Business Fraud– Great Challenge Facing Business: Alarming Trends– Adapt Your Thinking, Take Control, Manage Risk…

Business fraud (or corporate fraud) is one of the greatest challenges facing business and financial institutions, today– it encompasses a wide range of unethical, illegal… practices that business officers, employees, partners… often engage-in… although, not all business fraud is necessarily criminal…

According to Certified Fraud Examiners (CBIA); companies around the world lose an estimated 5% of their annual revenues to fraud… that figure translates to a potential total fraud loss of more than $3 to $5 trillion...

According to Mark Theoharis; while anyone in a company can commit corporate fraud crime, they are typically committed by managers, executives, corporate officers, others in positions of authority within the organization… Business fraud can be difficult to prevent, but by creating effective policies– a system of checks, balances, physical security– companies can limit the extent to which fraud can take place…

According to Didier Lavion; more opportunities brings more risks, which means that business can no longer just focus their fraud prevention and detection strategies on only a few types of fraud… or, just certain fraudster profiles… or, just perceived threats– they must be prepared to cast a wider net because threats associated with fraud are becoming much more creative and growing rapidly… The ‘Institute of Internal Auditors’ conducted a poll of nearly 300 chief financial audit executives– found fraudulent acts by employees and outsiders have substantially risen since the beginning of the recession, and internal auditors predict the trend will continue.

Among the 31% of survey participants from organizations where instances of fraud were detected; 43% report that fraud occurrences increased from 1% to 10%; 28% indicate fraud increased from 11% to 20%; and 14% say fraud increased by more than 20%. Theft of company property, resources, proprietary information (IP), which is the fastest-growing fraud reported by respondents, followed by embezzlement, expense account fraud, third-party–vendor fraud… Fraud within companies is a risk that can never be eliminated, just managed…

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The Annual Global Business Fraud Survey: The Economist Intelligence Unit surveyed senior executives from around the world, across a wide-range of sectors and functions. This year’s 901 respondents report that fraud remains a widespread problem regardless of industry or region in which the business operates… also, the infractions are ever-changing and unpredictable, as ever. The results reveal a number of key insights:

  • The incidence and costs of fraud rose markedly in the past year, in turn driving up companies’ sense of vulnerability: According to this year’s survey, the level of fraud increased by every measure, in the past 12 months, reversing recent trends. Overall, 70% of companies reported suffering from at least one type of fraud in the past year, up from 61% in the previous poll. Individual businesses also faced a more diverse range of threats: on average, those hit in the past year suffered, on average– 2.3 different types of fraud each, compared with 1.9 in 2012. The economic cost of these crimes mounted; increasing from average of 0.9% of revenue to 1.4%, with 1 in 10 businesses reporting a cost of more than 4% of revenue…
  • Information-related fraud is common and evolving, but many  companies are not prepared for when things go wrong: Information theft remains the second most common fraud, affecting more than 1 in 5 companies over the past year, and three-quarters of respondents describe their businesses as at least moderately vulnerable. Looking ahead, complex IT structures are the most commonly cited reason for an increase in overall fraud exposure, suggesting there won’t be any quick diminution of the threat… Information theft, like most types of fraud, is typically an inside job… and of those hit in the past year in which the attacker is known, 39% say it was the result of employee malfeasance, which is roughly unchanged from 37% in last year’s survey…
  • Fraud remains an inside job but so does its discovery– fraud is typically carried out by employees within the company: For the businesses that had suffered fraud where the perpetrator was known; 32% had experienced at least one crime and the leading figure was in senior or middle management… 42% in which the incident involved a junior employee… and 23% where it was an agent or intermediary. Similarly, as noted above, employee malfeasance remains the most common driver of information theft. Overall, 72% of those surveyed say that their company has been hit by a fraud involving at least one insider in a leading role, slightly up from 67% last year…
  • Global business practices often increase fraud exposure: Globalization has changed the way business operates. Companies are in search of bigger international markets, while at the same time striving to become leaner. The latter typically involves becoming more focused on areas where they have strategic advantage, and finding ways in others areas through outsourcing, partnerships…
  • Those with local knowledge see fraud risks everywhere: Certain regions have a reputation for high levels of fraud. It comes as no surprise, therefore, that 13% of all      respondents were dissuaded in the past year from operating in Africa, and 11% in Latin America… from their experience or perception of fraud. More striking is the degree to which fraud is keeping companies from making local investments, even in regions where the problem is thought to be relatively well controlled, particularly North America. Even in a globalize world, companies typically invest closer to home. These figures therefore suggest that both the existence or appearance of fraud is a substantial drag on possible new investment, and that outsiders coming in need to be aware of risks even in regions with a reputation for low levels of fraud…

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In the article Business Fraud Shockingly Common by Lev Janashvili writes: A growing body of research supports two conclusions: 1. Accounting fraud represents a foundational threat to market integrity… 2. Corporations, investors, auditors, analysts and regulators are missing ‘low-risk/high-return’ opportunities to implement sustainable, system-wide initiatives; but the evidence often fails to persuade business leaders to take action… As a result, some of the most urgent problems in capital markets persist– not because we can’t solve them… not because we need to examine them more thoroughly… but, simply because we prefer to leave problems unexamined, unsolved…

A long-running pattern of inaction-bureaucratic half-measures continues… Accounting standards are outdated and require  basic change… Instead of confronting them, we often deny their existence, gravity, or vilify sensible solutions that do not align with our ideological biases. This self-defeating dynamic has already produced some ironic outcomes, for example; Too-big-to-fail firms continue to grow, despite worries about systemic risk…  Accounting needs a new conceptual framework and new regulatory and rule-making regime...

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The PwC’s Global Economic Crime Survey 2014: More than half of U.S. organizations that experienced fraud in the last two years reported an increase in the number of occurrences, representing a continuing upward trend in the occurrence, detection of economic crime. Forty-five percent of organizations in the U.S. suffered from some type of fraud in the past two years, more than global average of 37%…

U.S. companies are growing international operations and expanding the role of Internet and mobile technology in business, which brings risk from beyond their geographic footprint. The survey revealed that 54% of U.S. respondents reported their companies experienced fraud in excess of $100,000 with 8% reporting fraud in excess of $5 million…

According to Steven Skalak; economic crime has become truly borderless threat… The reality of fraud is it impacts a company’s revenues as directly as other competitive businesses and market forces. The risk of bribery, corruption grows as businesses increasingly operate-in, pursue opportunities in high-risk markets… Here are several other issues:

  • Significant Uptick in Cyber Crime: Companies are beginning to change how they think about cyber-security viewing it as a business issue, not just an IT issue. Forty-four percent of U.S. organizations that experienced fraud in the past 24 months suffered from cyber crime; and 44% of all respondents indicated they thought it was likely their organization would suffer from cyber crime within the next 24 months… According to Didier Lavion; corporations need to better leverage and implement the computational and analytical power of cyber-security technologies to help combat the increasing global presence of cyber crime…
  • Who is Committing Business Fraud? As organizations rely more on technology, they increasingly do business in a borderless economy where they are more susceptible to threats from all sides. The results are clear– while companies certainly should not lose  sight of the internal perpetrator of fraud, they need to remain very wary of the external perpetrator, as well… The ‘external’ perpetrator of fraud is closing the gap on ‘internal’ perpetrator of fraud; businesses are reporting that fraudulent crime is committed by external actors (44% of time) almost as often as it’s committed by internal actors (50% of time)…
  • Other Notable Findings: Two types of frauds are committed– accounting fraud and bribery-corruption– increased in 2013… Accounting fraud increased to 23% in 2013, as compared to 16% in 2012. Bribery-corruption, 14% in 2013, doubled from 2012 levels (7%)… For first time, PwC specifically asked respondents about procurement fraud.  The result was stark– more than 25% of the respondents reported procurement fraud (27%), thus immediately placing it as the third most frequent type of fraud experienced by organizations. According to the report, this reflects the increasing interconnection of companies and ongoing trend toward outsourcing more aspects of their businesses…

