Knowledge Is Power

How Many of 145 Data Breach Claims in 2013 Were CI-Related?

OK, I got your attention, but the reality is that of the 145 claims, 17 were due to rouge employees (12%), and none of those were proven or revealed as orchestrated by competitors. The other claims were for lost or stolen laptops (20%), hackers (18%), and malware (10%), loss of paper records, denial of service, and miscellaneous. The attacks appeared to focused on obtaining financial or health records.

NetDiligence, a cyber-risk assessment services firm in Philadelphia, performed the study to illustrate the real costs from an insurers’ perspective. The payouts ranged from $2,560 to $11.5 million and reimbursed the clients for legal fees, legal settlements, fines, forensics, credit monitoring, and identity theft correction costs. The study was reported on www.cnn.com on Friday Jan 17, 2014.

So the bottom line is that no one knows if the any of the data breaches were driven by competitors, nor does anyone know if competitor incursions occurred and were undetected.

You probably have a firewall in place. You might want to update your security software to include data loss protection functionality which would catch rouge employees transmitting sensitive data outside the company.

The Internet of Things: You Ain't Seen Nothin Yet!

Less than 0.01% of all devices in the world are currently connected to the Internet—imagine what life will be like when more are sending data to be analyzed and used. It could be as disruptive a technology as connecting people to the Internet.

This view of the future was discussed by a panel of experts at a Harvard Business School Association of Boston event Nov 5, 2013. Moderated by technology expert and venture capitalist Woody Benson, the panelists were John Williams, Director of MIT’s Geospatial Data Center, Mark Bonchek, Founder and Chief Catalyst, ORBIT, Christopher Rezendes, President, INEX Advisors, and father-to-be Ben Cooper, Co-Founder & CEO, Sensible Baby.

Devices are addressable; they have URLs. We are moving from a one-to-many to a many-to-many environment.

The issue is not new technology; it’s new business models based on using the technology with devices. Plus the social network of things: The ability to integrate the existing technology.

Ben Cooper’s firm, Sensible Baby has developed wearable technology for babies to monitor their sleeping position, ambient temperature, and breathing. Parents are alerted to any problems with messages on their smart phones. He believes that this will give parents peace of mind and he will find out in four months when his first child is born.

Benson observed that a leader’s vision creates a new reality. Bill Gates told his 15,000 employees at Microsoft that his vision was a computer on every desktop. Think what the company would have done if Gates had envisioned a computer in every hand instead.

Williams provided another example of a useful Internet of Things application. Monsanto tracks the seeds planted by farmers with GPS devices on tractors. The devices gather data on the depth of planting, the amount of rain, etc. Monsanto creates a script to tell the farmer how to increase yields by changing the planting parameters. Not only does it sell the script to the farmer, it aggregates the information and sells it to other organizations.

A new business model is the use of Task Rabbit or Mechanical Turk to create a virtual infrastructure at a fraction of the cost of establishing an organization.

Healthcare has a wealth of Internet of Things applications. For example, the best indicator of problems after surgery is fluid retention. So doctors send the patients home with instructions to weigh themselves every morning. The scale sends the data to the doctor who determines if the patient has gained five pounds overnight—and calls the patient to come in right away.

Water is important, right? The US has 12 million private wells. A contactless water quantity measurer could indicate that an owner needs to dial down water usage to avoid a shortage. Plus, low water concentrates contaminants which could damage pipes, washing machines, etc., an expensive outage.

Organizations are thinking many more ways to use the Internet of Things technology to be more competitive—what is your organization doing in this space?

Truth Through Gut Feel

When I was a student at Harvard Business School, some enterprising student ordered a t-shirt with an alleged HBS version of the Harvard University motto Veritas or Truth. The t-shirt had a decision tree in the center of the Harvard shield with the Latin words for “Truth through gut feel” around the edge. We all had a good laugh. The B-School was teaching us to gather information, analyze it, pick the best option, and implement it. This process was pounded into our heads three times a day with each case. By graduation, we followed the process instinctively; it felt like relying on gut feel.

We were also taught not to wait for all the information to be gathered—that would lead to analysis paralysis.

But truth through gut feel is not a smart approach for most managers. Sure, there are exceptions. Steve Jobs was famous creating new products without market research. But how much time and effort should smart managers devote to research, both into buyers and competitors?

The key is continuous updating and focusing not on products per se, but on the customers’ problem and how your product solves the problems. Pay attention to new uses for existing products. Scan for new competitors with different solutions to the users’ needs. Never get complacent. There’s always a rival thinking about how to get your customers. Stay ahead of your competitors by always being alert.

“Wait Wait…Don’t Tell Me” for Spies

Inspired by the NPR program, “Wait, Wait…Don’t Tell Me” and Discovery’s New York Exhibit on Spying, here are three questions on animals, people, and objects. Can you guess which one is true? Answers at the end of the post.

Animals:

1. South Korea trained pigeons to fly X numbers of miles, then poop. They had been fed delicacies with very small listening devices which sent information back from targets in North Korea to the South for two weeks.

2. The CIA created a robotic catfish to collect water samples near suspected nuclear facilities and bring them back for testing.

