Joe Grant's Blog

BOOK REVIEW: FREAKONOMICS

Freakonomics [Revised and Expanded]: A Rogue Economist Explores the Hidden Side of Everything

Author: Steven D. Levitt and Stephen J. Dubner

Pages: 336

Amazon Average Customer Review: based on 1322 reviews.

Reviewed by: Joe Grant, CAE

My Overall Rating:   

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Who knew economics could be so interesting and entertaining?  Are you having horrible flashbacks of your microeconomics class, don't worry, this is very different. Authors Steven Levitt, an economics professor at the University of Chicago and Stephen Dubner, a New York times columnist and best selling author, avoid lengthy discussions on theories and mathematics. Instead they use real data to peel away the layers of common beliefs and conventional wisdom. 

Levitt has been criticized for not practicing the "traditional" science of economics. While a New York best seller, Freakonomics has also been criticized for being disjointed and for not having a unifying story.  Levitt acknowledges both criticisms in his book.  He humbly accepts his weaknesses in the areas of economic mathematics and theory. 

Levitt believes that "economics is a science with excellent tools for gaining answers but a serious shortage of interesting questions." He asks these questions and has "distilled the so-called dismal science to its more primal aim: explaining how people get what they want."  As for the lack of unifying story in Freakonomics, on May 25, 2005, Levitt writes in a blog entry "more valuable than anything else I or Dubner ever does, perhaps, would be to make the world safe for books that have great stories but no unifying theme."

This is not your average business book. In fact, I'm not even sure Freakonomics qualifies a business book. There is no theme and the authors bounce around from one subject to another. One minute your reading about real estate agents the next the Ku Klux Klan, sumo wrestlers, and crack gangs.  As strange as this sounds, it works.  I found myself not wanting to put the book down. 

Did you know...

• On average, real estate agents hold their own homes on the market ten days longer and sell their them for 3% more than when they sell your home?
• Swimming pools kill more children every year than guns, yet more emphasis is placed on gun control?
• In order to look good and receive bonuses, teachers cheat by fixing wrong answers on standardized tests for students who are performing poorly?
• The dissemination of "secret" information is what brought the Ku Klux Klan to its knees?
• Crack gangs maintain a similar organizational structure as McDonalds?
• Contrary to conventional wisdom, abortion (not gun control laws, creative policing strategies and politics) is the reason for the sharp decline in crime rates since the early 1990s?

The authors provide supporting details and reasoning behind each of these facts and more. 

So what does any of this have to do with anything?  Good question.  Although there is no overarching theme to the entire book, there are a few key takeaways:

• Conventional wisdom is often accepted because it is "convenient, comfortable, and comforting," even if it's untrue.  Step out of your comfort zone, challenge conventional wisdom and ask the right questions to discover the hidden side of everything.   
• In the past, we have relied on experts because they were in control of specialty knowledge. This one sided knowledge is known as "asymmetrical information."  Information asymmetries have been gravely affected by the Internet (see Slot Machines at Funerals blog posting).  Ordinary individuals now have access to the same information that was once controlled (and often misused) by the experts.   
• Individuals are motivated by social, economic and moral incentives both negative and positive. They key is to understand how individual choices, decisions and actions are influenced by these incentives.
• Small and somewhat insignificant actions often have a huge and far reaching impact.
• Just because a so called expert is telling you something, doesn't necessarily make it true.

Movie clip: Charlie Rose interviewing Levitt and Dubner on their new book Freakonomics.  The interview runs for the first 26 minutes of the clip.

MY TAKE
Freakonomics is a fascinating book that explores the hidden side of many things. While conventional wisdom may suggest an overall theme is necessary for a book to be successful, this New York Times Bestseller has proven otherwise. Association and business executives will find it interesting and at times, entertaining.

"Prepare to be dazzled" - Malcolm Gladwell

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Other Links: http://www.freakonomics.com/blog/

Have you read this book? 

What did you think?

