Understanding the Supply Chain in the knowledge age of search and social media

Thinking of the supply chain in a manufacturing setting is easy but understanding the supply chain in the knowledge economy of search and social media is more difficult. For example, if you make cars, you need to either make or buy its components. The sourcing of tires by an auto manufacturer is the classic B2B supply chain but when you as an individual  replace your car tires, it is B2C with very different considerations and decision processes. Without a supply chain there is really no value created so how does the knowledge age deal with the supply chain? Does the knowledge economy even have a supply chain? Well it does, and here is how:

  • Search on the Internet by Google, Yahoo or Bing meets the needs of its searchers by providing search results. The search result providers are content creators whose work reaches the Internet searcher, pretty much instantaneously. In the process, search engines generate Ad revenue by advertising "relevant" messages against search results. Content providers are the free supply chain to the search engines and must find revenue models to pay for the content. The supply chain for the search engines can try and monetize their efforts through advertising if they happen to have an audience that is okay with pesky ads. Seems a bit unfair for traditional media like Newspapers and TV  who must invest in content creation and generate revenues in the old world.
  • Social Media also has a supply chain of  free content. For example Facebook users share content with friends. An entire community of Facebook App makers develop Apps with game apps being the leader. There are millions of Apps and most downloaded ones are free. If the App has lots of impressions then it can support an Ad revenue stream or even a distributor commission if B2C consumers buy from within the App. All in all, the supply chain seems to be largely working for free at this time.

As the knowledge economy evolves, the suppliers will need to find revenue models that work for the majority…. or is it that the global knowledge economy will completely ignore anything that falls into the second page of Google results?  Or an app is ignored  that is downloaded only a few times on Facebook, iPhone or Android?  A shake-out of the knowledge supply chain seems like a real possibility, in the not too distant future. Unless of course better revenue models emerge for long tail content providers. Contact StratoServe.

Innovation in tracking marketing results: GM dares to withdraw Facebook and Superbowl advertising

GM marketing folks seem to be innovatively tracking marketing results- and doing so  really well. You would recall that on  the eve of the Facebook IPO the marketing folks at GM committed at least a minor transgression by declaring that advertising on Facebook was not working for them and they were going to stop advertising on Facebook. However, today the GM marketing folks have dared to announce that they will not advertise in the Superbowl. This is blasphemy  in traditional  marketing strategy terms- or is it?

Frankly, if you try to sell anything including cars how much will you be willing to spend on advertising? If the market is slow, as now – you'd happily  spend  all of your margin on advertising.  If you could see customers actually buying: because of your advertising. You'll console yourself on the narrow margin because  your production shift will operate and employ folks, only if you have customer orders.

Traditionally however, you were used to decide on media spending based on one or more of the following:

  1. Advertising  budgeted  as a percentage of projected sales
  2. Some benchmark of your competitor spending
  3. What you wanted to achieve  in terms of frequency and reach.
  4. In tough economic times it could be simply – what you can afford to spend on advertising.

All this is changing as today measuring advertising results has become really easy. For example, on the web via Google Analytics and other platforms you can see exactly how the customer arrived at your e-commerce or contact form and if it was through a particular Ad campaign. You know almost in real time,which ads are working and which are not. Hence -probably the GM decision to pull Facebook advertising as they could measure that the spending was not resulting in corresponding sales.

Similary, tracking Superbowl Ad results has become much better and more real time. In fact, pre-tests done right would be able to predict if even at last years $3.5 million for a Superbowl ad is going to give the sales that GM is looking for. Clearly, GM is doing some serious market research and  showing  remarkable confidence in making hard media buy decisions. In other words, the marketing folks at GM are ready to act decisively, on the market insights they are generating. 

All this puts huge pressure on all types of media and ad agencies to deliver sales results to advertisers.

Big and unthinkable  changes are ahead for ad agencies, media planners on the agency side and the ad space sellers on the media side as their clients demand sales results for Ad dollars.

An interesting thought on the day of the Facebook IPO and for the weekend. Contact StratoServe.

