Potential: Revealed

Strategic Thinking, Innovative Ideas, Growth Marketing, and Revealing of Potential

Hammer in search of a nail?

With this post I will give a bit of plug to a good, relatively new blog on all the latest in the world of Payments.

There is plenty of buzz (and spin!) regarding Apple’s foray into “contactless payments” and how it might validate and accelerate an emerging trend. When I read CNN.com’s headline  “The end of credit cards is coming” my natural skepticism went on high alert. A post on Payments.com by Karen Webster, partially in response to CNN’s article and the issue overall, really hit the nail on the head.

It is fun and compelling to learn about a heretofore unmet – or better yet, unknown! – consumer need that has been splendidly filled by an innovative and heroic entrepreneur. Even better if it is Steve Jobs and Apple – the darling, so far, of the first decade or so of the 21st century. The foreseeing of the unforeseeable is often referred to as unlocking “latent” demand. Demand we didn’t even know existed or in ways we didn’t foresee. Sometimes it happens and I’ve written about it on this blog and elsewhere.

The Payments.com post, however, pointed out that both unlocking latent consumer demand for mobile, contactless payments may not have arrived just yet. Karen pointed out many industry factors, ranging from too many competing approaches to too few points of sale (POS) for acceptance (and daunting costs to enable the millions of POS devices functioning perfectly well today across the country without “contactless” capabilities).

The most glaring thing missing in my opinion is less technological and more fundamental: the lack of a compelling value proposition to the parties involved (made up of consumers, payments processors & networks, and merchants). Is there a compelling value proposition to be had? If not, is there really any latent demand? Are we all really, unknowingly so far, just waiting for a way to ditch our current payment methods (e.g,. cash, debit and credit cards, gift cards, checks) for one that uses our mobile phones instead? While none are perfect are the available methods broken and of low enough utility to be replaced?

My comments to Karen’s post (you can find them here):

“It should be noted that Apple’s business model and track record is to be closed (a profitable strategy, no doubt), and another key player the mobile networks are notoriously closed and seeking a way to corner any market for themselves and control / disallow other alternatives.

Along with the sheer steepness of the adoption Karen points out, I think these forces will make it hard to see any widespread adoption soon. Forecasts so far are mostly hype.

Personally I also don’t see the creation of a compelling value proposition which is always required to unlock the so-called latent demand for a mobile & contactless payment alternative (other than the “cool” factor, and for certain high traffic environments where checkout speed might have high marginal value). Current consumer demand for payment methods is well satisfied without NFC (Near Field Communications)-enabled phones.”

Spouting opinions is fun. I gave mine – what’s yours?

Teamwork at work

Teamwork, and probably more importantly, how teams work is an enduring and important topic. Much of how things get done in business, families and other societal groups, and life in general is through teams. 

There is an interesting recent blog on Forbes, by Inder Sidhu who is a Senior VP of Planning and Strategy at Cisco, on the results of a study done on a charter school in Minnesota. The Avalon School has many characteristics that set it apart from other public schools: it has no principal, no full-time administrators and no director. They do not answer to a superintendant or district supervisors, rather the school’s educators make all decisions regarding budgeting, hiring, curricula and more.

In terms of individual team member satisfaction, evidence indicates working in this environment produces teachers that are more satisfied than peers at other schools. This is consistent with studies of other similarly run charter schools. This is a possibly important finding — the job satisfaction of teachers would logically have some impact on their performance in the classroom and possibly extend to the performance of students in their classrooms. This effect on students though had not been studied or shown until the Avalon School study.

The research was done by Claremont Graduate University professor Charles Taylor Kerchner. The study compared academic achievement of Avalon to other schools in its area. It found that Avalon was producing high performing students and also multidisciplined teachers. The evidence included outperforming other schools on federal Adequate Yearly Progress (AYP) requirements, in reading proficiency, and graduating a very high percentage of its students – 87% – with many going on to attend top tier universities such as Northwestern and the University of Michigan. There is much more but I’ll leave it to you to read the study (link above) if you wish.

There seems to be much that can be learned about the team working environment at Avalon. In a typical school a teacher’s job is clearly defined and their activities and routines are often overly prescribed. At Avalon, teachers are largely unrestricted and develop new skills in budgeting, hiring, marketing, recruiting, conflict resolution, and project management. Having to rely upon each other for goal setting, decision making and problem resolution rather than job and work rules and a central education authority and bureaucracy, the Avalon education team finds it easier to develop a common vision, set of objectives and hold themselves collectively accountable. In a charter school, lack of performance as a team can lead to the revocation of the charter and the school — and team — returning to the standard public school approach and work environment.

