Photograph of Kay Plantes

Kay Plantes is an MIT-trained economist, business strategy consultant, columnist and author. Business model innovation, strategic leadership and smart economic policies are her professional passions. A former Madison, WI resident, Kay now resides in San Diego, CA. The views on her blog are not those of her employer, IBM.

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March 31, 2014, 6:15 pm

Business model excellence from Badger Coach Bo Ryan

A sports fan, I am not. So why was this otherwise buttoned up intellectual screaming (and at times uncharacteristically swearing) while watching the Badger’s win Saturday’s battle against Arizona?

Like winning Olympic rowers, Badgers excel at teamwork. So can you.

Like winning Olympic rowers, Badgers excel at teamwork. So can you.

Because I love Bo Ryan’s leadership and my spirit is awakened by what his system represents. In a culture that increasingly celebrates individual excellence, Bo’s business model is centered on teamwork as its competitive advantage – unselfish, disciplined, focused and motivated by a deeper purpose. Bo wants to make an enduring, positive difference in the lives of young men. I challenge anyone to identify a corporate or political leader as gifted.

Ryan, interviewed minutes after his team’s victory, had just achieved a lifelong goal he shared with his recently deceased dad – mentor, role model, and source of hope after heart-breaking NCAA losses. Yet the first thing Bo does is to thank his team because “they did the work. They won it.” His heart spoke the truth – he serves these men.

And the young men follow him, as we do leaders who care about our well-being. Players automatically go to the bench when they make a mistake – a system Bo demands. They play selflessly because a team victory, not a higher NBA draft number, is at stake. The only way to beat them according to commentator and basketball great Charles Barkley is to “force them to play as individuals” because individually they are not as talented as other players reaching the Final Four (Frank Kaminsky being the exception).

At the level of play the NCAA Tournament demands, motivation creates the extra points needed for victory. This Badger team was motivated to give Bo a Final Four opportunity, a commitment team leaders made after observing how vulnerable Coach was at his father’s funeral. At other times they are motivated to serve Wisconsin and its fans. The sea of red is part of the ecosystem that contributes to the team’s success.

Were Bo a typical business manager, I wonder if he’d have been tempted to change the game plan when times got tough. Too many CEOs cut essential people, chase competitors’ advantages, refuse to do the hard work of deciding which businesses to grow and which to squeeze for cash or divest; they operate from a purely tactical, not the focused strategic lens so critical to long term success. But even when they were behind in the first halves against Arizona and Oregon, the team and Ryan stuck to their game plan. Kaminsky explained the dominating victory over Baylor: “We were well coached. We knew their every move and could predict it from the floor” and had a response.

But that does not mean Bo’s model does not evolve. This season he closed gaps in free throwing and finally built an offense worthy of its defense. With Wisconsin behind in the first half against Arizona, and mounting fouls, Barkley calmed my nerves by saying the team was experimenting to discover what defense would work best.

Wisconsin will next encounter Kentucky, a team designed around one-year talents headed to the NBA. They will be bigger, more athletic, and hungry for larger NBA signing bonuses. Their coach finally figured out how to create team effort; but, if stressed, his players’ instincts will lead them to try to win as individuals. We observed this with Arizona’s star. With little time on the clock he rushed to the basket versus pass, thereby drawing an offensive foul that all but ended the game. If Wisconsin can continue to play their game, we will hopefully see them in Monday’s final.

America is drawn to the Badgers because the team speaks to our deeper wisdom. We all stand on the shoulders of others when we achieve a goal. Our culture tells us to ignore what’s below your feet. We do so at our peril.

What are you doing to weave the core value of gratitude and belief in the power of a team into your organization and community?


March 27, 2014, 8:19 pm

Business model innovation opportunities in pharmaceuticals

In a recent WSJ article, Joerg Reinhardt, chairman of pharmaceutical giant Novartis AG, shared a fundamental business model innovation insight: “We need to add value – life prolonging or quality-of-life benefits – that are meaningful enough for payers around the world to say, ‘Yes, I’m willing to pay a premium over generic opportunities.’” To create such benefits, Reinhardt is devoting a higher percent of revenue to R&D than most competitors and consolidating researchers into four centers to increase synergies across teams.

