Kraljic Model: Reducing risk perceptions and the 2009 Hyundai Assurance Program

The 2009 Hyundai Assurance Program  is a great illustration of reducing risk perceptions even in B2C (Business to Consumer) situations. Keep in mind that the Kraljic model was originally developed to understand B2B (Business to Business) buying behavior. Kind of like relationship marketing that B2B marketers always practiced and B2C marketers have enthusiastically adopted – more as  technology allowed easy availability of CRM (Customer Relationship Management) and SFA (Sales Force Automation).

So let us understand the 2009 Hyundai Assurance Program that made Joel Ewanick famous. If you think about it the Hyundai campaign addressed the deep job loss risk  anxiety of 2009 without really giving much away. Here is how:

  • You must have a job to get the car: This is sort of subtly put – but very clear. The customer thus has the ability to pay – at the time of taking the car. Initial payments, for the marketer, are assured.
  • What if you leave your job? – the 3 month assurance: In 2009, Americans felt a huge sense of risk of losing their jobs and here is where Hyundai offered to waive upto 3 months of payments. If you think from the organization’s risk taking ability- this is a real cool one. You give out the lease or installment sale knowing that the customer has a job and will be able to make the payments. Just in case the customer loses her/his job the 3 month promise puts a cap on the company’s liability. This would be the worst situation- something that both CFO’s and CEO’s are eager to know.
  • What happens if you can’t find a job in 3 months- just return the car. This again is a brilliant idea in recessionary times. People are feeling the risk but the company must nail down what the exact risk is that the company has to bear. If every buyer/lessee returned the car from the 4th month if every  customer lost their job- then you are probably looking at a far higher unemployment rate than the max 25% in the great depression.  Very unlikely – even if you go back to 2009.

By providing a risk assurance, Hyundai did pretty well with its assurance  program and unequivocally added CSR  to its company resume.

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Sticking to your mission statement and setting up execution routines

Organizations of all types seem to be muddling through because of an inability of two purposes of management (a) Defining your mission and (b) Set up execution routines and people; that deliver that mission.

The trouble is that the mission is muddled and like a re-branding exercise seem to be an easy target for consultants , new CEO’s who want to “leave their mark.” So the mission exercise like re-branding and re-launch exercises are repeatedly done without really appreciating the difficulties of execution. Just ask a teacher – how hard it is to get a new class project going and it gets harder as the students grow up and bring their own spins, to what the teacher thinks is- pretty clear instructions.

Talking about innovation, the Product Innovation Charter (PIC) is a subset of the overall organization’s mission and tends to be a medium term type of document. It’s really worthwhile to spell out the PIC for every new initiative so that portfolios of products can be developed around that initiative. And the C-Suite must sign and “own” the PIC before time and money is spent via the innovation teams.

But it is the teams themselves who must execute and execution is about that dull thing called routines… For example, the team meets (virtually , through Skype ) if they are at different places in the world at the same time and day periodically. The routine activities for execution are well set up like:

  • If say costing estimates are required – the cost accountants within the Finance and Accounting department have a routine to deliver estimates say within a week and are designated  people outside the innovation team. In other words, the cost accounting routine is a “plug and play” feature of the organization.
  • And so for the arm that is able to get a prototype developed – fast.
  • Or a concept testing market research agency that is lined up and ready to move.

Thus the routines part of execution is about having organizational capabilities that speak to the requirements of the innovation process like costing,prototypes,concept testing research etc. But the question is who in the organization can connect and make these things move? And that brings us to the people part of organizations made famous by Jack Welch GE’s 4E and 1P that this blog has been talking about. However,without routines the best PIC or the best people cannot deliver. And if you are afraid of routines becoming bureaucracies- just have a routine for reviewing routines ! So every 2-3 years ask for bids from concept testing research providers, for example.

