Fuzziness around the answer to "What business are we in?" is a good thing. It encourages ongoing exploration.

If, as a company leader, you did not lose a heartbeat over the bankruptcy filing of Kodak, Barnes and Noble, Blockbuster and AMR Corporation (American Airline’s parent) or Google’s pending purchase of Motorola phones, you should have. When previously solid businesses run out of cash, there are lessons to be learned. In particular, never forget the vital strategic question, “What business are we in?”

Too narrow an answer, like Kodak’s “film” or Blockbuster’s “video store,” positions your business to be disrupted by a better solution. Look what stand-alone digital cameras and smart phones have done to film or what Netflix’s more convenient mail-order DVD model did to Blockbuster. A change in consumer preferences also leads to disruptions as Netflix found out with the surge in on-line media streaming.

Too broad an answer to the question “What business are we in?” or an out-of-touch-with-the-market answer is similarly fraught with problems. Sears failed in trying to sell soft goods like sheets and clothing alongside appliances and hardware. A new owner got it wrong again when he combined Sears with Kmart as a real estate play as a recession and the Internet’s disruption of retail created an abundance of space. Spectrum Brands erred in assuming synergies from combining a bunch of third-rate brands with Rayovac batteries would cover debt payments. Falling into the same trap by combining community newspapers, Lee Enterprises went belly-up.

Rapid consolidation in an industry indicates competitors have the same business definition and their business models are commoditized, as we saw in pharmaceuticals, banking and accounting and law firms. Smart leaders in these industries will ask, “How might I change my business concept and value promise to break out of the commodity pack?”

These industries aren’t alone. Many companies are being challenged by the definition of their business. In the age of Google and Wikipedia, what is the public library (or a teacher for that matter) today and why should it exist? What is a school textbook publisher in an iPad/Kindle on-line information age? What is a newspaper business in the era of free? How should health insurance companies redefine their business as policy changes?

Here are five principles to guide your search for an answer to the question, “What business are we really in?”

Never stop asking the question. Otherwise, you leave the answer to history, industry practices, your founder’s preferences or serendipity.  Leadership’s highest value contribution is to regularly reflect upon and define the company’s domain and build differentiated business models anchored in hard-to-copy advantages within this domain.

There are many ways to focus the answer. Apple’s domain appears to be defined around its value promise – saving time, increasing usefulness and reducing frustrations of computing. The value promise has taken Apple from computers to music players to cell phones to mobile computing, and soon TV and textbooks. IBM on the other hand defines its business around capabilities, moving from hardware to services.

Disrupt your business before competitors do or you’ll have your own Kodak moment . Kodak invented digital photography and e-mail photo sharing but did not aggressively pursue the market to preserve its lucrative film business. No customer will pay you merely to preserve your shareholder value, executive bonuses or privately owned company wealth.  If there is a better answer, your customers will head in that direction, and today they do so at a faster and faster clip.

Purpose matters more than mission.  Mission is about “what,” purpose about “why.” Purpose deals with beneficial outcomes, a more strategic business concept than a description of “what” you do. Kodak’s mission was to make the best film, but film’s deeper purpose is preserving memories (photography) and capturing images (healthcare and movies).  Adopting a broader definition of its business would have pointed Kodak to richer directions than the film-like business of printer ink cartridges that they later pursued.

Cost effectiveness wins the day. Competition drives business models towards the lowest possible cost.  It’s why the parent company of American Airlines had to declare bankruptcy. News organizations and catalogue companies that center their business models in print had best relearn Economics 101 as it is finally pertinent.

What business are you in? The answer is not in your boardroom, management team or your past.  Be curious and listen to a widely diversified set of external voices and inputs to keep your mind alert to new answers. You’ll help your company not only survive, but thrive.

Following release of its Supplier Performance Report, Apple is far less appealing as a brand.

How will loyal Apple customers react to Apple’s first public supplier performance report card? Recent news about abuse of labor hours and environmental standards by some of Apple’s Asian supply chain partners might lead the loyal and merely satisfied to shop elsewhere. After all, loyalty, past satisfaction with purchases and implicit expectations about corporate behavior are woven together in a rope that can propel or, in Apple’s case, choke off future growth.

About loyalty, satisfaction and expectations

Customer satisfaction measures, “Did the product or service I purchased meet my expectations?” If it did not, once satisfied customers become dissatisfied, shop elsewhere in the future and, depending on the magnitude of dissatisfaction, encourage others to do the same. Customer loyalty is more than very high levels of satisfaction. A disappointed loyal customer gives a brand a second chance following any disappointment.

Most of the satisfied customers, even those whose expectations are exceeded, are not loyal, and from the economy’s perspective, this is a good thing. The merely satisfied shop elsewhere as soon as something better is available, unlike the loyal who wait for their brand to catch up should it fall behind competitors.