Reinhardt has business model strategy partially right. Healthcare payers should not pay a premium if that premium does not translate into real benefits. In the past, fear of generic drugs’ quality encouraged many people to favor branded versions. But after decades of safe generic drug production, “assurance” is no longer a differentiator for branded drugs. Unless the branded drug produces significantly better results and far fewer side effects, why pay the premium?

What’s Reinhardt missing? A third way – earning a higher premium by lowering payers’ overall cost of care.  I believe that lowering the overall cost of care will become the #1 differentiating benefit in the years ahead. We are nearing a breakpoint in which growing demand for health care pushes in opposition against our nation’s growing inability to pay for it. Like an earthquake, a sudden break will appear in the market terrain.

We are nearing a breakpoint in which growing demand for health care pushes in opposition against our nation’s growing inability to pay for it.

We are nearing a breakpoint in which growing demand for health care pushes in opposition against our nation’s growing inability to pay for it.

In the mid 1980s, we faced a similar breakpoint. Medicare unexpectedly shifted from covering provider costs to a prospective DRG payment system. After recovering from the shock waves, providers figured out how to maximize profits from prospective payments per procedure. Surely, case payment – for a collection of procedures involved in a specific case – will emerge. Already, Medicare is experimenting and some self-insured employers are contracting with providers this way. Their aim? To lower the financial incentive to do needless procedures and to encourage providers to remove cross-medical silo inefficiencies. If drugs are part of the case cost, tomorrow’s pharmaceutical markets will be as distinct from today’s markets as Oz was to Dorothy’s Kansas.

The shift towards the overall cost of care has many implications for pharmaceutical companies. First and foremost it suggests drug companies need to look at the overall value chain of care. They should consider moving beyond drugs if they can bring knowledge, relationships, channels or integrated solutions that improve the customer experience and lower the overall cost of care.

The disease-centric website of another pharmaceutical company, Novo Nordisk, could be a good example for Novartis teams: Novo Nordisk’s website clearly demonstrates a broader and more strategic view of the diseases it aims to address than does the Novartis site.

A second implication of the shift is potential changes in industry boundaries. Payers are consolidating and exercising more buying power; and whenever one part of a value chain consolidates, others usually follow. Post-DRGs we experienced consolidation within equipment, device, supply, hospital, physician practice, medical distribution and pharmaceutical companies. The next wave of consolidation will be across categories, as we are already seeing on the provider side.  A company offering all elements needed for managing a chronic disease may offer a better solution from the payer and patient perspective.

A third implication is that the premium for extending life cannot be too expensive. While that may sound crass, the emerging reality is a limit to the price premiums that insurers will pay. Furthermore, consumers are taking action already to lower their overall cost, as the increase in centers-of-excellence, healthcare tourism and out-of-country drug purchases attest.

The best drugs in this new world will be those that replace more costly alternative treatments. And here Novartis has some leading candidates. It has partnered with the University of Pennsylvania, for example, on an exciting cell-therapy solution for curing acute lymphoblastic leukemia. A patient’s T-cells are enlarged in number and potency to allow the body’s immune system to fight the cancer, avoiding traditional cancer treatments with terrible side effects. If clinical trials continue to produce the stellar results they have to date, Novartis will have a winner on its hands.  (Disclosure: My husband’s company, ThermoFisher, Inc., is part of the solution’s value chain.)

I can’t imagine a more attractive pricing situation: save lives, improve quality of life during and after the treatment, and lower payers’ overall cost of cancer care. The benefit combination is terrific for Novartis’ shareholders, patients and our economy. Let’s hope all our drug companies double down on such bold innovations.

Products that are “a little better at a much higher cost” just won’t cut it anymore in healthcare or for that matter any market. Go after solutions that are dramatically better. Novartis gets it. Do you?