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Business Fraud: Oh no… it couldn’t happen to me! This is a very common attitude for many organization when discussing fraud… and it’s time to take a closer look… According to Britni Zandergen; there is a perfect storm for business fraud – and, it’s up to business leaders to put the right processes and systems in place to prevent it. As more companies expand their online business, and as more users share their information– both on and offline, it’s very much easier for fraudsters to get sensitive information…

According to Thomas Donaldson; corporate governance is a hot topic, but companies tend to get overly optimistic about what corporate governance can really do– simply rearranging chairs at the higher echelons of a company will not prevent fraud… For too long, we have followed a mythology that if you write an elaborate code of ethics, appoint people to distribute it, and get everybody to sign-off on a fat-rule-book every year, that this will somehow prevent major disasters… We have abundant evidence that this simply doesn’t work… 

According to Skeel; corporate scandals are not unique, but there is something about the U.S. culture that allows these scandals to happen more easily… there is a fascination with risk-taking, possibly even related to greed… In many other countries, the cultural norms or restrictions on competition… seems to keep these tendencies more in check…

According to Daniel Draz; business fraud is global– where there’s money to be made, benefits to be received, competitive edge to be gained… there’s always fraud… Fraud, abuse… happens in all organizations– and in many cases it can go unnoticed for years– businesses must understand how, where… it occurs– then take practical steps to detect, prevent it… The good news is appropriate measures of prudence and common sense, combined with sound management practices can dramatically mitigate its impact on the organization…

 

Robber Barons– Unmasking Modern-Day Titans of Industry: Scrupulous Profiteers, Generous Philanthropists…

Robber Barons– The very words ‘robber barons’ speaks of– mystery, intrigue, power… deeds that no truly compassionate human being could ever commit in good conscience… According to J. Bradford DeLong; in the 20th century we called them– robber barons, capital of industry, economic princes… today we call them– billionaires…

The capitalist economy can generate such enormous opportunities that individuals– lucky enough to be in the right place at the right time… who are driven… smart enough to see and seize economic opportunities… with foresight enough to take large share of equity of a highly profitable enterprise… well-connected enough to fend off political attempts to curb their wealth… these are the true robber barons…

Theodore Roosevelt spoke of ‘malefactors of great wealth‘ and embraced a public and political role for the government in ‘anti-trust’ by controlling, curbing, breaking-up large enterprises of private economic power… However, their defenders painted a different picture: Robber Barons were examples of the U.S. as a society of untrammeled opportunity, where people could rise to great heights of wealth and achievement in industries; they were public benefactors who built up very large and profitable enterprises… then become philanthropists; sharing their great wealth…

According to Mark Twain; the robber barons’ credo is– Get money. Get it quickly. Get it in abundance. Get it dishonestly, if you can, honestly, if you must… According to Rich DiSilvio; most ominous is lobbying muscle of today’s robber barons that entice politicians with huge campaign funds; the result being that senators, congressmen, even presidents have too eagerly jettisoned their sworn public duties to embrace their overlords’ greedy agendas…

According to Paul Shalmy; one hundred fifty years ago the ‘corporation’ was a relatively insignificant institution… today’s it’s the dominant institution, extraordinary power, influence over our lives… Over past century-and-half the U.S. economy has been at times relatively open to and at times closed to– the ascension of robber barons or modern-day billionaires… Becoming a billionaire has never been easy but next to impossible before 1870 and between 1929-1980, then the years since 1980 we have seen the return of super rich– modern-day robber barons…

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In the article Tech Moguls: Modern-Day Robber Barons by Mark Russell writes: New-tech moguls: Are they the modern robber barons– today’s captains of industry? They are the wealthy, powerful figures who control the digital universe… What’s striking about this is not just the staggering wealth that these people have managed to squeeze out of what are, after all, just binary digits (ones-zeros), but how recent are the origins of their good fortunes… Given their prominence, we know very little about modern moguls for various reasons: One is that we are remarkably incurious about what makes them tick… But this is all superficial stuff, the journalistic fluff of celebrity profiles and gossip columns…

What’s much more significant about these moguls is that they share mindset that renders them blind to untidiness and contradictions of life, not to mention the fears and anxieties of lesser beings. They are technocrats who cleave to a worldview that holds that if something is technically possible then it should be done… it’s all about progress, stooped… Actually, it’s all about values and money…

The trouble is that technocrats don’t do values. They just do rationality. They love good design, efficiency, elegance – and profits… What gets lost in the reality is that they are fanatically ambitious, competitive capitalists… They may look cool and have soothing bedside manners, but in the end these guys are in business not just to make money, but to establish sprawling, quasi-monopolistic commercial empires. And they will do whatever it takes to achieve those ambitions... The strongest link that binds them is that they are all pioneers in the exploitation of virgin territory, and that rings some historical bells…

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In the article Return Of Robber Barons by Herrick Kimball writes: The so-called robber barons were men that took tangible things– minerals, resources, factories… built large companies, employed many workers… and made enormous individual fortunes, gaining much power… The exact same condition exists today, except these– people, institutions, corporations… are the primary holders of the majority of the world’s identifiable wealth in extraordinarily concentrated fashion– and, they don’t actually make anything…

There are at last count–147 super-companies in the world that basically control about 40% of entire identifiable net worth of corporations… So it’s a pretty big chunk. Of the top 50, 17 are banks and quite a number of the rest of them are insurance companies, financial services, and brokerage houses… They’re just moving paper from point A to point B. That’s their job. And that’s where all the wealth is concentrated right now. More concentrated than it was at the height of the robber barons era; with the difference being that this time the power is concentrated in the hands of people who fundamentally don’t create value. They harvest value…

In the article Apple, Amazon, Google, Oracle… New Robber Barons? by Tim Worstall writes: In deed the; Jobs, Ellison, Gates, Bezos, Brinn, Page… are much like– Vanderbilt, Carnegie, Rockefeller… But this doesn’t make them anything like the robber barons of the past… For there were really two groups of entrepreneurs who made it big the 20th century: There were those who simply did thing– better, cheaper… than their competitors and thus they were able to stake claim-own a large part of an industry, for example; Rockefeller in oil. Vanderbilt in steamships, Carnegie in steel…

Sure, they competed very hard against all comers: but they did it with better technology and cheaper prices… I would argue that the Apples, Googles, Oracles, Amazons… of this current world are much the same… Yes, there is that use of IP in-fighting, but by and large they are fighting each other through market competition, technological advance, ever lower prices… However, there are other sectors of the economy much more like — robber barons of old: those who conspire with politics to restrict entry in markets, used underhanded tactics to gain competitive advantage… It’s interesting that both groups still exist: Those who wish to profit from restricting competition… and, those who wish to do so by beating the competition…

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In the article Internet Robber Barons by Steven Hodson writes: Today the idea of robber barons might seem a rather foreign concept but the reality is that we could very well be seeing the creation of a whole new set of robber barons: Internet robber barons. Unlike the industrial robber barons before them; this generation of Internet robber barons are operating in two different realms: First, the corporations that control the– how, why, where… for accessing the web… Second, maybe even more insidious, are those collecting and keeping every bit of data on the web…

It all hinges on one simple principle: Ease of Access… With control of access in the hands of a few companies; which grow fewer with each acquisition and merger, consumers have increasingly little voice in what is supposed to be the vehicle of free distribution and sharing of information– it’s the toll-booth we all must pass through… According to Matthew Lasar; a new generation of robber barons is being created; a generation who will in effect control information– how it’s shared, who has access, how much they will allow to be seen, read, use… They will also control the value of that information, price…

As much as we might like to believe in the illusion of an open web that can be access by everyone, from anywhere in the world, by any possible method– the reality is that right now and for much of the foreseeable future this ideal is nothing more than a pipe dream… The new robber barons are coming to town– nothing good can come of it…