The shopping behavior of satisfied customers drives economic change. Disappointed Blackberry customers switched to the iPhone, encouraging Blackberry, new entrants and other share losers to adopt Apple’s innovations. At the same time, Apple pushes its advantage still further. If customers jumped ship more slowly, improvements in product performance and cost would grind to a very slow pace.

In this way, the invisible hand of free market competition performs an amazing job raising market requirements. Even market disruptors pay attention to basic customer requirements that all brands in a category must meet. Furthermore, regulatory authorities make sure these basic requirements are met if safety or environmental risks are present. Has anyone recently purchased a kid’s toy with lead paint?

Back to the question about Apple

Any brand built on egregious environmental and labor practices made public in Apple’s supplier report will be tarnished in the eyes of customers who expected more from the brand, customers who may be among its most loyal.  Brands with high loyalty cast a glow that transforms brand expectations. Just today I was in a meeting with a loyal Apple customer who said he always bought Apple because they were first to every market, priding himself on being an early adopter. In fact, Apple’s genius is following the leader, but doing it the right way.

Tarnishing of a brand need not affect its financial performance, however, if the competition is similarly tarnished. Whether or not supplier performance disappointments reverse Apple’s rising success depends therefore on three factors:

• What did satisfied customers expect about Apple’s supplier management? If they expected better performance, they are now dissatisfied and open to shopping;

• Is the supplier performance a game changer, eroding loyalty altogether for some customers? and,

• Are there comparable products with better supply chain performance? Data shows that all else equal, consumers chose companies that do less harm or more good for the world.

The Internet has made social and environmental performance far more transparent and therefore actionable for those who care about these factors. Nevertheless, the declining economy has made consumers more value-focused, with fewer customers willing to pay price premiums for environmental and social performance. A tie, you might conclude, in whether brand expectations and brand choice are more or less influenced by a brand’s environmental and social performance today than in the past.

But wrapped around the tug of war is the trend – more consumers becoming aware of how our market system produces more than meets the eye, and often its not very pretty.  The Occupy Wall Street movement, Harvard Business Review blogger Umair Haque and many global institutions benchmarking brands’ environmental and social performance are making more consumers more aware of the shadow side of capitalism. So is the media, one example being an NPR report that life expectancy in Beijing is cut short by five years due to very dangerous levels of pollution emerging from the rapid growth of China’s exports and unwillingness of its government to invest in modern coal technology. The true cost of Chinese imports’ just rose in a consumer’s mind not previously aware of this fact.

Yes, there is a positive side – China has fewer poor people thanks to US and European consumption of its exports. But consumers always want it all – Help the world, but not at the environment’s expense. It’s the American way after all – a mantra that’s improved performance across most markets since the advent of barter.  Companies that figure out how to break through product trade-offs win big time.

With ease-of-use becoming a requirement in cellphones and mobile tablets, and Samsung fast on its heels, Apple had best consider differentiated performance in environmental and labor  factors because being the “best product” will require different things in the future. Absent change in its supplier management, the Invisible Hand will deal Apple a hand its leaders will for sure not like playing.

Eliminate the root causes of escalating healthcare benefit costs before they make your business model less competitive.

Want to build a more competitive business model by lowering labor costs? “Why then are you leaving management of healthcare benefit costs to outside health benefits administrators?” John Torinus, Jr. might ask. Torinus, chairman of Wisconsin-based Serigraph Inc. and former business editor at the Milwaukee Journal Sentinel, views health insurers as “middlemen with a busted business model.” With “a foot in both the provider and payer camps,” health insurers fail to extract best value from provider care networks that insurers need to win business.

Torinus understands the value of proactive management, which may explain why the printing, in mold labeling and custom industrial graphics company he purchased in 1987 has grown more than three-fold to 1000 employees, with plants in the US, Mexico, India and China.  By reinventing his company’s approach to healthcare, he’s avoided the dramatic increases in employer and employee benefit costs that most other companies offering health benefits have encountered.

Torinus’ 2010 book, The Company That Solved Health Care: How Serigraph Dramatically Reduced Skyrocketing Costs While Providing Better Care, and How Every Company Can Do the Same, overflows with specific changes Serigraph made (and their rationale) to achieve total employer and employee cost increases of under 3% per year compared to the US average (2003-9) of 7%. Serigraph redesigned its benefit plan to diminish root causes of escalating healthcare costs, including:

• Providers driving demand for services because they are often incentivized to do more and patients defer to their expertise
• Closed and uncompetitive markets for health insurance and clinical care
• Employees shielded from healthcare costs after reaching their out-of-pocket ceilings
• A lack of incentives for employees to be smart healthcare consumers
• Unhealthy life choices
• Lack of transparent information on provider prices and quality

Much as Dorothy did with the Wizard of Oz, Torinus pulls the curtain aside to expose his readers to the truth about insurance plan discount rates. Providers have managed to keep their payments high by jacking up retail prices then offering alluring discounts. Employers should instead focus on the overall value of care, with price level (not discounts) as one component alongside quality outcomes and service levels. Torinus reinforces the findings of healthcare economists when he states, “There is absolutely no relationship between quality and price.” Procedure case costs, for example, can range from $10,000 to $25,000 without clinical outcome differences for knee arthroscopy, according to Torinus. Furthermore, prices rarely include all the procedures associated with an episode of care in most benefit plans.