The teamwork atmosphere extends to the students. Seemingly taking the business management concept of “self managed teams” into a school setting, Avalon students discipline themselves. If an Avalon student gets into trouble, they are sent to a council of their peers — who have received training in peer mediation — for a hearing. Additionally, the students at Avalon determine most of the rules for the school. For self directed teams to work effectively, they must have this combination of lattitude in rule setting and governance, and accountability for group performance to the rules and standards.

It would be my belief that beyond the improved education the students at Avalon are getting, a powerful additional benefit is their learning about and experiencing a positive team working environment that will serve them well into their life and careers beyond Avalon.

Recently I had the privilege of teaching some classes at Emory University in the business school. I did a lot of preparation and reading about teaching in the university setting and particularly using the case method. One approach I read about and then adopted was to maximize the students’ participation by “orchestrating” the class, rather than lecturing or using a firm agenda and prepared questions (and prescribed answers).

We set some goals for what we wanted to get from the case, what we thought were key issues to be discussed and deliverables to be generated. Then I turned really into a conductor or director whose job was to facilitate, to keep us moving toward the goals, but not otherwise dictate. I found that like the Avalon experience, and experience where I’ve seen teams perform at their highest, the class thrived on the freedom and self-direction and had strong, innate drive to work together toward the goals.

What do you think? Do you have similar or varying experience with teams and teamwork?

Beyond First Impressions

There are many stories that fascinate me about the tremendous potential of individuals being hidden behind personal peculiarities and foibles. Even more interesting are when two or more of these individuals are put together and become creators or catalysts of a great breakthrough.

This is fascinating to me for a couple of reasons. One is a common theme I like to write about which is the failure to see the potential of each individual when preconceptions or prejudice get in the way. The other is related: sometimes it takes individuals who are subject to the preconceptions or prejudice, thrown together for some reason (purposefully, through serendipity or other means), to mutually unlock the potential and power its fruition.

These individuals can often have singular talents which consume them in some way and lead them to ignore more mundane social or personal needs and habits. Think of Einstein, the brilliant theoretical physicist, who often could not recall how to get home after walking about and pondering a problem for hours, who didn’t bother combing his hair … or to wear socks.

Perhaps this ability (or inability?) to pay much attention to personal or social issues and norms – and further, not giving them attention in others — clarifies and focuses attention on some hidden potential buried in outside-the-box thinking, ideas, and visions.

One example is Johann Kepler and Tycho Brahe. Who are these guys? Tycho Brahe was the court mathematician and astronomer to King Frederic II and known throughout scholarly Europe at the time as the most knowledgeable person in the realm of the sky and the stars. He had meticulously and obsessively documented the movement of the planets, the moon, and the positions of all the stars that populated the nighttime skies. This repository of data and knowledge Brahe put together was in and of itself a marvelous feat of that or any time. He was a man of some means and had a world class observatory and institute of science and mathematics that he oversaw. It was home to many scholars and served to advance and spread knowledge about the heavens.

One young man who came to work with Brahe was Johannes Kepler. Where Brahe excelled in the detailed and meticulous world of scientific observation, Kepler was a theoretician who excelled in the world of conceptualizing and synthesizing many points of observation and fact.

Interestingly and by contrast, Brahe was an imposing figure – physically and in demeanor. He was seen as aristocratic and despotic, passionate and very eccentric. Kepler was thin, almost sickly, very near sighted, neurotic and disheveled. His father had been a solider for hire and his mother was an accused but acquitted witch who was said to enjoy psychedelic drugs. Perhaps the one common trait both had was a driven nature that conveyed to others arrogance and self-centeredness.

Kepler came to see that the observed facts Brahe had cataloged about the position and movement of the objects in the sky did not support the still widely accepted model of Aristotle and others that said the Earth was the center and the Sun and planets revolved around it. Nor did Brahe’s data support the newer model of Nicolas Copernicus (that Brahe believed in), developed by Copernicus a century earlier. Copernicus’ model rightly put the Sun in the center and Earth and the other planets orbiting around it. Copernicus’ model while correct generally, was flawed however, as it said the Earth and the planets traveled in perfectly circular orbits.

Kepler’s irritable and confrontational nature though made it difficult for him to get others to listen to his views and ideas. It was Brahe, for less than altruistic reasons (he feared his pupil might surpass him), who framed a challenge and focused Kepler on a part of the problem which led to a breakthrough model of the universe. One that is used to this day.

Brahe challenged Kepler to determine a model and equations that would accurately predict the path of Mars’ orbit. He knew that since Mars was close in proximity to Earth that a very precise model would be required to make accurate predictions. Mars would be the true test of Kepler’s ability to prove what he had been grumbling about. Kepler boasted it would take him 8 days to meet Brahe’s challenge. 8 years later, Kepler was still working out the solution.

