Retail impacted by digital finally changing business models


Supply chain software, and a minority stake at that, wrote Loretta Chao to WSJ readers made it clear that Nordstrom definitely is intent on preserving their advantages.  As a retailer, they definitely get what digital business means–they are actively engaged in shifting distribution and inventory control, not merely adding data points to track, but redirecting their fulfillment.

Yesterday, the Wall Street Journal also reported shifting focus by big mall developers, who have leveled the mall spots once anchored by top retailers to make room for a new wave of experience magnet attractions. Fewer and fewer people respond to traditional retailer marketing and sales cycles.  Ron Johnson’s early insight that shoppers were ready for greater transparency was ineffectively translated and instead of turning JCPenny’s into a winner, he managed to accelerate its decline.

In a 2013 blog post following a peer discussion of this strategic failure, I wrote:

“The days in which stores stood between buyers and consumer good manufacturers are dwindling. Location or proximity to the consumer may still have an edge but your competition’s ability  to insert themselves into the face to face transaction has dramatically altered the sales dynamic. Mobile communication devices  make it easy for sellers to find buyers anywhere anytime; and yet, the playbook  for many stores , from department stores to specialty retailers,  fail to keep pace with the change in buyer behavior, perception and thus fail to live up to  increased expectations.”

(Click the link for the full post:  For JC Penney and Ron Johnson experience counts, but which one will deliver growth? )

The realization of end-to-end digital retailing has been slow to arrive. True to form, it has not materialized evenly. The latency, or the time interval that separates store buyers’ pre-order of seasonal merchandise, and its staged manufacture, delivery to warehouses and distribution centers before making it to the store created more than one headache for retailer. In a stable environment, where information was as limited as resources , retailers may have been better at holding customer’s captive and thus been more effective in their ability to  forecast, price, track and sell in keeping with customer demand.  The once innovation of a sale to prime the pump, by Ron Johnson’s time had become a fixture in the sales cycle.

Was it really Amazon who introduced the idea of “Drop shipping?” No, as far as I know, Amazon merely managed to take advantage of Chris Anderson‘s description of Long tail distributions as it applies to supply and demand on the internet.  Amazon’s platform that made it easier for interested buyers to find a supplier no matter how rare or plentiful the good. In other words, Amazon freed consumers from the restraints of retailers merchandising and elaborate distribution schemes.

clip_image002Drop Shipping Loretta Chao explains doesn’t merely reduce retailer’s inventory storage and management costs.  Instead it enables retailers to reinvent their old process for securing product and putting it in the hands of consumers. This lets them compete directly with e-commerce players like Amazon and gain the same, if not greater advantage than Amazon’s platform provides.

Personally, I’m just really excited about what else will emerge, and realizing that DropShipping is just one element of the changes that are here but just not evenly distributed. For example, remember why Kickstarter exists? On one hand it represents the unshackling of constraints forced by manufacturers who limited what designs made it to the mass market.  New designers share their idea and get people to pre-pay and pre-order which makes it possible for more alternative goods making it into production.  The presumption of scale still embedded into the calculations that the manufacturers would need a minimum order to make production worthwhile.

Democratizing design is one thing, but imagine a non-inventory business model, one that puts goods in the hands of consumers faster with more control and choice.I recently heard a panel entitled Rethinking the Design Process at a thoght leader summit sponsored by soho house, Samsung and surface magazine, entitled Intersection 2016. Scott Wilson , original maker of MNML design, spoke with Charles Adler (founder of Kickstarter), Jesse Harrington , designer at Autodesk and Dean DiSimone , creator of Othr dedicated to minimizing the environmental footprint of remote manufacturing.

Direct to consumer, suggests that retail as it has existed for the last few centuries is finally catching up to technology, are at least some retailers. If you want to see who, check the panelists recommended you look at the following: Rapha –a completely different sales model; Tesla back to the pre-order and customize and personalized delivery; and finally Story–who boasts “Point of view of a Magazine,Changes like a Gallery, Sells things like a Store.”

If you have any other evidence of the shift, I’d love to hear about them.

 

Goldilocks can help you face your challenges, will you let her?


photo (1)What’s the story? Today’s headlines continue to be filled with a persistent recurring behavior symptomatic of leadership failures.  Most of us are familiar with storybook tales and parables that remind us of particular lessons. No one wants to be The boy who cried wolf. Cinderella teaches us not to give up hope, and I’m sure you have an equally simple take away for the story of Goldilocks, aka the story of the three bears.

Have you considered using simple stories, and in particular the tale of Goldilocks,  to lead differently? 

I’m actually heartened by Mary T. Barra, because I think she gets this lesson. Today’s New York Times report on the ignition switch investigation suggests that unlike her predecessors, she pursued a different approach. This stands in sharp contrast to last week’s New York Times story Business school Disrupted where Jerry Useem offers a glimpse into Harvard Business school‘s decision-making around digital, online education.

How IS it possible that one of the most premier academic institutions in the world–with articulate thought leaders on key business issues related to Strategy, Disruption and Innovation– continue to cling to their old ways, unable to effectively transform themselves?  I’m not interested in their offering per se.  Their decision options resemble those of Fortune 500 business leaders when surveyed.  They find it difficult to pursue a path toward transformation, though failing to try, often cripples their organization’s ability to sustain value and/or their competitive advantage.

I see the decision dilemma as actually two stories. One, the tale of a lizard, or chameleon, and the second the universal tale of Goldilocks.

