In the Connected Customer Era, personalization will become a requirement for success. Start early and you'll gain advantage. (Photo courtesy if Creativedoxfoto.)

Dealing with the move from the Industrial Era to the Digital Era was tough for many companies. And now we are in the middle of yet another transformation of comparable magnitude. Today’s customers, clients and consumers are instrumented, interconnected, intelligent, engaged, informed and empowered. They want companies they buy from to interact with them on their terms and personalize marketing offers and customer support. They even want personalized products and services. It’s called the Connected Customer Era.

Early adopters of quality improvement methods in the Industrial Era gained competitive advantage. In the movement to the Digital Era, early adopters of automated, efficient back-offices and strong web presences won. As the Digital Era matured, traditional strategies to maintain margins – cost containment, product innovation, branding and marketing communications – became far less effective because they did little to nothing to offset the multiple forces that accelerated commoditization in the Digital Era. Many leadership teams experienced their own “Kodak Moment” by failing to transition their business models fast enough to address Digital Era market realities.

What’s needed in this new era? To secure competitive advantage as we move into the Connected Customer Era, you must redesign your business models, processes, systems and even culture to serve each customer as a market of one – an individual that you know versus a member of a uniform target market described by its averages.

Customers have always preferred personalization, but it was too expensive. Their desire for personalization is finally realistic because software solutions enable organizations to know each customer as an individual, and software and manufacturing technologies enable us to customize the offering and experience at every customer touch point. Just as companies that stuck with poor quality and historic business models in earlier eras got disrupted, companies that continue to treat a customer as a non-differentiated member of a uniform target market will be disrupted in the new era. Think Amazon versus Walmart.

The new era has significant implications for business model design.  In the Connected Customer Era, value promises must be tailored to the customer’s unique needs and revenue models and value chains individualized to maximize customer value at every customer touch point, leading to loyalty-building customer experiences. This does not mean that strategy decisions about the business as a whole remain unimportant – in fact, business model, platform and ecosystem design decisions remain paramount in the Connected Customer Era. They establish the parameters within which business models for individual customers are designed, helping organizations avoid complexity that reduces customer value. These decisions also serve to build a scalable, profitable operating system that makes customer-centric business models profitable and hard to copy by competitors. The ability to personalize the iPhone thru apps, design your own jeans, or (with Google’s Moto) phone provide early models.

In the Digital Era, back offices were automated and innovation was largely internal or with suppliers. In the Connected Customer Era, front offices – everything touching the customer – will be digitized and open innovation models with customers will dominate.

The cultural demands of the Connected Customer Era will be great. Each employee and customer becomes a vital component in personalized value chains, demanding far more collaboration internally and with customers than in years past. All employees, not just the sales and marketing department, are now part of the marketing message. Furthermore, with customers having more of a window into companies, and the ability to share positive and negative reviews with others through social media, a company’s culture must authentically align with its brand promise.

The need to become a B2I – Business to Individual ­– company holds true even if, as a B2B company, you have a small customer base. You must engage in two-way conversations with a larger set of decision makers, influencers and users in your target market about broader topics, surfacing fresh ideas about unmet needs and opportunities. You prevent disruption by designing individualized value propositions and value chains that maximize value at every touch point. And you proactively build the hard-to-copy platforms that make it harder for competitors to win.

The basic rules of economics never change: if you cannot be the lowest cost supplier in your market, you must efficiently offer hard-to-copy differentiated benefits to generate a profit beyond your cost of capital. In the Digital Era, this translated into: “If you cannot become the Walmart of your industry, avoid becoming its Sears by becoming your industry’s Target.” In The Connected Customer Era, become the company your customers experience as “designed perfectly for me.”

Zoomph turns big data into small, more powerful data.

Companies are increasingly finding that “Big Data” doesn’t mean “Smart Data.” And that difference is opening up a new business opportunity for software and consulting firms to turn big data into actionable and profitable insight.

One of those firms is 18-month-old Zoomph. Founder Ali R. Manouchehri says their platform turns “big data into little data” by enabling marketers to listen, curate, analyze, visualize and syndicate social media content in real time. With Zoomph, clients find the most relevant influencers, engage in real-time polls and create engaging and inspiring visualizations of social media content for their websites, mobile devices and other screens (e.g., football score boards, event displays and lobby screens).

