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The Real Risk in Risk Management

November 25, 2009

It’s not uncommon to find businesses all over this country talking about the impact the current economic environment is having on their operations.

Just yesterday, I was speaking with my good friend, John Fodera. John is a partner in Eisner, LLP’s audit and risk management services group. He spends his days discovering how to reduce risk and streamline operations, while making sure that his clients remain compliant with regulations a diverse as labor law to SEC requirements. Not surprisingly, he hears about the impact of the recession all of the time.

As our discussion progressed, it became apparent that John brings some fresh thinking to these conversations. One of the thoughts that we shared is that cutting staff is not always the best way to deal with a slowdown in business.

John explained that the “knee-jerk” reaction is always to reduce costs and sometimes this is truly appropriate. But, like any other challenge, there are always opportunities.

When companies are concerned about business, they are more apt to rethink the way that they approach the marketplace. Leadership will also find that staff will be more open to trying new approaches. This is typical when the risk of remaining with the status quo exceeds the risk of trying new things.

Reaching out to existing customers and discovering and sometimes re-discovering what is valued in one’s offerings – and what isn’t – can change what is being sold and how it is being presented to other potential clients.

When something is not valued, often, the cost associated with adding and delivering that capability can be stripped out. Suddenly, the product may actually be more valuable because a level of complexity is removed and the cost associated with developing, selling, delivering it and training others has been reduced. Out of such discussions, many competitive advantages and opportunities are born.

And in an age where technology is changing as rapidly as it is, an economic downturn can provide the impetus to create new ways to produce meaningful value.

As John would probably tell you, the real risk is when you are not rethinking your business.  But don’t take his word for it.

Just ask the people running the newspaper industry and the postal service.

Categories: Crisis Management, Leadership, Sales, Strategy, Visioning
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Contextualizing Who We Are…

October 9, 2009

Recently, I returned from a trade show. While on the floor of the exhibit hall, I listened intently as people walked up to those staffing the booths and asked about their products. Many of those people did not bother to introduce themselves – rather they asked general questions with the intention to learn about the product being promoted.

Almost to a person, these people did not volunteer any information about themselves. On one level, I can get it. After all, who wants a salesperson calling you and disturbing your day?

Here’s the argument though for rethinking that position…

If you’re stopping by a booth, chances are there is a reason. You want to compare a product to something that you are using. You have a unique need or challenge or opportunity and you wish to see if the product can address it. Or you simply wish to discover if something is possible.

If you contextualize who you are, and by that I mean you paint the details of what your company does, who you are and the role that you play, why you are at the booth and what you hope to address or learn, you allow the salesperson to leverage their expertise and help you determine very quickly if your unique need can be met.

And you can still always decline to move forward with the conversation after you have learned more.

What this all comes down to is trust – and part of this is about trusting yourself to have a real meaningful conversation. If you are willing to share and discuss and engage, you open yourself to the possibility that the other person can help you. And you learn whether the solution fits or what is even possible.

We already know all that we know. It’s usually the other person’s knowledge that is the most useful.

Categories: Leadership, Sales
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Dealing with Unexpected Consequences and Seth Godin

October 2, 2009

So how does, one deal with unintended consequences?

Honestly and quickly.

As part of my explanation, I will begin by telling you that I am a fan of Seth Godin. He considers himself a marketer and entrepreneur and agent of change. What I love most about him is that he makes me think.

Godin recently launched Brands in Public. His company, Squidoo, was going to set up a place that would aggregate content from around the Web, highlighting the good and informing of the bad, while letting the companies respond to the feedback. Not a bad idea – and his business model for doing this would result in annual payments from each of these companies totaling about $5,000.

The criticism came due to Godin’s decision to actively set up 200 of these ‘Brands In Public’ lenses (consider a “lense” like a location or site) before launch without the consent of the companies involved. The companies would be locked out of the lenses until they decided to sign up and pay up for the almost $5,000 a year service. At which time the lens would be unlocked. Some called it brandjacking, with online branding effectively taken hostage with a price on its head for release.

Needless to say the reaction to the model and its implementation was harsh.

However, Godin’s response was swift.

In his daily blog post, two days after launch, he wrote:

The response from the brands we’ve shared it with has been terrific, but other people didn’t like elements of it. And they were direct in letting me know.

