Cambridge Analytica and Facebook stretch the boundaries of digital privacy.. Further…Again

Cambridge Analytica and Facebook stretch the boundaries of digital privacy.. Further…Again

Mar 22, 2018 | Change, Governance, Strategy

The Channel 4 expose of Cambridge Analytica last week has started a firestorm of commentary.

Rightly so, but  is it not ironic that the tools CA used to swing the US presidential election are now being used against them after the tactics were revealed?

Facebook, and all the other digital platforms are just wholesalers of eyeballs, in business to collect then monetise their access to personal information, freely given. This how they make their money, exchanging access to the very detailed personal information they collect on their platform users, to advertisers for money.

I wonder if any of us should be surprised at the revelations? This is what they do with our cooperation. The problem in this case is that 50 million of the people whose data was skimmed did not know it was happening and had not given permission for it to happen.The tensions inside Facebook, and the other platforms, between those whose job it is to generate the revenue, and those charged with the responsibility for data security must make for some pretty lively conversations!

The access to the a wider set of eyeballs, via the downloading Apps, games, surveys, and the rest with ‘Friends permission‘ such as the popular game ‘Farmville’ enables access to the personal data of friends of those who are engaged. This Friends access allows ‘thousands of layers of personal information on millions of accounts‘ to be collected. That data was then analysed by Dr. Aleksandr Kogan using the principles developed by  the Psychometrics Centre at Cambridge University. Dr Kogan analysed the data collected for Cambridge Analytica, that had the objective of developing and delivering messages specifically targeted at an individual in order to move their voting behaviour.

Truly scary stuff, science fiction just a few years ago.

Facebook has since suspended Cambridge Analytica and associate SCL (Strategic Communication Laboratories) from facebook, while defending their own actions claiming ‘Protecting peoples information is at the heart of everything we do‘. Suspension is apparently, the ultimate sanction. I guess that we should all be grateful they are looking after our privacy so well, and not going out hawking it in the local bar.

Facebook is really under the regulatory gun in all this, coming as it does on top of the revelations about Russian troll farms and the possible influence they had on the US Presidential election results. However, they should not be the only ones under scrutiny for the use of personal data for profit. That is simply the business model that has evolved in front of us as we all use social platforms of all types and names. Facebook just happens to be the biggest, and best suited to electoral ‘management’ if not fraud.

While the personal information zealots cry about making potentially life saving medical records available on line, and politicians of all colours bleat about how important information privacy is, a hard argument to beat, we all continue to give it away happily for access to ‘cat porn’ and the menu of the local pizza shop.

The debate should be a wider one.

How much power do we want concentrated in the hands of so few providers of digital tools, and how will we  regulate them to ensure they play a constructive role in the development of our communities and society. The follow up question is I suppose, do we have the political machinery with the skills and balls to do anything about the obvious answer.

 

Header cartoon credit: Partial ‘First dog on the moon’  cartoon The Guardian 21/3/18.

Update: March 23

Mark Zuckerberg has released a statement that acknowledges the problem, gives a timeline of what Facebook has done to secure information, but goes nowhere near an apology. I suspect there will be some flurries meant to make Facebook look better, and as a salve to those calling for regulatory action, but little if anything of any consequence will change.

Second update March 24.

I just stumbled across this editorial by Mitch Joel, to my mind one of the interesting and informed thinkers in this space, that really gives some added context to the conversation. It supports the view that none of us should be surprised, we have willingly participated in the end of privacy, and besides, use of social data to manage (code for swing) electoral outcomes in this way is well known.

 

Third update April 16. 

I was sent this very useful explanatory video produced by the NY Times, describing the sequence of events. Thanks Geoff!

Fourth update May 24.

Aleksandr Kogan, the data scientist behind SCL has his say in an interview with Buzzfeed.

Why Wesfarmers is taking Coles through the checkout

Why Wesfarmers is taking Coles through the checkout

Mar 21, 2018 | Governance, Management, Strategy

It is no great surprise to me that Wesfarmers are spinning off the Coles supermarket business, and associated liquor and variety businesses. It also makes sense that they are keeping Officeworks and Bunnings, both stunningly successful businesses in Australia. Bunnings However, has failed miserably in the UK expansion, consuming capital and morale like a starving gypsy. It seems ironic that Coles thought they could beat the odds in the UK, just as Woolworths thought they could beat the odds with Masters here at home.

