SOPHISTICATED FINANCE

Push vs Pull: How Society is Changing

After WWII the U.S. economy transitioned from a wartime to normal economy. In the 1960s the first large (30,000 square feet) discount stores appeared, K-Mart being a notable example. What K-Mart represented is that retailers could no longer succeed by pushing basic merchandise at the consumer. Instead the retailer had to offer a varied merchandise assortment from which the consumer "pulled" what they wanted. 

Roll forward to today and we see several opportunities for the transition from push to pull. Instead of a doctor-centric approach ("push") to healthcare, Kaiser Permanente, the large healthcare provider, is switching to a patient-centric model ("pull") and achieving significant cost savings to boot. Another example is in university education where the monopoly of universities has broken down in favor of MOOCs and other providers such as Kahn Academy. Now students cannot only select what and where they learn subjects but when--high school, university or as part of lifelong learning. Healthcare and education may suggest that many services that are heavily regulated by the government are going to transition from push to pull. However, as is the case in education, the consumer is initiating the change and not usually the service provider.

In a recent article, Networked Leadership, the author makes the point that leadership is transitioning to a pull model directed from the bottom rather than an asymmetric, top-down push model. To me it makes sense that if the business is living in a real time environment dictated by the customer, then leadership and management styles have to change to much less rigid, hierarchical alternatives. 

How the Private Sector Can Lead Social Change

A recent post, "The Business Model to Downsize Government", talked about how the private sector could lead social change. I wanted to come back to this theme when I had more evidence than some research from HBS. I now have several confirmations that show that Tulane University was the local leader in rebuilding New Orleans after Hurricane Wilma. Local government was apparently so corrupt and inept that a group of people, including the leadership at Tulane, took into their own hands to plan and execute a recovery. 

Perhaps we have a data point where the private sector addressed and solved a large, complex social problem.

Also, interesting to note that one of the multiple networks of Tulane University (the Trustees) engaged in the project and then energized the other networks to support. Successful organizations have multiple effective networks, but it only takes one network to capture the attention of the other networks and bring to bear the full resources of the organization.

A reader wrote to correct me. The hurricane was Katrina.

Demand-centric Growth and Personas

BCG Perspectives today had one of their usually excellent articles, "The Prerequisites of Profitable Adjacent Growth". The article states:

"There are five ways for companies to expand into adjacencies [nearby markets]:

1. by exploring demand-centric growth
2. by cultivating a new organization with new talent
3. by employing separate governance
4. by adopting an experimental approach
5. by building the right cultural enablers."

(reformatted by me for clarity)

What caught my attention was the concept of "demand-centric growth". BCG defines demand-centric growth as follows:

"World-class innovators are moving from industry- or demographic-based segmentation to what we call “demand centric” segmentation, which identifies the drivers of decision-making by looking at the intersection of context (who the customer is, how he or she thinks, and what he or she does) and emotional or functional needs. Using richer data than was ever available before, companies can construct a “demand map” that clusters consumer choices in a particular category into common need bundles—or “demand spaces.”" (emphasis is mine)

 This concept of "demand spaces" looks very similar to what some people call personas. An excellent definition of personas is on slide 17 of this Powerpoint, "The definitive guide to engaging content marketing 141111". My interpretation of what BCG is proposing is shown in the graphic below.

The male and female information is traditional demographic information. The four characteristics on the X axis show four different emotional reactions to a particular product. Definitions are shown below.

• Critical--life and death
• Habit--required and periodic
• Must Have--status, self-esteem
• Aspirational--makes the world a better place for me or others

The Xs indicate the proposed adjacent markets, as defined by the matrix. You might ask how you would develop such detailed information. Customer mapping is one technique. See this excellent article, "Adaptive Path's Guide: Customer Mapping", for more detail on customer mapping. If you think such detailed information is not possible, see the bold text above. The amount of data available to marketers is on an unprecedented scale. Think of how much data the marketers will have when neuroscience advances :-)

 

 

Corporate Staff Development Challenges

One of the most challenging issues in corporate management is the training, development and support of employees. The current environment increases the challenges for the reasons listed below.