Eventually, Kepler did come up with the model and equations to prove that the orbital path of Mars about the Sun was elliptical, not circular. Indeed the orbital motion of all the planets in our solar system can be described as elliptical. An interesting footnote is that Brahe died not long after issuing the Mars challenge to Kepler and did not live to find out whether his pupil met the challenge – and find out that indeed the student far surpassed the teacher in fame and stature.

Johannes Kepler is a key figure in the scientific revolution. His work provided one of the foundations for Issac Newton’s theory of Universal Gravitation. Imagine though if Brahe and others would have let their impressions of him lead them to disregard or sideline him. It can be argued that what he discovered might just have been found later and if so, today, 400 years later, we would hardly notice the difference or care if someone other than Kepler got credit.

It should be noted however, that in Kepler and Brahe’s time they were just emerging from a time well known as the Dark Ages. A time of scientific repression and repression of many other insidious sorts. A time in which someone of Kepler’s mind and approach would have been summarily dismissed – or worse – declared heretical.

The Dark Ages lasted more than 1000 years.

Odds are you nor I are currently working with or know the next Johannes Kepler. Yet we’ve all known or know people who have talents, sometimes singular and amazing, that fight to shine beyond personal faults and social awkwardness. Many of us have failed to recognize these talents. Either in hindsight or in the moment we chose the easy path of discarding the whole person, along with their potential, to avoid dealing with their perceived negative traits. As a leader, colleague, friend, and mentor I for one want to do a better job of dealing with others on their merits, even when they are hard to see, and resisting the easy path of avoidance or disregard.

Working Together: Great Potential Revealed

Spring and summer have been busy work-wise, and lazy otherwise. The combination of hard work and the opportunity, through abundance of summery weather and a relaxing time away with family, to do nothing much has also given me time to read some interesting books.

Recently I’ve gotten hooked on science and history – in particular the rise in the early 20th century of quantum mechanics in physics. I have been amazed at how individually brilliant these scientists were and how incredible their vision and discoveries were. Imagining and then doing the math and experiments to prove what they imagined, in a time with no computers, little funding, and few sophisticated laboratory tools is the epitome of the human spirit and thirst for knowledge and understanding.

What I’ve also learned that was true and critical to the discoveries made was the collaboration and sharing that occurred. There were plenty of rivalries and some conflicts but given the stakes – and the potential for fame – there was more openness than secrecy. These remarkable men and women – Einstein, Curie, Fermi, Szilard, Meitner, Oppenheimer, Dirac and many others – were of varying nationalities and located across Europe, plus America and Asia. Again in a time of no computers or internet, they made a conscious investment – which was non-trivial given the communication challenges of the age – in publishing their discoveries, writing to each other regularly, and attending formal and informal gatherings where theories, approaches and findings were presented and debated.

 
They seemed to know that their ideas were worth far less if they hid them. They knew they’d be more valuable if they invited others to learn about them, debate or challenge them and add to them. Or perhaps that their individual ideas and theories were just small parts of a huge body of unknowns that one of them could not possibly explain alone. If they wanted to be successful – be part of explaining the universe – they had to cooperate with others.

Together they were discovering more deeply how the universe works, at the atomic and then sub atomic levels. Imagining and then proving that atoms existed and contained electrons, protons and neutrons. Imagining and then proving that even smaller things existed such as quarks, gluons and other interestingly-named particles. Imagining and then proving that atoms could be split – and fused. Some, such as Einstein, at times wished they’d never had their great thoughts or published them — since it led in 1945 to the deaths of more than 100,000 Japanese citizens in a matter of seconds with dropping of bombs. Bombs with innocent sounding names like Fat Boy and Little Man.

Yet there is no denying that there have been many positive aspects to what these people discovered and helped the world to understand. It has and continues to change the world as we know it.

And their approach to innovation and knowledge sharing can teach us a great deal about what can happen when the potential of new ideas is fueled by a spirit of cooperation and sharing for the common good.

If you are interested at all in what I’ve been reading, here’s a few selected titles:

The Story of Science: Einstein Adds A New Dimension by Joy Hakim – actually a great middle school to early high school text book. If all children had books written by and teachers like Joy Hakim, we’d have more kids interested in science. Her writing is fun and informative.

Einstein: His Life and Universe by Walter Isaacson 

A Short History of Almost Everything by Bill Bryson

A Great One Passes

The most indelible memory I have of growing up in Michigan was listening to Detroit Tiger games late at night throughout the summer. I’d be in my bed with the window open and possibly a slight breeze blowing in. The lights would be off and my transistor radio was under my pillow — so I could listen to the games even though my parents had long earlier told me to go to sleep. If it was a West coast game and well past midnight local time, I often fell asleep with the voices of the game playing in my dreams.

