Weekly Digest #13 [Blockchain, Skill, Psychological Safety, Marketing, Strategy]

A snapshot of article summaries that we enjoyed reading ( Jan 28 — Feb 2)

“Study the past if you would define the future.”
— Confucius

Blockchain’s Occam Problem: In the nine years since its launch, companies, regulators, and financial technologists have spent countless hours exploring Blockchain’s potential. Resulting innovations have started to reshape business processes, particularly in accounting and transactions. There is a clear sense that blockchain is a potential game-changer. However, there are also emerging doubts. A particular concern, given the amount of money and time spent, is that little of substance has been achieved. Of the many use cases, a large number are still at the idea stage, while others are in development but with no output. There a few important reasons for this state. First — Blockchain is still an Infant Technology that is relatively unstable, expensive, and complex. It is also unregulated and selectively distrusted. As per the classical life cycle theory of any industry/product, Blockchain is still stuck at stage 1 in the lifecycle (with a few exceptions). The vast majority of proofs of concept (POCs) are in pioneering mode and many projects have failed to get to Series C funding rounds. The payment industry is a good example. Given the range of alternative payments solutions and the disincentives to investment by incumbents, the question is not whether blockchain technology can provide an alternative, but whether it needs to? Occam’s razor is the problem-solving principle that the simplest solution tends to be the best. On that basis blockchain’s payments use cases may be the wrong answer. Second point — Industry Caution. Even though by 2016 the future of Blockchain looked bright, from an industry lifecycle perspective, however, a more complex dynamic was emerging. Just as the financial services industry’s blockchain investments were reaching the end of Stage 1 — theoretically the moment when they should be gearing up for growth — they appeared to falter. The third reason — Emerging Doubts. McKinsey’s work with financial services leaders over the past two years suggests those at the blockchain “coalface” have begun to have doubts. The fact was that billions of dollars had been sunk but hardly any use cases made technological, commercial, and strategic sense or could be delivered at scale. Tomorrow we will continue with the article to check if these doubts are still justified or whether it is just that progress in blockchain development has been slower than expected. As we enter 2019, blockchain’s practical value is mainly located in three specific areas: a) Niche applications- insurance, supply chains, and capital markets, in which distributed ledgers can tackle pain points including inefficiency, process opacity, and fraud. B) Modernization value: industries that are strategically oriented toward modernization. These see blockchain as a tool to support their ambitions to pursue digitization, process simplification, and collaboration. C) Reputational value: A growing number of companies are pursuing blockchain pilots for reputational value; demonstrating to shareholders and competitors their ability to innovate, but with little or no intention of creating a commercial-scale application. The question arises whether blockchain can expand beyond these three areas. Certainly, there is a growing sense that blockchain is a poorly understood (and somewhat clunky) solution in search of a problem. But among the optimists, an emerging perspective is that the application of blockchain can be most valuable when it democratizes data access, enables collaboration, and solves specific pain points. Certainly, it brings benefits where it shifts ownership from corporations to consumers, sharing “proof” of supply-chain provenance more vertically, and enabling transparency and automation. There is no guarantee that any blockchain application will make a sustained move to the second stage in the industry lifecycle. However, where there is potential to address pain points at scale, the opportunity remains in place. To achieve this, there are three important aspects. A) Organizations must start with a problem; B) There must be a clear business case and target ROI; C) Companies must agree to a mandate and commit to a path to adoption. Most importantly, blockchain should not be approached as a fad or a must do initiative. Only if companies commit to use it in cases where it can be used genuinely to solve a pain point, can we expect more practical applications. As Occam’s razor suggests, one should adopt the simplest solution and Blockchain too should be used similarly.

Short Term Luck vs Long Term Skill: Investing is a long term game where the right strategy coupled with time can provide good returns. Daniel Kahneman claimed that intuitive predictions are unreliable because people base predictions on how well an event fits a story. This phenomenon is called as representativeness heuristic and is one of the worst ways to make a forecast as it uses a highly limited data set. To make reliable long term predictions about an investment strategy, we need to consider 3 things. One — the long term base rate of success or failure of the strategy being evaluated. Two — the tendency of systems where both luck and skill are involved to revert to the mean. Three — what happened historically after certain extreme observations. Stock market is a complex, adaptive system with feedback loops that has both luck and skill. Luck holds sway in short term and can be understood as a residual when you subtract skill from the outcome. The involvement of luck determines the range of outcomes. Where little luck is involved, a good process leads to a good outcome. Where luck is involved significantly, good process leads to a good outcome over a long time period. As an example, if one had invested in 50 stocks that had the best annual sales growth,it would have outperformed the S&P 500 for the period 1964–1968. But over the long term, this would have been a horrible strategy giving returns less than the US Treasury Bill. The variation of the mean is inversely proportional to the size of the sample. A small sample tells nothing about the direction of the results. This tells us that it is important to look at short term performance as a worthless indicator. Investors should focus on what is possible and make decisions using long-term base rates. The important lesson is that a good investment strategy could lead to poor results just as a poor investment strategy can lead to good results in the short term. It’s important to understand how a strategy performs over a long period of time. This one thing can provide you the edge over the long term over the majority of investors.

