Time is money, are you using real time data wisely?


busby-berkley-snowflakeTime is money, are you using real time data wisely?

Are you feeling up to date, in sync with the times? Both individuals and organizations find it challenging to fully leverage technology and integrate the sea of real time data that surrounds us.

This past week, I attended a local Internet of Things (IOT) conference, only to be reminded how we’ve been kidding ourselves with respect to the human machine dynamic.  When Factiva reported in 2013, that the previous two years had created 90% of the world’s data, it also reflected the impact of visibly faster technology and emergent opportunities for those capable of wrangling more data. Similarly, the exchange of information machine to machine and the responses that  IOT and the Industrial IOT (IIOT)  make possible  will soon surpass all human generated information.

Information has never proven more valuable to competitive advantage than now. The key istimely mastery and/or the ability to separate meaningful data from noise. Possessing  Real time capabilities merely up the ante. 

Suddenly,  all of the conversations about the real, meaningful  difference of  Big Data clicked. The challenges I knew and had experienced working with volumes of data is not something everyone experiences, and itswhy I missed the significance of the message. Language can do thar. Today’s – competitive advantage relies on learning synchronicity between people, and also between people and machine. 

Yep, syncing as in coincident timing. Timing reactions require coordination on the order of the elaborate dance numbers Busby Berkley made famous will separate winners and losers. 

People learning rates

People are interesting precisely because we begave inconsistently.  These same traits  make us effective competitors and efficient information processors.  We focus and only selectively pay attention, which means we consciously ignore most information in our midst. Unlike machines, we are slow few of us possess capabilities to process high volumes of complex data at high speeds. 

How people integrate data remains a bit mysterious. Part conscious and part unconscious, each of our senses connect to different parts of our brain and the information isn’t always processes with consistency. 

Humans create their own reality. For example, our eyes see things differently than what we describe and not because of language problems. Automatic transformations correct using depth perception and pre existing knowledge to flip the image, while sound tends to retain its integrity. 

Similarly, information new to us versus updates also  process differently; and yet, endless streaming information can overload and confuse us. Today’s powerful computers don’t experience anxiety or fatigue though they may overheat or fail.

The natural limits of time and energy challenge people to choose their focal point, the when and how we respond to data and perceive opportunities. For example, few of our waking moments and activities require conscious thought. Our body takes care of itself and manages to coordinate processing of external sensory information with internal demands. This syncing makes possible mindless activities like breathing, eating, walking and resting.

Consciously, our ability to track our time and energy is spotty.  Still, unstructured/unplanned  moments, especially those that demand little of us mentally remain ideal, while society frowns on the same characteristics when referred to as idleness. The contradiction reflects the value we attach to purpose or meaningful use of effort over time that results in tangible output.

Artists create, builders build, analysts compute and chefs cook for example by adding their effort over time. They make something or transform original materials/inputs.

The notion of efficiency also boosts the value of effort by measuring the effort relative to the output produced over time. Likewise effectiveness, measures the additional value produced relative to the starting inputs. Together, these measures translate into meaningful consistent tokens of value that permit ready exchange, or wealth accumulation.

In this context, the accumulated tokens of value allow us to buy ourselves time to take vacation or be idle as easily as buy us time to learn, create and do more.

Machine learning capabilities

This also explains precisely why technology advances prove so valuable, as they have progressively reduced the amount of time and effort necessary to perform a task. As a result, we DO spend less time on common, routine activities than was previously necessary.  Internal plumbing saves us time we spent fetching water, Wheeled transportation saves us time we spent walking, and similar telecommunications vastly removes the break in communications that once necessitated considerable effort  to cross the distance by one if not both parties, or the enlistment of a proxy to carry the message on their behalf. The human messengers were replaced first and written notes/letters, and then the telegraph dramatically reduced the time between message sending and receipt.  Now text messaging and email is displacing telephone and video conferences.

This evolution in communication methods affects the people’s interaction styles but also their information needs and expectations.

Real time communications savings and benefits are not equally distributed and so inefficiencies persist.  On one hand they present a new opportunity to replace planning and documentation of activities essential when communications were primarily indirect and time lagged. Built-in tracking, boosted transmission capabilities and data recording can both fill in and increase information gaps.  Problems associated with incomplete, unsupported or even delayed information that always created risk persists, but for new reasons.  The flood of data from more sources both people and machine generated pose new challenges to separate out meaning, predict and or respond in timely, relevant manner.

Another opportunity real time capabilities offer are all around us, assisted by the information collected and transmitted from multiple data sensors scattered across the environment.  In fact, it’s how airplanes fly automatically, rail road cars notify switches of their location to either open or close crossing gates, motion sensors in buildings adjust level of lighting and air temperatures, and Tsunami warning systems saves lives.

In general, people are wired to process information in real time. We use an array of body language cues to understand how to  manage the situation and engage with the people in our midst, and yet we do it unconsciously.  Planning on paper is a far more conscious activity, time consuming and energy draining.  Worse, planning often stops us from activating the unconscious real time processing.  We follow the plan, rather than notice the inconsistency or the more obvious information we may or may not have incorporated.  Best example, is the step by step navigation systems that we know are less than perfect.  Have you found yourself using the navigation only to discover it’s asking you to turn onto a one way street going the wrong way? Or your location is “ahead” of the GPS signal and so you miss a turn?

My point is this.  Too many built in business procedures and processes were designed in the absence of real time information.  In order to be more relevant, more valuable people will need to revisit their processes with respect to learning, creating and doing.  It will require a shift in attitude, refocus of needs and adjustment in expectations.  It’s a shift from a look back and partner with machines that look forward, use more data sources and get to analysis faster.

If you have any examples of success or any challenges I’d love to hear about them.

[i] Mike Hogan, “big Data of your Own,” August 2013, www.factiva.com

John Adams, “Be careful or Big Data could Bury your Bank,” January 25, 2013 http://www.factiva.com

How can you stop short term choices from crippling long-term value?


cancer-curable-not-corruption

As more bad news about Wells Fargo’s practices emerge,  the stain transcends CEO Stumpf’s  reputation. Warren Buffett opted to wait and comment knowing that he himself needs time to sort through his own internal review process.

It’s not just Stumpf who needs to believe that the “cancer “found in the retail bank was its source. The Gr8 prorgram setting very high bars for growth with 8 interconnected accounts per customer delivered results but discovery of the ill effects  proceeded much slower.  It took years and then the decision to remove the malignancy—firing of low level employees and managers—what made management believe this toxic behavior didn’t spread?

Well that’s naïve, if not ridiculous, isn’t it? Elizabeth Warren made clear that an organization must remain accountable to its customers more than its shareholders, no matter how large or successful it becomes. Somewhere along the line Wells Fargo, Samsung, Chipotle, VW, and GM all made similar high profile mistakes.

Speed to market may appear an appropriate competitive response but not if short-cutting quality results in shortchanging business value.

Bottom line the antenna in a business can’t be only tuned in for reward especially since it often means the business misses the risk signals. The obsession for rapid growth isn’t just blinding good judgment shows in ignorance of the environment and its complexity.

Interconnected digital networks absolutely create a speed advantage. But speed needs to be managed, and adjustments made to acknowledge the additional risk it creates. Ask the NASCAR drivers what precautions they take that are absent in other environments, or the Samsung engineers who knew they hadn’t done enough testing to properly advise the risk management team with information that prepared them for the inevitable fire.

Pull not push

The Internet made it easier than ever for consumers to find anything, anywhere, and at anytime. Businesses and sales people need to adjust and adapt to accommodate these more informed buyers. At the same time management goals or quotas must recognize changes in the environment, but looking more broadly at the inevitable interactions and the change in likelihood that they will occur.

It may be a cliché, but it isn’t true that what got you here will get you farther. What worked in the past works differently today and will work in another way in the future. The trick is to find the part that is essential and remains critical. Water does seep to the lowest level, but technology advances have created stronger more resilient and resistant containment mechanisms that alter the impact.  Don’t wait to understand them until it’s too late.

Start by answering these questions to the satisfaction of your leadership team and board.

  • How does your management team leveraging or limiting the new levers of change?
  • How does social media, sensor networks, big data and cloud computing alter the behavior of your customers?
  • What risks to your bottom line do they introduce?
  • What steps have you taken to mitigate and or adjust your targets to assimilate them?

