Re: [projectvrm] Multifunctional Advertising

[T-Rob < >]

There's a couple of answers to that, as I see it.  In Iain's example the 
individual has an incentive to act in their own best interest and to the 
detriment of the company's long-term interest if they will be leaving the 
company soon.  Their long-term interest is in having a string of good 
quarters on their watch, and leaving in their wake a string of companies 
that are worse off is of no consequence.  So in this case the root problem 
isn't so much one of accounting as it is of the interests of the 
individual and the company not being aligned. 

There's another case I've run into several times over the years.  My 
employers have a habit of renegotiating health care benefit packages on a 
short cycle.  My current employer has been fairly stable but the last one 
changed insurers often.  Both of my kids are diabetic and we know that 
lifetime outcomes are vastly improved with fast-acting insulin and an 
infusion pump instead of needles and time-release insulin.  Both kids are 
Type-1 so there is no possibility of an alternative to insulin at this 
time and we anticipate them requiring insulin for their lifetime.

We have, on several occasions, had an insurer refuse to cover infusion 
pumps or the specific types of insulin and supplies associated with them. 
From an actuarial perspective this is lunacy except if you assume the 
patient won't be your problem by the time the complications set in.  The 
effects accumulate over decades so it would be impossible to tease out 
insurer policy as a root cause when, for example, the patient finally 
begins to go blind or lose feeling in their feet.

The costs of this policy to the insurance company are probably higher in 
the long run because whether they insure *my* kids 20 or 30 years from now 
or not, they are sure to have *someone's* diabetic kids as policy holders 
who have also been subjected to this short-term thinking and thus will 
experience more costly complications, require more routine medical care, 
and experience more catastrophic loss then if they had been on infusion 
pumps their whole life.  But in the short term, not paying for infusion 
pumps and supplies for today's kids provides more funds to pay for the 
catastrophic outcomes experienced by yesterday's poorly managed diabetics. 
 If they wish to fix this, they'll have to start paying for infusion pumps 
at some point, and then over the next 20 years or so the medical costs of 
complications will decline accordingly.  And of course, this would need to 
happen industry-wide or else the "good" insurers would bear an outsized 
proportion of all costs as any insurer still refusing to pay for infusion 
pumps benefits from the "good" company's policies and that benefit 
directly arises as a mortgage against the health of a population, the cost 
of which is distributed across all future insurers.  However, the "good" 
companies are at a competitive disadvantage as measured by stock holders 
and the balance sheet.  The "bad" companies are a much better investment.

These are accounting problems only in the sense that accountability is 
measured in too short a cycle.  Any system in which the benefit accruing 
to two parties is measured on different time scales will naturally skew to 
the benefit of the party on the shorter time scale unless that party has 
incentive to act against their own interest.  This is especially true if 
the relationship is coercive.  VRM goes a long way to balancing the power 
in the relationship but does not, so far as I can tell based on my 
admittedly recent study of the topic, seek address the differential 
between long- and short-term accountability and outcomes.  In other words, 
VRM may help me negotiate the claims process, but changing the policy will 
require recognizing long term outcomes as externalities and accounting for 
them on today's balance sheet.  We probably don't get to that without VRM 
but then VRM by itself doesn't get us all the way there.

-- T.Rob


Chris Savage 
<
 >
 wrote on 02/18/2013 10:48:41 AM:

> From: Chris Savage 
> <
 >
> To: Iain Henderson 
> <
 >,
>  
> Cc: Doc Searls 
> <
 >,
>  Katherine Warman 
> Kern 
> <
 >,
>  sylvain willart 
> <
 >,
>  
> "
 
>  VRM" 
> <
 >
> Date: 02/18/2013 10:55 AM
> Subject: Re: [projectvrm] Multifunctional Advertising
> 
> Iain,
> 
> Is this an accounting problem?  Seriously: when you buy a new machine or 

> new factory, your available cash goes down, but it gets recorded on your 

> books as an asset, so everybody understands what's going on.
> 
> If the short-term accounting effect of doing customer-centric things is 
> to increase costs without increasing revenue, that is an accounting 
problem.
> 
> On the other hand, if the short-term effect of doing customer-centric 
> things is to reduce revenues, that's scary to CEOs and CFOs everywhere.
> 
> So, did you mean "cost them money" in the sense of "increase recorded 
> expenses and hence decrease reported profits"?  Or in the sense of 
> "lower revenues"?
> 
> Thanks,
> 
> Chris S.
> 
> 
> On 2/18/2013 9:59 AM, Iain Henderson wrote:
> > And a couple more metrics.
> >
> > Average tenure of a marketing person in the same role - 2 years
> >
> > That is to say, long term customer satisfaction/ value is someone 
> else's problem.
> >
> > Average tenure of a CEO in a large B2C organisation - 3 years.
> >
> > I've had several consulting projects about customer-centricity 
> that hit road-blocks at CEO level; the simple and openly stated 
> issue being that whilst they recognise the logic, they know that to 
> make radical changes (from typically a product-centric strategy to a
> genuine customer-centric) will cost them money and competitive 
> positioning in the short term. There are ways to get a good blend of
> customer and product-centricity, but most organisations don't have 
> the data, the top-level buy-in or the patience to pull that off.
> >
> > Iain
> >
> >