Social Business: Be Careful What You Wish For

QSPYesterday, my friend Jay Baer wrote a thoughtful piece entitled "Why Social Media Has Ruined Your Advantage." The gist of his provocatively-titled piece was that social sites and services like Twitter, Yelp and TripAdvisor have given customers enormous power to loathe or laud companies in public, and the knowledge that these tools are (or should be) monitored in real time by companies has created an immediacy expectation. Social tools have essentially outed your call center and found it wanting. The comments on Jay's piece were lively and engaging, as usual. I was particularly struck by the ever-shrewd Mark Schaefer's reference to the information disparity that used to exist between companies and consumers as "the ether," and Ike Piggot's comment that "the delta between what our customers THINK can be done, and what can REALLY be done is growing," which is a fine distinction to make. The fact is, companies have been profiting from operating in "the ether" for decades - it's the arbitrage of an inefficient market. We have accepted things like "please allow 48 hours for a response" because we didn't know any better, and we lacked the power to find out. Now, however, the differential response times between companies are exposed for all to see, and companies like Radian6 are sharing their own benchmarks for response times that are, frankly, unattainable for companies that are not structured around real-time response.

The Theory Of The Firm

These are not tactical issues, and they go beyond a company's development of a "real-time response strategy." No, they strike at what I am increasingly fond of calling the theory of the firm: the company's very raison d'être. You cannot have a real-time response strategy if your responders are not empowered in real-time. And your employees cannot be empowered in real time unless the entire company wheels around on that very pivot point. The difficult question your company must ask, however, is not how your company can make this pivot; rather, it's should you make that pivot. I'm sure I will get some comments here that the obvious answer is yes, but business is all about constraints, and economics the study of scarcity. Resources applied to customer services do not magically appear because we wish them to; Lavoisier's principle of mass conservation is as true for corporate resources as it is for chemistry (though, given that Lavoisier was beheaded, I'm a little nervous writing this post.)

In short, as the Marines would say, your business has to pick the hill it wants to die on.

The Hill You Choose To Die On

Treacy and Wiersema's The Discipline of Market Leaders, now 15 years old, is still the best "pre-social" book on the subject for my money. The central tenet of this book is that companies must choose one of three focal points: Operational Excellence (today, think of Southwest Airlines, or Wal-Mart), Product Leadership/Innovation (Apple) or Customer Intimacy (no finer example here than Ritz-Carlton.) Companies must pick one, and cannot (by definition) "focus" on more than one. Winning companies pick a focus and wheel their operations around to deliver upon that focus. What this necessarily implies is that a company that focuses like a laser on product innovation cannot "also" focus on customer intimacy; yet, what some of the comments to Jay's piece reveal is that customers are forcing that issue, due in no small part to the gap that Ike suggested between what they think can be done, and what the theory of the firm dictates can actually be done.

We are lousy with business fables about the outliers - the companies that seemingly do it all - but the hard truth is that not every company is equipped to succeed at customer intimacy, and not every company needs to, either. I am typing this on an Apple product (a MacBook Pro) and you might be reading it on one, as well. Apple sucks at customer intimacy. I'm not sure I care. This would matter if they were not superior at their chosen focus, product innovation. There's hardly any anecdotal evidence that Apple even monitors social media - yet we keep buying iPhones and iPads in droves.

Can You Have It All?

My question, though, is this: has the social web invalidated the Treacy/Wiersema model? With every company's "call center" on view for all to see, do we instead return to the earlier, bipolar view of the theory of the firm elucidated by Michael Porter, in which companies choose between product differentiation and cost leadership, with customer intimacy serving as table stakes? I don't know the answer to this question, but it is profoundly important. Social media does not scale very well at the customer service level. Companies that could formerly operate in the Schaeferian "ether" are now exposed; their customer service function revealed to be understaffed, unempowered, or both. If customer intimacy, propelled by the social web, becomes de rigueur for the firm, there are going to be cost implications. It's all well and good to proclaim in the comments to Jay's piece, as many did, that slow or inadequate customer service is "unacceptable," but are those same people willing to pay the price of a universally higher bar, from the visible costs of higher prices, to the more sinister toll exacted by constraints on innovation?

These are not easy answers - and in some respects, for an economy built around change and innovation, these are false choices. When the airlines deregulated, it was in response to a change in consumer demand - a willingness to trade convenience and service for lower prices. New airlines emerged that were built to compete on operational excellence, and the incumbents suffered (this week's bankruptcy filing by American Airlines is the last rumble of this very long digestive process.) Airlines like Southwest and JetBlue emerged with new business models, and copying those models has so far proven to be fatal for the legacy carriers. Similarly, attempting to mimic the social practices gleaned from over-hyped case studies will surely lead to ruin for companies not engineered around the same theory of the firm as the exemplars they copy.

A Case Study That Matters

This is why the impact of the social web cannot be underestimated. Customer expectations are changing - they have changed. Obviously your business needs to change with them - but if your response to that change is a "social media strategy," you're on a long hiding to nothing. The airlines had the enormously refinanceable value of their planes to fall back on as they struggled to recover from the profound impact of deregulation; your business, however, may not be so lucky. If (in your industry) a focus on customer intimacy is no longer a "choice," a la Treacy/Wiersema, then treating it like one is likely to cause irreparable harm to the other aspects of your business if you do not, in fact, change the theory of the firm to wheel about on this new inflection point.

To me, the best example of this kind of existential change lies not in the case studies of our currently celebrated crop of social media superstars, but in a well-documented (and with good reason) example from the past: the legendary TPS. No, these are not the reports Lundberg keeps asking for, but rather the Toyota Production System. I spent a good deal of time studying TPS when I got my MBA, and whether you are in manufacturing or an affiliate marketer, you'd do well to do the same. The TPS was less a "manufacturing strategy" than a complete change in the theory of the firm. Toyota realized that they couldn't simply increase their manufacturing quality standards unless their employees were thoroughly empowered to make those changes - in other words, they couldn't have "just-in-time" inventory unless every employee was empowered to act in real time. So one of the central tenets of TPS was less about "six sigma" or other trailing variables, it was simply this: any employee can stop the assembly line. Car companies that attempted to copy the trailing variables (engineering tolerances) without wheeling about on this new, central theory of the firm rapidly got themselves into trouble.

I believe that the successful models for a new, social business will have a similar approach. As we move from the "just-in-time" era to the real time era, the theory of the firm must change to keep pace, or new upstarts built on better models will upend the incumbents again. If your business is not structured to allow employees to "stop the line," you might find the line stopping anyway - only not at a time of your choosing. Now, again, maybe if you are Apple, and your dominance in product innovation has created such a strategic moat that this sort of shift is not imperative, well - good for you. But business articles and books that beseech you to "be like Apple" are amongst the crappiest pieces of advice you'll ever read. You aren't Apple. You've got to figure out another way. In other words, if you are not the market leader in innovation or operational excellence - and don't have a plan to get there - you'd better be nailing customer intimacy and be structured to do so. And as I write this on the cusp of 2012 (likely the end of the world, anyway), that means a business structured around real-time public feedback and rapid response.

The sign at the top of this post can be found in nearly every dry cleaner and print shop in America. It states (in defiance of Treacy and Wiersema): "Price, Quality, Service: Pick Any Two." What the great "deregulation" of the social web has done is this: it's made one of those two choices for you.