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Outsourceability : an example from the US doctor’s office

Since the recession-outsourcing and outsourceability- a taboo topic is now being discussed much more openly in America. Most people agree that if your job can be outsourced to a cheaper location or to technology – it will be outsourced. Thus young people, mid and late career folks are all thinking again about outsourcing and its impact on their professions. So here is an example from the doctor's office for  the patient facing folks. We exclude back office tasks like medical transcription now outsourced to technology etc.Here is how an annual  visit to the ophthalmologist works out:

  • The appointment is taken over the phone and the receptionist also seems to be a nurse  or at least someone experienced enough to categorize and schedule the patient. This task is pretty contextual, does require at least an associate degree and an understanding of the medical procedures  that occur in that office. Is key to getting the patient into the practice and thus corresponds to a front-line sales /service role. There is probably a small segment of tech savvy patients who can fix their appointment online and bye pass the receptionist/nurse. These tech adopters will rise as will the clarity of insurance payments so the job at the reception  desk will get increasingly outsourced to technology.
  • The patient arrives and a series of optometrists who are both skilled and qualified go through a bunch of measurements. Your eye and the machine both are present and someone needs to manage the test and the patient. Both skill and physical presence of the optometrist/technician is essential. Naturally the pay and skills of the optometerist/technician is higher than that of the receptionist/nurse and this is a job that is difficult to entirely outsource to technology or overseas.
  • The MD and specialist finally sees the patient for a few minutes along with all the piles of data that have been gathered. Technically it is possible to outsource routine un-complicated patients records and review to a cheaper qualified ophthalmologist . All the data gathered in the previous steps can and will be available digitally eventually and appropriate doctors at different locations (and costs) might be able to review test results and decide about the need for the actual consultation with the specialist.  In other words, even at the highest levels of medical skills outsourcing is possible and is being done for expensive skills like radiology.

Does this mean that only jobs that require a physical presence and contact (as the optometerist/technician) are the only jobs that are not outsourceable? Yes and these physical presence jobs include at the lower pay end food preparation and serving. At the high pay  end , it includes the surgeon who performs urgent surgery.  I say urgent because non-urgent surgery can be moved overseas at low cost to health insurers.

Just as a  doctor's office can have different outsourceability levels for the patient facing folks so goes for every other professional work context. Contact StratoServe.

Google to reduce organic search rankings for copyright violators:understanding traditional and Google AdWords revenue models

Organic search on Google is just great and that is the reason the search engine is so popular. According to a blog post by Amit Singhal SVP Engineering at Google  there are 200 criteria that the Google ranking algorithm considers before ranking a particular website against a query. The copyright violator websites will be ranked lower when there are multiple complaints of violation against a website. But as  Singhal clarifies, only the lawful copyright holder can claim copyright and courts need to decide. So why this search ranking criteria change? This as  the Google revenue model of Google AdWords is built around " relevant to search"  content – legitimate mainstream old media companies were crying foul: Google was advertising around their content while the content itself was getting pirated and ranking high in organic search. It is therefore important to understand the old media revenue model compared to the Google AdWords revenue model.

  • Traditional  revenue model  Traditional revenue models around content was that you developed content and gathered a viewership or readership. Thus TV channels like NBC,CBS etc. are offered free and the programming costs are covered by TV advertising. Selling advertising on TV is all about emphasizing audience segments that can be targeted through a particular soap or reality show.  It's another matter that folks Tivo programs and try hard to skip ads. Similarly newspapers and magazines are offered at very low cover prices but a readership is developed. These readers  and their profiles are the basis for soliciting print ads from advertisers. In both these traditional formats , the advertiser pays for the ads but is never sure whether the target audience really saw the ad – let alone how far the prospect moved along the sales cycle to actually buy the product.
  • Google AdWords revenue model depends on content from traditional media.Someone searches for a song and the search words trigger Google AdWords that are relevant to the song being searched. Let's say your song has the word "flower" in the lyric and as soon as you type the line from the song … flower ads pop up. These ads are geo-targeted , so the local flower store can advertise and very low cost. And the best part is that the flower shop pays only on click through unlike the traditional media ads where you pay for space on a newspaper or TV show, not knowing whether your audience will actually watch your ad.  Now from the point of view of the recording company that has copyright on the particular song, in case a pirate site has the song then it loses revenue from sale of the song. To further aggravate the situation the pirate song site can try to raise some more revenue by running another bunch of flower ads now within the site itself. 

