Friday, January 28, 2011

Management Vs Leadership

What do you do for a living? Do you scan bar codes? Do you fix cars? Do you create ad campaigns? Whatever you do, chances are you have a boss. Unless you run your own business, there is probably someone in charge of you. We all have some sort of disdain for the idea of a boss. We don't like people telling us what to do. But the role of the boss is actually essential to the success of your company. Without some kind of direction, workers may become inefficient and productivity may slow down. When productivity slows down, your company goes out of business and you lose your job. If your boss is doing his job, he actually saves your job.

Now, the meaning of a boss in America has changed as our standard of living has increased. At the time of the Industrial Revolution, most jobs in America were mundane, routine, manufacturing jobs. Each task could easily be done in a scientifically calculated, efficient manner. The style of management then was very top-down. The boss was a 'manager.' He told his workers what to do and the workers did it. In jobs that require only manpower and little thought, scientific management is perhaps the best means of creating a productive workplace.

Today, though, it isn't quite so simple. Most jobs in America are not in manufacturing. They are in the service industry. Most jobs involve a creative, non-quantifiable human aspect that contributes largely to productivity. Yet, many companies still attempt to manage scientifically. In sales, for example, the boss is typically known as the 'sales manager.' However, I would argue that what is really needed is a 'sales leader.' You can't tell someone to sell something in the same way that you can tell someone to put something together on an assembly line. The art of sales is much more complicated. A top-down approach can often be counterproductive.

So, what is the difference between a manager and a leader? A manager tells his workers what do in order to get results and a leader prompts his workers to find their own creative way to get results. A manager makes decisions. A leader inspires decisions. A leader never has to tell his workers what to do, because it is implicit in his role that the workers will respect his insight and example. In the complex roles that employees play today in the workplace, I would argue that we need less managers and more leaders. Creativity in such roles can bring about endless productivity. Managers hinder creativity while leaders provoke it. A good manager has his workers follow everything he says. A good leader has his workers elaborate on everything he says. A leader is a motivator. A leader promotes progress. A leader inspires.

Tuesday, January 25, 2011

Is It REALLY a Good Deal???

I had a coupon for a free coffee from Speedway. I stopped there to get gas and, as I approached the coffee station, I surveyed my options. The largest size hot coffee was 24oz and it would have costed me $1.29 without the coupon. However, there was also a 24oz iced coffee available that would have costed me $1.99 without the coupon. Naturally, I chose to use the coupon for the iced coffee. It was a better deal, right? I saved more money. I got $0.70 more value, right? Well, here's the catch: it was eight degrees outside.

As I held the frozen coffee in one hand and the gas pump in another, I began to realize something. Sometimes $1.29 is worth more than $1.99. Or, to put it into more general terms, price isn't everything! A price reflects a general consensus on how much something is worth to the average person (a very weak economic definition, I know). The problem is that none of us are 'average people.' All of us are unique individuals with a unique set of values. Sure, we share many values, but it sometimes only takes a single value to sway a purchasing decision.

Would you rather buy a $60,000 car discounted to $48,000 or a $52,000 car discounted to $48,000? All things being equal, most of us would obviously buy the car discounted more heavily. But, let's be honest. In the marketplace, all things are never equal. Let's say the $60,000 dollar car is so expensive because it has 20" wheels and a muli-leveling sports suspension with bucket seats and a turbo-charged 400 horsepower engine. Really, all you want is a nice, comfortable ride and not a racecar. The $48,000 dollar car has things like heated seats, automatic headlights, lumbar support, a moonroof, a navigation system, etc. Will you really buy the sports model simply because you are saving more money? Perhaps you are saving more money, but you aren't getting what you want!

Take it from me. Don't buy iced coffee in eight-degree weather. Make your purchases decisions on values first, then on price. It doesn't matter how cheap something is if it doesn't mean anything to you. You are spending money to derive benefits, not to save money!

Sunday, January 23, 2011

The Future of Brick and Mortar

Since the advent of the Internet, brick and mortar stores have largely fallen prey to the competition of virtual stores. In many sectors, it's just easier and more efficient for consumers to shop online. beat Barnes and Noble to the punch in selling books online. Circuit City, unable to compete with Best Buy, was bought out in 2009 and now only serves as a consumer electronics website. Zappos, an online shoe retailer, is becoming a greater and greater threat to brick and mortar stores suchess Payless Shoes and Shoe Carnival. The list goes on.

