Knowledge Is Power

Best Kept Secret of US Business is the ROI of Marketing is Zero or Less

According to best selling author and consultant Kevin J. Clancy, Ph.D, 84% of marketing programs disappoint the creators and that the Marketing Science Institute found that advertising had to be doubled to increase revenue by 1%. Dr. Clancy spoke to the annual joint meeting of Boston chapters of SCIP and the Association of Strategic Planning on March 26, 2008.

Why are marketing returns so low? “Decision making based on intuition—a habit that dies hard.” Also, “using competitors to guide decisions.” While these two reasons may appear to be contradictory, they both result from poor use of information.

Since intuition is by my definition the unconscious processing of information, the user does not understand the value or the limits of intuition. If intuition is based on extensive experience in the field, it could very likely to result in a good decision, but intuition results from the comments made by one customer the previous week, it can lead in the wrong direction.

All businesses should use competitive information in their decision-making, but they need to do it in the context of their own strategy and the strategies employed by rivals. A firm should not copy the competitor’s marketing program without understanding how it supports, or conversely does not support, the rival’s strategy, and how it would correspond with your employer’s strategy.

Dr. Clancy ended his presentation by reminding us to be more clear headed and analytical about marketing. Then a marketing campaign can increase sales 20% or more and truly be transformational for the company—and its competitors.

For more information on Dr. Clancy, please contact Copernicus Marketing (www.copernicusmarketing.com).

Who Wins as the Economy Tanks?

Some companies do well during recessions. VARBusiness listed dozens that are gaining during the current downturn. Who are they? Hint: they’re not the dominant player in their markets. They are the lesser known vendors which offer better price/performance than the number one company does. With higher energy and other costs pressuring organizations to find savings, buyers are more receptive to considering alternatives that save their employers’ money or fit tighter budgets.

VARBusiness, in its February 2008 cover article, “Attack of the Alternatives,” quoted Matt Medeiros, president and CEO of SonicWall Inc. which competes against Cisco in network security products. “Medeiros points to a nearly $1 million, multiyear deal with a semiconductor company that pitted SonicWall and one of its partners against a Cisco offering in a Cisco-dominated IT network environment. The SonicWall solution not only came in at a substantially lower price, but also was ‘easier to use and manage across the large-scale network,’ he said. ‘They truly looked at total cost of ownership and we won hands down,’ said Medeiros. ‘Given the current economic trends in North America with budgets being tightened, the CIO felt that he absolutely had to consider an alternative and that is how we got brought to the party. It was an absolute Cisco environment.’”

Does your organization compete against an entrenched dominate player? Consider turning up your price/performance message and sales resources to capture new opportunities. Conversely, if your firm is a dominant player, research how your competitors will seek to take advantage of the soft economy and develop tactics to counter them.

A Billion Here, A Billion There….

“A billion here, a billion there, and pretty soon you’re talking real money.” Apparently the late Sen. Everett Dirksen never uttered that exact phrase (it was a misquote), but he really liked it.

Similarly, for you and your competitors, a million here, a million there, and pretty soon you’re talking real money. When the economy softens and spending dips, revenue increases are hard to obtain so cutting down on expenses become even more critical.

One area for firms to examine are returns, especially in the technology and electronics arenas, since goods decline in value so fast, their life spans are measured in months, if not weeks.

Are your competitors working hard at processing returns quickly to maximize their potential value?

According to an article, “Returns sustain an industry when ‘tis not the season,” in the Jan 6, 2008 Boston Globe Business section, Americans return about $100 billion of goods annually. Associate professor at the University of Miami Vaidyanathan Jayaraman, an expert in “reverse logistics,” said that “companies have become more efficient at answering that question” of how to handle returns.

“He says that one way that firms like Hewlett-Packard, which he has followed since the late 1990’s, have improved is the speed with which they categorize returns: the truly broken product, the still-good-as-new item sent back because of buyer’s remorse, and the various possibilities in between.”

HP can sell usable goods themselves or outsource to a third party which sells them overseas in bulk or on eBay. Either way, HP does not have pay for disposal and the practice helps burnish its green image.

What are your competitors doing with their returns? Logistics issues are complex to study, but the savings from best practices can be substantial. So what is your organization doing about returns?

IT DOES Give a Competitive Edge

According to a Hackett Group study of over 2,100 organizations*, firms that spent “7% more per end user on information technology than typical companies,” but spent it wisely, profited from the higher investment with lower costs in other areas and greater effectiveness.