Serigraph, which is self-insured, implemented changes in three areas to drive higher value. First, employees have skin in the game and tools to reduce healthcare spending without compromising health. Skin in the game can take many forms. Rather than merely cost shift to employees, Serigraph designed its benefit policy to change employee behavior to get more value from healthcare spending. Like other proactive companies, Serigraph employees have high deductible plans as well as health savings accounts. In addition, price and quality information about providers is readily available and employees earn cash rewards if they select the highest value providers, thereby lowering family net out-of-pocket costs.

Second, by contracting with BridgeHealth Medical, Serigraph employees have access to centers of value – a world-class provider network for specific surgical procedures offering the highest value. These providers offer inclusive fixed prices, with Serigraph picking up all travel costs for patient and companion. Torinus has found that best-in-class providers pursue lean approaches that eliminate delays and reduce mistakes that drive up the price of care.

Finally, primary care clinicians play central roles, reducing avoidable higher cost specialty care. Serigraph employees have access to free company-located primary care clinics that preserve patient privacy. Benefit plans include free prevention-wellness programs and free medications for managing selected chronic illnesses.

Torinus wisely did not expect an insurance administrator or company employee to lead the change. He personally modeled getting healthy, benchmarked aggressively and led an action-oriented approach to ratcheting down healthcare costs. Workers and management alike know that getting a handle on these costs makes Serigraph more competitive, profit sharing more generous and jobs more secure. Local healthcare providers are waking up – many lowering their prices after losing Serigraph’s business.

Unlike Torinus, many healthcare providers, insurers, state governments and private payers are awaiting the outcome of the next Presidential election and the Supreme Court challenge to Obama’s healthcare reform as an excuse for inaction. You’re foolish, out-of-business newspaper publishers might tell these leaders.

When a revolution is underway, as it is in healthcare, you must surf the wave lest it come crashing down upon you. 

When you shift attention from purchasing healthcare to getting more value from your spending, new ways of working with providers, insurers and employees become obvious, as they did to Torinus. Obama care or not, Serigraph’s healthcare approaches are the future. Providers, insurers, medical product companies and payers will better understand the waves of change coming their way by reading Torinus’s timely book.

Entering 2012, leadership teams are hotly debating social media. How should we use it? How might it shape markets? Will we lose control of our brand image? And, what policies should we adopt for its use?

Is your organization tapping into the full power of social media?

Into this mix, Anthony Bradley and Mark McDonald thankfully remind C-Suite leaders that social media “is a means to an end, not the end itself” and that the end can be a really exciting business purpose. Bradley and McDonald are Group Vice Presidents at Gartner Inc., a leading information technology research and advisory company. Their new book, “The Social Organization:How to Use Social Media to Tap the Collective Genius of Your Customers and Employees” (Harvard Business Review Press, 2011) is required reading for companies seeking to build competitive advantage by deploying social media strategically.

The authors move quickly beyond the use of social media for marketing communications. Rather, they establish social media as a capability that enables a new way of working by using mass collaboration. In a world of growing fragmentation and specialization that challenge our ability to understand the “whole,” mass collaboration lets organizations tap into the collective genius of customers and employees to address vitally important business challenges and opportunities. Finding the right experts within your large global consultancy or tapping customers about new applications for your technology are but two examples.

To create a mass collaboration capability, you must address the leadership and management challenges social media creates, not just its technical implementation, based on the authors’ case studies. Specifically, management must define the purpose(s) to which mass collaboration will be used and the community that will come together around each purpose, as well as create the social media place where the community engages. The on-line community then self-learns, self-governs and self-directs thereby creating the mass collaboration that fulfills the community’s stated purpose.

CEMEX, a large complex global construction products company is an example of a social organization. It used social media to engage its entire workforce in a discussion on how to execute the corporation’s strategic initiatives. Management was involved keeping its employees focused on valuable purposes and productively linking the work of the community back to the company. The result? Better and faster answers, ones that employees more readily executed because they were involved in their creation. The experience led Miguel Lozano, CEMEX’s Innovation Director, to say, “Now that we’ve done it this way…we’ll never go back to the old way.”