The question is, 'will we reach the point of extremity at which no physical, real-world retail stores will exist?' It's quite possible. Some consumers even buy their food and household items online. However, while I do think that the Internet is going to take a large share of business away from physical retailers, I don't think they are going to become obsolete. Many consumers don't want to buy a product that they cannot interact with. You want to be able to pick up the fruit and see if it's bruised. You want to be able to hold the Kindle in your hand so you can move it around and see how the light bounces off of it. You want to actually try on your shoes. The Internet is great. It is more efficient in purchasing a product but not very effective in providing a purchasing experience.

So, maybe the Internet will weed out some brick and mortar stores, but those are only the stores in which consumers collectively do not have enough desire for interaction with the products prior to purchase. And it's not just interaction with the product itself that brick and mortar stores have to their advantage--it's interaction with the environment as a whole. The colors, the slogans, the employees, the sounds, the smells (you can't smell through the Internet...yet). So, if your favorite store just closed down and you're upset about having to find your product of interest online, relax. There will most likely always be a shopping mall of some sort. It's just too valuable of a human experience for consumers to give up just for the sake of laziness.

Tuesday, January 18, 2011

The Sales and Marketing Wars

There has been a lot of buzz in the blogosphere as of late regarding the 'death of sales.' What is meant by this catch phrase is that the salesperson is to a greater and greater extent becoming obsolete. A company is less and less reliant on the skill set of a salesperson to sell its product or service. The truth is, of course, that sales isn't dying. It is merely being replaced. Marketing, the department at headquarters in the air-conditioned office, is killing sales. Marketing is becoming sales.

Marketing is no longer simply traditional television advertising. It is in-store displays, trade magazines, conferences, social media, internet pop-ups and banners, and--most effectively--word of mouth. Marketing sells ideas without people even knowing that they are buying. Only the most skilled of salespeople can pull that off. Think about the last car you bought? Did you buy because of the passion of the salesman? Perhaps. But how did you first discover the car you bought? Did you see a commerical? Did you see it online? Did you read a post about the brand on Facebook? Oftentimes, even if it seems that the salesperson is persuading us to buy, it is probably the marketing working in our subconscious that leads us toward the product or service. That product or service resonates with us because it has, in reality, already been sold to us.

So, is there are any place left in the world for the salesperson. It is difficult if not impossible for a salesperson today to sell a product or service without it having first been marketed to the person to whom he or she is selling. Therefore, marketing has in a sense taken the job away from sales. However, there is one aspect of the sales process that a salesperson may be better-equipped to handle. The one job that a salesperson has left is to close. All sales is now closing. Sales is about executing what marketing began. Salespeople no longer need to sell a product so much as they need to piggy-back on its marketing. A good salesperson will simply reinforce what drove a customer to a product or service in the first place.

Are marketing and sales at war with one another? Perhaps. Marketing people may think that sales people are ubiquitous and sales people may think that marketing people are out of touch. The truth is, I think, that they need each other. They are on the same team. Marketing people are openers and sales people are closers. A salesperson can't get a customer's attention without the work of marketing, yet a marketing person will never actually be there when the purchasing decision is made. The companies that succeed will be the companies whose marketing and sales departments are a team.

Thursday, January 13, 2011

The Inevitability of Externalities

Lately, I have been reading a book by a sociologist who admittedly uses extreme examples to prove his points about how society should function. His general thesis is that we should have more concern for the effects our actions have on other people. It's not enough to consider how we interact with others directly, but we must also consider the indirect, far-reaching consequences our actions have on others that we may not ever come in contact with.

This author suggests that smoking may be a bad idea, not because of second-hand smoke, but rather because of the influence that such a habit may have on younger generations. Watching football could be unethical because it reinforces beliefs on war and male superiority. Young men may grow up thinking that woman should cheer them on while they go off to battle and kill people. Finally, for a woman to have a baby is a serious moral dilemma, because it perpetuates the stereotype of a woman being a stay-at-home-mom while the man makes money in the workplace. Young women, who see a newborn sibling in the arms of its mother, may unwittingly think, 'Gee, I want to be a mother when I grow up.' Do you see how each of these seemingly innocent actions could have an effect on uninvolved parties? Clearly, people who smoke, watch football, and give birth are operating on dangerous ethical territory.