A stitch in time: pick innovation winner ideas at the early stages

Picking innovation winners early in the stages of the innovation process is like a stitch-in-time. In an earlier post we had talked about how top  leaders are involved less in the early parts of the innovation process viz. idea generation, concept development and testing. They  seem to realize only in the development,manufacturing and launch phases that a large commitment is being made. Is this a loser idea? is the thought that now plagues the top managers. Instead, of picking winner ideas in time, now management is almost like a bystander because the project has progressed too far ahead. Sort of like the too big to fail concept.  Any glitches that surface now due to research or due to the insights of the now involved top managers are brushed aside by the NPD team and their sponsors who have been more involved right from the beginning.

If some top leaders are involved as sponsors and have not been really engaging with the decision making processes of the early stage, they find themselves as hapless advocates for the project– because they are too invested by time and reputation. It's hard to now admit that they were not giving the intense focused attention as sponsors of the project when the  new product   team used to do all those update reports.

How can organizations overcome this problem? Here are two suggestions: 

  • Early parts of the innovation process are not seen as an "imminent threat" by top managers who are not sponsors. Giving priority to regular review, say monthly,  of all the new product activities by top managers  can help overcome this fairly common blind spot.
  • In addition, a multi-functional sponsor-steering group can help get folks more focussed, earlier. Thus, if the Head of Manufacturing is the primary sponsor having senior managers from later parts of the new product process can help. Normally accounting and finance want to know about the payback and cash flow of the project. Similarly Marketing can never be too early in putting together a draft marketing plan based on the concept thus far. By just having the CFO and CMO on the steering committee can produce not only buy-in but open the door for high quality inputs from these senior leaders. 

In summary, organizations should keep trying to front load the knowledge inputs of its senior leaders to the innovation process. Contact StratoServe.

Connecting passion : the Google Knowledge Graph Innovation

If you are passionate about a topic, cause or effort and your organization puts out some digital content on the web Google Knowledge Graph is an innovation that is about to connect you to people interested in what you have to offer. As pointed out in an earlier post, Google is interested in serving the Internet searcher with exactly what he/she is looking for. Well with knowledge graph, they are going one step further. Google is trying to stretch the knowledge of the searcher beyond the initial informational purpose of the search.

About mid-way through the video alongside, the discussion of "renaissance painters" and Leonardo da Vinci is a nice illustration of this new offering. If you search for Leonardo da Vinci, Google will suggest other renaissance painters like Michelangelo and thereby help extend your knowledge about renaissance painters. As Johanna Wright, the Google Product Management Director explains, this is a step towards becoming a Knowledge Engine from an Information Engine. The latter had just tried to retrieve information bits with Google doing a better job than other search engines.

With Knowledge Graph , Google is trying to do something like, but more than Amazon and Netflix, recommending stuff that people with similar profiles might have found interesting or useful. This is a huge deal because this is a free service to the Internet user i.e. you have not bought a book or rented a movie from Google.

Today  by connecting the really long tail of knowledge to the Internet searcher Google has helped move the economy from the Information economy to the Knowledge economy.Contact StratoServe.

Innovation and creativity: comes from engaged and caring employees

Numerous organizations in a variety of cultures keep pointing at one critical enabler of innovation. Engaged and caring employees who care for each other, their customers, suppliers and stake holders. For only those who care,care to really listen.  And that converts  ideas into products and services- that can be profitably implemented.

Employee engagement is hard and more so in uncertain economic times. Instead of trying to make employees comfortable and energized when you are not firing them, some organizations seem to take a perverse delight in making employees feel insecure. What a waste !  Just consider that here is a situation where you are not firing an employee but by giving a whole series of  wrong signals,perhaps inadvertently, you have been successful in turning off that employee. 

In fact, at a recent meeting this blogger was taken aback when the organization  leaders enthusiastically talked all about the initiatives they were taking, while a significant section  of  the rank and file were completeley dis-engaged. In fact, one stake-holder remarked " they don't care" after meeting with a manager. And the waste is that the particular manager will be working in the next year, and not contributing to even 20% of her/his potential contribution.

Clearly the dis-engaged manager must have some drama going on in her/his life but if there are several managers who are just clocking time- the organization has a problem. You can almost guarantee that customers are not getting great service and suppliers are being barely tolerated.