Steve Jobs sittingSteve Jobs, from what I’ve read, understood how to lead like a chameleon. By association the story of Apple throughout its tumultuous history can easily be interpreted as a lizard’s tale. Academics, however like many cogent, intelligent thought leaders resemble Goldilocks. Their training, the PhD process itself promotes competition, neither intentional antagonism or collaboration. Individual researchers training emphasizes objectivity, perhaps fearlessness, definitely curiosity. Still academics produce results relative to existing thought using an established process.  These predictable outcomes rarely achieve or encourage breakthroughs in understanding.  Occasionally, this process model when most forcefully applied manages to create disruption in existing domains. Leaders in these established environments rely on orderliness, offsite planning and reflective discourse. Failure to challenge their process makes them vulnerable to outside breaches that create havoc at multiple levels within their hallowed institutions and the underlying operating models their continued existence depends. Basic physics teaches that a body at rest stays at rest.  This lesson exemplifies the impact of complacency and comfort, and the necessity to avoid them at ALL costs.

Goldilocks isn’t a morality tale

Adaptation came easily for Steve Jobs , though in many ways he also behaved like a Goldilocks. Constantly moving and sampling new things until he seized on an idea that resonated with his core principles—simplicity , quality and durability, as in built-to-last. His passion for these principles when wrapped around an idea supported peer learning that enabled development of a powerful culture that made his ideas tangible. The Steve Jobs in Walter Isaacson’s book both hungered for new ideas, and was steadfast in his resilience. These qualities resemble chameleons, making it possible to adapt quickly to subtle changes happening in their environment. These thick-skinned qualities made him  tough, capable of weathering transitions and nurturing— both necessary to support transformation and sufficient to support sustainability.   The verdict remains out for Apple itself.

Goldilocks adapts too.  She makes do with what she finds but she herself never undergoes any transition. She changes her environment, it doesn’t change her. Her existence also depends on encounters with normally distributed choices. The variance around the norm makes her choices rational and predictable.  This may explain why her innocence makes us lose sight of the disturbances she leaves behind.

I don’t know what personality profile Goldilocks fits exactly. It’s why I believe today’s popular assessment tools used by many companies in their hiring practices to find cultural fit ultimately don’t matter.  How exactly do profiles help an organization survive? Leaders who worry about identifying Goldilocks may be missing what I find to be the more critical perspective in the story.

What about the story of Goldilocks resonates and endures? (see post two)

Personally, I think on some level, each of us behaves like Goldilocks.  We are often unaware of how our choices create a wake or disturb the system for those who follow. We prefer to limit the number of choices. Fewer options allow us to focus and ultimately find the points of contrast most relevant, or good enough for us now. Once we make the choice, we can keep going,  gain additional experience and be ready for the next opportunity we meet.

Goldilocks always finds a suitable, generally satisfying choice after sampling all of them. What would she do in a complex situation where the choices exceed her ability to sample? The absent inhabitants of her found environment don’t stop her from seizing the opportunity or indulging her curiosity.  Why doesn’t she hesitate or allow uncertainty to get in her way? When the Bears do return, Goldilocks flees and the narrative ends.

Of course, our experiences allow us to imagine the internal voices that often stop us from pursuing what we recognize could create difficulties for others.  A verbal exchange of assumptions often proves surprising and reveals greater diversity in perspective than any of us imagine. These behaviors Leaders need to cultivate and question when presented with Goldilocks canned results.

Ask Mary T. Barra if the risks were worth the time her predecessors saved shutting down alternative thoughts, questions left unspoken and open issues under examined? Does complacency in your process overrule critical thinking and exchange among peers of diverse perspectives? Should PhDs be reviewed only by the experts in their own domain? What are the principles that every report and process should adhere?

The challenge for management and leadership isn’t to isolate Goldilocks, but to encourage and nurture transformations and mindfulness .

Growth doesn’t elude those who connect to customers


Jeff Bezos and anyone else holding Amazon stock must be pretty happy this past week after seeing the stock shoot up 15 % as the last quarter revenue was up 34%.  Grwoth and performance are the cats’s meow in capital markets!  But Amazon is afterall just an internet company, right?  Steve Henn of NPR interviewed Ben Rose, president of Battle Road Research who offered a little perspective. 

 while Amazon made $190 million dollars in profits last quarter – McDonald’s, which is now worth less on the stock market, earned more than 1.2 billion. .. the reason so many investors are excited about Amazon is that it is growing – fast.

 

Fast growth means a lot to the street, investors as well as senior managegment.  The double hockey stick, or ability to repeat performance over time before hitting the point of stagnation sounds precisely in keeping with our expectation of CEOs and yet their inability to knock them out of the park consistently puts Bezos into a very exclusive class.  

The difference in earnings for  Amazon and McDonalds illustrate that there’s a lot more to the picture. Rapid growth requires more than stepped up demand, but an ability to also step up quality, supply and  delivery efficiency, generate positive experiences while sustaining your reputation increasingly matters.  

For years, McDonald’s strategy for growth emphasized opening more restaurants to reach more customers. The problem was that as the efficiencies from scale began to stagnate , flattening the upward  trajectory of the growth curve.  As masters of scale and efficiency and even quality, the price advantage certainly helped them during the recession but by their own standards of success they recognized they needed to do more.  They turned to their innovation team and began to set in motion a series of tests that not only allowed them to upp sales per customer but returned their growth rates to an upward trajectory.  Design helped them completely shift their thinking and relinquish some of the central control and dictates allowing the individual outlets flexibility to satisfy the local tastes and prefrences from menu items to the restaurant design itself. 

 

The shift from central to decentralized control  is not merely the return of the pendulum swing. 