An externality is an event in economics in which a transaction between two parties has an effect on other parties that are not involved in the transaction. The most common example of an externality given is environmental pollution. The product you buy from a factory that dumps pollution into a river may inadvertedly cause the death of Rosco--who catches and eats a poisoned fish downstream. Rosco just wanted to eat some fish. He had nothing to do with the transaction between you and the company. That is an externality. They are everywhere. But not all of them are bad. Suppose there is a thief going around your neighborhood and looting houses. He gets to your neighbor's house and, little does he know, your neighbor has a silent alarm. Within minutes, the police are there to arrest him. Your house was next but he never reaches it because of the alarm that your neighbor purchased from a security company. You were not involved in the transaction but you benefitted from it. Again, externalities are everywhere.

What is my point? That externalities are realities. We live in a social world. We interact with each other. There are going to be consequences of those interactions. Of course, we ideally want to minimize externalities--whether positive or negative. We don't want to pay for our neighbor's security and we certainly don't want to kill Rosco. But we have to recognize that externalities are there and they aren't going away. No matter what economic system we live under, there will be indirect consequences of our interactions with others or with our environment.

What should we do then? Well, no matter how 'ethical' we wish to be, none of us wants to be the unfortunate externality of someone else's decisions. I suggest that it is a good idea to think of the indirect, unintended consequences our choices may have. However, I don't see the examples above involving smoking, football, and having babies as being legitimate. Smoking does not force a child to pick up the habit. Nor does watching football make young boys join the army or having babies make young girls grow up to be submissive man-slaves. Each of these children, regardless of how heavily influenced they are, have a choice to make in the matter. Rosco could not choose whether or not he wanted to die after eating the fish. Nor could you choose whether or not you wanted your house robbed after the thief was arrested from your neighbor's house. The things we really need to consider, therefore, are the things in which uninvolved third parties have no choice but to be affected by our decisions. Those are the externalities that really matter.

Tuesday, January 11, 2011

The Consumer Psychology of Planned Obsolescence

Planned obsolescence is a concept in engineering that involves deliberately designing a product to stop working after a given period of time. It is planning for the product to become obsolete. This policy of design apparently finds its way into a host of items that we use everyday. From light bulbs to bakeware to batteries to cars, most products are accused of at least having some degree of planned obsolescence built into their manufacture. The question is, 'Is planned obsolescence ethical?' Is it socially responsible for companies to design products to have an end-life? Is it beneficial to consumers? Is it right?

If cars weren't built with planned obsolescence, perhaps we would never have to buy a car again. If light bulbs weren't built with planned obsolescence, we would never have to change a light bulb again. Everyone would have to do a lot less spending and everyone would still have everything they need, right?

I'm not sure it's quite that simple. If light bulbs were made to last forever, what would the people who research, design, manufacture, test, and sell light bulbs to for a living? They could find another job, I suppose, since they are no longer useful. Let's say they start making batteries. Yet, what do they do when they are finished making batteries? Eventually, people are going to run out of things to do because they are operating on business models designed to fail. Naturally, people have to have income that will sustain them for life. Therefore, the researchers, designers, manufacturers, testers, and sellers of light bulbs won't stop making light bulbs. Instead, they will make light bulbs that last forever and sell them at a price that will sustain their livelihoods. Therefore, it will cost the average person an astronomical amount to get a light bulb or a skillet or a battery--because built into these enduring products will be the lifetime incomes of the employees behind them.

What if this concept were applied to motor vehicles? Cars are already among the most expensive products people will buy in their lives. What if they were all designed to last forever? The automotive industry is one of the largest in the world. The removal of planned obsolescence in automobiles would result both in the loss of probably 90% of the jobs and the astronomical price increase of an automobile for the average person. The result of such a phenomenon would be that only the very richest would have cars to drive. Likewise, only the wealthy would own light bulbs, batteries, bakeware, you name it.

You can already see this played out to some extent. There are products within given categories that last longer and thus cost more than other products within that same category. Shoes that last longer (of course there are other factors involved as well) are typically more expensive than shoes that do not. Computers that are built to last longer are typically more expensive than computers built to last a short period of time. The list goes on.

