President Obama’s Offshoring Rhetoric

Thus sprach President Barack Obama to a joint session of the Congress – “we will restore a sense of fairness and balance to our tax code by finally ending the tax breaks for corporations that ship our jobs overseas.” Everyone stands up to applause and I am a little confused.

First, how does someone even implement this proposition? I am yet not sure of the legal fine print but does it mean GE (example) will lose its tax breaks if it offshores customer support to Wipro Technologies in India (example) but will not if it sets up GE India Pvt Ltd for the exact same purpose? Most offshoring happen like this. An US company signs an outsourcing contract with an US subsidiary of (say) an Indian outsourcing vendor, which then sub-contracts the job out to its Indian parent at a price. The Indian company pays tax on the profit it earns from the arm’s length transaction with its US subsidiary while the US subsidiary pays tax as per the laws of its domicile country, that is the United States of America. The US earnings attracts Indian taxes only if the US subsidiary repatriates profits earned in the US in the form of dividend to its Indian parent company. Given this situation it is not intuitive how President Obama can implement his rhetoric.

Secondly, a country loses jobs to offshoring when it no longer enjoys comparative advantage of performing a function or a task. The per transaction cost of answering a phone in Manila is way too low compared to Minnesota, so it is a given that Philippines becomes a preferred destination for that function. The folks at Minnesota graduate to doing stuff they are relatively more efficient in doing (like designing marketing campaigns for which the phones will ring in Manila). This outward movement of functions have been happening for a very long time with the US, especially in manufacturing. It can be argued that at a macro level the skill of car making shifting out of Detriot into South Korea and Japan is some sort of factor-induced non directed offshoring. So is it even possible to reverse an economic process by constructing non-tariff barriers? Or have we reached a situation where Americans have lost their relative advantage in significantly high number of functions and offshoring is a consequence of that rather than mere cost (or tax law) arbitrage? President Obama goes on to say – “… I do not accept a future where the jobs and industries of tomorrow take root beyond our borders – and I know you don’t either. It is time for America to lead again”.

I wonder how it is possible for America to resume leading by doing tasks that Manilla had been doing for it up until now.

Update: Kishore has a very clear minded and precise analysis of this issue in this post in his blog – View of My World

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Are you ready to go to Construction?

Rory Brown, writing in the context of knowledge services as growth vehicles for the business media, makes an interesting observation regarding workflow solutions, especially how to construct them. In my personal experience, I have seen firms trying two techniques when faced with the problem. First, hire an insider. This technique is risky and puts huge onus on hiring correctly and that the person hired is an expert in all workflows associated with a function (question – why then does this expert want to leave his current job?). Second, interview actors of the workflow, overlay that with public intelligence and create a User Persona. This method has a two degree separation inbuilt between the function and the catalog, which may lead to loss in translation.

There is nothing to beat what Brown mentions – that is, send in people who unobtrusively observe the actors performing the workflow and documents their actions. It is important that this be done over a period of time to eliminate sampling errors. Actually, this technique is rather old fashioned. I was exposed to this buddy method of indoctrination to a function when I started off as a trader in the FX desk, way back in the nineties (Michael Lewis writes hilarious accounts of his buddy-ing up days at Wall Street in Liar’s Poker, which dates back to the eighties). Artifacts – mostly flowcharts – created as a part of this exercise should be the most important ingredient in designing the workflow product, its visual signature, usability and layout. Assuming that almost all marketing for the product has been done upfront, Product Managers should not cringe from making the workflow construction investment thereafter even if there is a temptation to jump straight into architecture and construction.

As a matter of principle, never enter the architecture/construction phase unless you know the significant part of the requirements completely. And for a workflow solution, there is no better (and surer) way than what I mention. Visually stated – this is the cost trade-off involved cost by phase

Partner to flourish

partnerGiven infinite time and resources product managers can build out any feature and functionality that the market would need. Unfortunately the underlying assumption in this statement is quite impossible. Within this constraint of resources is born a product roadmap. The product roadmap should represent the core, non-negotiable direction of the product that satisfies demands of the identified client constituency. However, no matter how much a product manager wants, a product roadmap is all but linear. A sudden luscious opportunity emerges that requires tangential development outside the roadmap or there is an exciting technological breakthrough that if implemented would significantly boost user experience – typical situations that has the potential of jeopardizing a roadmap.

