I have been writing on and off for several years now about crowd sourcing (see for example, my short introductory series Crowd Sourcing, Open Innovation and Open Organization as found in Social Networking and Business as postings 44-46.) I have also written about web analytics and web metrics a number of times, and putting them in the perspective of the online store as a working example I would cite my posting Online Store, Online Market Space – part 5. These areas of activity and its modeling connect where analytic metrics, for example, would be used to identify and track overall crowd sourced information flow, and for setting outlier criteria for such things as individual levels of contact and information sharing activity.
Just considering web analytics for a moment, I have written about the fantasy of eyeball counts and sticky eyeball counts – measures of how many people go to a web site at all, and of those who stay and perhaps even click into it to view a second page there before leaving. And as I have noted many times, one of the driving forces behind the first big dot-com bubble burst was a reliance on those two measures in determining monetizable value and business potential for startups and early stage businesses that had not even begun to reach break-even for expenditures going out and revenue coming in. So web analytics metrics have faced conceptual and functional/operational challenges for quite a while now. And I would argue that they still need further refining.
To connect a third line of thought into the puzzle I address here, I recently finished up a series on innovation and its effective development in which I made the following statement:
• New tools are needed for tapping into the crowd for insight, and even as potential sources of market insight open up and become available and even as this insight becomes more crucially important for business success. (See Keeping Innovation Fresh – 16: adding the crowd to this puzzle.)
The metrics that I called for in that statement:
• Need to be replicable for values derived, given a same-set of input data and parameters.
• They need to be as context and industry agnostic as possible, generally applicable for any analysis of the crowd and its impact.
• They need to connect analysis and analytic modeling of the crowd and its flow of information shared to the more effective achievement of business needs, and as such have to mesh with metrics of monetizable value.
• And they need to be framed in ways that feed into and support actionable decision making processes.
And in an interactive, highly participatory online context such measures would quickly become the most important sources of web analytic insight that a business or other site owner could have, and certainly in the context of our increasingly interactive online cultures and environment.
My goal in this posting is to at least begin an outline as to what a next-generation set of crowd-oriented web and online analytic metrics would look like. And I begin by noting a fundamental point of distinction between these proposed metrics and the web analytic and other metrics that have traditionally been used.
• Crowd-based metrics look outward to the context of the web site and not just inwardly to measure a web site’s performance numbers as if it were sited in a social vacuum. More traditional analytic measures of web performance would be needed and taken too, but their findings would be interpreted and used in a larger context and in ways that acknowledge where the activity behind them came from.
Here, I am not simply referring to development of points of comparison in which inwardly-facing analytics from one organization are benchmarked against comparable inwardly facing numbers as obtained from “similar” organizations – direct competitors and others in the same or similar industries, or from businesses comparable by scale or by other rationally explicable general organizational standards. I am explicitly calling for comparisons to the marketplace and to the crowd as it includes individuals and groups that would at least potentially be customers or who would significantly influence them.
Turning back to the now long-discredited metrics of eyeball and sticky eyeball counts, intuitively some genuine and genuinely valuable information is hidden in the numbers as to how many people visit a web site. But taken as-is, these metrics do not offer any information as to how many people go on to start let alone complete business transactions. So they cannot be used as measures of monetizable value. Tracking activity throughout the site and with a specific focus on areas of that site that offer customers transaction opportunities addresses many of the gaps that those earlier first-generation metrics leave you with. But most standard performance tracking metrics are still oriented toward understanding business web sites according to a Web 1.0 paradigm with centrally published content and at most simple forms-based viewer initiated opportunities to connect back. They do not in and of themselves even acknowledge the socially interactive crowd the business exists in, let alone measure its impact.
This brings me to a basic starter question for this series. What types of online interactivity and crowd-sourced behavior are not being taken into account here by standard web analytic metrics, that would directly and monetizably impact on the business and the performance of its actual online presence? And I am going to turn to that in my nest series installment, looking at the range of Web 2.0 enabled connection points that are increasingly being offered by businesses as they seek out new sources of competitive advantage.
And I finish this posting by proposing a basic observation:
• If more traditionally framed web analytic metrics are insufficient for fully, effectively modeling performance in a more fully interactive context, and if more effective analytics have to look at the crowd and the business’ and web site’s context – they have to do this by looking at how the entire online presence with all of its central publishing and interactive parts fit together, and on how the outside public comes in by using them.
The basic issues that arise when discussing marketing within and between channels are fairly simple and clear-cut, at least in principle and when viewed from the perspectives of a traditional geographically and demographically fixed business and its equally constrained marketplace. And I would note what that entails at least in brief outline by posing a short series of reality-check questions:
• What does your business seek to market?
• What are the expected market demographics of the people who would most likely be customers for the types of products and services that you offer?