Changes we notice and changes we choose 


I suspect you are a mobile addict. You don’t have to be obsessed and have the device in arms reach at every moment to qualify. You merely have to rely on its always connected capabilities to keep you “plugged” in to your connections, and by default the world. 

The speed at which mobile technologies have been adopted has been unprecedented, and I am less interested in its occurrence, and more interested in unraveling its meaning and understanding what changes will unfold next. This post invites you to consciously evaluate the range of activities that tether you to this device, and the choices you can make next.

An overwhelming number of people check their device for “messages” within their first waking moments. In the not-too-distant past, messages waited to be picked up in the variety of places where they were left.

A missed caller could leave messages on answering systems, that replaced secretaries who made and pass a note. This task was automated by machines who accurately recorded the caller, and refrained from edits or shorthands. The machines soon became embedded into answering systems with retrieval now possible remotely.  You could call in to learn who had called.

Email, a desktop computer application, was faster than the post office, and quickly displaced the fax machines for sharing documents or lengthier detailed messages.  Cheaper computing, networks expanded Email from an office communications system to personal. Not only was it faster than regular mail, it was significantly cheaper than calling and more convenient. 

Now, all messaging systems are neatly available in your single mobile device, and your messaging interests and practices routine, if not obsessive.

How does this capability to be more on top of your communications make you feel?

Does this combination of access make you feel more effective, responsible, efficient  or something else? Are the experiences and emotions associated with interaction or the anticipation of the interaction? when and why does the experience become distracting or chaotic? 

Workflow

I’m asking this questions, because I have a hypothesis that needs testing. I believe it’s the small stuff we change that leads us astray from our original purpose or focused intent.

Distractions come in many forms and largely occur when our attention wanders. Driving for example, our focus should be on the road, the vehicles and conditions. Instead , we’re typically multitasking while driving, Whether the division of our attention happens by listening to the radio, engaging in conversation with a passenger, or on the phone ,  or just the flow of other thoughts.

Diversion is candy to the brain. It’s how small stuff easily adds up. The sideways glance that misses what’s ahead robs our attention,  scatters our focus, can delay our progress and mar our effectiveness.

Any efficiency we built in to our process are quickly filled by the abundance of new opportunities, the change in process enables.

Here’s the rub, it’s at the moment of learned efficiency that we choose either to keep learning or we move on to a new domain.  In both cases, we have reached a level of effectiveness and masters keep moving up while the rest of us begin a steady ascent of decline.  This has been documented as the learning curve aka the efficiency curve, and it’s that pivot moment that interest me.

My hypothesis is that it’s in those moments of awareness of the pivot point that innovation begins.

Process changes: Innovation, Invention or Improvisation

I invite you to consider the value of anticipation, or the expected emotions that flow in a particular situation. For example, we want a celebration event to end on a happy note.  Likewise we want our decisions to also produce positive outcomes, but that’s the problem, not all of our behaviors result from conscious decisions.  When driven by habit, the small stuff that changes escapes our notice. That’s both good and bad.

For example,  no matter where you live on the planet, the time of sunrise and sunset changes daily and we generally don’t notice or feel those effects. We do experience the differences relatively over long periods of time, such as the longer days of one season vs. shorter days in another.

The same is true over the little changes we make every day in the use of our mobile device. Perhaps you have grown aware that you are using it differently than you did a year ago, but you don’t know exactly why or what you are doing differently.  Of course some of the changes have been controlled by the businesses who are using agile methodologies to constantly release improvements in the look, speed and functions available on the screen.  The more these businesses issue changes, so does your behavior.

So, have you taken the time to reflect and assess your own set of personal habits and processes?  Have you considered the cumulative effect on your employees of these external changes and its effect on their productivity, their effectiveness and your overall efficiency?

I did, and reflect on my processes pretty regularly. It’s the bane of being a consultant, I need to understand and tinker with things in order to keep up to date and provide relevant information to solve client’s business problems.

I always asked lots of questions, the biggest difference in my process happens to be the research process.  In the past, I was a very avid reader of the New York Times and dutifully ventured to my front door half asleep to pick up the paper and begin scanning the headlines.  Later I went to the Wall Street Journal and slowly opted to skip the chore of recycling the old newsprint, and read the headlines on my phone through the convenience of their respective apps, or use my desktop.  The thing is, the biggest change? Neither one of these newspapers remains my #one information source or morning view.  In fact, I stopped reading the New York Times entirely for a while, because as email habits led me to click open the inbox, other publications had more interesting headlines and their content became a more interesting set of sources.

Better still, the minute I opt to share an article with a colleague, I’m no longer in email but a new application that the team chose to use less to keep our inbox clear, but to insure we were finding and able to keep and organize the messages.  Naturally some of our remote global team members would notice I was online and would shout out to me via Google Chat.  Those who were using the proprietary platform we built, would post and the site would automatically trigger an email notification to encourage other members to respond.

I discovered that my own process, work habits and overall effectiveness ebbs and flows with the connected capabilities of the underlying platforms I find myself using.  I’m not suggesting that having one is a good idea, but I also know that it’s valuable to impose some discipline and standards for the teams in which I work.  It’s way too easy to be online, for example this post began as a voice transcription using my phone.  The longer it got, the sooner I had to move to a bigger screen and so I jumped to my desktop to continue.  Inevitably, there was a sync delay. Later, I  had to reconcile the two versions on the two separate devices.

I would welcome thoughts on if and when you personally, or your team revisits your work processes and to what extent efficiency or effectiveness plays a role.  Please share, and if you would be willing to be part of larger research drop me a line.

 

Refreshing Core Values


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Remember the  expression built to last? It was an expression that my grandparents used to differntiate value.  What I saw as an old tool, or piece of basic furniture or clothing they valued.  The phrase also describes capabilities and inherent qualities that stand up, endure over time surviving changing conditions.

The ups and downs of the stock market represent value differently. Analysts love to pounce on companies when they stumble. The bigger the company the better the blunder and the better for the Bears.  Retail food and department stores currently appear to be under heavy fire these days, even brands and companies that dominated their industry.

So what value should you seek? Investors seek returns but don’t always consider the long term costs, do they? Does sustainability really matter?

I suspect some of these thoughts  led Jim Collins and Jerry Porras to title their 1994 book Built to Last (BTL). Sure they may have thought to follow the example and success path set by Tom Peters and Robert Waterman  whose titled 1982 research project  In search of Excellence also became a best seller.

Sadly, in writing the book Collins and Porras did what other well-meaning authors do. They put a priority on pithy copy over substantive analysis. In short, they wrote great stories.  In fact they went so far as to feature the CEO as leader/hero.  Their research (see sidebar) to distill what made companies visionary  was refashioned into a great read.  Nothing wrong with a great read, unless the reader confuses the story for prescriptive advice and your analysis turns out to be a bit superficial.  If you think I’m being harsh, consider these comments:

Martin Maneker, Collins and Porras publisher put it this way in the Daily Beast in 2009

“the heart of the Good to Great philosophy is that disciplined people, engaged in disciplined thought and taking disciplined action, have the greatest chance at success.”

Or in Collins own words on his website  posted in May 2009 about his book Why the Mighty Fall :

“[Porras and I were ]discussing the possibility of a project on corporate decline, in part because some of the great companies we’d profiled in the books Good to Great and Built to Last had subsequently lost their positions of prominence. On one level this fact didn’t cause much angst; just because a company falls doesn’t invalidate what we can learn by studying that company when it was at its historical best.”

Or Consider  Fast Company’s look at BTL 10 years post publication written in 2004:

“ at least 7 of BTL‘s original 18 companies have stumbled (8 if you’re cynical about HP) — scarcely better than the results you’d get by flipping a coin.”

In other words, the fundamentals that stand the test of time more likely due to discipline or luck. Sorry that it’s not the five that Collins and Porras research efforts describe.

So why did Jennifer Reingold and Ryan Underwood in their Fast Company retrospective review of this highly influential business book try to salvage its essence? For the same reason that these books continue to inspire and continue to be best sellers.  The Fast Company authors looked beyond the company profiles and focused on the stated principles.

