SOPHISTICATED FINANCE

IT Infrastructure Imperils Customer Service

For the last few days I have not been blogging because I was moving houses. This experience allowed me to see in depth the customer service of several companies including Comcast.

Comcast has a national advertising campaign running on prime television programs touting its customer service. They should cancel the ad program and instead invest in new software to run their business and improve their customer service. Six times I called Comcast to get a data modem working--six times I had to give them the modem ID number. This basic information is not part of the customer record and is not noted by customer service staff in their call logs. Turned out my data modem is no longer supported by Comcast. Even though I rent the modem from Comcast, they did not tell me about not supporting the modem when I requested to move the address of the service. So until the modem was changed there was no way I was getting Internet from Comcast. Only one out of six reps noted this issue. At two points in this odyssey I was referred to Signature Support, Comcast's high level paid support. Only once was I told that there was a charge for this service and they did not note the modem issue. Takeaway: Comcast needs to update their customer service/account software to track information related to data services. Comcast has been providing Internet connectivity in my part of Florida for about five years but appears to lack the basic software to service customers. 

I also heard a story on NPR (can't find the link) about the problems with the Department of Defense (DOD) payroll system that pays our military personnel. Appears that the system requires double entry of data for, for example, a change in assignment. One paper form is required to transfer the soldier to Afghanistan and then the form is entered in the payroll system, which leads to multiple errors and many soldiers incorrectly paid. In a real travesty, if the DOD overpays the soldier they garnish wages and use collection agencies for their own mistakes. Takeaway: Why does the DOD not have a modern payroll/employee information system. Every commanding officer is taught to take care of their people.

The problems of Comcast and DOD and many other companies all relate to antiquated software systems and infrastructure that have not been updated despite the growth and changes in operations. Such fundamental failures should be the responsibility of the organization's CEO. I believe it is a CEO responsibility because of the changing nature of customer relationships, which I explained in this post "The Evolution of Understanding the Customer. Customers have multiple ways to interact with a company now because of social media. Therefore, customer expectations are higher whether it be a virtual or telephone interaction. Software needs to be re-done to enhance the customer experience or else customers are going to go elsewhere.

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The Evolution of Understanding the Customer

I have been preparing some new lectures for the fall semester. Everyone talks about understanding customer need as the critical first step in new business concept development, almost regardless of what process follows that first step. What is less discussed is how customer need has changed over the last fifty years. In fact I do not think customer need emerged as a concept until the mid-1980s.

In my youth of the 1950s, after the hardship and scarcity of WWII, a simple product or service satisfied the customer and there was little or no relationship between the customer and supplier. It was in large part the era of "build it and they will come".

By the 1980s basic requirements had been satisfied. New products had to be more finely tuned to the requirements of customers and customer need emerged as the guiding principle. At this time retailing changed from "push" to "pull" with customers picking what they wanted. Also, at this time the Internet and personal computers gained widespread popularity and the relationship between supplier and customer changed. The customer had much greater access to product information and some customer reviews.  However, most suppliers of goods and services for the consumer did not notice this change in information.

Roll forward to today and we see that customer need has been replaced by "customer experience". The Internet and social media provides a rich product experience with product information, repair manuals, customer service, customer reviews, spare parts, etc. all available online and much of this information provided by the customers and not the suppliers. This relationship between information and the customer has re-shaped marketing with design, product, brand and messaging all needing to be tightly integrated before a product launches. (See this previous post for more on the change in marketing.) Harvard Business Review stated the point well:

 “To realize the full potential inherent within their universe of customers and prospects, organizations must carefully manage every facet of their operations to maximize the value of each customer's experience”

The standard for a new product no longer is satisfying customer need. New products now need to change a customer's behavior to gain market traction. Smart phones replacing watches and cameras would be an example. Dropbox for backup and synching would be another example.(This history is summarized in the graphic below.)