 John Kotter, writing for Forbes,  observing the ever-increasing rate of change and the inability of many organizations to thrive, also observed that static management principles stymie timely transformations.  What stops organizations from adapting or flexibly responding to the larger dynamics at work in the market?  

20th-century, capital “H” Hierarchy (a sort of hardware) and the managerial processes that run on it (a sort of software) do not handle transformation well.

I read this comment and immediately began to understand something I had failed to grasp.  It’s easy as an outsider to recognize and empathize with the challenges of an organization whose leadership voice the words and know deeply they they need some of that innovation. I thought it was thier lack of vision, or their inability to appreciate and value the customer experience or a series of solutions that have been echoed in innovation circles by business strategy, design thinking  and change management professionals.  What I missed was a lesson I had learned and quickly forgotten because it was a painful chapter when I worked for Fortune 50 banks and found myslef the change agent.  Most managemetn teams are responsive up the chain, and in my experience the marching orders they followed were reinforced with clear rewards for delivering performance. 

Getting to the C Suite requires making all the right moves, delivering the results that were expected and that’s the system you know. The trend to outsource was an innovation to cost reductions and creating efficienciey when what mattered was being lean and oil was bad for your diet.  Consumers adapted becasue they never did know the difference between a local company paid customer service rep who spoke english and seemed to know the score and one paid by an outsource firm and could repeat the tasks for multiple companies.  

The price for that efficiency is the loss of control, the ability to truly be agile, nimble and responsive to shifts in the market. You may have surrendered to the forces that Joe Pine describes commodotized your business, swapping out tasks to experts while stepping up the your investment in the new new thing.  

The entrepreneurs who are running circles around the larger providers can do it becasue either they control every inch of their value chain, or the are able to begin by leveraging technology that is fully integrated, seamless and allows for transparency across the system. 

Its unclear how long Amazon will be able to keep up their growth rates by challenging new business sectors failing to make the transition.  Revisiting your structure and decision-making hierarchy certainly helps ….

ROA- getting the most out of your assets


Interest in Generating Earnings?  why wouldn’t you be?

Return on investment after training and resour...

Image via Wikipedia

Measuring hope

If your business found 2011 challenging, the business press heralding the boom in 4Q sales may restore your faith and hope that 2012 may prove to be a better year.  I know the President remains hopeful, as his re-election may depend on it.

More than an uptick in sales needs to support your growing confidence in a brighter future.  The political, environmental and ongoing commodity pricing volatility that occurred in 2011  challenged the most sophisticated analysts and their understanding of cause and effect relationships. This breakdown  in understanding seems to force the hand of management to reassess their own behaviors, expectations and adapt to the new reality that technology enabled connectivity introduces.

I’m not a finance person but too often the media and an organization’s management focus on revenue drivers in their discussion of a firms’ relative performance.  They overlook the significance in which a  firm’s existing resources or assets contribute to realized earnings –though they don’t miss noticing  when the resources drain earnings.

In every business, management sees merit in measuring investments, competitive business activity and computing ratios to test their own relative performance. Other, more peripheral measures however seem to be contributing to organizations that out do their peers if not lead their industry.   What am I talking about?

I’m proposing broadening the strategic applications of  ROA and ROE, or Return on Assets and Equity respectively, as well as ROI-Return on Investment.

Scale and Efficiency

Technical management consultants for decades leveraged their understanding of growth based on efficiency or the inter-relationship between cost, time and output.Think about it, the more you do the same thing, the faster and better you get. Popularized by the likes of BCG, the experience curve framework demonstrates how a competitive advantage results when this value gain accrues to the firm in time making it more capable of increasing its level of output without having to increase its labor costs.

Many organizations benefit from incorporating this thinking into their decision-making and planning.  Experience curve derive easily from existing data, and thanks to champions like Jack Welch, prediction help can be readily found in subcultures obsessed with perfecting scalable efficiency.  Though powerful this approach is not a sustainable strategy.

In 2011, innovation consistently appeared at the top of many a CEOs wish list. The uncertain economy compromised many intentions and capabilities to invest in organizational transformation to realize this new agenda.  Falling profits, reduced stock prices and investment capital dried up. Where or how could a new initiative find finding?  Even if resources could be identified, the nature of innovation incorporates uncertainty.  Few firms are capable of estimating innovation’s payoffs to plug into a P&L model let alone calculate an acceptable,  timely ROI.

John Seeley Brown, John Hagel at Deloitte and Peter Senge, among others, identifies an alternative that uses technology and its ever-growing connectivity.  (see http://www.businessweek.com/managing/content/apr2009/ca2009043_775383.htm)

Six sigma and the experience curve’s efficiency framework estimations project learning curves to flatten or plateau over time (because production and training costs fall off proportionally as total volume accumulates.) Collaborative environments by contrast naturally welcome increased connectivity and impact the growth rate on the learning curve.  In this latter environment, innovation occurs organically. Correspondingly so will returns on your existing assets with little or no additional investment required.  For too long the focus has been to build process around efficiency of scale.  Don’t get stuck in the  that Dan Pink describes as the mismatch between what science knows and what business does.

Appreciating value

Traditionally, returns like savings occur when an underlying investment appreciates in value over time. It can also occur when costs come in lower than expected and create a budget surplus. How often are you measuring appreciating asset values?  If you limit design of your measurements and set corresponding rewards too narrowly, the quality and impact achieved will be equally narrow.