BOOK REVIEW: Blue Ocean Strategy

Blue Ocean Strategy

Author: W. Chan Kim and Renee Mauborgne

Pages: 256

Amazon Average Customer Review: based on 117 reviews.

Reviewed by: Joe Grant, CAE

My Overall Rating:   

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Are you trying to compete within a narrowly defined market space?  Is your organization focused on trying to beat the competition?  Have you made competition your organization's primary benchmark for strategy?  Are you trying to exploit existing demand?  If you answered yes to any of these questions, you're probably in red ocean territory.  Authors Kim and Mauborgne use the red ocean metaphor to describe an overcrowded market space of competitors all fighting for the same piece of the pie.  Blue ocean strategy is when an organization breaks away from the conventional approach to facilitate the creation of new uncontested market space thereby making competition irrelevant.

To create a blue ocean strategy, organizations must be committed to value innovation.  The authors stress that "value" and "innovation" must work together simultaneously in order to develop a blue ocean strategy.  Innovation without value involves technology-driven, market pioneering tactics that often lead to over engineered products your market isn't willing to accept or pay for.  Value without innovation often leads to value creation on an incremental basis which usually is not enough for your organization stand out in the crowd.  A blue ocean strategy focuses on reducing costs and increasing buyer value (differentiation) at the same time.

To successfully utilize the blue ocean strategy methodology, you must first learn the tools.  The primary tools are the Strategy Canvas, the Four Actions Framework, the Eliminate-Reduce-Raise-Create Grid, and the Three Characteristics of Good Strategy.

STRATEGY CANVAS
The x-axis represents the many factors organizations compete on (price, image, support, speed, etc.) and the y-axis illustrates where each company is positioned for each factor.  By plotting your organization out against competitors you have a visual representation of where your strategies are in relation to competitors.  Identical or similar strategy curves are a clear indication that everyone is trying to outdo the other on the same factors and no organization stands out from the crowd.  At the same time, organizations are spending more and more money for competition's sake and profits are eroding away.

In this example, Southwest analyzed alternatives to flying (i.e. the car) and designed a unique strategy from the competition (other airlines).  Their tagline could be "the speed of a plane at the price of a car - whenever you need it."

FOUR ACTIONS FRAMEWORK / GRID

• ELIMINATE factors that no longer add value for the customer; this will eliminate unnecessary costs.
• REDUCE factors that were over designed or features that were added for the sake of competition; reduces unnecessary costs.
• RAISE factors important to the customer that have been compromised; utilize some of the cost savings from the first two actions.
• CREATE factors that have never been offered (a new value proposition).

To create a blue ocean strategy you must change your organization's curve on the strategy canvas and move away from the competition.  This can be accomplished using the eliminate, reduce, raise, and create framework.  It helps to break each section into four quadrants of a grid.

THREE CHARACTERISTICS OF GOOD STRATEGY
Focus, Divergence, and a Tagline - The new strategy FOCUSES on the important areas and not on every single factor, DIVERGES away from the competitors offerings, and has a simple easy to communicate TAGLINE.

The authors identify the following six principles necessary for blue ocean strategy formulation and execution:

BLUE OCEAN FORMULATION PRINCIPLES
1. Reconstructing market boundaries - by analyzing six paths: alternative industries, strategic groups within industries, the chain of buyers, complementary product and service offerings, functional and emotional appeal to buyers, and time (trends).

2. Focusing on the big picture, not on the numbers - Too often, organization's fail to see the big picture because they are so overwhelmed with number crunching.  The four steps to helping leadership focus on the big picture include:

Visual Awakening - visualizing your current strategy (or lack thereof) on a strategy canvas.

Visual Exploration - going into the field to explore the six paths identified above; what alternatives exist for your product or service and what are their advantages; what needs to be eliminated, reduced, raised, or created.

Visual Strategy Fair - taking the results from the visual exploration and drawing new alternative strategy canvases for group feedback, discussion, and observation; be sure to get feedback from different stakeholders; from the feedback, build the best strategy.