Zoomph projects encompass a broad array. On one end is figuring out if social media conversations on Facebook, Twitter and Instagram containing the term “pressure cooker” are about terrorism, bridal gifts or cooking. On the other end, Zoomph is increasing engagement of major league sports fans and sporting event participants. At the recent NYC Marathon, Zoomph pulled the most inspiring messages from 70,000 pieces of content captured over a few hours. These messages were shared real time with runners on nine screens located along the run.  Zoomph also powers Manoucherehri’s “Iranian Voices,” a social media hub that tracked conversations around Iran’s June 2013 elections and now serves as a model for real-time social-media election polling, predictions and early detection of Internet censorship efforts.

Zoomph emerged from consulting assignments Manouchehri’s IT consulting company (MetroStar Systems) secured with the US Department of State to capture and analyze social media content related to Clinton’s Vietnam and Obama’s Indonesia speeches. Simply listening to social media was not enough; State wanted a tool to identify the most strategic  — i.e., influential and relevant — social media followers before, during, and after the speeches and engage with them, whether their messages were positive or negative. The assignment produced a set of algorithms for ranking meaningful influence and a real-time content curator solution.

Zoomph’s ranking system, called Zoomph Scores, is key to turning big data into small data. What differentiates Zoomph from Klout and other influence-ranking systems is Zoomph’s ability to analyze the context of feeds the client is searching or tracking and provide real-time ranking based on relevancy and not merely reach. That means clients can use Zoomph Scores to find the best content and people to respond to, repost, etc. and which influencers to pursue for long-term relationships. Another Zoomph differentiator is the addition of visualization tools on client’s websites for sharing content and engaging in two-way conversations.

As with all start-ups in a dynamic industry, the biggest challenge Zoomph faces is “to evolve the platform as fast or faster than social media is changing,” according to Manouchehri. The Zoomph team continually refines its platforms and algorithms to further shorten the time it takes to identify the most inspiring, relevant and influential content and people.  Doing so requires a flexible and adaptable culture and platform, Manouchehri shares.

I would add another challenge. As social media listening matures, it will become an inseparable part of the marketing mix. Marketers will need to decide between best-of-breed individual software solutions for marketing execution or one-stop solutions that integrate Customer Relationship Management and digital marketing strategies with social media listening. Salesforce.com’s purchase of Radian 6, IBM’s acquisition of Cognos, and Oracle’s acquisition of Vitrue social media solutions are testimony to customers wanting this integration.

Therefore, as great as Zoomph’s scoring and platform might be, the niche it plays in may weaken or disappear much as traditional advertising firms are capturing a greater share of the digital marketing niche. That means Zoomph should consider alternative futures, such as:

• Finding an acquisition partner such as IBM or a major advertising agency.
• Aiming to make its scoring system the system all social media solutions use by licensing its algorithm to others as it builds awareness and preference for Zoomph scoring among marketers.
• Picking one vertical, such as sports, and developing a more holistic solution that capitalizes on deep knowledge of the marketing in the vertical, not just social media.

All leaders must fight against letting day-to-day demands crowd out time spent envisioning the future of their category and its implications. Make sure your view of the future shapes your day-do-day decisions so that your business model remains aligned with emerging trends.

Does anybody win long term as companies absorb other companies to consolidate their industry?

The developers of Pac-Man built an arcade game so esteemed that it resides in the US Smithsonian Institution and New York’s Museum of Modern Art. Millions of players have moved their rounded Pac-Man figure through a maze – eating small dots and earning points – while trying to avoid getting eaten by the four monsters in hot pursuit. The game is a great analogy for the economy’s industry consolidation since Pac-Man’s debut in the early 1980s.

The legal industry is a recent example of companies “eating” other companies. For years, large law practices have acquired smaller firms to both build broader geographic reach. Now the large law firms are in potential merger talks with each other.

What’s driving these talks? By leveraging overhead costs, mergers enable partners to improve profits and protect their bonuses in the face of falling revenue. The revenue shortfall comes as their clients, who increasingly view law firms as comparable for all but the very complex cases, shift work to mid-size firms that elected to remain independent.

The same pattern emerged in banking. Local banks gobbled up state banks, merged to form national banks, merging again across oceans to form global banks. As revenue shortfalls arose, global banks merged creating behemoths. In pharmaceuticals, publishing, processed food, health insurance, department stores, etc. the pattern repeats itself. Eliminating redundant people pays for acquisition premiums and the C-Suite earns bonuses.

But does this consolidation work? Pac-Man can eat special dots that bring a burst of power, enabling him to momentarily eat his enemies. Similarly, an acquisition or merger does bring a burst of power – creating scale efficiencies and driving up profitability.