Recently, I sat in on a conference call  while being logged into an interactive collaboration platform called think-tank by Group Systems.  The other participants, primarily  video conferencing system consultants, used ROI to make their financial cases.  The C-Suite teams, always looking for bankable savings, could instantly understand how to self-fund implementing video conferencing using savings they could collect by reduced travel needs.  This approach pressed the comparative price points between the vendors except Group Systems whose presentation surprised me.  They weren’t talking about new installations, but about upping the usage of existing systems, already installed and, sometimes, fully depreciated.  In other words, they sought to convince firms to realize the appreciation in value from their underlying investments and calculate the Return on their existing assets.  For fully depreciated assets, even higher earnings can be realized  merely by changing internal operating behaviors.

In an environment where investment capital is scarcely flowing, the need to understand ROA  and raise its profile among all levels of management offers some interesting opportunities.  The number of desktops with intranet access within your organization offers the best start.  Chances are your IT department has plenty of tools at its disposal that with  support from training , leadership and example from senior management, together could release a sea change in communications, boost productivity, generate measurable return on human capital and offer additional cost benefits.

A lesson in Magnitude

Beyond your IT department who is looking at the volume of internet related activity or even monitoring the communications activities within your organization?  Perhaps your administrator or facilities staff track the usage rates of your conference rooms.  What do either of these volume metrics offer by way of generating insights  to your organization on how work gets done, or the efficiency and effectiveness of internal communications?

The Following statistics are offered as a  perspective frame for  technology enabled changes in communications.

  • There are close to    1.97 billion – Internet users worldwide and 1.88 billion email users (June 2010).
  •  25% of all email accounts are business accounts and
  • Corporate users typically send and receive about 110 messages daily—18% comprising both real spam and “graymail” (i.e. unwanted newsletters, alerts, etc.).  (see  The Radicati Group, Inc  reportas of April 2010)
  • 73 percent of Americans use their mobile handsets for both text messaging and picture taking. (see The Pew center for internet research report).

Note that in the wider world,  people are communicating in greater numbers on platforms other than email.

175 mill

600 mill

1.88 bill

1.97 Bill

Twitter

Facebook

Email users

Internet users

Sep-10

end of 2010

end of 2010

Jun-10

I’m betting that your communications behavior is one sure source of inefficiencies in your organization.  Try studying the electronic trail of decision-making, project management and progress reporting that transpires on redundant email threads and see for yourself.  Alternatively, if your office inbox has any message threads in which you are one of a series of recipients…chances are great that you’ve identified a large source of communications inefficiency, confusion and  redundancy.

Communicate to further learning

How many conference rooms or meetings, principally focus on getting work done vs. updating project or activity status? Cristobal Conde, CEO of Sungard in a New York Times interview articulates not only how to reap the time-saving benefits  micro-blogging offers, but  how deploying Yammer  (an enterprise social network like Twitter) across his organization was a boon to overall performance.  (http://www.nytimes.com/2010/01/17/business/17corner.html) He gladly swapped the hours on his schedule tied up in meetings to review results for time spent in the field talking directly to customers and clients, or helping teams solve problems.  How did he do it?  Leading by example–using SMS and the open accountability from shared, real-time BI.  Meetings were now always working sessions, never updates on project status.   The phrase Time is money takes on new meaning when considering people’s  time as a valuable asset and as such should waste it with activities or behaviors that fail to offer measurable returns.

Now,  I’m not suggesting a return to the days of time and motion studies to extract every ounce of productivity.  Rather I am suggesting that injecting some new discipline will generate returns and rewards that don’t all directly hit the bottom line.  How much continuous learning is going on in your organization?  I’d love to learn how others are acknowledging or even tracking that learning.  Impersonal  communications  or skipping direct interpersonal engagement deprives people and organizations  alternative perspectives and perceptions–the critical catalysts that lead to innovation.  Unlocking the thoughts and migrating the energy expended on routine note-taking, or email dialogues into a think-tank, such as group systems virtual collaborative platform  guarantees to accelerate results.

I’ve had the pleasure of collaborating informally with several different professionals who all understand the value of experience to differentiate and rank preferences.  One of the  more valuable insights helped me to understand that when we share news, we often intend to increase our knowledge or further our learning.  The more we all know that more likely we are to make use of that knowledge to mutual benefit.

Try focusing on optimizing learning efficiently  and you may surprise yourself with the value add that results.

American Airlines- power to return to the black


American Airlines

Image by millerm217 via Flickr

I’m saddened by the inevitability of American Airline’s (AMR) decision to file bankruptcy. In the last few years, the world has watched one industry leader after another lose its footing leading the pack.  Is the phenomenon  inevitable of the product life cycle curve at work?  My fear is the more we attribute this news as another sign of the structural weakness in the global economy, we may overlook an underlying ailment– withering resilience.

Leaders inspire followers

The recent move by American Airlines’ board signals the loss of faith in the capability of corporate leadership to restructure without the benefits bankruptcy protection affords. The boards’ decision places hope for the company’s future in what Stephen Lubben describes as the ability to restructure with speed.  (see American Won’t Be the Last Airline Bankruptcy).  Bankruptcy laws allow every contract to be opened for renegotiation.  Certainly in competition, speed matters. No one with fiduciary responsibilities should turn a blind eye to mounting losses or the clear discrepancy in the balance sheet between debt and assets plus cash–$.8billion in the case of American Airlines.  A comparison of financial results to forecast, or the simulations of alternative assumptions must have been clear earlier and should have raised questions, or at least challenged the executive team’s belief that the commitments they made would prove viable, right?

