The Art of Evolution

A short aside today, before we return next time to the Art of Change.

Dave Rolfe at Crispin Porter + Bogusky blogged yesterday about a powerful initiative that the agency is undertaking. As some people know, we are working with CP+B to help them design, navigate and implement this evolution. 

And while we make it a point not to discuss the specifics of our work with clients, Dave’s post speaks volumes for how successful companies become and remain so.

“We’re eyeing a model that will explore how post-production can best function in the overall creative process.” 

There are two truths on which to build a more valuable creative business. The status quo is where the funerals of once great companies are planned. And the future has no rules. Great companies live in the space between the two. They are pragmatically fearless. 

“We’ve been working like this since the beginning.”

Evolution is a state of conversion. The from being as important as the to. A business that sells subjectivity is built upon core values. Defining them clearly helps you make big leaps feel like small ones. 

“The best in talent will be sought to lead, and the best will be developed within the system.”

The art of growing a talent-dependent company is based on investing in those that can teach. From experience. And achievement. And in those that can learn. From others. And themselves.

“Made to take advantage of and connect the agency's geographic and cultural diversity.”

Geography can be an obstacle. Or a benefit. And culture is the DNA on which sustainable growth depends. First you need to recognize their importance. Then you need systems and processes to unlock the power of both.

CP+B’s evolution presents both threat and opportunity to many other companies. As Jerry Solomon commented at the bottom of Dave’s post, “We should view it as a challenge. If someone can do it better, faster and cheaper they deserve the business. And, if they can't our value becomes greater.”

Precisely.

Changing The Focus

I attended the AICP conference in New York on Tuesday. It wasn’t perfect. But it was a start. And it could become much more than that. I hope so. Industries facing the kind of seismic shifts going on in the world of advertising and marketing need provocation, illustration and guidance. In that order.

One of the themes at the conference was fear. The unwillingness of so many companies to act differently even when living a reality they can’t afford, and hoping that if they can survive, somehow that will equal success.

In the current production company model, $30-50 million in gross revenue generating a 5-8% operating margin is pretty common. 

For agencies, 20% margins are the benchmark. Two thirds of which goes to the holding companies. Some do better. Some worse. 

In both cases the business model is based on selling time.

Shoot days or people. The sell is dressed up in different ways. Director’s reel. Client case study. But the income stream is built on the same premise. 

How long it takes to make the work is more important than the impact it has.

An approach which would radically change our view of value if applied to the rest of the world.

Suddenly a painting that took a year to create, is 52 times more valuable than a Picasso that took a week.

And we would price music based on its length.

Which would instantly make, ‘The Chosen Priest and Apostle of Infinite Space’ the most expensive piece of music in history. If you want to listen to it, start today and you’ll be finished just in time for New Year. It’s two months long. And on the basis that a 3 and a half minute song on iTunes is $1.29, The Chosen Priest will cost you a little under $32,000. 

Price books the same way? Dickens wrote a story a week. Devalue him because of the ease with which he wrote.

And put aside creativity. Would you pay more for a longer or shorter flight to the same place? A longer or shorter dental appointment to cure the same toothache? 

The truth is, time is money. But not in the way that creative companies use it. 

For it is our time that we should value most. The one thing in our lives we can not control. None of us having the capacity to forecast our own death. Or, therefore, to place a ‘unit price’ on the value of a day. The language of procurement and cost consultants.

I believe the madness of creative companies has to stop.I believe that creative companies have to start selling their capacity to cause profound change in people’s attitudes and behaviors based on the value of that change.

I believe creative companies have to define the future on new terms. 

Otherwise, as James Akers, the Senior Director for Worldwide Procurement at Pfizer promised on Tuesday, “we will.”

A call to action for an entire industry.

Next week I’m going to start examining in practical terms how that change can actually take place. And how your company can start to take action that will create a different business model, one step at a time.

The Art of In-House

For fifty years the advertising food chain was linear and static. Agency. Advertiser. Production. You could fight within your peer group. But not above or below. A state of competition that comforted and restricted in equal measure. 

Today that food chain has been blown up. Advertisers produce. Producers develop. And agencies try and figure out at which table they want a seat, while trying to make sure they're not the ones standing when the music stops. 

Seismic evolution or revolution? Your choice. The future being restricted only by your vision of what it holds and your capacity for change.  

For many companies, the vision includes adding new services. A strategy which is flawed only if you believe that the ease with which your suppliers provide them is an indicator of the simplicity of adding them yourself. Which is the same as deciding to extract your own tooth because you have a great dentist. You save the money. But the results are messy.