What about services? Nearly all services involve planned obsolescence. The party providing the service only provides that service for a set period of time before the party requesting the service is required to pay again. Magazine subscriptions. Tax preparation. Haircuts. Lawncare. Plumbing. Electrical contracting. None of these services last forever. If they did, they would not be sustainable.

Planned obsolescence doesn't seem so bad now, does it? I know that perhaps I too am simplifying the issue from the opposite end of the ideological spectrum, but I think it helps to think of things realistically. There are environmental issues involving waste to be considered, of course, but the economic impact of refusing planned obsolescence cannot be ignored. So, next time a light bulb goes out and you start to curse GE, be greatful instead that you had enough money to buy it and you'll also have enough money to replace it.

Wednesday, January 5, 2011

Why are Companies in Business?

Why are companies in business? The answer that I will inevitably get is, "To make money! Why else?" Maximize profits. Increase the return on investment. Raise the stock price. These are all metrics we associate with the primary purpose of the corporation in our world today. But are these things really their purpose? Are they really in business simply to make money?

I recently read a quote from Tachi Kiuchi, a former Managing Director of Mitsubish Electronics. Kiuchi says, "People talk about businesses needing to be responsible as if it's something new we need to do on top of everything else. But the whole essence of business should be responsibility. My philosophy is 'We don't run companies to earn profits, we earn profits to run companies.' Our companies need meaning and purpose if they're to fit into the world, or why should they live at all?" I could not agree more. Profits are merely a means to an end.

I remember, when I worked for one Fortune 500 company, a bullet-point in the employee's mission statement stating, "Profits are essential to our future success." At the time, I thought it was hokey propaganda designed to garner a team effort in increasing profits. As I look back, I realize how much truth is in that statement. The statement could have read instead, "Success is essential to our future profits," but it did not. That's because profit is only fuel to be reinvested into the business in order to make it more successful--more effective at what it does. If you're Starbucks, profits go back into the coffee. If you're BMW, profits go back into the engines. If you're Target, your profits go back into the stores.

While profit is merely a means to an end, that end is different for each company. Whatever market the company serves, that is its purpose. A higher quality coffee. A more ultimate driving machine. An enhanced shopping experience. Whatever the case may be, a company's profits are merely an investment in its market. "We don't run companies to earn profits. We earn profits to run companies."

Saturday, January 1, 2011

The Consumer Psychology of New Year's Resolutions

Today is the first day of 2011. Last night, billions of people around the globe looked into today with hope and determination. Perhaps more commitments are made on the eve of December 31st than in any other day of the year. Lose weight. Quit smoking. Get married. Read more. Get promoted. Save money. All of these commitments involve one recurring theme that resonates strongly with consumer psychology: change.

Shopping, like New Year's Resolutions, is about doing something different. Switching from Verizon to AT&T. Taking Starbucks over Dunkin Donuts. Trading the old Cavalier in for 3 Series. These consumption choices are not material in nature--they are transcendent choices about reinventing yourself as a person. Being a consumer isn't about accumulating things; it's about accumulating experiences.

I just moved a couple days ago into a better neighborhood and, while the new place is definitely worth it, I hated every second of moving all of my stuff. In particular, I hated transporting the books. As I lifted each 50lb box and carried it onto the Budget truck, I swore that I was getting rid of every single one of my books so that I would never have to move them again. Sure enough, when I finally got my bookshelves set up at the new place, I took a long hard look at my library and began to weed it out. Soon, I had a pile of fifteen to twenty books stacked up to sell.

The very next day, though, I went shopping online with some Christmas money I had gotten from relatives. Before I knew it, I had ordered 3 new books from The moral of the story? I reinvented myself. My library isn't a collection of books; it's a collection of my values, knowledge, and information. I didn't really want to stop reading; I just wanted to read something more valuable to me. I had realized as the weight of those books became heavier that it was time for something new. It was time for a change.....a resolution.

Transformation of values and reinvention of one's self is the lifeblood of the economy. If none of us ever felt discontented with our lot in life, all economic activity would come to a standstill. There is only opportunity where there is need and only need where there is dissatisfaction. So, as you seek to follow through with your commitments this year, take comfort in the notion that you are engaging in one of the most noble activities of the human experient: self-improvement. Buy an iPhone. Splurge on a latte. Go for a test drive. Do something new. Recreate who you are. Make good on your resolutions.