The astute product manager at this juncture remembers the eighteenth century economist David Ricardo and his theory of comparative advantage. Is in-house development the best way to tackle the new but unplanned opportunity? Should resource allocation be altered and is it worthwhile to face the inevitable compromise in roadmap as consequence? Firms faced with this conundrum should proceed on the route of in-house development only if they possess core competence in the demands of the deviation. However, in most cases, such situations result in the Product Manager exploring partnerships.

Sauce for the goose may not be sauce for the gander and what is deviation from road-map for one product manager is bang in the right direction for another. Both such product managers should be active scouts of the environment that allows them to make such mutually beneficial connections. Alliances such as these have several benefits

1.       Immediate need of the market is satisfied leading to revenue opportunities for both the parties in the alliance. The customer base understands and in almost all situations are extremely supportive of such partnerships

2.       The product manager who was faced with roadmap compromise keeps open the possibility of deeper engagement with the partner should the one-off deviation become a much deeper trend

3.       The product manager who satisfies the deviation requirement is often the smaller player in the mix. Engagement with a larger player opens up many more possibilities for the product manager, product and the firm. In many occasions the smaller firm gets acquired by the larger firm at a later date, creating consolidation in the industry

Partnering is an exciting opportunity for product managers to grow their products and explore a different vista of the marketplace than what was possible for each of the products individually. And this is where the proactive product manager has the dual – and onerous – responsibility of being attuned to the market to identify emerging trends and firms that are playing in that arena.

Recourse of the Unimaginative: Project to Product

Let us now convert this project into a product.

One reason why Product Management resources are so difficult to find in India and why the general outlook towards building software products (= risky) stays grimly low is because of a predominant IT service (= safe) orientation.  However, IT Services firms do try to dabble into Products sometimes and the quickest way they take is the first line of this post.

A one-time client engagement to create a system becomes the passport of flipping that over into a Product.  That one firm in the industry had the system built becomes the marketing proposition that other firms in the same industry also can be sold the productized version.  Engineering puts in the architectural tweaks allowing system parametrization, APIs are either written or made more open and the front end gets features like white labeling and the beast is labeled a Product. However, despite the overbearing attempt at camouflaging it continues to look like a project, quack like a project and walk like a project.

In fact, it continues to remain a project. The Frankenprod created is neither generic enough to handle all industry idiosyncratic situations elegantly nor does it solve niche common problems universally. The lack of adequate Product Management and zero upfront marketing results in a product that has been Product Managed by a single client. As a consequence, any additional client signed up needs enormous amount of product changes, often making each sale a specific instance of the product. Now think of downstream nightmares like creating a single Helpdesk!

So is it incorrect to convert projects to products? I am hoping someone will take care of the IP stuff in the contracts while I pronounce my view from a Product Management perspective. Some of these ideas should be noodled before making the final call

  • What is the customer pain the project is solving? Is this pain universal in the industry?
  • If the pain is universal, is the solution to the pain universal as well?
  • How are other firms in the industry solving the pain now? Are all solving them the same way?
  • Are there other points of pain in the industry that the project client does not have to face? What solutions exist for such pains?
  • Is the project client a leader by such an extent that its adoption of my solution will either attract or force the rest of the industry to adopt an identical (or near identical) solution?
  • Are there demographic differences in the way the industry functions?

I wanted to make my personal position clear in this. I do not favor converting a project into a product. It is the recourse of the unimaginative and is counter intuitive to Product Management. I’d much rather convert an Idea into a Product.

