The Cost of Infrastructure – Environmental Scanning (Blockbuster vs. NetFlix)

12 11 2009

Last week in a workshop I was asked the question about Environmental Scans and Strategy Management.  The challenge was probably long overdue.  When I was first drawing up my framework on Performance Management, I specifically wanted to call out questions about how we look at the market.  I felt I had seen too much insular thinking within companies with the risk being much too high.  We need to be looking at the market on a regular basis, perhaps not with high frequency.

Let’s roll back the clock on the movie rental business to 1990.  In almost every suburban strip mall was a mom and pop, or small chain movie rental store.  We were able to rent a movies and watch them in the comfort of our on home.  There was no DVR (though if we could figure out the VCR we could have taped movies), there were not 427 premium movie channels, and cable was still in its infancy.  Over the next decade, Blockbuster moved in and wiped out almost everyone else in the industry – “opening one store every seventeen hours” (Wikipedia – no reference).  We loved the new model, and the fact that our membership card worked even when we were on vacation.  If we went back and looked at the analyst reviews, I am sure they had glowing views of how this was the model for the future.  Viacom jumped in and bought the business for $8.4 billion in 1994.

Oh, how internet time flies.  NetFlix with no brick and mortar costs jumps into the game (not to mention DVR, Pay-for-View, TiVO, etc) and what was once valued as a $8.4 billion dollar business was spun back off for a fraction of its original purchase price.  Today Blockbusters market cap is ~$160 million (compared to NetFlix $3.2 billion) and it continues to loose money.

What happened…you can spin this a number of ways:

  • They were too tied to their infrastructure
  • They were slow to react, or never really understood the threat before it was too late
  • They thought they were too big to fail

They were a great business model, let’s take a cottage industry and scale it.  And it worked great for a decade.  How do you think they would answer the question about the relevance to a more rigorous environmental scanning process?

Just think, perhaps even one conversation about “what would happen if someone figures out how to deliver movies via the internet” might have saved Blockbuster.  I know, I know, this could never happen to you as this was an isolated incident.  Think of the travel industry, General Motors, Enron, Compaq, CompUSA, TWA – and I am sure you could add 20 more…

Companies, like the products they often make, have shelf lives.  If we are not thinking of new ways to reinvent ourselves, it is highly likely someday we will become a “where are they now” business case.

  • What do you specifically do to challenge status quo?
  • When was the last time you had your best minds come up with the next generation business models?
  • When was the last time you identified the 3 largest threats to your business?
  • When was the last time you had a 3rd party provide a critique of the market you are in?




Product Complexity

19 10 2009

Jonathan Becher of the Manage by Walking Around Blog last week wrote about “Less is More.”  While he starts out with an attack on PowerPoint presentations, he then broadens his commentary to software.   His point is spot on and while I can not think about specific example in software, there have been a couple of interesting technology gadgets that could answer his question.

The most obvious to me is the Flip video camera.  They started with the premise that you don’t need all the special effects, and gadgetry that bloats R&D, wastes battery life, and ultimately increases the cost.  They provided just a video camera with a USB connection to download the film.  No more, no less.  And surprisingly (and telling) in the age of endless features that are rarely used it was an immediate hit.

  • In your space, are there customers that are over-served by the functionality of the competitive product suites?  If so, could you use this as a little Blue Ocean styled opportunity to address a new market?
  • How much of your product’s features are truly used?
  • Are the core functions of your product complicated by the rarely used features?
  • Do you run the risk of over complicating your product to its own demise?

I think it will be interesting to watch Flip grow over the next few years.  Will it attempt to morph the product to compete with the more complex video cameras?  Will it lose it’s identity as it does?  Is accessorizing the Flip a step in complexity, or merely a nice personalized touch?

Too Much

If we take Jonathan’s initial question a step in the opposite direction, can you think of a company that got too complex for its own good?