Companies that adopt social media enabled-mass collaboration become social organizations, i.e., “one that strategically applies mass collaboration to address significant business challenges and opportunities.” These organizations are less hierarchical, more open to customer and employee ideas and, as a result, are more astute, innovative and agile – all competitive advantages in today’s turbulent markets. Social media in these forward-looking companies transforms culture and improves performance.  “The way a social organization manages, the way it invests, the way its system works, and the way its people think are all different from the way organizations have traditionally worked,” the authors state in reflecting on best-in-class examples of social media adopters.

Coincidentally, I listened today to a CMO Council (Chief Marketing Officer) webinar on the adoption of social media to advance brand success. National Instruments, for example, created an Idea Exchange in which customers provided over 2,400 product ideas upon which tens of thousands of customers among the 99,000+ site visitors voted. HP and AT&T have saved money by using social media, rather than live conversations with customer service reps, to address customer service complaints. (Lithium Tech, a technology platform and consultancy enabling its clients to build a “brand nation,” provided the webinar examples.)

Mass collaboration is not designed to address all questions and needs. According to Bradley and McDonald, purposes that work well with social media-enabled mass collaboration include:

• Capturing the collective intelligence of a community
• Locating experts within a large community
• Gaining insights into how things work in practice by identifying patterns of communication within a community
• Cultivating interest within a community
• Coordinating masses of people for rapid response
• Leveraging relationships within a community

Mass collaboration is not well suited to situations in which

• Deep analysis is needed
• Needed expertise rests with a small group of people whose conversation shapes each others’ opinions
• Information is sensitive
• Conflicting information makes it challenging to separate fact from fiction.

Unfortunately, this early in its adoption cycle, “most efforts to create social media-enabled mass collaboration fail to produce anything of value.” Companies fail according to the authors because:

• They do not define a purpose for mass collaboration that attracts participation and provides organizational value
• Executives withhold support
• Social media is seen as an IT project, versus an important business initiative
• Culture stifles collaboration, with policies or management exerting too much control. This precludes the participation, sharing, transparency, independence, persistence and unimpeded development required for mass collaboration success.
• Communities remain isolated, not linked back to creating value for the corporation overall

Bradley and McDonald offer an insightful “how to” guide to building a competitive advantage in the information age. The experienced authors will help you create a vision, strategy and worthy purposes for social media-enabled mass collaboration. With “The Social Organization” as your guide, you’ll effectively execute and adapt to this new way of working.

Competition in a free market economy favors the lowest cost business model as markets mature and price-driven shoppers grow in size. Design a business model that delivers unique benefits, on the other hand, and you must also focus on efficiency. Because customers only pay price premiums for unique benefits, any inefficiency costs come right off your bottom line.

Is it any wonder then that on-line retailing is growing by leaps and bounds, steadily gaining share against in-store retail? E-commerce is far more efficient, something Amazon understood in disrupting the book industry. In addition, on-line sales lower consumers’ indirect costs by saving time and gas money and, during the busy holiday season, avoiding the frustration of fighting crowds.

Nevertheless, efficiency and convenience won’t overcome frustrating on-line shopping experiences. So how successfully are on-line retailers satisfying the increasingly demanding consumer?

Better and better according to ForeSee, a pioneering consultancy in analyzing customer experience across channels and customer touch points. ForeSee just released its 7th E-Retail Satisfaction Index (U.S. Holiday Edition), a survey of 8,500 consumers conducted during the Thanksgiving to Christmas holiday shopping season that shows 2010-2011 satisfaction gains with the top 40 on-line retailers (by sales volume, according to Internet Retailer). (See Chart One.) Since on-line sales peak in the holiday season, customer satisfaction during the holiday period is a great time to capture how well or poorly on-line retailers are performing.

ForeSee’s data matters as customer satisfaction is a great predictor of consumer spending and brand loyalty. (See Table One.) Furthermore, higher customer satisfaction also generates higher financial returns according to the American Customer Satisfaction Index, upon whose methodology the ForeSee survey is based.

At the same time, the drivers of customer satisfaction vary across brands, as they should. According to ForeSee’s President and CEO Larry Freed, “There is no standardized, cookie-cutter approach to e-commerce. The days when there was a checklist of what constitutes the ‘best’ website, business model, or e-commerce solution are well behind us now. Different companies have different kinds of relationships with their customers, different kinds of pre-existing images, different sets of expectations, and so on. Expectations alone can affect satisfaction: people expect lower prices from some companies and better service from others. By understanding the impact of specific aspects of a website on overall satisfaction, e-retailers can save costly investments in upgrades that will not influence satisfaction and behavior and focus their efforts on the changes that are likely to matter most.”

And the winner is…

Amazon wins the competition with the highest customer satisfaction score (88%), five points ahead of other leading contenders and up two points from its #1 rating last year. Does this suggest that highly automated service and using data analytics to make customer recommendations will guarantee satisfied customers? Hardly. Netflix’s business model is also automated and includes customer recommendations. But its customer satisfaction plummeted after being tied last year with Amazon for the #1 spot.  (See Chart Two.)