Google's focus is providing the best quality organic search results because it knows that so long as searchers like and trust is search results, searcher loyalty will remain strong. At the same time I guess Google understands the unfairness that old media feel about doing all the content creation work as Google earns revenue by just by displaying relevant ad results.  Contact StratoServe.

What are the quantitative goals of innovation in your Product Innovation Charter (PIC)?

It is important to articulate your organization’s goals of innovation in your Product Innovation Charter (PIC). Your goals can be both quantitative and qualitative and they need to clearly stated so that the innovation team has a way of evaluating their own progress. And you ( the CxO)  have a clear way of evaluating ideas that are presented. The common quantitative goals (qualitative goals in a later post)  for innovation are profits, sales dollars and market share and here are some thoughts on each:

  • Profits from a new product or innovative service are a function of two numbers. Your costs and revenues from the new product. While revenues correspond to sales dollars it’s really important to think about profits at the PIC (Product Innovation Charter). By doing so the innovation team will start looking at possibilities of reducing input costs and will demand ideas and inputs from the supply manager member on the innovation team. They might also be able to identify that a particular process in manufacturing has a high waste figure and speeding up an ongoing lean manufacturing initiative might reduce waste and thus cost.  Apart from encouraging the team to think of input costs from very early in the NPD process the company leadership has to address their risk tolerance ability as this McKinsey article discusses. The company leadership will have to spell out how much initial losses they might be willing to bear as the product is launched and takes time to build market share.
  • Sales Dollars as a quantitative measure leaves out units sold and is interested only in the multiplied number of sales volume and prices. The higher the dollar sales targets are the more the tendency of the team to simply assume that its going to be  easy to sell  the innovation at high prices. It is therefore a good idea to also include some minimum quantities that might encourage the team to think of multiple global markets right from the outset.
  • Market Share as a measure is popular. However as Jack Welch discovered in GE,  if you said that want to be no. 1 or 2 in the market managers tended to define the market segment very narrowly- to be no. 1 or 2. To understand this consider that you compete in the cola market then  its easy to be no. 1,2 or 3 if you define your market as ” excluding  Coca Cola and Pepsi” ! In addition, since global markets have become far more accessible over the last decade, it is a good idea to deal with market share aspirations  in a global sense.

A big benefit of thinking and signing off on the above quantitative PIC goals by the C-Suite of officers is that they get involved  at the early almost zero-cost stage of the NPD process. In doing so, the top leadership with the most experience provide their thinking bandwidth and can greatly help innovation success.

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Online video gaming becoming free as digital content doesn’t need the gym business model

The gym business model requires a monthly membership fee because there are only so many treadmills and ellipticals. Online video gaming followed the gym model to huge success but things are slowing down because someone who plays multi-player online (MMO) games can really engage in a couple of games and paying a fixed $15 a month does seem like another expenditure in a slow economy. The solution is the huge news that the $150 Million Star Wars game is now becoming free to the casual player.

And its possible because adding millions of players does'nt involve getting millions of pieces of equipment as in the gym model.  The "gym model" quote is from the CNN story and ascribed to Kate Paiz, executive producer of Turbine's The Lord of the Rings Online. This is such a profound shift in the digital content world that its worth thinking a bit about.

Because digital content involves endless capacity i.e. serve millions of players without adding huge hardware, the content business changes drastically. The free model follows the Zynga model where players don't pay for the regular version but buy credits to play enhanced versions of the game. The masses of gamers get to play and narrower segmentation approaches become possible and those players are happy to pay because they are the ones who really enjoy the enhanced game experiences. It's this absolutely great marketing dream that you (OK  virtually)  meet millions of your "customers" every day  – who are your loyal customers – although they don't necessarily  pay….