The voice I remember most clearly for all those games – I probably listened to 100’s of them — was of Ernie Harwell. He was the voice of the Detroit Tigers for 40 years. Ernie passed away today, May 4, 2010. He was 92 years old.

'So gracious and kind¡¦Âƒp

As America seems to regularly produce, his life story is one of rising to great heights and reaching potential not clearly evident at the start of his life.

He was born in 1919 in Washington, GA a younger contemporary of Ty Cobb, also of hot, flat and sparsely populated area of rural south Georgia. It is interesting he would end up, as Ty Cobb did, with the Tigers. Where Ty Cobb was ornery and remembered as a difficult man. Ernie Harwell was almost completely the opposite.

He was born with a severe speech defect. Through therapy and forcing himself to participate in debates and classroom discussions, he had overcome the handicap by the time he graduated from Emory University.

Harwell’s big break came in unusual fashion.

Brooklyn Dodgers radio broadcaster Red Barber became ill in 1948, and general manager Branch Rickey needed a replacement. After learning that the minor league Atlanta Crackers needed a catcher, Rickey sent catcher Cliff Dapper to Atlanta and Harwell joined the Dodgers. It is the only time a player was traded for an announcer in major league history.

Through his challenges with his voice, growing up in rural and relatively poor south Georgia, and needing a break as lucky as the one he got with the Dodgers, it is amazing he ended up making a living with his voice, doing so at the highest level of excellence. And what a voice it was. I don’t think I’ll ever forget its sound. And I hope I don’t.

He announced in September 2009 that he’d been diagnosed with inoperable cancer of the bile duct. He took the news with characteristic poise, saying he planned to continue working on a book and other projects.

“Whatever happens, I’m ready to face it,” Harwell told The Associated Press on Sept. 4.

“In my almost 92 years on this earth, the good Lord has blessed me with a great journey,” Harwell said at a microphone behind home plate when honored by the Tigers at a home game immediately after he announced his cancer diagnosis. “The blessed part of that journey is that it’s going to end here in the great state of Michigan.”

On Tuesday, Senator Carl Levin said this on the floor of the U.S. Senate: “All of Michigan will miss the sound of his voice telling us that the winter is past, that the Tigers had won a big game, or that they’d get another chance to win one tomorrow. We will miss his Georgia drawl, his humor, his humility, his quiet faith in God and in the goodness of the people he encountered. But we will carry in our hearts always our love for him, our appreciation for his work, and the lessons he gave us and left us and that we will pass on to our children and grandchildren.”

Perhaps one of the greatest facts about Ernie was that he was married to his wife, LuLu, for 67 years. I’m sure she misses him more than any of us possibly can.

But for me, I know I will miss that voice. God Bless You, Ernie Harwell.

Potentially Optimistic

At another URL I maintain a blog that is quite political, or at least contains a fair amount of writing and comments on the state of things political and socio-economic. I refrain from that on my blog here because it is my intent to stay above — or outside — that often contentious set of issues (important as they may be).

I have been looking for, however, a way to write in this blog about the state of affairs in the U.S. from a balanced but positive perspective. I continue to believe that the potential of America is still yet to be fully revealed. I am certain I have this hope in large part because I desire it to be true for my own children’s sake.

It is hard, in my opinion, not to argue that I and my fellow Americans are quite fortunate to be citizens of an exceptional nation. As our President said recently, many nations, perhaps all, view their nation as exceptional too. That is fine and such an attitude is helpful in fueling the growth and prosperity of the world’s peoples and can serve to lift them out of poverty and turn attention away from conflict and towards betterment of all types.

I will contend though that America has a special role to play in continuing to set an example — and to rely upon its own example set into motion over 200 years ago — for the world to follow.

It is, in other words, important to be optimistic in all facets of life. Even more so in the face of seemingly challenging and possibly overwhelming odds against continued success — or as some fear, survival. As I often quote to my friends, and attribute to my “grandfather”, when you have “fallen into a hole, there is no place to go but up”. This simple thought often gives me encouragement and I use it to encourage others (or add a little humor) when facing a difficult situation.

Gary Becker is a very intelligent man and someone to pay attention to. His writings, fortunately, will outlive him and now that he has reached advanced age his thinking seems clearer than ever. I have produced the link to the text below here. What he says about our future has much caution and some prescriptions for change, but overall it is the optimism for the future, the potential we can still reveal as a nation, and the chance to continue to be a global role model that appeals to me. I hope to you also.