In the article Robber Barons of Wall Street  by Ken Moyle writes: Robber Barons of the 20th century created infrastructure (railroads), products (steel) and employment on the road to accumulating their enormous wealth. On the other hand, 21st century robber barons are making their fortunes by skimming and leaching off loosely regulated financial system to detriment of individual investors, pension funds…

Their methods, although assuredly legal, push the envelope in ways that are not available to most– individuals, small banks, many institutions… They use highly leveraged speculation (i.e., euphemism for gambling) on commodities, currencies and markets to manipulate, distorting original intent of the hedging process… Reining in the financial sector robber barons should be high priority… and yet there seems to be a collective passive response to these excesses…

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There are two sides to robber barons, just as there are two theories of thought about them: some consider them to be cunning and barbaric in their methods of pursuing wealth and power, while others believe they are integral factors in promoting the economy, giving people jobs, donating countless sums of money, social landmarks through philanthropy… Whichever way one thinks about robber barons they surely are– smart, entrepreneurial, business and politically savvy, often lucky…

The 20th Century entrepreneurs built companies, conglomerates, cartels… They employed millions of people, operated huge plants and equipment (e.g., railways, shipping, steel mills, oil refineries…) and made an indelible imprint on the landscape… The modern counterparts are mainly in the business of shipping bits – in the form of software, online services, technical support…

Skeptics point out that when modern-day robber barons are puts into historical context they aren’t quite as rich, or as important as predecessors… for example; Forbes commissioned an economist to come up with an inflation-adjusted list of the richest Americans of all time, and the website ‘Business Insider’ published the results. The list is headed by robber barons of old; John D. Rockefeller, Andrew Carnegie and Cornelius Vanderbilt, with $336bn, $309bn and $185bn respectively.

The only contemporary figure who makes it on to the list is Bill Gates, whose net worth at its peak was estimated at $136bn – which (says the skeptic) rather puts Larry Ellison, Google guys, Jeff Bezos… into perspective… According to Nancy Stewart; debate rages on about impact of so-called robber barons on society, industry… Many believe business practices of people were/are, in fact, detrimental... However, some argue that captains of industry are good for society because, they allowed it to go– from positions of potential to positions of realized potential… 

Robber barons are cunning, manipulative, greedy pursuers of wealth, power… they are smart, savvy, opportunistic… they build very large highly successful business enterprises… some even share wealth, knowledge, expertise… Clearly, without robber barons-billionaires the world would be a very different place…

Law of Unintended Consequences– Intended Action Leads to Perverse Outcome: Best Laid Plan– Unexpected Blowback…

Unintended consequences (or, unanticipated, unforeseen, unplanned… consequences) are outcomes that are not intended by a purposeful action, i.e., intended actions that are taken for a completely positive purpose… but have negative unexpected consequences that outweigh benefits of the intended actions, or in contrast, the unintended consequences can also have untended positive surprise outcomes…

According to Lucien Canton; decisions almost always have unintended consequences, no matter how you assess and analyze an action there’s always risk that the decision can produce unintended results that are never expected: Sometimes you’re pleasantly surprised, but most times you’re not… This concept has long existed, but was named and popularized in the 20th century by Robert K. Merton…

The Law of Unintended Consequences is an adage or idiomatic warning that interventions in business, government, society at large… always creates unanticipated and often undesirable outcomes… Unintended consequences are roughly grouped into three types: Positive–unexpected benefit… Negative–unexpected detrimental occurrence, in addition to the desired intended action… Perverse outcome contrary to what is originally intended–causes actions opposite to what was intended…

According to Rob Norton; Law of Unintended Consequences is often cited but rarely defined, and leaders have heeded its power for decades and, for many, they have largely ignored it…

law unintended consequences The Law of Unintended Consequences is always at work, everywhere… According to Andrew Rosenberger; history is littered with examples of unintended consequences – a term referring to the fact that decision-makers tend to make decisions that later have unforeseen outcomes… it pop-up everywhere…

Most modern technologies have negative consequences that are unavoidable, unpredictable… for example; almost all environmental problems– chemical pollution, global warming… are the unexpected consequences of the application of modern technology. Traffic congestion, injuries, accidents, air pollution… are unintended consequences of the automobile… Antibiotics ushered as magic cures for illness have unintended consequences from their resistance and side effects… Just about every law, invention, treaty, large-scale action… has unintended consequences. It’s a law that is often observed, at best, in hindsight…

The Law of Unintended Consequences is the outgrowth of many theories, but was probably best defined by sociologist Robert K. Merton in 1936. Merton wrote the article, The Unanticipated Consequences of Purposive Social Action, which covers five different ways that actions, particularly those that make large-scale decisions, such as; government, business… will have unexpected consequences.

These reactions may be; positive, negative, merely neutral, but they do veer-off from the intent of the initial action. Although Merton wrote the article 75 years ago, it remarkably applies to today’s complex corporate life. The Law of Unintended Consequences must be considered when making any major decision: Not to try to create absolute certainty, but at least to look before you leap… Merton’s five possible causes of unintended consequences are:

  • Ignorance: Since it’s impossible to anticipate everything, we accept incomplete analysis before we start… Issue: the biggest reason for failing projects.
  • Error: Assuming that what worked in the past will still work today and tomorrow… Issue: if you don’t innovate and adapt, you will decline and die.
  • Immediate interest: Jumping on short-term goals which may contradict intended long-term effects… Issue: why most performance based incentive programs fail.
  • Basic values: People react to things based upon in grown, empirical and ‘safe’ values. Change may prohibit or distress these actions… Issue: why most change projects fail since change of basic values requires a long-term effort.
  • Self-defeating prophecy: Finding solutions before the problem occurs and when the problem does not occurs we are surprised… Issue: many implemented procedures to mitigate risks are more expensive than the actual risk.

Akin to Murphy’s Law, the Law of Unintended Consequences is a warning against the belief that you can control the world around you… But, What does all this have to do with business? It’s just an anecdote to highlight the need to always be measuring the results of your strategic decisions, and to look for the effects of the unintended consequences… In business, many strategic decisions, tactical actions… are taken, but once taken leaders and managers need to continually measure results, and ensure that the intended actions are having the intended outcomes…

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In the article Law of Unintended Consequences by Marcia Zidl writes: We live and lead in a complex world with a ‘mess’ of relationships, interactions… which means that everything interacts with everything else. The Law of Unintended Consequences holds that almost all human actions have at least one unintended consequence. In other words, each decision, action we take can have multiple unintended effect, including; unforeseen, undesirable… outcomes… a solution to one problem can create another. 

Leaders cannot fully control the world around them, but they can control– how problems are solved, how decisions are made, what  actions are implemented… so here are a few steps that can avoid or at least mitigate, unanticipated and possible negative outcomes in decision-making:

  • Get out of your ivory tower: Make sure people on the team have a diversity of perspectives, backgrounds who can point out situations, opinions, key stakeholders that are not on the radar screen.
  • Don’t dismiss devil advocates: They are not all disruptive. By  being critical or taking an unpopular stance around certain issues, they may be identifying dangers you haven’t  thought through.
  • Play out every scenario: Anticipate who will be affected and what their possible reactions might be – from total delight to grudging acceptance to quiet sabotage to a social media uproar. Remember, what may seem rational to you can be considered totally unreasonable to others.
  • Take a break: Don’t be rushed into a decision because someone, something is pushing you. Stop, go for a walk, have a meal or a fun activity. Consider bringing in an outsider to help you and the team– identify, understand the many facets of the situation before making a decision.
  • Communicate, communicate, communicate: Develop a plan to make sure information about the decision moves quickly up, down, across the organization. Be alert to outside key forces– whether the media, industry analyst, other companies… We live in a totally connected world that communicates instantly, often…

In the article Law of Unintended Consequences by Alex Tabarrok writes: The Law of Unintended Consequences is what happens when a simple system tries to regulate a complex system… Political systems are simple, they operate with limited information (i.e., rational ignorance), short time horizons, low feedback, poor and misaligned incentives…  Business in contrast is a complex system that involves; high-feedback, incentive-driven activities. When a simple system tries to regulate a complex system it usually results in unintended consequences…

These unintended consequences not only affect government’s regulation of business, but can also when government tries to regulate other complex systems, such as, society itself… The fact that unintended consequences of government regulation are usually (but not always or necessarily) negative is not an accident– when regulation pushes against incentives, incentives tend to push back creating unintended consequences.