But in the videogame, Pac-Man’s surge is temporary and he remains flexible to work his way through the maze and avoid the monsters. In real life, large entities joined together are far more vulnerable. They are harder to manage (witness today’s banking problems) and revenue growth much harder to maintain. Culture differences between the pieces create the equivalent of Pac-Man software bugs. And while executives hope that a consolidated industry will give them more pricing power, it does not necessarily work that way if excess supply remains. It takes only one other qualified competitor for commodity-like competition to emerge. Ask the airlines.

In essence, all these types of acquisitions and mergers do is kick the can called “How do we grow organically?” down the road with worrisome consequences. The challenge of growing earnings from a much larger scale is the reason that banks took on so much risk – starting with their involvement in Enron “loans” and ending with the 2008 financial collapse. In the biotech tools space, Invitrogen grew by acquiring smaller companies, then merged with a larger Applied Biosystems to become Life Technologies. Unable to maintain its growth rate and drive up its stock price, Life is being acquired by a still larger biotech tools company, Thermo Fisher, as it consolidates the industry.

Moreover, efficiency-seeking acquisitions lead to a reduction in employment at a time when there is a shortage of good paying jobs, creating a societal burden that is not incorporated into how the Goldman Sachs of the world calculate return. Another social cost is that the larger firms, unable to grow, turn to crony capitalism to preserve advantage. That, after all, is why the US is the only developed nation whose government does not negotiate drug prices, leading all of us to pay the price.

Therefore, when you see efficiency-seeking acquisitions remember that the Goliaths they create may look unbeatable but are burdened by inherent weaknesses, as was the real Goliath. More nimble niche “David” competitors find ways to beat them, as IBM is discovering when it tries to leverage its software acquisitions, big pharma discovered when scale only slowed down its innovation pipelines, and big banks are discovering as they encounter regional powerhouses like PNC and local business banks.

Admittedly, not all acquisitions are motivated by industry consolidation.  The acquisition of a new skill set creates a very different dynamic, one that is far more strategically sound. Consolidation-driven acquisitions, by contrast, could be viewed as a variant of a Ponzi scheme. It works until the music stops which happens if leaders  cannot turn larger size into meaningful differentiation and higher customer value.

Consolidation-driven acquisitions are financial plays pure and simple. Unfortunately, our economy and citizens desperately need builders and makers, not financial architects, at our companies’ helms if we are to ever overcome our jobs gap.

In a sea of digital messages, trusted endorers will become a critical part of attracting customers, according to Mark Fidelman.

Humanity generates as much data every two weeks as was generated from the dawn of civilization to 2003, according to Google’s Eric Schmidt.  Whether his estimate is exact or as some argue exaggerated, we do know that two weeks will fall to two minutes then two seconds as use of data begets more data.

Understandably, companies have had an increasingly hard time getting past all this noise. In response, marketers initially shifted advertising dollars from traditional media (TV, print and radio) to digital advertising’s banner ads and more recently to Facebook’s, Twitter’s and Google’s personalized ads, many of them location dependent.

But “smarter” marketing – as personalization is called – isn’t the solution according to Mark Fidelman, Fortune columnist, author of Socialized! and CEO of marketing consultancy Evolve! In his view, we increasingly tune out to digital ads just as we learned to do with TV ads. Friends and experts now drive choice far more than digital advertising. And while Facebook is capturing the friends, Fidelman’s new start-up RaynForest hopes to capture the experts.

Expert endorsements work. Oprah Winfrey’s endorsement of close to seventy books during her tenure as TV diva generated over fifty-five million book sales. TV news satire comic Stephen Colbert refers to the “Colbert Bump.” And let’s now forget Michael Jordan, whose endorsement of Nike shoes changed sports marketing, produced $1.25 billion in wholesale trade in 2012 along with $60 million for the basketball star.

Unfortunately, only a few companies can afford such high-profile endorsers, and star power is required to secure the agent contracts that land lucrative endorsement opportunities for the endorsers. Fidelman’s idea for RaynForest emerged from his belief that effective endorsement deals with niche influencers is a largely untapped market.

What are some examples of niche influencers? Kansas City Royals’ infielder Billy Butler loves barbeque sauce. Zarda Foods made him the centerpiece of its Rally Sauce, an endorsement that was very inexpensive and generated thousands of referrals and purchases, building a national brand. To kick off the new Dallas TV show, producers asked one hundred fanatical Dallas fans to “live like a Ewing” for a week in a Dallas mansion. Postings and publicity from the experience generated $400,000 (and counting) in earned media value.

