Thursday, July 06, 2006

It's Not Personal or Political, It's Business

It's now become pretty clear that the US political system is dysfunctional. Many are involved in trying to figure out how to fix it. Perhaps it's so difficult because people are using the wrong language, combined into an inappropriate narrative, to shoe horn the new reality into the conventional wisdom.

Red state, blue state, moderates, left, right, middle, extremes, base, conservative, liberal are all word concepts that are based on a world is disappearing.

Maybe a more useful narrative comes from the world of the net and business. In the GME all businesses are moving to understand that success comes from focusing on the transaction. Success comes from making the transactions easier, faster, simpler, and standards based. The web has demonstrated that brand loyalty and the customer purchases that derive from them can all be thought of as transactions. And every touchpoint has to deliver value to the customer.

Creating more time by eliminating unnecessary, unprofitable activites seems to be the key to sustainable efficiency. Eliminating anything that does not directly contribute to an improved customer experience is the key to an expanding profitable market position.

And so with politics in the US.

Consider the poltical industry using the terms that are commonly used to think about the auto industry. Let's say the GM is the Democrats and Ford are the Republicans.

General Motors (The Democrats) are presently trying to stay alive. Management has blamed everyone else for their persistant failures. It's the legacy expenses, it's global competition, it's the high cost of labor, it's the union. (In politics, it's the ruthless, unfair competition from the Reupblicans).

In fact, the real problem was that they were unable to produce a product that people wanted to buy.

Just to continue the metaphor....

The internet removed information advantage. Few people buy a car without searching the web for price, feature comparisons. The traditional channel model had to be changed very quickly. Then competition for market share, for GM and Ford (the only American competition), increasingly depended on massive advertising. To make matters even worse the "advertising" was mostly in the form of rebates and should have been seen for what it was - lowering prices.

GM management focus was on their most profitable item, SUV's, innovating around emission requirements by calling their SUV's trucks. In retrospect for management,this was clearly unsustainable as everyone understood that energy efficiency was the wave of the future. But it produce some profit for the quarterly reports, and so the reality of secular trends was ignored.

Top managment was focused on the stock price, the quarterly profits,and somehow keeping the whole thing going. My guess is they defined "insuring access to oil" as the most serious challenge of the 21st century. From their limited narrative it's only common sense.

But if management was focused on that, they didn't focus on the central problem-
make a product that people wanted to buy.

Toyota is the counter example. They didn't have to resort to rebates (lowering prices). They seem to be doing just fine, opening plants, creating jobs in America and all over the world. Increasing market share through internal growth, not purchases.

The GM management lived in a pretty protected world. No matter how much they failed, as long as they were able to hold onto their jobs, their comp didn't go down. Until private capital came into the game. It's likely that after Kerkorian finishes with these folks, they're going to be working for Renault/Nissan.

How might this narrative apply to politics?
The traditional political business is essentially no growth. Based on the number of people who regularly participate, it seems the entire industry has about a 25% market share (that's the number that typically vote in a non presidential election.

The industry is managed by professionals who are relatively insulated from risk, as long as they stay in the game. Even if one loses a particular election, the career benefits of having been an elected or non elected player are high. There is a very complex supply chain for the industry that has been growing quickly as the political parties have become revenue generators that keeps everyone satisfied with the status quo.

An innovative way for winning elections started being developed in the late 70's. It was an incremental improvement, but seems to have lead for predictable results for the Republicans. Use any means necessary to get customers loyal to your brand to vote (the central transaction), and do everything you can to keep the other brands loyalist from voting. Being able to consistently win, is a very effective revenue generating tool. Much easier to raise money, if you can offer a reasonable certainty that the money will be well spent.

This was an incremental improvement as this has been the way the industry has worked for a long time, perhaps since it's inception. The first innovation was the insight that in a stable market, you can consistently win elections by motivating a very,very small number of voters. The second innovation was the willingness to use any means to get those small number of brand loyalists to vote. Not surprisingly, an appeal to fear and greed can be very effective. The use of the best technology was not really an innovation, just a normal practice of a good technician. Technology is hardly ever a sustainable advantage. But it does give a major first mover advantage.

These incremental innovations have now become the primary technique of both the Democratics and Republicans, as rebates were the primary technique of the traditional Auto industry. They will continue to be the primary technique, because in a stable, almost niche, market, it works time after time. It delivers the "quarterly results". It is very difficult, as we can see from GM. Toyota was spared the problem. Probably becuase they decided at their founding that they could only become a global powerhouse by building a better product at a competitive price. (A similar situation to many big businesses now growing in India,Korea and China and other developing economies.)

The fact that the unintended consequences might lead to wholesale taking of power from top management was hard to see when all time and mangement focus is devoted to doing the wrong thing, faster and cheaper. But, once the information advantage was taken away and the industry was exposed to true global competition, most interested, but even casual observers saw the coming problem pretty clearly.

And, for the auto industry, when one person, with the resources and interest, believed that the risk of unlocking the underlying value of the enterprise was worth it, he joined the game. ( Perhaps this is analgous to Bloomberg, Cosine and other billionaires who have recently joined the political game.)

The immediate result is that the top management no longer lives in a risk free environment. The possible end result is the disappearance of GM as an entity, becoming instead a subsidiary of some network driven by Nissan/Renault.

If this analysis makes sense, the way to fix politics, might come from a truly disruptive innovation, that expands the market in internet time.

It's likely that from the conversations taking place on the web coupled with the wide access to communication tools, and the now impossible to ignore dysfunctionality of the present system, a truly disruptive innovation is already in formation.

It's always important to remember that Google was started and grew from 2 graduate students - albeit very, very talented - at Stanford.

Sooner or later, a team, a group, a person, will build a functionality that delivers the appropriate customer experience for the non consumers of politics. It will probably be based on delivering useful (that is understandable) information, within an actionable time frame. It will probably focus on real things - how much money am I spending, who benefits from that money, and am I getting value received for the money I'm spending. It's essentially IAI, instantly accessible information.

And it will not be as simple as a rebate. It's clear that people understand and value, perhaps even more than money, a lowering of risk and a increase in their individual possibility of pursuing happiness. In an information scarce society, the underlying expectation was that no one would willingly agree to spend money on making the society as a whole a better place. In an information rich society, there is enough evidence that voluntary giving, at all income levels, is a natural human impulse. The outpourring of money and time after Katrina or the Tsunami are the most recent examples.

As in business, so in politics.

Love the customer, trust the customer, do everything you can to make sure the customer is getting value at every touch point. Management in business has already seen the long term advantages to them of this approach. Sooner or later, professional politicians will probably get it, or a new management team will be brought in to unlock the value in the American enterprise.

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