While there are still many opportunities to change customer behavior, I think that all the connected devices on the Internet are going to bring about the next change in the customer relationship. Cisco believes that there will be 2.8 billion sensors and small computing devices (excluding smart phones and computers) connected to the Internet by 2017 and Wired forecasts that number will rise to 1 trillion by 2030. Even if the forecasts are off by 50 percent, the amount of real time information available will dwarf what we have today. At that point customer experience will be replaced by what I call the virtual or "real time" consumer. You and your wife or girlfriend might subscribe to a service (from Google) to monitor your heartbeat and pass a message to the local emergency service and loved ones if either heartbeat stops. (Some smart Google tech will also pair the two data streams and know when you are having sex--10pm, two heart rates at 140 (hopefully)--you are not likely jogging.)  

With this volume of information and level of detailed, second by second data the customer standard will become "does it make my life better". Satisfying customer need or changing customer behavior will no longer be sufficient for a successful new product or service. The standard for the customer relationship is about to change again.

 

 

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Venture Capital--Market Opportunity

I believe that the hardest part of teaching entrepreneurship is helping students to identify good, large market opportunities. I am a collector of techniques for identifying market opportunities. For example, abundance-scarcity and functional fixedness are easy to use techniques to identify opportunities. A new technique I have found is "blatant-urgent", which was first described by Michael Skok of North Bridge Venture Partners. Michael describes the technique as follows:

• "Is the problem unworkable? Does your solution fix a broken business process where there are real, measureable consequences to inaction?
• Is fixing the problem unavoidable? Is it driven by a mandate with implications associated with governance or regulatory control? For example, is it driven by a fundamental requirement for accounting or compliance?
• Is the problem urgent? Is it one of the top three priorities? In selling to enterprises, you’ll find it hard to command the attention and resources to get a deal done if you fall below this line.
• Is the problem underserved? Is there a conspicuous absence of valid solutions to the problem you’re looking to solve? Focus where there’s whitespace, not scorched earth"

Perhaps Dropbox illustrates blatant-urgent well. Dropbox started in 2008 to provide online backup. At that time computer backup was still a problem (blatant). With the emergence of the user with multiple devices (laptops, phones, tablets) not only was backup a bigger problem, but synching content on these devices became an urgent, compelling problem. Now you know why Dropbox was so successful.

Why is market opportunity so important. This study of venture capital decisionmaking shows that market opportunity is their most important factor, surpassing management team. Not everyone will need venture capital to do a startup, but VCs are students of the successful startup as this post describes.

 

The entire collection of venture capital posts is here.

 

 

Diaspora Management

I have spent the last two days in Jamaica, including some time at a convention devoted to the 4-5 million Jamaicans that live outside the country. Currently Jamaica has a local population of 2.3 million. The Jamaican Government call this overseas population the Diaspora. The Government went to Israel to study how that country manages their diaspora or overseas population of religious followers. There are even academics who have developed a set of five best practices for diaspora management. They are all so obvious that I will not repeat them.

As near as I can tell, diaspora management is designed to guilt the overseas population into investing in the homeland as a means to foster economic development. Economic development theory has baffled me for years, despite quite a bit of study of the subject. As this previous post on economic development makes clear, the subject is overly complicated and therefore much of the theory appears to have limited applicability.

Diaspora management appears to me to be another part of economic development theory that is overly complicated. If you want to attract foreign investment, regardless of the source, you need to satisfy four conditions:

1. Free movement of capital across borders
2. A legal system that protects investor rights at the level of developed countries
3. An economic performance that has sufficient stability and growth to attract investors 
4. Market rates of return for the perceived level of risk that are attractive compared to alternative investments (in other countries)

Jamaica is making progress on the necessary conditions outlined above. Personally I think diaspora management is a distraction that will have limited effect on economic development. Increased efforts to build an economy that attracts more foreign investors would be my strategy for Jamaica.

Areas that look particularly attractive to me for investment in Jamaica are agriculture and alternative energy, which are also key industries in the government twenty year plan (in addition to tourism and logistics). Interestingly, Jamaica is trying to build an enormous transhipping facility to take advantage of the expanded Panama Canal in 2014. Project is in the early stages but foreign investors are showing interest. Miami beware!!

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Planning for the Unkown

Someone asked me to do a lecture titled "Planning for the unkown". Initially it sounds like an oxymoron. However, after a little thought I came up with an approach. The process is described below.