Can you expect the dis-engaged managers to contribute to ideas and innovation? Quite unlikely, in fact they'll succeed in turning off customers -who bring in revenue. Worse for innovation, they'll turn off suppliers.

So what should leaders and managers and organizations do to promote innovation and creativity? Here are three suggestions:

  • Timing is everything: If you decide to fire an employee in the summer decide by January 1.Then help that person get another job that is more suited for her/him so that you are seen as a caring boss. Someone who cares about your team even if you want them out. It will enormously help morale of everyone and the best is that your alumni will speak well of you.
  • Embrace the rest: OK this is an idea from Jack Welch, who advocated that you hug your top performers, give them raises promotions but let them know that that they have your full trust and confidence. 
  • Everyone else:  in the organization that stays must feel the above.

Once people feel that they matter, they care. They become engaged and they are innovative and creative , without the leader looking over their shoulder. Contact StratoServe.

Innovation: Do you have a Product Innovation Charter (PIC)?

Having a “Product Innovation Charter” (PIC) is like having a mission statement for innovation. And a mission statement provides useful guidance to the new product team. PIC’s stifle creativity you can almost hear the creative folks argue. But ultimately  an innovation must reach the market and attract repeat buyers who are satisfied enough to give your organization a sustainable margin and lifetime customer value. Sounds very commercial and not innovative – I guess, but its necessary to have expectations and guidelines for all innovation projects up front. These PIC expectations and guidelines should form a subset of the larger mission of the organization. In other words, the PIC and organizational mission statement should be trying to reach the same type of overarching goals with the PIC doing so in the domain of innovation. Here is how the Product Development Management Association (PDMA) defines PIC:

“Product Innovation Charter (PIC): A critical strategic document, the Product Innovation Charter (PIC) is the heart of any organized effort to commercialize a new product. It contains the reasons the project has been started, the goals, objectives, guidelines, and boundaries of the project. It is the “who, what, where, when, and why” of the product development project. In the Discovery phase, the charter may contain assumptions about market preferences, customer needs, and sales and profit potential. As the project enters the Development phase, these assumptions are challenged through prototype development and in-market testing. While business needs and market conditions can and will change as the project progresses, one must resist the strong tendency for projects to wander off as the development work takes place. The PIC must be constantly referenced during the Development phase to make sure it is still valid, that the project is still within the defined arena, and that the opportunity envisioned in the Discovery phase still exists.” (from the PDMA Glossary)

PDMA Glossary

The important thing to appreciate in the above definition of PIC is that it is more relaxed in the earlier creative and low cost parts of the innovation process viz. idea generation, concept development and concept testing. It is only at the big money  development, prototype, manufacturing marketing and launch that the PIC is used to stay on track.

Why are early parts of the NPD process low cost? Because an idea does not cost money. Screening ideas is also not expensive. You simply ask knowledgeable employees and your relatives and friends. If you want to spend something – you can conduct focus groups, surveys and even a website to test your ideas. Your spending increases when you create a prototype and again test with customers. You calculate production costs, sales price and gross profit based on a certain volume of sales. Now to get sales, you have to invest a lot in marketing. This expenditure tends to be very high in consumer products. On the other hand a high tech product tends to have more expenses in the prototype stage when specialist get involved. These include technology products in information technology as well as biotechnology. Let’s talk about a consumer product situation.

As an example, let us assume that an organization retails its range of food products between $4-6/unit  and has the marketing and distribution costs pretty much figured out for line extensions. They have a PIC drawn up for new flavors that specifies a target cost of manufacturing that should not exceed $2/unit. Now if  a new flavor  costs $2.50 or 25% more to manufacture the PIC should be sending out a red flag and sales projections, marketing messages and alternative supply sources should come under intense scrutiny instead of allowing the project to just float along and disappoint eventually. In other words, the team working on the “new flavor” project should know upfront that if they have a bunch of flavor ideas they need to keep the manufacturing cost under $2. Let us say the full focus of the supply chain folks helps to bring manufacturing costs down to  $2.20 and the Market Insight folks are able to re-confirm the sales volume projections  – guess what- its OK to proceed ! You at least know where you are going and post launch sales efforts at the retail end might just up those sales numbers, making the manufacturing cost affordable. In other words the PIC helps you to know where you want to go and serves as a road map to deploy the organizations efforts effectively.