Fidelman says that YouTube, Facebook and Twitter are full of people with high social followings whose endorsements are largely untapped. The best influencers are those who will believe in your offering and spread, through their tweets and postings, content and ideas to their fans that reference your organization, offerings or cause.  “Their recommendations are more effective that traditional advertising because people trust influencers far more than they do machine-generated ads. Even if we know the influencer is being paid, people will trust that influencer’s recommendation over any other form of advertisement,” Fidelman told me.

To capitalize on this untapped potential, RaynForest will offer an on-line marketplace to enable endorsers and those needing their endorsement to find one another, negotiate a deal and keep track of the return on the endorsement contract. “Think of RaynForest as a digital agent. By lowering the cost of finding and managing endorsements, we will grow the market for mid- and long-tail (i.e., not mass market) endorsers.”

RaynForest is following the lead of many business model disruptors who find a lower-cost way of delivering a high-end product or service to a broader market. Restoration Hardware and Pottery Barn did this to interior designers, just as LinkedIn disrupted headhunters.

Will endorsements lose their value as more people monetize their influence? I for one stopped paying attention to LinkedIn endorsements after people I did not even know were endorsing me. According to Fidelman, as long as the endorser stays true to his own area of interest, the endorsements will retain value. “Brad Pitt’s endorsement of Chanel cologne was a fiasco for the actor and brand as there was no authenticity behind his endorsement. Cowboy hats, leather jackets, out-of-the-way travel destinations and social causes, yes. Chanel? No way,” Fidelman shared.

Fidelman’s creates a compelling case for endorsement marketing. How are you adding it to your organization’s marketing mix?

A dangerous canyon often arises between business model strategy and marketing. Separate roles, meetings, deliverables, timetables, personalities and consultancies exist on each side of the divide. When business strategy and marketing execution move forward independently – as they often do – spin, distrust, poor customer experiences and commoditization result.

A classic case of this problem was the latest branding of Plymouth as “Not your father’s Plymouth,” when the new model was in fact just like the dated car. Needless to say, the brand now belongs to history books.

True Story offers a road map to cross the canyon separating business model strategy and marketing execution, aligning both around a compelling brand story.

Ty Montague offers a needed bridge across this canyon in True Story: How to Combine Story and Action to Transform Your Business.  Montague is co-founder of co:collective, a consultancy that helps its clients develop their strategy and brand story using the principles of Storydoing™.

Montague’s premise – and it is a terrific one – is that you know a company by its actions and customer experiences, not by the story it tells in its marketing communications. The actions and experiences create what Montague calls your company’s Metastory: the observed truth in the minds of customers, prospects, employees and other stakeholders. Your Metastory is what your company wants to become, if it is not already.

Case in point. Red Bull is more than an energy drink – its purpose is “giving wings to people and ideas.” The company created its own flight-related sporting event, supports professional athletes, produced a movie about flight, has its own magazine and owns Formula 1 racing teams. The company is more than a manufacturer of energy drinks – it is an experience company whose actions for the Red Bull tribe reinforce its brand promise.

So who is in the tribe? Because we each have a personal Metastory, we’ll be drawn to Red Bull if our Metastories align.  My metastory includes being health and environmentally conscious. Needless to say, I drink organic skin milk coffee lattes as my pick-me-up drink, not Red Bull.

The benefits of Storydoing™ are many. Customers become fans who then tell your story, reducing marketing communication expenses. Because a Metastory captures a purpose beyond shareholder value, the company garners greater loyalty and therefore greater pricing power, lower salary demands and higher employee morale. These benefits drive a more favorable bottom line.

Montague came to Storydoing™ as he observed the proliferation of brands. Registered trademarks (brands) rose from 2.5 million in 1997 to 10 million by 2011, a truly staggering statistic. Concurrently, measures of brand health plummeted – “with differentiation down a staggering 90 percent,”  according to Montague. A better way to brand was clearly needed.

There are four components to a Metastory and Montague does a great job offering “how to” advice.

• Participants – Who you are for.
• Protagonist  - Your story today, encompassing unique capabilities, attributes and cultural elements.
• Quest – Your driving ambition and contribution to the world.
• Stage – The salient cultural, technology, competitive and business contexts of the world in which you are doing business.

One of the many case studies in the book is start-up Grind, a shared workspace company. Grind’s competitors would be described as temporary office space companies whose quest is simply attractive profits. Grind is living a much more powerful Metastory: building a 22^nd century global physical and digital platform to support and inspire its participants – which Grind names the Free Radical community – as they collaborate to create the future of work. Grind’s quest is “… to catalyze the revolution taking place in the nature of work and help as many people as possible to escape corporate life to work in a new way – outside the system.”