Not all regulation push against incentives, some regulations try to change incentives but incentives are complex, and constraints change so even incentive-driven regulations can have unintended consequences. Does this mean that government should never try to regulate complex systems? No, of course not, but it does mean that regulators should be humble and the hurdle for regulation should be high…

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In the article Unintended Consequences of Good Intentions by Matthew Badgley writes: There have been plenty of times when the teams I’ve worked on have made a well-intentioned decision that we later looked back and realized that the decision resulted in some unintended consequences. The good thing about these situations is that we usually learned from these situations. Some of the things learned are:

  • Always have an end goal in mind when making a decision. Even a quick decision should have some desired result whether positive or negative (hopefully positive).
  • With that goal in mind, revisit it on a regular basis near the time the decision is made. What I mean by this is that a decision that is made and then revisited six months later has either been rooted in or already rotted and nothing but a bad taste in the mouth.
  • When revisiting, there should be three directions in mind that you can take – stay the course, adjust, and abandon for another brilliant decision.
  • When you realize the unintended consequences, don’t look to lay blame or worse yet become overly reactionary. Instead, remain calm, asses the position of the decision against the goal and make a new decision.
  • Learn from the past decisions, and keep moving forward. Don’t dwell too long on a loss or a win – there’s always another opportunity around the corner. There’s an emotional aspect to winning and losing, make sure that you don’t let these emotions get in the way of deciding the right next steps.

In the article Unintended Consequences of Change by Jay Morris writes: Make sure your speed of change doesn’t exceed your capacity to change… Managing change isn’t easy. Sometimes leaders try to change their organizations too fast. They want to do everything all at once. But too much change can crash an organization… This brings to mind what I would call the first law of change: Change can have unintended consequences

Of course, there are plenty of CEOs who make big, bold changes to improve an organization… while others take change slowly… So what’s the right pace for change? Some have argued for a balanced, Goldilocks approach to change management: Not too much, not too little; not too fast, not too slow– just right amount of change to fit an organization. In other words, the speed of change shouldn’t exceed the organization’s  capacity for change… Leaders must walk a fine line, or suffer the unintended consequences…

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Does principle of unintended consequences mean we must never strive to achieve high goals for fear of causing some horrible things to happen around us? Of course not. We can, however, take the time to think through the long-term ramifications of our decisions. The bigger the decision, the more thought that should go into it.

According to Chad Thiele; we don’t live in a perfect world, and we cannot always identify potential problems before they exist… hence, it’s important to continually monitor, measure business efforts and make adjustments, whenever necessary… every decision has an effect on other areas of the business… each business decision has unintended consequences. According to Charles Pearson; many people don’t pay attention to the unintended consequences, for example; some simply don’t know about the unintended consequences… some make an incorrect calculation which causes them to poorly predict the consequences of their actions… some know about the unintended consequences but care more about the intended consequences to suffer through the unintended ones…

The Law of Unintended Consequences has a feeble linguistic claim on the term ‘law’. It is hardly a scientific law; even Murphy’s law and natural law claim specific outcomes with some certainty. But the term persists as a solemn warning that almost all human actions have at least one unintended consequence, most of the time… In other words, each cause has more than one effect, which most likely includes; an unforeseen effects… Unintended consequences are less– law, rule… and more of a call to decision-makers, to beware.

Rule of Three, Power of Three: It Worked for Thomas Jefferson, Steve Jobs, Julius Caesar, Many Other Gifted Leaders… Try It…

Rule of Three states that more than ‘three’ of– whatever– is confusing, overwhelming… it’s a principle that suggests– things that come in ‘three’ is inherently easier to understand, more satisfying, more effective… than other numbers of things. Rule of Three is applicable to many situations and often times the reality is– less is more, and slight more is better (i.e., three is just about right)…

According Jagdish Sheth, Rajendra Sisodia; Rule of Three is more than an interesting theoretical construct; it’s a powerful empirical reality that must be factored into corporate strategy: The ability of executives to develop alternative strategies that can result in success; however, developing more than ‘three’ alternatives becomes problematic…

According to Carol Roth; there is Rule of Three in business, e.g.;  everything takes 3 times longer; is 3 times as costly; is 3 times more difficult than you expect it to be…

According to Michael Raynor, Mumtaz Ahmed; three incredible rules of business are; Rule 1: Better before cheaper (compete on differentiators other than price); Rule 2:Revenue before cost (prioritize increasing revenue over reducing costs); Rule 3:Follow rules 1 and 2– there are no other rules… Companies don’t become truly great by reducing– costs, assets… they earn their way to greatness through profitable growth… 

The Rule of Three dictates that a person should limit their attention to three tasks, goals… When applied to strategy the ‘rule’ prescribes– reducing the many possibilities down to three alternative courses of action; anything more becomes– overextended, confused… According to General John Admire; if the decision-making loop is more streamlined than the competitor’s then you set– the pace, course, rules… for the competition; streamlined means not greater than three…

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Rule of Three is based on the concept that people tend to remember only three things… In oratory it comes up all the time, for example; good speeches are peppered with lists of three items: Friends, Romans, Countrymen; Blood, Sweat, Tears… They are also used in public safety: Stop, Look, Listen… Also, in the film industry: Good, Bad, Ugly; Sex, Lies, Videotape… Putting it simply; if you want a message to be remembered put it into a list of three: Think about…

Here are several more examples: Life, Liberty, Pursuit of Happiness; Government of the People, By the People, For the People; Lies, Damned Lies, Statistics; Not the End, Not Even the Beginning of the End, Perhaps the End of the Beginning; Veni, Vidi, Vici- (I came, I saw, I conquered); Duty, Honor, Country… and the list goes on… According to Michael Raynor and Muntaz Ahmed; it’s always difficult to take something as complicated as business success and truly distill it down to 3-simple rules, 3 essential elements, which can make the business truly great, but here are 3 to think about:

  • Rule 1: Better Before Cheaper: When it comes to how you differentiate yourself from the competition, seek out a position based on non-price value, i.e., performance, which is broadly understood. Do not compete on price. Price-based competition can work, but only rarely does it drive exceptional performance…
  • Rule 2: Revenue Before Cost: Driving superior profitability means having combination of higher revenue and lower costs, than the competition. The advantages of higher revenue tend to be more valuable and durable than the advantages of lower cost. Use your differentiated position to charge higher prices or appeal to more customers. Do not try to ‘cut’ your way to greatness. Just like price-based competition, cost advantage can be effective, but only infrequently…
  • Rule 3: There Are No Other Rules: Whatever competitive, environmental… challenges you might face– don’t give up on the first two rules. But, everything else is up for grabs — everything. Change whatever you must– market, people, technology… anything. But no matter what, stick with– better before cheaper, revenue before cost.

In the article Rule of 3 For Business Survival by Joseph Lizio writes: Most people have heard of the ‘Rule of 3’ in survival: As people (humans) we cannot survive after– 3 hours of exposure (extreme heat or cold), 3 days without water, 3 weeks without food… A similar rule of 3 can apply to business survival: Business cannot survive– 3 hours without some marketing: Every 3 hours you must be doing something to market the business. Customers have very short attention spans– usually not more than 3 hours to remember, recall… a specific marketing message.