Planning is a process, which means that it involves discipline, focus and a step by step approach. However, any process is only as good as the thinker and thinking in the process. Therefore, to consider the unkown, we must first recognize that the unkown is outside of current human knowledge. Therefore, we need a technique that helps us to think outside of human knowledge.

A technique I like for this purpose is "relax the assumption". This technique is based on the bias we have all developed in our thinking and problem solving. The technique focuses on identifying and relaxing a key assumption in a problem in order to develop a solution, e.g. the laptop relaxed the desk assumption. However, this technique only helps in planning if we know what to think about.

The topics to think about for business planning are:   

1. economy
2. regulatory
3. competition
4. market
5. technology

Admittedly pretty obvious in hindsight. The hard part is to identify what assumptions to change for each of these five factors. Drumroll!! Focus on the key parts of the business model and relax assumptions about pricing, sales and distribution as they relate to each of the five factors. For example, the current discussions in Europe about no charge for roaming on cellular phones might have surfaced if one relaxed the pricing assumption during the consideration of regulatory. Amazon would have possibly shown up if one relaxed the store assumption (distribution) in a market or competition analysis for booksellers.

Now that we understand how to find the unkown, please keep an eye out for the next Google :) Also, remember that identifying the problem is the hard part. The solution is easy. If you forgot, read this post.

 

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Pattern Recognition

I am not much of a game player, except for an interest in Texas Hold'em. I believe that computer games offer a new way to improve children's learning, but it is not an area that interests me. A recent article in Wired, "How an Entirely New, Autistic Way of Thinking Powers Silicon Valley" got me thinking about Go and chess, two of the oldest and most popular games in the world. Go was developed in China in the 4th century BC and chess was invented in India in the 6th century. Why have these games been so popular for so long.

Both Go and chess are widely admired as complex strategy games, which in part explains their popularity. However, it may be that the popularity of both games is also because they develop a different way of thinking--paternicity or pattern recognition. Patern recognition may be a third way of thinking, in addition to visual and verbal. The Wired article states:

"For a century now, chess has been the petri dish of choice for cognitive scientists. What makes a chess master a chess master? Definitely not words. But not pictures, either (which is what you might think). When a chess master looks at the board, she doesn’t see every game she’s ever played and then find the move that matches the move from a game she played three or five or twenty years earlier or from a nineteenth-century chess match that she’s studied closely. The stereotype of a chess grand master is someone who can think many moves ahead. And certainly, many chess players do strategize that way. But the grand masters retrieve from their memories not more possibilities but better possibilities because they are better at recognizing and retaining patterns or what cognitive scientists call chunks."

While everybody uses visual, verbal and pattern recognition ways of thinking, certain disciplines generally require a particular way of thinking. For example, pattern recognition is widely used in mathematics, engineering and certain sciences. Pattern recognition is also an important skill in programming, as the Wired article explains.

John Von Neumann, the great 20th century mathematician, said that chess was "trivial" because at any point in a game one could identify all the remaining moves in a game (with enough computing power). Watson, the IBM computer that beat the world chess champion in 1997, perhaps proved Von Neumann correct. However, in this case the computer was programmed to utilize a Von Neumann type strategy and not pattern recognition. Never the less, Chess remains widely popular, and approached correctly, can develop pattern recognition skills. Go offers the same way to improve one's thinking.

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The Disruption of Professional Services

A theme which I have discussed many times is that the expansion of IT and the information it produces will have a profound effect on jobs in the future. The jobs to be affected are not just factory type jobs. 

A new study by the McKinsey Global Institute, “Disruptive technologies: Advances that will transform life, business and the global economy”, addresses this issue. For example, McKinsey believes that 8 technologies will disrupt jobs and industries. Cloud computing could disrupt the global IT enterprise industry with $3 trillion in annual spending and million of jobs. Another example cited by McKinsey is autonomous or driverless transportation, which could eliminate millions of jobs. Imagine that the driverless truck shows up at the receiving dock and robots unload the truck.

Kevin Kelly writing in Wired states:

"It may be hard to believe, but before the end of this century, 70 percent of today’s occupations will likewise be replaced by automation". 