As pointed out earlier, Collins and Porras in later editions had to qualify their original findings in the preface. Collins’ later writing also back pedals with post mortems describing how his BTL companies had lost their way.

I’m not the first to question the relevance of the principles to demonstrate the thesis of the book. In fact Collins was well aware of the criticisms leveled at Peters research, and why they adopted matched pair design for their own research.

What bothers me is how story telling hijacked the writers’ judgment.  For example, why use distinctive new prose when citing the principles?  The better to make believers and best sellers, that’s why.

Long before social media, Collins understood the power of language. Catchy language could  impress the ideas on his reader but also fuel fan sales, and  “word of mouth.”  Consider one of his most famous original phrasings:

“A Big Hairy Audacious Goal, or BHAG, a long-term vision that is supposed to be so daring in its scope as to seem impossible. “

It’s in these language choices that I begin to feel the book tilt.  BHAGs  conjure really ugly images.  Who, other than a hero, would dare to take on something ugly? Personally, my criticisms side with Reingold and Underwood.  Even by 2004, the BTL principles seemed less relevant in the face of massive consolidation, global outsourcing or even disruption that shifted the business environment.  But the descriptive principles they coined failed to capture the essence of deeper qualities that underlay any organizations success, ones my grandparents would recognize.  I’m talking about  people believing in people.

Recently, I attended a local meeting of the Private Directors Association. I heard a panel of three CEOS talk about their 100 year old companies.

At the close, each of the CEOs identified factors they thought helped them survive. Profitability never made their list, nor did any pithy phrases tumble from their lips.  The single repeated understanding described their commitment to people and values.  Not only have these companies experienced low employee turnover over the life of the company, they shared unusual views about proper compensation and invested heavily in training.  For two of the three, visible diversity on their boards had been a conscious decision in the most recent period.

Another notable common thread described their recognition of business value–that goods and services they offered should always exceed the price customers paid.

Pride of ownership too dominated  and was demonstrably evident in each of these companies successes though  Mead&Hunt now employee owned and operated, and the other two remain family owned and operated.  Each and every company pointed out their expectation of modest returns and willing attitudes toward change and adaptation.

In other words, missing from the conversation was the idea that any of them expected to use the business as a vehicle for generating great wealth.

A friend pointed out that mid-market company values, at least evident in the mid-west,  don’t seem to match those of corporate America.  I wouldn’t go that far. Particularly since these companies were all privately owned, its difficult to measure them using the criteria that BTL employed– 10x returns on stock price.  Not a one would be considered leaders in their industry.  Even Mead & Hunt which is employee owned understands that returns on their own capital rely directly on production and interaction with customers and not financial shell games.

Kevin Boyle, the CEO of Schulze & Burch, “the biggest baker of toasted pastries in the US” typified the distinctive attitude of these companies.  Here’s how he answered an investment banker’s inquiry about how  growing valuations and M&A affected his business.   “Keep doing what you’re doing,” Boyle said, “it’s good for me and keeps my cost of capital down, and also minimizes my competition.”

Had to laugh at that.

If you are curious Wikipedia’s list of the oldest  surviving companies found many that began before 1300  and not surprisingly they were primarily service businesses, and remain small– as in less than 300 employees.  This list https://en.wikipedia.org/wiki/List_of_oldest_companies

Successful businesses both Create and Capture value, Can you?


A year ago,  Casey Winters then data analytics guru at Grub Hub, shared the data analytic tools that Grub Hub found contributed value to improving long buy-cycle results.  His list of dominant vendors who then weren’t cutting it made me wonder what tools he found most useful now.  Casey  has since moved on to Pinterest, to further the message its CEO recently sent about its power to create beauty and creativity not merely provide social bookmarking. Double congratulations seemed to be the right tone for my note for landing the job and completing his Chicago Booth MBA.  I wondered whether Casey credits his experience at Grub Hub or his analytic experience coupled with his concurrent studies at Chicago Booth to his greater understanding and usage of predictive analytics?  Before asking, I found myself distracted by content in Casey’s tweet stream, especially a story he found akin to GrubHub’s experience–a start-up that had launched in 30 cities in 6 months.

Casey reminded me what value exactly analysis delivers.  Sure, telling stories grabs headlines and has a way of rippling to the very combination of people responsible for business growth.  I’m not just talking investors, but sexy company stories draw employees and on the web, links make it easy for customers to find you too.  Increasingly the value created in the data streams seemed to be secondary to the primary business operations.  Google in sharing the under the hood analytics understands the mutual value creation venture and so do a great many others in the tool creation business.  But that’s just the beginning. Value may be created but unless you capture it then your business won’t last very long.  At least that’s what a number of successful investors track.

Patterns

Sure, start-up fever seems to infect everyone today.  We love stories about founders who go from nothing to something based on their own grit and determination.  Sound familiar?  This quintessential bootstrapping myth  fuels American’s reverence for business. The reincarnation of Horatio Alger stories as rags to riches tales, applaud individuals who by their own hand pull themselves up. In fact, the origins of the term boot-strapping comes from the idea that regardless of one’s background, you too can create a livelihood and viable business from scratch. Adora Cheung’s startup  recently named San Francisco startup of the year story follows this pattern.

Of personal interest, are the patterns that emerge from both Adora’s story and that of Casey Winter.  Both of them developed an expertise acquiring online users and retaining them, a key growth driver for any business. I suggest that they not only understand how to create value, but their skills bring critical value.  What advantage does a web-based business at least for now, have over on premise businesses? The ability to focus on the behavior of the end users, find patterns and then build profiles that allow them to tweak the site to improve not the data analysis capture but convert the information into tangible financial benefits.

“They’re focused on optimizing everything,” said [Michael] Hirschland, adding that its systems allow it to be far more data-driven than its peers. It’s already using data to predict where best to expand beyond city centers, into the suburbs.

 

Admittedly, simple businesses make it easier to focus on the few moving parts at once and understand what works.  Long buy-cycles tend to show more complex business decisions, where the co-dependencies may lie beyond the control of the user your connections allow you to observe.  Both Casey and Adora honed their experience analyzing  businesses appealing to  simple users direct needs. This no doubt helped them increase the contribution value of their analysis, make insights easier to uncover and use them to move their businesses to greater advantage by exploiting opportunities beyond simplifying their users’ on site journey.As they accumulated additional perspectives of happy online users and recommended tweaks to improve the ease of their site’s use they took a slight turn.

human advantageNaturally we compare and contrast personal and experiences, and no doubt Casey and Adora compare and contrasted their personal site experiences to wider systems of experience.  They exercised these skills to leverage the value created by their analysis and tools and explore using them to optimize offline services.  These associative connections remain outside the realm of predictive algorithms and require human know-how.  This level of strategic thinking allows a business to scale and in their case replicate  in multiple locations quickly.

The analytics know-how does more than create value, it offers the advantage that comes from capturing the value too.

The value chain break down

Let’s face it,our brains are wired to find short cuts.  Anything that saves us from thinking about a routine action allows us time and energy for other things.  A mobile app spares us from having to remember the URL, or type it accurately into our smart phones and access the information we want quickly.  Why should we have to think about basic things when there’s an app that captures the necessary information and simplifies if not eliminate s the guesswork for a host of activities.  That’s what GrubHub did and that’s what Homejoy does online, though it might want to merge with  HouseCall.

Simply put, the reason businesses must be online, happens to be why everyone realized the value Facebook or Twitter offered–a connected, concentrated user community.  Decades ago, businesses opened in the mall for the same reason, be where your customers will find you.  Search engines remain important but increasingly they take second place to an established phone app.  Each tool creates value but they capture value very differently. Snaring customers may be the first step, but mobile apps done well allow you to keep them–one of the fundamental drivers of growth.

Websites when linked to effective traffic directing vehicles has been the principles fueling and giving new life to direct marketing analytic firms for a long time.  Today, successful analysis of logistics matters.  What steps a business takes to simplify real world experiences certainly creates value, but the trick again is to capture it.  A host of online tools exist to make it a snap for users to find, pay for and track the delivery of  what they need.

There’s evidence that Jeff Bezos understood this from the beginning and increasingly stock analysts ascribe greater value to Amazon’s combined capabilities over its narrow profit margins.