• Your answer to this may be that you would most predictably find success in your business from reaching out to more than just one separate and distinct demographic group. Then this becomes an exercise in market partitioning and niche marketing for addressing the respective needs of the various target demographics that you have identified, and with marketing investment distributed in reaching out to them in proportion to the return on investment business-potential of these various target groups. When you are dealing with relatively fixed and more directly knowable communities and marketplace demographics, this becomes a more straightforward marketing analysis exercise.
• Looking to your particular catchment area, where do these people and statistically, the demographics groups they belong go to for information and entertainment? What channels and venues of news and information do they turn to?
• What do they look for there and for both content and expected format?
• How can you best organize and selectively craft your marketing message so as to comfortably fit into your would-be customer’s expectations and preferences for these various channels, and for each of them that you have identified as being significantly accessed and used by them? This can traditionally mean newspaper, television, radio, billboard and local throw-away advertising circulars and a wide range of other options. And with this I address channel marketing.
• Cross-channel marketing means coordinating your within-channel marketing campaigns to work together in reaching customers and potential customers who are likely to, for example, be both watching the television stations and programs that you advertise at, and reading the local newspaper, and who are also perhaps likely to look through the local advertising circular publications. And here, cross-channel marketing means developing and reinforcing a message that is placed in part in several places that your target audience is likely to see, and with each part developed for content and style so as to work in its respective channel’s context.
My goal in this series is to examine some of the issues that arise when you translate this to an online and ubiquitously connected context, with its more diffused and geographically distributed potential marketplace and customer base, and where you do not start out knowing the cultural context that you need to market to. And online and the increasingly ubiquitously interactive experience have both opened up new channels and types of channel, and taken an increasing part of the message that would have been traditionally owned by the business and handed it over to customers and potential customers – and to the community at large.
With this, the concepts of channel and cross-channel marketing take on whole new meaning. My goal in this series is to explore at least something as to what that is increasingly coming to mean and for businesses everywhere and for their customers. I am going to begin a more detailed discussion of this in my next series installment, there focusing on the impact of facing an open-ended catchment area as a source of actively available potential customers.
This is my third posting to a short series on the meaning of, and the sometimes seeming-paradoxes of choice (see Part 1 for a discussion of these issues as they arise when considering inventory selection in a bricks and mortar storefront and Part 2 for a discussion as to how this applies to the online setting of a web-based storefront.) I turn in this installment to an aspect of choice and how it is offered, that arises with equal force and importance for bricks and mortar, and for online stores: marketing.
In a larger sense, marketing is a business’ way to tell its story, as to who it is and what it does and offers. And effective marketing conveys a clear message as to what makes that business unique as it stands out from its competition. Marketing conveys a message that at least seeks to show how that business offers unique value to its customers and from their perspective and according to their sense of value.
When marketing is offered in the sense and context that I am focusing on here, marketing is also a very selective filtering process. And I turn to a business type that has been important to me for many years now in my own work: supermarkets.
A large supermarket can carry over 100,000 distinct stock keeping units (SKU’s) in its inventory at any one time, that collectively address a tremendously wide range of customer needs, desires and preferences. A supermarket circular mailed out and offered in the store itself might include marketing information that touches upon and identifies a fraction and even just a small fraction of one percent of its complete inventory-encompassing range of products.
Some of the criteria that would go into selecting what to highlight in the circular, representing the business as marketing message are obvious.
• Seasonal items that consumers would look for and want now, would obviously be included while out of season items would not be.
• Loss leader items and sale items offered specifically to bring traffic into the store would also likely be included, where offered at the store at all. Or at least representative selections of such items would be, perhaps with the accompanying message that more was also going to be available at special, discounted prices.
But effective marketing also conveys a message as to what the store stands for and of its values – and particularly where they connect with and are supportive of addressing marketplace and consumer values and needs. And a big part of this, and certainly when these fliers are sent out the store’s doors is in drawing in new and first time customers, and in bringing back the occasional customer who usually takes their shopping business elsewhere. And this brings in a different set of marketing material inclusion criteria that almost by definition would be less obvious and less known.
• What can you offer to the new customer, or the infrequent customer who has not seen reason to consistently come back to shop, that would prompt them to come through your doors?
• For online stores, what could you offer through distributed online marketing (banner ads and all of the rest) that would prompt that customer to visit your web site storefront?
• This is all about marketing more widely to the available marketplace with its larger potential customer base and in that you may very well be marketing with a focus on products that are new and nontraditional to your more regular and traditional customer base.
Taking that out of the abstract, consider the supermarket that is reaching out to a new ethnic community that has begun moving into your store’s catchment area and that would seek out seasonings and spices, produce and other items that are commonly included in their home cooking and in their comfort foods. So this second short list of bullet points is all about adding in and marketing your offering of the new and novel too.