This Metastory then shapes all Grind’s actions – what it offers, its visual identity, its culture and its capabilities. For example:

• Grind designed the space for hipsters, not Fortune 500 sales representatives.
• It created an on-line portal for its members to barter and learn about each others services, an action consistent with the “new way of working.”
• Grind sponsors #rethink talks by revolutionary thinkers in business, creating learning and networking opportunities.

Montague draws an excellent distinction between one-way story telling (old-fashioned communication of differentiation framed in story elements) and true Storydoing™, which encompasses business model strategy, branding and their execution. Done right, Storydoing™ creates a company aligned around a Metastory in which actions and customer experiences, not words alone, create differentiation. Effective communication is the result, not the key activity.

In today’s connected world, where communications are two way and inauthentic actions are as immediately noticeable as a skunk’s scent, Montague offers us needed wisdom.

What’s your company’s Metastory?

The drive for efficiency is a dangerous temptation, which often comes with unexpected costs.

The drive for efficiency has gone too far in my estimation.

“But efficiency is always good,” you might protest. True, productivity gains increase incremental profits all else equal.

But “all else equal” rarely holds true in practice. Therefore, like all good things pushed too far, gains from incremental efficiency initiatives may not be worth the price paid to secure them.

Why is the Efficiency Goddess who brought us big box miracles like Staples, online retailing and record corporate cash balances failing us?

Efficiency initiatives usually pay attention only to readily measurable costs, ignoring unintended consequences and opportunity costs. Why do CIOs limit support to only PC-computers? Why do CFOs reduce support staff, forcing administrative work onto revenue-generating managers? Such is the thinking of modern corporate managers: They are brilliant at measuring costs and lousy at measuring professional productivity.

Shortsighted trade-offs are magnified as companies globalize and outside business services proliferate. Managers must decide which activities (e.g., shipping) to outsource and, for those that remain (e.g., software testing), which to centralize or not.  And then there are the critical location decisions for the centralized and dispersed activities.

These decisions are complex, interdependent and consequential. The challenge is to identify activities that do not define the company in its marketplace and therefore are ripe for efficiency initiatives.  Some of these activities are critical to success (e.g., Apple’s manufacturing), while others are merely necessary (e.g., GE’s Accounts Payable process). Generic activities are best suited for elimination, outsourcing, automation or centralization and location in the lowest cost countries, any of which increase profits.

This compartmentalization of activities – initially for decision-making and then for management ­– does advance efficiency. Company-wide metrics and cultural norms are then adopted to keep the parts aligned like a well-oiled machine. But in practice, the company’s performance slows like a rusty machine. Leaders of critical and generic processes pay more attention to the cost-driven metrics. They begin to steer their activities in ways that compromise the company’s differentiation and complicate the work of the revenue producers.

Leaders of business units in large corporations with matrix structures must then spend an inordinate amount of time trying to get leaders of shared operations and support services – who are driven primarily by cost metrics – to support their business unit’s success.  Doing battle steals time from revenue generation activities and may result in service or quality issues that prompt customers to consider alternative suppliers.

Consider how my bank created a “mortgage loan approval process” so full of twists and turns that local Realtors steered buyers to banks with clearer procedures. The bank’s finance leader probably gets rewarded for low default rates, but profits suffer.

Or consider the common story of how large companies aggressively acquire successful niche players only to squeeze any innovative juice out of them by integrating the back office or more. Overhead is lowered, but the action gives rise to wave after wave of new niche competitors.

Such examples of breaking companies into parts to squeeze dollars out of less important components ignores how work really gets done and, worse, undermines worker passion and innovation, key drivers of revenue growth.

Cost cutting also ignores external costs – what economists call externalities. These are societal costs imposed by a company’s decisions and activities. For example, when companies manufacture in China versus the US, global air quality deteriorates and Chinese life span drops as China has weaker air regulations. Global competitive forces and customer location might demand this choice, an argument we can understand.  But how do we explain Walmart – the US’ largest employer with some 2.1 million employees and no overseas competition – paying such low wages that its domestic employees disproportionately use public healthcare, imposing a cost on taxpayers?

Enlightened leaders are holistic thinkers. Rather than break their business into processes, they break their business into businesses and then give general managers authority to run them well. Any shared platforms are in service to the businesses, not fiefdoms. Their structures will cost more, but innovation, agility and revenue growth will be higher. A company that thinks about how it can positively impact the world also advances its market success, talent retention and brand equity.

Just ask Gore, COSTCO, Google, Patagonia and EPIC – companies that know there is far more to success than efficiency. And short the stock of any company whose earnings growth arises largely through efficiency efforts.