Today, Amazon  offers its users one stop search, payment and delivery platforms. The early versions of online e-commerce focused on one aspect of business, displacing if not eliminating the middle man by competing on price that squeezed  the markup between wholesale and retail. Amazon’s  logistics expertise and value capture to date make it a significant threat but will this advantage sufficiently keep them winning over other retailers?

The array of sensors residing in smartphones no longer tip the advantage to online service providers.  These changes impact how everyone in the ecosystem accesses the data, and gets meaningful information from the various readings, like Geo-location, gyroscope, accelerometer, or even the magnetic flux. In the near term,  smaller service business like Grubhub, Pinterest and HomeJoy are deriving benefit from mastering logistics.

For each business the advantages go beyond match making and into literal service management for both consumers and suppliers/providers.  That’s the beauty behind HomeJoy.com.  Consumers  find qualified, cheaper house-cleaning services, and the cleaners benefit from vastly improved wages, simplified scheduling help and timely payments.  If that’s not logistics than I don’t know what else to call it.

None of these were businesses that followed the simple pattern representation of “If you build it they will come.”  The article details can fill you in and tell the story better. so, do take a look:

Summary

What’s the key to creating and capturing value? Here are three suggestions.
1. Mine the Gaps
It’s not about whether your business plan happens to online or on premises.  Can you find gaps between value created and its full capture, aka system level inefficiencies?  I urge clients to look for areas where one or more parties in a transaction leave money on the table.  In the case of HomeJoy, Adora and her brother didn’t seek to create a cleaning service, they merely reflected on their own experiences and applied their knowledge of logistics to realize that the home cleaning service business suffered from inefficiencies they could exploit.
The Gap:  Established cleaning companies were prohibitively expensive.  At the other end of the home cleaning market classified or posted ads for cleaners  were unknown entities.  Users face a choice between paying prices that prohibit frequent purchase of “qualified cleaners, ”  or hiring unknown, self-qualified cleaners at more affordable prices, with little or no recourse if the service proves unsatisfying.
The system level inefficiencies suggested that if they could resolve these issues, they could easily scale the business to become an established cleaning company.  No HomeJoy was doing nothing to disrupt the market, they merely used their ability to mine and funnel the knowledge within the system for greater efficiency.
2. Chicken or egg
What you don’t know makes it harder to understand where to start.  Both Casey and Adora and even Jeff Bezos leveraged what others know, but couldn’t put to work for their own benefit. The know-how necessary for success generally exceeds what’s available in a book or published article.  Few successes come to us from merely reading it, we need to try it out and integrate it with what our experiences have already informed us.  Instead find ways to learn directly from your competition, study from the inside as much as possible. (Of course this can be very challenging to do, as Adora can attest).
Surprise, this same chicken and egg problem often makes it hard for  other players in the system.  For example, consumers often need help finding what they want, and suppliers need help finding customers.  That’s why  focus groups often falls short.  The insights may be sufficient to get you past your current obstacle but won’t necessarily offer you competitive advantages that come when you challenge and improve opportunities at the higher systemic level.  You will learn more about the issue, but the difference between success and failure comes from really finding where the untapped value lies.  In these cases the business benefited from focusing on logistics and using analytic tools that weren’t only monitoring and tracking observable patterns. .
3.  Give to Get
  Many start-ups start by thinking they will give something away for free, but you can’t give away your service and then turn around and ask for payment later.  In the case of HomeJoy they used simple old-school growth hacking tricks–printed flyers and compelling copy wasn’t hard but unless people read them they would have no customers.  So they used the advantage of satisfying an immediate need within a concentrated geography to get their message out. They passed out free water with their flyers and sure enough they built their initial customer base and then their site analytics and the web tools to help these customers share with their friends their satisfaction and grow their business.
4. Research, research, research
Matching software may be the basic kernel of value for which many real services or products depend on the web to help coördinate or connect them to their users located anywhere.  Throw in a rating system  for the service/product and now the site itself creates value, right?  But a host of very established sites such as yelp address these needs and yet both Homejoy and Grubhub are growing and co-exist with the search engines and rating sites.
The razor-thin operating margins underly the basic business models for all of these online businesses, whether you are talking about Amazon, Grubhub or Homejoy.  Created value alone won’t keep them afloat.  Each and every one of these businesses must capture that value and they did it by replicating the model. For Grubhub and Homejoy they quickly expanded to multiple markets.  Amazon used their integrated book sales systems to sell other long shelf-life products, then their excess server capacity to offer retailers online commerce  and increasingly are moving into perishables.
If you are incorporating analytics in your business, at what level of the system are you applying the insights you learn? Investing in strategic thinking can go a long way to sustain your business and insure you capture the value you create. 

Create value by sticking to principles and collaborating


I’ve been reading and writing a lot about creating value.  Value creation is what sustains our spirits as well as insuring us a livelihood. It preserves quality in our relationships as well as justifying our existence.

Does creating “shared value” accomplish the same thing?  creating value

A recent headline in the Financial Times challenged the premise of Michael Porter and Mark Kramer’s ideas on creating shared values caught my attention.  Corporate Shared Value, (CSV) conceptually seeks to align social impact and company success.  A very noble goal, akin to what John Mackey, the CEO of whole foods describes as Conscious Capitalism.  Andrew Crane’s Financial Times article merely wishes the CSV theory found its way into execution and not corporate report window dressing and lip service.

15 years ago, Frederick F. Reichheld  and Thomas Teal working for Bain Capital discovered that too few growth strategies successfully drove profits and explained competitive advantage. Since the traditional profit drivers failed to explain the discrepancy in performance, they turned to study costs.  Their research delved into a firm’s relationship between customer duration and its cash flow  and found the relationship also differentiated advantage. As they had eliminated one metric after another their discovery proved that value starts with building loyalty, growth follows and then profits result. Dual loyalty, they explained isn’t merely the reciprocal relationship between a firm’s leadership and its customers.  The duality extends to employees and includes relationships with investors.The Loyalty Effect: The Hidden Force Behind Growth, Profits, and Lasting Value published in 2001, detailed this research.  For businesses to focus and sustain this value creation process, the authors recognized would require fundamental changes in business practices including new ownership structures.

Porter and Kramer’s CSV theory in part recognizes a similar fundamental shift in business practices.  Their focus seeks to compensate for the historic failure of accounting balance sheets to report and record shared value as an asset.  Is it an output, or is Shared Value part of a  larger social movement?

Mark Cheng, Director of Ashoka UK and Ashoka’s senior advisor on social finance  explains the challenges in this article that appeared in Forbes, How Philanthropists And Investors Can Work Together To Create Social Change. He suggests, that trying to build a social innovation isn’t a company but a social movement and that’s why it requires very different investments.

To change consumer behavior whether you plan to build a new market or a social movement requires organizations to earn people’s loyalty to principles.  Reichhold and Teal explain these learnings as necessary to properly differentiate between creating measurable value and creating profits.  Porter and Kramer hope businesses will value social progress, but this alone won’t re-legitimize a business. A verbal commitment to value can’t create the cost-benefit advantages necessary to sustain the firm.

Social forces of loyalty can and often do bind customers, employees and investors. Indeed they serve as measures of  cash flow and indicate a company’s ability to deliver superior value. The interlocking set of a firm’s operating principles creates both a cause and effect which satisfies, inspires and engages all stakeholders to sustain the firm.

Alternatively, a collective solution and collaborative mindset that aligns around a broader set of principles or values clearly stated presents an opportunity to create shared value. Because the concept of shared value offers people the means to take part with the resources of a firm, these mechanisms also share in, and contribute to, the success of the wider social movement.

Cheng explains that different funders should rightly have different roles.  A social business partnership between a business enterprise and an NGO doesn’t have to compromise or tradeoff its economic goals for the benefit of social good.  Using philanthropic funds to cover start-up costs for the shared venture and utilizing the distribution prowess of the corporate entity is one way to make win-win social impact possible.

Social progress is difficult to achieve by a single player, however a shared operating model based on sound principles can be adopted and replicated to spread the changes more widely.  The goal for the business may be self-interest,  where self-preservation will be a result of its underlying value creation principles and relationships.

Markets naturally close loops and collapse, can you keep them open?