Difficult to think of an equivalent "free" experience in the brick's world unless you consider the occasional tiny portion  free tastings at food and wine stores that makes you feel guilty when you don't buy!  In contrast, online gaming is all set to add millions of gamers by offering free games that are the real thing and only if you are really enjoying it you buy extra features and benefits. Kind of like watching a movie at the theater for free and deciding to buy the popcorn if you are really enjoying the movie experience. If every seat were to be filled at the theaters and popcorn revenues could be shared with the movie producers maybe it would work…. but then you start to wonder about shortages of seats, of corn with the drought, and the ability to match seat availability with convenient viewer times and begin to realize that managing a free movie model is very difficult.

Hence digital and the need to completely re-think the business models around digital content. Contact StratoServe.

Content In-page Analytics in Google Analytics helps understand your sales funnel

Google Analytics has a tab under "Content" called " In-Page Analytics " which is a quick and ready way to look at how your sales funnel is doing. Let's understand with an example of a company that has four types of products categorized as A,B,C and D.

You know that the final sales contributions are:

  • 40% of the sales comes from A.
  • 30% of the sales comes from B.
  • 15% of the sales comes from C.
  • 15% of the sales come from D.

In other words closed sales are in the ratio of  4:3:1.5:1.5 between A:B:C:D. If your funnel is progressing at uniform rates then new visitors on your website should be in the above ratios? Makes sense – if you think about it.  Thus you should have for every 100 new web visitors a split on the product pages as  4:3:1.5:1.5 comparing A:B:C:D.

But guess what – the above assumes that the flow rate of leads that arrive on the website … uniformly transfers to actual sales. OK I mean there is the usual percentages that drop off in the sales funnel from lead,qualified lead,prospect etc….  and that this is working equally well for all the four products A,B,C and D.

A simple look (by just logging into your Google Analytics Account – the percentages show directly on every page)  at your "In-Page Analytics" report may show something different. The percentages of new visitors on your website might be say 20% on A, 1% on B, 10% on C,20% on D with the rest of new visitors ( 50%) spending time or bouncing off from other pages of your website.

So when you compare closed sales ratios between A:B:C:D  it is 4:3:1.5:1.5 but your new visitor ratios are 2:1:1:2.And this tells you that the funnel could work better for A compared to B because getting twice the new visitors(2:1)  it converts only 4:3 or can improve its performance by 50%.

One might argue that the above loigic is extrapolating web data to actual sales that might involve personal selling and multiple contacts via email.phone etc. but the general point is that if you see a major out of synch situation between your top of the funnel web visitors and your bottom of funnel conversions its time to ask some questions. Some suggested ones between A and B above are:

  1. How are leads managed for A compared to B?
  2. What are  A's competitors doing?Do visitors move to competitors?
  3. Can you define specific actions to improve the sales conversion process for A?

And the best part of the above analysis is to just look at your sales data for each product and look at the Content In-Page Analytics page in Google Analytics.Both these data sources are available and free! Contact StratoServe.

Focus on leading indicators is critical to organizational results

Leading indicators are those things that change in the economy before the economy itself changes. The stock market is supposed to decline ahead of the economy's decline and also improve before the economy does. But the trick in organizational results and brilliant execution is to be able to correctly identify leading indicators that managers can manage that are critical top performance. This according to the book 4 Disciplines of Execution by McChesney,Covey and Huling.

Specifically their second discipline talks about identifying key leading indicators of outcomes (lagging indicators) that managers can influence or change. A neat example is about individuals trying to lose weight. What you see on the weighing scale is a lagging indicator. And most folks would agree that diet and exercise and the clear leading indicators. If you diet and exercise faithfully, you will lose weight. And if you get down to really measuring your diet (diary,meal plans etc.) and your exercise (time on treadmill, time with weights) you know have specific metrics that allow you to reach daily diet and exercise goals- the leading indicators of weight loss over a period of time.

As anybody who has tried weight loss will confirm, the above is easy to say but really hard to do ! And therein comes the discipline of sticking to leading indicators and measuring them sincerely.