 


March 19, 2014, 11:27 am

Uber: A business model innovation that benefits and exploits

Uber is disrupting regulated taxi and limo-service markets.

Uber is disrupting regulated taxi and limo-service markets.

“Is the Uber disruption of local taxi and town-car markets a positive business model innovation for consumers?” a former colleague asked me.

Uber, and its competitors Lyft and Sidecar, are disrupting the regulated taxi and limo-service markets by enabling ride-seekers to secure transit in privately owned cars using a mobile app. The entrepreneurs have used technology to both transform what has largely been a local market into a national/global market and dramatically improve customer service (e.g., automated billing, knowing potential drivers’ locations, cleaner cars, customer feedback on specific drivers, etc.).

I am not in the least bit surprised about the emergence of Uber and its direct and indirect competitors (like Ridejoy, an on-line car pooling service). These disruptions demonstrate a number of consumer-friendly trends underway in our economy.

  • Technology automates human tasks and makes markets more efficient and effective. Who needs friends–with-friends when you have Match.com?  I love OpenTable for landing a reservation.
  • Technology turns traditional local markets into national and global markets. Enterprise IT and the Internet enabled big-box stores and globalization, lowering prices. UBER is the next wave – platforms best leveraged over larger geographies. Even babysitting, long a word-of-mouth neighborhood market has an on-line marketplace.
  • Digital technology enables new kinds of contracts. Today there is a computer behind almost every legal transaction, according to Hal Varian, Google’s Chief Economist. And its presence can be disruptive. Before Zipcar you had to borrow a friend’s car or sign a contract at a dealership or rent-a-car company to drive. Now you reserve a shared car.  eBay turned local consignment stores into an on-line market.
  • Lower prices win market share. During off peak hours, on-line ride services lower prices as private drivers have a lower cost structure than regulated drivers.
  • Recycling and re-purposing of material, products and assets. Markets are growing for waste materials (e.g., recycling of building products from remodeling and demolition) and companies are adopting cradle-to-cradle thinking. Airbnb turns unused rooms in your home into an on-line rental opportunity.

Uber has fought off regulators to date. As to the future, we shall see. Seattle will limit the number of ride-share cars to keep a vibrant city taxi service. Local governments will likely pass room taxes on Airbnb rooms, as they should. New Jersey car dealerships recently used their political power to stop Tesla, who had the audacity to want to sell its electric cars through company-owned dealerships!

On the negative side, Uber has figured out how to cream excess profit from its customers through surge pricing, raising prices when demand is highest. Uber board member Bill Gurley makes an impassioned plea for Uber’s price strategy, claiming that surge pricing increases supply and reduces demand, leading to a better market equilibrium. But this claim is based on the wrong economic curves. In peak periods, demand is highly inelastic so a surcharge will not lower demand for Uber by much. Like a tax on a necessity, the economic value of the higher price is captured almost entirely by Uber. (In economic-speak, the supply curve shifts upwards along a given (not shifting as Gurley claims) very steep demand curve.)

Sidecar is fairer to riders as it lets them know the exact cost before booking the rush-hour ride and transparently trade lower wait times for higher prices. City regulatory services have dealt with excess demand by forcing licensed cab companies to have a set number of cars on the road at peak hours. Technology could help them perform this role more effectively.

I’m not against surge pricing in principle. On highways, it streamlines traffic by getting tourists and shoppers off the road at peak commuting hours. For resorts, it balances demand over the seasons. Department store pre-season clothes are sold only at list – in essence a surge price in a heavily discount-priced industry.

But should surge pricing be used in all markets? Should higher education raise prices during a recession, because there is more demand for courses during a downturn? Should you be hit with a surcharge just because you have to catch a plane at the end of the day to get home for dinner with your kids?

My choice is to find a locally owned car service through Yelp. The rates are known and lower than Uber based on what drivers tell me and a recent WSJ article suggests anecdotally. My 24-year old daughter and her NYC friends do the same. And, because these services are regulated and a company owns the car, insurance coverage is assured. Were I a third place player in Uber’s markets, I would pivot to “Plan B” – sell my platform to local cab companies across the US to enhance their customer service, branding it “Taxi on Demand” with a value promise of assurance.