Just try to recall the last product brand commercial you– saw, read, act-on… Hence, the goal of marketing is– keep the right message in front of the right people all the time… That means every 3 days the business should be doing something to engage, retain… key customers. The bottom line– no matter what the market, economy… is doing, if you focus on, set aside time… for customers– the business will not only survive, but grow… Just simply act on the ‘Rule of 3’ and always look to the future…

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In the article How to Use the Rule of Three to Create Engaging Content by Brian Clark writes: What’s so magical about the number three? It’s no accident that the number three is pervasive throughout some of our greatest– stories, fairy tales, myths… It’s also no coincidence that some of the most famous quotes from throughout history are structured in three parts, nor is it surprising that the Rule of Three also works wonders in the world of comedy…

It all comes down to the way we humans process information. By necessity we’ve become proficient at ‘pattern recognition’ and three is smallest number of elements required to create a pattern. This combination of pattern and brevity results in memorable content, and that’s why the Rule of Three will make you more engaging, for example:

  • Storytelling: Have you ever wondered– What the three little pigs, the three blind mice, Goldilocks and the three bears, the three Musketeers, the three wise men, the Three Stooges… have in common? Why the three-act structure is the dominant approach to screenwriting in Hollywood? Why three bullet points are more effective than two or four? The Rule of Three works in stories due to the presence of the concise, memorable patterns… Think in terms of three when crafting content and you’ll likely end up with a more engaging outcome. If at first you don’t succeed, remember– the third time’s the charm…
  • Sticky Ideas: You see the Rule of Three used all the time across diverse areas of life. Why? Because information presented in groups of three sticks in our mind better than other clusters of items. For example: Life, Liberty, Pursuit of Happiness: Government of the People, By the People, For the People: Friends, Romans, Countrymen: Blood, Sweat, Tears: Location, Location, Location: Father, Son, Holy Spirit: Faith, Hope, Charity: Mind, Body, Spirit: Stop, Look, Listen: Sex, Lies, Videotape: I Came, I Saw, I Conquered… If you want something stuck in someone’s mind, put it in a sequence of three…
  • Humor: One of the best examples of the power of the Rule of Three is in the world of comedy. Again, three is the smallest number of elements that can form a pattern, and comedians exploit the way our minds perceive expected patterns to throw you off track (makes you laugh) with the third element… The Rule of Three fits the classic joke structure of– set-up, anticipation, punch-line… The three-part grouping also allows for tension to build, and then be released– thanks to the surprise, absurdity contained in the third element… Professional comedians use it all the time, and that’s simply because it works…
  • Other Uses for the Rule of Three: I truly do believe that a set of three bullet-points is the most effective use of the format. You might also find that a list posted with three items will draw people in– because it reduces things down to the essence with no fluff. There’s a reason people like to be presented with three choices rather than two or five– because when it comes to pleasing human brain, it seems like ‘three’ is simply a magic number…

In the article 3-Golden Rules Of Business by Eric write: There is nothing more important to the life blood of business then these three actions: Get Customers, Keep Customers, Make Money… This is what we call ‘Prime Directive’; it’s the prime #1 mandate, top-of-the-mind focus, and the guidance that drives every decision for every manager, leader, employee, stakeholder, director… Anyone who has skin-in-the-game in the business…

The Prime Directives are– not because we say they are but because they are– most elemental building blocks of business success… beyond which ‘everything else’ is merely interesting details… Notice that the Prime Directives are comprised of 3-powerful verbs– action words in the broadest sense of the meaning. Say this words often: Get, Keep, Make; Get, Keep, Make; Get, Keep, Make… Repeat them often; but most important– ‘do what the words say’ for building-sustaining a successful business…

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The Rule of Three is a fun, easy-to-use… universal truth. It gives business more impact, makes marketing more effective, advertising more persuasive… We’re all aware– at least intuitively– of the power of three: A string of three– words, things, ideas… pop-up all the time in literature, expressions, storytelling… According to Wikipedia; the Rule of Three is a principle that suggests that things that come in ‘three’ are inherently– funnier, more satisfying, more effective… than other numbers of things. According to Kurt A. Carlson, Suzanne B. Shu; to produce the most positive impression of a product, service… use the ‘charm of three’ to minimize skepticism, maximize positive impression… when selling list only three positive claims…

According to Carmine Gallo; the phrase– life, liberty, pursuit of happiness– is probably one the most well-crafted, influential phrases in the history of the English language… it was written by Thomas Jefferson who was a skilled writer– this famous phrase reflects a rhetorical technique that can be traced to ancient Greece– a figure of speech using three words to express one idea… The Rule of 3 is everywhere, for example; Steve Jobs applied the Rule of Three in nearly every presentation, product launch… Since it worked for Jefferson, it worked for Jobs… it can work for you– try it.

According to Martin Gladwin; the human view of the world is created by interpreting what happens to us through three elements: How we think, move, feel… Personal success is a result of properly using these three closely interrelated elements. What you think is a result of how you feel, and where you are. How you feel is a result of what you think, and what you’re doing. And what you do is a result of how you feel, and what you think. If any of these three elements isn’t right then look to change the other two. Once you get all three working together, your options are enormous… Just think about that for a while… It’s really that simple…

 

Decision-Making Styles– Pollyanna Principle, Murphy Law, Eeyoreism, Blue Sky: Art of Possibility Vs. Blind Optimism…

The Pollyanna Principle or Pollyannaism is tendency for people to become excessive, illogical, unreasonably– optimistic– sometimes its called positivity bias… Research indicates that, at the unconscious level, human minds have a tendency to focus on the optimistic, while at the conscious level they have a tendency to focus on the negative… 

In Eleanor Porter’s classic book, Pollyanna, she describes how a positive attitude affects people with a negative view of life… The Pollyanna attitude of life has led to the coining of a psychological term, called Pollyannaism.

Pollyanna accepts anything that happens by reflecting that things could always have been worse. This noble view of the world is not always an asset at work… The IBM Pollyanna Principle is the axiom; machines should work; people should think. This can be understood as a statement of extreme optimism; machines should do all hard work, freeing people to think (hence reference to Pollyanna), or as a cynical statement, suggesting that most of the world’s major problems result from machines that fail to work, and people who fail to think…

Also, Pollyannaism is sometimes used pejoratively, referring to someone whose optimism is excessive to the point of naïveté or refusing to accept the facts of an unfortunate situation.

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In ‘A Bit of Pollyanna’ by Nan S. Russell writes: Everyday ideas are gutted before they’re allowed to evolve; it’s becoming a workplace ritual to poke pinholes in the balloon of an idea until enough air leaks out to drop the budding idea to the ground. We look first for the reasons why something can’t be done; why it won’t work; why it’s too difficult; why it’s a bad idea… We’ve become so good at discouraging ideas that might lead to new business, processes, products…

In contrast, people who are winning in business take a far different approach; they pump air into idea-balloon by offering– suggestion, brainstorm possibility, encourage input… They point out problems by offering solutions that make ideas more viable. They’re curious and intrigued, looking at how one idea might fit with another, or weaving two small ideas into one bigger one. And, instead of asking why they encourage people to give it a try… They get excited about new possibilities…

Often its the– optimism, vision, positive approach… which is the bit of Pollyanna in them. But they probably won’t call it that; Pollyanna’s gotten bad rap in business circles it’s naïve and unrealistic… It’s time to look at Pollyanna differently: You will find more success in business by embracing new ideas, seeing the positive side, stretching the horizons…

The impossible is often more a state of mind than reality: As Helen Keller said: No pessimist ever discovered the secrets of stars… or sailed to uncharted land… But, there’s more to winning in business than just positive thinking, optimistic approaches… a bit of Pollyanna must be mixed with strong doses of common sense. Or, as British political leader Harold Wilson put it: I am an optimist, but I’m an optimist who carries a good raincoat… A bit of Pollyanna is a very good thing…

In the article When Does Optimism Become Pollyannaism? by Daniel Kahneman, Dan Lovallo, Olivier Sibony write: One way to overcome unconscious biases in decision-making is to ask the question: Is the base case for the decision overly optimistic? In business, most planning contain forecasts, which are notoriously prone to excessive optimism…

Leaders with successful track records are more prone to this bias than others; especially if they are on a winning streak… However, in our daily business life we often view those who try to rein in or express contrarian views as ‘downers’… As a result, in the desire to show who is less negative a race to the top of the optimism ladder begins and at some point it becomes Pollyannaism.