Service businesses - the definition of every creative company - need to successfully add new capabilities if they are to grow. Indeed, it is a strategy so tried and tested it has a chapter of its own in every MBA textbook: ‘Vertical integration.'

For creative companies, successful vertical integration is the result of making a clear strategic choice about how best to do so based on the structure of your organization and its capacity for change. There are two models:

• Immersion: in which the new capabilities are fully integrated into the core business. This structure is often seen in new companies that incorporate multiple capabilities into a holistic organizational structure from startup.


• Independent: in which the new capabilities are built and developed in their own right, using intimate understanding of the needs of both the company and its clients to maximize the value of the new In-House offering.

Of these, by far the most common is the Independent approach. The successful deployment of which requires avoiding five mistakes. 

Succumb to them - as many companies do - and you throw away brand empowerment, operational scalability, marketing gravity, profitability, creativity and ROI.

Here, in the order in which they are most likely to occur, are the mistakes to avoid when adding In-House:

1. In-House as Add On

Creative companies often act tentatively when moving outside their base capability. This often manifests itself as a failure to commit fully to the operational foundations necessary to ensure the investment in new services will produce a return.

When In-House is built as an add-on, you:

• Cede the advantage to the competition - your former suppliers - for whom your 'add-on' business is their only business; a full-time commitment your competitors invest both heart and soul into every day.


• Expect your staff to behave as clients, while you treat them like staff. The fastest way to have them end up being neither.

2. In-House As Department

For companies that make it past their fear of commitment, the next most common mistake is to treat the newly formed business as a department. Here, the parent commits serious resources - usually time, money and space - but then imposes its own traditional management structures and operating practices. 

This works as well as having your mother select your spouse. She has a lot of knowledge about important issues. But not necessarily those that determine the success of your marriage.  

3. In-House as Subsidiary Brand

This is a stumbling block for so many creative companies who have successfully navigated hurdles 1 and 2.

Fearful that the success of the new business will undermine the brand value of its parent owner, the parent inevitably inserts their name into that of its new offspring. 

This is the equivalent of thinking a take-off powered by a Rolls Royce engine somehow diminishes American Airlines.

That Rolls Royce is a premium brand in its own right requires Rolls Royce to keep making better engines. 

That American Airlines picks you up and safely sets you down using Rolls Royce technology is a win-win-win.

4. In-House as Requirement

Avoiding mistakes 1-3 eliminates the biggest obstacles to turning new in-house capabilities into a successful business. 

What happens next is the pivot point.

Parent companies have awesome influence. Influence that can be misdirected into requiring that its staff will use the In-House services.

This removes the greatest advantage that the new business has - proximity to its potential clients - by exchanging choice for edict; the surest way to motivate creative people to do exactly the opposite of what you want.

Deliver extraordinarily and market gravitationally. The rest will take care of itself. 

5. In-House as Holding Company Aggregator  

Holding companies offer many benefits. A subject for another day.

But not one has yet successfully built powerful, aggregated In-House production services. 

Typically this is because holding companies design from the top down, a view that brings virtually no understanding of the needs of the creative team. 

Or from the middle sideways. Which ensures the business is built to service only the needs of one company. As opposed to those of many.

Adding In-House should take place from the bottom up, and from the future back. Two perspectives from which to ensure you have one eye on the road beneath you, and one eye on the horizon.

Re-Defining Failure Is Not The Same As Success

It’s been an interesting couple of months. And for those of you who have been kind enough to pass comment on my blogging absence I offer thanks. And only poor excuses.

I celebrated a milestone birthday a couple of weeks ago. An event that gave me a moment to pause. Or perhaps two.

As a species, we like living but hate aging. An example of cognitive dissonance that trumps all others. 

To exist, after all, requires both. A truth that becomes clearer as one does more of each of them.

In truth, this realization is less the result of age than experience. Experience being the sum total of all that we have lived, seen, heard and learned. 

Most of which is provided by others.

If our view of our own lives were based only on what we experienced first hand, our evaluation of how we are doing would be both kinder and narrower. The only measurement of progress being our own intrinsic drive to grow.

The purity of that scale, however, denies us a broader context of what might be possible. Whether provided by the inspiration of the achievements of others. Or the evidence of history that as a species we have almost limitless potential.

Because once we have satisfied life’s most basic requirements - food, shelter and procreation - the rest of life becomes a journey of exploration. 

Of ourselves, to begin with. 

Followed, hopefully sooner rather than later, of the world in which we live.