March 11, 2014, 10:17 am

WTN Fusion 2014: It’s all about disruption of business models and IT

WTN Media's Fusion 2014 speakers once again demonstrated the disruptive power of IT and how to best manage IT.

WTN Media’s Fusion 2014 speakers once again demonstrated the disruptive power of IT and challenged IT leaders to lead change in their organizations.

Last week, WTN Media’s Fusion 2014 conference in Madison, WI captured information technology-driven external business challenges and IT leaders’ responses. Small or large, government or private, non-profit or for-profit, the challenges are shared.  Here are my take-away thoughts.

IT’s Role

IT leaders now largely accept a distributed model. “Shadow IT” is here to stay. The shift is correct from my perspective now that insight is one of remaining sources of advantage. Data is abundant and its interpretation must be real-time, predictive and prescriptive. As Greg Pfluger, VP for Information Systems at American Family Insurance, commented, “Marketing … better understands technology than IT people understand marketing. Treat them with respect.”

Despite the complicating issues, Software as a Service (SaaS) is a winning business model; the benefits far outweigh the cons for customers and suppliers. A primary IT role is to ensure integration and security needs are met.

To make this work, reaching agreement and clarity on the line between IT and other business groups is essential. Will IT be responsible for data only or have an expanded role, like employing data scientists that are a shared resource across the company? I especially like the use of IT Innovation leaders with one leg in IT and one leg in a business function or business unit. They have the skills and knowledge needed to use information technology as a driving force for step-change efficiency gains, new business models and other disruptive innovations.

Wherever the line is drawn, IT must be a partner to the business leaders, not a service-offering vendor as there are more agile vendors on the outside, according to Jonathan Martin, EMC’s SVP for Corporate Marketing. But the more IT can focus on enabling innovation – leaving the day-to-day plumbing to outside vendors –the higher value the IT contribution. IT should also oversee SaaS vendor contracts to protect the organization’s security and data reliability.

Business models

Mobility, ubiquitous sensors, and big data capabilities are creating powerful new business models and solutions. The GM OnStar presentation by Paul Pebbles, Senior Manager, Technology Planning and Sandbox Development was especially impressive. (You have to love his job title!) GM is wisely viewing OnStar as a platform – a universal container and common convention for the user interface for application-specific software – much like the Salesforce.com platform. We are in a winner-take-all world, and the race to create a leading platform for tasks-to-be-done in different environments is a marathon run at a sprint speed. (With value migrating to information, GM’s decision to restrict its OnStar innovation to GM cars will open the doors to competing platforms. Is the company’s thinking old school?)

Higher education, customer experience, healthcare, on-line retail and other industries are all open for disruption via innovative use of IT capabilities. (My bet will be on the organizations creating the enabling platforms that advance disruption, like the MIT-Harvard on-line education platform.) Companies that create contextual awareness and advance user interfaces as the physical and digital worlds collide will also win. Mark McDonald of Accenture got it right when he said you must use technology to advance human well-being – to break long term trade-offs that limit human potential or the quality of our experiences.

More worrisome was the limited number of hands that went up in the audience when asked about increased R&D investments and presence of internal innovation groups. Was the largely Wisconsin audience too involved in business as usual? Indeed, the keynote company address from Colony Brands provided an example. The company survived many disruptions in the past. But how will it win against Amazon? “More testing” and “focus on performance” was CEO Bauman’s answer.  Yet Amazon conducts thousands of tests as business-as-usual and exemplifies what great customer service looks like in today’s mobile, on-line retail world. Tomorrow, new competitors could easily enter to serve those lacking credit – Colony Brands’ target market – with a more beneficial business model. Welcome to disruption.

