The Challenge Dividend

Helping Spring Breakers in a Bind

During my first trip to Daytona Beach, Florida for Spring Break in Freshman year of college, I distinctly remember driving over the inter-coastal bridge and noticing something curious.  I was still sober at the time and stuck in traffic on the way to the beach.  As we slowly rolled through traffic, I noticed rows and rows of small offices in either side of the street.  Each office had a gold-colored name of an attorney at law.  I was surprised that a small town like Daytona Beach could keep so many attorneys employed.  My guess was that the Spring Break industry was the cause.  Somehow that theory stayed in my mind, and last week I got the confirmation, thanks to the Wall St. Journal.

The WSJ tells the story of 36-year-old attorney, Ben Bollinger, who plies his trade in Panama City, Florida.  The town pulls in 300,000 Spring Breakers in March, who spend $60 million on goods and services.  Some of those dollars go to Bollinger, who advertises on local radio stations and is regularly in court at 1am for offenses such as public intoxication and fighting.  One of Bollinger's promises: not to tell their parents.

Granted, this post isn't a perfect fit with the Challenge Dividend - other than the fact that this is yet another example of the power of the free market.  A challenge of drunk kids screwing up, plus an economy that let's lawyers take advantage of unique clients' unique needs, has helped keep kids somewhat out of trouble and preserved the right-of-passage of Spring Break.  Amen.

Music Continues to Pay Monopoly Price - UPDATED

The tales of the music industry and its war against technology and its customers have served as fertile ground for this blog.  Ironically, my first "real" post a year ago Sunday featured research that proved free music actually increases total sales.

This week I've got to bring back this classic tune of an arrogant monopolist that pushed its customers too far - as reports show a dramatic, +20% decline in CD sales in the first quarter of 2007.  The only question at this point is what will replace the historic recording industry, because consumer power and technology have run too far ahead of monopoly control.

To recap previous posts here and here: since its inception, the music industry has held monopoly power over artists and distribution points through exclusive contracts, favorable trademark legislation, and concentration among a handful of competitors.  With each historic technology change, consumers were forced to upgrade their music collections - from records to 8-tracks to cassettes to CDs.  Monopoly power and technology improvements became a predictable profit stream with little additional development costs.

But the convergence of disc burners, Internet access and iPods has mucked up the playing field for the recording industry.  Instead of upgrading to a new catalog of music, consumers simply burned CDs to hard drives and began swapping files.  Even sub-CD-quality mp3 files were good enough for most listeners, and new gimmicks like DVD-Audio were bypassed.  Smart software on iPods allowed us to program our own radio stations, and Internet and satellite stations provide commercial free access to any niche our heart desire (for example, I am listening to Sky.FM's Modern Jazz as I type). 

The industry has done everything from sue its customers to secretly installing spyware.  Is it any wonder their sales are down dramatically while consumers are probably listening to more music than ever before? (take a walk down any city street to test this).

And despite the growth of iPod sales and success of iTunes' billionth song sold, the increase in download sales has not offset the overall music decline.  Some of this is due to highly-restrictive Digital Rights Management (DRM) software that limits the use of downloaded songs.  While free market visionaries like Steve Jobs are willing to give up monopoly profits and drop DRM for the good of the overall market, the recording industry continues to fear evolution and anger its customers.

This week an amazing insider story on the recording industry's push for tighter controls on legal music came from a talk by Bruce Lehman at McGill University (starts at 11:00 on Google Video).  Lehman was the driving force behind the creation of modern DRM in the Digital Millennium Copyright Act.  In this retrospective speech he admits that:

• "Our attempts at copyright control have not been successful."
• "We are entering a 'post-copyright' era."
• Many people have lost respect for copyright law...because of the failure of the recording industry to adapt in the 1990s.

Net, the author of legislation that gave the recording industry more power suggests that this power led to a failure to adapt and innovate.  This power corrupted absolutely, and the protection from challenge drove a failure to improve.  Case closed.

But even without DRM and monopolistic record labels, would the music business be faced with revolution anyway?  Music thought leader Bob Lefsetz argues that today's musicians break the mold because they willingly give their music away for free just for the benefit of reaching people and pursuing their art.  Wow, that's refreshing!

I am not sure where the music industry is going, but I am convinced that it is already far beyond the tipping point of major change.  It is another case of Challenge Dividend theory becoming fact.   