And for any dynamic community, your marketing is in most cases going to be both selective in what it includes, and with that selection seeking to find an effective balance between the familiar and standard, and the new and novel – directed toward meeting the needs of both steady and new customers and types of customer. And that flier has to achieve this complex of goals, or at least attempt to do so while highlighting less than one tenth of a percent of what your store actually has to offer, at most.
• As a basic principle, selection in what to stock and what to market, and in how you manage your product placement – these are all about the numbers and about offering the customer the right amount of choice in the right way so as convey a message of choice and abundance – but without overwhelming them with needless complexity of choice that they would not see as offering them return value.
• And finding and staying at the right balance point in this is all about understanding and accommodating change. This is a dynamic process.
I am going to post a next installment in this series, turning to consider the issues of inventory flow, turnover rate and choice selection. In Part 1 when I cited the case study example of determining how many types of ketchup to offer on a store’s shelves I focused on how many. Think of this next installment as turning to the issues of determining which ones. Meanwhile, you can find this and related postings at Business Strategy and Operations – 2 (and also see Business Strategy and Operations.) I have also included this series in Startups and Early Stage Businesses.
I have been writing throughout this blog about business best practices, and that makes sense and both operationally and strategically. But adherence to best practices as a formality can mean loss of opportunity and of marketplace strength that is not even seen for its potential. I write here in praise of the idiosyncratic and of the uniquely different, the seemingly rough edged and the personally original – that resonates with the marketplace and that draws in customers for its sincerity and for its value.
• I write this thinking of marketing campaigns that work – while highlighting owner spokespersons who could never, ever be confused with models or actors and who on the face of things do most everything wrong but in ways that customers and potential customers remember and trust.
• I write this thinking of entrepreneurs who build their businesses around their personal values and sense of ethics – and who shape how they do business to conform to their deeply held personal values and even if that means going contrary to standard practices and the received wisdom of their business community and industry. And once again, this resonates with the marketplace and the buying public and they see this as something to value and trust too.
Best practices need not be staid or stodgy and in fact a perception that a business is, can limit its potential. Staid and stodgy convey a message of inflexibility in the face of changing need and opportunity. Best practices need not convey a message of almost funereal seriousness. A best in class business can be the one willing to laugh at itself and with its customers, and as a group of individuals working with and serving the needs of other individuals. This most definitely applies in the business to consumer arena and at times it can even apply to the business to business arena.
This is not a long posting but it is an important one. Focus on identifying and fulfilling the needs of your customers. But never forget that business is built upon interpersonal relationships and that this is ultimately true even when you have an online business and most of your sales transactions are by online automated processes.
• Offer a personal, human face to your business and in both your marketing and in all of the rest of your customer facing processes.
• And remember that unique value propositions are unique as well as offering value – and that uniqueness can and should begin with you and for both business owner and customer-facing employee.
The only business arenas where this approach would not immediately and fully apply are ones that are fully regulated and forced by due diligence and regulatory requirements to in effect, follow a single cookie cutter pattern of presentation and action. Most businesses and most industries allow for and gain strength from greater variety and from the capacity to be different so the points I raise here apply to most businesses.
I am not advocating that any business just throw its standard and routine to the wind or that it simply do things differently so that it can claim that it does things differently. What I am suggesting is that opportunity for change and for being uniquely humanly different should never be forgotten as a possibility. And that popping out of the cookie cutter mold can make the difference in creating that palpably unique value experience for the consumer that you would need for your business to thrive, reaching its fuller potential. It does not matter if your business model or your marketing would be “business school approved” or not as fitting a standard conception of best practices. What counts it that you offer your customers a business that they can relate to and that meets their needs – and that they will keep coming back to and supporting because you do this.
This is my second posting to a short series on the meaning of, and the sometimes seeming-paradoxes of choice (see Part 1 for a discussion of these issues as they arise when considering inventory selection in a bricks and mortar storefront.) I continue this discussion here, turning to consider the online store with a web site counterpart to the bricks and mortar store’s isles and shelves.
Traditional bricks and mortar storefronts organize their product offerings along shelves and racks, and any one item can be displayed at any one time in at most one place in the store. Types of items can and sometimes are distributed into two or even more places in this type of store – and that can cause problems for customers and certainly if they do not arrive expecting or knowing a priori, the reasoning that the store uses in its product placement. I cited ketchup in Part 1 and the issues that arise as customers face choices to select from when buying it. Now consider a store that partitions-off organic-labeled foods of all types into a special area on its own shelf. And a customer walks in looking for ketchup and does not know that as they are a new customer to that store. So they ask a clerk where the ketchup is and in most cases they would be told where to find condiments in general – the aisle with ketchup, mustard, pickle relish and so on, and not about the organics food isle. They might or might not find what they are looking for and even if they examine every bottle on the shelves in that isle. But as a trade-off the organic food preferring customers like to see everything organic in one place.