The goal of the program is to invite brands into the conversation that’s already going on around the web, to make it easy for them to do it on their terms. I talked with a brand manager yesterday who explained that this is exactly what he’s been trying to do for his company, but the corporate website systems make that difficult for him. We want to open the door and to permit large brands a way to get started without having to roll their own solution.

One way we tried to encourage that was to build 200 sample pages, pages brands could adopt. Alas, some people felt that this was inappropriate, so we’ve recalibrated and we’ll take those pages down before the end of the day.

When a brand wants a page, we’ll build it, they’ll run it and we’ll both have achieved our goals.

Part of the magic of the web is that you can adjust as you go, particularly if you’re willing to listen.

I apologize if anyone was confused by my original post, and we’re looking forward to having major brands and non-profits using this tool the way we intended–to join in to the conversation that’s already happening all around us. Thanks as always for reading.

Putting aside the questions of whether Godin’s idea and implementation were appropriate, he does get points for addressing the problem honestly and in a hurry and that, I think, earns him the right to try again.

* * * * *

As to my post the other day about my recent experience with Continental Airlines, I received this response from Continental’s Customer Service Manager, Denise Epstein.

Your letter has brought up several very valid points. These are consequences that I have pondered, however, you have put them in words in a thoughtful and straightforward manner.

I will include your letter with the original complaint that was filed on your behalf. This includes your contact information if our management team needs to contact you.

I’ll let you know if it goes any further…

Categories: Crisis Management, Leadership, Sales, Strategy
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Unintended Consequences, Decisions and Continental Airlines

September 27, 2009

Decisions only scare me when I don’t understand their consequences. If I do, and as long as those consequences are acceptable, I’m fine. That’s why when confronted with a challenging decision, I always try to investigate what could result from it. It’s important to me that I weigh the potential positive and negative consequences.

My recent trip from San Francisco dramatized the importance of doing so.

Continental Airlines prides itself on “flying right.” Their brand is built on attentive service and well-planned departures and arrivals. In fact, in a press release earlier this month, I found this quote — “Continental’s corporate culture is based on treating customers and co-workers with dignity and respect,” said Diedra Fontaine, Continental’s director of diversity and sales development. “Dignity and respect are key principles of our Working Together cornerstone.”

Continental’s recent decision to charge for bags is a terrific example of unintended consequences and illustrates how a set of negative consequences can jeopardize a brand.

Continental, like many airlines, saw this additional baggage charge as a way to increase revenue. Their customers, however, responded by deciding to take more and more of their luggage on the flights so they could avoid the additional fees.

The unintended consequence: With more than 25 people waiting to get on board this plane from San Francisco, the overhead bins were completely filled. The flight attendants at the gate then proceeded to offer free baggage check-in to all those that had yet to board.

Some passengers took the attendants up on their offer and the gate and boarding ramps were transformed into luggage check–in areas. The attendants scrambled to check the luggage at the entry of the plane. This was difficult for them because the physical location made this problematic and most assuredly, assuming they were trained to do so, it was certainly not what these attendants intended to be doing at this time.

Many passengers chose not to check their luggage. They had to stow their bags underneath their seats, resulting in uncomfortable rides for many, many passengers and difficult entries and exits from where they were seated. More passengers also stood in the aisles for portions of the flight simply to stretch their legs.

As to those poor flight attendants…

They were trying to get the flights to take off on-time because that is one of the areas that Continental evidently measures.

Once the plane took off, the flight attendants rudely rushed to pass out the meals. The were frustrated and like most people put in similar situations, they never had the chance to regain their “balance” and they performed their work the way someone would do it if they were upset.

These were the short-term unintended consequences.

The long-term ones, of course, concern the brand and image of Continental.

And if these become tarnished enough, Continental may discover that the revenue that they gained in no way compensated for the customers that they lost.

Categories: Leadership, Sales, Strategy, Uncategorized
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Scarcity: For Marketers, Less is More

July 6, 2009

When Joni Mitchell wrote “Big Yellow Taxi” and the expressive lyric, “Don’t it always seem as though you don’t know what you’ve got ‘til it’s gone?” she may have been onto something.

The last of Prof. Cialdini’s weapons of influence centers on scarcity or, as he explains it, the increase in the appeal of an opportunity when it appears that it will soon become unavailable. This lure is evident in the actions of those who put a telephone conversation on hold when another phone line rings simply because of the fear that the chance to hear information might be lost or the possibility to speak to that person if that call is not taken.

In fact, the thought of “losing” something over winning something is typically more appealing and interesting. More people insulate homes because of the “money that they could lose” rather than the money that they could save.