3. Russia used snakes to deploy wires in embassies and hotels frequented by foreigners. Unfortunately, the snakes sometimes sought out warm places like beds so this animal program was discontinued.

People:

1. Russia employed a spy in the US who joined SCIP and attended several chapter meetings as well as an annual conference. He called himself Don Heathfield, a name of a deceased Canadian man. When asked what his business did, he responded with it searched for relevant information online, thus hiding in plain sight as all CI vendors search for relevant information online.

2. South Korea was concerned that one or more of a group of refugees from North Korea were actually spies. But how to tell the spy from legitimate escapees? South Korea found the spies weighed 10 pounds on average than the refugees. Most North Koreans have a marginal diet so the privileged people, including spies, weight more.

3. El-Quada is recruiting elderly men and women to be suicide bombers on planes. They believe that they can insert bombs in the canes and other assistive devices used by older infirm people which will pass through security undetected and be able to be detonated on-board.

Objects:

1. US Embassies around the world prepared traditional Thanksgiving Dinners complete with orange silverware, napkins with embroidered images of the Pilgrims, and napkin rings in the shape of big, fat turkeys to present to foreign dignitaries. Listening devices were hidden in the turkey napkin rings. The CIA figured that most of the enemies of the US did not bother with napkins which would—including the bugged rings—sit around for a while and transmit information.

2. South Korea has been sending small items such as leaflets, pens, bibles, warm socks, and money to North Korea via balloons. But the latest plan by activists received such a vehement threat of armed retaliation by North Korea that the South Korean government closed off the areas close to the border where the wind was right.

3. Russia distributed chocolate covered candy in Sudan, saying it was from the US, and then other agents claimed it contained live small pox viruses. But the chocolate melted in the heat and was thrown away.

Answers:

Animals: 2 is true. An example of the catfish is in Discovery’s New York Exhibit on Spying.

People: 1 is true. I met him myself.

Objects: 2 is true. Too bad about the closure by South Korea.

Airlines Compete for the Bottom in Customer Service

Some of us remember flying an airplane before deregulation. It was a pleasure. Deregulation changed the business model of the legacy airlines to hugely unprofitable in bad times and somewhat profitable in good times. But overall, the legacy airlines could not develop a business model that was viable over time. Many of the new airlines fared no better. Many "no frills" airlines targeted at leisure travelers have disappeared also.

Warren Buffet expressed his opinion of the airline industry in annual letter to Berkshire Hathaway shareholders, February 2008:

"The worst sort of business is one that grows rapidly, requires significant capital to engender the growth, and then earns little or no money. Think airlines. Here a durable competitive advantage has proven elusive ever since the days of the Wright Brothers. Indeed, if a farsighted capitalist had been present at Kitty Hawk, he would have done his successors a huge favor by shooting Orville down."

Throwing away the concept of customer satisfaction and turning the concept of value pricing on its head, the airlines have lurched towards a business model of quoting low fares and making money on add-ons: checked bags, food, booking a ticket through a human agent, etc. The airlines claim that other industries unbundled their offerings long ago and why should passengers pay for services that they don't want.

OK, unbundled offerings is a valid business model and transitioning to a new model is difficult for flyers, but American Airlines, according to recent news article on a family traveling to Disney World, reached a new low in customer satisfaction. ("Airlines 'playing chicken' with passengers, charging 'you-get-to-sit-with-your-kid" fee," by Bob Sullivan, www.nbcnews.com) When American Airlines changed the type of aircraft flying to Florida, it seated John and Amanda Parish separately from their five-year old daughter and would not change the seating without a $60 fee. Ask the boarding agent at the gate said the airline.

American Airlines learned this pricing trick from European airlines. When I flew to India on British Airlines in July 2011, I arrived at the airport to find my 10 year old twins seated separately from me. But the staff at the gate quickly placed us together--in middle seats. Window seats would cost 60 pounds each. The good news was that foreign airlines consider kids under adult height to be children and we got priority boarding and seats together for every flight.

While I believe all industries should develop a viable business model, the airlines are so desperate for the fee income that they have forgotten that they exist to serve customers. This event will make me less likely to book on American as I have children. And if I am traveling without my kids, I do not want to sit next to your untended child.

I used to drive if the time it took equals the time to fly. Now I drive unless the travel distance is over 750 miles and time is tight. I hate flying. I wish the airlines could develop a viable business model that includes value pricing AND customer centric thinking. But I'm not holding my breath.

The First Competitor in a New Market Wins—True or False?

False, according to “In Race to Market, It Pays to be Latecomer,” by Sarah E. Needleman, wsj.online, Jan 11, 2011.

She observes that the first company that tries to create a new market usually fails. The effort to educate the market is overwhelming and subsequent entrants benefit from watching the first movers’ business model.

“Isaac Barchas, director of the technology incubator at the University of Texas at Austin, says entrepreneurs looking to break into an untested or emerging market should consider taking a wait-and-see approach. ‘If you can watch other people and learn from them, that gives you the opportunity to figure out how to tweak the business on the margins to be better,’ he says. ‘You can learn a lot from the experience (someone else has) paid for.’"