The paradox is that organizations fret and fume over lagging indicators ( like sales) without correctly identifying the leading indicators that really matter and those that are amenable to action and measurement. For example, if say you know that for every 100 clicks to your website  contact page you get two qualified leads and you are able to convert one of them. By increasing your search advertising budget you can increase clicks and by improving lead management and sales closing efforts you can possibly increase the 50% current lead conversion rate. Thus driving clicks and leads become one leading indicator and converting the leads become a second lead indicator to influence sales the lag indicator.

Why do companies obsess so much on outcomes? Because they are never entirely sure about the lead indicators also known in causal research as independent variables. However, with proper research and brainstorming among the team it makes great sense to focus on a few key lead indicators and vigorously try to measure progress on these indicators. Results should automatically follow. Contact StratoServe.

Product Innovation Charters must define market by needs and value and not your product

Product Innovation Charters (PIC’s), still tend to  be defined around whatever industry or product the organization operates in. Thus, if you make cars and are trying to innovate to the next model your entire focus on building up the PIC is based on the existing car and its technical specs like mileage,technology, space,speed and so on. By just staying with this “internal” focus innovators make a big mistake.Here is why:

  1. Ties your team down: When you define markets in terms of products and product categories – you have already tied down your team. If you say “mid size sedan” market – you have just put boundaries on how your NPD team thinks. Instead, it is far better to pin-point some needs that are being unfilled in that market segment ( let’s say more leg room in the back seat) and emphasizing those needs.
  2. The market is outside the organization: sounds obvious, but it is quite amazing how most organizations are caught up so much in their own drama, that they are simply not able to look and observe what exactly their current customers and potential target customers are looking for. And this is after their marketing research and analytics suppliers tell them, some of their braver advertising agencies tell them because these folks are suppliers and live outside the company and therefore have a better sense of the world outside.
  3. Internet and social media  does not help: if you are not willing to look to the market and consumer the huge insights from the Internet and social media is just not useful. Because you are not willing to look primarily at your market and consumer- you are unlikely to even Google stuff !
  4. Products proliferate while needs are unmet: Think of Apple iPhones and many of its competitors. Some troubled competitors got into trouble because of product proliferation. Too many products and too little focus since each product had a Product Manager who needed a budget, advertising,branding and distribution in part to prove that “work was being done.” Numerous examples exist from the auto industry, foods and consumer products etc.
  5. Avoid the Better Mousetrap Problem: By avoiding a product focus, in contrast to customer needs and value focus, you can avoid the “better mousetrap” problem made famous in the marketing myopia concept, discussed in an earlier post.

In summary, try to define your markets and consumers by looking at them and what they do. Do not define markets in terms of existing products in your PIC. And it doesn’t matter if you think in term of your own products or other competitor  products.

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NASA Curiosity lands on Mars and creates high tech US jobs

NASA's Curiosity Mars Rover landed on Mars today and started sending back photos to great celebration at NASA, the US and across the world. Particularly encouraging is the news that much of the leading technology was developed and supplied by US suppliers.  Here are some innovators that need congratulations apart from the NASA team and their prime contractors like Boeing and Lockheed Martin:

  • Lithium Batteries come from Yardney Technical Products of Connecticut who were able to deliver these high tech batteries with far extended life while maintaining low weight.
  • Parachutes cames from Pioneer Aerospace Connecticut. 
  • Metal Legs for the Curiosity rover  were made by the American Bicycle Group at Tennessee, the makers of Litespeed bikes. They settled on an aluminum,titanium, vanadium allow to make sure that the legs of the rover will work in the extreme condition of the journey and landing at Mars.
  • Mars soil collecting robots are made by Honey Bee Robotics of New York. 

While this list is preliminary and is likely to grow, it is a cause for celebration because many of these are small businesses and operate at the high knowledge end with highly qualified personnel. They specialize in what they do and being in highly specialized B2B markets probably don't realize the huge applications all these technologies can have in other markets. The local media is doing a good job of highlighting the contribution of these businesses.The ability of these businesses to scale their products and services in other markets will greatly help in growing the high knowledge/high skill /high paid segments of American enterprise. Contact StratoServe.