1. The change from hierarchical to flatter organizations places more responsibility on lower level employees to take decisions and act
2. Flatter organizations tend to self-organize, making it less clear who is responsible for staff development
3. Outsourced employees, project staff and contractors may require development to remain a viable alternative to employees
4. The accelerating growth in relevant information and data finds employees needing a whole new tool set to stay current and informed

In considering the development of a new approach to corporate staff development and support, four factors need to be considered.

1. Corporate strategic goals and objectives
2. Regulatory requirements (SEC, HIPPA, etc.)
3. Environment (competition, technology, economy, globalization, ecosystem, etc.)
4. Standards for software, apps, dashboards and data are not set by corporate IT but rather by Uber, Dropbox, Medium and Apple

Corporate Strategic Goals and Objectives

I am sure most F500 corporate CEOs are confident that the company strategy is well articulated. Now imagine that we are onboarding a graphic designer contractor to a project. Imagine the contractor is from Tajikistan, a Moslem woman and English is her fourth language. Now how confident are we about the clarity of the strategy given the social, cultural and language issues? How confident are we that our information and support systems have been designed to recognize the particular needs of this woman contractor?

Regulatory Requirements

Since the 2008 financial crisis, U.S. federal regulators have scrutinized large corporations. Scrutiny with respect to risk exposures increased after the Snowden affair of 2014. Such events of extreme consequence will probably increase. Therefore, it becomes incumbent upon corporations to keep their staff abreast of regulatory requirements but also the philosophy and concepts underlying the regulation. I hope the woman contractor from Tajikistan is familiar with, for example, FCPA regulations.

Environment

The pace and scope of change has increased as computing power has increased, whether we examine the actual change or the pace at which new information circulates in world markets through informal communication systems (such as Twitter or WhatsApp). This complexity strains employee’s ability to stay current and understand new issues sufficiently to develop proactive strategies.

Standards for Software, etc

Employees and third party workers all over the world have become accustomed to beautiful interfaces for a large feature set of necessary information all on their phone. Formats include You Tube videos, Slideshare presentations, e-books, PDFs, MOOCs and 100 other formats and delivery mechanisms. On any subject you can get information in the format you prefer. Few corporations have yet reached this level on proprietary applications let alone their information archives (if they even exist).

Next post I will talk about the solution.

 

 

 

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Why You Should Scale Your Business

Friday I had lunch with a very talented business owner I have known for about two years.  I was told that one division of the business (the origin of the company) was on hold, one division was growing revenue at low double digits and a new product line in a new division was about to launch. I told the owner that I now recommended for early stage and small businesses to target at least 100% annual revenue growth, as a means to build a company that can scale. The owner's response was "I do not want to scale". 

Here are the three reasons to scale a business:

1. Timing. Technology and solutions appear when societal and customer needs become large, what some call opportunities. Timing becomes important because many people will be trying to apply the solution at the same time. Within five years of the launch of the Ford Model T there were about twenty car manufacturers. Markets and opportunities go through growth phases and then mature into a battle for marketshare. It is much easier and cheaper to acquire customers when the growth curve is at its steepest. Miss this inflection point and you find yourself in an expensive fight to take share from competitors.
2. Competitors. I have a client that builds stores for national chains. He is bidding to build 15 stores in one city for a retail chain. No small local company will be able to react fast enough to hold on to any meaningful marketshare. If the local company had built out the market as fast as possible, maybe the competitor would have even skipped the city for one less competitive. Also, scaling and aggressive growth usually provide for lower product cost and spread overhead over a larger number of units, insuring the option to be price competitive.
3. Complacency. World class athletes are constantly working to improve their performance. Companies should have the same discipline. One way to establish such a discipline is to constantly be scaling the business. Scaling and aggressive annual growth targets will consistently surface opportunities for improvement, thereby avoiding complacency. Complacency is what gives disruptive innovation its foothold and allows many other weaknesses to show through.