I urge readers to review either Sunday’s  New York Times   At American Airlines, a Departing C.E.O.’s Moral Stand – NYTimes.com.  The author, D. Michael Lindsay, and other sources continue to cite  competitive pressures that forced the board to succumb and  points out Gerald Arpey’s values commitment was distinct among a larger sample of CEOs.  His story may be noble, but I fail to see how his leadership echoed these values; and I am reluctant to herald him as a positive exemplar.

“It is not good thinking — either at the corporate level or at the personal level — to believe you can simply walk away from your circumstances.” 

In 2010 he held a similar position:

Gerald R. Arpey

“The path we have taken has created cost challenges for us. But I believe there is something misguided about how we measure success, if success is bankruptcy, giving pension obligations to taxpayers and not paying back creditors. By that measure, we have failed.”  (see Thestreet.com interview Sept 2010).

Arpey’s quotes ring  hollow in the face of his years at the helm. As CEO, he could have led the charge to measure success in an alternative way.  Should we blame the board for the AMR structure , its inherent decisions and commitments? Similarly, decisions that impact the company should rely less on competitors’ values, assumptions and next moves.  Instead the strategy should  show  a keen commitment and understanding of value creation, not ongoing obligations as Arpey argued.  Did Arpey lack audacity, proper advisors and/or the  market intelligence necessary to lay out a plan that would have positioned AMR   uniquely  in the marketplace? Sadly, being the last legacy airline to file bankruptcy, even if he disagreed, suggests a lack of leadership, and specifically a lack of followship.

Sharing Values delivers $Value

Heroes are often industry disrupters.  They buck the trend and prove their firm’s value in the marketplace by brandishing an alternative paradigm.  When the value created extends from shared values, consumers, employees and the firm are mutually engaged in a win- win- win strategy.

In 2008,   Joe Nocera, writing for the New York Times The Sinatra of Southwest Feels the Love  contrasted Aprey to  Ken Kelleher, upon the latter’s  retirement as CEO from Southwest Airlines.  Clearly strategic choices, when rooted in shared principles that link to planning can and do lead to higher performance. Aprey had faith but offered little or no inspiration. Kelleher built Southwest, and in doing so, he created and fostered its culture.  AMR’s Arpey, the most recent CEO  was a product,not a force for change within American Airlines culture.  At the shareholder meeting in 2008, he acknowledged  both necessary and inevitable changes for  the airline industry; yet chose to renew his commitment to shareholders and asked that employees and customers lower their expectations.  In so doing, Wall Street pounded the stock, resulting in a significant loss of value.

Aprey’s  demonstration of  differentiated principles in the face of deteriorating conditions seems to have laid the course for American Airlines subsequent decline.  The labor negotiations for pilots was on both their minds.  Aprey failed to lay a course  or inspire his team to re-invent and ultimately lay the foundation for another, more promising alternative.  By contrast, Kelleher renewed his commitment to his people without guaranteeing anything  to the pilots.

The idea of Shared Values is often confused with value sharing. The former a more universal presumption about a set of beliefs and the latter a calculated measure of utility. In a service industry, delivering value to customers demands a highly evolved understanding of meeting needs and desires. For example, how well does an airline deliver on an individual’s hope to be with family on the holidays?  Can that same airline deliver on another individual’s hope to get to a distant meeting and back for another commitment?  Calculating the costs of delivering value is trivial by comparison, in that the components are concrete, not fuzzy. Southwest was able to gain market share over competitors  focusing on being the low-cost airline provider and inspiring employees to deliver on that shared value.  Every decision made at the corporate level hinges on that principle and the results are clear in their resilience in spite of the hostile economic climate and changing regulatory environment that daily challenges their operating costs

Power in creativity

Mavericks like Richard Branson, another airline mogul and Ken Kelleher place their faith in people to be naturally creative. They consistently live up to simple principles and obligations they make to  employees, create a culture and foster ideals for employees rooted in a higher sense of value that is also shared by customers.  Their sense of economy, scale and flexibility extend to people at every juncture in their process.  Rather than take or assume full control they partner with their customers to share responsibility.  No advance seating, no meals just on time service at a low price. The company takes action, by helping employees focus on the goal that propels their entire business.  In other words they deliver customers safely and reliably from one destination to another and executive management puts  complete faith and trust in all their employees to do what makes sense to best deliver on that simple goal.

By contrast, Aprey did not have that working on his side, the culture at American and  the board’s action focused on their obligations to investors and put the source of their revenue, customers needs and desires second with  employees taking the last position.

Aprey seemed to have a clear understanding of the  principles behind product cycles, and production experience costs showing the predictable relationships between unit costs and cumulative output.  Increasingly it’s not technical prowess, intelligence or even relationships that differentiate successful leaders and resilient companies, but their ability to inspire.  The problems in the airline industry are not unique. The path to restoring profitability has always depended on operating flexibility and financial strength,  and Aprey was right to believe that it  doesn’t have to come at the cost of reneging on earlier commitments.  Decisions to speed up the restructuring by reopening every contract for negotiation suggests leadership who lost their way in the face of unexpected forces or circumstances.  It also is evidence of an inability to inspire, believe and uphold universal shared values.

I’m betting there are plenty of unsung heroes inspiring creativity and bringing about change at speeds that don’t require bankruptcy.  If you know the story, please help me share and build the faith by posting them here.

Finding hidden treasure in plain sight.


Prospecting, mining both are familiars metaphors describing the activities associated with finding and developing  resource rich opportunities.  Rarely  in plain sight for any passerby  to scoop up and gain advantage, prospecting for Gold, other metals or precious gems like diamonds require active and often deep digging capabilities.