In principle, online stores can avoid the problems and complexities of one item only sitting in one place at the store. With online search and whether menu-driven or by search query, every organic product can be included in a separate organic food area – and every item there can also be included in their correct general product category areas too (e.g. pastas and pasta sauces, breads and other baked goods, condiments with those organic ketchups included and so on.) And in fact select items can be placed in more than one general product category bucket in this, accommodating the fact that different customers might classify the same products differently as to use.
But online customers can still face real challenges looking for the items on their want list, let alone the items they would more impulse-buy. This is where an aspect of web design called information architecture comes in and I add many online stores do this badly.
• How are the items to be sold organized into web directories and sub-directories?
• How are these items and the nested directories they are placed in labeled?
• What types of details are provided about offered products to help customers make their selections?
• Are product comparison tools offered, and if so how do they work and do they offer the types of comparative information that real-world customers would want and use?
• How does all of this connect into the online tools and resources for making purchases?
• Does the business offer customers more than just one way to make purchases, with for example, online forms for making them through more automated processes, and a toll-free number for speaking with a sales representative?
• I could add a fairly long list of additional questions here but the basic point behind all of them is fairly simple and quite consistent. On the positive side this is a question of what levels of satisfaction the average customer would face. On the negative side substitute in the word frustration. How does this online business handle customer questions and resolve problems and complaints?
• How does insight offered from the marketplace in this way feed back to the store in helping it to course correct where that is needed, and to fine tune and improve in general, in making itself more competitive and effective?
Online customers can find themselves facing many of the same issues as far as choice is concerned as do bricks and mortar stores’ customers – and as both a positive value for them and with selection overload the downside of this too. Some of this can be corrected for and even with a tremendous selection to choose from, if:
• The store organizes its offerings effectively so their customers can filter and select down by searching according to the distinctions that make a difference for them.
• If they can control how many selections within a search they see at once.
• If they can fine tune or modify a search they have made and to either make it more restrictive or to make it wider in scope, to meet their needs.
• And for repeat customers if a customer relationship management (CRM) back-end support system keeps track of what types of purchases that customer makes and the site picks up on when they are purchasing according to a recognized pattern, making suggestions.
• This in practice means these systems stopping making suggestions too, if the customer indicates they do not want them by ignoring or clicking away from them. Basically, even the most automated customer-facing systems increasingly have to be able to reason and make artificial intelligence-backed decisions if the business is to remain competitive in the online marketplace.
I am going to turn in my next installment to the issues of choice and of selection offered through marketing campaigns, and finding the right items to explicitly market to draw customers into a storefront – or into a web site and its online store. Meanwhile, you can find this and related postings at Business Strategy and Operations – 2 (and also see Business Strategy and Operations.) I have also included this series in Startups and Early Stage Businesses.
This is my 16th installment in a series on innovation, and on finding and developing paths to bring it to productive fruition within an organization (see Business Strategy and Operations – 2, postings 243 and scattered following for parts 1-15.) So far I have been discussing the development and productive implementation of innovation within an organization, and through consistent processes and mechanisms that would limit the loss of value that comes from ad hoc and unstructured approaches. I began with two case studies in this, that I have repeatedly referred back to, and after discussing industrial research and innovation centers and a variety of other standardizing systems and processes, I added in the capturing of innovative value as it arises in production, distribution and marketing in the more marketplace-facing lines of the business.
My goal in this posting is to connect the lines of reasoning and argumentation that I have been developing through the first 15 installments of this series with a line of reasoning and chain of evidence that I have been developing throughout this blog as a whole.
• Businesses do not and cannot function in a vacuum. They exist and operate in and as part of supply chains and complex business ecosystems.
• Businesses can and do hold confidential and proprietary information, but increasingly they operate in environments awash in information and expertise – no business can safely assume that they hold a monopoly on the expertise underlying their products or services, or even just of the sources of unique value they would bring to the marketplace.
• So effective implementation of innovation in creating and offering value to the marketplace has to include a blending of data, knowledge and insight developed in-house with complementing data, knowledge and insight that is brought in from the marketplace and from the business’ outside context in general.
And that is where crowd sourcing enters this discussion.
I have been writing about crowd sourcing in this blog for a couple of years now, and in that context cite some of my entries in that area:
• Crowd Sourcing and the Opening Up of Open Innovation,
• Planning an Innovative Offering to be Turn-Key Ready – 3: crowd sourcing and the permeabilization of corporate walls,
• My series Crowd Sourcing, Open Innovation and Open Organization, as can be found at Social Networking and Business as postings 44-46,
• The Myth of Usability – and the impact of crowd sourcing as needs complexity expands, and
• Meme Tracking as a Crowd Sourcing Killer App.