Psychological Safety at Workplaces: Organizations try multiple ways to motivate and engage employees. One key parameter in this quest is to ensure they feel psychologically safe as well. To do their best work, people need to feel secure and safe in their workplace. Psychologically safe employees are more interested in learning, excellence, and genuinely connecting with others than in looking good. Caring about psychological safety has a direct impact on business risk and human safety. Without psychological safety, there’s a greater risk of cutting corners and people getting hurt, whether employees, customers, or patients. Product launches might fail because we didn’t listen when colleagues asked hard questions about how the product would work. Without psychological safety, if the boss says, ‘You must hit this target’ but the target is impossible, you can end up with cheating and scandal, which obviously nobody wanted. Most organizations are hierarchical, but in some more than others employees are acutely aware of status differences. In those organizations, people are overly careful and cautious around those higher up in the hierarchy. For managers, to create a safe environment, first, set the stage. Create a shared understanding of the nature of the work we do and why everyone’s input matters. Secondly, having set the stage, it’s also important to proactively invite input. Asking is the simplest and best way to get people to offer their ideas. Third, respond appreciatively. Having explained the nature of the work and asked for input, if you bite someone’s head off the first time they bring bad news, that will kill the psychological safety pretty quickly. It’s important to note that psychological safety is a necessary not a sufficient condition for organizational learning, innovation, or excellence. Other drivers of success include the willingness to have challenging conversations thoughtfully, the willingness to be wrong, and such things as good experimental design. There are many factors that affect an organization’s success in the 21st century. This is just one of them. Psychological safety also has an important relationship with diversity, inclusion, and belonging. As the experts note, diversity can be directly altered. It is a lever that managers can pull, so to speak, given the power and resources to do so. But simply hiring a diverse talent pool is not enough, of course. Inclusion is the next level when people of different backgrounds feel that their voice matters and that they are included in the important meetings. The last stage gets to belonging where it means this is a place where the employee feels he/she can thrive; and feel that they are truly a member of the community.

4Ps of Marketing: The 4Ps of marketing have become ubiquitous with marketing managers across the world for decades. The 4Ps of marketing focus on a producer-oriented model which include the price, promotion, product, and place. In B2B marketing, the 4Ps fall short in three stages. One, it leads to marketing and sales teams to focus too much on product technology and quality. Two, they underemphasize on the importance of building a convincing case for explaining the value of the solution being sold. Three, it distracts business from leveraging their advantage as a trusted source for problem-solving. To overcome these issues, we use the SAVE framework. Two, they underemphasize on the importance of building a convincing case for explaining the value of the solution being sold. Three, it distracts business from leveraging their advantage as a trusted source for problem-solving. To overcome these issues, we use the SAVE framework. The alternative SAVE framework focuses on a solution, access, value and education of a product or service. Solution instead of the Product from the 4Ps defines offerings by the needs they meet, not by their features, functions or technological superiority. Access instead of Place involves developing an integrated cross channel presence that considers customers entire journey instead of emphasizing on individual purchase locations and channels. A cross channel presence with access to the business with constant customer support. Value instead of Price. This focuses on the articulation of the benefits relative to the price rather than stressing on how price relates to production costs, profit margins or competitors prices. The old 4P model focuses more on a tangible price of the product. Education instead of Promotion relates to providing information relevant to customer specific needs at each point in the purchase cycle rather than relying on advertising, PR and personal selling. In many ways, modern businesses can act like media companies providing current and potential customers with information and advice that helps them do their job better. Embracing the 4P model runs the risk of involvement in an unproductive technological arms race. The customer has more interconnected relationships and hence embracing a framework that reflects real concerns can help marketers provide and create more value for their product.