I do not think it is just being smart with hindsight to have foreseen the spin-off. Wesfarmers always seemed to me to be an owner that had adopted a culturally different and troubled although talented child, and was not too sure what to do with it. Despite pumping a lot of capital (around 8 billion) into the business and successfully turning it around beating the incumbent FMCG thug, Woolworths at their own game for a number of years, it still seemed to be an odd adoption.

A new Managing Director will always be keen to take the opportunity to ‘clear the decks’ of underperforming assets freeing up capital to deploy elsewhere in the hope of better returns.

New Wesfarmers MD Rob Scott is no different. Coles was a weight on the Wesfarmers balance sheet, accounting for 60% of capital employed, but returning only 30% of EBIT. Coles while a strongly cash positive business, is also the second player in a very mature market that faces a volatile future. However, it has played a role in the impressive increase in Wesfarmers value despite the nightmares that must have engulfed then MD Richard Goyder when the 2008 market crash occurred just after the $22 billion Coles acquisition in July 2007.

The FMCG market is entering a volatile period.

The channels to the consumer continue to fragment and enable the entry of innovative business models, and cashed up innovators. Aldi continues to make significant market share headway, Costco while a minnow is continuing to invest, Kaufland appears committed, and the shadow over everything is what Amazon may, or may not do.   Meanwhile, online shopping is increasing, while at the extreme other end of the spectrum, farmers markets, and even ‘pick your own‘ schemes are growing like mushrooms after rain.

Sounds like a good time for Wesfarmers to sell out of what may become a ‘legacy’ business over the next 10 years, and to put shareholders capital to work elsewhere.

 

 

Header credit: David Rowe Via Australian Financial Review.

 

 

8 habits to generate a return on your investment  attending network meetings

8 habits to generate a return on your investment  attending network meetings

Mar 14, 2018 | Customers, Marketing, Strategy

 

As small business owners, most of us go to network meetings of some sort. BNI, Rotary, your industry association, the local SME network, whatever it is, with the idea that we will make connections with people who may, at some point be useful to us, and to whom we may be useful.

Going to these meetings usually costs a bit of money, but more importantly to time poor entrepreneurs and grinders, it costs us our time.

So how do we make the most of the investment?

It really is pretty simple, all it needs is to be genuinely interested in others, genuinely prepared to help, without necessarily asking for anything in return. This builds trust, and trust is reciprocated.

However, there are some simple things you can do to communicate your value without having to blab it.

Eye contact.

Maintaining eye contact signals sincerity and warmth, weather you are speaking to an individual, or a group. Either way, maintain eye contact. When speaking to more than one, do not  just gaze off into the ether, maintain eye contact with individuals in the audience, move it around, to engage with numbers. Few things annoy me more than meeting someone who is then looking over my shoulder for someone more interesting

Use their name.

Using someones name generates some level of intimacy, especially when we have just met. We are all told that we should repeat back the name of someone to whom we have just been introduced, but many of us do not, so the name goes as we are introduced to the next person. Do whatever is necessary for you to remember peoples names and fall back on the old excuse of ‘I am hopeless with names‘ as sparingly as possible, as it communicates ‘you are not worth knowing‘

Listen actively.

This really just means you give your full attention to the other person when they are speaking. Listen to them, repeat back what they have said as confirmation and perhaps clarification, and ask relevant questions that demonstrates you have been listening thoughtfully, giving their ideas and words your full attention.

Know who you are talking to.

Often this may not be possible, but if you can, know a bit about the person you are talking to by doing a bit of research beforehand. This enables you to ask questions, and make observations to those you meet that will tweak the emotions and motivations of their favourite person, themselves. Often this is impossible, but these days using LinkedIn and the various notifications sent around of who is attending, enables some level of research to be done prior to the meeting. This research always pays off.

Mirroring.

Body language 101 teaches us that people who are interested tend to mirror in very automatic and  subtle ways, the mannerisms and body language of those we are communicating with. There is considerable research that demonstrates conclusively this is not just learned behaviour, but an evolutionary biological process that enables us to distinguish between friends and enemies. It is not creepy to  set out to reflect body language, it is simply empathising.

Be respectful and grateful.

When someone has given you their time and attention, be grateful, and respectful for both.  When you communicate that sense of gratitude, most recipients will return the favour in spades. Wandering through the chairman’s lounge in an airport nearly 20 years ago, I walked past Pat Rafter, at the height of his career, just sitting by himself. By chance, I  caught his eye, slowed down without any intention of stopping, and thanked him for  the pleasure he had given me watching him play over many years. He responded by inviting me to sit, and we had a terrific conversation for 20 minutes until the flight was called. He would not remember, but I do!

Follow up.

