Archive for January, 2010

I have blogged extensively in the past about the importance of knowing who your most valuable customer is, and knowing what they value and making sure your value proposition stays aligned with that customer, or even those customer segments.

But what if your target customer doesn’t even know you exist?

There was a really interesting article in The New York Times last weekend called “Colleges Market Easy, No-Fee Sell to Applicants” and I wasn’t surprised to see that it made the front page.  The article, by Jacques Steinberg talked about a crafty new way some lesser known college programs are attracting more applicants, by making it really easy to apply (no fee and no essay needed), in some cases even labeling them “Distinctive Candidate Application” to make the applicants feel as though they are being hand picked.  Most of us have gotten loads of junk mail from credit card companies who want our business, and I throw those out because I realize how little differentiation there is in many of those credit cards.  But colleges, like a lot of businesses are different in the sense that they all actually offer something unique, whether it’s the location, or their specialties, or whatever.

Application fees for education have all sorts of interesting elements, in that for some schools it makes sense to charge a fee just so that people who really think they have a shot at getting in will apply, and that’s certainly the case for some of the bigger name schools like Michigan, Stanford, Harvard.  But for every one of those big name schools, there are a hundred lesser known programs that have something special to offer, and it makes all the sense in the world for them to target students who seem to fit the profile of their ideal student body base to get on their radar and see if those students will apply.

In the case of businesses that are not a household name, certainly the internet has made it easier for most organizations to put their value proposition out on the web to help customers find them, and I think this is a great example for that.  But there is also another piece of this which is looking at whether you are treating a part of your organization the right way in terms of metrics and in terms of assessing its role in the performance of the overall.  Beyond just whether something is a cost or a source of revenue -what is its job?  In the case of applications, in the past many schools treated applications as a cost recovery model and simply assumed that enough students would learn about their schools and that would be enough to fill up the classrooms.  By making applications free, these are schools that are turning the application process itself into a marketing activity to raise awareness and attract top students, and a more diverse student body.  Very clever.

I used a similar analogy when I used to ask people whether WiFi access in a coffee shop should be treated as a marketing expense to bring people into the store and keep them there to buy more things, or an actual product where you would charge them for it.  It was a bit of a trick question I would point out, because either is a valid treatment of that offering – it’s simply important to be specific about what its job is and to measure it accordingly.  If it’s to be a marketing tool, quantify that and see if it’s doing its job, and if it’s a “product” that you sell, measure it that way, but also keep an eye in that case on impact on other product sales.

This is good rethinking of an otherwise ho-hum commodity step “how” people go about applying for schools that translates very well into the business community as well.

-Ric

I define innovation as figuring out a way to accomplish the same outcome, the “what” we do, in a way that doesn’t resemble “how” we used to do it.  Flight check-in over the web doesn’t resemble the experience of talking to the airline employee at the counter, but it accomplishes the same three outcomes (confirming a reservation, conducting a survey, and managing logistics when there is luggage).  A revolution, by contrast, I would define as an innovation that results in a dramatically different, or richer experience.  E-mail and text messaging haven’t just replaced prior forms of communication, they have revolutionized the way we communicate in ways we couldn’t imagine 20 years ago.

Right now, I see very distinct places where innovation is desperately needed, and at the same time, I see a place where a revolution isn’t quite overdue, but it’s getting there.

The most urgent innovation needs are in U.S. health care and energy. People in Washington are chipping away at ways to improve the administration of health care and the role of insurers and doctor incentives, and while I will grant that those are all big messes that need cleaning up, that’s not where the greatest need is. The greatest need is to stop people from needing to see the doctor in the first place and the way to do that is managing wellness in a structured, disciplined way.  People get insurance through their work in the US, and the companies should mandate regular checkups and the insurers should provide statistics (not at the individual level – for obvious privacy reasons) as to where the risks are and then invest in wellness programs accordingly. Just at Microsoft alone, if they don’t take action on diabetes and obesity alone, in less than six years they will have to spend about $70 million more each year – and most of that will be avoided if the high risk employees lose just six pounds before they turn 46 (source: The American Diabetes Association, and Microsoft Corporation).  People ask about the return on investment from wellness programs – there it is.  Energy – this one is harder but more obvious.  The car replaced the horse, we need something to replace our dependency on petrochemicals.  I don’t know where it will come from, waves, wind, cold fusion, whatever, but we need it soon.

As for where the revolution is needed, or why, I would say we need it because we are in a new era – the era I will call post-decentralization.

We grew up in a world of a finite number of TV stations, the record labels decided what music we would listen to, and we all got newspapers (all very centralized sources of news, entertainment, music, and information).  Now, we are in a very different world that includes social networking, YouTube, blogs, iTunes, and the iPhone. Most of the sources information, music and content have become almost cartoonishly decentralized.  That’s great from a control perspective, but except for those who are really on top of it all, it’s hard for people to feel comfortable that they are getting connected to the right stuff that’s most aligned with their needs and interests.  We need innovations to do better match making between consumers and all of these decentralized sources of apps and content.  I shouldn’t have to find the best news articles, blogs, video clips, and music, they should find me based on who I am and what I am interested in.  I happen to have some ideas on how that will happen – but that is going to allow us to really fulfill the potential of the internet, and it will be awesome.