Consider the language of marketers who tell us that “only a limited number” are available or that you should hurry because “a sale ends Sunday.” Scarcity has a tendency to make items more valuable in our eyes. This is because we understand that those items that are difficult to possess are typically better than those that are easy to possess. This concept is more often than not a true one. The second factor that weighs in that we hate to lose “freedoms” – that is whenever free choice is limited, the need to retain our freedoms makes us desire them more.

Cialdini engages the reader in a very interesting discussion of the behaviorists’ view of Romeo and Juliet. Was this a case of young and pure love or rather was the intensity of the love heightened because of the extraordinary obstacles that the Montague and Capulet families placed in the path of these young lovers and therefore infringed on their freedoms? Or to use a biblical example, did Adam and Eve desire the apple more because it offered enlightenment and knowledge or because it was “one of a kind” and prohibited?

The Iranian election and the management of its outcome by its supreme leader may be an additional event worth studying through the prism of scarcity. Did the current leadership fan the flames of revolt by making opposition information scarce (and more believable because exclusive information is more persuasive) and by reducing freedoms while creating obstacles? And conversely, can groups pretend that information is restricted so as to align others with their perspectives? If this interpretation of Cialdini’s thinking is correct – and he does acknowledge that this concept applies to information and censorship as well – there are tremendous implications for the way governments manage conflict and companies manage information flow.

There are a number of corollaries to our scarcity weapon of influence. The first is that scarcity has greater impact when people have a taste of abundance and then have that abundance replaced with scarcity. Cialdini cites the glasnost era led by Gorbachev followed by a crackdown. The Soviet people chafed at the loss of freedoms and fought more strenuously to keep the freedoms that were already experienced during the Gorbachev regime.

The second corollary is that scarcity is made more impactful when there is competition for a good or service. Imagine for a moment, those department store sales where certain goods are only available between certain hours and the panic that ensues within the store. These sales are designed to foment both scarcity and competition and force a buying decision.

So how does one control the strong emotional pull of scarcity? First, we need to recognize the heightened sense of arousal that comes with scarcity. Then, knowing that we are now engaged at this level, we must separate the use we have for the item from the desire to acquire it. By its very nature, scarcity is about possession and not utility. Distinguishing the two will allow us to behave more rationally.

It is important to recognize that all of the weapons highlighted in “Influence: The Psychology of Persuasion” will become more pervasive simple because of the overwhelming information available to and thrust upon us. We are truly information overloaded and it is imperative that we recognize when gut reactions cause our behaviors. Where Cialdini has done us a great service is by “pulling the curtain back” so that we may more effectively recognize manipulation, and combat it.

Categories: Crisis Management, Leadership, Sales, Strategy
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Managing Authority so as Not to Lose Your Sense of Responsiblity

June 28, 2009

George Carlin once said, “I have just as much authority as the Pope; I just don’t have as many people who believe it.”

One of the most pervasive weapons of influence is the use of authority. Being told to, and indeed, “following orders” is such a powerful concept that it has been used in times of war and even the Holocaust of the 1940’s as a justification for committing horrific atrocities. Yet, when used for positive and appropriate purposes, it allows for order and the development of social and political structures that enables each of us the opportunity to live safely and productively in society and avoid a frightening state of lawless and dangerous anarchy. Talk about a double-edged sword!

Cialdini asserts that this is why we are literally trained from birth “that obedience to proper authority is right.” We learn this concept at home, in school and in our houses of worship. The Bible early on teaches us that the consequences of disobedience are pretty severe (Eating a forbidden fruit gets Adam and Eve – us? – tossed out of paradise or Abraham being tested and asked to sacrifice his beloved son because a Higher Authority tells him to do so).

The interesting thing is that once we have learned the importance of obedience, we pretty much follow it without giving it too much thought. We do this because we understand quickly that others know more than us or have greater access to information and there are true benefits to listening and following instructions from those who are “in the know.”

The challenge though is to know when to stop and think for oneself and avoid blind obedience. Cialdini cites a great example of this and one that most of us have experience with — healthcare. HCFA (The Healthcare Financing Administration) did a study and found that there was a 12% daily error rate in patient medication dispensing. A decade later, in the 1990’s, a Harvard University stated that 10% of all cardiac arrests were attributable to medication errors and while these errors can occur for a variety of reasons, at least one book attributes this situation to the “mindless deference” to the person in charge of the patient’s case – the attending physician.