UPDATE: Monday, April 2, 2007 - Apple and record label EMI agree to sell songs without copy protection for a premium price of $1.29 (vs. $.99).  This is interesting in a few ways:

• Apple has done more than talk a game, they made change happen.
• EMI went for the deal because it is the smallest record label - they have the most to gain and least to lose, so they took the leap to innovate.  EMI's larger challenge led to a larger innovation.
• The $.30 premium is fascinating - this is not cost-based accounting, as a protected download costs the same to make as an unprotected one, but shows that there is more consumer value in unrestricted music, so might as well charge for it.  This could be a standard pricing arrangement for all unprotected media going forward.

A Blog Year in Review

One year ago yesterday I began the public phase of The Challenge Dividend with this blog.  As in many things in life, an anniversary is a good time to reflect on progress, strengths and opportunities.  Like an annual employee review or personal reflection in the mirror on one's birthday, it is good to challenge oneself to reflect on and plan for how the next year can be even better.

My overall life objective for this project is simple yet aggressive: make The Challenge Dividend a tool that is used by millions of people around the world to better themselves and their organizations.  It is a lofty goal, but it helps me keep things in perspective.  I don't want to just "get published" or somehow turn this into turn this into a best seller.  I don't care if it happens next week or after I die.  I don't care if I don't make a dime from it.  This means that I have to take my time a bit, refine my skills, and find the right voice and audience to make an impact.  It might take twenty years to achieve this goal, and I am perfectly happy about that.

But even long-term objectives and projects need regular progress checks (yet another example of challenge that drives improvement).  Here are some of the strengths and opportunities from the year in review:

Strengths:

• Good use of blogging overall - I have taken my personal research and successfully turned it into something that the world can see.  This allows me to test my theory with real readers as well as refine my writing skills.  I am very proud of having 143 unique blog entries, far more than I planned heading into the project.
• Time management - My day job, family, and other fun hobbies keep me busy and I do not have a lot of extra time.  But I have been able to write an average of three complete "articles" per week.  Net, good progress without having to give up too many other pulls.
• The message is resonating - Most of my readers are friends and family and their feedback has been excellent.  Some of them now speak in "Challenge Dividend terminology".  For example, during a meeting of my executive team last week we used the Challenge Dividend as a way to judge odds of success in a new venture.  Two people have even claimed some personal motivation from this space.  That warms my heart and makes me feel that the ultimate goal is possible.

Opportunities:

• Progress toward a book - I believe that publishing a book is a major step toward bringing this idea to the masses.  However I have not met my hopes in terms of progress here.  My file of book notes and structure has not been opened in months.
• Audience size - I am excited by every single reader, but just wish there were more of them - and that more were outside of immediate friends and family.  I do get about ten visits per day from people who happen on my blog while searching for specific information.  I wish more of them added me to their bookmark list or feed reader.  Part of this is due to the fact that The Challenge Dividend cuts across many niches, while the most popular blogs hit on a very specific audience or topic.
• Blog design - I am not at all pleased with the template design for this blog, and I know from my day job that quality of design can make or break visitor trust and interest.  At the end of the day, I've got to get some outside help to make this sing.  Anyone out there with design skills looking for some freelance bucks, grab me.

Goals for the next 12 months:  Another key "challenge" is to publicly commit to some action steps.

• Write another ~150 posts.
• Build out a model for measuring the Challenge Dividend for oneself or organization (think of it as a scorecard, like Porter's Five Forces).
• Double my daily visits and subscribers.

Thanks so much to you, dear readers.  You provide the positive, motivational challenge to get up early, stay up late, and keep creating compelling content.

Bob G.

More on Unshackling Healthcare from Employment - UPDATED

Sorry for the light blogging lately.  It's one of those busy couple of weeks at work and my usual free time for blogging has been absorbed.  However I do have time for a short build on my post last week that called for a separation between health insurance and employment.

Today I wanted to further highlight the specific point that employer-provided health insurance can be a huge negative for employees.  For many people, it locks them into sticking with jobs they hate.  This is obviously not good for employees, but it's ultimately bad for their employers and society as a whole.