Stop Perfuming the Pig: Why “real” marketing is done before the product is created

No amount of perfume can overcome the stench of a technology product that people don’t need. By Steve Johnson

expertszon1There’s a problem in the industry today…

 According to research from executive search firm Spencer Stuart, the average Chief Marketing Officer  in a technology company can expect to stay in the job for 23 months.1 That’s half the time we expect  for CEOs and COOs. Why is a CMO’s job in such jeopardy? Invariably, this short tenure is the result of  the CMO’s inability to meet unrealistic demands of the job-expectations that are in fact impossible.  The CMO fails to create the need for your company’s product.

 Unfortunately, people don’t need what they don’t need.

 In effect, CMOs have been hired to perfume the pig. Product Marketing is relegated to delivering the  product to market without clarity on the problem and who wants to solve it.

Alas, no amount of perfume can overcome the stench of a technology product that people don’t need.

Your founder (of Pragmatic Marketing: Subrata), a brilliant technician, started the company years ago when he quit his day job to market his idea full time. He created a product that he just knew other people needed. And he was right. Pretty soon he delivered enough of the product and hired his best friend from college as VP of Sales. And the company grew.

But before long, the VP of Sales complained, “We’re an engineering-led company. We need to become customer-driven.” And that sounded fine.

Except… every new contract seemed to require custom work. And you signed a dozen clients in a dozen market segments. And the latest customer’s voice always dominated the product plans. You concluded that “customer-driven” means “driven by the latest customer” and that can’t be right.

Later, a board member declared, “We’ve become a sales-led company. We really need to start being marketing-driven.” So you hired a brand specialist away from a consumer company as VP of Marketing. She designed a new corporate logo with a new color scheme, the collateral, and the trade show booth. Everyone got new company icons on their clothing. Except… you spent millions on the logo but without any change in revenues. Apparently, branding isn’t all that it’s cracked up to be, eh?

The CFO whispered to the founder, “Don’t you think it’s time that we started controlling costs?” So the company became cost-driven and started cutting all the luxuries of the business, like travel, technical support, bonuses, and awards dinners. And Marketing. The CFO asked, “What do those marketing people do?” and since no one had a good answer, the CFO deleted the marketing budget and fired all the marketing people.

Eventually, the president and founder said, “We’ve tried being sales-driven; we’ve tried being marketing-driven; we’ve tried being cost-driven. It’s time to get back to our roots and become engineering-driven again.”

Actually, no, that’s the wrong conclusion.

Many companies move through this cycle: from being led by Engineering, Sales, Marketing, Finance, and back to Engineering again. We go from technology-driven to customer-driven to brand-driven to cost-driven and back to technology-driven.

Until… someone decides to be market-driven.

The way to break the cycle of dysfunction is to stop listening to each other and start listening to the market. Listening to the market means first observing problems in the market and then solving them.

I’m convinced that developers, engineers, and executives want to be market-driven. They just don’t want to be driven by marketing departments.

There’s a big difference between listening to the market and listening to the marketing department. The problem is, marketing people don’t buy our product. Nor do most of them understand the product. In fact, many marketing people deserve all the respect that they get- which is none.

What is marketing anyway?

A Director of Marketing asks me to talk to her management. She tells me that her executives “just don’t get marketing.” Then she starts reminding me about the importance of awareness and “buzz” and exposures… and I realize that I agree with her management: she doesn’t “get” marketing either. She’s not talking about marketing; she’s talking about promotion.

Marketing directors frequently ask, “What percentage of revenue should I allocate for my marketing budget?”

Do you mean the marketing budget or the promotion budget? A promotion budget reflects the product strategy; the marketing budget defines the product strategy. The marketing budget should contain market research; the promotions budget contains marketing research. Which is right?

If you’re in maintenance mode and just want to keep your existing customers, a promo budget of 3-5% of revenue is plenty; keep the cash cow alive. But what if you’re in a market-share fight? If your strategy is striving for dominance in the market, you might spend more in promotions than your entire corporate revenues. In a drag race, you’re not interested in optimizing fuel efficiency or ensuring good tread wear on the tires. You are literally burning through resources to win the race.