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Google Rankings: more about being true to the searcher than popularity

This blog has closed comments for some time being deluged by spammers whose primary  purpose is to try and get their link to appear in the comments section. This is the infamous part of the Search Engine Optimization (SEO) industry that is able to post comments from IP addresses originating in interesting places like Russia and Brazil. These hardworking but misguided folks need to understand that Google rankings is more about being true to the searcher than popularity of a website via links. A recent piece in Fortune explains this somewhat. Contact StratoServe.

Let's start with basics: Google does a great job with organic search results because it is focussed on serving the Internet searcher. Not the AdWords advertiser, not the big Ad budget folks or in short with no B2B intent whatsover. They want loyal Google searchers who will turn to Google not just from other search engines but hopefully also from social media platforms like Facebook or Twitter. To do this Google organic results try to give out results that (a) answer the searcher's query including the query's or rather searchers' latent intent (b) choose answers that are authentic (c) and high quality,knowledgeable and preferably the last word on the Internet insofar as the query goes. Loyal searchers are the B2C  core  of Google's business  although no money is transacted. The B2C loyalty i.e. relationship between Google2Searcher  is the foundation of the booming Google AdWords revenue business or the B2B i.e. Google2AdWordsAdvertiser relationship.

It is only with respect to judging high quality/knowledgeability that links to a site help. The logic is that if lots of people link to a site, it must be worthwhile. Playing on this logic are the hordes of global SEO experts who keep scouring the Internet and post comments , with links to their client's website, in the hope that as authoritative websites show these links- their ranking will improve. Not so.

Why? because a well ranked website on Google is always vigilant about keeping up quality content and is unlikely to allow content,including dubious comments with un-related links, to appear on their website. Because if they do:  their own quality declines and organic search rankings decline as well.

While this post will not deter determined "link-builders" entirely, one hopes that at least some will try and give their clients good advise viz. add more quality content, more regularly on your website to really help your search visitor and hopefully convert them to clients. There is no real short-cut. Contact StratoServe.

2012 Yale Consumer Insights Conference gets better as Practitioners and Academics engage

The 2012 Yale Center for Consumer Insights Conference was the 7th one and reached a new level of excellence over the last weekend. This blog has covered past YCCI conferences but this year both Academics and Practitioners seemed really wanting to engage. Perhaps both groups feel overwhelmed with rapid technology changes,globalization, uncertain economies and a global consumer who is firmly in the drivers seat. The consumer is no longer waiting to receive the marketer's carefully crafted message but instead figures out what she wants from a variety of sources including social media and Internet search that seem so out of the control of the traditionally trained 4P's marketing manager. As consumers become difficult to predict the upstream B2B and Supply Chain also gets more challenging. So even if you are a B2B supplier who does not deal with customers directly, its a good idea to keep track of how your   final customer  is changing.

Coming back to the conference. The line-up of industry speakers was outstanding and included senior leaders of customer insights from leading companies and brands  like Proctor&Gamble, Microsoft,Nike,Pepsi, MTV and Visa. 

Talking about brands and changes in consumer behavior, the third speaker was Rick Wise, CEO of Lippincott the Brand Strategy &Design firm. Wise's talk turned out to be great and resonated with some of the themes of this blog viz. How can organizations build brands and offerings that stand the test of a changing world?  In other words, what can managers really do ? You really cannot prepare for the next Facebook or Twitter as the world shifts from the AIDA model to what Wise described as Advertising–> Search–>Buzz—>Usage —>Customer Advocacy. Drawing a two axis simple graph he explained that brands need to have a "story power" that is simple and true and an "experience power" that matches the story.The stories must be authentic and the customer experience should be inspiring. 

Trying  to get the customer experience to match the brand story is the execution challenge and those who do it well, will beat their industry performance no matter how the consumer landscape changes. Contact StratoServe.