A BusinessWeek article from January titled "Held Hostage By Health Care" calls this "Job Lock" and brings up some interesting points:

• "Studies say it could reduce job mobility by up to 25%, according to Brigitte Madrian, a public policy and corporate management professor at Harvard University's John F. Kennedy School of Government."
• "A fluid labor market is viewed as a prime driver of U.S. economic growth relative to other industrialized countries.     Job lock creates friction by artificially tethering people to their jobs."
• COBRA can be a temporary relief for people between jobs, but "COBRA policies for a family of four start at $700 a month. Only about 7% of people who lose their jobs say they can afford COBRA."
• "Medical-related bankruptcies have jumped 2,200% since 1981, according to research from Harvard Law School professor Elizabeth Warren."

I'm sure we'll hear more about new solutions to a growing health insurance crisis in the upcoming Congressional session and 2008 Presidential race.  Hopefully we'll see movement before our economy severely weakens.

UPDATE: There's a great piece in this weekend's New York Times magazine about how leaders on the Left are now teaming up with business leadership to jointly call for universal health coverage.

Uncoupling Employment and Healthcare

I have written in this space often about the issues in healthcare and how the Challenge Dividend can be applied to improve it.  Most recently I covered how some companies are smartly adding in-house clinics to reduce costs and improve employee satisfaction.  But a few weeks ago I read a story that so clearly crystallized a key issue in the healthcare debate that I had to take my reaction right to the Editors of BusinessWeek as a first step.  I was wrong, employers need to get out of the healthcare business altogether.

The article that changed my mind told the story of Scotts Miracle Grow in Columbus, Ohio, and its CEO, Jim Hagedorn.  After seeing health insurance costs continually rising - seemingly out-of-control - Hagedorn decided to act.  He started multiple initiatives at Scotts.  Some well-worn, like an expanded fitness center; and others controversial, like asking for detailed medical histories of employees, and potentially firing an employee who failed to stop smoking.

For me, the epiphany was hearing the passion of Jim Hagedorn in attacking this issue.  Obviously he is a stellar leader, but I wondered what was NOT happening at Scotts because of his focus on an issue that is outside the core of the company's success.  The fact that any CEO must lay awake at night worrying about rising healthcare costs suggests a need for change.  I would bet that competitors in Europe or China do not have such concerns, and I fear that this growing issue will increasingly weaken profits and leadership focus.

So I wrote to the Editors of BusinessWeek with the following take, which was published in the March 19, 2007 edition, mailed out over this past weekend:

"The real takeaway is that we have yet more evidence that employers should be out of the health-insurance game. Jim Hagedorn has shown remarkable leadership and passion in his attack on health-care costs, but would his time and talent not be better spent attacking his competitors or dreaming up more innovative products? — Bob Gilbreath Cincinnati"

In addition to weakening U.S. companies' competitiveness, the practice of relying on employers for healthcare coverage creates unnecessary friction with employees.  On one hand, employers have the pressure to do everything to lower costs, which pushes them to meddle further into personal lives, as Scotts has done.  Meanwhile, employees who have health issues are under added pressure to stay in place in a job they are unhappy with, just to make sure they don't lose health coverage.

Big change is needed, and it is probably a place where government should get involved to help create a more competitive market.  Some kind of universal coverage, driven by market forces would help.  As would eliminating complicated state-by-state regulation and instead move to a uniform federal standard.

As both an employee and a company leader, I believe it is time to uncouple healthcare from the employment relationship.  My work is increasingly my life, but a little more separation can be a good thing.

Minding the Generation Gap

(UPDATE: BusinessWeek's Blogspotting reports that colleges are starting to take attendance - and report back on parents on missed classes.)

Over the past weekend I was catching up on a stack of alumni magazines from Duke and was struck by a particular article.  No, it wasn't another take on the Lacrosse case or yet another story of binge drinking that got my attention.  Rather, it was an article on the growing trend of "Helicopter Parents".  In my view, Helicopter Parenting is a bigger on campus threat than anything previous generations have faced - because it prevents kids from finally growing up.

The article in Duke Magazine is a must read for anyone who either went to college or who has kids that will someday attend.  Helicopter Parents refers to a growing trend of families who fail to cut the cord when children go to college - or even into first jobs.  The trend comes along with smaller families and a general, growing focus on ensuring that children have the best of everything.  At young ages we see safety helmets and play dates, but here's a sampling of chilling stories:

• A father who flew in to meet with the Dean of Student Affairs because his daughter vented that her roommate partied too much.
• A professor who discovered that many of her students still had their parents read over their papers.
• A mother who repeatedly called to complain about the cleanliness of her child's bathroom.

