Great Expectations - Part 1

“Amazon reports 45% drop in profit! Investors cheer and invest some more”

Amazon is the world’s largest online retail store. It has been in operation for over 20 years now. From its humble beginnings in the m-commerce sector, Amazon has now expanded to all things digital – from providing solutions to big data and investing heavily in computer controlled instruments. It made quarterly sales of $17 billion in the Q3 of 2013, and yet the profits it generated were almost zero. In spite of this, investors believe Amazon will make money in the future and hence, they keep on investing, regardless of whether the company posted very less profits or outright losses.

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“Nokia sells 15.7 million smartphones!!! Investors, however consider the outlook to be gloomy for the world’s largest mobile phone manufacturer!”

This happened in 2008, when Nokia was the still world’s largest cell phone maker. It had 40% of the world’s smart phone market share. It had recently launched its touchscreen device, 5800 Xpressmusic and was investing heavily in a lot of diverse platforms (Symbian/S60, meego, S40, etc) to counter-attack the newest entrants in the market – iphone and android. And although things looked promising for the future, investors had already started to expect the decline. The CEO’s actions or statements did nothing to re-assure them and win their confidence.

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“Facebook acquires whatsapp for $19 billion”

Whatsapp is an instant messaging service. It has revolutionized the way people used their phones, by providing a simple data based platform with which users could conveniently exchange texts, and media. From its humble beginnings in 2009, Whatsapp was valued at $1.5 billion and had a user base of around 200 million active users. And within a year, facebook bought all of whatsapp for a whooping amount of 19 billion dollars, leaving the financial pundits perplexed. How could it command such a premium?

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“Inspite of critics giving it a total thumbs up and technically well made, fiza bombs at the box office”

Fiza was Hrithik Roshan’s second movie in Bollywood. It was a movie with a well written script, well directed and all the lead protagonists acting so well. And inspite of all of this, the film was a disaster at the box office. Why can a movie fail after being so well-made?

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Do you notice any connection in the above stories? For me, a common theme underlying in all these stories is expectations. Whether in business/ sports/ cinema/ politics, managing expectations is one of the toughest of tasks. If you succeed in this one task, anything else will hardly matter. Let us look at the Amazon example, why is it managing to attract investors inspite of failing to make money for the last 18 years? The answer lies in how the expectations have been set by the CEO. Mr. Bezos wants to set up a retail shop for the future! Whatever money the firm makes (and it is really a lot!), he goes on and invests in warehouses, hiring skilled people, robots, and what not. Amazon is promising to create a future with more cash for the investors, and hence, they are not worried for the moment. The same holds true with the acquisition of whatsapp; Even though the current worth of the application might not have been so much, analysts at facebook expected that the firm is much more valuable as it can generate money in the future. Not to mention, the variety of potential business models it could build up in the future by combining a smartphone based IM service, and their very own social networking. And no price seemed too much for having that control in this previously unchartered territory!

On the other hand, failing to meet expectations is something which can get down even the biggest of companies or stars. What killed Nokia was the fact that the top leadership failed to set the right expectations with the investors. During the time when Apple Inc. came up with an iphone and Google announced the open source android, Nokia virtually ruled the smartphone market (almost a 60% share in the market). Both the competitors had very promising device portfolios and nice products lined up for release, and the mobile telephone giant was totally unprepared for such an onslaught. Instead of focusing on getting their strategy right, they went all over the place, going back and forth on the choice of the OS, the choice of their CEO, and on almost everything. Investors lost faith in the company’s ability to take on the mighty competitors. They started pulling out their money. Nokia lost the battle without even fighting!

Perhaps no other Bollywood movie star has stepped into in the movie industry with so much of commercial success and hype as much as Hrithik Roshan. His debut ‘Kaho Naa.. Pyaar hai’ was a roaring success, and a runaway hit at the box office. It broke almost all records at the box office, the music stores and it bagged almost every award for the debutants in that year. Hrithik became an instant heart throb among the Indian female fraternity. So, naturally expectations started to build up when the promos of his second film started to surface. However, ‘fiza’ was a completely different movie as compared to the box-office pleasing romantic melodrama that kaho naa.. was. And hence, the expectations of the audience watching their star in a completely different role were grossly unmet. It was not because ‘fiza’ was a bad movie that it failed. It just failed because people had set very high expectations for the movie after the ultimate success of ‘Kaho naa..’

Expectation management is a very complex thing in itself, something like an art as well as a science. The success of any project depends upon how the expectations are set in the beginning and how the team works towards meeting those expectations. And a very crucial attribute that helps to get expectations right is communication. The importance of communication cannot be emphasized enough. Even at the cost of over-communicating, it is always better to talk to the people involved at regular intervals and make sure that they are aware of what to expect. Very often, projects go bad and draw flak from the stakeholders only because they were never told what to expect at the end of the project.

The other day, we went to a pizza outlet that advertised a ‘meal for two’ at Rs.500/- The person who took the order went on to suggest lot of modifications to the so called meal, without mentioning the costs. We just took what we thought were some reasonable additions (say an extra topping to a veg pizza, crushers instead of cola, etc). However, the final bill came to more than Rs 1200/- which certainly left us fuming and grumbling. That is when we realized that neither of us had bothered to change the hitherto set expectation on price. The waiter thought it was just fair that we pay because we were ordering something more than what was on offer. We just assumed that a little addition would not inflate the bill to more than 100%. Adding just an extra roti and masala chaas to an already advertised full meal, would not just double/triple your bill! Right? We paid up anyway, having learnt a valuable lesson for future eat-out experiences.

Because it is so critical in all professions, expectations management is slowly finding its way in the curriculum of most formal business management courses. It would be nothing more than a more formal course is communications, relationship management and diplomacy, but it is still important nevertheless. Even businesses realize that it is better to be forthcoming on their prospects and set the right expectations, than be secretive on information, which is only going to hurt in the long run. People never panic when things go as per some “plan”, however bad the plan is. In the concluding part of this article, we will see how expectation management applies to not only everything we do in professional life but also to our personal lives. If you have encountered things going wrong because of setting wrong expectations, or if you found things in this piece interesting, do let me know through comments. Set your expectations right and then success will be yours. All the best!

Continued in Part 2... here