Strategy without Borders: How applicable to traditional industries is the notion of simultaneously competing in multiple sectors, let alone reimagining sector boundaries? Companies like Amazon and China’s Tencent are tough to categorize as the former engages in e-commerce, cloud computing, logistics, and consumer electronics, while the latter provides services ranging from social media to gaming to finance and beyond. The ongoing digital revolution, which has been reducing frictional, transactional costs for years, is reshaping customer expectations and creating the potential for virtually every sector with a distribution component to have its borders redrawn or redefined, at a more rapid pace than we have previously experienced. As boundaries between industry sectors continue to blur, CEOs — many of whose companies have long commanded large revenue pools within traditional industry lines — will face off against companies and industries they never previously viewed as competitors. Within a decade, companies will define their business models not by how they play against traditional industry peers but by how effective they are in competing within rapidly emerging “ecosystems,” comprising a variety of businesses from dimensionally different sectors. Ecosystems will comprise diverse players who provide digitally accessed, multi-industry solutions. The relationship among these participants will be commercial and contractual. Those ecosystem relationships, in turn, are making it possible to better meet rising customer expectations. The mobile Internet, the data-crunching power of advanced analytics, and the maturation of artificial intelligence (AI) have led consumers to expect fully personalized solutions, delivered in milliseconds. The growing importance of customer-centricity and the appreciation that consumers will expect a more seamless user experience are reflected in the flurry of recent strategic moves of leading companies across the world. Witness Apple Pay; Tencent’s and Alibaba’s service expansions; Amazon’s decisions to launch Amazon Go, acquire Whole Foods, and provide online vehicle searches in Europe. While it might be tempting to conclude as a governing principle that aggressively buying your way into new sectors is the secret spice for ecosystem success, massive combinations can also be recipes for massive value destruction. That calls for thinking strategically about what you can provide your customers within a logically connected network of goods and services: critical building blocks of an ecosystem, as we’ve noted above. With companies like Amazon, Alibaba, etc., retail has already been changed forever. But we expect that the very concept of a clearly demarcated retail sector will be radically altered within a decade. Three critical, related factors are at work. A) the frame of reference: what we think of now as one-off purchases will more properly be understood as part of consumer’s passage through time. Choices to eat more healthily, for example, correlate to a likelihood for higher consumption of physical fitness gear and services, and also to a more attractive profile for health and life insurers, which should result in more affordable coverage. B) growing ability of data and analytics to transform disparate pieces of information about a consumer’s immediate desires and behavior into insight about the consumer’s broader needs. C) highly robust network factor — In a world of digital networks, consumer lenders food and beverage providers, and telecom players will simultaneously coexist, actively partner, and aggressively move to capture share from one another. The second development is of B2B Services. The administrative burdens of a medium, small, and microsize companies are both cumbersome and costly. Today, each of these fields exists as an independent sector, but it’s easy to imagine them converging within a decade on shared, cloud-based platforms that will serve as one-stop shops. Third is regarding Mobility. Consider personal mobility, which encompasses vehicle purchase and maintenance management, ridesharing, carpooling, traffic management, vehicle connectivity, and much more. The individual pieces of the mobility puzzle are starting to become familiar, but it’s their cumulative impact that truly shows the degree to which industry borders are blurring. As these shifts in sectors and economy take place, recognition is the first step of the strategy, and then you need a game plan for a world of sectors without borders. The following four priorities are critical: a) Adopt an ecosystem mind-set : Job one for many companies is to broaden their view of competitors and opportunities so that it is truly multisectoral, defines the ecosystems and industries where change will be fastest, and identifies the critical new sources of value most meaningful for an expanding consumer base. b) Follow the data. In our borderless world, data are the coins of the realm. A critical goal for most companies is data diversity — achieved in part, through partnerships — which will enable you to pursue ever-finer micro segmentation and create more value in more ecosystems. c) Build emotional ties to customers: If blurring sector boundaries are turning data into currency, customer ownership is becoming the ultimate prize. Companies that lack strong customer connections run the risk of disintermediation and perhaps of becoming “white-label back offices” (or production centers), with limited headroom to create or retain economic surplus. d) Change your partnership paradigm: Given the opportunities for specialization created by an ecosystem economy, companies need more and different kinds of partners. In short, No one can precisely peg the future. But when we study the details already available to us and think more expansively about how fundamental human needs and powerful technologies are likely to converge going forward, it is difficult to conclude that tomorrow’s industries and sector borders will look like today’s. Companies that have long operated with relative insularity in traditional industries may be most open to cross-boundary attack. Yet with the right strategy and approach, leaders can exploit new openings to go on offense, as well.

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