Like precious metals or gems, the secret to good business is creating precious assets of intrinsic value. The attributes to value when known for durability and uniqueness, such as a brand, retain  value over time,  predictably generate  cash flow and  become  difficult for competitors to acquire. But the uncertainty of today’s markets and the disruptive threat of new technologies can quickly erode the value of any asset and so growth is essential.  Whether your strategy calls for acquisition or organic growth, either way, the underlying development and prospecting costs need to be contained.

In stories and legends, merely having a treasure map and knowing where to dig doesn’t always lead to happy endings. Technology has certainly helped to mitigate the risks or advance probabilities of success.  Ground and water penetrating radar and detectors   discriminate ferrous and non-ferrous metals pinpoint the site to begin mining and improves the probabilities of a fruitful yield.  The challenges in any mining activity depend not on the power of the technology or in making the dig profitable. Today’s WSJ headline reads Gold hits $1,700.  Absent reliable, hidden treasure maps knowing where to look is an advantage. Returns depend on offsetting the difficulty and risks associated with its extraction and the quality or grade found. Forbes recently summed this up  USAGX’s Denbow: Gold-Mining Companies Face Challenges Finding New Supply.

Prospecting is a perennial challenge for any and every business, and managing the costs is the key to delivering returns.  The current market turmoil has done more than merely  increase investors uncertainty.  for the Risk averse, who have shied away from innovation  or the adventurous  business who has wisely taken pause, I suggest this is a great time to revisit your strategies.  Standing still can prove surprisingly  advantageous if in the process of cleaning house you discover  undervalued or even overlooked assets.  What value does an earlier project, research or failed product launch buried for any number of reasons offer? Lance and Scott Bettencourt of Strategyn write in Harvard Business Review in June 2011 Innovating on the cheap  a series of suggestions on how you can  leverage your existing assets, or rediscover value in surprising places.

Mining existing assets

I suggest a process that may take you a little further.  Consider Google’s Search business and the  underlying value of its algorithms and index.  Maintaining these assets is of critical importance but so too is the value of constant improvement.  Daily, new content and pages added to the internet require Google’s index continuous update.  Including  rich and diverse content such as images, video and sound  files on the internet challenges Google’s index  and algorithm update to accurately rank and deliver the results.  Realized innovations  continuously contribute  to Google’s financial performance and persistent high  market valuation. Even Google however has failures. Research,  experiences of both internal and external users generate additional  assets hidden in plain sight. Actively sharing and reflecting on the meaning of both successes and failures  allow new project teams ready access to key insights that otherwise would be left to lie fallow collecting dust.  If Google continues to draw value  or benefit from their latent assets, can you?

Identifying data or purpose

Frequently, environmental conditions change a variable’s significance.  Strategyn authors talk about unrealized value in products that may have been premature for the market,  experienced formidable technical difficulties or their launch prevented  by high manufacturing costs . Nothing stays constant anymore.  Consumers are always adapting  their preferences to changing circumstances and environmental conditions, and  business are equally forced to adapt.  A variable’s significance in your business model  in one moment may prove insignificant later. Persistently changing conditions is  why its’ important to frequently revisit your tactical plan and forecast models; and occasionally revisit your business model/strategy.

In 1984, Jesse Jackson was the first Black American to run for President.  I was an assistant statistician working for CBS News assigned  to use the exit poll and early returns to create prediction models to track trends in voters behavior. Race became a significant variable , where as before it had not been much of a determinant factor.  To increase accuracy, the forecast model needed to adjust to accommodate and recognize this historic precedent.  Likewise, when I joined Citibank in 1985, the business needed a P &L model for an innovative new offering in four test markets that linked savings and credit products in a relationship.  No one had looked at  interactive product performance before and the experience was a revelation.  The adaptation to existing analysis and risk management tools were instrumental contributors to the explosive growth of Citibank’s  credit card business. The original business proposition  failed to consider that the risk in a bundled loan or relationship,  product was not merely additive but interactive.  Early, controlled testing allowed them to go back to the drawing board armed with new insights and better understanding of the boundaries.

New data is rarely the culprit in a failure; but as things change,  more data enhances interpretation and  provides insights to re-imagine your business.  When you are the largest issuer of credit cards in the world,  accurate risk models  can be built using available billing histories.  In the 1990’s  mountains of itemized purchase or transaction level was left untouched, though its potential value was clear,  there were no clear benefits to justify the monumental costs of analysis. This was a treasure waiting to be mined.  Lacking urgency or absent a competitive threat also minimized the value of uncovering additional insights into consumer’s behavior.

Fast forward just under 25 years and the costs of time and computing resources to sort high volumes of transaction data is trivial and the returns from real-time processing lucrative. Mined transaction data triggers fraud alerts and delivers additional purchase suggestions based on comparison to  individual consumer history and that associated with cohorts, peers or “friends.”  Amazon  demonstrates   mastery in mining  typical  point of sale enhancements and redeems enormous  value from its dual function processing.

Opportunities and technology capable of mining even richer, more complex data eclipses  the significant value accrued from mining transactions.  The potential  value is driving the collection and complex tagging and sorting  of recorded customer service conversations, video capture of consumers shopping or following their daily routine at work or at home or all the places they go  online, key strokes, eye tracking, written comments.  It appears that there are very few domains of human experience and activity that remain a hold out from data capture.  The number of matching and sorting tools, the algorithms and systems also are getting simpler and more widely accessible.  Today, the speed and volume of results Google returns in a general search is far more advanced than credit card billing records I analyzed.  When was the last time you checked out Google’s  specialized search tools or the technology  coming out of their labs?

