Don’t be a hero, just analyse the data, advises Julian Saunders, former Head of Strategy, McCann Erickson
Tis the summer of sport with an epic Cricket World Cup, a gladiatorial Wimbledon final, a challenging Ashes series, and just when you thought it was safe to turn off your TV, the start of the football season is being trailed. Over the past 20 years, English football has developed from a muddy, beery, domestic affair to today’s incarnation as ‘The Premier League’; a global entertainment brand with superstar salaries to match. Truly, elite sports and all the lessons they teach about winning pervade all our cultures around the world.
We like sporting stories as ways of bottling the alchemy of success. Many marketing conferences will feature sporting heroes (or heroines) as motivational speakers who promote the idea that a combination of determination, character, confidence and skill are the keys that unlock victory. Surely, all we need is to be a bit more like Novak Djokovic and success will follow. But is this true or helpful for most of us most of the time?
It’s not about heroism, it’s about costs
Looked at more analytically, continued success at elite sports is the exception not the rule. The moody sullen face of Jose Mourinho, the sacked manager of Manchester United, warns us of the law of ‘regression to the mean’. He was a winner for a while, but then he fell back into the pack and started to perform in an average way. Hope springs eternal in sports and a new manager is appointed who enjoys a bounce and then he too falls back and becomes, well, average. And so it goes on. Neil Woodford, once a high-flying fund manager, has fallen to earth and revealed to have feet of clay. He has ‘regressed to the mean’ dramatically.
Analytical minds in finance (like Warren Buffet) recommend that we rid ourselves of the illusion of individual skill and bet long-term on average market performance in the form of low-cost tracker funds. Winning is about ruthlessly cutting unnecessary running costs to deliver the best value and thus enjoy the benefits of compound interest. All very dull. All very unheroic. All very data-driven. Besides, in sports there is an assumption that everyone is playing by the same rules. The net is the same height and the court is the same size for both Federer and Djokovic. Yet, success in business can mean changing the rules of the game to your own advantage, which often involves spotting a big change in culture or technology and riding it to success.
Business as war – a better metaphor?
Perhaps ‘warfare’ provides a better metaphor for success than sports. Britain ‘ruled the waves’ in the 19th century, with all the consequences for imperial overreach that followed because Nelson beat the French at Trafalgar. How so? The British had invested heavily in copper bottomed boats that moved more swiftly through the water. Nelson was a brave and resourceful general, but his strategy for winning relied on superior technology.
‘Never invade Russia’ is one of the iron laws of winning wars says Lawrence Friedman in his huge book called Strategy: A History. Individual geniuses (like Napoleon) are neutralised when they come up against a hostile environment (the Russian Winter) and a competitor with seemingly limitless abilities to take punishment and still bounce back (the Russian people). The lesson: organise and focus your resources in a way that play to your strengths and undermine your competitors. Churchill famously rejoiced when the Japanese bombed Pearl Harbour in 1941 because he knew it would bring the USA into the war. Their superior resources and technological lead was (he calculated) the factor that would eventually grind down the Axis powers.
There is a global battle going on right now to become the new Amazon. Everyone can see the trend: e-commerce will grow fast globally. Challengers (Mercado Libre in Latin America, Shopee in South East Asia, Jumia in Africa) are investing heavily in local markets and playing to their strengths and Amazon’s weaknesses. Amazon’s success in the USA and Europe relied heavily on existing infrastructure and logistics systems. These do not exist in many other parts of the world and have to be set up from scratch, which is how challengers can play to their competitive advantage. Amazon may have the huge army and superior technology but they do not have on the ground troops integrated into local communities.
Warfare holds better lessons for winning than elite sports; yet I don’t see many retired generals hitting the marketing conference circuit. Perhaps their lessons would be just too harsh and pitiless for modern sensibilities.
Business success and human relationships
War is, however, a metaphor that cannot be pushed too far. Brand building (a key tool in business success) is not the same as warfare. It is about winning hearts and minds as well, which armies are notoriously bad at (although they may try). Which brings us to another of our favourite metaphors for success: brand building is like human relationships. This idea (often unconsciously) pervades our thinking in words like ‘loyalty’, ‘engagement’ and even ‘brand love.’ However, Professor Andrew Ehrenberg punctured this hot air balloon with his analysis of purchasing data, which proved that “your customers are other people’s customers who occasionally buy you”. Ouch. So much for winning customer loyalty. Our relationships with brands look more like polygamy or polyandry, only less loving.
Five measures of business resilience
So what is the clue to winning? No doubt every one of these metaphors has something to teach us, but I would not bet my savings on it. This is what we might call ‘the pension plan question’: what companies would you buy stock in to live a comfortable retirement? It forces us to identify a harder nosed set of criteria to identify winners. You will want to be suspicious of superstar CEOs (remember ‘regression to the mean’) and identify measures of resilience in a hyper competitive world. Here are my top five measures.
1 Is the company clearly positioned in its market? Brand positioning means occupying a place in the minds of people (and this will survive and have a value even if the factory burns down). In fact, some of the most successful brands in the world (think Nike and Apple) don’t make their products.
2 Is the company well funded? And thus well placed to resist, take shares in and/or buy out competitors? This is exactly what Amazon is thinking about all those mini Amazons which are out to eat their lunch. None of the new wannabe Amazons are making money. In fact they are burning through cash.
3 Does the company strengthen its lead through communication and innovation? This makes it very difficult for challengers to attack, especially if it results in both a technological lead and becoming the most salient brand. Brand leaders are disproportionately profitable. It’s called the brand leader effect.
4 Does the company attract and retain the best talent? Employee satisfaction is a good litmus test of company health and dynamism. Companies with high employee satisfaction ratings are proven to be more productive and innovative.
5 Is the company transparent in its release of data on financial performance, diversity, equality and social/environmental impact? These measures show that a company really understands how culture is changing and is alert to how it needs to change to stay ahead.
What are your measures of business resilience and what would it take you to invest your hard-earned pension fund in? If you want to make a smart choice, my tip is to follow the data and not the heroic story, even if it does not make for an inspirational marketing conference speech.
Julian Saunders was CEO, Red Cell (a WPP creative agency) and Head of Strategy, McCann Erickson.