Visual Communication - Incorporating and distributing the before and after strategy canvas to your team; going forward, only approve projects and initiatives that will help make the new strategy canvas a reality.

3. Reaching beyond existing demand - Don't limit your thinking to existing customers.  Determine the commonalities of three tiers of non customers and develop strategies to generate mass appeal:

First Tier - soon to be customers who are waiting to jump ship for a better option; find out what that better option is that they are waiting for; look for commonalities.

Second Tier - individuals that refuse to use the product or service because the price or other features are unacceptable; learn more about why they refuse to use your product or service; look for commonalities.

Third Tier - these are truly unchartered waters that competition typically ignores; what possibilities exist?

4. Getting the strategic sequence right - To confirm that you have a blue ocean idea, evaluate it against four criteria in the following sequential order:

1. Buyer Utility - Determine if there is exceptional buyer utility (productivity, simplicity, convenience, risk, fun and image, and environmental friendliness) across the six stages of a buyers experience cycle: purchase, delivery, use, supplements, maintenance, and disposal.

2. Price - Determine the strategic price that will generate the volume necessary for critical mass; price should not be based on the traditional cost plus approach but rather on customer value, form and function, and the ease at which your idea can be copied.  The price calculation should be:  (SP) strategic price - (PM) desired profit margin = targeted costs.

3. Cost - Determine if you can design the product and/or service to meet the targeted cost.  This will allow you to strategically create a profit and cost structure that is difficult to mimic.  Achieving the targeted cost may mean streamlining, costs innovations, partnering or outsourcing, and price innovation (developing a new model).

4. Adoption - Determine the adoption hurdles buyers will go through and address them up front.

If the idea passes through all these steps, you most likely have a blue ocean idea.

5. Overcome key organizational hurdles - Use tipping point leadership to help people understand the need for change.  This isn't accomplished through anecdotal stories or force but instead by going out into the field and facing the realities.  This includes talking to disgruntled customers and letting your team experience and appreciate the need for change. 

Organizations have limited resources so pursuing the blue ocean strategy will require strategically reallocating resources to the most important areas.  The author uses the term hot spots to allocate resources to areas that require low resource input but have the highest potential for performance. 

To increase accountability and motivation, leadership should utilize the concepts of kingpins, fishbowl management, and atomization.

Kingpins - Get the key influencers on board and behind the blue ocean strategy.

Fishbowl - Make strategy progress reporting an open group process where peers are reporting in front of peers.  Not many people enjoy explaining their inaction to a group of peers and colleagues.

Atomization - Don't overwhelm your team by dumping a large and seemingly unattainable strategy in their laps.  Break it down it manageable chunks that are realistic and attainable.

It's important to have a consigliore on your blue ocean strategy team - someone who knows the playing field well and can identify and anticipate the resistors.  This will allow you to take preemptive action and keep the resistors from sabotaging the blue ocean strategy.

Separate resistors into angels - who are in alignment and will gain the most by the strategic changes and devils - who are ready to dig in and battle against the initiative because they have the most to lose.  Anticipate and be prepared to counter devil's attempts to sabotage the plan with facts and reason.    

6. Building execution into strategy - Like any strategic planning initiative, involve all stakeholders in the process early and often including front line staff - the ones who will most likely be implementing the plan. 

Employees will champion the new strategy if the organization has done everything they can to ensure a fair process.  A good way to ensure a fair process is to follow the three E's - engagement, explanation, and clarity of expectation. 

ENGAGE your team as part of the planning process and hear them out.  Make sure they know you have actively listened to their ideas and input.  Be honest and sincere in your actions or you will not gain their trust and support.  EXPLAIN to them why you have chosen the strategy you have chosen and state very clearly what the new EXPECTATIONS will be.  By using this approach, employees will feel respected and will be dedicated to fulfilling the expectations you have established - even if they do not agree with your final decision.