Moreover, some leaders tends to view an issue as a– glass half-empty rather than glass half-full, and the fear of being in an adverse situation can be a powerful motivator for taking action: Thus, a Pollyanna state could reduce a management team to complacency… Which means that a team in the midst of success is less likely to change, than one in the midst of crisis…

Although, clearly defining the demarcation zone between optimism and Pollyannaism is difficult; it does highlight the fact that there is failure in success, and it can cast doubt on the phrase– nothing breeds success like success. In fact, the best indicator that Pollyannaism might have infected a business culture is its degree of success… After all, it’s kind of hard to reach ‘state of Pollyanna‘ if you’re not even in ‘state of optimism’.

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In the article Business Plans Should be Simple & Passionate by Cletus E Olebunne writes:  You’ve come up with a great idea for– an innovation, new business, new product, niche in the marketplace that’s crying out to be filled… In perfect world an industrious person set-up a business, watch it flourish, and counts the money as it flows over the transom… But in imperfect world, in addition to being industrious, a person needs investment, resources… in order to launch a business. And to get the needed financial investment, typically you go begging to– banks, venture capital, angel investors, uncle-aunt…

Most of these sources of investment want a business plan; and for entrepreneurs– preparing a business plan is one of the most frustrating parts of launching a business: Translating ideas, concepts, vision… into a dry document designed to win over skeptical investors… The purpose of a business plan is to convince potential investors that the idea for new– company, product, market… is solid and you’re the right person to make the whole thing work.

However, Pollyannaism doesn’t make good entrepreneurs…  many people have great ideas… and many people can be an entrepreneur… but few people can thoroughly think through and explain the many issues, risks, potential problems… associated with a starting a new business, or for an existing business…

Preparing a business plan forces you to answer tough questions, forces you to address the– pitfalls, risks… Finding the pitfalls, thinking through the key issues, risks… is crucial. A good business plan isn’t only stuffed with financial projections, but it must also explain how the business, product, market… makes money… The business ideas can be great, but investors want to know how the company will actually make money… If you come across as Pollyannaish then that’s a negative, turn-off for an investor…

In the article Secrets of Happiness at Work by Dr Dick McCann writes: The reality of the business world is often summarized, tongue in cheek, by Murphy’s Law: If anything can go wrong, it will… Therefore, it’s important not to sit back and accept fate in a positive way, as Pollyanna does… It’s essential to identify all the obstacles that might occur and have a plan of action ready to implement, should things go wrong. Anticipating key issues, problems, pitfalls… and having a plan to avoid or at least mitigate them can help prevent Murphy’s Law from happening…

Also, in contrast and as important, Pollyannaism can cause major problems for a business, as well, for example; excessive enthusiasm and belief in positive outcome certainty can often lead to bad decisions that are regretted later, which then also can lead to wide-spread cynicism in the workplace… Risk-averse people tend to focus their energy on– seeing many obstacles– all the things that might go wrong… And, when faced with potentially good opportunities, they may very well ignore them, resenting cogent arguments to support their view that the risks are too great– this is correlated to pessimism. Pessimism is a mood state that affects all of us to varying degree. However, too much pessimism can lead to apathy and inaction…

In A. A. Milne’s classic book, ‘Winnie the Pooh’; Eeyore is universally recognized as being gloomy about life and anticipates the worst in most situations. He constantly expects things to go wrong… However, if we were all like Eeyore and see gloom in everything, then we probably wouldn’t get out of bed in the morning! A focus on seeing obstacles is very important in business, since it can prevent serious mistakes from being made… But excessive negativity, or Eeyoreism, can be even more catastrophic, it must be avoided at all costs…

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In the article Difference between Optimism and Pollyannaism by Robin J. Elliott writes: Why do some people go courageously forward convinced of their imminent success, while others– cower, whimper… looking for excuses to retreat to old ways? What makes some people see the future as– dark, threatening… while others are eager to search for new opportunities, expecting only best outcomes? Once, I was accused of being Pollyannaish…

The accusing naysayer honestly believed that my optimism was delusional… But, after I gave it some thought, I concluded that their expectations were based on their past failures, whereas I based my expectations on past successes. So, if everything you tried failed… and, you know the pain of going forward is less than pain of doing nothing… and, the situation is going from bad to worse… then you ‘must’ make a change… and, my recommendation is the following; Find a winner, a person who is going in your same direction and team up with them… Borrow their courage, learn from their demeanor, model their attitude, lean on their strength. Take their advice even when terrified. Winners like to help others who work hard and do their best…

Small successes build faith and strengthen self-esteem… and self-discipline will do wonders for optimism… If you think like a winner then you are a winner: Do what winners do, have what winners have, act in spite of fear, face the demons. Choose a good business mentor then listen, learn, and take it one step at a time… but tread little and beware of being Pollyannaish…

The brain is bias– it processes information which is pleasing and agreeable in a more precise and exact manner; as compared to unpleasant information. We actually tend to remember past experiences rosier than they actually occurred… According to Christopher Peterson; the human mind at the unconscious level gravitate toward the positive, while at the conscious thinking level it tend to focus on the negative

According to Pete Carroll; there’s a difference between Pollyannaism and passionate resilience; it’s sort of a jazz thing– readiness, eagerness to improvise, turn a negative situation into positive.. being convinced that– something good is about to happen and preaching it to the team According to Warren Bennis; the best leaders have ‘unwarranted optimism’… and I often find myself pushing back against that notion: I know plenty of failed leaders who had expectations that were bigger than their legacies… A person must believe that something good is about to happen and prepare accordingly…

According to Barry Maher; positive thinking that isn’t firmly rooted in reality shouldn’t be called thinking at all. It’s nothing but Pollyannaism– it’s pixie dust. Pollyanna thinking makes problem worse…  When you want to be positive, you often try to block out negatives: Unfortunately, reality has a way of refusing to stay blocked…

Business Strategy — Stuck-in-the-Middle or Build-in-the-Middle: Bridging the Gap or Dead End Proposition…

Business Strategy–‘Stuck-in-the-Middle’ or ‘Build-in-the Middle’: Many business implement a ‘build-in-the-middle’ strategy, which tries to balance the key strategic elements of; competitive differentiation, product-service price, market focus… in order to build a sustainable, profitable business…

However, according to Michael Porter classic book ‘Competitive Strategy’; he hypothesis that a business can secure a sustainable competitive advantage by adopting and executing only ‘one’ of three generic strategies, namely; cost leadership, differentiation, niche focus… and, when a business attempts to adopts more than one or a combination of these three strategies, then the business becomes ‘stuck in the middle’, which is a losing proposition…

According to Robert F Bruner; a single-minded focus on ‘cost’ or ‘differentiation’ or ‘focus’… may be tomorrow’s business graveyard… Customers, markets, competition… are not static and business must be flexible, nimble, creative, innovative… to survive, grow, prosper… But, Porter says that business, which are ‘stuck in the middle’ have no clear business strategy, and are at serious risk… He stresses the idea that practising more than one strategy loses focus, and hence a clear direction for the future business trajectory cannot be established…

However, D. Miller– questions the notion of being ‘caught in the middle’. He claims that there is a viable middle ground between strategies. Many companies, for example, have entered a market as a niche player and gradually expanded… According to Baden-Fuller and Stopford; most successful companies are the ones that can resolve what they call ‘the dilemma of opposites’…