I have, among other things, discussed the issues of what to and not to crowd source as to a business’ unique value propositions, and simply note the lack of exclusivity that comes with crowd sourced insight and knowledge as one consideration there. But one of the key issues that has come up in this series as well as elsewhere in this blog is the need to connect the value offered to the marketplace to the needs and desires held by the people who comprise that marketplace. And as already noted in this series,
• The more novel and disruptively innovative a new product or service would be, the less market insight its developers and providers start out with, as they seek to create new business opportunity from it.
So I cite the crowd here, and externally sourced insight as potentially invaluable for helping a business commoditize an innovative insight into more effectively and readily marketable offerings – that real world consumers will seek out to purchase.
• This is where Marketing, and the development of marketing intelligence is crucial, and where simply gathering pre-developed demographics data that was developed absent any awareness of the business’ potential innovation might not suffice.
• If you primarily turn to stock demographics data resources, in-house developed or third party sourced for insight as to market needs and opportunity, and to data that comes from initial sources unaware of even the outline potential of what your business would offer, the more novel your potential offering the more likely you will not even be considering the right basic demographics parameters or groups to look at.
• I add that the artificial and somewhat stilted context of standard marketing intelligence tools such as focus groups can fail too.
And this is where new tools are needed for tapping into the crowd for insight, and even as potential sources of market insight open up and become available and even as this insight becomes more crucially important for business success.
Setting aside that challenge, at least for purpose of this discussion:
• Crowd and other externally sourced insight would be shared throughout the organization, and both to the marketplace facing lines and to the research and innovation center, and
• Responsibility for this information resource sharing would be held at least in part by the transition committee that serves to connect research and innovation efforts to the rest of the overall organization.
I am going to finish this series at this point, at least for now. I add that I am also planning on starting a new series on connecting into the crowd as a source of insight and market advantage. Meanwhile, you can find this and related postings at Business Strategy and Operations – 2 (and also see Business Strategy and Operations.)
The immediate assumption that we all bring to a proposed increase in choice is that it is enabling and good. And increasing selection options and choice frequently is. Competition can force businesses to increased efficiency and to improve the quality of what they offer. Increased choice in the marketplace allows consumers to more carefully and fully seek out and find specific products and services that best meet their needs.
When Henry Ford first began building assembly line, mass produced automobiles he is famously noted as having said that “you can get one in any color you want so long as that is black.” This is held up as an almost archetypal example of a lack of choice and more modern auto industry offerings often center on the range of options that a consumer can select from, and not just in car color. The Toyota Motor Corporation Scion is in fact built and manufactured as a basic, core car design to which individual consumers can add a seemingly endless selection of factory-added modifications and customizations. The Scion in effect represents the far end of a spectrum of choice and selection that Henry Ford’s Model T represents the other extreme for. But increasing choice does not, on fuller examination, always lead to greater customer engagement or satisfaction or to increased sales. And it does not always mean better products reaching the consumer’s hands or increased utility or usability either. And I begin that part of this discussion at the supermarket shelf.
Consumers want choice. They demand it. But when they are confronted with more than some threshold of selections for any given product type, they actually start purchasing less of it, and across all selection options. Consumers may want to see more than one type of ketchup on the shelf to choose from but they do not want to see 317 choices to select from – this one made with heirloom tomatoes and that with specially roasted tomatoes, and those 17 over there made with their manufacturer’s variously differing secret blends of seasonings and spices.
A customer walking in that store intent on buying ketchup and just one particular brand and bottle size who finds it will probably pick that up and bring it to the cashier to purchase. But when a customer is simply thinking about picking up some ketchup and does not have an overwhelmingly great need to do so now, and does not have any particular brand or style in mind – they may very well look down this long isle of bottles and walk away. Actually, the customer seeking out that one specific brand may end up just walking away too, because they cannot find the selection they want in all of that clutter – at least before they run out of patience in their search.
• Where is that threshold beyond which increased choice passes a point of diminishing returns for the consumer?
• The answer to that will vary from consumer to consumer and depending on the context in which they approach the store in the first place. Someone rushing to get home who is simply stopping off at a store to pick up a few items they would like to have on hand, is going to hit that point of diminishing returns a lot faster than that same shopper when they are not rushed and when they are thinking in terms of a full grocery list – or that same shopper even if they are rushed but they absolutely have to bring a bottle of ketchup home with them and that evening.
• One point of distinction here that is not entirely dependent on the consumer and their frame of mind does stand out, however. Product distinctions that as a matter of explicit content really make a difference for the consumer can have the effect of simplifying the selection process for them – if, that is, those consumers can find the specific selection choices that meet the criteria that count for them. For ketchup that might mean organic ingredients only, and for some that might be further restricted and mean ketchup that is certified as being free of genetically modified organism (GMO)-derived ingredients.