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Simple Way to Determine New Business Concept Feasibility

SSIR has an interesting article, "Why Criticism is Good for Innovation". The article advocates the use of a rubric to evaluate new projects or products. A rubric is a scoring tool to evaluate criteria relevant to an analysis. The real value is that referring to the rubric reduces the risk that a comment is taken as a criticism, thereby potentially demotivating the creative type. The article does not suggest the outline of such a rubric, but I will.

For a new product or project, a rubric should evaluate the feasibility of commercialization. The factors that should be considered would include:

1. Market--size (based on bottom up methods) and growth rate
2. Customer--target customer, estimated customer acquisition cost and lifetime value
3. Competition--Company, products, pricing, features
4. Unit Economics--marginal product revenue and  cost (assumes production has been thought through)
5. Sales and Distribution--sales and marketing cost 
6. Investment to Cash Flow Breakeven 
7. Scaleability--can the execution strategy scale

Perhaps assign ratings of high, medium and low to reflect attractiveness or risk. Smarter yet, work on each factor until it has a high positive rating.

These factors should give one sufficient opportunity for feedback on objective issues such that one would never make the "criticism" personal. 

 

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Understanding the Key Assumptions in a New Business

Peter Drucker, the leading management thinker of the 20th century, had a little noted idea referred to in HBR simply as "Theory of the Business". Basically Drucker believed that every company has two or three key assumptions that determine success or utter failure. These assumptions represent the biggest risks in the business, which I talked about in this previous post, Business Model Assumptions.

Drucker's way of thinking about critical assumptions is demonstrated well by this figure from the European Innovation Institute.

To launch the iPod Apple had three key assumptions, one of which was untested and two where other companies provided evidence to reduce the risk. I think we could apply Bayes Theorem to get a better understanding of the risk. 

At any point in the life of a startup, one could ask what are the 2-3 assumptions that have to be tested in the next 6-12 months. Powerful tool to bring focus to management. Also clearly highlights the skills and resources required to succeed.

 

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Re-post: The Stages of a Startup

Hubspot had an interesting article on the importance of recirculating old blog content. Turns out most visitors to blogs are reading old posts such as these SF classics on Excel modeling. A post from August 2007 I think is still valid almost eight years later. 

The Stages of a Startup

"Natural phenomena tend to be explained by a normal curve. People can be explained by the normal curve in many ways--for example height and weight distributions, number of children, etc. Therefore, businesses, run by people, should demonstrate certain behavior consistent with normal curves. Stated another way, the limitations of people should manifest themselves with a certain regularity in the way they run their businesses.

These limitations in people determine the various stages of development for a company. If the owner adapts and changes the way the business is managed, the company can move on to the next stage of development. For example, many companies get stuck at about $30 million in annual sales. This level happens to be where the limitations of one person management take hold (for an average owner). If the owner learns to delegate, the company can go to the next level ($100 million in sales). If the owner insists on making every decision, the company frequently plateaus.

If we look at early stage companies, there is a certain consensus on the stages of development, which are described below:

1. Proof of concept--revenue less than $1 million
2. Commercialization--revenue from $1-3 million
3. Scaling--revenue from $3-10 million

Many VCs use these revenue levels as one way to measure the progress of company performance. Part of the reason is that at each level management needs to be developing or demonstrating a new set of management skills. Failure to develop the necessary skills strongly suggests that a company may not reach its potential. Many a technologist has developed a product and achieved limited sales but lacked the necessary skills to demonstrate a real market for a product  (failure at stage 2).  Many entrepreneurs are born survivors and can hustle up enough business to reach $3 million in annual revenue, but they lack the skills to build a sales force or put together a distribution system to support a sales force (failure at stage 3).