For those of us who were dumped at the freshman dorm and expected to start growing up, this trend is disturbing.  But it also seems dangerous to the development and maturity of young adults.  In growing up, challenge leads to improvement.  We all needed to be left alone to figure the world out for ourselves.  College is already a pretty safe environment to grow up in.  There's Resident Advisers, Campus Police, and Meal Plans to keep you reasonable safe and well-fed.  We learned how to deal with tough professors and jerk roommates, both of which parallel realities in the working world.

As in my recent post on parents who over-praise their kids, Helicopter Parents, are hurting their children's development by protecting them from life's challenges.   Another recent study suggests that kids today are more selfish than ever.  If every kid is special and everyone gets a trophy, is anyone really motivated to achieve?

Unfortunately, their lack of challenge will not only hurt their ultimate chances for success, but it weakens our economy.  While poor kids in China, Poland and India are fighting for new opportunities to learn and compete in the world market, our next generation seems to expect success to come to them without the tireless effort and pain of failure.

I'm hoping that the Helicopter Parents are merely a noisy minority on the American stage.  If not, hopefully my fellow parents of today's preschoolers take note and let their kids be free to fail.

Florida Gators Ripe for an Upset - UPDATED

March Madness is heating up again, and while my Dukies are struggling a bit this go around, I cannot keep away from passionately watching the action.  While the seeds are far from set yet, it is not too early to make one prediction straight out of Challenge Dividend 101: Florida will NOT repeat as National Champions in 2007.

Going into this season, Florida seemed a lock for repeating as national champions.  Nearly every player was back from a stocked team, and through mid-February was out to a 24-2 start.  But last week the Gators hit head-long into a major slump at a critical time.  The Gators dropped 3 of 4 games to non-ranked also-rans in the SEC conference.  Coach Billy Donovan explains it simply: they are playing without passion.

Gator fans should not feel too bad; last year's championship is still sweet, and their team is simply on track to follow a well-worn path.  National champions rarely repeat because they have less of the will, less of the challenge to do what it takes to win.  Florida has great athletes, coach and team, but every one of the 64 other teams in the tournament will have the edge of an unsatisfied hunger to win it all.  Florida's players have tasted ultimate victory, and once a starving person has eaten, his hunger is just not the same.  The players have less pressure to prove themselves, and less of a reward to play for.

The Gators are still a great team and might be favored to repeat as the tournament tips off in a week.  We will hear the inevitable comparisons to the last team that repeated, my Duke Blue Devils, who won back-to-back in 1991 and 1992 (my Freshman and Sophomore years, btw).  But recall that this Duke team was stocked with talent (Hurley, Laettner, and Grant Hill), and had to get a miracle shot from Laettner just to send them into the Final Four.

So sorry, Gator fans, but the odds are that you won't be cutting down the nets again.  And this is part of why we love college basketball and the 65-team madness of a single elimination tournament.  Fans from 65 schools tune in, knowing that anything can happen.  Individual players from small and large schools alike make it on television and get a chance to impress parents and pro scouts.  And each team that goes dancing knows that ultimate glory - one shining moment - can propel them into legendary status.  Of course the dividend is shared with millions of viewers who again benefit from watching the spectacle of this annual challenge.

UPDATED: 4/2/07 - OK, I was wrong.  Gators won for the first back-to-back since my Dukies in 1991-92.  How did they overcome Challenge Dividend theory?  Well, it probably had a lot to do with the fact that this team came back to school (rather than head to the NBA) on a mission to win again.  With the help of their coach, the Gators successfully set themselves up with a fresh challenge.  That, and I think this was one of the least challenging paths of any championship team.  But the Gators deserve the credit and glory.  Congrats!

Golf Tees Up Rule Changes

One of my favorite topics - maybe worthy of a book on its own - is the history of tweaks that major sports organizations make in order to improve quality of play and fan interest in their sports.  A few weeks ago I highlighted the success of NASCAR in changing its rules and cracking down on cheaters.  Now professional golf is getting into the game.

Last week the United States Golf Association (USGA) moved forward to limit the radius of grooves on irons to no less than .01 inch.  This move is aimed at improving the quality of play and skills among winners.  Today, forgiving irons are making the rough more forgiving - so players bomb big drives with little punishment for missing the fairway.  According to research by The Wall St. Journal, "the correlation between driving accuracy and success, formerly significant, has been almost completely obliterated."