According to Davis; research has shown evidence of successful firms practicing a ‘hybrid strategy’… business employing a hybrid business strategy (e.g., low-cost and differentiation) outperform the ones adopting one generic strategy…

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According to Michael Porter in his book– Competitive Strategy: The business that fails to develop its strategy in one of the directions; cost leadership, differentiation, niche focus…  is a business  that is ‘stuck in the middle’ and is in an extremely poor strategic situation and is almost guaranteed low profitability… Businesses that are truly differentiated can fend off the competition because they are perceived as having a unique product-service, they are more likely to earn superior margins, and are virtually ‘competitive proof’…

Porter’s strategy is embarrassingly simple– just pick one these strategies and align with it… According to John Kay; it’s true that a company that fails to develop its strategy in at least one of these three directions (i.e., a business that is stuck in the middle) is in an extremely poor strategic situation but the notion that business cannot pursue both cost reduction and product differentiation is clearly false

According to Anthony Fensom; being in the middle isn’t bad position provided that you offer value… business strategy can be driven by many objectives; ranging from gaining new customers, market share, improving turnover… or just generally supporting product positioning… and, being stuck in the middle can be a good place, at times– if the price is right…

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There is ample research on business strategy that suggests that the ‘middle’ is to be avoided for fear of being ‘stuck’ in it… According to Bob Bruner; problem is not the ‘middle’… but allowing the business to get ‘stuck’ at all– is the real issue… How the problem is being perceived has big implications for taking action, for example; some business experts argue that the ‘middle’ may not be all that bad since it provides the opportunity to test and discover possible new segments of ‘demand’…

After all, demand can be defined well beyond just– cost and differentiation, for example; convenience, style, location… Then, there is the pesky problem that consumer demand keeps changing over time, which necessitates constant experimentation to discover new or evolving demand… Today’s single-minded focus on cost or differentiation may be tomorrow’s business graveyard; customers, competition, markets… are not static they are continually ‘changing’ and business is continually ‘jockeying for position’… But, being ‘stuck’ in a bad business without a viable exit strategy is a business waiting to fail...

According to Stealers Wheel; ‘stuck in the middle’ is like being caught between clowns and jokers, they may be weak competitors, and thus may present a great opportunity for business to better serve their market, create value… and accelerate business growth… When this is true, then the middle is bad…

In the article Stuck In The Middle by Paul Simister writes: Effectively being stuck in the middle comes from trying to compromise– and it creates ‘muddle’; muddle is bad, muddle confuses customers– they don’t really know what you stand for or what to expect from you… muddle confuses employees– they don’t understand the priorities, and it affects work performance…

A stuck in the middle position happens when a business designed to be low-cost starts adding little extra frills, which don’t add a corresponding amount to the customer value– that’s when business suffers additional cost, but customers don’t get additional value… Or, when differentiated business comes under pressure on price, perhaps due to a market disruption from new technology or a low-priced competitor, and in reaction the business starts cutting costs in areas which damages their advantage…

If you think the business is stuck in the middle – or heading in that direction – then you must critically review business strategy and implement the appropriate adjustments… That means– you must decide what the business is, and what it isn’t… You must decide who the business customers are, and who they aren’t… You must decide what the business is selling, and what it’s not… Strategy is about making wise choices, and then having the courage, conviction to follow through– it’s commit to turning words, ideas… into action…

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In the article Oh, Professor Porter, Whatever Did You Do? by John Kay writes: One of the most famous propositions in business strategy is Michael Porter’s injunction not to be ‘stuck in the middle’… According to Porter; the worst strategic error is to be stuck in the middle, or to try simultaneously to pursue all the strategies. This is a recipe for strategic mediocrity and low performance, because pursuing all these strategies simultaneously means that a business unable to achieve any, due to the inherent contradictions…

The trouble with Porter’s proposition is that– it’s just not true… Many successful businesses are stuck in the middle… to them ‘stuck in the middle’ means offering– medium cost, medium quality… in fact, they do slightly better than the clearly focused choices of high-cost, high-quality… or low-cost, low-quality… So perhaps Porter’s ‘don’t be stuck in the middle’ means– not that you must choose one or the other strategy, but if you don’t– you will fail… Perhaps then all that ‘don’t be stuck in the middle’ really means is that– it’s good to be good at something…

In the article Stuck In The Middle? Take Flexible Approach by Bob Bruner writes: The problem is not the middle; it’s allowing the business to get stuck at all… The ‘middle’ seems to be what every executive wants to avoid these days. And perhaps for good reason. There is ample research on business strategy that suggests the middle is to be avoided for fear of being ‘stuck’ in it. The conventional view is to see the ‘middle’ as a no-win situation. I see things slightly differently; the problem is not the middle it’s allowing the business to get stuck at all…

Being ‘stuck’ is one of the worst situations for business without a viable exit strategy, for example; think of manufacture operations that are obsolete and face exit costs that can ruin the economics of a business as it approaches its end… Or, minority investor who is stuck in an under-performing private firm looking to exit and investment-securities are illiquid… Or, an airline stuck with an aging fleet of airplanes, uneconomic union contracts, landing rights that don’t fit the more profitable segments of demand… Or, retailers stuck with stores in neighborhoods with the wrong demographic trends… Or, technology company stuck with commitment to obsolete technology…

There are many of examples of ‘stuckness’ situations, whereby management makes inflexible commitments to what they think could be sustainable and attractive business strategy… when, in fact, these ‘difficult-to-reversible’ strategic decisions and commitments– exposes the business to potentially catastrophic consequences…

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The challenge for business leadership is not to avoid the middle, but rather to develop flexibility– such as a sensible Plan B– if the competitive situation turn against you. The middle is bad if you are stuck in some important way, for example; the inability to respond appropriate under new competitive conditions… It’s not particularly difficult to think of companies that are neither cost leaders nor differentiators that produce sub-par returns on invested capital, but many have historically ‘muddled’ along for years with incoherent strategies… However, the days of muddling along without a clear strategy are numbered…

According to Porter; a company’s failure to make a choice between cost leadership and differentiation essentially implies that the company is stuck in the middle. There is no competitive advantage for a company that is stuck in the middle and the result is often poor financial performance… However, there is disagreement among scholars on this aspect of the analysis…

According to John Kay and D. Miller; cite empirical examples of successful companies like Toyota and Benetton, which have adopted more than one generic strategy. Both these companies used the generic strategies of differentiation and low-cost simultaneously, which led to the success of the companies...

In contrast, according to Tim Friesner; Yahoo has been stuck in the middle for number of year… and future for the business is looking less and less certain. Google occupies the search and online advertising position, and Microsoft has negated its problem in the search space, with the successful development of Bing. It looks like Yahoo has remained loyal to its long serving strategists, at a time when it really needed fresh ideas. This is an example of not moving with the times in a very fast-moving and dynamic tech sector… 

Michael Porter has noted that strategy is as much about executives deciding what a firm is ‘not going to do’ as it’s about deciding what the business ‘is going to do‘… In many cases, business is ‘stuck in the middle’ not because executives fail to arrive at a well-defined business strategy but because businesses are out-maneuvered by rivals…

According to Joseph Schumpeter, great economist; described the competitive turbulence of capitalism as ‘gale of creative destruction’… being stuck in a bad business without a viable exit strategy– is a business waiting to fail…

Word of Mouth (WOM) Marketing– Create, Harness… Power of Buzz: Leverage WOM to Grow Business– Its Honest Marketing…

Word of mouth (WOM) marketing is the most effective, powerful… form of marketing. Word of mouth means the passing of information from person to person… storytelling is a common form of word of mouth communication where a person tells a story about a real event, or even a falsehood…

According to the Word of Mouth Marketing Association; 76% of consumers say they don’t believe companies tell truth in advertising... It’s interesting that only 24% of the population actually believes that advertisers are truthful.