MY TAKE
In Blue Ocean Strategy, the authors take a fresh approach to the strategic planning process.  Kim and Mauborgne do a great job keeping the concepts simple and providing diverse examples to adequately support their ideas.  While the authors retrofit the blue ocean strategy to historical successes, I still believe very strongly that organizations will benefit by incorporating the tools and methods in their strategic planning process.

As with all business concepts, the simpler they sounds, the harder they are to implement.  Blue ocean strategy is no different.  It requires a paradigm shift away from the traditional way (template) of conducting the strategic planning process.

This is a must read for association executives.  As Thomas Friedman so vividly points out in his book The World is Flat - the world has certainly changed; however, I think many associations are stuck doing things "the way they have always done them." 

The following are some blue ocean strategy questions your team should consider in your strategic discussions:

• Identify the alternatives to joining your association.  What alternatives exist for your current and prospect membership base?  If you were to plot the alternatives out on a strategy canvas, how do they compare with your association's offerings?
• Where do the alternatives fall short?  Can you fill this gap more efficiently and effectively?  Where have the alternatives over engineered that your association could simplify to offer more cost effective solutions members?
• Identify organizations (strategic groups) considered to be your closest competition in the industry?  Where do they fall short?  How does their strategy curve compare with yours on the strategy canvas? What opportunities exist to FOCUS, DIVERGE and come up with a unique TAGLINE?
• Identify your chain of buyers.  Distinguish purchasers from users.  Who is actually benefiting from your services?  Are their any individuals or companies down the purchasing chain that you have overlooked?
• Identify complementary product and service offerings.  Are there any untapped opportunities for synthesis and collaboration?
• Identify your product and service emotional and functional appeal.  Are you addressing these areas in the design, pricing, and marketing strategies?
• Identify trends taking place in the association industry, your member's industry and related industries.  Are you proactively shaping the trends over time or are you sitting back passively waiting to react and adapt?
• How much attention are you giving to your first, second and third tier non customers?  What commonalities exist?  What untapped opportunities exist? 
• Are your association's offerings a mish mash of ideas and fads that came down the pike or were they strategically evaluated before they were added to the mix?  What can you ELIMINATE to free up resources and reallocate to more important areas (hot spots)?
• Have you over engineered products and services with features that are not important to your members?  Can you REDUCE some of these features and free up resources to be reallocated to more important areas (hot spots)?
• What member benefits or needs have you had to compromise because of limited resources?  Can you reallocate resources to RAISE the quality in these areas?
• After analyzing alternatives, the chain of buyers, complementary products and services, emotional and functional appeal, trends, and strategic groups what can you strategically CREATE that will expand your market boundaries?
• Are you strategically evaluating your association's programs and services to make sure they have BUYER UTILITY?
• What strategic methods are you using to set the PRICE for your programs or services?  If you're not thinking about price until after the product or service has been created, you're doing things backwards.  By then you have piled on the costs that you now have to recover at a PRICE your members are not willing to pay.  Strategically determine your price first and then determine your targeted costs.
• Are you streamlining and reallocating to achieve the TARGETED COSTS to provide you products and services at a price that is acceptable to your members?
• Are you thinking about your member's adoption hurdles and barriers well in advance and taking action to eliminate them?
• Are you using tipping point leadership to communicate strategic changes?
• Are you engaging, explaining and setting clear expectations for your team?
• Are you using the fishbowl concept to create transparency and accountability for your team?

Many of these concepts have been around for awhile, but by synthesizing them together it creates a powerful message.   

This is a must read for any business leader who is striving to make their organization REMARKABLE.  As the book illustrates, it doesn't matter what industry you're in, how small or large, or the how old or new the organization is - every organization can benefit from the blue ocean strategy. 

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Have you read this book?  What did you think?  Do you have a Blue Ocean success story from the Association world you would like to share?

BOOK REVIEW: The World Is Flat

The World Is Flat

Author: Thomas Friedman
Pages: 600

Amazon Average Customer Review: based on 963 reviews.