—–

Stanford, Calif.

“No, no. Not at all.”

So says Gary Becker when asked if the financial collapse, the worst recession in a quarter of a century, and the rise of an administration intent on expanding the federal government have prompted him to reconsider his commitment to free markets.

Mr. Becker is a founder, along with his friend and teacher the late Milton Friedman, of the Chicago school of economics. More than four decades after winning the John Bates Clark Medal and almost two after winning the Nobel Prize, the 79-year-old occupies an unusual position for a man who has spent his entire professional life in the intensely competitive field of economics: He has nothing left to prove. Which makes it all the more impressive that he works as hard as an associate professor trying to earn tenure. He publishes regularly, carries a full-time teaching load at the University of Chicago (he’s in his 32nd year), and engages in a running argument with his friend Judge Richard Posner on the “Becker-Posner Blog,” one of the best-read Web sites on economics and the law.

When his teaching schedule permits, Mr. Becker visits the Hoover Institution, the think tank at Stanford where he has been a fellow since 1988. The day he and I meet in his Hoover office, Mr. Becker has already attended a meeting with former Treasury Secretary Hank Paulson and spent several hours touring Apple headquarters down the road in Cupertino with his wife, Guity Nashat, a historian of the Middle East, and their grandson. “I guess you’d call our grandson a computer whiz,” he explains proudly. “He’s just 14, but he has already sold a couple of apps.”

winterrobinson

I begin with the obvious question. “The health-care legislation? It’s a bad bill,” Mr. Becker replies. “Health care in the United States is pretty good, but it does have a number of weaknesses. This bill doesn’t address them. It adds taxation and regulation. It’s going to increase health costs—not contain them.”

Drafting a good bill would have been easy, he continues. Health savings accounts could have been expanded. Consumers could have been permitted to purchase insurance across state lines, which would have increased competition among insurers. The tax deductibility of health-care spending could have been extended from employers to individuals, giving the same tax treatment to all consumers. And incentives could have been put in place to prompt consumers to pay a larger portion of their health-care costs out of their own pockets.

“Here in the United States,” Mr. Becker says, “we spend about 17% of our GDP on health care, but out-of-pocket expenses make up only about 12% of total health-care spending. In Switzerland, where they spend only 11% of GDP on health care, their out-of-pocket expenses equal about 31% of total spending. The difference between 12% and 31% is huge. Once people begin spending substantial sums from their own pockets, they become willing to shop around. Ordinary market incentives begin to operate. A good bill would have encouraged that.”

Despite the damage this new legislation appears certain to cause, Mr. Becker believes we’re probably stuck with it. “Repealing this bill will be very, very difficult,” he says. “Once you’ve got a piece of legislation in place, interest groups grow up around it. Look at Medicare and Medicaid. Originally, the American Medical Association opposed Medicare and Medicaid. Then the AMA came to see them as a source of demand for physicians’ services. Today the AMA supports Medicare and Medicaid as staunchly as anyone. Something like that will happen with this new legislation.”

Bad legislation, maintained by self-seeking interest groups. Back in 1982, I remind Mr. Becker, the economist Mancur Olson published a book, “The Rise and Decline of Nations,” predicting just that trend. Over time, Olson argued, interest groups would form to press for policies that would almost invariably prove protectionist, redistributive or antitechnological. Policies, in a word, that would inhibit economic growth. Yet since the benefits of such policies would accrue directly to interest groups while the costs would be spread across the entire population, very little opposition to such self-seeking would ever develop. Interest groups—and bad policies—would proliferate, and the nation would stagnate.

Olson may have sketched his portrait during the 1980s, but doesn’t it display a remarkable likeness to the United States today? Mr. Becker thinks for a moment, swiveling toward the window. Then he swivels back. “Not necessarily,” he replies.

“The idea that interest groups can derive specific, concentrated benefits from the political system—yes, that’s a very important insight,” he says. “But you can have competing interest groups. Look at the automobile industry. The domestic manufacturers in Detroit want protectionist policies. But the auto importers want free trade. So they fight it out. Now sometimes in these fights the dark forces prevail, and sometimes the forces of light prevail. But if you have competing interest groups you don’t end up with a systematic bias toward bad policy.”

Mr. Becker places his hands behind his head. Once again, he reflects, then smiles wryly. “Of course that doesn’t mean there isn’t any systematic bias toward bad policy,” he says. “There’s one bias that we’re up against all the time: Markets are hard to appreciate.”