According to Journal of Advertising Research; 75% of all consumer conversations about brands happen face-to-face, 15% happen over the phone and just 10% online… This is backed up by WOM specialists, Keller Fay, who claim that TV advertising creates the majority of brand related ‘word of mouth’ followed by PR… for many consumers, word of mouth is perceived as impartial, unbiased… and they acknowledge that they are attentive to what people say before making a purchase… 

Many companies focus on creating what’s known as marketing ‘buzz’, or simply ‘buzz’… a term that is used in word-of-mouth marketing– it’s the interaction of consumers that serves to amplify the original marketing message… Many people describe buzz as simply ‘hype’… a vague but positive association, excitement, anticipation… about a company, product, service… creating positive ‘buzz’ is an important marketing goal.

According to survey by Nielsen; 92% of consumers said they trust friends and family’s recommendations, above all other forms of marketing… According to ‘Word of Mouth Marketing Association’ (WOMMA); personal connection drives 54% of purchase decisions… word of mouth is the most influential factor in driving a consumer purchase decision… both in physical and digital channels. Despite advancements in technology and traditional brand interaction; conversation is the significant factor influencing consumers.

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The principles of word-of-mouth marketing are simple… There are four steps to create a successful word-of-mouth campaign… First, company should give consumers something to talk about. This means providing a quality product-service and highlighting its key features… Next, company should decide where this conversation will happen–research what media its consumers use the most, and then place the marketing materials for the campaign in those media…

However, simply starting the conversation often isn’t enough. The company must give consumers reason to talk about the product–that’s buzz. Lastly, company must make sure that the conversation continues– use of  multiple marketing channels is essential. According to Erica DeWolf; in today’s world of social media, instant message,  mobile phones, word of mouth marketing is more alive than ever. It’s a better and more effective way to market and advertise products, services…

Now let’s differentiate the terms ‘word of mouth’ marketing from ‘viral’ marketing, since they are often confused or even used interchangeably. The terms overlap and are subject of debate… various marketing professionals define them much differently, for example; Seth Godin says; word of mouth is when a marketer does something and a consumer tells five or ten friends… but over time, word of mouth is a decaying function...

Whereas, viral marketing takes the phenomenon a step further, for example; a marketer does something and then a consumer tells five or ten people; then they tell five or ten people… it repeats… and grows and grows. Like virus spreading through population… As a general rule, word of mouth marketing takes place mostly offline (although social media is a key facilitator, as well)…

In this process, for example; a company person (usually marketing, sales, company executive…) does something to impress a consumer (or others…) who in turn tells a few friends about it… then, these people pass the message to more friends… this third group may or many not pass on the message, and eventually, the word of mouth message dies off– It’s a downward funnel… The message begins large and trickles down…

Whereas, viral marketing works in the opposite way– the message begins small and grows as more people– ‘announce’, ‘shout’… the message to larger groups of people… It’s also important to point out that a viral marketing campaign is more ‘purposeful’- it’s designed to attract attention, spread… whereas word of mouth marketing is more ‘accidental’. When people have an incredible– company, product…  experience (good or bad), they will share it– this is word of mouth… Word of mouth and viral marketing are very similar, often overlap…

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In the article Disadvantages of Word-of-Mouth Marketing by Angela Ogunjimi writes: Word of mouth happens both– when you delight a customer and when you disappoint or angered one. It’s the latter scenario that bring about the most troubling disadvantages of this form of marketing… Simply put, your customer’s rave reviews about your product or service comes at that customer’s good will… Unlike paid advertising, through which you choose the channel, audience, timing… of messages; word-of-mouth marketing is largely a product of chance…

You can’t control or censor what customers say… With innumerable outlets for both positive and negative experiences, especially social media and online review websites; word-of-mouth marketing shows its downsides when a single unsatisfied customers with choruses from your ruthless competitors, take to the air waves to bash the product, service. Even with positive word-of-mouth marketing, you have little control over key marketing pillar, such as: Positioning… Satisfied customers may peg you as being the greatest, affordable… supplier of a product, service, which can help influence ‘the story’ about the business…

However, word-of-mouth marketing can’t be relied upon as a primary source of marketing… Once the buzz stops… the interest and knowledge of the product can come to a complete standstill. Rather, word of mouth works well when it supplements a full-scale marketing effort that tells a complete story through multiple outlets… Good ‘word of mouth’ comes from good products and services, not trickery or abuse… Spark the ‘word of mouth’ by exceeding the customer’s expectations every time. There’s no substitute for a job well done…

In the article Social Media Amplifies Power of Word-of-Mouth by David Howell writes: The power of word of mouth (WOM) has taken on completely new, far-reaching persona in the shape of social media networks. Today, B2B organizations realize that WOM can be a powerful tool for their marketing activity. An astonishing 91% of B2B purchasers said that their buying decisions were influenced by WOM, making this form of engagement vital for many organizations to get it right…

According to research from McKinsey; WOM is firmly in the digital channel as one of the most important to cultivate whether in the B2C, B2B… and is a primary factor behind 20 to 50% of all purchase decisions. According to Hubspot; any WOM strategy should contain these elements: Know the audience, develop personas that are so specific they’re bordering on the obsessive! Know everything there is to know about the industry, products, services.

Build a very close social media community… in the networks that resonate with the target audience. Identify who the influencers are in the community and other social media spaces where you’d like to get noticed. Find out what influences the ‘influencers’ and where. You can’t restrict what people can say, but try to guide it... WOM is a powerful and vital marketing technique, and together with social media its power is amplified…

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Word-of-mouth is a natural phenomenon, and it’s as old as human communication… there is a strong link between word-of-mouth and storytelling… The key elements of successful word-of-mouth marketing are; value, relevance, excellent service, content, stories… and, listening to stories is just as important as having them shared. Word-of-mouth marketing requires a customer-centric mindset of sharing and focusing on what is valuable for people and networks we hope to involve. It’s certainly not about paying people to ‘get the word out’ nor about simply ‘joining the conversation’. It’s about real value both for the business, customers…

Conversations have no business value, if they don’t focus on mutual benefits and are not monitored, measured, or used to improve the overall customer experience, efficiency… The components of an effective word of mouth marketing campaign, include; engage advocacy groups without destroying ‘credibility’ and ‘trust’… ensure participants are: Unpaid–cash messes with opinions! Unscripted–people should say what they really feel, no matter how good or bad! Open–if someone is involved in an organized word of mouth program, the people they talk to should be aware of it!

Word of mouth can be bad as well as good: There’s no quicker way to destroy a brand than by negative word of mouth advertising. Dissatisfied customers are much more likely to post public warnings about a bad product than a satisfied customer is to recommend it… Upset people are at your peril! According to Martha Spelman; you can’t depend on word-of-mouth forever. If  primary form of marketing is word-of-mouth, you need more ‘mouths’…

Incorporating other marketing efforts into the overall business strategy is imperative. Establishing a plan to increase visibility with broad-based program, including; website, email marketing, networking, speaking, events, blogs… and being active on social media platforms like– LinkedIn, Facebook, Google +… should all be on the radar…

There’s no right or wrong way to execute word of mouth marketing; if it works for you, then it’s right… According to Patrick Galvin; creating a word of mouth campaign focused on building customer loyalty that boost referrals, then the business thrives… According to Allan Dib; word of mouth marketing is powerful, but it’s extremely slow and unreliable way for building a business… it can take many years, even decades, to build a successful business on the back of word of mouth alone…

By being solely reliant on word of mouth you’re putting the fate of the business in the hands of others ‘hoping’ they, remember you often enough to regularly, send new business your way… This is an extremely dangerous path to be on… However, by creating multiple marketing channels including word of mouth you take back control, which then enables you to build a solid foundation for rapid business growth…