For the first few years, Amazon lost money on every book sold. They were in a drag race for market dominance. Before AOL became a party joke for acquiring Time Warner and then being eaten up by it, AOL spent millions on the ubiquitous install disk everywhere you looked. AOL was in a drag race to be everyone’s on-ramp to the internet. AOL and Amazon each spent more on promotions than on development. And each became number one in their space.

So, what is your strategy?

“Uh-oh. We don’t seem to have one of those. Can I just budget a percent of revenue?”

Okay here’s an answer: spend 10% of your revenue target on promotion if you don’t have a strategy. (And then seek employment with a company that does have a strategy.)

The real problem facing tech companies (and life sciences and web 2.0 and, okay, well almost everybody) is that they’re not doing marketing; they’re only doing promotion.

I’m not saying that promotion is a waste of time or money or talent. Indeed, I have worked with many fine promotional professionals. But promotions isn’t marketing; promotion is marketing communications.

Peter Drucker makes it clear that marketing isn’t a product promotion strategy; it’s a product definition strategy, that “marketing” is creating a product that sells itself, creating a product that people want to buy; creating an environment that encourages people to buy.

Over the years however, industries and agencies and marketing experts have worn away the original meaning of marketing and cheapened it. Marketing now means many things to many people but apparently not what Drucker meant. For most people nowadays, marketing means t-shirts, coffee mugs, trinkets, trade show trash, and tchotchkes.

I attend many marketing conferences and invariably find that I’m the only one in attendance who seems to be talking about products; everyone else is talking about promotion. At one such marketing conference, an attendee in the front row asked every single speaker, “How does what you’ve talked about generate awareness and leads?” He didn’t know what to ask me because I hadn’t once used any of the marketing keywords: awareness, leads, campaigns, programs, spin, or buzz. Apparently to him I was a product guy and not a marketing guy. But promotion isn’t marketing.

Sales isn’t marketing

Sales isn’t marketing either. Many people equate marketing with sales. And many salespeople do, too. Some salespeople are so embarrassed by their profession that they’ve taken a new title: marketing rep. Look at the number of business cards that do not reference sales but some other moniker instead. Do you get paid a commission on your personal sales of product? If yes, then you’re a sales rep.

Many believe that salespeople are the best source for product ideas. After all, they’re talking to customers all the time! But talking is the key word. They are talking to the customer about the existing products, not listening for what products they should build. Yes, salespeople are a valuable source of product information but not the only source.

There are two ways of using salespeople in a company: there’s selling and there’s “not their job.” When we invite salespeople for guidance on events or product features, we’re asking them to stop selling and start focusing on “not their job.” Assessing marketing programs or product feature sets or proposed services or pricing are all “not selling” and therefore “not their job.” We invite salespeople to help us because they know more about the market than the people at corporate. But the VP of Sales does not pay salespeople to be strategic. She pays them to sell the product. If salespeople want to be involved in these activities, they should transfer to Product Management; I’m sure there’ll be an opening soon.

In the classic 4P’s (product, promotion, price, place), salespeople are the last P, not the first. We want them to be thinking weeks ahead, not years ahead. We want them selling what is on the price list now, not planning what we ought to have. Selling isn’t marketing; it’s selling.

Instead, we should rely on Product Management to focus on next year and the year after, to be thinking many moves ahead in the roadmap instead of only on the current release.

PR and advertising aren’t marketing either

In the old days, public relations and advertising were the biggest parts of a marketing budget. These two promotions techniques were pretty much the only way back then to reach customers, so PR and advertising became synonymous with marketing. But PR and advertising are promotion techniques. They are two ways-and fairly ineffective ones at that-to communicate the message to the market.

John Wanamaker (considered the father of modern advertising) quipped, “Half the money I spend on advertising is wasted, and the trouble is, I don’t know which half.” Is marketing the same as advertising? Marketing directors and ad agencies apparently think so. So do PR firms. Advertising and PR are the old way of marketing. They’re still trying to get your message in publications that no one reads.