That exploration is filled with cognitive dissonance. A logical inconsistency in our beliefs. The first of which is provided by parents. Whom we see both as perfect in their command of the universe. And flawed in their unwillingness to do only what we want.

Parents, we come to discover, are people too. A realization that arrives, for many of us, with a price on its head. Taking with it security, confidence and trust. In my case, I worked for 40 years to reconcile the image of a father with my reality of mine. A challenge that for a while I decided came at too high a price. The resolution of which was a ten year detente. In which I saw him as dead. And he gave me no reason to think otherwise.

That experience I mentioned before brings with it two things. An awareness that we are not so perfect as we think. Nor others so flawed.

A realization that comes too late for many people.

The cause of which is an extraordinary investment in what Jon Elster describes as adaptive preference formation. The retrospective justification by which we define a failure as success.

In the living of a life, the lines between true failure and the willingness simply to throw away a dream for expediency sake become impossibly blurred. We are what the journey makes us. Each step a decision that can change the course of that life. Including the chance to go back and try again if we wish.

But in the running of a business, every decision makes the journey increasingly narrow. And the outcome of that journey increasingly consequential to the lives that are impacted by the direction a company takes. 

The weight of which makes the reactive, short-term management of many businesses even more confusing. The short-term cognitive dissonance between their statement of intent and their actions having profound long term consequences on their ability to evolve. 

The ultimate consequence of which is extinction or re-invention.

For the established business, re-invention is always expensive. And, if guided by the same adaptive preference formation that caused the re-invention to be necessary in the first place, usually fatal.

For unless the habit of justifying failure as a planned outcome is broken, the result will be only a different kind of failure. One that sees luck as a resource and hope as a strategy. A waste of two elements critical to any successful journey.

Success is defined by what we achieve in the context of what was possible. 

On a business level, that is easier to achieve when our standards become absolute, and our willingness to justify our own actions less so.

On a personal level, it is easier to achieve when we see ourselves and others as differently but equally flawed.

Today, I know one thing for certain.

My father reads my blog. 

As a measurement of success that might be my greatest achievement. 

And his.

The Long Term View

"In the long run, we're all dead," posited John Maynard Keynes. 

I say posited because recent announcements in the development of 3D printing suggest we may not be far away from a time where death becomes an option.

Far away being a relative term. Your children's children, perhaps. 

While we consider the ramifications of that kind of evolution, an email circulating this morning highlights the requirements of sustainable evolution within the current limitations of medical science.

• Knowing what you stand for.


• Applying those standards consistently.


• The capacity to evolve. Ideally, pro-actively.


• The ability to accept there will always be critics. No matter what you do. 


• The discipline to remain focused regardless.

In this case, good genes have also played their considerable part. Proving that when it comes to longevity, medical science is still the pupil.

 

 

How To Rule The World

Around 5pm EST this coming Sunday, Germany will win the World Cup. 

It will happen because six years ago, having been unceremoniously dumped out of the European Championships - during which the team failed to win a single game - the German football authorities decided to rebuild.

The did not undertake this mission lightly. They didn’t embark on a conversation-heavy, action-light series of meetings and investigations. 

They hired a man and asked him for a plan.

Fortunately for them, and for the rest of us waiting for our respective countries to demonstrate there is a reason beyond passport issuance to believe that next time will be our time, they hired a man capable of giving them a plan.

They hired a man called Jurgen Klinsmann. 

Klinsmann had won the World Cup with Germany. He had played at the highest domestic levels of German, Italian, French and English football. He had moved to California, thereby removing himself from the day-to-day petty politics of European football and ensuring he retained objectivity.

Klinsmann did three things that are a model for anyone re-building a business.

One. He solicited opinions. From players and managers alike. Everyone who would have some influence over how his German players would play. Then he empowered them to make a contribution.

Two. He defined the characteristics of how his Germany would play. Characteristics that were based on well-established German traits. Being dynamic. Aggressive. And decisive. Traits that Klinsmann readily admits were the cause of two World Wars. But which he believed could be better Purposed on the football pitch.

Three. He built an organization capable of surviving his departure, in the knowledge that the emotional effort required to build the foundations would quickly create friction between him and the German Board.

It was not an easy transition. Early results were poor. And he almost lost his job after 18 months. Only a decisive win over the U.S. in 2006 keeping him in place for the World Cup that year.

His team came third. And was celebrated throughout Germany. Then Kilinsmann resigned and handed over the model to his young assistant, Joachim Loew.

Two years later, Germany were runners up in the European Championship.