Here I think we can come up with a great many examples.  A clear example is Social Networking.  The initial idea behind LinkedIn was fantastic and it was easy to see why everyone bought in.  Lost former co-workers were easily found, and we could maintain a single repository for our network.  No matter when they changed jobs, everyone updated their profile.  Now, in an attempt to do more, LinkedIn is at risk of losing their audience.  Groups were a great idea, but their were no controls, no rules on how to use them (or not use them).  Now there are groups in every direction and people are using LinkedIn as a database marketing tool for pushing spam.  Facebook is perhaps beginning to fail under a similar complexity.  We all have friends that put their entire lives into Facebook (which may create its own problem) and send out virtual drinks, winks, pokes, games, flair, etc.   I would love to periodically hear what my friends are up to, but I can no longer find that out unless I spend a tremendous amount of time to design and manage the environment.





Analytics Competency Center

28 09 2009

We spend a lot of time on Business Intelligence, Master Data Management, Data Governance, Standardization, off-shoring, etc., yet I rarely hear organizations spending time and energy on analyzing the data.  We have cubes, we can do all sorts of things with reports and dashboards, yet I still hear people say “I need more information!”

It is impossible that we are short on data!

  • How then are we not getting enough information out to the organization?
  • Is it possible that we are spending all of our time and energy on data preparation and data movement?
  • Are we creating value, or just planning to create value?
  • What about creating a center of excellence around the business user?
  • Or something around the levers of the business?




The Spandex Rule

8 09 2009

“Because you can doesn’t mean you should” (unknown source)

While this is a little entertaining, it actually makes a great deal of business sense.  All too often we do things we should not do – and sometimes we did it just because we could or we wanted to.  Hope is not an effective strategy, and willingness should not be misplaced for must.

What we need to do is understand strategic gaps, and build out solid plans to close them.  We need to create a process to identify performance issues early in the cycle and put initiatives in place to fix them.  We also need to understand the core processes in our organization that create customer value and work tirelessly to improve them.





Snowblowers and investing in tools

24 08 2009

How often do parents buy snowblowers right after their kids leave the nest?

Good employees often understand the tools they need to best do their jobs.  Good analytical minds usually look for different ways to extract new information out of large data sets.  This requires access to new tools, frameworks, and methodologies.  If we are not reinvesting in improving our analyical capabilities, we risk losing our best people as they quest other ways to challenge themselves.  We are then required to invest in the tools we declined to compensate for a loss of analytical brain power.

Instead of purchasing tools after a star analyst leaves, we need to find fresh ways to challenge analytical minds.  We can do a much better job of pointing people in new directions, or finding new ways to derive value.  Otherwise, we’re left investing in expensive equipment to do necessary tasks.





Baseball is life…

13 08 2009

A while back I wrote a blog about the similarities of a little league baseball team and how we conduct meetings.   In that blog I talked about meeting effectiveness and preparedness.  A similar story can be told about projects…

One of my favorite kids on my team loves to be involved.  In fact, too much so.  No matter where he is or what the situation, he will call for the ball.  If he is in left field, with nobody on base, he will call for the ball as soon as someone picks it up.  While at this age it invokes a smile from most (except the kid who responds, only to be embarrassed they made the wrong play).  It is impossible not to love the kid, he is always smiling and truly loves playing baseball.

This also is not unlike how we choose projects/initiatives, or who leads them.  We typically choose the most spirited person in the room, people we like, or people who will do what is in our personal best interest.

  • How often do we choose the best person for the role?
  • What happens to the dissenting opinion?
  • What happens to the person with the dissenting opinion?
  • How often do your projects provide concrete value within a desired timeframe?
  • Do you put differing opinions on the team specifically to see what happens?
  • How often do you throw a ball to left field because someone yelled for you?




People, Process, and Technology

12 08 2009

In every BI vendor’s marketing material is the traditional People, Process, Technology venn diagram.  The promise is that leveraging the combination of the three will unlock enhanced results.

Traditional Venn

In order to use this for performance management, we need to rethink the original deisgn.  First we need a vision on how to bring these together and communicate what matters and how it will be done.  We also need to bring a focus on getting only the right things done and specifically not doing the wrong things.  Words (and diagrams) do little in terms of actions.  For us to achieve sustained performance, we need to understand and communicate which processes can create value (and which do not), what technology it will require, and a focused management process to ensure they get done in a timely manner.