And these same firms are trying to make sense of the new media-video, webinars, podcasts-but with the old mindset. For them, marketing is media, not message.

“Marketing” has come to mean “communicating our message.” But who is defining and delivering the basis of our message? That is, who is defining the product? Marketing communications is about promoting our message; it’s about “how” to communicate. Where is the “what” to communicate?

The first time I met with an agency was a complete head-trip; it was truly surreal. I felt like I was the only sane person in the room! The agency rep started asking me questions like:

  • tell me about your buyer
  • tell me what your buyer reads
  • tell me what trade shows your buyer attends
  • tell me who influences your buyer

In effect, tell me how to reach your buyer, how to promote your product to the buyer. In some confusion, I asked, “Aren’t you interested in my product?” “Oh no,” he replied. “We don’t need to know the product to define your product message. This is called ‘marketing.'” (Can’t you just imagine the agency guy making little quotes with his fingers when he said “marketing”?)

The old agency approach is based entirely on the “art” of communication. They interview a few execs within the company, find a concept they understand, exaggerate the heck out of it, and that’s the message. Is that “marketing”? No.

Some call it “creative.” I call it “ignorance.”

In another agency experience, I provided a set of personas (profiles of likely buyers and users of the product) and positioning (product message and description). The agency’s creative people were speechless; no client had ever before provided such information. The result was they got to work right away without spending months on concepts, hoping to stumble across one that works.

Marketing is knowing what to build and for whom-and frankly, the rest is easy.

The marketing mix isn’t marketing

Remember Father Guido Sarducci from the first years of Saturday Night Live? He offered a Five Minute College that taught everything that the typical college graduate remembers ten years after leaving college. Economics? “Supply and demand.” Business? “Buy low, sell high.”

Marketing? In my meetings with executives, I ask, “What is marketing?” and I usually get a Father Guido Sarducci answer: “It’s the 4P’s.” But then, the executives can’t remember any of the Ps so they start calling out any words that start with the letter “P.”

What we learned about marketing in college doesn’t seem to apply any longer. We learned the 4P’s or the Marketing Mix. Over the years, people added more and more words that start with the letter P to the marketing mix. People. Pricing. Positioning. Personas. PowerPoint. Prayer.

What’s missing is the Problem.

Problem

The first and most important consideration for any business is the market problem. It’s the problem that drives the product decisions, the message for positioning, and the key elements of selling-the placement strategy. Having identified the problem, the other Ps of the marketing mix become obvious.

Product

The product we build should address a well-understood market problem. What did Drucker say? “The aim of marketing is to know and understand the customer so well that the product or service fits him and sells itself.” That is, the product should come from a deep understanding of the market of customers.

Your company founder understood this, perhaps inadvertently. That is, he created a solution to a problem he encountered in his daily life. He built a product and felt sure that others would value it. And apparently he was right, as your company was an overnight success. But the problem was that the second product wasn’t quite as good as the first and the third was a complete disaster. What happened to the president’s innate understanding of the market? Well, he left the market; he became a president. For the last few years, he’s been more focused on hiring and firing and financing and cash flow and compliance and signage and all the other things that fill a president’s days.

But when was the last time he was in the customer’s chair? When did he last write some code? Balance indexes in a database? Backup a file? What does the president know about the real world any more? And his new hobby is cropping up at work, too. Now that he’s sailing his boat or flying his plane, he wants to include nautical or aviation metaphors into the products and into the promotions.

Engineers tend to be perennial inventors. They’ve always got a great idea of a new feature, a new product, or a new technology. And it’s natural.

In an IEEE paper, Albert Ehrenfried declared, “Too many products are developed to satisfy the desires, urges, and hunches of people within the company, rather than to meet the specific needs of the market external to the company. Products grow out of the desire to tinker, or because an engineer sees a purely technical challenge.”2

Sound familiar? Ehrenfried wrote this paper in 1955-over fifty years ago. I guess the technology world hasn’t changed very much after all. Yet one CTO said to me, “Steve, you just don’t understand innovation. We’re solving problems that people don’t even have.”