Reviewed by: Joe Grant, CAE

My Overall Rating:   

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We all know the world has changed due to globalization and technology but sometimes it's hard to put it all into perspective to see how these changes interrelate and more importantly, the effect they have on our lives today and in future.  With his newest book, Thomas Friedman, an award winning columnist with the NY Times, has done just that.  In The World Is Flat, Friedman synthesizes the impact of many events from the fall of the Berlin wall on 11/9/89 through 9/11.

We live in a new world where the playing field has been leveled for companies, countries, communities and individuals.  While the natural inclination is to protect the past, this is not the answer.  Those who embrace the changes and find new ways to plug into the flat world will not only survive, they will thrive.

Friedman attributes the flattening process to ten forces which include:

1. 11/9/89 - The day the Berlin Wall fell: a symbolic moment in history that brought down the walls and barriers to a more open world.
2. The New Age of Connectivity: the web browser gave a everyone a window to see the outside world without leaving their computer monitor. 
3. Work Flow Software - Internet communication standards were further developed and combined with the ability to communicate with anyone around the world faster and cheaper than ever before.
   
   The first three forces essentially created a platform for six new forms of collaboration: uploading, outsourcing, offshoring, supply chaining, insourcing and informing:



4. Uploading - The ability to collaborate on projects in open source communities, create something new and share the content with individuals around the world. 
5. Outsourcing Y2K - In order to correct the Y2K bug, companies needed workers.  Many turned to workers in India.  The millions of miles of fiber optic cable that were laid during the dot com era helped facilitate the process of outsourcing. Companies learned the benefits of disaggregating and sourcing work to cheaper, more efficient places.
6. Offshoring - Taking outsourcing one step further, companies picked up their operations and placed them in places like Canton, China where labor was cheaper, taxes were lower, energy was subsidized, and health care costs was lower.
7. Supply Chaining - The connection of companies and countries around the world to conceive, produce, and move goods and services for just in time delivery.  Walmart is cited as the epiphany of supply chaining.  "In 2004, Walmart purchased $260 billion worth of merchandise [from suppliers around the world] and ran it through a supply chain consisting of 108 distribution centers around the United States, serving the some 3,000 stores."  Using radio frequency id chips and bar codes, Walmart and its suppliers track the movement of merchandise in real-time worldwide.  When someone picks an item off the shelf and it is scanned by the cashier, a supplier somewhere in the world receives an instant communication to manufacture more of that item.
8. Insourcing - Many companies, in collaboration with other businesses, have taken over certain pieces of operations because they have the ability to do it more efficiently.  For Example, UPS and FedEx don't just deliver packages anymore.  They now manage inventory, shipping, support and supply chain logistics for many companies.  For example, if you need your Toshiba laptop serviced, UPS picks up your computer and repairs it at the UPS Louisville hub.  By giving this piece to UPS, Toshiba cuts out the middle steps, reduces shipping time, and creates happier customers.
9. In-Forming - Google, Yahoo, and MSN Web Search are just a few tools that exist for individuals to find information on just about any topic 24/7/365.  Friedman points out this scary realization - before the Internet, individuals could have and keep skeletons in the closet.  Not today.  Now if you make a mistake, whether you are a company or individual, you can't hide...it won't be long before your news shows up in a Google search.  Also, individuals have the power and tools to be journalists and share their opinions with the rest of the world through weblogs and user groups.
10. The Steroids (digital, mobile, personal, and virtual) - combine all the above flattening forces with the ability to communicate from anywhere in the world via PDA, Blackberry or Cell Phone and you have enormous horsepower.  Now machines can talk to computers, people can talk to people, computers can talk to computers farther, faster, more cheaply, and more easily than ever before.

The ten flattening forces by themselves weren't enough to make the world flat.  Friedman continues by explaining that the triple convergence is what has made the most impact.   