This is so obvious it is often missed. Following up a casual meeting at a network group is the first step to be taken in the building of a relationship that might deliver a transaction at some point.  It is also the case that those you meet are often a window into their networks, so even if they are not in your ‘ideal customer’ profile, it is fairly certain that they know someone who is.

Do  not expect an immediate return.

Business is still largely done between people, despite the B2B label much of it goes by. As people, we prefer to do business with those we know,  like and trust, and that implies a relationship into which some investment of time, energy and sometimes a lot of caffeine has been made.

 

Despite all the digital tools, there is nothing like looking into the whites of someones eyes to decide if you want to have more to do with them or not.

Photo credit: Andre Luis via Flikr

The downside of FMCG retail scale.

The downside of FMCG retail scale.

Feb 14, 2018 | Innovation, retail, Strategy

Woolies and Coles have around 75% of FMCG sales in this country, depending on whose numbers you believe, and which categories are included.

They have huge scale, from the farm gate through the supply chain to the consumers wallets. As a result, their cost of capital is low, as lenders, both cash and equity see the risks as being low. When you add in their ‘trading terms’ as a component of  their cost of capital, as it should be, the numbers would look even better. Pay your suppliers in 90 days, having used your scale to reduce the price to subsistence levels or lower, minus  the deductions for whatever you can dream up, during which time,  the stock has turned over several times.

Bargain!

By contrast, the small suppliers, those few that are left,  are seen as poor risks, which in fact they are being an endangered species. Their costs of capital are high, as are their operating and working capital costs, which leaves little to nothing to be invested in the future of their businesses.

That is why they have mostly disappeared. Their management has been unable to balance the competing demands of low price and increasing operating costs, such that even large seemingly successful businesses became smaller unsuccessful ones to be sold off to whoever had the cash. Consider Goodman Fielder, SPC, Dairy Farmers, National  Foods, CSR, …… need I go on?

The long term problem that this trend delivers is that innovation, the creation of new value for customers, and the lifeblood of retailers comes from the edges, from outside the  status quo. It is usually those smaller, entrepreneurial businesses that get in there and have a go, take a risk, and survive on their vision, wits and determination, that deliver the category makers.

Pity they are almost all gone, and what we have left is a number of ‘traditional’ retailers seeking to optimise their existing operations, while having nothing to fight the well-funded disruptors coming to eat their lunch.

Woolworths emasculating and closing Thomas Dux is the classic case of corporate strategic blindness. Now they have backtracked with the very well thought out new Marrickville Metro store, which is not Woolworths, but the ghost of Thomas Dux back to haunt them. Meanwhile, Amazon is really innovating, taking their pilot Amazon Go store public a couple of weeks ago, in a move that goes well towards defining the store of the future.

The downside of scale is the conservatism and lack of real innovative and strategic vision that comes with a business intent on optimising the current model. If that worked, Olivetti would  still be a significant player in the document creation business, Kodak would still be creating memories,  and Microsoft would still be a near monopoly.

Header credit: apologies to Monty

How does the Amazon innovation formula keep replicating?

How does the Amazon innovation formula keep replicating?

Feb 7, 2018 | Change, Governance, Innovation, Strategy

Amazon is an astonishing company for a whole lot of reasons, but there is one that is not front and centre in most conversations I have seen and in which I have been involved. This is the means by which Amazon just keeps on innovating, genuine, disruptive innovations, time after time, at astonishingly small intervals.

Note: This link is to an expanded version of this infographic from Visualcapitalist.com

 

Amazon must have the internal processes that enable it to punch out new businesses, and business models that way a factory stamping machine pumps out widgets.

The biggest impediment to efficiency on a widget machine is the changeover times between widget sizes and internal specifications.

Quick changeover is a hallmark capability sought by manufacturing companies employing Lean thinking, and is a challenging proposition, even in a small, tightly run factory. So how does Amazon achieve it at scale in businesses as complex as it routinely disrupts.

Amazon started by flogging books, or as CEO Jeff Bezos  (apparently) liked to say in the early days, ‘we do not sell books, we make books easy to buy’

The hallmark of a successful lean implementation in a factory is that there are processes that take a prospective order through the whole ‘sales funnel’ to production, delivery, and ongoing relationship building. Lean practitioners call it the ‘Value Stream,’ the set of activities required to deliver value to the customer. These are all done the same way, every time.

The paradox is that this process stability is the foundation of innovation, you need a stable base in order to trial ideas at speed, then scale the ones that work. This is an idea sometimes hard to communicate but as fundamental as it gets to successful innovation and continuous improvement.