Capitalism has produced the highest standard of living in history, and yet markets are hard to appreciate? Mr. Becker explains: “People tend to impute good motives to government. And if you assume that government officials are well meaning, then you also tend to assume that government officials always act on behalf of the greater good. People understand that entrepreneurs and investors by contrast just try to make money, not act on behalf of the greater good. And they have trouble seeing how this pursuit of profits can lift the general standard of living. The idea is too counterintuitive. So we’re always up against a kind of in-built suspicion of markets. There’s always a temptation to believe that markets succeed by looting the unfortunate.”

As he speaks, Mr. Becker appears utterly at ease. He wears loose-fitting clothes and slouches comfortably in his chair. His hair, wispy and white, sets off his most striking feature—penetrating eyes so dark they seem nearly black. Yet those dark eyes display not foreboding, but contentment. He does not have the air of a man contemplating national decline.

 I read aloud from an article by historian Victor Davis Hanson that had appeared in the morning newspaper. “[W]e are in revolutionary times,” Mr. Hanson argues, “in which the government will grow to assume everything from energy to student loans.” Next I read from a column by economist Thomas Sowell. “With the passage of the legislation allowing the federal government to take control of the medical system,” Mr. Sowell asserts, “a major turning point has been reached in the dismantling of the values and institutions of America.”

“They’re very eloquent,” Mr. Becker replies, his equanimity undisturbed. “And maybe they’re right. But I’m not that pessimistic.” The temptation to view markets with suspicion, he explains, is just that: a temptation. Although voters might succumb to the temptation temporarily, over time they know better.

“One of the points Secretary Paulson made earlier today was how outraged—how unexpectedly outraged—the American people became when the government bailed out the banks. This belief in individual responsibility—the belief that people ought to be free to make their own decisions, but should then bear the consequences of those decisions—this remains very powerful. The American people don’t want an expansion of government. They want more of what Reagan provided. They want limited government and economic growth. I expect them to say so in the elections this November.”

Even if ordinary Americans still want limited government, I ask, what about those who dominate the press and universities? What about the molders of received opinion who claim that the financial crisis marked the demise of capitalism, rendering the Chicago school irrelevant?

“During the financial crisis,” he replies, “the government and markets—or rather, some aspects of markets—both failed.”

The Federal Reserve, Mr. Becker explains, kept interest rates too low for too long. Freddie Mac and Fannie Mae made the mistake of participating in the market for subprime instruments. And as the crisis developed, regulators failed to respond. “The Fed and the Treasury didn’t see the crisis coming until very late. The SEC didn’t see it at all,” he says.

“The markets made mistakes, too. And some of us who study the markets made mistakes. Some of my colleagues at Chicago probably overestimated the ability of the Fed to smooth disruptions. I didn’t write much about the Fed, but if I had I would probably have overestimated the Fed myself. As the banks developed new instruments, economists paid too little attention to the systemic risks—the risks the instruments posed for the whole financial system—as opposed to the risks they posed for individual institutions.

“I learned from Milton Friedman that from time to time there are going to be financial problems, so I wasn’t surprised that we had a financial crisis. But I was surprised that the financial crisis spilled over into the real economy. I hadn’t expected the crisis to become that bad. That was my mistake.”

Once again, Mr. Becker reflects. “So, yes, we economists made mistakes. But has the experience of the past few years invalidated the finding that markets remain the most efficient means for producing economic growth? Not in any way.

“Look at growth in developed countries since the Second World War,” he continues. “Even after you take into account the various recessions, including this one, you still end up with a good record. So even if a recession as bad as this one were the price of free markets—and I don’t believe that’s the correct way of looking at it, because government actions contributed so greatly to the current problem—but even if a bad recession were the price, you’d still decide it was worth paying.

“Or look at developing countries,” he says. “China, India, Brazil. A billion people have been lifted out of poverty since 1990 because their countries moved toward more market-based economies—a billion people. Nobody’s arguing for taking that back.”

My last question involves a little story. Not long before Milton Friedman’s death in 2006, I tell Mr. Becker, I had a conversation with Friedman. He had just reviewed the growth of spending that was then taking place under the Bush administration, and he was not happy. After a pause during the Reagan years, Friedman had explained, government spending had once again begun to rise. “The challenge for my generation,” Friedman had told me, “was to provide an intellectual defense of liberty.” Then Friedman had looked at me. “The challenge for your generation is to keep it.”

What was the prospect, I asked Mr. Becker, that this generation would indeed keep its liberty? “It could go either way,” he replies. “Milton was right about that.”

Mr. Becker recites some figures. For years, federal spending remained level at about 20% of GDP. Now federal spending has risen to 25% of GDP. On current projections, federal spending would soon rise to 28%. “That concerns me,” Mr. Becker says. “It concerns me a great deal.