Venn New

As you design your game plans, you need to make sure you are developing not only a plan but how success will be defined:

  • What is the desired outcome?
  • Who gets to define it?
  • How will it be managed?
  • What happens if it goes wrong?
  • Who would provide the best rational for the disenting opinion?




Switching Costs & Customer Lock In

20 07 2009

In the day and age of increased competition and homogenus services, what are you doing to maintain your customer base?  In the past, the camera guys were able to get you to lock into their brand by giving you the body of the camera while charging higher fees for the different lens.  Because the switching costs were so high, they essentially we able to maintain their customers.

Look at frequent flier mile programs.  They are basically taking a similar service and creating customer lock in to make sure that customers maintain their status.  If the airline industry can do it with all their issues (lost luggage, long lines, delays and cancellations), why can’t you do it?

  • Do you have a marketing program aimed at creating this type of loyality or lock in?
  • How does your program compare to your competition?
  • Could you do something differently?
  • Do you offer something that is bought in quantity by your customers?  If so,  how can you leverage it more?
  • What is the cost of acquiring a new customer?

Often we think about creating new features to bring in new customers, while we try to force our existing clients to repurchase.





Clean Up

6 07 2009
  • When was the last time you cleaned up your reporting environment?
  • When was the last time your reorganized you computer files?
  • How many versions of old files do you keep in multiple back up files and how much space is littered junk?

Most BI environments and network file structures are collections of everything we ever used.  We have files that are used daily sitting right next to files that have never been used.  We have mulitple drafts of things with the same name in the same folder.

When you were designing the folder use, did you think about the lifecycle of that folder (or system) and the things within it?  This is why we end up with things we no longer need and it makes finding the things we need all that more difficult.





Key Risk Indicator (KRI): Customer Abandonment

1 07 2009

How often do you look at the indicators that a customer is thinking about leaving you?  Do you have a process around this, or do find yourself saying “why did this customer leave us?”

What are the possible indicators for a customer leaving:

  • Time between purchases
  • Decrease in volume
  • Time to Pay bills
  • Increase/decrease in calls to customer servicce
  • Temperature of calls into customer service
  • Longer sales cycles
  • Time between customer visits

Some of these may be difficult to quantify, but are well worth understanding.  I would venture a guess the cost to replace that customer (including lost opportunity value) is less than the effort to put a process into discussing customer abandonment.

If you have stories on how you track customers, or customers you lost and how you should have known, please share them.





Business Modeling

30 06 2009

We spend a tremendous amount of resources on preparing financial models for the company.  Which is absolutely necessary, but we also need to model the operations as well.  For example, if we model the customer lifecycle we can begin to better understand each of the subprocesses within.

This leads to many different insights into the business:

  • Critical transition points within the process – target higher impact performance areas
  • Segment the customer by value – thus better alignment of product and services
  • Better communication of value to stakeholders
  • Enhanced sales negotiation

If we can build the formula around each of the key business processes, then we are providing more tools for the organization to use to focus resources and priorities.





Data Warehouse Design

24 06 2009

One of the main problems with Data Warehouses is that they are designed to answer any question.  The problem is that they usually fail to answer the one someone is asking.  DWs are usually good for referencial information – meaning I can answer questions like “how many customers do we have that have spent over $100,000” or “which customers bought the blue widget.”

There are a number of points of failure that hamper DW projects:

  • They are usually complex and very costly
  • The business changes (regions, product lines, sales heirarchies, etc) in the middle of the process
  • The end use is not well defined
  • Lack of analytical skill and knowledge of data structure in the business users to get the right data
  • The end result is too complex for the users to understand where to go to get the right information
  • No one tells the organization “thou shalt” use the data warehouse – so people get data from all different sources making a common version of the truth difficult to get to
  • There are often no rules of engagement for how to use the environment, or data in general

If organizations only use 6-10% of the data they collect, how do you design the DW for greater adoption?

For starters, understand the common business questions and the potential levers that can be pulled. For example, one of the areas that always surprises me is the lack of information around the success of marketing campaigns. Marketing campaigns and price are really the only levers we can pull in the short term to increase revenues. What we often fall back to is the sales whip – where we put more pressure on the sales team to perform. This is a strategy of hope (which is not a recognized as a successful strategy practice). We apply the pressure without providing much in the terms of support.