Government funded basic research gives birth to new industries and jobs.  Shortchanging it is akin to not eating while you are pregnant to save money for the baby’s future. Nevertheless, our nation’s growing (and repeated) budget crisis is short changing research and its long term economic cost is perhaps nowhere so clear as is it in research advancing health.

The Atlantic Meets The Pacific, an annual event of The Atlantic Magazine and University of California San Diego (UCSD), gave testimony to the high return to innovation and the urgent need for more of the same. Sadly, many speakers coupled their comments about discoveries with growing fear that the lack of reliable funding will harm our ability to push the boundaries of medicine forward.

One medical frontier is cancer, a disease that will afflict one in four of us and poses a demographic time bomb as the baby boom ages.  Sequencing of the human genome has opened the door to treatments based on the genetic structure of each person and her cancer cells. Further advances in this area could reduce the enormous cost of delivering cancer therapies by greatly improving their effectiveness.

Another frontier is the brain; an area we know very little about relative to other parts of the body. An innovative decades-long UCSC project to map and archive human brains – The Brain Observatory – is creating a vital research tool that will deepen our understanding of mental illness as well as dementia and Alzheimer’s, each so costly to individuals and society.

Yet another frontier is our gut: 90% of our body is composed of trillions of microbes, each impacted by what we eat, how we sleep, the air we breath and the exercise we get; and they in turn impact how our body works or fails to work, as with the onset of Crones and other auto-immune diseases. Discoveries in this area will create threats and opportunities for the handful of companies that control the vast majority of the US’ food supply.

The findings in each area go beyond changing treatment. They are leading to a dramatic shift in the locus of control from individual doctors to a team of healthcare providers, including a much stronger role for the individual in collecting personal health-related data and deciding on therapies.

These changes present a cultural shift for physicians – away from a largely paternalistic system. As a result, the next ten years will, speakers predicted, be very messy as institutions and physicians adjust to precision (a.k.a. personalized) medicine, big-data based insights and pressure for affordability. UCSD Eric Topol, MD, Director of Scripps Translational Science Institute and Professor of Genomics, astutely calls physicians unwilling to make the shift the “high priests before the introduction of the printing press.”

The challenges and frontiers do not only affect the medical provider and patient communities. Researchers also face cultural change, with collaboration across disciplines becoming essential to notable discovery. Corporate speakers talked about their growing interdependency with academic research, a point reinforced by my tour of UCSD sound labs, which gave me a window into new solutions for the hearing impaired, another demographic time bomb. I saw the start of a TV sound system that would enable each listener in a room to listen at his desired volume level – without headsets.

Both academic and corporate speakers discussed their fear that our government’s inability to set long term budget priorities – or indeed to even fund government as is happening today– has created an increasingly fragile ecosystem for research. “Science is a continuous conversation. If it breaks it ceases and forgets. You cannot put research on hold,” said Siddhartha Mukherjee, Pulitzer Prize-winning author of The Emperor of All Maladies: A Biography of Cancer.

We need more grant money and more unrestricted research grants, in particular, as break-through discoveries cannot be directed, according to Nicholas Spitzer, MD, UCSD Distinguished Professor of Neurology and Co-Director of the Kavli Institute for Brain and Mind at UCSD.  Funding research that creates more tools is also important as new tools drive new breakthroughs.

The shortage of funds is producing an incremental “safe” approach by many researchers that is causing us to lose the war against cancer, according to journalist Clifton Leaf, author of Truth in Small Doses: Why We’re Losing the War on Cancer.  Equally sad, the shortage of funds is likely leading young talent away from the Academy where tomorrow’s breakthrough solutions are waiting to be discovered.

A fragile research ecosystem produces a fragile economy, as any corporate leader who has shortchanged R&D understands.

Medtronic will avoid BlackBerry's resting ground.

Once a mobile phone leader, BlackBerry will pass from irrelevancy to bankruptcy absent an outside purchaser. Medtronic will wisely avoid this fate if it transforms its culture and business models following its recent acquisition of disease management and patient monitoring company CardioCom.

Whereas BlackBerry missed the technology shift that required phones to provide mobile photography, music, and computing —not just calls and emails — Medtronic appears to understand it’s engine needs rebuilding. By further exploiting all the data collected by its chronic care devices (such as pacemakers and insulin pumps) and serving the chronically ill before they need devices, Medtronic can do more to improve health and lower its costs. Indeed, the medical device leader’s recent creation of a business model innovation center in Singapore demonstrates that the company knows that devices alone can no longer fuel its growth.