One might ponder a future where one's ability to work well with robots is an important skill :)

The area that interests me is "information workers" such as lawyers and accountants. For such professions, I think the future presents in large part the same disrupted outlook. In an Economist article, "Schumpeter: The Age of Smart Machines", they state:

"Knowledge-intensive industries will also have to rethink cherished practices. For a start, in an age in which information and processing power are ubiquitous, they will have to become less like guilds, whose reflexes are to regulate supply and restrict competition, and more like mass-market businesses, whose instinct is to maximise the customer base. Innovation will disrupt many areas of skilled work that have so far had it easy." 

"Guilds whose reflexes are to regulate supply and restrict competition" sounds a lot like lawyers and accountants. In several ways the current value of accountants and lawyers is tied to their licenses and not to their output, which in many cases is widely available on the web or soon will be. The question I ponder is what the 50,000 new graduates from law school each year will do, particularly given the 1.24 million lawyers already in practice in the U.S. I think accountants (and doctors) are in the same situation.

Previous posts on the future of professional services include "AI May Replace Your Job", "New Business Idea--SEC Wikis" and "The Future of Professional Services" from August 2010.

LEGO School of the Future

Many experts are considering what a school should be in the 21st century in order to foster "21st century skills" in children. 21st century skills generally are described to include:

• Creativity
• Critical thinking
• Collaboration
• Communication

Some experts add problem solving skills to the list but I personally believe it is redundant if critical thinking is developed properly.

One company that has a long history in child learning is LEGO, the Danish company. They have a long history of innovation in toys and robots to foster participatory, hands on learning (as opposed to consumptive learning). LEGO has announced that the LEGO Foundation is opening a new school, which I believe is their first school. The Isbillund International School will serve children 3-16. LEGO describes the school as follows:

"Children are open-minded, curious  and innovative. They are not afraid to experiment. These abilities will be nurtured in our school to help our pupils reach their full potential. We believe that all children have the right to become the best they can be. The school is based on Danish learning traditions, the IB [international baccalaureate] programmes and the creative approach of the LEGO Group."

School activities begin at 7am with breakfast and include after school activities til 5pm.

What I like about the school:

• The LEGO philosophy of hands on learning applies to all courses and not just science and robotics
• The International Baccalaureate is a rigorous curriculum that is used beginning in the primary school
• The school starts for 3 year olds when children are in their most formative intellectual period

If LEGO were to ask for my suggestions, I would offer three ideas:

1. There should be no grades; students should be able to learn a subject or area of interest at their own pace.
2. The concept of a school building should be re-thought; instead of using classrooms as the core concept, the building should be designed to foster communication and collaboration between students. 
3. Use teachers as mentors or guides and rely on e-learning to provide basic instruction; of course every child would have their own connected laptop computer.

 

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New Business Idea--You Tube

I am not a visual learner. Just did not get that gene. Rarely do I use graphs to understand data and mind mapping causes my head to pain. Every day I read about 100 blogs and look at about 500 articles. On any given day about 10-20 articles have an embedded video or link to a video. Unless the video is by an acknowledged genius I cannot bear to watch them. Video for me is just an inefficient way to capture information. The more complex the material the less useful video is for me.

Would someone build an app that would transcribe the voice in any video to text. I would be eternally greatful.

Other new business ideas are here.

Image credit: www.identifont.com 

World Water Shortage--New Map

Back in January 2011 I wrote one of my New Business Ideas posts on the opportunities in food and water due to the impending shortages of both. Today in Co.Exist there is an article highlighting a map from the World Resources Institute that shows the severity of the water shortage. The map is called Aqueduct and it allows the user to change the factors considered such as ground water and pollution.

 

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SEP-7 Business Plan Workshop Miami

I will be leading a workshop on how to develop a business concept this Friday, September 7 for the Pino Entrepreneurship Center at FIU. The workshop closely follows my book on developing a business model but is organized with a series of group tasks to better understand the concepts. Several themes are illustrated by both social ventures and for-profit companies. All attendees receive a sample business plan that raised A round venture capital. 

Advanced registration details are here. Proceeds go to the Pino Center.

Smart Cities--Smart People?