Leadership

Gartner’s Tina Nunno discussed the need for IT leaders to take on more Machiavellian leadership principles—to be more politically aware and manipulative. There was a lot of push-back against her ideas over the cocktail hour, in large measure because IT leaders understand the importance of a collaborative versus political culture. But the author of The Wolfe in CIO’s Clothing made a good point about the need for IT to establish clear boundaries to advance an agenda that matters for the good of the entire organization, like security.

Don Adamany, Founder and CEO of 7-year old IT services company Ahead, captured what leadership is all about in this age of disruption. “Don’t solve problems with old tools,” he said. “Build a collaborative and transparent team – it kills politics.… [And] hire an alien or two to shake things up.” Finally, “recognize there are a ton of start-ups out there – with nothing to lose – working non-stop to take a slice of your market share as you focus on profits.”

It’s all too easy as leaders of traditional organizations to read articles about Facebook, new messaging tools, DropBox, Square, Alibaba (China’s answer to Amazon), Instagram and other IT enabled businesses and assume “that stuff” relates little to your business. WTN’s Fusion teaches us otherwise. Its 2014 roster once again demonstrated that IT is a disruptive force across all industries and size organizations. While you may not want to be on the bleeding edge, falling behind is akin to falling into quicksand without a rope to pull you out.


March 4, 2014, 8:47 am

Five practices to sail successfully in the unrelenting waves of disruption

The pace and magnitude of disruptive forces crashing against the seawalls of our businesses and personal lives only grow stronger. The power of 1975’s fastest super computer is now captured in a $400 Apple iPhone. A $100 genome will be feasible in the next decade. These and other examples are cited in a 2013 McKinsey&Company report, “Disruptive Technologies: Advances that will transform life, business and the global economy.” Here’s the global consultancy’s list of the most disruptive technologies (out of 100 considered):

  • Mobile Internet
  • Automation of knowledge work
  • The Internet of Things
  • Cloud technology
  • Advanced robotics
  • Autonomous and near-autonomous vehicles
  • Next-generation genomics
  • Energy storage
  • 3D printing
  • Advanced materials
  • Advanced oil and gas exploration and recovery
  • Renewable energy

    Welcome to the new world of disruptive forces. Is your team ready to stay afloat?

    Welcome to the new world of disruptive forces. Is your team ready to stay afloat?

Why did these technologies make the cut? They are advancing rapidly and have broad reach – touching many industries and leading to new products, equipment and services. The mobile Internet and the Internet of Things is creating home HVAC and electrical systems  we manage on our drive home. Top disruptive technologies also hold the potential for creating significant economic value. Robots which replace manual work and software and databases which automate knowledge work hold this potential. Finally technologies with the most dramatic change to the status quo matter the most. Advanced genomics (coupled with the Internet of things, mobile computing and automation of knowledge work) for example will transform medical care.

So what is a leader to do? Hoping to ride safely into retirement is not an adequate response as the speed with which new technologies disrupt can be startling, as Kodak discovered when it assumed it had a decade before digital displaced film and Microsoft is discovering as computing goes mobile, a technology shift it largely missed.  Facebook’s $14B purchase for a forty-person text-messaging firm demonstrated its leaders’ commitment to thrive in an increasingly mobile world.

Here are my five suggestions for leadership teams that want to thrive as disruptive forces pound our shores:

  • Clarify your role as captains: Stop defining your value-add as guiding the organization to deliver to plan. In today’s turbulent seas, spending most of your time monitoring and controlling today’s financial performance is like the captain of the Titanic focusing attention on deck chairs rather than the glacier on the horizon.  Let the next layer of management deliver to plan. Your highest value added role is rethinking competencies, cultural norms and business models required as the undertow strengthens. If you are not fulfilling the strategic leadership role, your company may capsize.
  • Assume uncertain seas: Engage in scenario based planning. Expand your team with creative outside advisers and internal associates to envision vastly different futures, shaped by how the disruptive technologies unfold and impact your markets. In each scenario decide your company’s business models, including target markets, offering scope, key partnerships, value chain, differentiation and revenue model. This exercise will create greater agility in your team and surface fresh risks to your current market positions and opportunities in which you become the disruptor.
  • Build an agile crew: Treat change management as an organizational skill versus viewing it as a one-time event with a beginning and end date. Much of the angst about change comes from thinking it is a project, versus an organizational constant. Change expectations and you change associates’ experience.
  • Invest in better navigation: As marketing becomes near-term demand-management focused, make sure someone in the organization is looking far more into the future. Your Chief Information Officer and Chief Technical Officer are navigators helping your ship a cross turbulent ocean in the dark.
  • Explore other boats:  It has never been more important to move outside one’s peer group, industry, demographic, media choice and geography to develop a sense of how the world is emerging.  The rapid expansion of knowledge makes us seek the comfort of specialization; but the future belongs to the Renaissance minds.