Instead let’s say we are ending the 3rd quarter and our numbers are a little behind and the pipeline is not as strong as we would like.  We know we have some time, but the programs have to be very tactical to find low hanging fruit. Instead of reviewing the potential marketing programs or trying something new, we cross our fingers and yell at the sales team. We could cull the DW to find large groups of customers who had not bought specific groups of products and offer incentives for them to buy.  We could identify the groups/verticals of customers with the shortest sales cycle and build a promotion and program for them as well.

Yet why do we not do this…we typically lack the information in a format we can use in a timely manner.

So if we design the data warehouse (or perhaps data marts) around specific business levers we stand a better chance of answering the one question we need. We just might trigger some very interesting questions about our business.






Pain Mapping

21 06 2009

What is the value of Strategy & Operational Performance Management?

  • What if we were to fix a couple critical customer value processes by 5%?
  • If you decrease your discounting by 5% what is the value to the organization?
  • What does it cost you to continue to serve unprofitable customers?

Below are a couple of maps to identify where things begin to break down and how understanding where to start can create the best path to solving the problem.

StratMgt Pain Map

If we understand our pricing and discounting policies and proceedures we are better able to enhance the negotiation process by arming the sales force with additional material.  We stand a far better chance to negotiate on value, not just price.

Price Disc Pain Map

By understanding our cost to serve our clients we are putting in place critical analytical models about resource allocation.  We understand our good customers and our bad and use these in negotiation or plans.

Cost to Serve Pain Map





FGO1

11 06 2009

A friend of mine was the marketing guy for a major shoe company.  I was giving him a hard time one day about the quality of his shoes and he called me a FGO1.  As I was buying time to figure it out, he said “Let me guess, you play basketball twice a week, and buy a pretty good pair of shoes every year or two.”

I nodded and he continued “We have kids buying a pair of shoes every week.  That is my market.  You are a focus group of 1.”

  • How often do we make judgements based on our personal bias?
  • When was the last time you ran a focus group to understand what the market really wants from you?
  • Do you understand your target market, and do you appeal directly to that market?
  • Can you confidently ignore a segment of the market?




Focus on Operational Performance Management

26 05 2009

When was the last time you discussed how your customers were performing?  Do you have a formula to determine their lifetime revenue potential?  And what it costs to serve them?  Does this determine how you segment and market to your customers?  Do your sales people use this value as a tool in the negotiation of price?

Basically how do you manage customer performance?

One of my clients was a credit card processing shop and what we found was that they were spending $4 for every $1 they were collecting from bad debts.  While it was not the whole story, it was evident that we needed to better understand the customer lifecycle.  This client did have specific marketing programs and processes, but they had not been challenged in quite some time and were common industry practices.  

What we find out when we look at commonly held beliefs is that their assumptions are no longer (if they ever were) valid.  We get into a groove of momentum that we find difficult to change our beliefs and behaviors.  We also lack a mechanism and the focus to understand which processes to look at.  One of the most critical to me is around customer performance.  

Ask yourself if you know which customers are driving profits and which are destroying them?  If not, this might be the best place to start thinking about improving insight and process improvement.





Business Math – Drivers and Levers

28 04 2009

I once listened to the VP of a services business unit describe the levers available to him to drive the business.  Here is his formula.  While I agree with him about the formula, it was clear that we need to understand the difference between levers and drivers.  

old-formula

If these were all just levers, would we not be justified in pulling the levers as quickly and as hard as we can?  If we make a small adjustment to the formula, we can take the argument another step farther.

revised-formula

If we breakdown Average Deal Size into its components of hours and rate, we identify the one item that can probably be used as a short term lever – Rate.  We can lower or raise our rates much easier than the other items.  The other items require longer term programs.  We need to train our sales force on new ways to improve winning percentages and shorten sales cycles.  We need to create marketing programs to find new opportunities.

It is one thing to understand the drivers of the business, but we usually need to build programs around the levers to understand how they impact the business and how/when they should be used.  If we are not actively managing the levers, they are really just mathmatical drivers.





Is a failed action the same as a failure to act?