This afternoon, they play in their second consecutive World Cup semi final. 

It is a case study in organizational re-structuring.

Vision. Execution. Evolution.

And built, not around an irreplaceable individual or a single skill. 

But around a Purpose and a set of timeless characteristics.

Klinsmann’s work has changed the face of world football. Created a template that others will follow. And will bring hundreds of millions of Euros worth of value to the German economy.

As an Englishman, praising German anything is hard.

But between now and Sunday evening I'll be doing something for the first time in my life.

Hoping for a German victory. 

Change indeed.

A Journey With Oprah

In the spring of 1984, Chris resigned from her job at Good Morning America and moved to Chicago to produce a new local talk show. A.M Chicago.

The host, an unknown from Baltimore, was a woman called Oprah Winfrey.

For the next seven years Chris was part of a very small group that managed the  development of the show, the studios and Oprah’s personal profile. She and Oprah travelled the country together, building both the business and the brand by balancing the need to expose the message with the importance of protecting its value.

As in all great and enduring relationships they taught and learned from each other. And marveled at the journey of a black woman from “nowhere” (as Oprah described her background) to the most powerful media influence on the planet.

That no one could forecast how far this would go is true. But the practices that were instilled in those early days created the platform that have allowed Oprah to do what she wanted on her terms. Including deciding how and when to evolve.

In today’s news the media is reporting the final episode of the Oprah Winfrey Show as an end.

It is in fact a transition. To see if she can build something that has value beyond her own personal reach.

The Oprah Winfrey Network may outlive her. Or it may simply prove that without Oprah, there is no business. But she is unafraid to try. Or to let go of her lifeboat.

And though it is easy to decide that a billionaire has little at stake, this ignores the fact that every founder is emotionally intertwined with their business. Often to a point of paralysis.

One of the things we do most successfully is to help owners take responsibility for their business by separating themselves from it. Which creates the possibility that the business can exist without them.

It’s taken Oprah 25 years to do so. But this is her first step to discovering whether when she is gone, she has created a legend.

Or a legacy.

Gourmet Magazine: Right Ingredients. Wrong Recipe.

The announcement today that Condé Nast has decided to shut down Gourmet Magazine after 68 years was a stark and startling reminder that even great brands go stale.

In the moment its demise was announced, Gourmet was revered by the professional and privately passionate alike. Jean-Georges Vongerichten, regarded as one of the most celebrated chefs on the planet is a fan. And a subscriber. As are 978,000 others. A number that has stayed relatively unchanged for a decade. Indeed, Jean-Georges attributes his success to Gourmet’s prestige. “It helped make me what I am today.”

How then does a 68 year old institution with the power to make or break the world’s greatest restauranteurs, become a memory?

There are two reasons. One we talk about a great deal. One we do not.

The first is that Gourmet failed to understand the essence of its value to consumers. Not as a magazine. But as an authenticator of taste. Sensory and subjective alike. Regardless of the medium. Or the calendar.

Absent that understanding, Gourmet did not bring us Yelp.  Foursquare. Or even an iPhone Gourmet app. They gave us information. Great information. But on their terms. Not ours. As Jean-Georges explained, “Even I look up information on restaurants on the Internet when I travel, to see what's good or bad."

The second, is that McKinsey, the consultants brought in to analyze the state of Conde Nast concluded that Gourmet was better dead than alive. A decision that suggests a failure to see the possibility of repurposing the value of a 68 year old iconic brand. Or an unwillingness to re-invest in it by its owner.

A waste. By consultant and corporation alike.

And unnecessary if you take time to understand why you’re really in business in the first place.
 

General Misconception

The bankruptcy filing of General Motors sent a shudder through business owners everywhere, I suspect. “There but for the grace of God, etc:”

God, of course, has nothing to do with it. Complacency, ego, hubris, mistakes (genuine and absurd), self-indulgence, shortsightedness, a complete absence of perspective, a systemic inability to innovate, a belief that the company was simply too big to fail and a terrible economy all played their part.

But the truth is that Monday’s news was finally cast in stone by the delusion that prompted the company’s (now former) CEO to stand up last fall and announce that GM was “positioned to lead for another 100 years.”

The delusion that we needed GM more than GM needed us.

A few years ago I took a strategy class at the University of Chicago’s Graduate School of Business from one of the smartest strategic thinkers on the planet. Jim Schrager. He took us through the case study of a company called Head Ski.