“But when Milton was starting out,” he continues, “people really believed a state-run economy was the most efficient way of promoting growth. Today nobody believes that, except maybe in North Korea. You go to China, India, Brazil, Argentina, Mexico, even Western Europe. Most of the economists under 50 have a free-market orientation. Now, there are differences of emphasis and opinion among them. But they’re oriented toward the markets. That’s a very, very important intellectual victory. Will this victory have an effect on policy? Yes. It already has. And in years to come, I believe it will have an even greater impact.”

The sky outside his window has begun to darken. Mr. Becker stands, places some papers into his briefcase, then puts on a tweed jacket and cap. “When I think of my children and grandchildren,” he says, “yes, they’ll have to fight. Liberty can’t be had on the cheap. But it’s not a hopeless fight. It’s not a hopeless fight by any means. I remain basically an optimist.”

Do it your way

A little while back I read an article about Brett Favre, quarterback now for the Vikings but for most of his career the star of the Green Bay Packers. It was a very personal profile. More recently there was an article about Ringo Starr, who will soon turn 70. Ringo of course was the drummer for the Beatles. (Trivia: he was not the original drummer! Do you know who was?). After reading both I had similar reactions and thought I’d write about it.

Both clearly had much potential – potential that was fully and famously revealed by each in their own unique ways.

They were similar in some respects: both grew up in families and surroundings of modest means. Ringo perhaps more so but Brett didn’t have any silver spoons either.

They had different influences though. Ringo said Liverpool was rough and at times violent and unsafe. But he has clear memory of loving and kind people, in his family and from his neighborhood growing up.

Brett had an excessively tough father who was his high school football coach and life long (tor)mentor. His father was critical and unforgiving well into Brett’s adult life and professional career. In one famous incident, he criticized his son’s play and abilities despite Brett having the best year of his career and having just won the league Most Valuable Player award for the 3rd time.

What does this say about revealing one’s potential? It doesn’t matter if you are loved or ridiculed and it helps to start out by growing up poor and then striving hard enough to be successful beyond expectations?

I don’t think so. Something else that they had in common seemed more like the key.

Brett did not have good football passing mechanics. In fact they were unusual and not very pretty. What he possessed was an unusually powerful arm and knack for improvisation, and he could throw the ball farther and more accurately than any rival. He said he simply loved throwing the football. Always had and still does. It is what drives him to compete despite recently turning 40 – and compete at a level that nearly took him to yet another Super Bowl in 2010. He listened to – and focused intently on – this love he had.

Ringo was not a classicly great drummer. Many have said he was the “weakest” Beatle, musical talent-wise. Of course he’s competing with the greatest song writing duo in modern music history (Lennon and McCartney) and a multi-talented artist (George Harrison) so it might be fair to cut him some slack. It’s like saying Dimaggio was only the 4th greatest baseball player – behind Ruth, Williams and Aaron.

But Ringo said he loves drumming. Always had and still does. He has for many years since the Beatles broke up put together a series of touring bands he’s called the All Starr Band (usually packed with contemporary greats from the 60’s and 70’s such as Joe Walsh, Dave Stewart, Gary Wright and Edgar Winter, and from more recent times such as Ben Harper, Joss Stone, Don Was and Benmont Tench). The reason why all these great musicians want to play in his All Starr bands is because Ringo is so fun to play music with. He brings out the best in them because his drumming is there to complement and enhance – not overshadow – his band mates’ playing and singing. He’s considered a pioneer of this style. I’m sure John, Paul and George felt this when they were writing, creating and playing all those great Beatles tunes together. His love of drumming and the role it plays in making great music with great musicians drives him, despite the fact that he is soon going to turn 70 years old.

What’s the lesson? One is a common one: do what you love and follow your passions. Potential and success are often revealed if you do. An important corollary seems to be: don’t worry if how you do what you love is “flawed” or “different” somehow. If Brett and Ringo had let that stand in the way, think of all the potential greatness we would have missed.

Uplift Marketing

Recently we’ve been working on a simple framework for data-driven marketing (i.e., integrated, cross-channel, analytics-based, closed-loop):

Accumulate: • Accumulate data (multiple sources) • Integrate • Cleanse • Aggregate • Store

Synthesize: • Normalize • Match • Common Data Model • Single Customer View

Crunch: •Segment • Score • Peer Compare • Recommendations • Alerts

Publish & Execute: • Publish analytic outputs • Integrate to execution apps

Feedback, Improve & Repeat

An example of results has been impressive. ROI is a mere few months based on what we’ve seen.

More work to do and much evangelizing to propagate and get everybody doing it. But as suspected when we started, there is much potential that has been hidden and shows great promise of being revealed and realized.

