies but it has been incredibly valuable to me because this was a big knowledge gap for me, pre-MBA. Although I’ll never work as a financial analyst, the point of the accounting and finance units at business school is to gain financial literacy so you can understand how companies generates revenue and how well they use what they have.

What Tim Learned at Business School – Take 2!

You may not have noticed but it’s been a while between updates! In fact, second term saw a grand total of 1 post. This is partly because things got a whole lot busier but I suspect it’s also because I wasn’t happy posting anything less than a small novella; and there damn hard to write.

I really think having this blog is valuable,

1. It forces me to be clear in what I’m trying to say. A lot of the concepts we get presented with at MBS are pretty complex but distilling these down to the most valuable chunks is a skill I’d like to work on
2. One of the big things that’s being emphasized in our program is the key role that repetition plays in learning. Not cramming stuff but rather revisiting it every couple of days until it migrates to long term memory. This blog is another tool for building that repetition into my schedule

So I’m going to try something different: I’ve been keeping a list of “2 thing’s I learned today”. These are paragraph long thoughts that come from the lectures I’m sitting in on and I thought I might use these as the basis for my posts. Hopefully that makes it a little more accessible to read as well (rather than wading through pages of my ramblings).

Ruslan Kogan on Leveraging Digital Marketing

A couple of weeks ago I was lucky enough to see a presentation by Ruslan Kogan (kogan.com.au) which was put together by the MBS Marketing Association (but more on that down below). Apart from being a really engaging presentation, there were a couple of key items which have stuck with me and I’ve been meaning to share.

As a bit of background, Ruslan started Kogan by importing a container of TV’s (I guess they were plasma’s given the vintage) from China after identifying the price differential between what was being offered ($3-4k plasma’s through Harvey Norman and JB-Hifi)and what he could source (a $1200 TV with the same components, from the same manufacturer, without the Samsung or Sony branding). From this he’s built the biggest online electronics retailer in Australia and topped the Richest-Australian-Under-30 list last year.

He’s made a name for himself by being innovative, taking on big-guys like Harvey Norman, in an established industry and doing it successfully by bringing a new business model into the market. The first time I heard about Kogan was their “Don’t buy into the cable con” promotion when JB Hi-Fi were upselling to HDMI cables to TV and Blu-ray purchasers for hundred of dollars. An HDMI cable connects devices together and because the signal is digital, it doesn’t degrade like analog so there’s no appreciable difference in signal quality between a $5 cable and a $200 cable. Because the customer is instore and in many cases, needs to buy a cable to connect their new toys, the only choice they have is to get gouged for a cable with a 4000% markup. It’s like saying that a streamed video looks better on your laptop because you upgraded your ethernet cable… it just doesn’t make sense!*

Two things really struck me about his presentation. Firstly, he’s a guy who is always looking for the win-win. This is a fantastic attitude to take in business because when you succeed your partners succeed which makes everyone rich and happy. There’s no point in developing supplier relationships where you’re out to screw every last dollar out of your partner, if they’re not making money then they aren’t going to provide you with the level of service you need to keep your customers happy. By way of example, the automotive industry is often quoted here. Toyota works hard with it’s supplier to improve their efficiency and profitability, to the point where if a supplier is struggling, Toyota sends in process engineers and analysts to support the supplier. Other manufacturers (GM is often mentioned) have an adversarial relationship with their suppliers. They’re constantly pushing for the lowest price-point and threatening to remove contracts. That sort of activity breeds an unsustainable working relationship. Suppliers are no longer trying to help you, they’re just trying to get what they can and get out.

Ruslan was talking about manufacturing in China  and how, in the initial negotiations with the factory they started talking dollars and once they settled on a price the factory manager told him how well he’d done and how the factory was losing money because Ruslan had done such a good negotiating job and Ruslan said “I don’t want to work with you” and walked out. The manager is sitting there shell-shocked and Ruslan’s translator is running along behind him saying “what are you doing, what are you doing” and Ruslan turns to the interpreter and quips: “Either this guy is an idiot and he’s not going to be running a business in 6 months if he makes deals that he loses money on or he’s a liar and I don’t deal with liars”.  It’s interesting because you can approach that idea of sustainable business and win-win from another angle. Apart from the idea of a situation where both parties do better as a result of the deal we’ve also covered the concept in class of creating a deal where the costs of not completing the deal are greater than the potential benefits of ripping the other party off. If you’re interested in the idea, have a search for transaction costs and transaction specific assets or drop me a line and I’ll send you some stuff.