That said, a vast selection range can become a marketing specialty – for the product types that are offered with that seemingly all-included choice range. And consumers who are looking for brands or types that are not generally sold in other stores will go to the ones that give the widest range of options for specific product categories. To take that point out of the abstract with a real world example, I like hot pepper sauces and there are a scattering of stores that I remember and like and go to for them for when I want more than just the most commonly offered standard brands. There are consumers like me for a wide range of products. But this approach to inventory works best as the exception and as a niche market offering – and not everywhere, where too many choices simply become that extra clutter for most.
And I have not even raised the costs here of maintaining lots of slow-moving items on the shelf with expiration date issues and the cost of keeping capital tied up in inventory that is not moving. If this set of issues affects the consumer it affects the business too.
I began this with a storefront context, and I will turn in my next posting to this short series to consider online stores and their web sites. Meanwhile, you can find this and related postings at Business Strategy and Operations – 2 (and also see Business Strategy and Operations.) I have also included this series in Startups and Early Stage Businesses.
I recently posted a piece: The Power of Leadership by Example, Continued in which I noted how organizations – in that case banks, can move into a position or significant risk and loss from their leadership leading by bad example. I have also been posting to a series: Considering a Cost-Benefits Analysis of Economic Regulatory Rules in which I have approached some of the same basic issues that feed into that story but from the perspective of entire industries and the economy, and not just from that of the individual business in them (see Macroeconomics and Business, postings 64, 66 and 69 for parts 1-3 with more to come.)
I am going to look at this here too, but from an operational and business process perspective and from the vantage of due diligence and risk remediation. Putting that in orienting perspective, the bad example leadership of my Power of Leadership posting as cited above, was bad precisely because it set an example in which effective due diligence processes could not be followed through upon – because the rewards were set too high for sidestepping them and the penalties were too severe for following them. And in a fundamental sense, my Macroeconomics and Business series as sited above discusses the consequences of this type of decision making behavior when wide-spread.
• When due diligence systems are set up or run as virtuous cycles, they can be self-reinforcing and reliably sustainable long-term.
• When they are not, and for either their operational processes or in how they are followed, they will fail and generally where they would have been most necessary to have effectively in place.
My goal in this posting is to discuss and expand upon these bullet pointed observations and as they connect to the individual organization and to the larger scales of the industry, the overall marketplace and the economy.
Considering the individual business as a starting point here:
• Leadership should be directed towards finding and achieving the greater good for the organization being led, and when the prerogatives of leadership are turned to short term self-aggrandizement and the personal benefit of those in positions of authority this marks a failure to lead.
• With time, this type of self-centered focus will always lead to increased risk and loss for the organization itself, its employees and customers and for the marketplace as a whole.
• And failing a return to more effective business-oriented leadership the market will correct for this by squeezing this business out for not meeting its needs and for not being competitive. And both customers and employees will move on – for the employees involved, starting with the very best who would find it easiest to find new positions with other businesses including the competition.
• So the types of leadership failure that I write of here are self-correcting – but at tremendous cost to the business or organization if those leaders do not make fundamental changes in their own practices first – or get replaced by others who will.
• And in a fundamental sense this is about taking a longer term and due diligence-oriented perspective, thinking and acting in terms of risks and benefits in the face of the uncertainties always faced.
My Macroeconomics and Business series looks at this from the macro level and in terms of regulatory law – mandated due diligence standards and approaches and how they arise and how they become challenged and watered down. Ultimately, that is also all about due diligence and the consequences of its failure.
• Well-crafted due diligence processes, built into and informing the strategic decision making that leads an organization can carry short term costs.
• But the long term benefits from this outweigh those costs and businesses that plan and execute for the long term do better in the long term.
• This can be viewed at taking an ethical, and even a moral position in leadership but it can just as realistically and accurately be viewed as taking a long term, strategically sound fiscal approach to managing and sustaining the business too. The two, long term do coincide.
• And when these issues play out at the larger scales of industries and marketplaces, decisions as to how to lead and on what time frames, and to whose benefit determine overall economic strength and vitality too.
• In a fundamental sense, this can all be seen as being about due diligence – and about developing and following effective, consistent due diligence processes that are crafted to demonstrably sustain value and whether within individual businesses or across entire industries.
I am certain to add further threads to this developing discussion, and in both future individual postings and in organized series. Meanwhile, you can find this and related postings at Business Strategy and Operations – 2 (and also see Business Strategy and Operations.) And see Macroeconomics and Business.
Keeping innovation fresh – 15: opening up the innovation center to more fully capture creativity and value
This is my 15th installment in a series on innovation, and on finding and developing paths to bring it to productive fruition within an organization (see Business Strategy and Operations – 2, postings 243 and scattered following for parts 1-14.)