In fact, Netflix’s satisfaction dropped seven points this year in the survey results to 79%, the average for the 40 e-retailers as a set. Netflix’ price increase and a decision (since overturned) to split its on-line business apart from its DVD-rentals business (thereby forcing many customers to hold two memberships) angered many customers. The anger served to lower customer satisfaction (by 8%), a dangerous situation as Netflix faces a growing set of competitors. According to the ForeSee survey, the drop in satisfaction also lowered Netflix customers’ likelihood of using Netflix for similar purchases in the future (down 10%), recommend Netflix (down 11%) or return to the Netflix website (down 5%).

With Amazon and Netflix now in the same market space for on-line movie and TV show viewing, I know which stock I’d bet upon. In an e-commerce war, customer satisfaction is like the highest hill on the battleground, conferring welcomed advantages in the battles ahead.

Dow Corning built two distinct brands on a shared, solid foundation.

A well-known case study by Harvard Business Review documents how Dow Corning elected to disrupt its own silicon business rather than allow competitors to steal market share by offering lower price points. The story is worth retelling because Dow Corning’s business model innovation keeps evolving to meet the needs of price-driven customer segments.

As the information age took full hold in the 1990s and markets globalized, Dow Corning recognized that its high-end offering of services surrounding its product left the growing number of price-driven customers shopping elsewhere. “We recognized that a number of product lines were becoming commodity-like, and customers were no longer willing to pay a premium for them,” comments 20-year Dow Corning veteran Stacy Coughlin, an architect of the 2001/2 business model innovation project that created a price-driven brand, XIAMETER. Now the head of Global Marketing Communications for this brand, Coughlin is a key strategist in keeping the XIAMETER® brand and Dow Corning® brand distinct while allowing the XIAMETER brand to share its sister brand’s halo of quality and reliability. The halo enables XIAMETER brand products to offer a compelling value promise – market based pricing without the risk of production interruptions due to supplier quality issues.

To win back the price-conscious shoppers, the XIAMETER® business model unbundled services from Dow Corning products and moved customers to on-line ordering and Web-based product information. Think Amazon applied to a specialty chemical that, due to its maturity, is less special.  Products in the earlier stages of the life cycle, on the other hand, bear the Dow Corning brand. This brand comes with applications advisors who help customers use customized Dow Corning silicon-based solutions to optimize their own product’s performance.

I learn in my interview with Coughlin that the XIAMETER brand was improved and dramatically expanded in 2008, a testimony to Dow Corning’s understanding of the requirement to evolve business models in today’s hypercompetitive economy. While some silicon offerings have matured, this substitute for petroleum-based products still offers many opportunities for innovation. Therefore, “in 2008 we refocused the XIAMETER business model to put a lot more of our company’s internal resources into the innovation side of our business – the Dow Corning Brand products – while improving our commodity-product offering. Because we faced both a global recession and far more competitors, the move came at the right time,” according to Coughlin.

With a proven business model, the XIAMETER® team moved many more products to their brand. “We needed to expand the product offering to follow our customers into developing markets where even our most basic products in each category were a step up. And we had to offer these products at market-based prices – similar to our competition,” Coughlin shares. “Furthermore, with far more competitors, including China, products were commoditizing far more rapidly.”  The XIAMETER team also dramatically increased marketing communications to build awareness and consideration, added distributors and lowered minimum order sizes.

But how do you manage two brands competing for the same customer, avoiding resource duplication and customer confusion? How do you hold onto high prices when benefits support higher prices, while retaining share in commodity-like products? Dow Corning uses platforms.

Product line managers oversee product category platforms, determining where products are in the life cycle and deciding which products fall under which brands, all with an eye to balancing capacity and brand mix to maximize overall profitability. Everything else except sales and marketing – in other words manufacturing, governance, sustainability and C-level management resources – is shared by the two brands.

There are challenges. “With different sales organizations for each brand, sales representatives must work closely to understand customers’ overall needs – in custom and standard products – so communication must be stronger than ever before,” according to Coughlin.  And, “internal communications about each brand, especially across two commercial organizations” is still work-in-process.

In order to be able to sell XIAMETER® products at market-based prices, Dow Corning built a highly efficient operating model to achieve profitability targets. Coughlin states, “Because the business – from ordering to fulfillment – is automated, we reduce the need for manual work that adds costs.”  (Dow Corning, a joint venture of Dow Chemical and Corning is a private company and does not release financial information.)

“We also have a highly integrated SAP system utilized in real time, allowing us to offer two brands without adding operational costs, which also adds to efficiency” Coughlin notes.  “It takes a strong leadership and change management to implement something this dramatically different.  I give our executive leadership kudos for making it happen.”

Are you losing segments because of the design of your offering? Disrupt yourself before a new entrant seizes the opportunity.

A platform acts like a magnet drawing participants into an ecosystem that advances a market.