Umm. How’s that working for you?

The best engineers and developers are problem-solvers. If we start the marketing mix with the market problem, inventors can-and will-focus on solving real problems.

Promotion

With a problem-solving product in hand, the promotion is fairly straightforward. Just go ask people if they have the problem and then show how you solve it. It’s that easy.

Do you remember the introduction of Hotmail? There was a problem in the industry: it was hard to access your personal email account from within the company firewall and besides, company email wasn’t really confidential so you couldn’t easily send your resume to a potential employer from your current employer’s email account. Hotmail gave you free, private email… and each message you sent to your friends came with your implicit endorsement. Nobody had to generate “buzz” for it; Hotmail became an overnight success because it solved a problem and had the necessary promotion built right into each message. Did they need to create the need? Nope. They didn’t promote the product at all; they just gave it to a few hundred customers who told two friends who told two friends, and so on and so on…

When Google Mail became available, I was fairly unimpressed. Ugh, yet another mail program. And I knew I wouldn’t like a mail program that didn’t have folders! Or so I thought. Once I had a few hundred messages, I realized that folders are irrelevant if you can search quickly. I don’t need folders in Gmail because Google can actually find messages-faster than I can file them into folders. The reason we need folders in Microsoft Outlook is that you can’t find anything using the search tools provided by Microsoft. Happily, you can use Google Desktop Search to find the Outlook messages that Microsoft can’t find.

Build a product that people want to buy and they’ll dig it. The new rules of marketing are basically the same as the old rules of marketing.

Have something to talk about and people will listen.

Place

Have you ever been in Sales? It’s hard to live with your house payment on the line every month. It’s particularly hard when you don’t really believe that your product has value.

Incredibly, many salespeople don’t believe that their product has any value to the client. How sad is that?

The really sad part is that many tech products don’t actually have value. They solve problems that people don’t have. Or they solve the problem incompletely. So I guess I understand why salespeople feel they have to sell product futures and make promises that the product can’t keep.

But we can place a fair amount of the blame for our product failures on salespeople themselves. Maybe if they didn’t distract the company with “deal of the day,” the developers could actually finish 100% of the functionality needed by a specific market segment. Yet even if the company has indeed created the ideal product set for a well-defined market segment, the sales team sells the product into another segment. After all, for a sales guy, anyone who calls back is a qualified prospect.

I don’t truly blame the sales guys-they do what they do. I do, however, blame sales management. The VP of Sales (or if not the VP, then the CEO) should reject deals that are not in the segment.

The real problem is this: the company engaged a sales group before they had clarity on the problem they were solving, before they had a complete product, and before they had the promotions in place to support a repeatable sales process. They built an incomplete product and hired salespeople to sell it. They hoped the sales team could generate short-term revenues without interfering with long-term viability and they lost.

Hope is not a strategy.

The truth is that we shouldn’t engage a sales team until we have a repeatable sales process for all the buyer personas in a well-defined market segment. Place is the fourth P, not the first.

Product management is a game of the future. Product managers who know the market identify and quantify problems in a market segment. They assess the risk and the financials so we can run the company like a business. They communicate this knowledge to the departments in the company that need the information so that products and services that actually solve a known market problem are built-so that we can expand our customer base profitably.

Companies fail when they employ marketing without market, when we worry more about promotion than problem, when we focus more on selling than solving. That is, we fail when we deliver products without market knowledge.

 

Steve Johnson

Steve Johnson

Steve Johnson is a recognized thought-leader on the strategic role of product management. Broadly published and a popular keynote speaker, Steve has been a Pragmatic Marketing instructor for more than 10 years and has personally trained thousands of product managers and hundreds of senior executive teams on strategies for creating products that people want to buy.

Prior to joining Pragmatic Marketing, Steve practiced the discipline of product management for over 18 years at a variety of software and hardware firms, moving from development to sales to product management, and ultimately to head of marketing for a enterprise software provider

Steve writes the Product Marketing Blog