The more the more

Concepts of interdependent interactions

The current theory about the nature of our universe describes an ever-expanding system.

The Sloan Digital Sky Survey describes the three possibilities pictured on the right as follows.

  • Open, suggests that the universe will expand forever
  • Flat, the universe will also expand forever, but at a rate slowing to zero after an infinite amount of time.
  • Closed, the universe will eventually stop expanding and recollapse on itself,

These possibilities also apply to the concepts of markets, cultures and geography. Yes, I said geography and it is your sense of doubt that both interests me and is the subject of this post.

Life on the Frontier

Ongoing expansion, what I like to call the more the more can be difficult to see; principally because  we recognize boundaries before we understand the opportunity.  What we know doesn’t come to exhaust what’s knowable and often great opportunities present by pushing forward into the unknowable realm. For example, the concept of reproduction naturally creates many from one, ideas too, tend to generate more ideas, one event spawns multiple stories. So why does our mind resist the concept of the more the  more so earnestly?  You did, didn’t you?  In each example, your mind naturally generated the counter case or qualifications that challenge basic beliefs in loose conceptions such as the more the more. Don’t get me wrong, edges prove very useful. Knowing the beginning or that the end is at hand helps, and the more the more merely builds on that realization.

Inability to see an idea’s validity doesn’t preclude its existence.  New concepts find their way into our web of understanding; however more often they are quickly  buried by every day experiences that prove the contrary. Consider the construct, “the United States.” The idea finds expression in a variety of forms, separated by clear boundaries. Which popped for you?  Perhaps the United States appears in your thoughts as a very concrete physical representation such as part of the North American continent, or as an outline on a map. Neither of these describes the emotional representations conjured in the minds of a new citizen, a tourist or a terrorist.

Utility theory by contrast, attributes a root cause to the propagation phenomena that perpetuates an expectation of quid pro quo, Value for Value. I work in exchange for money that I can use to buy things. Economic principles and monetary theory captures much of the same concepts but is a poor substitute for a universal theory.

Specific, General or Generic

Our mind seamlessly associates specific, general and generic cases of a single construct into a curious looking web of meaning.  Some strands loosely connect on the periphery, while others layer more tightly together around a series of cores.  The meaning that first comes to mind, doesn’t negate the others but may need other distant cross-associations to remind us.Experience can obscure our reality

Let’s talk markets. Most of us spend a significant part of our day working, where we work, or what we do represents a market and our labor factors into the dynamics.  We also consume things, and the choices we make on which items, where and when represents our participation in other markets.  For example, urban societies prefer to cover their feet.  The look –structure and style of these coverings tend to vary by climate, activity and gender. Our mind recognizes the common linkage of the numerous names attached to the variations of these objects  that cover feet.  On this level of linkage, we may attach the same basic utility to all foot coverings. That utility takes on more definitions and attributes when we consider our attachment to our culture and desire to fit in. Do foot coverings in India equate to the usefulness of foot coverings in Brazil or New York City? I cheated just now, I interchanged usefulness with utility to help ease your mind.  To validate the more the more try suspending the first boundary you meet and search your memory banks and reach for greater understanding.

Do you feel ready to put that insight to work in your business?  To grow or better serve the marketplace, we often have to re-imagine the boundaries.

If there’s a dominant player in your market, how might redefining the market give you a bigger share?

Don’t let the edges or boundaries you see stop you from challenging the value of this  representation? You don’t have to challenge the sovereignty of the United States to recognize that there are ideas that transcend the concrete borders, and capitalizing on those may help you serve your existing  markets better and expand into new ones easily.

 

Manage your opportunity: Mine and Mind wider meanings


It’s not just a generational thing, there are so many more places to go than any of us have time or interest. Oh, I just meant on-line. Whether you do or don’t bother with Facebook,  or seek wisdom browsing  social sites, every place on-line data mining traps lie in wait.  Search tools once brought great excitement. At the tip of your fingers, one box combined the knowledge of encyclopedia, yellow pages and the shopkeepers of the world. Today, I wonder,  search and its promise of the information revolution resembles a trap and less a portal to discovery.  Personalization and customizing the experience takes priority over serendipity and pure exploration. That’s the clarion bell signaling opportunity and let me share my own cursory take.

English: The three biggest web search engines

English: The three biggest web search engines (Photo credit: Wikipedia)

The trend lines all show mobile apps displacing Google search. By the way, so do my browser’s add-on buttons. Still, old habits are hard to break. Bing and Yahoo, sure they keep trying, but Google’s continuous upgrades still deliver  personally satisfying search results faster. Their under the hood tracking of my past choices and search history increase their predictive precision.  I’m a statistical geek at heart and so I miss the old Google, that shared the probability score on every result. Today, for kicks I typed “Yahoo” into my browser’s Google search box. and these numbers appeared above the search:  1,200 personal results. 4,430,000,000 other results.

Ironic, to discover 4.4 trillion requests made to Google to find Yahoo doesn’t it?

These numbers illustrate Google’s additional value–their search provide me an opportunity to put my search into a broader context.  In this case the numbers led to an insight, how I can quantify and size a search word’s popularity. I can measure a meme or popular thought’s magnitude. I was on a roll, what other meanings or associations might these search placed terms hold?

My browser (Firefox) search box dynamically lists offers suggestions to help me refine my search.  As I begin to type, additional search terms appear ranked by popular preferences. The phrases anticipate  and nudge me to narrow down my intention, refine the Yahoo search from 4.4Trillion results.  The drop down menu offers 10 suggestions: mail, my.yahoo.mail (the address that I’ve used to get my mail), finance, news, sports,  answers etc.

Hmm.. imagine using the old yellow pages. Organized by category, the listings appear alphabetically.  Google and the rest of the search engines never worked that way. If I try, using the category Restaurant, I get

1,250 personal results. 364,000,000 other results

What do these numbers mean?  Looking over the first few results in the search output  and accompanying map, I’m shown a neighborhood where I used to live 30 years ago and visit occasionally. Before wondering why that neighborhood popped up I compared Google’s competitors.

Bing returned 50,100,000 results and Yahoo reported 48,500,000 results. These are not small discrepancies and may explain why Google remains #1 not just in my preference stack but apparently for the world too.  But there’s more.

Ambiguity the new opportunity

The habits Google encourages and its customized learning of personal preferences  revolutionized how people spend their holidays, shop, work and play.  For the last several years Venture Beat reported in January that Google grew its “semantic network” to at least 570 million objects and 18 billion facts .

In the hands of marketers, the more numerous, diverse associations attached to an idea or phrase makes good business.  The variation allows room to play off nuanced differences and at the same time drill down to find the universal or shared meanings that bring different community segments together.  Once established, shared meaning offers a foundation upon which new experiences and associations can be built,  It can also segregate individuals into subgroups based on mutual understandings. Consider the difference between  word slang  and its normal usage as in  Bad. What associations come to mind, reflects all the nuances of your interests and the company you keep. The same word carries multiple definitions and its usage varies within different populations.  Google ad words and SEO allows marketers placement based on the nuanced choice of their target market.

So how did Bing challenge the space  or more importantly what inherently does its value proposition offer? Bing displays results in three distinct columns: the traditional search , a second column of paid advertisers and the third Facebook’s search results. It may be nice to differential but I’m not sure I understand the benefits.  Or if I did, I’d use Bing more.

Historically, the search service results listed in order of frequency of association or popularity. The resulting match returns ranked sites whose keywords had greater influence in  that particular domain. To effectively compete, I’d need to use the same key words to get my ideas on the inside of information sharing circle.  This is the old Buzz game, I want people to talk up a particular topic or a brand, the idea needs to insert itself into the conversation, right? Google still helps you see the trend lines behind the scenes, which words are trending over time, when and where.

Extrapolation from the past ain’t  foresight

Which approach develops foresight? How can someone track the spread of ideas or get a true bead on what’s coming next?

Yes foresight not insight, as in opportunity creation and positioning for advantage. Tools to find and understand emerging customer trends requires something else. It requires context. Let me introduce Crawdad Software. Their process follows a  patented system called Centering Resonance Analysis (CRA; Corman, Kuhn, McPhee, & Dooley, 2002). It  differs from traditional inquiry methods that deliver results based on word frequency. CRA’s Latent semantic analysis,”uses computational linguistics to model a text as a network of words…its grammatical rules understand how words take meaning from context. Whereas word frequency methods create insight based on a “pile of words”, CRA creates insight through applying network analysis.”  The following is an example of Aesop’s fables courtesy of Kevin Dooley, CEO of Crawdad.