As noted at the end of Part 14: calculating in production and marketplace costs, I have been developing this series in terms of in-house research and development centers, and how they can be better connected into the larger organization so as to more effectively capture and retain value.
• It can in many respects be easier to define, organize and defend an ongoing research and innovation capability in-house, and in the face of ongoing here-and-now fiscal and other pressures, having this organized into a specific area on the table of organization.
• It can, I add, be easier to develop and maintain clear and consistent processes and approaches for bringing new and emerging innovation from the researcher into marketable product and service development and to the marketplace, with formal structures and systems in place for managing this – and that means both at the industrial research and innovation center level, and at the transition committee level where decisions are made on what to move forward upon.
• But I come back here to a point that I have raised in this series at least since I first outlined what a transition committee is – a need for real world insight on the marketplace and on actual consumer needs and preferences. Insight from the lab to the production side of a business can be invaluable in sharing word as to what is possible and practical in developing the business to its next step in its competitive evolution. But feedback from production back to the lab is at least as important for providing researchers, inventors and innovators with the real world grounding they need if their ideas are to mesh with the marketplace and offer real, and wanted value there.
• Innovation cannot and will not however, simply occur exclusively in separate walled-off settings and even when businesses devote a lot of resources and effort into building dedicated research centers. The pressures and demands of the marketplace and of meeting its needs through product and service development, production and distribution cycles can and will lead to innovative insight too. And this sourcing of new value should be tapped into and developed too.
My goal in this posting is to outline an approach for adding production-side innovation into the supported innovation flow. And I will add that one goal of any such system of processes and approaches should be to identify and encourage innovation insight wherever it arises in the organization, and to promote innovators in their efforts to create new sources of value for the organization in doing this.
Google provides an excellent case study example here. Every employee has work responsibilities with ongoing performance goals and assigned-task completion priorities, as is usual for virtually all businesses and organizations and for essentially all employees. But at Google, employees are also encouraged to devote a proportion of their paid work time towards working on projects of their own design and choosing too. And they can and do develop and present their project ideas and the results they have achieved as Google innovations, that if approved would go live as part of Google’s commercial offerings. I simplify the basic processes followed here, but the idea is fairly simple.
• Individual employees and self-organizing teams develop innovative new ideas into possible additions to what Google does as standard practice. This has included a number of features that have become basic parts of the Google experience for all users and Google Maps comes to mind as a working example there.
• Employees present their ideas with prototype code and supporting data as required and the ideas and innovations that are accepted for follow-through get shared with the public as possible new mainstream products and services, as beta test project releases.
• The ones that pass this test go live on the main Google site and/or through other appropriate Google channels.
• And the innovators who came up with this new source of value gain from holding a share in it with return on investment going partly to them as well as to the company.
A business might or might not have a formal research and innovation center. But I stress that tapping into the production side of a business for innovative potential need not preclude or even compete with having a more dedicated research and innovation staff and facilities too. These seemingly diverse sources of innovation can complement and even support each other.
• Having a research facility in place can mean having dedicated test-bed equipment and other resources in place for developing and prototyping new innovative ideas, reducing their up-front costs and the time needed to initially validate their potential by reducing time and costs to build and rebuild infrastructure for that.
• Having production-side innovation and innovators and encouraging them and rewarding them in this can be a great way to source people for the research and innovation center- and if not full-time and long-term, then through the duration of specific research projects that show great promise.
• One of the functions of a transition committee in this would be to help identify those employees who should be given significant and at times even full-time opportunity to work on an innovation that they are developing.
• That last point, I add, can be particularly important in fast-paced highly competitive industries where new innovations can at most hold special market share capturing value briefly before they are supplanted by that next innovation.
And this brings me to a set of points that is very important:
• If an innovative idea looks promising enough, one of the strategic goals of the business should be in getting the employees who can create this new source of value vetted to be able to switch to work on it full time if need be, transferring them at least for that project into a dedicated research arm of the business if that would be needed.
• And these employees should be given the resource access and support needed to realize the potential of their innovative idea, with both their regular line manager and a manager from the innovation center working together and with the transition committee to evaluate progress and manage all of this.
• And this is definitely a situation where having a system in place adds real value. Ad hoc approaches create problems and conflict, and increase the rate of lost opportunity.
I am going to continue this series in my next installment, connecting the system I have been outlining here to the topic of crowd sourcing. One of the issues I will be discussing is that of what types of innovation a business would source from in-house and what would perhaps best be sourced from the outside and the crowd – and how to coordinately manage and develop these sources of value and their productivity.