Qualcomm Life, a fully owned subsidiary of Qualcomm that focuses on the wireless healthcare marketplace, is on track to create a well-tuned ecosystem to accelerate the adoption of wireless solutions. Wireless healthcare devices will identify problems in patients with chronic diseases earlier and move care to lower cost locations, thereby lowering the cost of care.

About ecosystems

Ecosystems – a concept appropriated from biology that’s now actively used in business strategy literature and the investment community – are loosely knit networks of organizations that serve to create whole solutions. The network operates through conscious and unconscious collaboration and competition involving the platform company and other organizations using it.

Far more than a supply chain, ecosystems also include complementary product and service providers, distributors, government agencies and even customers. For example, Microsoft’s ecosystem includes multiple software and IT-service companies, educators and others that collectively enabled Microsoft’s operating system platform to become the standard solution for the PC world.

The advantages of an ecosystem extend to more than the platform creators. The success of game developer Zynga (creator of Farmville) stemmed from being part of the ecosystem created around the Facebook platform. The same is true for Rovio Entertainment Ltd. (creator of Angry Birds), which grew with the Apple operating system platform.  Both platform creator and ecosystem members can ride a wave of growth when the ecosystem works well.

About Qualcomm Life’s 2net platform and hub

A wave of growth – that’s what Qualcomm Life is hoping to accomplish by introducing its 2net platform and hub. The 2net platform is Qualcomm Life’s FDA-approved wireless medical data system for safely, reliably and seamlessly storing, encrypting and transferring data from medical devices to a hub, thus making data available to designated users. How does it work? Here’s an example.

A wireless blood glucose monitoring device could supply data over the platform to help diabetics’ primary care physicians monitor their patients’ health, to help patients track their health, and to alert elderly diabetics’ assisted living helpers when more care-oversight might be needed. The open platform can work for all brands of wireless health care devices, connecting devices, companies and people to advance patient care 24-7-365 while meeting with HIPPA requirements for patient privacy.

The platform and hub will significantly reduce product development costs across the wireless healthcare marketplace. Early in my career I was part of a team that created a real time electronic anesthesia record-keeping device. The success of the new-to-market product category was undermined by the amount of time patient-monitoring company partners and my company’s engineers spent interfacing our respective products.

Qualcomm Life steps into this type of mess. Here’s one example from Don Jones, vice president of global strategy and market development for Qualcomm Life, shared during an interview with InformationWeek Healthcare. “The 2net platform  will make it very easy to integrate mobile health devices and in-home health devices to Electronic Health Records (EHR), alleviating the need for EHR companies to integrate each manufacturer’s device.”

The downside of ecosystems

Ecosystems can occassionally hurt participants. For many years, Swatch Group, the world’s largest watch manufacturer, advanced the success of the Swiss watch industry by supplying mechanical movements and other components to enable other companies to supply high end watches bearing the coveted and profitable “Swiss made” label.  Swatch Group’s production parts platform lowered Swatch Group’s overall costs while enabling close to 500 other companies to join or remain in the market, enriching the brand awareness and image of Swiss made watches globally. (See my earlier blog on why Swatch Group saved its industry.)

Starting January 1, 2012, Swatch Group, according to the New York Times, plans to reduce sales to other watch makers and possibly end them “to concentrate on producing watches with higher profit margins and to make sure it has enough supplies on hand for its own brands, including Longines, Omega, Tissot and Breguet.”  Swatch Group parts customers, like Edox, (which produces 70,000 to 90,000 Swiss made watches a year with an average price of $1,600), are unprepared and likely financially unable to backward integrate on their own. And partnering with other watchmakers may be precluded given Swatch Group’s potential timing. Is it any wonder that Edox  joined eight other Swiss watch companies to sue Swatch Group?

Are your ecosystems working in your business models’ favor? Are there ecosystems you should be part of? Could you be a platform company? Or, have you incorrectly placed ecosystem thinking on the back burner? What’s your 2012-2015 ecosystem strategy?

Marketing's tool kit keeps expanding, while its role remains the same.

The market share battlefield and its weaponry changed considerably as our economy transitioned from the Industrial Age to the Information Age. In particular, the growing sophistication of marketers (and IT needed to support them) has been nothing short of breathtaking.

The movement from the Industrial Age to the Information Age increased customer power, expanded offerings and growing competitive intensity. (See Sidebar.) As a result, both of marketing’s roles have become more important. Marketing’s tactical role is demand management, or deciding on the right channels and teeing up the awareness, considerations and positive attitudes that lead target customers to select their company’s offerings. The strategic role is to make sure the company has the right offering at the right price and margin.

In the information age, marketing is transitioning from an art to a data-based science highly reliant on the strength of the IT systems and the data it generates. Roles that used to be embraced by one person, serving as the mini-general manager of a product category, are increasingly divided into multiple marketing sub-specialties.