The two professors who wrote this book, Medication Errors: Causes and Prevention, humorously tell the story of a patient who was prescribed ear drops with this note “place in R ear” and how the duty nurse place the drops in the patient’s butt instead of in the patient’s right ear. While tragically funny, more than likely, many of us have personal experiences that have taught us to ask questions when dealing with the medical establishment.

For purposes of our discussion, this example dramatizes how easily we submit to authority. More than that, we also submit to the symbols of authority. Seeing someone in a certain uniform (makes you realize the importance of understanding clothing as costumes), with a certain title, with a certain type of office or car, or with a certain level of authoritative expertise creates an automatic response to be influenced. One could make a case that Bernard Madoff leverage his positions on boards and trappings to such a great extent that he was able to create the greatest scam of all time.

Caildini notes how people become more deferential in conversation when they learn someone has a title. In fact, in one of the studies that he cites, he noted a correlation between perceived height and title. The greater the title, the greater the perceived physical stature.

So how does someone control this powerful form of influence? Cialdini believes that being aware of the powers of authority and its trappings is the first step to managing the inappropriate influence of authority. There are two questions that he feels needs to be asked – (1) Is the authority truly an expert? and (2) How truthful can we believe the expert to be to us?

Answering the first question enables us to decide if the authority is worth following and if that particular expertise is relevant to the situation. The second question is a little more complex in that if the authority has a vested interest in the outcome, the way that the information is presented in worth questioning.  Sometimes a practitioner of authoritative influence will use a tactic to show us that he or she is really on our side. They tell us something negative about the product so that when something positive is presented, we find their claim more believable. (L’Oreal – a bit more expensive but worth it) Still, this prescription for deciding whether to follow authority seems very practical.

Our next post will focus on Cialdini’s last weapon of influence – scarcity.

Categories: Leadership, Sales, Strategy
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People Buy From Those They…Like?

June 19, 2009

The fourth weapon of influence is one Cialdini attributes as “liking.” The classic example of this weapon in action is the Tupperware party. The Tupperware party actually employs several weapons at once (attendees win prizes – putting reciprocity in play), and each participant has to speak to the value that they receive from using Tupperware (public commitment and consistency) and, of course, social proof as each purchase reinforces the belief that other similar people want to buy the product.

Make no mistake, though, the foundation for success is predicated on the belief that you will be going to a friend’s house and she will be “asking” you to buy Tupperware products. While the Tupperware person may do the “ask,” the hostess sitting off to the side is the reason that you are even there.

The key success factor in many of these types of sales presentations is the referral from a friend.  Turning the salesperson away in these circumstances is like turning a friend away and that is exceptionally difficult for most people to do.

Cialdini, however, uses a very broad definition of the term “liking.” For example, physical attractiveness encourages people to like a person. In fact, we frequently attribute talent, honesty, kindness and intelligence to those people who look good. (Can someone say Billy Crystal’s impression of Fernando Lamas saying “It is more important to look good than to feel good.”) This is such an important element that for beer or car ads, “beautiful people” are frequently the spokespeople. And Cialdini cites studies that physical attractiveness impacts court settlements and sentences.

Sometimes those same car and beer manufacturers employ a different flavor of “liking,” one that Cialdini calls “similarity.” We like people who are similar to us. People, who dress, think, look and talk like us are ones that we relate to. Some sales people use this to great advantage by citing similar backgrounds (“You’re kidding — I grew up near Montana, too!”) so that we may relate to them more closely. Studies have also shown that people respond extraordinarily well to compliments…even if they are not entirely true.

The final component in his liking section is one devoted to contact and cooperation. This section is perhaps the most important element he discusses, because of its implications for tolerance among races and countries. Cialdini points out that where there is more contact between groups, familiarity breeds friendship – with one notable distinction.

When people are placed in competitive environments where rewards are perceived as zero sum games (only one or limited winners), enmity actually increases. This is an astounding perception because it crystallizes why school desegregation doesn’t usually create greater understanding among races and why longstanding political conflicts continue. Cialdini cites studies that suggest that if people share a critical (important because it encourages cooperation) goals and work together toward achieving it, friendship and respect are created.

As he does with all his sections, Cialdini concludes his discussion with how best to mange this weapon of influence. He recommends that we cognitively separate the message / offer from the messenger so that we may weigh the offer on its own merits.

Categories: Leadership, Sales, Strategy
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