Hackett found that these companies shared five characteristics in their IT spending:
1. Standardization: they established one definition for each piece of data, consolidated systems, and standardized applications.
2. Analysis of returns: they do “precise risk/return of every major tech investment,…”
3. No blanket increase/decrease in IT budgets: they consider carefully which areas in IT need additional, or less, investment to support the needs of the business.
4. Align with businesses: “they align their information architectures directly with business initiatives,…”
5. Selective outsourcing: they use outsourcing to improve effectiveness, not to cut costs.

Are your competitors adopting these approaches to IT? If you see signs of smarter use of IT by a competitor, you should assess how its investment will affect the competitive balance between your organization and the rival.

* “Down To Business: Show That IT Matters, Don't Just Insist It Does
If you can't communicate the business value your organization is delivering, then maybe you're a commodity after all.”
Rob Preston, InformationWeek, June 4, 2007 issue

What Are Your “Policy Violators” Doing to Your Firm?

“A report from the IT Policy Compliance Group says a fifth of organizations are hit by 22 or more sensitive data losses a year, with customer, financial, corporate, employee and IT security data going missing because it is stolen, leaked or destroyed.

It reveals that user error is responsible for half of all sensitive data losses, with policy violations -- either deliberate or accidental- accounting for another 25 percent.”(“Human Error Causes Most Data Loss, Study Says Three-quarters of incidents involving loss of sensitive data are caused by human error, according to researchers.” Tash Shifrin, Computerworld UK, March 12, 2007)

It is the 25% figure that interests me as a CI professional. CI-aware organizations establish information protection policies and procedures which are at least distributed within the organization, if not included in training sessions. Are policy violators leaking critical information to competitors at your firm?

I expect that the majority of policy violators are accidental. People are working hard and do not think about a couple of questions from a nice-sounding researcher on the phone or at a trade show. Or they are relaxing with a co-worker on a business trip and the conversation turns to company-confidential topics without the employees thinking about the people nearly who can hear the conversation.

Time for more training on knowledge management policues at your organization?

Innovation Can Make You Uncompetitive

It can if you have too much innovation, according to an article in the Wall Street Journal June 11, 2007, “How Innovation Can Be too Much of a Good Thing.” Too many innovations in progress can spread resources too thin and cause delays in all the projects. Delays means competitors are first to market and can build share while you try to schedule the time of key resources.

Why does this happen? Inevitably some resources are limited in supply compared to others resources and cause bottlenecks in the product development process. Many organizations do not plan for any slack in their processes so when some issue arises, bottlenecks quickly arise.

The WSJ article cites Avery Dennison Corp. as an example. Avery was dismayed that the schedules for many of its new products were slipping and hired the George Group Consulting firm to analyze its processes. “The surprising conclusion: Avery was jamming too many new ideas into its product pipeline, without enough slack time to ensure that critical tasks stayed on schedule. The remedy: Shrink the number of rollouts.”

“Close scrutiny of its innovation pipeline revealed that the company was overloading its plant planning managers with requests to test new materials. There was no sure way to predict how long it would take to tweak Avery’s plants to handle a different type of adhesive or thicker paper. If early estimates on a few projects proved wrong, scheduling delays would ripple through larger chunks of Avery’s development efforts.”

Avery became more selective about which projects to develop and ultimately, I believe, more successful. Is your organization falling into this trap? Are any of your competitors? Sometimes less is more.

Forget What We Told You about Security Training

Most security experts agree that your employees are your greatest threat to the security of your company’s information, but training them to be cautious is so difficult that one recent survey showed a decrease in organizations planning to train employees, according to a July 16, 2007 InformationWeek article “The Threat Within: Employees Pose the Biggest Security Risk” about InformationWeek Research's 10th annual Global Information Security survey, conducted with consulting firm Accenture.

“Survey results indicate that simply educating employees and partners about a company's security policies isn't sufficient to keep generally honest people from letting customer information leak out through e-mails, instant messages, and peer-to-peer networks. While the No. 1 tactical security priority for U.S. companies in 2007, according to 37% of respondents, is creating and enhancing user awareness of policies, this is down from 42% in 2006.”

“Only 19% of respondents say that security technology and policy training will have a significant impact on alleviating employee-based security breaches, the same percentage as last year.”