Amazon appears to have achieved this at scale, in a service business, typically harder than a manufacturing business to get traction.

How?

Amazon is organised just like a whole collection of independent business units, all cross fertilising, and cross pollinating each other, using (I suspect) what Ray Dalio would term ‘Radical Transparency‘.

The secret seems twofold:

  • The internal technology that Amazon uses across all its activities, is modular and scaleable.  It is in effect the machine enabling the manufacturing of Amazon widgets. This enables new businesses to be added the way you would add another coloured widget to the sales inventory of a manufacturing business. I suspect the scalability will be the source of the next round of disruptions coming to the fast moving goods retailers.
  • Each part of the business multiplies the customer impact of the ones next door, a ‘flywheel’ effect. Digital technology enables the network or ‘Flywheel’ effect to build momentum. The more eyeballs you have on one side of the network equation, the greater the value to the other side. This effect builds scale very efficiently once you have reached a tipping point, reflecting Metcalf’s law which states that the value of a network increases with the number of nodes in the network.  Amazon has created their own version of Metcalfe’s law amongst their own offerings, one product or service leading to the one next door.

Bezos has achieved something that I think will be studied for decades, and it is clear he is not stopping any time soon. The only thing that appears likely to slow the momentum is regulatory intervention. Amazon has 44% of  on line retail sales in the US, 35% of global cloud services, a market growing at 40% a year,  where AWS is bigger than the next 5 biggest combined. The list goes on. The point is, Amazon is chewing up competition everywhere, yet pays very little tax, $1.4 billion since 2008, while Wal-Mart has paid $64 billion over the same period, so in effect, Wal-mart is subsidising its greatest threat to eat its lunch. Outcomes and numbers like that will have to prod regulators into some sort of action, before Amazon (and to be fair, Facebook and Google are very similar, even more dominating in their markets)  is in a position of power so dominant that regulators cannot stop them.

Amazon, a product of the 21st century is simply outrunning the capacity of the institutions and public mind set of the 20th century by reshaping our world around us, and with our consent by unthinking compliance. They are being joined in this exercise by Google, Facebook,  Alibaba Tencent, and a few other aspirants like Netfliks, to dominate the way we think, behave and work.

Header photo Jeff Bezos circa 1998

 

Update June 2018.

Amazon bought on line pharmacist ‘Pillpack’  last week for almost a billion dollars, saw its own share price jump double what they paid at the same time industry incumbents collectively lost 10% market valuation. Jeff Bezos has signalled his interest in pharmacy in various ways for years, so this should not come as a surprise, but it seems to have done so, as the threat of Amazon had clearly not been priced into the market valuations of the incumbents.

The Pharmacy guild in Australia, one of the most powerful lobby groups in the country, should be asking themselves if they are next for the chopper.

Update August 2022.Amazon last month paid $A5.6 billion for subscription health service One-Health, which gives them a network of doctors surgeries around the US. If ever there was a huge industry mired in its own importance, removed from the needs of those it is supposed to service, and ripe for disruption, it is the US health care industry. It will be a tough nut to crack, others have tried and failed, but Amazon has the street-cred to make it happen. The ‘flywheel’ at work again.

Your ‘enemy’ makes you stronger.

Your ‘enemy’ makes you stronger.

Feb 2, 2018 | Marketing, Strategy

Strategy is as much about what you will not do as it is about what you will do, perhaps even more so, as it forces difficult choices.

Equally, the old marketing buzz-word ‘positioning’ which was defined in my university days 45 years ago as ‘how your customers see you’ benefits hugely from the addition of a clear statement of what you are not, what you will  not do, and even calling out the ‘enemy’.

When you define who is your enemy, those who feel the same way as you will find it very hard to do anything but support you, it rallies support to your cause.

This means that you can never create a product for everyone, the more defined you are the better, as you will then have more potential for rallying groups of those who are against what it is you are against.

Where would Mohamed Ali be without Joe Frazier?

Where would Apple be without Microsoft?

Would Neil Armstrong have taken a moon walk in 1969 without the Russians?

Mr. Churchill would have remained a backbencher without Herr  Hitler

Would Coles and Woolworths be the most successful FMCG retailers (as measured by domestic market share) in the world without each other?

In the back streets of Ashfield in Sydney there are two small grocery stores, almost opposite each other, fighting to the death for the last 20 years, and in the process keeping Woolies and Coles at bay, at least in the very local area they service.

Respect your enemy, and learn from them, they make you stronger.

Photo credit MrT HK via Flikr