Predictive Analytics: How it Works (#2)

In the first post about predictive analtyics we learned about the essential building block of predictive analytics: the predictor. This is a value calculated for each entity (say, a customer) who’s actions or behaviors are to be predicted – for instance the recency, in months, since a customer’s last purchase.

Prediction power is enhanced if you use more than one predictor at a time. In doing so you are creating a model. Models are the heart of predictive analytics. In this post I’ll discuss how you can find the “best” predictive model. I put “best” in quotes because from a practical standpoint, unless you assume unlimited time and resources you may be best off finding a model that improves your results (e.g., reduction in customer churn) over previous experience. Today there is available very powerful modeling software and well-trained and talented statisticians, but the number of variables to consider in any predictive model (across demographics, transactions, behaviors) can be extremely large making determination of the “best” model cost prohibitive.

Fortunately, taking an incremental, continuous improvement approach can yield solid results for most any business and the promise that results will improve over time. A common tool is to develop a yield curve. For example, plotting the results of a predictive model for churn with amount of churn on the Y axis and percentage of customers contacted in a retention campaign on the X axis will show a curve the decreases to a point — i.e., up to a certain percentage of a universe of customers contacted, attrition rates will fall — but will bottom out and then move upward. Meaning that not all customers will respond to a retention campaign and you are best off contacting only those predicted to respond well. After that point, you are best leaving the balance of the universe of customers alone – either because they are not likely to churn anyway or because the predictive models say campaigns to retain them will be unsuccessful (and possibly other methods are needed – along with models that might predict how these approaches can be equally tuned to expend effort on just those predicted to be successful).

Now, although the model does not work perfectly, the socring and ranking of customers according to their likelihood to be retained provides clear guidance on how to invest in retention programs to yield the best results. It will prevent campaigns to retain customers that are too aggressive (trying to retain those that are not likely to respond positively, or wasting effort on those that are likely to stay).

There is a great deal more to predictive analytics than I’ve covered in the past two posts. But I hope one message is clear: you can gain practical improvements in marketing results or other customer touch points through the use of analytics that don’t need to be complex (at least to start) nor perfect. Commitment, willingness to experiment and continuous improvement are what’s really required.

Thanks for reading and I’ll look forward to comments.

Predictive Analytics: How it Works (1)

Sorry for the delay between posts. For past month or so we’ve been working on a very interesting project dealing with product ideas based on financial transaction data and powered by predictive analytics. While we are working to develop some early prototypes we have also been talking about challenges that need to be addressed when taking such products to market.

One issue over and over has been risk of market launch failure due to lack understanding of how analytics work (often lacking even rudimentary let alone deep understanding). A majority of key stakeholders – potential customers and internal business unit and functional area team – have heard of and are relatively convinced of the potential for analytics to optimize decision making. Whether that be to improve marketing effectiveness or precision of sales forecasts. Yet the basis for belief is often what they’ve read about or been led to believe by others. Analytics are not perfect and an important approach to achieving long term benefits from analytics is experimentation, challenging current results, and continual tuning of analytical models. We can foresee a gap forming where confidence in what is being developed and sold to clients falters due to lack of basic understanding of predictive analytics.

So, I thought I’d put together a brief series of posts (sort of like I did on “Practical Strategy” a little while ago) to explain predictive analytics.

The essential building block of predictive analytics is the predictor. It is a value calculated for each entity to be predicted – for instance the recency, in months, since a customer’s last purchase. Typically, the higher the calculated recency the more recent was the last purchase. As you’d expect, a good predictor is usually a reliable variable that consistently improves accuracy of some decision or action. Such as “customers with a high recency value typically have a higher response rate to marketing programs.”

There are other predictors that might work better with certain actions or decisions. For example, if you have an online subscription-based service, customers who spend less time logged on are less likely to renew annually. Tuning attrition or churn reduction campaigns by targeting customers who have low usage predictor values can boost effectiveness.

To make prediction even more precise you can use more than one predictor at a time. In doing so you are creating a model. Models are the heart of predictive analytics. Some simple models that might predict likelihood of a customer to renew their subscription:

– Linear – adding predictors together. For example: Recency + Household Income.

– Behavioral Rules – joining two or more behaviors with rules defining predictions of another behavior. For example: Usage (high or low) and Responded to Offer in Past 3 Months.

The best predictors will be predictive models that combine multiple aspects of a customer (e.g., demographics) and their behavior. A predictive model characteristically must be deeper and more complex than the above examples – uniting sometimes dozens of predictors. More on determining the best predictive model and harnessing rich sources of data to create powerfully predictive analytics in the next post. Thanks for reading and let me know if you have comments or can share your own experiences.