Technology advances and the development of business best practices in their implementation can and do create competitive advantage. And that observation is usually as far at this line of discussion is taken – with a focus on the individual business and almost as if were operating in a vacuum. When competition is examined in closer detail, development of technology advances and of business best practices in their implementation tend to diffuse outward from their initial developers and implementers – innovators and pioneer adaptors, to the marketplace in general and to every business that feeds products and/or services into it.
• With diffusion, innovation and its adaptation serve to level the playing field but at new and more competitively challenging baseline levels, creating new and more effective norms as to what constitutes baseline average competitiveness just for staying in business at all.
And as an abstraction, this observation covers much if not most of the rest of a usual discussion of the issue of innovation, at least insofar as it shapes business and marketplace evolution. I recently read an account of a multi-generation dairy farm, and how each succeeding generation has adapted new technologies and new farm and business practices, and grown their operations in scale – just to see real bottom line reductions in income from their effort.
They raise and maintain more head of cattle, and produce more pounds of milk per cow on average every day. Their dairy operations have been made leaner and more cost-effective and both overall and on a per-head-of-cattle basis. Their processing and refrigeration, and other hardware systems have reduced their rates of spoilage and other sources of loss to a minimum and they can and do ship their products out about as quickly and efficiently as are currently possible and for any operating, state of the art dairy farm operation. And they sell to a geographically wider marketplace. But the current owner’s father brought in a better overall income from this business than his son: the current owner/operator achieves, and his daughter is facing the prospects of seeing this same decline as she prepares to take over the family business as her father retires.
Competition from large dairy producing operations in New Zealand is cited in the paper I read, as are a number of other factors that are held responsible for this slow but consistently steady diminution of the bottom line as source of profit and income for this farm family. And I am sure that the factors are all in fact significant. I freely admit, just picking up on this one detail I cite here as causally contributing to this problem, dairy product competition from New Zealand, that I have seen butter and other food products labeled as coming from there in a great many countries. Global connectedness in supply chain and distribution systems can and does serve to reduce prices by increasing supply available in any given local and at any given time of year. But I am going to focus here on a “none of the above” factor not accounted for there or included in the white paper I read.
• As improved technical and business process best practices are developed and as they diffuse through industries and marketplaces to become the new standard and in what is done and how, and in what is expected this in effect redefines what it takes for a change to even qualify as an innovation.
• Mathematically and just considering bottom line return on investment capabilities, any effective innovation in this type of maturing industry is going to have to bring a proportionately larger increase in the absolute scale of extra value returned and certainly if it is going to have to create at least some minimal proportional increase in realized return on investment over the current industry norm. Expressing this at least semi-numerically, if the operational standard is represented on a scale as being at a 10 and for current industry practice you might only need a same-scale efficiency increase of one or two to yield a significant proportional increase in effectiveness and a significantly distinctive, notable increase in return on investment. But as that and other innovations add to the operational effectiveness and to market expectations and the norm of operational effectiveness reaches 100 on that scale as an industry standard, no one would even notice a nominal increase of just one or two, and 10 or 20 would be needed if a new innovation were to individually stick out like that older, earlier one did in its less competitive marketplace.
• Innovations with time have to be more and more pronounced and extreme in their per unit sold increase in operational effectiveness and in return on investment, if they are to stand out from the background noise of ongoing market fluctuations and present themselves as being true innovations at all.
If diffusion of improved technology and more effective ways to implement it raise all boats, they also raise the threshold that any advance will have to offer if it is to stand out from the statistical flux of marketplace activity and the norm that has to be achieved simply to stay in the market at all.
• This means as a market develops and matures, and as best practices are created and diffused out to become industry standards, pressure increases to find progressively more definitive new sources of competitive value – and this means greater need to find blue ocean marketplace innovations.
• And together, all of this means marketplaces and consumer demands evolving faster and faster, and more and more profoundly and for every business in them that would retain let alone grown significant market share and profitability – if any one business is to stand out from the crowd.
• With time and as industries and markets mature, this becomes impossible for businesses that remain in those industries and that continue to serve those markets.
• And the only real breakaway from this is in development of blue ocean strategies and game changing new markets – at which point this entire process begins again.
Basically, what I am arguing here is that the cumulative force of innovation and its diffusion create the breaking forces that bring marketplace and industry development and innovation to an eventual halt, and as long at the customer-facing marketplace remains essentially unchanged. And any real pressures to break out of this hold require breakthroughs into new markets through technology and/or implementation improvements that are sufficiently novel so as to completely change the game.
And this brings me back to the dairy farm story I began this with. Basic dairy products are not likely to change all that much. New types of products might be and probably will continue to be developed that would effectively increase the consumer base for them, and certainly with dairy products used as raw materials for other and perhaps more processed goods. But this is an industry that is in all likelihood going to become more and more difficult to compete in – except through massive economy of scale and that is where I turn back to all of those millions and millions of packets of New Zealand-branded butter that show up globally.