Much as Caterpillar earth moving equipment levels hills to create easy-to-drive highways, competitive forces commoditize or level out the playing field as markets mature. The only salvation for competitors that lack the lowest cost business model is to find new problems their capabilities – alone or combined with new ones through acquisitions like CardioCom – can solve.  That is how they can retain attractive profits.  In this sense, value “migrates” from commoditized markets to new markets. Leaders who miss value migration often have a hard time catching up, as we’ve seen with Blackberry.

I’ve watched the rapid value migration in healthcare from my perch in San Diego where the digital healthcare industry is clustered.  Often I wondered why Medtronic – the leading provider of devices for the treatment of chronic diseases and the first device company to make patient data from its devices available to physicians – was absent from the scene. Would it be like Kodak, who made the original investments in digital cameras but had the hubris to believe it could wait for instead of lead the migration from film to digital? Medtronic’s recent news suggests otherwise.

Whether CardioCom was the right specific acquisition remains to be seen. But Medtronic’s entry into the digital healthcare market space through acquisition is to be commended for multiple reasons.

• Medtronic will learn via firsthand experience what users in this space want, which will enhance its success in picking and integrating future acquisitions or developing digital healthcare solutions internally.
• Medtronic remains true to its purpose of improving healthcare, thereby enhancing the authenticity of its brand.
• It signals to digital healthcare innovators that Medtronic could be an option in their exit strategy.
• Serving patients other than those with its devices enables Medtronic to solve a new set of healthcare problems and strengthen provider loyalty. It also opens up opportunities to sell services to insurers.
• Medtronic gains strategic agility – being able to move slowly or rapidly into the digital healthcare space as changes in insurer, patient and provider behaviors redefine the size of the opportunity.

I advise Medtronic leaders move rapidly, e.g., through acquisition of digital health niche segment leaders. Each digital healthcare acquisition – e.g., Telcare in diabetes – would add value to earlier ones and preclude Boston Scientific or other competitors from acquiring the best properties on the Monopoly board.

Rapid movement into digital healthcare devices will also create a needed cultural shift for Medtronic managers. The entire digital healthcare market is focused on improving care while lowering its cost by empowering patients, which is not what drove Medtronic’s innovation in decades past. Traditional medical device company leaders will be shocked when they witness how rapidly Obamacare will transform purchasing decisions, a change that digital healthcare innovators fully understand and thrive within. Adding these new leaders to the Medtronic team will change legacy managers’ mindsets sooner rather than later – from a focus on selling differentiated devices to physicians to a focus on improving health and lowering the cost of care by empowering patients. The new mindset will ensure Medtronic avoids its own Kodak moment.

As for BlackBerry leaders, they have the hubris to believe their company can exist as a niche. They clearly missed the larger message of the company’s downfall – its niche collapsed as its former customers sought more holistic solutions from Apple and Samsung. To survive, it should sell out to Motorola Solutions or Lenovo (which would value Blackberry’s data network and data security assets) or to Microsoft as it moves away from a largely software centric business model. The lagging giant would value Blackberry’s enterprise business and help Microsoft build needed hardware buying scale.

What technology or market shift are you missing?

Obama needs to encourage Americans to get healthier if we want to reserve the drag of healthcare costs on middle income family economic well-being.

Great strategy requires a solid grip on the situation. Here are five situational facts Obama missed in today’s economic address at Knox College.

Urgency is needed to prevent a second recession.

China is slowing. Europe is imploding. Rising interest rates are slowing the housing recovery, with continued government cutbacks strengthening the headwinds against US private sector recovery. We risk a double dip recession like the US Great Depression or the triple dips being observed in Europe. Therefore infrastructure investments, retraining of workers, and revitalization of manufacturing and aging cities are a necessity, not an option.

Overseas job creation is the new reality.

With the middle class growing across the globe, US companies should be investing in jobs abroad.  Therefore our economic strategy should be to maintain US headquarters and create new companies – not prevent overseas job expansion. Corporate tax reform and incentives for the true job creators (versus the hedge fund investors, law firms, etc) are needed.

Obesity is the elephant in the room.

One-quarter of Americans are obese – driving healthcare costs in the wrong direction as new health policy tries to reverse the trend. We need public support and financial incentives to get more Americans off their couches. Obama should never talk about healthcare costs without reminding all of us to make healthier choices.

A global economy understandably lowers some wages – but need not lower all wages.

Wages are flat because of global competition  – but we’d have less flattening if playing fields were level. We would not let Pittsburgh go back to black skies or allow apparel manufacturers to risk worker limbs and lives. So why, in 2013, do we sign trade agreements that make China the Pittsburgh of 1940 or Bangladesh the mill towns of Charles Dickens day? As important, why do we buy these damaging products as consumers?