27 04 2009

Over the weekend, Seth Godin blogged about making timely decisions.  It brought to mind a number of items worth additional discussion.  One of my favorite sayings is “we should do something” when managers are shown a potential issue.  It is usually followed up with a flurry of meetings, too much information, and less than a clear path forward.  While frustrating, it became clear over time that we often lack a process to consider, debate, and ultimately put ad-hoc course corrrections into action.  It was also appearant that we suffer from a culture that uses information overload to decline action based on the need for additional information.

To make a little more sense of it, here is a two by two grid that shows the risk and rewards of whether action was created and whether it was correct or not.  The goal of this was to highlight perhaps the personal motivations behind action or lack thereof.

the-risk-of-action2

Creating action is more likely to cause the extremes in risk versus reward, while delaying or taking no action is often the safer route.  While companies need to take risks to lead within the market, employees may not have the same motivations.  Is the potential for a promotion, worth the risk of falling out of favor?  Do we, as company policy, reward action financially?  Is a failed action the same as a failure to act?





Blue Ocean, Red Ocean…

21 04 2009

If you have not read the book on Blue Ocean Strategy, I would highly recommend it.  No matter what industry you are in or how competitive your market is, it should make you think about innovation.  Most companies I have worked with find it difficult to integrate innovation into their management cycle, and therefore innovation is done in an ad hoc manner.  

While a Blue Ocean (Red Oceans are competitive markets where everyone has spilled blood) market play may not be for everyone, you can think of new ways to measure the business, process improvements, compensation plans, marketing tactics, etc if you create a more formal manner for innovation.

Additionally, you might find a great deal of value of reassessing the competitive landscape.  It never hurts to discuss how would a new competitor attack the market.  All great businesses find themselves under threat from unseen ideas – this may just give you a more proactive manner to see the ideas coming.  




Business Intelligence vs Business Analytics

14 04 2009

There is a growing debate over Business Intelligence vs. Business Analytics and what the future holds.  Clearly the Business Intelligence world has been shaken with Hyperion, Business Objects, and Cognos all now smaller parts of bigger companies.  This has created a number of marketing opportunities for the likes of Microstrategy and SAS.  The obvious marketing play was independence.  Now it is clear that SAS is taking a slightly different tact by claiming that Business Intelligence is dead and the future is Analytics.

Marketing messages aside, what we need to be focusing upon how we use information and the management process.  Call it data, information, intelligence, analytics, or whatever we come up with next, it is all irrelevant if we don’t understand how to use it.  A basement full of great tools doesn’t mean the house remains maintained.  
  • Do you have rules on when to use the specific tools in the BI suite?
  • Do your people have the analytical skills required?
  • Do you have a process where the information can be discussed and actions agreed upon?
We all agree that organizations need to make fact based decisions.  The other thing we should all be working upon is creating a common vernacular for each of the tools.  As analysts, consultants, pundits, bloggers, we do little good if we don’t teach the value of how to use each of the tools.  You don’t need predictive analytics for an exemption report.  You don’t need a sexy looking reports that do little to explain the goal.  Organizations don’t need real time scorecards.  

What organizations do need are ways to make people comfortable to take decisive action.  We also need these actions to align to company goals and strategy.  The tools we use need to be consistent enough for us to trust them, and the minds that analyze them need to be able to use the tools well enough to communicate only what matters in a digestible presentation.





Because you can…doesn’t mean you should

14 04 2009

We do a number of things in the name of business intelligence.  We say we have to have real time information.  We have to have hundreds of reports.  We have to be able to look at everything in every direction.

Business Intelligence software promises us this and make this seem like an achievable goal.  And yes it would be great to know everything about everything and get a perfect 360 degree view of the organization.

Yet it is not really achievable, actually not even close.  Instead ask what are the goals & objectives of the organization, and how does this support that end.  We are very quick to say “we can do that” but we need to temper that with “why should we do that?”  Think of the goal of a dashboard – to providereal-time information on a specific subject.  I have known many managers that constantly stare at the screen to see if anything moved.  

What we really need is to understand how to use the function of time and integrate that into a analytical management process.  What would you get more out of, a tactical dial that shows us one KPI, or a meeting at the end of the day to review a number of KPIs?