The "smart city" project is designed to introduce better, more environmentally friendly technology into larger urban areas to improve the overall quality of life. Much of the early work was done in Europe but now the movement is spreading to lesser developed areas including Latin America. This story from Co.EXIST, "Filling South America With Smart Cities", highlights a project in Santiago, Chile.

I think the "smart city" project is a great idea particulalrly given the dramatic growth in urban population. Free ubiquitous Internet access, solar powered everything and better mass transportation all sound attractive. I have only one question? Where are the smart people who will inhabit the the smart city? Without equal emphasis on improving education for the poor and disenfranchised, smart cities will only further exacerbate the class discrimination so prevalent in Latin America and other parts of the world.

Previous thoughts on urbanization are here, here, here, and here.

Image credit: faculty.fairfield.edu

The Future of Streams

RWW has an interesting post on streams, as in information not fishing. Streams are defined as:

"A constant flow of information ordered chronologically and (ideally) topically too. In the near future, the theory goes, it won't matter where you enter content - a blog platform, Facebook, Twitter, Tumblr, etcetera - because all of it will be accessible to other people as a stream."

The Wall Street Journal is an early adopter in the use of streams. Formating and style of their streams suggests that streams will look particularly good on mobile devices.

I have been intrigued by the idea of streams since this SF post in 2010, which I quote below:

"I think that where the web will evolve is toward a model where all your content will be generated from a single web-based app and you will merely choose what distribution channels you want to use (public, private, group, company, etc.), similar to the Google Reader feature "share". As soon as you can choose easily where content is distributed, Facebook and Twitter become much less valuable."

As I correctly predicted, Twitter and Facebook are fighting streams according to RWW.

AI May Replace Your Job

For the last 50 years computer automation and other IT technologies have replaced many jobs. Most of the jobs were low value-added positions. In the next 50 years many jobs that required a college education will be replaced by the same computing technology applied in new areas.

This story from Wired, "Can an Algorithm Write a Better News Story Than a Human Reporter?", illustrates the point. Narrative Science, a company based on AI technology developed at Northwestern University, is developing high quality news stories without reporters. Can lawyers or accountants be far behind.

We can argue about the pace of this trend and what jobs will be replaced, but students should be considering fields that cannot be duplicated or replaced by AI. Should I mention entrepreneurship?

The last post on Narrative Science eleven months ago is here.

Americas Venture Capital Conference Call for Presenting Companies

The 3rd annual Americas Venture Capital Conference, hosted by FIU's Pino Entrepreneurship Center, is now requesting for presenting companies seeking funding to submit selection materials by September 4. Guidelines for prospective presenters are at http://avcc.fiu.edu/presenting_companies.htm.

Information for conference attendees is at http://www.avcc.fiu.edu/. This year's conference will be held in Miami on December 12-13.

App Log In Complaint

Recently I have seen a trend in iPhone apps that bugs me. To log into a new app I must use either my facebook or Twitter ID. When I asked the developer of one app why they did this, they said they only wanted people who had a FB or Twitter account to use the app. 

I have been on Twitter since the beginning and I joined FB about a year after it went public, but I delete apps that demand only these logins. I prefer to get to know an app before I link it to other accounts. Does any one else feel the same way? Post a comment.

Some Good Articles on Innovation and Strategy

Two themes that interest me are strategy and innovation and how they are applied to economic development, entrepreneurship and social ventures. Two articles this weekend on these themes were noteworthy.

In "The Hardest Question Any Leader Can Ask" there is a particularly good point on strategy as it relates to business model:

"Business model innovation must be a strategic objective or it won’t happen.

One of my biggest pet peeves is setting strategy one tactic at a time. It drives me crazy to be surrounded by people and organizations that think if they just work hard enough and do more things that a strategic direction and destination will emerge. It seems that most of the world works this way. It is terribly inefficient. How many people and organizations do you know that pedal the bicycle like crazy but never seem to arrive anywhere. They just keep pedaling harder hoping that something will eventually stick. It is exhausting watching them. Why not establish business model innovation as a strategic objective, a specific destination, and work hard on those things that help you get there. It seems so simple. Setting a strategic direction provides a way to know which tactics are aligned and contribute to reaching the destination. The destination may change along the way requiring different tactics, and that is OK, but not having a destination at all is a ticket to nowhere."