WTN’s FUSION starts Tuesday March 5. Be sure to attend if you want to learn many more ways to thrive in an age of disruption.

 


January 27, 2014, 3:48 pm

Prediction: Intuit ad will win the Super Bowl ad competition

At last, a Super Bowl advertisement that will reach new heights without all the hype thanks to Intuit.

Super Bowl XLVIII 2014 advertisements are already generating a lot of buzz in social media and advertising industry media, with more to come during and after this weekend’s game. My pre-game wager for the ad that will have the most impact goes on Intuit. Rather than using millions of dollars to communicate about Intuit, the strategically smart software publisher of QuickBooks and TurboTax is using its investment to help its small business customers. Intuit demonstrates co: collective’s storydoing (versus storytelling) at its best. (Read my earlier review of Ty Montague’s True Story book and storydoing as a strategy.)

Intuit ran a contest inviting small businesses to tell their story and get their fan base to vote for them. Businesses were then asked to demonstrate they could handle the bump up in traffic from winning. Twenty companies (out of thousands) made it to the next round in which 8,000 Intuit employees narrowed the finalists to four.

The four finalists — three founded in 2013, one in 2012 — are:

  • GoldieBlox, based in Oakland, Calif., makes construction toys aimed at girls to encourage their interest in engineering and building. In the words of its founder, “We don’t have a shortage of princesses, but we do of engineers.”
  • Locally Laid Egg Co., a Duluth, Minn., produces eggs from 2,500 hens that forge on and live in pastures, not pens, and eat non-GMO corn. As the company’s tagline promises, “Local chicks are better.”
  • Barley Labs, of Durham, N.C., manufactures all natural dog-treats out of spent barley grain from beer production. Why shouldn’t your dog enjoy beer barley blended with organic cheese and other tasty treats?
  • POOP — Natural Dairy Compost out of Nampa, Idaho provides non-smelly fertilizer from cow manure. Their product lets you “poop your plants.”

There are many reasons to love the Intuit campaign.

  • The campaign makes Intuit’s brand far more authentic. Rather than just saying Intuit cares about small business, they are actually doing something for their target — far beyond selling software that simplifies small business financial management.
  • The contest brings energy to Intuit’s brand – something fresh, fun, and worthy of Tweets, Facebook posts, etc.
  • Like the Caterpillar ad reinforcing the great work of tradesmen, this campaign invites us all in to celebrate a pillar of America – the small businessperson. In so doing, Intuit is therefore helping all small businesses. I encourage you to look at the inspiring videos of the top 20 (or at least top 4) to feel the power and joy of small business in our world. If you don’t laugh or feel excited for these small businesses, you are likely working more than is good for your well-being.
  • In the midst of mega-billions of advertising spent at the SuperBowl, Intuit’s spot will truly stand above the rest because of its intention. (Unfortunately the Wall Street Journal’s review of Super Bowl advertisers’ pre-game efforts failed to mention Intuit. So much for the WSJ understanding branding!)
  • Every business that entered derived some value from the contest by having to meet the challenges of telling their story, engaging their fans, and thinking through the implications of increased demand.

As our economy gets increasingly commoditized, customers will seek companies that have the authority to earn their purchase.  Being true to your purpose – demonstrated in aligning every action with your business’ deeper purpose –  builds that authority.