You might have heard of Head. Or you might not . Today they sell a few tennis rackets. But back in the 60s they had an effective monopoly on the ski industry. If you skied professionally, you used Head skis. If you skied recreationally, you used Head skis. Gold medalist or 4 year old beginner, the same technology was on your feet.

Metal technology.

In the mid 60s, Head were better than anyone in the world at making metal skis. So when a year or so earlier, their small and insignificant competition had begun to experiment with fiberglass, Head had ignored them. When their small and insignificant competition had begun to sell a few pairs of fiberglass skis, Head had ignored them. When a few up and coming professionals had won a few minor competitions on fiberglass skis, Head had ignored them.

By the time anyone at Head realized they needed to be in the fiberglass ski business, it was too late. Everyone else knew more and did it better. As history came to prove, nothing they tried thereafter could bridge that gap.

Looking back analytically, it’s simple to see the mistake. They missed the innovation curve in their industry. They’re not alone in that.

But that’s not what’s important. What’s important is that in the epicenter of their success, Head was already a dead company.

We went through the case study for more than a day because none of use could believe this. It was inconceivable that a company at the height of its powers had no ability to control its future. Inconceivable, perhaps. True, unquestionably.

The fact is that when successful companies go out of business, it’s not a seismic event that takes them down but a series of decisions. And most of them happened before today.

In other word's success and failure happen over time. And if you don't have a clear plan you will always believe that where you are today is a true indicator of where you will be tomorrow.

It's not. Where you will be tomorrow depends on how well you understand why your customer is your customer.

In Head’s case they lost sight of the fact that their customers wanted the best skis. Not the best metal skis. They started to believe their brand was the attraction. Not what the brand meant to their customers.

GM did the same. All they saw was their own self-image. Part of the American dream.

Well today, they’re living a nightmare. Because they forgot one thing. You don’t get to decide what’s valuable to your customers. They do.

On the day we left the Whitehouse - the company we built for eleven years and then sold -  Chris's penultimate act before turning off the lights and setting the alarm for the last time was to remove from her phone a faded yellow sticky. On it, in her elegant hand, were written four words.

"Stay humble and nervous."

Are you?

Guest Blog - Jon Collins

Over the last couple of years I've been fortunate to work with a number of people who have a unique point of view about business ownership.

From time to time I'm going to ask some of them to contribute to this blog.

The first of those is Jon Collins - President of Framestore, New York, one of the world's leading film and commercial special effects companies. Click their link. Their work is astounding.

Jon has worked for Framestore since 1996, starting in their London office before moving to New York in January 2004 to launch Framestore in the US.

The company has gone from strength to strength in the US under his leadership, and Jon's down to earth and sensitive approach has allowed this powerful UK brand to establish itself in its own right in the American market. Cultural transitions are the hardest for an established company to navigate. Jon has made Framestore's look effortless. I hope you enjoy his post.

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I know that I may not be entirely the same as many of Charles' readers: for a start, there are times when even I am amazed that I am running VFX/CGi company in NYC. And then there are other times when I think that - after being Everton's centre forward or one of the Beatles - this is what I was born to do. I have times of great clarity and times of navel gazing.

I never intended being a 'businessman' - I was always more interested in creating something. I think what I have now created is a team. And running the business then makes sense if I apply it to what I know about football (English football, but I guess most if not all team sports work for this metaphor). I have built a team of people looking for certain skills in certain areas and selecting them so that they will work well together. I motivate them and train them and finally I create an environment in which they can perform to their best ability.

You get the picture.

All this was making sense to me until quite recently. As a team we have been used to competing with the very best both nationally and internationally. We may not win everything but we are focussed and we don't dwell on victories or defeat but we assess what can be improved and we look to the next 'match'.

The only problem is that instead of competing in the Premier League, we now have combined all the leagues into one. One week we may be competing against Real Madrid but the next we are playing against Doncaster. Okay...we should be able to adapt to that. It's not always easy to play attractive football on a muddy pitch but, like I say, we have some very talented people and we should be able to adapt.

Yes, but what do you do when you are not getting the money from huge crowds every week and the gate receipts are non-existent every few weeks? Well, you can send out a few less players and get them to work a lot harder covering the vacant positions. They should be fit enough...we've trained them well.

But what happens when they take away the ball?

Well I guess it stops being football and we have to invent our own new sport. I have a sentimentality borne out of nostalgia for the old game….but the old game doesn’t work without the ball. What I am trying to focus on as the coach is coming up with new rules so that my team can play a new, exciting game competing against the best. A game full of challenges and clear goals.

I haven’t worked out the rules yet but when I do I hope that we meet on the new playing field.