In "A 5-point checklist to create lucrative opportunities with disruptive technologies" the author list five ways to disrupt a market and gets it absolutely correct:

1. Destroy your product
2. Make your product solve meaningful problems
3. Make your product insanely simple
4. Make your product smart
5. Give your product away

Read the article to understand the logic of each method.

Competence and Comprehension

One of the debates that I have been following is framed as follows:

Do we need to teach aritmetic if computers can perform the same task?

Until today I thought we should teach arithmetic.

Another related question is why we cannot develop computer software that does more than traditional teaching methods.

This article from Atlantic, "A Perfect and Beautiful Machine': What Darwin's Theory of Evolution Reveals About Artificial Intelligence" provides insight on both questions. This quote provides a possible answer:

"What Darwin and Turing had both discovered, in their different ways, was the existence of competence without comprehension. This inverted the deeply plausible assumption that comprehension is in fact the source of all advanced competence. Why, after all, do we insist on sending our children to school, and why do we frown on the old-fashioned methods of rote learning? We expect our children's growing competence to flow from their growing comprehension. The motto of modern education might be: "Comprehend in order to be competent." For us members of H. sapiens, this is almost always the right way to look at, and strive for, competence. I suspect that this much-loved principle of education is one of the primary motivators of skepticism about both evolution and its cousin in Turing's world, artificial intelligence. The very idea that mindless mechanicity can generate human-level -- or divine level! -- competence strikes many as philistine, repugnant, an insult to our minds, and the mind of God."

The distinction between competence and comprehension provides a possible answer to both questions. Competence does not lead to comprehension. We do not need to teach to achieve competence in arithmetic because computers can do it for everybody (with a computer and electricity). Comprehension in math, the higher level objective, is a totally different objective which is not necessarily derived from competence.

This distinction also explains the weakness in current educational software and most online offerings. Rather than using software/content to teach competence, we should focus on developing software to facilitate reasoning and comprehension. Perhaps harder said than done, but if we stop focusing on competence we will be on the right path.

Question: How many numbers between 0 and 10 can be divided by 2

Competence answer: 2,4,6,8,10

Comprehension answer: all the numbers

I found the Atlantic article on Arts & Letters Daily.

 

Pricing Strategies

In my theory of business model, I propose three key concepts that need to be considered in each new business concept:

1. the growth driver
2. pricing model
3. distribution

Today's post is on pricing. There are sixteen pricing alternatives, as outlined in my book. Each alternative represents a different way to monetize a transaction or capture the value. The reason that there are so many alternatives for pricing is that there are so many ways to share value with a customer.

As Marco Bertini and John T. Gourville, professors at London Business School and HBS respectively, make clear in their excellent new article, "Pricing to Create Shared Value", pricing is not a zero sum game. "Companies have traditionally treated value in the marketplace as a fixed pie and have reasoned that they must compete with their customers to appropriate as much of it as those customers will relinquish." Thinking of the customer as merely a pocketbook robs the company of the opportunity to understand the customer need, build a better relationship and share the value created. 

The notion of "shared value" presented by Bertini and Gourville is attributed to Michael Porter and this article by Porter. Personally I think they have a different notion of shared value from Porter or perhaps they have explained the idea better than Porter did. Bertini and Gourville's notion of shared value is consistent with my view of social entrepreneurship, wherein the company shares as much value with the recipient as possible while still achieving cash flow breakeven.

 

First Winner in Harvard's President's Challenge

In February Harvard announced their President's Challenge, a university wide competition to develop innovative solutions to the largest social problems. The problems identified are in five categories--"clean water, personal health, empowered education, global health and clean air". Good list.

What I particularly like about the competition is that it encourages cooperation between the various schools at Harvard. Many universities have a silo structure that inhibits cooperation between schools and administrative procedures to insure it. 

Vaxess Technologies is this year's winner for their plan to commercialize unrefrigerated vaccines. A good article on disruptive technologies is here. Vaxess is clearly addressing a 'customer pain point' by eliminating the need for refrigeration.

More on the President's Challenge is here.