At each stage in the development of a company different management skills are required. My experience is that many entrepreneurs fail or plateau their companies because they do not actively consider what skill sets and disciplines they need to succeed in the next stage.  The larger your company the longer you have to prepare for the next stage, but in a startup failure to prepare can be fatal. I am not suggesting necessarily that you hire a sales manager when monthly revenues are $40,000, but one needs to actively manage a company to be ready for the next stage.

The good news is that the stages and the management skills are pretty well defined up to at least $1 billion. In a future post I'll talk about the stages after $30 million."

Some very detailed work in the last two years with small businesses confirms that $1 million and $3 million are still high hurdles for most startups.

 

 

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Risk Analysis in Entrepreneurship

I am teaching a new course, "Risk Analysis in Business Concept Development for Engineers and Entrepreneurs", which is a graduate level course in the Engineering School at FIU. Most people think about business risk in terms of:

1. Market
2. Government
3. Technology
4. Economy

There is another more meaningful way to think about risk:

Assumptions=Risk=Cash Flow Variance

Two key concepts in the course:

• Frank Knight .."an ever-changing world brings new opportunities, but also means we have imperfect knowledge of future events. According to Knight, risk applies to situations where we do not know the outcome of a given situation, but can accurately measure the odds. Uncertainty, on the other hand, applies to situations where we cannot know all the information we need in order to set accurate odds in the first place."

• Marc Andreesseen.."Now I am raising a B round. Here are my milestones, here are my risks, and by the time I go to raise a C round here is the state I will be in. And then you calibrate the amount of money you raise and spend to the risks that you are pulling out of the business. And I go through all this, in a sense that sounds obvious, but I go through this because it is a systematic way to think about how the money gets raised and deployed. "

Some readings for the course:

• Drucker, P (1994), Theory Of The Business, Harvard Business Review, September-October, pp 95- 106, Boston, Mass, USA.
• Daly, J (May 2010) Drucker’s Theory of the Business and Organizations: Challenging Business Assumptions; Management Decision Vol 48 Issue 4 http://druckersociety.at/repository/scientific/Daly.pdf
• “What Peter Drucker Taught Me” (http://www.managementpro.com/articles-resources/articles/outfoxing_murphy_by_managing_strategic_assumptions.php)
• McGrath, Rita “Discovery Driven Planning” http://ritamcgrath.com/download/Discovery_Driven_Planning.pdf
• The most common mistake when forecasting growth for new products (and how to fix it) http://andrewchen.co/the-most-common-mistake-when-forecasting-growth-for-new-products-and-how-to-fix-it/

 Image credit: http://commons.wikimedia.org/wiki/File:Variance_various.svg

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Random Observations from Today

A few observations I found interesting today:

1. The Marlins sell tickets to businesses to use with their corporate clients. The Marlins have taken it one step further. The Marlins organize and manage networking events where all the season ticket holder companies can meet each other several times throughout the season. Very nice example of adding value to a product that has historically not been the subject of much innovation.
2. A friend is an event planner, one of the best in Miami. She mentioned today she is planning a destination wedding for a couple from Australia. I wonder how many event/hospitality operators in Miami consider Australia their target market. I suggested to my friend that maybe she should promote herself as the event planner for destination weddings in Miami. Remember your customer and market is where you define it and get traction.
3. Several people today commented on the challenges of transitioning a business from one generation to the next. Lots of "baby boomer" businesses being passed on to the next generation. Here is an excellent article on the subject that I saw today. If anyone needs help implementing the article's recommendations, let me know.

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Hire people you would leave your children with

Big Think reported on Mark Zuckerberg's hiring rule. The Founder of Facebook said to "hire people you would work for". Good rule.

My rule:

"Hire people you would leave your children with for a weekend"

I like self-directed people who take full responsibility.

I do not think Zuckerberg has children.

I also like personality tests.

The 3 Functions of Leadership

Every year I write a few posts on leadership. Much of my thinking on leadership is influenced by the writings of the U.S. military. This morning I am lecturing to the ROTC student body at FIU. This is a summary of what I plan to say.