Returning Power to the People

The  insurmountable challenges are no longer in finding available data, or even privacy. Its ubiquity and increasing open source availability creates an even bigger challenge,  turning the vast amount of real-time data into a durable advantage.  Sunday’s New York Times (August 7, 2011) reported the unusual establishment in Chicago of a team of specialists tasked to help Chicago harness the technology and gamut of rich data the city collects.  Not alone in its efforts, Chicago is  farther ahead of other governments in creating easy interfaces that contribute to the public’s use of  its treasures of recorded and collected data.  Transparency adds more value by increasing the number of analyst reviewing the information, spotting trends or creating applications that simplify the lives of residents.  For example, the free Bus tracker application to let riders and plan their trip better.  It also holds his office more accountable  and increases the opportunity for activism by city residents.

There’s no doubt that power accrues to those who can imaginatively convert  data into both meaningful and doable innovation.

Finding treasures by leveraging connections

Today’s data mining technologies facilitates more than  accountability and activism.  Beyond knowledge of the type and place of available data,  a dedicated commitment to sift and mine the growing mountains of data requires critical analysis and matching skills.  Google does not stand alone in its specialized capabilities, numerous competitors offer diverse and specialized alternative search tools.  Numerous open source tools  make it easy to sort and manipulate any of the open data made available online.  As in prospecting, the tools and ability may narrow the competition and may advance the process. But those systems capable of exploiting and  enhancing anomalies  with supplementary information increase their chances  to uncover intrinsic value and thus create durable advantage .

Innovation results from capabilities to invent but can equally result from abstraction and adaptation.  Most of us at one time or another have come across a person who managed to re-purpose or refashion an object for an alternative use.   For example, the flower bed below.

Between Naps on the Porch eclectic landscape

Don’t merely consider looking at your existing data in its current form, but revisit it with newer analytic capabilities made possible from the numerous open source and proprietary data mining tools rich in functionality.  Consider supplementing your understanding of your assets from the perspective of your final judge, the consumer.  Also consider these sources:

  1. If images are worth a thousand words, spying consumers who refashion or use products for purposes beyond the manufacturer’s original conception can prove inspiring.
  2. Conversations and story are at the core of social media’s power.  The words of mouth, or stories  associated with transmitting and  promoting your business also motivate, inspire and compel employees to higher performance and deliver insights into how your product can be improved.  How often are you  using these to find products  in your inventory or services, that you may over overlooked or underestimated, but  are important to a group of consumers?
  3. Sales Data–Data mining tools can be used to find surprising blips, if you look beyond the blip.  Focus your analysis on the less understood context such as coincident placements or other variables that may not have made it into your database but none the less explain the anomaly.  They may very well be the source of an unrealized opportunity to refashion and reposition products that have trailed in sales.
  4. Last, perhaps you need to apply data mining tools  on your own data collections. The files of failures, tucked into drawers or file cabinets, the product research and or launches that never saw the light of day may call for another look.  After all, consumer preferences are always evolving, but so are your competitors, as well technology that may allow you to overcome previous cost barriers.  For example, oil and gold extraction from very difficult places is now proving economically viable as both these commodities benefit from high market prices.

More reason to harness data mining technologies to jump-start innovation in product marketing, reuse or refashion your assets to generate additional cash flow.

I’d love to hear of your experiences recapturing value in your business by any other routes as well as  suggestions for good tools or tips to improve your data mining or prospecting success.

Connecting the dots to measure value

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Last week, IBM celebrated 100 years of business and coincidentally posted  annual sales of $100 billion.  Recently, several profiles and news stories acknowledged  this milestone; and IBM itself has hosted many “parties”  to celebrate. The roster of American companies and … Continue reading

Seeing the Iceberg, Strategic responses to Business Disruptors


  Titanic image

By the time we see the iceberg, is it always too late to change our course? Business model disruptions often blind  fast growing companies,  shareholder  darlings, and result in their precipitous decline.  The impact is rarely limited, as the wake of the disruption ripples across the globe creating  great uncertainty in the capital markets. 

Last week Borders Group Inc appears to be the latest casualty.  WSJ.com – Borders Hires Restructuring Lawyers On January 18, the WSJ  reported  management’s decision to suspend book order payments and hired restructuring lawyers.  The resignation of top c-suite executives followed.  At this point, it appears collapse is their only alternative.   But last January, on the 27th their CEO resigned and the interim CEO announced in April a turnaround plan, that in retrospect  failed to keep them afloat. Is this case a failure of strategy, leadership or execution?  A full analysis isn’t necessary to realize that the larger cause was the absence of a timely response to their industry disruptors. 

I wouldn’t have paid much attention to this story, or been that drawn into the analysis had I not sat with Chicago Booth alumni last Friday and focused exclusively on this issue of business model disruptors.  The Border’s story was coincidental, and though none of us had the facts or details, we recognized that the leadership team could not have merely been asleep or unaware that trouble was looming. 

Mckinzie happened to publish a survey on the value of corporate strategy. Their findings were not surprising and merely confirmed the experience of the Booth and Kellogg  discussion participants. 

Strategy is hard

Defining the nature of your business is also challenging. Borders was first and foremost a bookseller. Their megastore concept, in  itself an industry disruptor, enjoyed great success until someone else ushered in additional  disruptors that took the lessons of the megastore online -switching mass in store sales and square footage overhead online.  I leave the case write-up to others.  The question is whether the disruption is inevitable and what if anything can a company facing similar game-changing disruptions do?  