Network analysis?  

Which matters, who does the sharing or what exactly they share and why. Which words they use turn out to be useful to understanding and predicting reactions.  That’s the association that triggers action.  The map above illustrates how naturally Aesop comes to mind when the word fable appears.  But notice how many additional words appear too.

Imagine a leading manufacturer’s #1 product, also leads in its category, suddenly loses ground to another competitor. It failed to notice an opportunity and  others stepped in to their space. Foresight capability, like radar, offers early warning signs of a new attraction or distraction drawing interest in your field of operation.

Once people talk about an idea, understanding who does the talking is as important as why there’s talk at all. Semantic analysis techniques assess the context, meaning and relational significance of this new idea. Whether outside or inside, social media listening posts require additional intelligence to be useful.  Sure, there’s added value to Google’s intelligent semantics.

Example of search term semantics

Bear 622,000,000
Bears 266,000,000
bear with me 276,000,000
bear witness 7,560,000

Its methods borrow from Crawdad, but its output sure doesn’t.  I assembled the table above manually.  In March, I discovered  IBM Data Analytics offers semantic sentiment analysis along the lines illustrated above. They  plan to put the results in the cloud  this summer and make it more widely available, or at least platform neutral for subscribers. So I am not able to create a comparison for you,or even an illustration.

All of these tools offer greater opportunities. Numerous data-mining tools, and increasing integration of social media into knowledge management functions, dashboards and automated evaluation systems makes trivial the opening description of what’s going on with search.  Getting a bead on what’s next  however won’t matter unless you are capable, resilient and flexible enough to adapt and make use of that knowledge ahead and better than others.

The understanding of diverse associations makes sense to marketers who understand what to do with them. The challenge is to help more people within your organization understand what to do with this information.  IBM shared these competencies at their Analytics summit last week.

Social Media Analytics is about Business
Marketing   Human Resources   Risk Management
1. Brand Reputation 1.Company Reputation 1.Partner Reputation
2.Messaging 2.Attracting key professional talent 2.Union members wants
3.Campaign Management 3.Attracting College talent 3.Identify key managers online conversations
4.Competitive Positioning 4.Identifying key reasons for attrition 4.Reputational risk
5.Identification of key Influencers 5.Identification of key Influencers 5.Impact of my customer’s reputation

Conclusion

The world doesn’t really get any more complicated, just more diverse. We keep adding new words, new phrases and at the same time, adding new meanings to old words and phrases. Survival depends on proper interpretation, how well we understand others and how well they understand us. I suggest there’s great value that we leave on the table when we let ambiguity get the best of us.  Take time to verify others understanding, don’t merely respond based on assumption that is unless you plan to seek forgiveness every time.  Start listening fully first, learn what others understand, not just what but why their expectations exist and then choose whether to adapt or to share back.

Big 3I competencies: Why are they so darn hard to acquire?


Creating value and organic growth opportunities requires uncovering opportunities often hiding in plain sight. Innovations challenge expectations including possible returns on the effort.  We take for granted what’s under our noses even though it may be exactly where we need to pay closer attention. Understanding how perception affects our preferences makes compensation possible. Vigilance helps,  especially awareness of value on multiple dimensions. There’s a monetary aspect and there are ideas we hold near and dear.  Both values motivate human behavior and that’s what makes life interesting.  Let’s begin our exploration  looking at traditional expressions of value  after an introduction to the concept of “fundamental attribution,” or first perceptions.

Prior knowledge separates surprise from distraction.  A sudden unanticipated event will jolt our senses. Our sudden vigilant state will recede when we recognize familiar people, or cues, associated with things we know make us happy. Surprise includes circumstances or context that make us expect what comes next and so we relax our guard. The fundamental attribution idea literally draws on internal experience. Stored knowledge takes care of us, finding a fit to situations and environments we meet. That doesn’t mean we pick the best fit. Often familiar,  frequently used ideas come to mind faster. Logical or rational alternatives follow, too late to be useful. That’s where intention, pausing before reacting, offers the pre-frontal cortex time to process. This internal tradeoff makes humans wonderfully complex and predictably irrational.

The trick is to understand how circumstances get people to do what you want and avoid them blowing up in your face.  Psst, the answer goes beyond data analytic competencies, though that’s important.

Perception and preference the Big What?

Data comes in one flavor, but tastes differently to consumers than it does to product and service providers.  Everyday, more code and identifiers amplify specific and ambient details associated with activities such as tracking goods, service use etc. The convenience, cost and time savings provided by standard identifiers like bar codes, account numbers, social security numbers, email addresses and phone numbers also simplify providers, up and down the supply chain, catering to our unconscious preferences. Every day, we compromise a little more of our privacy and anonymity in the process.

The sheer volume, veracity and velocity of all this raw, “Big” data makes navigating the future possible. The tricks require exploring past and present relationships between variables. Predictive Models use that deeper understanding of variable relationships  and their interactions to create opportunities, control risk producing conditions and optimize sources of marginal profit. The results enrich our lives and few of us feel oppressed by this Business Intelligence (BI).  Big Brother does exist, but so does Big Sister, Big Doctor, Best Friend, Old Roommate, Big Pen Pal etc. In other words, government  surveillance creating the old FBI style dossiers, pales to the knowledge stored about you by your bank, Google, Facebook, Amazon and other retailers. Healthcare regulations and practices preserved the privacy of your information, and their slowed migration to electronic medical records. Their failure to keep up with the wider digital data practices have also slowed  diagnostic advances and cost saving opportunities.

Real innovations begin with insight, once the province of small tests and strictly the domain of human intelligence.  Today Big Insight crowds out the spotlight occupied by BI. Cheap storage and faster processing makes data mining possible for anyone, but it is the strategic opportunists  with the foresight to be serious players and accumulators that continue to change the world.  Recently, GigaOM  identified several use cases  while highlighting Terradata, the makers of the first terabyte scaled database. The full list is worth reading, as I mention only a few.

  1. Steve Jobs infamous statement that Apple doesn’t do customer research no longer holds true.  Terradata named Apple as its first customer to exceed a petabyte of storage. Apple rapidly accumulates  transactional information on their customers to understand customers across product groups.
  2. WalMart’s data processing and analytic capabilities go beyond simple sales efficiency. The data helps instruct and educate its suppliers with insights about packaging dimensions as well as shelf space location etc.

Intelligence to Influence requires insight

The ongoing arrival of new technologies and embedded tracking codes continue to fuel the race to understand and use real-time ambient data to influence transactions. More data makes it easier to see deeper underlying patterns more clearly.  With greater awareness, trends can be spotted and tracked more readily and the impact of different interventions tested simply and more thoroughly.

Understanding the data requires more than iterative recombination, it takes expertise. With knowledge and experience patterns can be understood by both people and machines (see Earlier post: understanding-aint-believing-and-yes-there-are-economic-consequences).  But it takes  curiosity to explore different dimensions and generate insights.  Here are two different takes:

Luis Arnal of InSitum explains what holds back many of us. Please listen to his Design Research Conference in 2011 complete  presentation, absent the charming slides. This summary doesn’t do justice to his talk, but  I wanted to share some of his key reflections and lessons on the steps to developing insights

Begin with data, or information records that represent your observations from field research. After collection, the data needs to be categorized, clustered.  Begin the analysis process using a simple scatter plot to understand the landscape or context of observations relative to the categories selected.  Using  intuition and prior knowledge, the dimensions you choose to contrast also leads to the direction in which you develop associations between the data points.  What, if any, possible connections exist?  Using imagination and creativity  lines of connection appear as  part of an effort to FIT the dots to a model.  Of course the interpretations vary. Time and patience make possible “a fidelity of meaning” and the underlying pattern comes into focus. The data’s added value  suggest patterns that slowly develop into solutions. Insights, Luis explains contain  30% Data, 30% inspiration, 30% perspiration and 10% luck.   Insights facilitate the transition from confusion to help resolve the initial problem. They are the links between what Is and What If, they help us imagine how when we don’t or can’t know.