The three functions of leadership are:

1. Determine the mission
2. Provide resources necessary to accomplish the mission
3. Motivate people to perform effectively and efficiently

I plan to illustrate each point by an example from military history. Napoleon, Wedemeyer and Cortez respectively illustrate the three points. The common theme in each of their approaches is that they "redefined the problem" in order to properly perform one of the three functions of leadership.

My opinion of the best book on leadership is in this post from 2009, Team.

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Understanding Amazon's "Retail" Failures

In the early 1980s I invested in one of the earliest online retailers, Comp-U-Card. Comp-U-Card succeeded and went public by understanding that customers were only willing to buy hard goods, such as autos, TVs, air conditioners, etc, and would not buy fashion items and accessories. In the early 1990s shoppers grew comfortable with buying fashion online. Today we buy everything online, in part thanks to the success of Amazon.

Many have published stories recently about Amazon pulling its diaper product, including Venture Beat here. Venture Beat also lists other product or merchandising failures, such as a payment wallet and a phone. Everyone talks about these failures as if Amazon was a retailer. I think that is the wrong way to think about Amazon. Amazon is an exchange operator that facilitates the widest range of suppliers and customers entering into transactions. Amazon's expertise is in the infrastructure to support the exchange, which perhaps explains why they have been so successful providing a non-retail service like cloud services.

When Amazon starts to think like a retailer and introduce private label products, such as diapers, they move far away fom their expertise in IT infrastructure and fail. This logic would also explain why wallets and phones were not successful. Retailers succeed in part by selecting merchandise for their target customers. Exchanges succeed in part because their infrastructure supports the needs of the exchange users. While some expertise is needed at a product level, many exchanges tend not to be discriminating. This is the case with Amazon's strategy to sell everything, from consumer products to boat parts to building supplies. Think of Amazon as an exchange and not a retailer.

Innovation Requires Transparency

Friday morning I attended an event on how large companies can use innovation in business model to generate revenue growth. A previous post on this theme is "Innovation in Large Corporations". Much of the discussion focused on alternatives for partnering between startups and the Fortune 500 as a means to foster innovation. Some alternatives include

• Venture capital investment
• Joint ventures
• Spinning off skunk works projects
• Sharing problems

I particularly like problem sharing where the Fortune 500 brings a problem to a startup, design firm or university and the resultant solution is commercialized through a new business. 

 

However, sharing problems brings up a new problem in innovation for the Fortune 500--they need to be much more transparent. Christensen has written extensively about why large companies lack innovation, but I have not seen mention of transparency. An example illustrates the point. Electronic medical records (EMR) are not shared between competing medical service providers because they feel such records aid competitors to steal patients (according to a pioneer in defining the format for EMR). To safe guard information at the expense of patient care I would classify as extreme lack of transparency.

 

Why do companies opt for a lack of transparency, hide behind government licenses and, in general, use contrived barriers. The answer is that it is much easier and lower cost to use contrived restrictions rather than create value for customers. However, the day is not far off when customers are going to break down artificial barriers to transparency in areas such as patient medical information. The balance of power is changing in favor of the customer for transparency and corporations need to recognize this change. One way for corporations to start being more transparent is with their partners, where it might foster more innovation. 

 

After we move large corporations to transparency, we can work on the government.

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Plan Less

I think it is debatable whether the best management thinkers today are at Santa Fe Institute (SFI) or the U.S. Army. Both groups share at least one common interest—complexity--as contrasted with the complicated. SFI's approach to complexity tends to focus on advanced mathematics. The U.S. Army's approach involves design thinking and is comparatively more understandable. Today's post comes from The U.S. Army Marine Corps Counterinsurgency Field Manual via the Farnam Street blog.