It was precisely this question that the monthly discussion of Chicago Booth Alumni considered last Freday.  To frame the short conversation, attendees reviewed in advance three articles with strategic advice and  listed at the end of this post. 

Unlike the predictability and regularity of a ticking mechanical clock, the future rarely repeats or duplicates the past.  Our circumstances are always shifting, some subtly, occurring  as imperceptibly  as the orbital passage of the earth around the sun.  Business disruptors are successful because they are rarely taken seriously early enough. 

A single customer may be fickle; but consumers  rarely act  enmass, abruptly taking their business to the emergent competitor. The reality is that often the best customers remain loyal and the ongoing revenue stream, masks the departure and slow growth of the exodus into a massive iceberg  whose top once visible, is dismissed as small and inconsequential.

Most successful business leaders  monitor and report business metrics and then review them with interested stakeholders , e.g. senior management, share- holders,  board of directors. Rarely do these metrics reflect the full organization’s capabilities and/or its resilience to withstand disruptive threats.  Clayton Christenson studies of corporations facing change found  them missing any focus on  changes in demand as they occur in their marketplace. Resilient companies direct their attention to insuring existing resources can successfully meet the evolving needs of their customers.  The review process is not retrospective, but rather a future focused assessment. Examining the steps necessary to propel, not impede their processes and values toward  innovation.  In a race with a motorboat, paddling faster, or cutting dead weight won’t help you win. 

Strategic suggestions

Business model disruptions are rarely welcomed or predictable.  There are several tactical strategies that make it possible to bounce back to position. 

James Ogilvy, writing for Strategy +Business, offered metaphors from philosophy to exemplify how easily management and leadership can miss critical cues .  If however they create a culture that is more resilient amidst the ever present uncertainties of our world employees  emboldened  to speak and act early can help avert the looming disasterier.  Acknowledging our inability to predict the future we must decide how to operate in the present and still plan for changes we may not understand, measure or foresee.

Markides and Oyon writing for MIT Sloan review pushes past the work Clayton Christenson, Michael Porter and others on innovation challanges by narrowing them down to five key questions.  Asking these, management can better assess the potential damage caused by a disruption to its business or industry; and correspondingly, respond to the new competitive threat.  These questions don't produce the next actions plan, but for companies who recognize their current products, services or basic business model is time limited, it's the basis by which strategy should be revisited. Once again, the restructuring and committments will require great strength to meet the management challenges and incongruencies attached to creating something new while managing existing revenue opportunities.

Finally, another article from Strategy and Business (Leinwand and Mainardi) posits  merely being the game changer requires companies execute an effective capabilities driven strategy.  Outward facing, the strategic focus starts and ends with your customers.  This piece written before the phenomenon of Facebook and direct engagement utilizing social media tools was a great prescription.  The suggestion to build a portfolio of ideas, skills and competencies that can be put together coherently and mutually reinforce the organization’s overall capabilities is long on theory but hard to execute.  [note, an older article by Christenson and Ovendov in HBR 2000, outlines how to assess and find your core capabilities.]

Closing discussion take-aways

Discussants summarized their thoughts at closing as follows:

  • Where are the lessons on how to create culture transformations?  The prescription needs more details to be meaningful or effective.
  • Organizations and their leadership are not as dumb as they seem; rather inertia may be to blame, or more specifically its absence, which inevitably rolls up into a leadership problem.
  • If you can stop the bleeding, act sooner and change the management team it may help, but critically need to change what management is and has been doing to navigate a better course.
  • “Viewing your death”, an Ogilve tip, is only as helpful as how you perceive the future and the significance of the outside possibilities painted in a future scenario.
  • Remember who your ultimate customers are, not your board, not your leadership, only the shifting nature of your customers should be the rationale and focal point for business redirection.
  • Keep track of your fundamentals, the organization capabilities.
  • Be wary of the situational leadership conundrum…their path to the top shaped how they read the signposts and drive the organization forward. 
  • Best to take a long-term look, overcome the protective instincts that may ultimately undermine your ability to move the product along a more realistic and vibrant future. 
  • CEOs are ultimately responsible for strategy and any changes have to come from the top. 

The best insurance an organization can carry is regular consideration of outsider’s perspectives,  reality checks on their planning.  In theory, this should be a board of directors comprised of individuals whose own context and operating environment is in sharp contrast to your industry and culture.  The more divergent their views of the future, the greater the value of their contribution to your survival and success. 

Source Readings

 These  articles  were the basis of the Chicago Booth Alumni Discussion January 21, 2011

 What Strategists Can Learn from Sartre
http://www.strategy-business.com/article/03405
By James Ogilvy, Strategy +Business, Winter 2003
Strategic thinking can benefit from philosophy. In this reflective piece, the author explained why in an uncertain world where competitive advantage is insecure, setting strategy must become an existential exercise.
 
How to Win by Changing the Game
http://www.strategy-business.com/article/08401
By Cesare Mainardi, Paul Leinwand, and Steffen Lauster,
Strategy +Business, Winter 2008
This was the magazine’s first major piece on capabilities-driven strategy, laying the groundwork for Leinwand and Mainardi’s book The Essential Advantage: How to Win with a Capabilities-Driven Strategy (Harvard Business Press, 2010).

What to Do Against Disruptive Business Models (When and How to Play Two Games at Once)

http://sloanreview.mit.edu/the-magazine/articles/2010/summer/51413/what-to-do-against-disruptive-business-models/
By Constantinos C. Markides and Daniel Oyon,  June 26, 2010
Fighting against a disruptive business model by rolling out a second business model is one option for companies to consider. But to make that work, you need to avoid the trap of getting stuck in the middle.