The second idea that Ruslan really pushed was something that’s consistently mentioned by all the entrepreneur-oriented speakers I’ve heard, the importance of failure and of persistence. I don’t want to tell all of Ruslan’s stories (if only because I don’t do it nearly as well as he does and I’d hate to steal his thunder if you ever get a chance to see one of his presentations) but he makes himself relate-able by talking about the ways in which he failed. Working at a high-profile consultancy firm and the frustrations associated with that. The failed business ventures and the opportunities that he had a go at but didn’t get up and running. Apart from the humanizing aspect to that, he identifies a cultural component as well as a personality aspect that contribute to his willingness to get back on the horse and have another go at things. Kogan was a big roll of the dice for him, his first container-load of TV’s placed him in debt after he’d just lost his job but you get the sense that even if that TV venture hadn’t gone right for him, he would have licked his wounds, built some capital and had another crack at something else. And I find that heartening…

One of the things that was pointed out in our very first week at MBS was that, by-and-large, the people that were sitting in that room were winners, were successes and had probably succeeded at most of the things they’d ever done. But there’s some instances in which that’s not such a great thing. Success is a lousy teacher so when you eventually fail, you’re worse off for not having the support network and coping mechanisms for being able to deal with it. Entrepreneurship is all about failure, as much as it is about anything else and that’s something that a business school affords you, a chance to fail and a chance to learn from that without burying yourself in debt or being so demoralized that you don’t ever have another go. I don’t believe that persistence is something that can be taught, the best you can hope for (I suspect) is picking it up by osmosis from your peers. The people you surround yourself with and how they react, either in support of or by criticizing you for your failures, will be a primary factor in whether you continue down that path. For me, the opportunity to access that peer group and environment is something unique and valuable that a business school can offer.

*Note that you can buy more “fully featured” cables which support higher bandwidth or audio return etc. but that’s a case of features, not quality. These additional features are for users with specific needs, they aren’t something that anyone with a system under $100k is going to use.

Product Life Cycle and the Limitations of Frameworks

So I’m going to start with something I got from a class I took on product development 5 weeks ago. It’s taken me this long to get around to posting about it because I’ve been turning this idea over in my head. I guess most people are aware (conciously or subconsciously) of the idea of a product lifecycle. It’s been around since the 60’s and the basic premise is that products, most often thought of as an item, like a piece of clothing, have a lifecycle and at any given point in time, the product will be in somewhere on that lifecycle timeline.

Intially, Products are introduced and whoever is selling them is focused on creating awareness in the marketplace (in Australia recently: cider as an alternative to beer & wine). Assuming you’ve got a good product and a willing market you should experience growth, you’re trying to expand your distribution, competitors enter the marketplace, you start to focus on why your product is better, to differentiate from the other offerings. Then comes maturity, you’re a recognised brand in the marketplace, you have your niche or segment and you’re trying to defend your market share and remind people why they should be buying your product (they’re already aware of the product category and they know what your point of difference is) and eventually you fall into decline. Competitors turn your points of differentiation into points of parity, the markets shrinks because the trend has moved on (ie: basketball in Australia now, as opposed to the early 90’s) and you start looking for ways to invigorate your product or find a new product.

In pretty much all cases, companies are selling a product to make a profit and the model allows for that as well, showing that during the introduction phase you’re making a loss while you try and build awareness. During the growth phase you start to make a profit but at a lower rate as you reinvest to build your market and then you hit high profitability during maturity which peters out as it becomes unprofitable to manufacture and service your declining market. One way companies deal with this is releasing new products which then may make the model a self fulfilling prophecy because the new product superseeds the old and so you see that product go into decline.

But there’s something else, right now you’re probably looking at the diagram above and wondering why it just doesn’t look quite right. As a whole, the idea makes sense but as soon as you actually start to apply it in practice, things go wrong. For starters, there’s other factors affecting the sale of a product such as how your Brand is perceived and the timing of the product entering the market.  If the product you are launching is a brand new concept then you need to educate the marketplace about what it does (ie: the original iPad) or you might be trying to emphasize the differences in the functionality of your product where the product is understood (ie: car manufacturers)

The model above shows four relatively equal periods of time for each of the phases but that will almost certainly not be the case. Some products live really successfully in the maturity phase for a long time, others never get there (fashion clothing for example: grows and is gone).