1. The ability for the ten flatteners to integrate and build on one another to create the new platform.  This only came with time.
2. The ability for these changes to take root in people (IT specialists, CEO's, workers, business schools, designers, etc).  All of these players needed to change their way of thinking from the traditional vertical mindset to a more horizontal and collaborative mindset.
3. The ability for individuals in other countries to work from their home country and collaborate with everyone else in the world.  "New players, on a new playing field, developing new processes and habits for horizontal collaboration."

From a geopolitical perspective, Friedman argues that the more developing companies become intertwined in supply chains and connected to the flat world, the more stable they will become.  In essence, by jeopardizing established supply chains and relationships with companies and other countries, the costs of war have become higher.

While the flat world platform has created so many opportunities for individuals and companies to accomplish great things, it has also enabled individuals to do bad things faster than ever before.  Terrorists, like those of 9/11, are tapping into the same networks, supply chains, and channels of collaboration to plot out horrible acts.  This will remain a challenge in the future; and is a threat to hinder or even stop the flattening process.

Finally, Friedman compares 11/9 to 9/11 and urges individuals to focus on the positives that came from 11/9 when the Berlin wall fell.  This means focusing on creativity and innovation and not losing our identity to fear from events like 9/11.

KEY TAKEAWAYS

• The IT Revolution everyone has been talking about for the last 15 years was just a warm up for what's to come.  Like any new invention, it takes time to fully understand an incorporate the power and most effective use for the new tools.
• Individuals are now connected and empowered more than ever before to upload, inform, and collaborate.   
• To thrive in the future, individuals must become "untouchables" committed to perpetual life long learning and cultivation of their right brain thinking.  Creativity is more difficult to outsource. 
• Individuals must become great collaborators, orchestrators, synthesizers, explainers, leveragers, adapters, localizers (tailoring the global capabilities to the local community), green (learning how to operate in the new flat world and still protect the environment), and passionate (tranforming commodities into an experience).
• Companies must accept the fact that they cannot put up walls to protect their businesses, they must dig deep to find new ways of doing business.
• Big companies need to learn how to act small.
• Small companies need to learn how to act big.
• Companies need to become the best collaborators to survive and create new value.
• Companies need to get regular check ups and xrays "to constantly identify and strengthen their niches and outsource the stuff that is not very differentiating."
• Companies must find new ways to differentiate their services to be unique and avoid becoming a commodities.
• America needs to go back to making science, math and engineering an important priority if we are to continue generating new ideas and innovations in the future.
• Idealists can use the new flat world to make a difference.

MY TAKE

I believe every business executive, politician, college student, and professor should read this book.  The scenarios described by Friedman will change the way we live, work, communicate, and collaborate in the future.  It's easy to focus on the negatives of globalization and outsourcing, but complaining doesn't accomplish anything.  Individuals, companies and countries that erect walls, ignore the future, and try to protect the past will suffer the consequences - stagnation, lack of innovation, and obsolescence.

In a world where individuals are connected and empowered more than ever before to upload, inform, and collaborate (association members not excluded), how will this affect membership recruitment and retention now and in the future?

When individuals can access industry related information from many other (free) sources, what does that mean to the association's future? What is the association doing about it today, to ensure a future?

How are your member companies or professions being impacted by outsourcing or insourcing? What does outsourcing or insourcing mean to your future membership pool?

Are you seeing industries changing, merging or becoming one to accommodate the "one stop shop" consumer mindset? If the industries do combine, can they support the existence of multiple associations?

These are all interesting questions that could lead to some great strategic discussions. Who knows, they may even have the potential to uncover new opportunities for the association community!

The World Is Flat is a long read but is well worth the time investment.  While reading the book, I had so many "aha" moments.  I started to connect news headlines and observations that reinforced the points Friedman was making.  Buy the book and understand what it takes to excel in the new flat world.

How do you think The New Flat World will affect Associations?

Other Great Books by this Author:

The Lexus and the Olive Tree: Understanding Globalization