The tactical side has transformed the most with marketing leaders expected to understand what levers will drive up demand in the most cost-effective manner, with return on marketing programs measured in the most sophisticated marketing departments and agencies. Interactive channels claim a growing share of marketing’s resources and marketing messages in these channels have transformed from one-way communications to a two-way dialogue. Customer experience is managed and measured across all channels.

One look at the new services supporting marketing departments shows the transformation of tactical marketing efforts from insightful work with creative talents to a data-based scientific effort to measure the components of demand, monitor their performance and influence their outcomes:

• Data cleansers
• Data segmentation vendors
• Data appenders
• List managers, compilers and brokers
• Lead management software vendors
• Search engine optimization/maximization vendors
• Marketing automation software vendors
• Content publishers
• E-mail vendors
• Analytics vendors
• Web analytics vendors
• Customer relationship management system vendors

This list of data-based experts sheds light on the considerable demands marketing now places on IT departments.

While digital data also becomes more important on the strategic side, methods have also expanded to include human observation of products in use and more open-ended questioning about jobs customers want others to do for them.  Strategic marketing talent must today master the art of business model innovation and they have more relationships with customers, who are often initiators of innovation, not just focus group participants.

Large companies increasingly divide marketing’s demand management and product roles, placing tactical marketing under the commercial leader while embedding strategic marketing within business units. Chief Marketing Officers (CMO) of large companies increasingly realize they are managing resources across their organization – in fact any resource that touches customer experience is part of marketing’s scope. The CMO becomes akin to a magnet, attempting to align all resources to build a superior customer experience coupled with superior financial performance.

Smaller companies make the mistake of not paying attention to both marketing roles, usually choosing the tactical over the strategic. Smaller B2B companies make the mistake of thinking sales representatives can do marketing. Both large and small companies make the mistake in today’s competitive markets of not investing enough in the market-understanding process. Finally, too few IT departments understand how vital IT’s support of marketing is to their company’s success.

The best business models on paper fall apart in practice when marketing is weak. Is marketing a strength or weakness in your organization? Are IT and marketing collaborating? What’s your 2012 improvement plan?

For a great guide on marketing planning see the new edition of Scott Cooper et. al. The Successful Marketing Plan.

This blog posting by Bill Kraus does such a good job in explaining the US’ political stalemate that I am giving my weekly blog space to his words. Kraus was the Chief of Staff for Wisconsin Governor Lee Dreyfus. He serves on numerous boards, including publicly traded for-profits and non-profits, and earned his extensive business credentials in the insurance industry.

The Know Nothing movement of the mid-nineteenth century was a semi-secret political organization (an oxymoron?) which was dedicated to protecting the country from a takeover by German and Irish Catholic immigrants. The name resulted from their members’ keeping their association secret. When asked about the movement they, not unlike TV’s Sergeant Schultz, replied “I know nothing.”

The 21st century version of know nothingness is not a movement but a condition. It describes the citizens who have outsourced, abandoned, and ignored politics and politicians.

The result of this behavior has two deleterious effects. The first is the obvious one of letting the righteous righties who want governments to do nothing and the loony lefties who want them to do everything rise in influence. These are the “bases” to which the candidates must play to get nominated and elected. They used to be marginalized by the dominant moderate middle of both persuasions. No longer.

An even more insidious side effect is true know nothingness. People who don’t participate, even slightly, in electing our representatives who don’t know of or about the public sector lose more than influence.

They also lose perspective and a mild kind of wisdom. If they vote, they pretty much vote in the dark and support and reject ideas and people off a no-knowledge base.

The first time I realized something was awry here was when I got a call from a politically alert friend who was offended by his representative’s non-stop attacks on higher education in general and on the University of Wisconsin in particular. “What can I do about this?” he asked. “You can run an opposing candidate in the primary,” I replied. “I don’t know how to do that,” he said.

He was alert but unequipped. Not good.

Somewhat later I chatted with other very worldly, very well informed (I thought) citizens in other parts of the state. One of them had no idea who represented him in the state Senate or the state Assembly. Don’t laugh. Ask this question of some of your acquaintances sometime.

The other didn’t know he had been redistricted and was no longer represented in the Congress by someone who he had voted for for years.

If they don’t know this, what do they know?

Do they know what their government can and can’t, should and shouldn’t do?

What are they looking for or at when they make a voting decision, if, indeed, they bother to vote at all?

Does this kind of know nothingness make them foils for the professionals who do know something and who categorize them by wedges and appeal to them on one or two hot button issues–guns, marriage rights, fear of crime–to get their vote for a candidate who may or may not be a worthy representative on the full range of public sector responsibilities?