Equipment rules are particularly interesting in golf because they impact the play of weekend amateurs as well as millionaire professionals.  This can actually create a unique challenge and potential backlash that is unseen in most sports.  At the same time equipment innovation can make the pro game less interesting, it allows the weekend golfer to have a lot more fun.  Golf is a sport that truly unites professionals and amateurs - from its handicapping system to pro/am tournaments.  Following suit, the USGA's rules tend to encompass professionals and amateurs alike, so rules that limit equipment advancement can also put a dent in sales to and play by the millions of non-pros searching the woods and water for their balls each weekend.

For people like me, more forgiving clubs and longer balls help keep me engaged in a sport that is tough to master.  In the old days I might have played every weekend and with clients during the week.  But today our free hours and patience is shorter.  So instead of suffering to perfectly nail a small persimmon driver, an oversize club helps me bomb a drive down the middle once in a while.  Hitting a decent shot - with the help of technology - gives me enough reward to keep trying.

Some are now calling for two sets of rules, which would limit professionals' abuse while allowing us duffers to keep hitting farther and more accurately.  But I think a compromise is the best move.  Playing by a single set of rules is part of the fun of golf; it retains a history and characteristic that is unmatched in a world where the line between pros and amateurs continues to widen.   

And it keeps my dream of making it on the senior tour alive.

Monkey Business in Advertising - UPDATED

UPDATE 3/5/07 - (read the post below before this update if you didn't last year).  Well, CareerBuilder's new agency and new ads for this year's Super Bowl bombed horribly.  After firing its long-time agency last year because of a #11 placement in the USAToday ad meter ranking, CareerBuilder got a #39 and #47 (out of 55 ads).  And a big "wag of my finger" to ad agency Wieden & Kennedy - both for horrible, child-nightmare-inducing creative, and for taking the business of a client who so obviously screwed its previous agency partner.  You both get what you deserve.

(Original post from 3/2/07)

I don't talk a lot about my day job as a leader of an advertising agency in Cincinnati.  But tracking the news of the advertising industry often delivers ripe fruit for The Challenge Dividend.  A few weeks ago, for example, I wrote of the declining quality of SuperBowl ads.  Last week, another SuperBowl shoe dropped in the advertising world as CareerBuilder.com puts its creative work into review because its agency didn't score in the USA Today Top Ten Ad Poll.

The inside story of CareerBuilder.com and its (now former) agency, Cramer-Krasselt, was vividly revealed last week when an internal company memo leaked from C-K's CEO, Peter Krivkovich.  The story summary is:

• Cramer-Krasselt has been a proven business-building partner with CareerBuilder.com for years, helping it achieve dramatic growth on a limited budget in a me-too business.
• On the eve of the SuperBowl, CB told CK that it was doing great and would soon get an outstanding annual review.
• After the big game and ad contest, CB informed CK that "since we didn't make the USA Today Top 10 we would put the agency work up for review."
• CK was incredulous and resigned the business immediately.

Assuming that Cramer-Krasselt's version is the real story, this shows the tragic flaw for organizations that embrace the wrong challenges and success measures.  Here, CareerBuilder.com saw success as a Top 10 SuperBowl ad - as judged by a handful of people in two cities for a newspaper poll.  They didn't wait for business results to come in nor trust that CK's work would be as successful in growing the business as it had in the past.  Another company fell victim to the sexy contest of winning "best SuperBowl ad" rather than best profitability or market share.

Further, CK failed to look at the bigger picture of sticking with a business partner that has helped it exceed business expectations for some time.  It is smart to challenge an agency partner, but each side must take equal responsibility.  Maybe CareerBuilder.com's marketing staff should fire itself for approving the ads in question.

As a fellow ad agency veteran, I can feel the pain that CK's staff is going through.  Not only are jobs at risk, but a lot of historic success and pride is thrown into doubt.  I suppose they can take solace in the fact that this story will taint CareerBuilder.com for years to come.  The best advertising agencies will not work with them, and decisions like this by its leaders will likely result in more painful business results.

(I loved CareerBuilder's SuperBowl ads, btw!) 

UPDATE: Ad Age has a nice piece that digs into what drives USAToday's results.  It's essentially a laugh meter where people score ads in real time.  Bud does well because it uses humor throughout.  While dramatic ads, like Apple's 1984, would probably fare poorly in the test, though it still reigns as the most memorable SuperBowl ad.