 

When should one plan? Much less often than you think. I am not advocating one go mindlessly through life, although it may be less stressful, but rather that one use alternatives to planning. A quote from the Field Manual:

 

"Planning applies established procedures to solve a largely understood problem within an accepted framework. Design inquires into the nature of a problem to conceive a framework for solving that problem. In general, planning is problem solving, while design is problem setting. Where planning focuses on generating a plan—a series of executable actions—design focuses on learning about the nature of an unfamiliar problem." (My emphasis)

Planning, a series of executable actions, applies in situations that are deterministic and likely to be expressible in numbers. Sales forecasting, architecture, engineering are some disciplines that are largely deterministic. Much larger are the domains that do not lend themselves to mathematical approaches, such as most things that involve politics, emotion and the arts. In these areas, design thinking is one peferred approach. 

 

If we consider managing a business, perhaps the startup effort to find product/market fit lends itself more to design thinking. Maybe growing a business from $30-100 million in annual revenue is more of a planning exercise, until you need to revamp a product, react to a monster competitor entering the market or adjust for a law change (think Uber). Actually most of the events affecting customers or products are not handled by planning. This type of event is not deterministic in nature. Design thinking and framing the problem correctly are a better approach, which is why you can plan less. 

 

Happy holidays.

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"A Scaling Playbook for Entrepreneurs: Hiring for Growth" is a good article on the different stages of building a company and the type of people that are required at each stage to be successful. The important point in the article is that companies go through stages based on annual revenue and a different type of executive is needed for each stage. What the article does not discuss  is how the CEO needs to change at each stage.

Stage 1, $0-10 million. The CEO needs to learn to trust people. In order to do this, one needs to learn to accept the smaller mistakes that don't put you out of business. Sales/traction, customer service and product development are important. In everything else mistakes are inconsequential. Also, learn to use control systems to monitor projects, deadlines and deliverables. (Capital raising is a CEO responsibility.)

Stage 2, $10-99 million. The CEO needs to learn to successfully delegate to managers. He should also be leading the development of more sophisticated KPI and reporting systems to understand the business at the level of individual managers.

Stage 3 $100+. The CEO needs to led the transition of the company to a plan driven organization. Hopefully you had some plan(s) before the company reached $100 million, but now the detailed plan is a necessity in order to communicate objectives, detail timing and properly estimate the capital required. A budget and a 3-year plan are advisable.

Note: I believe the stages based on revenue are:

$0-1 million (proof of concept)

$1-3 million (commercialization)

$3-10 million (scaling)

$10-30 million (delegating)

$30-100 million (management process)

$100-300 million (planning)

>$300 million

I used the other author's stages to match the referenced article.

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Some Recent Business Articles

Some of the more interesting articles I have read recently:

• "Go where it is darkest: When company, country, currency and commodity risk collide!" Professor Damodoran, the dean of valuation and NYU professor, tells us we should invest where it is hardest to value the company and then provides a straightforward valuation spreadsheet for a real example.
• A well done e-book on design thinking for services is here on Issuu
• You have to read U.S. Department of Defense Report – "Preparing for War in the Robotic Age". Much easier now to have your own army.
• "IBM’s Emerging Market Strategy Has 3 Pillars". Interesting because it is IBM.
• "What Maslow’s Hierarchy Won’t Tell You About Motivation". The 2014 schema from HBS to better understand your customer. Worth reading. Next year's will be good also.
• "The Emerging Architecture Of Internet Applications" lays the ground work for the future elimination of governments and corporations. May take awhile but an attractive idea. Make sure to read all the referenced articles if you think about a new world order.
• "It's Not the End of Apps". Excellent article about the future direction of apps, notification and UI.
• From Google+: What did the turkey say to the computer? Google, Google. I hope this was written by someone in marketing at Google :)

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New Forms of Partnering for Social Ventures

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New Forms of Partnering for Social Ventures

In addressing social problems, the scale of the problem requires a greater reliance on partnering. Partners often provide expertise, distribution, local networks and capital to name just a few of the benefits. Partnering is a key part of any social venture business model and therefore an opportunity for innovation. (See Innovation in Large Companies)

Last night I met the CEO of an early stage healthcare for-profit company. He is raising capital and building partnerships to sell his product. Potential partners include everybody from hospital chains, health insurance companies and Medicare to America's largest corporations. He told me he had received an acquisition offer from one prospective partner but discussions broke down over valuation. The acquisition offer came from a non-profit! This was a first for me, seeing a non-profit as the acquiror. Definitely a new form of partnering.