Then there’s the industry factors: maybe you work in tech where the turnover cycle for a product (say a mobile phone) is a sales cycle of 12 months (3 months growing and being the latest tech, 6 months as the “Free on a $59 plan” phone and eventually in decline a pre-paid handset). Or you might have a business based around getting the product up and running, creating the niche, and then selling it off to a bigger player in the marketplace (a pretty common model for tech start-ups). Some people even create businesses around supporting the products that other people have dropped because of this idea that a product in decline is not worth it. For instance, SAAB closed it’s doors earlier this year which has a flow on effect to a bunch of secondary industries including auto mechanics. Now that SAAB owners can’t get their cars serviced through the manufacturer there’s a whole new market opening up, for a product that’s on the decline, but that still needs to be serviced and probably can be quite profitably. I guess the smart mechanics got out there and setup an agreement with the local SAAB dealership that went along the line of “you love the cars, your customers love the cars, give us the details of your servicing list and we’ll keep them happy.” Chris Anderson covers it pretty comprehensively in his now lightly defunct blog ‘The Long Tail’ which has a bunch of fascinating related examples like netflix where as their library of titles grew, they saw significant shift in consumption patterns away from the top 50 releases into less popular titles, servicing the long tail of the declining market.

These models and frameworks are designed for people like me, may not have experience in the area but need to apply some sort of structure to make sense of what they are seeing, the model is not much more than a pretty picture but credit where it’s due, it introduces the concept simply. I guess my observation for studies so far is that MBA students are always looking for a model or a framework to apply, the key points that you can take away from a lecture and the rule of thumb but these things only work if you check that things make sense in the context of the situation. Worse, in applying an ill-fitting model you actually limit your opportunities because you rule out servicing the declining market of SAAB’s or you go in with the mindset that a product is designed to be replaced every 18 months to keep consumers purchasing. Frameworks don’t replace the process of thinking and sometimes that gets lost in a formal education system.

Where do you get your education from?

A brief aside: we’re at week 9 in the term which is when group assignments and case studies are either due or right around the corner so rather than talking about marketing, I thought I might switch topics and jump onto something a little more meta. I’ve been thinking about this for a while, since my undergrad actually, and while it’s not a ground breaking concept it’s something that sometimes gets lost, particularly when you hit the business end of term.

What I am alluding to is the education you get outside of the classroom. Like when a professor is happy to stick around after class and give you some of their time to discuss where things are headed in their field. Then there’s your classmates and the clubs you get involved with and the friends you make through the socializing you do outside of your study. This might seem really obvious but for me, it’s a critical component of the educational experience.

When I did my undergrad in engineering at Deakin, I didn’t really know what I was signing up for. I did it because I had pretty good grades in my maths and science based subjects and I enjoyed pulling things apart. I didn’t have a specific interest in cars, or electronics, or robotics but once I got into the course and was surrounded by people that were, it started to rub off. I became an engineer by osmosis: someone would build a trebuchet in class out of stuff in the room; someone would test the compressive strength of a brick. With other engineers we explored dogfighting with remote control planes, sumo robots, lazercut mechanical calculating systems and trying to get a set of robot legs to self balance. All of this stuff was done outside the classroom, outside of the formal learning environment but it was as influential on me as the stuff I was supposed to be learning.

A lot of my friends are in first-child territory and one of the topics that crops up regularly is nature vs. nurture. There’s a whole body of work out there expounding both sides but most people agree that it’s a combination of both that makes someone into who they are. Taking that a little further, I can understand how parents are the primary influencers throughout the infant stage but the moment that your kids start to socialize, there is suddenly whole new set of variables in the nurture equation. As we get older we have more opportunity to influence the environment that we’re spending our time in: we choose the sports we like, we hang around people who we share an interest, because we can connect with those people and it’s easy than maintaining a relationship with people who lack that commonality but like anything, as you focus in, you lose some of that ability to generalize.

And that’s what so great about B-school. Granted, there are a lot of engineers around but you’ll start hanging out with finance guys, quants who are avid stockmarket chartists or amateur economists who discuss things like what’s going to happen as the owners of negatively geared investment properties (predominately baby-boomers) stop working and don’t need to offset so much income anymore? Suddenly a whole bunch of pathways that you’ve shut off, reappear, you see what others do and enjoy and they enter the sphere of your awareness.