"They'll click on anything, and if anything slows them down, they'll short cut it," said Mark Loveless, a senior security researcher with network security provider Vernier Networks, told InformationWeek. "End users are given massively complex systems with a happy interface over it, and to make it easy for them to do their job, a lot of the controls are disabled or nonexistent.”

I still believe that security training is important, but also help the employees help themselves—and the company—by implementing technology tools that operate behind the scenes with as little interfacing with the users as possible. Balancing the security needs of your organization with the desire of users to focus on doing their jobs with little interference from technology is necessary and worth a discussion with management.

Higher Customer Sat? Oh, No!

An increase in customer satisfaction should be a cause for celebration, but beware; it can be a harbinger of bad news. A former employer of mine, Digital Equipment Corporation, regularly surveyed customers for their level of satisfaction. The company even included this metric in its compensation system. But it was too busy congratulating itself on higher customer sat to notice that competitors were winning new projects and even that applications were being moved to open source systems. Similarly, GM realized a significant gain in customer sat in the early to mid 1990s while buyers were switching to other nameplates in droves.

Customer sat results must be viewed in the context of the business as a whole. Rising customer satisfaction accompanied by top line growth lower than the industry average means that your less satisfied customers have switched to competitors. Do not be lulled by high or rising customer sat numbers into thinking that your existing customers are immune to the lures of the competition. Analyze the results in the context of other metrics including, but not limited to, your sales growth vs. competitors, new customer or new application wins, and new product sales. Protect your customer base from competitors while winning their customers over to your side!

Have You De-Risked Recently?

Boston strategy consultant Adrian J. Slywotzky advocates that businesses need to analyze strategic risk more deeply and adopt de-risking tactics in his new book, “The Upside: The 7 Strategies for Turning Big Threats into Growth Breakthroughs.”

Slywotzky suggests de-risking strategies and examples of companies which successfully utilized them.

The Boston Globe described one example about Microsoft in its June 3, 2007 article Strategist advocates exposing, turning around risks.

“When a middle manager named Steven Sinofsky returned from a recruiting visit to Cornell University in 1994 and told Bill Gates that Cornell students were communicating online through an obscure web browser called Mosaic, the Microsoft founder and chairman immediately recognized a threat to his Windows operating system.”

“Gates placed a ‘double bet,’ investing in Microsoft’s own browser (Internet Explorer) to counter what would become Netscape as computer users began moving onto the Internet even while continuing to exploit Microsoft’s computer desktop gold mine through Windows.”

Other de-risking strategies include:
1. Investing in multiple designs simultaneously as Toyota did with several major components of its new hybrid Prius to insure a competitive product at launch
2. Focusing on finding and solving problems quickly. New England Patriots coach Bill Belichick excels at this skill.
3. Continually analyzing external data on customer and markets
4. Avoiding confronting a dominant competitor directly by developing alternative strategies

Of course, crafting strategies to lower risk is not new. But Slywotzky argues that more industries have become volatile, which requires increases focus on strategic risk and more de-risking options adopted in today’s fast changing business climate.

So how does your organization deal with strategic risk?

New Business Model for Global Companies

The model for competing internationally has evolved dramatically over time. Initially, firms put a tentative toe in the worldwide oceans by selling US made products overseas. Then they discovered the cost advantages of manufacturing their products across the ponds and importing them back to the US and to other countries. Simultaneously, multi-national firms built organizational infrastructures in major markets so mini-corporate headquarters mirrored the company’s legal headquarters.

Multiple economic, technological, and cultural factors affected these rather simplistic views of the changing business model and have now combined to evolve the global business model further. Companies ceased to think of themselves as “citizens” of any one country. Technology not only allows communications to be clear and reliable between continents, but also slashed the costs. In the Harvard Business School of Boston May 15 event, “An Informal Conversation with Lou Gerstner,” Mr. Gerstner defined the “new model of globalism where functional excellence goes to the place where it can be done best. For example, IBM’s purchasing is in China. The old model equaled duplicate headquarters in each country.”

He neglected to mentioned, but I know from previous research, that IBM shaved billions from its materials costs by changing purchasing from a transaction oriented function to a strategic function. A multi-million dollar investment in communications infrastructure tied IBM closely to its suppliers resulting in more options for materials, lower inventory, faster delivery, and lower materials costs due to consolidating purchases throughout the IBM supply chain.

If your firm is not adopting a new global business model, can it continue to compete effectively?