In protected US markets – think local retail and fast food -  higher wages will not reduce competitiveness and would in fact benefit the economy.  This is the argument for a higher minimum wage and for buying from Costco ($40k starting full-time salary) versus Walmart.

Crony capitalism is to an economy what cancer is to the body – deadly if not contained or cured.

Our pay-to-play system, coupled with politicians creating non-competitive districts, undermines our economic health more than the forces that Obama addressed. Why? Crony capitalism prevents our government from responding effectively to a changing set of economic forces.

China is wisely trying to pull political influence out of its economy as its led to unproductive investments and decisions. So why are we as citizens letting our economy become more supercharged with political influence?

Airline classes are a good analogy for the US economy. Where are you in line?

The well-dressed traveler ran like a bull charging a red cape,  entering an open area in front of the waiting lines at Amsterdam’s United International check-in.  “Excuse me – there’s a queue,” I commented from the front of the line. “But I’m Global Services,” he proclaimed haughtily, shocked at my objection.  Thankfully, a United Airlines agent asked the “gentleman” to step to the end of the preferred travelers line.

It occurred to me then that international airline travel is a good analogy for what’s happening in the US economy as we shed middle class jobs. You’ve either been born to the right parents, secured a good career and are living the life of the preferred traveler or you are stuck in the very back rows – unable to afford any preferential treatment. The gap between the two life styles is growing with our inequality measures the worst among the developed world and matching that of our roaring ’20s. (Watch at this video to get a sense of how much more unequal US wealth is than what you likely assume.)

The perks for higher classes extend far beyond faster check-in lines. First class international travelers often enter through different doors, kicking off an experience that makes airline travel a pleasure. Business class travelers get seats that flatten, enabling a good night’s rest. Premium travelers get enough legroom to make a trip bearable. Bathrooms and even airline staff segregate, with each team serving one class of service. The more you spend, the more they dote. Food quality goes downhill from first to coach (more appropriately called the cattle car).

Similarly, economic opportunity also goes downhill across the classes in the US. The upper classes have better healthcare and schools; and their kids are increasingly more likely to land good jobs compared to peers with less lucky birthrights. The experience of the lower classes in today’s job-starved economy – especially those lacking educational credentials – is like flying coach – with less legroom each year and no opportunities for upgrades.  Those in the middle work harder each year to avoid moving to the back of the plane.

Meanwhile our politicians increasingly serve the upper classes. In my former home state of Wisconsin, the non-resident Koch brothers – who “pay” first class contributions – have more influence in the state legislature than the Wisconsin voter.

The growing US class inequality and its implications are creating a mockery of our nation’s founding principle that “all men are created equal.” Inequality starts in the US from the moment the sperm hits the egg. In Norway, by contrast, I observed how universal healthcare and top-notch childcare and early childhood education leveled the playing field and even enabled all immigrants to acclimate to the Norwegian cultural norms.

Many of the privileged are thankful. Their generosity reflects the joy of the upgraded flyer who worked to earn some status and is overjoyed with the welcomed upgrade to an easier flight. Others presume superiority based on false assumptions, like our traveler in Amsterdam. Beyond the family-of-origin impact on earnings, wealth is increasingly driven by stock market returns that have more to do with Ben Bernanke than value-generation. Indeed, financial returns to US business leaders’ efforts have been declining for decades – but not C-Suite earnings.

We airline travelers pass one another entering the plane, but otherwise our experiences are distinct. And yet we are economically interdependent as travelers. Economy needs first class travelers who make their tickets more affordable. First class needs economy to create enough demand for airlines to schedule the frequent daily flights important to business travelers.

These interdependencies exist on the ground as well in the US economy. And yet, we live in different places with the upper classes able to escape most visual signs that the American experiment is failing around them.  Blind to our interdependencies, the wealthy GOP acts as if only their needs matter. How else can you explain why we reduced Head Start and food stamps and shortchanged badly needed infrastructure and Federal R&D investments while preserving unfair tax breaks for hedge fund managers who are not job creators? The far left is similarly single-minded, believing any tax or entitlement is a good one whatever the impact on the national debt or work incentives.

The causes of our growing income disparity are many and their relative weight uncertain. But the consequences are clear. A nation or its economy cannot thrive without a vibrant middle class and fluid movement across the income distribution during a life time and between generations.

The solution? We can start by leaving classes to the airlines and taking them out of our political system. We must replace the “more money-more political influence” system that is veering the plane we ride in together far off course. Objective redistricting of voting districts is the first leg of a long flight back home.