All four finalists have already won a lot to advance their business success. In addition to enhanced website presence as finalists, they each receive an ad produced by Super Bowl advertising veteran agency RPA. While only the winner’s ad will appear on the Super Bowl spot, the three other finalists will have their ads aired on national TV in a different time slot. And, we all win by observing how Intuit wisely elected to spend its marketing budget.

What are you doing to “do” versus “tell” your story?

 

 

 

 

 

 

 


December 23, 2013, 1:57 pm

You can’t solve a problem without addressing the root cause.

Be Healthy Tulare turns food waste into healthcare gold

Be Healthy Tulare turns food waste into healthcare gold

Sarah Ramirez, a Stanford-educated PhD, left her job as an epidemiologist to return to her farming roots so she could help reverse the growing diabetes and obesity crisis she observed in Tulare County. Tulare, profiled in John Steinbeck’s Grapes of Wrath, remains largely populated by farm-workers, many still trapped in poverty She wanted to help combat food insecurity, experienced by over 40% of this California county’s residents, which she observed as contributing to these health problems.

In essence, Ramirez and her partners are turning food waste into health improvement gold.  With her husband, she started a grass roots organization Be Healthy Tulare in her Pixley, California hometown. Be Healthy Tulare harvests food that would otherwise go to waste in commercial fields because of less-than-perfect appearance or in residential backyards because of too-busy homeowners.

In this country, food pantries do a great job of capturing unused food from grocery stores and restaurants. But according to a recent NPR report showcasing Ramirez’s story, we throw away about 40% of fruits and vegetables grown in America. Food bank employees cannot harvest this food due to liability concerns, and growers would have to incur costs to pick the produce before donating it.

That’s where Be Healthy Tulare comes in. The organization provides the labor to harvest this bounty. It then distributes the fresh produce to those in need, including people who helped in the harvesting. The organization also teaches low-income residents about why and how to cook with fruits and vegetable. And the community it serves has started a community garden.  As people eat healthier food, they are getting healthier.

By addressing the root cause of health issues with an inexpensive and labor-intensive solution, Ramirez is demonstrating a number of important points about business models in the 21st century.

First, waste can have value. So do unused assets—as rent-a-room company Airbnb and independent car sharing services demonstrate. Companies that reduce waste, recycle or sell their waste to others drive up the bottom line by lowering cost-of-goods-sold.

Second, the only sustainable business model to solve a problem is one that addresses the root cause of that problem. We can drive down the cost of Medtronic diabetes pumps, NovoNordisk’s insulin and Roche ACCU-CHEKÒ monitors; but we don’t have a chance at pushing back the tsunami of diabetes costs approaching our nation’s economy unless we attack the root cause. Reducing food insecurity while improving diets and nutrition knowledge are root-cause strategies.

Third, using those you serve as part of your value chain is an important strategy for non-profits as the work itself helps raise self-esteem. Getting to be part of a community growing and harvesting food is a very different emotional experience compared to the old experience of getting handouts from a food bank.

Finally, Ramirez saw a problem and used her entrepreneurial instincts to solve it, even though returning to her family farm was not what her farm-worker parents raised her to do. “If I think about the overwhelming nature of the problem, it’s so much easier not to do anything. And there’s a lot of people who say the problem is so big, nothing we can ever do will fix it,” Ramirez says in the NPR report. “Well, if we all took that position, nothing would ever get done.”

Great innovators know you have to look outside the system that created and sustains a problem to solve that problem.  If you spent most of 2013 just managing numbers and making internal systems work better, figure out a vitally important external problem you or your organization can solve in 2014 by reaching beyond the boundaries of your current business. That after all is what great businesses do – they solve problems better than the existing alternatives.

I will try to do the same. Happy Holidays to all.

 

 

 


November 26, 2013, 10:48 am

Business-to-individual business models will win out in the Connected Customer Era

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.”


November 13, 2013, 10:21 pm

A business model turning big data into smart data

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.


November 5, 2013, 3:22 pm

Acquisition PacMan weakens the business model

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.