Recent article in HBR by Thomas Davenport,  another worthwhile read, emphasizes a different set of talents and experiences.  Particularly helpful for positioning your firm is one of the closing observations about the capabilities housed within your organization and the opportunities they present.

“….their greatest opportunity to add value is not in creating reports or presentations for senior executives but in innovating with customer-facing products and processes….

LinkedIn isn’t the only company to use data scientists to generate ideas for products, features, and value-adding services. At Intuit data scientists are asked to develop insights for small-business customers and consumers and report to a new senior vice president of big data, social design, and marketing. GE is already using data science to optimize the service contracts and maintenance intervals for industrial products. Google, of course, uses data scientists to refine its core search and ad-serving algorithms. Zynga uses data scientists to optimize the game experience for both long-term engagement and revenue. Netflix created the well-known Netflix Prize, given to the data science team that developed the best way to improve the company’s movie recommendation system. The test-preparation firm Kaplan uses its data scientists to uncover effective learning strategies.”

What’s the common denominator linking Davenport and Arnal?  Both reference visual thinking or the conceptual translation of ideas into tangible representations.  Again,a  mastery difficult to acquire and beyond the bounds of computers, even those as powerful as IBM Watson. I don’t think Siri creates flow charts, but she might learn.

I did and so can and do others. When hiring for analytics teams I managed, three criteria or competencies were essential: SAS skills—statistical coding; knowledge of the business; and an ability to think through new problems. i never thought to ask someone if they could draw.  One of my teams pioneered new strategies to improve profitability.  Initially, that meant differentiating credit worthiness.  Managing the portfolio however required alternative methods to promote profitability by optimizing costs and simultaneously minimize risks.  At the time, combination of competencies we needed were rare. Above all we needed flexible thinkers to tackle complex problems  and create more sustainable solutions. We learned to bet on those who offered two of the three. In time, we came to realize that the third criteria, thinking, was one we couldn’t teach.  It became the minimum requirement. In the late 80’s, we sought out academics with  conceptual modeling experience and bypassed MBAs.  Banking wasn’t the only employers seeking these skills but we were much more flexible in hiring them.

Today, the combination of technical skills proving most valuable continue to be found among individuals who have studied complex data and demonstrate visual thinking, again not MBAs. Not all designers capabilities include assembly of a sophisticated social network analysis model, but they sure do a great job of communicating conceptual ideas tangibly.

This post began talking about value.  Should the value consumers derive match the value producers derive? Absolutely not. In business the preoccupation with return on investment makes sense for private equity focused on upside and early exit. This contrasts with Warren Buffet, who grew wealthy ” thanks to his ability to learn the value of various securities and then buy them for less, a concept at the core of value investing. “Price,” he has said, “is what you pay. Value is what you get.”

Remember the fundamental attribution concept?  Buffet’s remarks on value and his actions show how easily we mistake motive and behavior.  Companies that obsess about cost risk missing key insights.  Case in point, the recent rise and fall of JCPenney’s CEO, a man clearly familiar with the power of BIs (insight and intelligence analytics) to achieve innovation. How people interpret observed behavior matter. The more detail and the more attention to context , increases chances to uncover key actionable insights.  James Surowiecki, a notable observer of the slippery slope of over reliance on analytics, recent New Yorker column , shared comments on the widely touted and now vilified  Ron Johnson, by Mark Cohen, a former C.E.O. of Sears Canada, and now a professor at Columbia”

“In most of the retail universe, price is the most powerful motivator,” Cohen said. “This game of cat and mouse with regular, ever-changing discounts is illogical, but it’s one that lots of consumers like to play. Johnson just ignored all that.”

Conclusion?

Playing effectively with Big Data analytics requires an unusual mix of capabilities. More than sheer brute processing power, modeling, imagining and speculating requires artistic license.  Machines will find patterns of relationship quickly, but not clear they will find the direct relationship between cause and effect. The reasons and thought processes that drive the behavior, remain domains where humans excel.

Its’ hard to believe that the same analysis that led Johnson and his team to create the square fair pricing missed recognizing coupons significance to their customers. I agree with  Surowiecki, who  suggests the impact of one  fundamental attribution created a rippling effect producing one error after another. The first error made by the board in selecting Johnson, created further error by  decision-makers and Johnson himself  in choosing  to push their half-baked strategy forward prematurely.

What do you think?

 

Social Impact Strategies: Muscle, Teeth and Bone


In the advent of the sequester bringing the expiration of the continuing budget resolution on March 27, and theWashington DC

2013 budget battles raging in Washington, my concerns echo many others. This gridlock loses sight of opportunities and mechanisms to create demonstrable, sustainable solutions to larger societal issues.

OK, I realize that a $3.6 trillion Federal budget, makes it hard to understand

$85 billion mandatory across-the-board federal budget cuts. Reportedly, the cuts spare many aid programs serving the poorest and most vulnerable Americans.  Putting aside personal politics, little doubt exists that current needs outstrip the quantity and quality of dedicated resources to meet them. Particularly troubling, the March 1 cuts disproportionately affect low-income Americans  adding additional burdens on resource strained charities. The emotions released by the congressional battle further complicate objective program evaluation and consideration of where and what programs warrant

cutting vs. preserving.  It also avoids honest discussion of  historic questions.

What should and can be the net value, or efficacy, of federal funded grants and programs to meet these needs?

The complex interactions, mechanisms and incentives by which government, private enterprise and the third sector operate in the social arena make alternative scenarios and innovation difficult but not impossible.  Change may come based on a new budget requirement that I hope will unleash much-needed adjustments to the system at every level.  I’ll do my best to explain, and in return ask you to consider your own role in perpetuating the divide, and how your investments could be redirected and the benefits redistributed.

How effectively are you using your muscle, teeth and bone?

 The preview: Conscious Government Capital

Effective 2014, a May 2012 budget instruction the White House issued to the heads of executive departments and agencies, requires all Federal grant-making agencies increase the role of evidence in their grant-making formulas. The memo suggested three approaches:

  • Encouraging use of evidence in formula grants,
  • Evidence-based grants, and
  • Pay for Success.

These were in addition to a model developed by the Washington State Institute for Public Policy (WSIPP) that ranks programs based on evident  returns on investment.

 Wow! Competitive advantage and grants will flow to agencies whose programs demonstrate greater levels of evidence of their effectiveness.  Program providers who can prove their outcomes will get paid for their successes.  This slight change in policy does more to jumpstart accountability within a sector slow to measure itself.  It also energizes and attracts the interest of unusual bedfellows—players in the larger capital markets.

Debating organizational responsibility for the whole of society typically pits private vs. public players’ activities against one another. Each watches and fights the efforts and right of the other to create the future. In the process, advocates arguing for greater checks and balances exclude careful inspection of a third vital force. I’m describing the third leg’s impact, specifically, the  poorly understood effects and poorly coordinated activities supported by charitable donations, well-meaning grants and volunteer contributions.

Writing for The Daily Beast , Ken Stern eloquently shares his observations on the inefficiency of our current philosophy around charitable giving.  Puzzled by  the surety of faith and absence of critique on this third sector’s intermediary role in our lives, he writes:

“The public—and private—investment in the social sector is one of the critical elements of the American social compact, yet it is one of the oddities of public life that each year we renew this investment without ever pausing to ask the same questions that we ask of every other public and private investment: what are we getting in return, is the investment structured correctly, is the money going to the right places?”

The answers reflect different levels of engagement and interaction ranging– from passive to active. The vast charitable landscape and ease with which individuals establish personal private charities further dissipates impact on any single issue.  Consider where your donations flow relative to your top concerns.

Can additional accountability changes revitalize the third sector and elevate its stature sufficiently to offer a significant counterweight to break the deadlock in Washington?

New mechanisms open new opportunities.  How can performance partnership pilots (such as those embedded into Health care reform and now promoted by all Federal agencies) create new paths and alternative realities?  Can these channeled resources provide the necessary fuel and impact to reinvent  health care systems and access, guaranteed quality education,  preserve the environment, resolve energy issues etc?  Of course commitment levels vary and weaken foundations’ abilities to impact and sustain significant changes that contain or alleviate complications.