I have on my wall a picture that was taken behind the high school in Stevens Point on a cold, fall Saturday in late October in the 1960s. The 40 or 50 people pictured had gathered to pick up campaign literature which they would deliver throughout the city urging their neighbors to consider the Republican candidates described in the literature. If you are looking for a daunting political task, this venture in futility will fill the bill.

The members of this group included the chairman of a large insurance company, the president of a bank, the manager of a paper mill, a county judge, a physician, a dentist, retailers, housewives, teenagers, clerks, executives, union members, teachers. Everybody.

This may have been the only political act in which many of them participated. But they read the literature. They knew why they were there. They knew the candidates. They knew what the candidates were for and against. The knew something. They were not know nothings. Nor were they single-issue zealots.

Until and unless they come back, our representative form of government will be polarized, partisanized, endangered. Sending money, delegating and outsourcing to others is not enough. Scorning politics and politicians is not helpful. Nor is whining.

We all need to have a hand in and on the public sector. The system depends on us.

Welcome to the future under status quo public infrastructure spending.

Imagine facing the following situation as the leader of your enterprise.

Owing to years of underfunding and neglect, a physical asset that’s a basic driver of your competitiveness and productivity is deteriorating.

By not repairing it, you’ve already experienced significant liability costs due to preventable deaths and critical injuries. Experienced engineers have publicly stated the situation will only worsen absent significant investment.

In addition, not repairing the asset will further erode your company’s efficiency and deteriorate its competitive position in an increasingly global market.

Furthermore, although cash flow is negative at present and your organization has far more debt than you want, you can borrow at close to zero percent interest rates and creditors deem your company as credit worthy. Additionally, the price of repair has never been lower owing to record excess capacity in the repair industry.

If you do not repair the asset, you are far more likely to build up more debt as your future economic performance will only decline, reducing the cash flow needed to pay down prior debt. Owing to the quirkiness of your industry, repairing this asset will not only improve your long-term competitiveness, as soon as you start the repair work, your output and financial returns will increase immediately.

Finally, if you don’t want to fully finance the repair with debt, you could partner with outsiders who would finance the most expensive parts of the repair in exchange for part of the cash flow generated directly by this part of your physical capital stock.

A savvy business leader would certainly say, “We must make the repair.”

Why then, in our growth-impaired US economy, are Republican political leaders, who represent a significant percent of our nation’s business leaders, saying, “We cannot afford to make needed infrastructure repairs,” when handed the same set of facts as I outlined above?

After reading about infrastructure banks and watching a CNBC special on America’s infrastructure, I believe that we must invest far more in public infrastructure, now. The following statistics the show producers presented were daunting.

• There are 70,000 bridges with the same structural deficiencies as the I-35 Bridge in Minneapolis that collapsed recently taking 13 lives. When asked if a collapse like this can happen again, the Minnesota DOT representative appearing on the TV show said, “Unfortunately, it will.” In total, 600,000 US bridges need repairs, including one-third of urban bridges that are rated “structurally deficient” and “obsolete.”

• One-third of American roads are in serious need of repair. And too many urban roads are too small for the traffic they bear.  Shipping giant UPS estimates its fleet loses $100 million in profits for every 5-minute traffic delay across the fleet. In 2009, the US consumed an excess of $3.9B gallons of gas due to traffic jams. That’s only 2.2% more fuel than total 2008 fuel usage, but the “congestion premium” has increased steadily from .4% in 1982 as traffic became increasingly congested.

• Finally, thousands of miles of underground pipeline are in trouble and the estimate to bring levees up to standard runs $50B.

The final argument for infrastructure spending is economic. The US economy sits on the verge of a double dip recession as the European Union and US housing problems continue. Every $1B in US DOT spending, CNBC reported, generates 35,000 jobs.

Congress and the White House nevertheless are in loggerheads over infrastructure. We are on the 8^th extension of a 2005 US-DOT plan and we have not increased the gas tax (used to repair roads and bridges) since the early 1990s despite growing fuel efficiency.

It’s time we stop making infrastructure spending a political football in a defeating game of black and white thinking. Democrats think any government spending is smart spending while Republicans conclude the opposite. Caught in between, our infrastructure is crumbing like any road would be built on such a shaky foundation. Infrastructure spending is smart government spending.

As part of a recent client assignment, I was fortunate to hear the economic forecast of Ken Simonson, the Chief Economist of the Association of General Contractors. According to Simonson, the anticipated drop in public infrastructure spending (as the 2008-11 federal stimulus ends and state governments deal with budgetary issues) is frightening given the disrepair of US infrastructure and how a spending drop will worsen construction industry employment. The 2007-2011 loss of construction jobs was already alarming. We are steadily losing human capital in the construction industry. When public infrastructure spending increases, which it will some day, our money will flow to China and other nations with stronger infrastructure capabilities and we’ll experience considerable inflation in construction wages.

Waiting for the next election to resolve infrastructure spending is waiting too long. Penny-wise is pound-foolish in the case of infrastructure.