-Ric

Highly influential blogger Braden Kelly posted an article about where innovation is most urgently needed by Ric Merrifield, http://www.business-strategy-innovation.com/2010/01/innovation-perspectives-911-call-for.html

A recent blog from the rethinkbook.com site was added to a major innovation strategy blog site managed by innovation guru Braden Kelly – here http://www.business-strategy-innovation.com/2010/01/should-you-be-measuring-ror-instead-of.html

For literally decades, the notion of return on investment, or even more specifically return on invested capital (R.O.I. either way) was the gold standard for justifying a business decision.  If the return exceeded the investment enough (also weighing risk, disruption, and many other factors) then it would get the green light for funding.

This was, and is, especially common in investments in enterprise software. But I predict we will see a (long overdue) rapid decline in the use of R.O.I. as the gold standard for project justification for these four reasons:

1) Smart organizations have figured out that you can justify almost anything with R.O.I. math.  Someone recently said “if you do project X at a cost of $2 million and it saves you $5 million per year, then you should do it, right?” Many people would say yes, I would say there’s nowhere near enough information.  For large companies, a $5 million savings could be a distraction to more important activities, just to name one reason, but too often I see these sorts of projects approved.

2) The metrics are often very squishy.  Organizations don’t generally have great metrics to begin with, but especially when anchored to the process view (which is often very volatile, with a short half-life), and when the process changes, organizations end up comparing apples to oranges.  The simple solution there is to use the business capabilities lens described in the pages of Rethink, starting with the “what” outcome you are measuring, and then looking to the “how” of process.

3) There needs to be larger context setting.  What overall goals is the department, division, or enterprise setting?  It isn’t enough just to cover costs for a lot of projects.  These days, it’s about staying ahead of competition, differentiating, and knowing who your most valued customer is (see #4 below).  If the $5 million in savings in #1 above doesn’t connect to a key performance indicator, you need to be certain that it’s not  going to be too distracting or disruptive in an area in need of much more attention someplace else and the “shiny object” project selected out of context from the rest of the organization always has that risk.

4) Many organizations need to look at their R.O.R., return on relationship.  How much do you spend on each customer and how much do you get in return.  Someplace in almost every industry, their is a vital set of relationships, sometimes it’s partners, sometimes it’s customers or sales channels, and sometimes it’s employees and you have to know what is most valuable to your most valued relationships so that when the least valued relationships whither, you don’t worry, but when you see blinking red or yellow lights in the most valuable relationships, nothing can get in your way of fixing that.

So as we enter this new decade, and hopefully start to get further out of a recession, start to measure your R.O.R., do better context setting in terms of the value of a project to the overall, be sure you have concrete metrics, and be leery of the R.O.I. math of the one-off “shiny object” projects.

-Ric

Thursday morning I met up with my friend James who runs some local restaurants here in Seattle.  He suggested that we meet up on 15th Avenue at the “Starbucks that isn’t a Starbucks.”  I had no idea what he was talking about, but I agreed and there we met.

When you walk in to the 15th Avenue Coffee and Tea shop, it feels like something you might find in Berkeley.  All of the furniture is old “found” objects, old wooden theater chairs, a door that has been turned into a table top,  big cartoon outlets painted on the walls with arrows pointing down, indicating where the real outlets are.  Pages from books paper the walls, there are little trays of spices you can pinch and add to your beverage.  And up on the shelves there is an assortment of beer and wine choices. It was great.

So it’s the opposite of a Starbucks, but it’s a Starbucks, even though it’s not called a Starbucks?

Yep.

I wondered if this was a way for them to remain a big business, with their cookie cutter format that we all know, while at the same time be a small business with a series of one-off places like 15th Ave (I learned there is at least one more of these shops, that also bears the address of that location – I think it’s on Boren street)?   Sort of a brand hedge to be big and small at the same time?

Nope.

After some investigation (one of the benefits of Seattle really being a tiny town despite being the 14th largest market in the US according to my friend Jill), I learned what Starbucks is doing, and why.  And it’s great rethinking on their part.

By definition every company has a loss leader, and it turns out 15th Ave was just that for Starbucks, as was the one on Boren.  So instead of bailing out of the location, trusting that location isn’t the problem, Starbucks has decided to turn these stores into experiments of what people will respond to in the form or format changes.  Since it’s a fact that Starbucks is the #1 place in the world for first dates for some obvious reasons (cheap, can be quick if necessary, etc.), I think adding beer and wine is a great way to extend the day at Starbucks, it might change what some of those people order on first dates.

But testing lots of different “how” they do things Starbucks does “what” they do will learn a ton about where people want changes in Starbucks and I expect this experiment will continue in various forms for many years because it’s such a smart way to “listen” to customers in terms of what they want and value.

-Ric

P.S. Looking to the opposite of the spectrum, let me know if you want to know where the highest grossing Starbucks in the world is. Ric at ricmerrifield dot com.