This article from SSIR, "The Rise of a Fourth Sector Skills Set", provides some other examples of new forms of partnering for social ventures. The author believes that the ability to innovate in developing partnerships is a key expertise that young social entrepreneurs need. I agree.

The last post on social entrepreneurship is "When For-Profit is the Right Answer for a Social Enterprise".

Innovation in Large Corporations

Clayton Christensen has written extensively about why large corporations cannot innovate and are disrupted by entrepreneurial startups. In summary, such large corporations are challenged to understand markets that are not already documented and suitable for ROI analysis based on cost savings. A third reason may be that no one has yet developed and documented a process that the Fortune 500 can use to innovate. Some corporations are using design thinking, but such an approach may be too "touchy feely" and hard to use for widespread corporate adoption.

An alternative approach might be to go back to "business model" thinking and see if that provides an answer. In other words, can we change the business model for an existing product/market and create new value a customer will pay for. Let's suppose we look at five key parts of the business model:

1. Revenue growth driver
2. Pricing
3. Distribution
4. Value Creation
5. Stakeholder Analysis

In my way to think about the revenue growth driver, there are five drivers--SANDS. 1) Subscribers, 2) Accounts, 3) New Locations, 4)Distribution and 5) Sales people. These are the five basic strategies to grow revenue, which are more fully described in my book. To innovate, consider whether you can change the growth driver or use a different growth driver in a particular market. There are 16 pricing methods (see book). Perhaps adding a new pricing method or two leads to increased value for the customer or perhaps spurs a reconsideration of the product to better match the philosophy of value creation from the new pricing strategy. A similar logic would be applied to distribution to see if a new channel might create value for new customers.

Value creation and stakeholder analysis require a separate explanation because they are harder to do. In value analysis we do a "deep dive" into understanding where the customer (not the company) finds value through face to face research and interviews and focus groups and... Then we look at how we would increase the value for the same or a new customer, wherein lies the innovation if the innovation is saleable.

Stakeholder analysis looks at what value each stakeholder captures in a transaction. Stakeholder is defined broadly to include everybody touched by or touching the product, including regulators, unions  and traditional constituencies such as customers, employees and shareholders. Again, heavy lifting analysis. Once the value is understood in terms of stakeholders, then we can examine how to increase that value which results in innovation if the change is saleable.

This approach may not yet be fully thought out, but the notion of revisiting the fundamental parts of an existing business model to identify new value that can be commercialized may be a way for large companies to find innovation.

BCG's 2014 report on innovation, "The Most Innovative Companies 2014: Breaking Through is Hard to Do" focuses on the challenges to create innovation.

The discussion of value creation and stakeholder analysis is derived in part from some work done on design thinking by the Taiwanese Government.

The most recent previous post on disruptive innovation and Christensen is here.

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3 Trends in Consumer Marketing

The Logic+Emotion blog has a very good article based on a survey of 15,000 people in 12 countries, "Three Things Consumers Want From Brands Today: Responsiveness, Involvement and Conviction". As the title indicates, the three most important values in the relationship between consumer goods company and consumer are:

1. Responsiveness (responsiveness to complaints and concerns)
2. Involvement (transparency in sourcing and manufacturing processes)
3. Conviction (companies should be involved in changing the world for the better)

Smart Blog has a similar story today, "CPG companies consider the big picture for brand management in the age of omni-channel retail". The story focuses on how companies provide accurate product information (2 above) in the digital age. One interesting observation is that companies have created the position-Digital Sales Manager. The purpose of the position is:

"focus on selling our products online and being an expert in e-commerce best practices"

Maybe all the new jobs will not go to robots.

 

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