These problems and their complexity challenge everyone and explain the growing continuum of investment, participation and contributions in this space. Engagement ranges from  Muscle, using influence; Teeth, making your mark; and Bone, establishing a connective, resilient structure.  Which is right for you and your organization?

 Muscle

Historically, the heaviest lifting done to eradicate disease and increase economic livelihoods succeeded through comprehensive coordination.  In Colonial times, governments leveraged their authority to build necessary infrastructure and disproportionately benefit business and economic interests. These changes rippled improvements and improved the lives of the general populations too.

Today, spiraling entitlement program costs and accumulated  tax credits, tariffs and sector supports  produce exclusive benefits difficult to sustain, making everyone ill at ease.  Intricate problems don’t make them impossible to resolve.  Downstream economic benefits often justify providing credits and supports to resource consuming and output producing organizations. But, as Ken Stern observed, increasing social needs now exceed the capacity and political will of government to act alone to meet them.

Ken Stern is not alone in his assessment of what holds back resources, devoted to this sector from realizing greater impact.  In 2011, the Chronicle of Philanthropy reported that demand for aid from nonprofits increased at a faster pace than philanthropic giving by companies.

“Because of the small growth, many nonprofits aren’t getting the money they need to do their job…”

 The spirit of personal choice permeates the landscape of charitable giving. Gates and Buffet use their muscle, their influence, to secure significant commitments from fellow billionaires by encouraging that they too dedicate the majority of their wealth to philanthropy. The Giving Pledge lists the pledging individuals, but does not pool funds or support a particular set of causes or organizations. It only asks individuals to give the majority of their wealth to philanthropic causes or charitable organizations either before or after their death.

Are there clear  benefits using this approach?  It extends charitable activities supported by these donors and the charities reach by introducing much-needed attention and critical dialogue to the merit of these activities.  Stern points to the ever-increasing number of non-profits and specialized, if not duplicitous charities that result. Each carve out a niche and unintentionally work at cross-purposes.

So why did Warren Buffet, known for his prowess in picking great companies that anyone can run, turn over his charitable fortune to Gates to invest? Simply, he empathized with Gates’ action plans that address the absence of good measures of charitable efficacy.  Their charitable interests transcended seeing their  millions merely alleviate pain and suffering  in the manner of many religious charities, whose good work largely continues unquestioned.

Teeth

The concept of Social Impact or making measurable differences quickly captured Gates’ imagination and energy.  Recently, Gates wrote about the value of impact measurement for the WSJ and makes clear that if you aren’t monitoring progress than it’s pretty difficult to make any.

Strategic philanthropy can be defined by dedication personal resources to a singular focused charity, or channeling them to an agreed purpose or outcome that creates real opportunity and situational impact.  Defining the purpose clearly, defining the outcome and agreeing on the measure of success helps every donor make a mark, boost their efficacy and ultimately diminish the problem.

Hunger in America, provides an interesting case in point. Sadly, this problem re-emerged after national awareness generated by the media had it licked in an earlier era. The successful campaign attracted high level politicians’ attention and secured commitments to adapt pre-existing Federal support programs to meet these needs. The result was the Federal Food Stamp program administered by the Department of Agriculture  in  coordination with the farm support programs.  Today, multiple federal public assistance programs exist not from inefficiency but out of a growing understanding of the problem and efforts to target services to specific critical populations, e.g. low-income pregnant and breastfeeding women and new mothers and their infants; distribution of temporary hunger relief through food pantries and the school lunch program as well as households in poverty.

Feeding America, in their online FAQs, document how today, food assistance needs exceed the capability and capacity of  SNAP , Supplemental Nutritional Assistance Program and the other programs.

In spite of ample effort and dedicated coordination and volunteer efforts, the gap has not closed but grown with the economic downturn. The persistent number of households living with food insecurity lives daily with uncertainty not knowing where their next meal let alone access to basic nutrition will come.

Good news once again, activists have kicked up a media frenzy to draw both volunteers and the interest of politicians to rectify this situation. Learn more at TakePart and the film A place at the table. Will and should government assume leadership to resolve?

 Bone

The coordination and interconnections necessary to move beyond marked progress and end the problem requires much more than charitable resources.  It also reflects the long-term trend the Chronicle of Philanthropy reported in July 2011:

“[Increasingly,] companies are zeroing in on social issues that threaten their bottom lines, like people’s ill health, high transportation costs, or diminishing fresh water. They are also focusing on causes that help them tap into new markets, appeal to their customers, and use their employees’ skills.”

Case in point, CSX donated $1 million  to the Future Farmers of America, one of a few key national groups it supports. Tori Kaplan, assistant vice president for corporate social responsibility, explained their desire to attract young people with the skills and interests it needs were participating in FFA.

“We’re hoping to foster relationships with FFA where the students would look at transportation and its connection to agriculture as a viable career,” she says.

The numerous partnerships between Non-governmental organizations often supported by philanthropy, the business sector and the government provide the three legs that create a stable platform for society.  Each leg keeps the other in check and accountable.

These partnerships go beyond what Feeding in America highlights on their site. They depend on investments to rewire the mechanisms that created the problem and create value to attract capital to create more mutual sustainable system. That requires a deeper assessment of  problem inter-dependencies. Desperate people engage in desperate behavior to get their needs met. Reduce if not remove the reasons for their desperation and the resources used to combat them can be used more productively.  Instead of relying on redistributing waste, kindness and surpluses to satisfy unmet needs create greater efficiency, employment and opportunity for understanding and accomplishment.

Leveraging the efficiency and accountability of capital markets offers new hope to create sustainable solutions.  Social impact bonds, or pay for performance success instruments offer such a mechanism to make all parties publicly accountable. The example demonstrated how investing in social services for released offenders that successfully integrate into their communities and find meaningful work at a living wage, produced measurable benefits of increased safety and lower future incarceration costs.

The full circle encompasses economic measures of societal impact, and look beyond the benefits to the target population or social service recipients. It means everyone benefits from the success, not just the immediate clients.  In spite of several programs demonstrating this full complement of returns, it took recent calculation of the benefits and the costs to produce the necessary investment instruments to support their funding. In the UK they call them pay for performance or social impact bonds and now slowly appearing in the US.

 Next?

Regardless of how your corporate charitable activities uses its muscle to invest in community causes and provide valuable volunteers, have you looked for more tangible benefits beyond risk avoidance or raising the positive sign on your public profile.  Maybe it’s time to ratchet up your game. Chances are your employees already sit on boards of numerous non-profits and use their teeth to place their mark and  extending with charitable matches your firm’s resources to mutual benefit.

More interesting opportunities come  when going beyond the marginal resources at your disposal in  corporate foundations.  Why not leverage the full force of the economic assets at your discretion?  The Chronicle of Philanthropy noticed a shift evident in 2011 when corporations appeared to concentrate their support in favor of bigger, higher-profile gifts to fewer organizations.

“in part because of a long-term trend of companies zeroing in on social issues that threaten their bottom lines, like people’s ill health, high transportation costs, or diminishing fresh water. They are also focusing on causes that help them tap into new markets, appeal to their customers, and use their employees’ skills.”

Case in point, Walmart. Over the last several years, Walmart’s amount of charitable cash donations, over $342 million in 2011 topped the Chronicle of Philanthropy’s Corporate giving list .  In 2013, they joined the Partnership for a healthier America changing their own business practices  to align their efforts to make healthy food affordable for families.  This is the public private partnership that helped Walmart leverage its supply chain efficiencies and prowess while also gaining toe holds in communities who fought their incursion.  Key opportunities cited by the Washington Post following Michelle Obama’s recent Walmart visit included:

  •  Wal-Mart  opened 86 new stores in “food deserts,” areas where accessibility to affordable healthy foods is limited.
  • Launch of its “Great for You” icon, which will appear on more than 1,300 of its house brands of foods and beverages in U.S. stores, making it easier to identify nutritionally sound choices.
  • Cutting salt and sugar in its house brands and encouraging national brands to do the same.

Wal-Mart, the nation’s largest food retailer, holds at least one-fifth of the grocery market, according to trade magazine The Packer.

Lots of ideas here, but would love to hear what I may have missed, or other stories that show evidence of more creative innovative approaches to improve the overall system!