There’s clearly some other factors in this: how willing you are to interact with others, how many people there are for you to interact with and that is why class size and cohort/intake size makes for such an interesting discussion: too small and there’s not variety; too large and you have a hard time being heard. And that varies for everyone too, an extrovert might be comfortable interacting and contributing in a class with 80 people but an introverted international student, who’s first language isn’t English, may need a much smaller class size to make things work. If you’re considering an MBA, this is something that’s important, ask yourself honestly about the environment you’re going to need to have to be able to learn effectively. It doesn’t matter how great the name of the school is or who their alumni include, if you aren’t learning, participating and contributing then you’re not getting the education you deserve.

To sum up, I think one of the key factors when considering whether or not to do an MBA is the people who will be doing it along side you because they are the single biggest factor in the environment that you’re in. Surround yourself with people who have achieved and you’re are going to get a lot more out of it. I have been made feel welcome at MBS, and not just because people see a chance to meet someone as a networking opportunity but because the people I am studying with understand the intrinsic value of access a diverse group of people tied by a common thread. An MBA gives you an opportunity to widen out your professional field of vision again. It’s one of the few times that you can work back towards being more of a generalist (if you want) and that’s pretty amazing. Most business schools are going to be able to deliver on the classroom component (to a greater or lesser degree) but it’s your classmates who are going to complement and extend that experience for you and looking around at the people I’m going through this with, I feel like I made the right choice.

Marketing in the Boardroom

So I’ve prepared a model which attempts to summarize the major points I’ve learned so far in marketing. It has been developed with the intention of being able to expand it as the course continues (ie: the 4 P’s of Product, Price, Place and Promotion) but  in order for me to organize my thoughts, it’s important for me to get something down on paper. It’s also a great opportunity for me to play with a new software package I’m trialling. If you’ve been looking for something that allows you to draw quick conceptual maps then checkout Mindjet MindManager. Thanks to the Devil’s Inquisitor for pointing me in the right direction and if you’re interested in sustainability, check out his blog ‘The future we face rests on the choices you make.’

So looking at this process, there’s another insight that’s been bubbling away for me since I started looking at the value creation process. Namely that marketing isn’t a business unit, at least, not in the way that manufacturing or HR or accounting is. There’s an execution component, sure, activities that needs to be done by marketing professionals like setting up the advertising campaign or understanding the customer and explaining that to the rest of the organization but the more I look at it, the more critical it seems for C-level executives and members of the board to have not only an understanding but a marketing orientation.

It’s a bit like organizational culture; an organization where the CEO yells at people gives implicit permission to the rest of the company that it’s acceptable to do the same thing. In the same way, if you don’t have at least a member of your board with an understanding and willingness to promote marketing within the organization then you’re going to miss out on diversity, insight and perspective. That’s not unique to marketing, and holds true across a board for a number of specialties, but I’ve observed that this is acknowledged far more readily for technical professions or legal or finance than for marketing and that’s the sort of unrecognized bias that keeps a company from reaching its full potential.

In terms of business as a whole, selling has been a critical component since the market came into existence, but selling isn’t marketing. I’d argue that sales is a business unit, like the others listed above (HR, accounting etc.) but where marketing differentiates itself is that it is cross functional. It’s job is to share the mantra of the company, to align the different organizational silos so that everyone understands how they contribute and impact the customer. From this perspective, it’s just as important to market internally as externally, to use the marketing team to help the manufacturing group understand what our customers want via market research or to help the HR team understand the drivers of company culture to assist them to recruit people that are the right fit.

Going back a couple of posts, I talked about customer orientation vs. product orientation: where the product is determined by the customer needs rather than creating the product first and then finding a market to sell it into. It’s the marketing team that is driven to understand the customer and share that insight with the rest of the organization. This intrinsically links marketing with vision and strategic direction and that’s without bringing in the ongoing tasks of product line extension and mix, branding or customer relations.

Post-MBA I’m intending to move to the boardroom, to use the skillsets I have to work as a non-executive director. Taking on the Masters of Marketing has given me a whole new insight into the diversity that needs to be present at board level for the management of risk and the optimization of vision but also how marketing is used internally as another channel for creation of culture and dissemination of information. Having a background in business, but no previous experience in marketing, the value generated from doing a compressed course in Marketing has helped me far more than continued technical specialization would.

Positioning

So this weeks lecture was on positioning, which is the final step in the STP (Segmentation, Targeting, Positioning) process.