No change in the ecosystem : why losers win in contested corporate mergers

When corporate mergers are contested i.e. there are two competing suitors for a target company and there is a bidding war, the loser actually wins says recent research according to Stephen Gandel in CNN Money. That's because the bidder organization that lost did not have to deal with making the merger work, the execution challenge faced by the successful acquirer. But first more on the rather  interesting research.

The article "Winning by Losing- Evidence on the Long Run Effects of Mergers" by Ulrike Malmendier,Enrico Moretti and Florian Peters studies mergers between 1985 to 2009 where the merger happened after a bidding war. Time was the  big difference between contested acquisitions, the subject of their study, and single bid acquisitions. When the bidding was by one company for another it took only 65 days to conclude the deal and when there were offers and competing offers in contested bids time expanded to 9.5 months. Both suitors before the merger had similar performance but post-merger the winning bidder firm lost out by as much as 50% when compared to the rival firm that had lost the bidding war for the acquisition.

So why does this happen? A 50% difference in performance  when the merger should have created an unstoppable juggernaut? While the authors give some pointers the bottom line is that on paper and in theory mergers look perfect – before the merger. It is as if the strategy textbook has come alive and that MBA case study all the executives had done in graduate school seems to have taken wings. The realities, however,  of getting two sets of the entire value chain to work together is a huge challenge. There are two sets of distributors, advertising agencies, suppliers , let alone employees.  Just the complexity of combining organizations and their complex  networks of suppliers and distributors is a daunting long-drawn task.

In contrast, the losing firm probably sulks for a while, but just does not have this huge change in its ecosystem. It has the same distributors, agencies,suppliers and most importantly- employees. That is why perhaps, after a few years finds itself much ahead of the rival in performance. Contact StratoServe.

Innovation in vacuum cleaners : Dyson with 5127 prototypes and luxury positioning

According to the Costco Connection magazine Sir James Dyson did 5127 prototypes over 13 years before perfecting the DC 01 cyclone technology bag-less  vacuum cleaner which no retailer wanted to sell in Britain in 1993. So Dyson started selling its own vacuum cleaners and became the market leader in 18 months of introduction in Britain. In the USA since the launch in 2003 Dyson is the market leader in vacuum cleaners.

At about thrice the price of other storied vacuum cleaner brands Dyson vacuum cleaners are expensive. But if you hate  vacuuming with other vacuum cleaners you'll hate it a lot less if you use a Dyson vacuum. In fact, once you start vacuuming one room you might feel fairly animated and interested in the chore…. Dyson vacuum cleaners look fragile and are mostly made of plastic, but are surprisingly well engineered and do seem to hold their suction power based on  anecdotal consumer reports.

Five  questions about innovation arise from the Dyson vacuum cleaner success:

  1. Is identifying a real customer problem the key in innovation in mature markets like vacuum cleaners? Remember that all vacuum cleaners are supposed to suck dust out of the carpet and do so at varying degrees of (dis) satisfaction to the person doing the vacuuming. In other words, vacuum cleaners are not a category that has game changing innovations like in music from Sony Walkman Cassettes to Disc-man and iPod/MP3 players. This is a category where creating that "aha" moment for the customer  is difficult. Yet Dyson seems to have succeeded.
  2. Or is it the tenacity of the inventor Sir James Dyson who was ready to do 5127 prototypes to perfect the industrial cyclone technology for consumer scale vacuuming?
  3. Or is it the identification and bet on the cyclone technology and plastic materials? Focus on designing a plastic product that does not look cheap- a bit like a luxury car positioned at the top end of the market.
  4. Is it the very different user experience?  Ask someone who uses a Dyson vacuum cleaner. Customer loyalty might not be as much as the Apple Mac users, good words from customers is surprising for the category.
  5. Is it the customer word of mouth? The vacuum cleaner is used inside the house unlike the luxury car or upscale lawn mower that is seen outside the home. The word of mouth effect probably follows from the very positive customer experience above.

Perhaps all five ingredients help in creating and delivering a path breaking innovation and luxury positioning in a mundane category like vacuum cleaners. Contact Stratoserve.