In my previous post I talked about segmenting the market, putting your customers into categories. Off the back of that, you make a decision about which customers you want to target (the health conscious breakfast market with a vitamin enhanced juice for example). Positioning delves deeper into that side of things ie: what strategy are you going to use to sell to the segment you’ve targeted.

Positioning relies heavily on your brand. If you are a known brand in the marketplace then consumers are already going to have a bunch of preconceptions about who you are and what you do. When you launch a new product or service, they’re going to assess that new product against what they know about your brand and attribute emotions and beliefs to your product before they’ve even seen it. Likewise, if you’re an unknown brand, you may find it a tough sell if you’re asking people to buy stuff that requires that they trust you (say a car for example, where you want reliability and the assurance that they’ll be around over the next 10 years for servicing and parts). We’ve got a whole unit on brands (which I’m told is really, really good by a lot of the senior students) so I’m not going to get into it too much now but I did want to highlight that it’s an important part of the positioning process. Sort of the background picture on your desktop… something that sets the unconscious mood.

But the thing I found really interesting in Positioning was the idea of Points of Parity and Points of Differentiation. Points of Differentiation (PoD from now on for ease of use) is the one we mostly think of when we’re thinking about products. ‘What does this product offer me that the competition doesn’t’ – like an app store that extends the functionality of your phone to an extent that no single company could match.

But from a product design point of view, that’s starting backwards. Where you need to start is the Points of Parity, namely, what do you need to offer to be considered a ‘product’ in a category. In the example below, that’s the first three circles: the core benefit, the generic and the expected. So for example with mobile phones, the core benefit is that it needs to be able to make & receive calls and be conveniently portable. Every generic product needs a screen for feedback and an address book that stores numbers. Expected benefits are things that might have once been a point of differentiation, but are now just par for the course, things such as customizable ringtones, inbuilt music player and internet access.

Figure 1: Philip Kotler - Five Levels of Marketing

Which now leads us to the two outer rings. Firstly, the augmented product which is the level at which most PoD features occur. This is where an app store like iTunes offers a point of difference to a traditional Nokia or Ericsson. With Windows Mobile and Android both pushing hard into the ap space, it won’t be long before this drops back to the ‘expected product’ ring rather than being a PoD (acknowledging that the ap stores for each system will be different and have their own benefits).

The really interesting one though is the potential product ring. This is where the next set of PoD’s come from, it’s where you leapfrog your competition. One of the things that is really cool about the ap store is it gives Apple (or android or whoever) far more development power than they would have if they were doing all the work themselves. For those of you familiar with Apple products this seceding of control is a big thing for them (they love their end-to-end hardware and software integration and control) but someone there understood that by giving up a little control, they opened up so much potential. There’s stuff put out for phones now that no one could have envisaged 4 years ago when smartphones were just starting to enter the market, augmented reality, micropayment systems, Urbanspoon and yelp.

But to round our the discussion on Points of Differentiation, whatever your killer PoD is, eventually the market will find a way to replicate or offset it. Which is why being the cheapest as your PoD is a really bad idea. Whatever you’re doing, someone can do it cheaper and if you teach customers that the most important thing is price, then the moment someone else is cheaper, you’re market is gone. Which leaves you with a couple of options: Constant innovation (which is good) or making a PoD out of something that’s not easy to copy, like service. In a world where just about anything can be bought out of China (and probably cheaper than you paid for it) finding another way to differentiate means looking at other parts of your product and the most obvious one is service, the way you deliver what you deliver. When I look at the state of Australian manufacturing, I think this model holds true:

There are the innovators – some bring an innovative product to the marketplace and stop, some have a culture of innovation that allows their organizations to exist beyond the first product

There are organizations with differentiators that still apply – ‘yeah you can get it cheaper out of china but who knows what sort of steel they’ll be using or what type of paint but we can guarantee the quality and we’ll have it there in 3 weeks because we only need to truck it down the road’

and there are the organizations with differentiators that no longer apply – ‘yeah you can get it cheaper out of china but who knows what kind of steel they’ll be using or what type of paint… Oh, you’ve got 3 months to procure it and the Chinese are offering 3rd party inspection in their factory for 40% of our price… Oh…’

And the difference between the second and the third type is all on the consumers side, not the suppliers. So I’d get cracking on a new differentiator if I was you… because in the economic climate we’ve got, companies are going to become more concerned consumers.