Stanislav Dobrev, a professor at the University of Utah's David Eccles School of Business, and Aleksios Gotsopoulos, a professor at Boston University School of Management studied the 2,197 automobile firms founded between 1885 and 1981. None survived.

Netscape was overtaken by Internet Explorer, Safari, Firefox and Chrome.

PC makers Osborne, Kaypro, and Commodore were beaten by HP, Dell, IBM, and others.

Exceptions exist: Coca-Cola and eBay are still going strong, but a previous employer of mine, Digital Equipment Corporation (DEC), now part of HP, had a reputation for innovation and creating new markets—at least at the beginning of its existence. Not so, in general, DEC was a second or third market entrant and clearly learned from first movers.

The implications for CI professionals are clear. If we work for organizations that are first movers, we need to be very diligent about getting customer feedback in a regular schedule on the product, service, and business model, and be ready to make quick changes. Or we will be overcome by a smarter rival.

If we work for firms with growth plans, then we should sweep the market to find start-ups with good ideas and business plans that can be tweaked and that are related to our products, services, or markets. Then we acquire them, or take over the market that they created.

Harsh? That is the nature of competition.

Always Listen to Your Customers – Not

Two panelists at the June 21, 2012 meeting of the Boston Product Management Association said listening to existing customers was not always a good idea.

The panel’s title was on “Sophomoric Software: Going from Prototype to Production,” and the discussion included standard advice to start-ups and early stage technology organizations. But the comments about listening to customers reversed conventional wisdom.

Bill McQuaide, Executive Vice President, Products and Strategy, Black Duck, observed that the installed base will suck you in and drain you of resources asking you for new features on software that they bought yesterday. This may be good for them, but not good for your company as it seeks a broader market.

CTO and Partner at Cambria Consulting Scott Simpson asked if you add every feature that customers want or do you have a vision of the future and bring customers along with the vision?

My experience at Digital Equipment Corporation, later purchased by Compaq, suggests that if you ONLY listened to existing customers, you will miss the broader changes in the marketplace. DEC listened to its loyal customers and ignored the fact that new applications were being written for and deployed on competitive systems.

The other panelists were Larry Kim - Founder, CTO at WordStream, and Igor Tsinman - Chief Technical Liaison, Partner at Sitrus LLC. The event was moderated by Alyssa Dver, CEO Mint Green Marketing and author of “Software Product Management Essentials”

“Dare to Compete, Dare to Compete”

Whispered a very tall NYC high school volley ball player bending over Hillary Clinton at a youth event. It changed her mind after months of refusing to consider a run for the senate from New York State. She then threw herself into campaigning and won against a popular Republican.

It was one of the stories of her life that she told to 50 women in leadership roles from countries in Africa and the Middle East on June 11, 2012 for the new Women in Public Service Institute held at Wellesley College.

She also mentioned that after she arrived at Wellesley College as a freshman, she called her parents to say she was not good enough for Wellesley. Her father told her to come home, but her mother said “stay and persist.” So she stayed. Aside from her French professor, who told her that “Mademoiselle, your talents lie elsewhere,” her experience at the college was great.

She ended her speech with the comments that she would never have imaged how her life would turn out, that she would go to Yale Law School, meet a guy named Bill, move to Arkansas, marry him, be the governor’s wife and then the First Lady. So she said, be open to opportunities.

What do her remarks have to do with CI? They’re very relevant to thinking about careers in and out of CI. Perhaps “your talents lie elsewhere,” and not in CI. Or you have always thought CI was fascinating so dare to compete for a job in the field! And dare to present your findings to your management to force change in the organization.

Oh, the reporters were right. She ignored the question about running for president.

Will You Fail as Your Market Matures?

Or will you figure out how to differentiate yourself in a commodity market? HBS professor John Quelch believes the old saying, “There are no mature products, only mature managers.”

Even if the product itself has no distinguishing characteristics, firms can still compete on customer service, availability, delivery, and financing, among other differentiators. At a Professional Pricing Society conference, I met the pricing experts from what others called “the dirt company.” They sold gravel and fill to contractors—can a product be more of a commodity than fill? But they successfully charged a premium because they had developed a sophisticated scheduling system which allowed them to give contractors an exact time for pick-up. The premium they charged was less than the cost of the expensive truck and driver waiting at competitors for their turn to obtain fill.

Quelch advises companies to adopt four tactics:

• “Decide which customers you do NOT want to serve, try renegotiating prices with them and, failing that, fire them. You will lose market share but improve profitability.
• Compensate your sales force on profit margin, not sales revenues. A volume-based sales force will sign up any customer, regardless of profitability. That's OK early in the product life cycle but not in maturity.
• Trim costs and acquire competitors (with profitable customers) to extract maximum scale economies in procurement, manufacturing, and distribution
• If you aren't the low cost producer, complicate your pricing structures so customers can't easily make side-by-side comparisons, and provide discounts as needed of artificially inflated published prices.” (source at end of post)

I do not agree with his suggestion to complicate your pricing structure. Most B2B buyers want several bidders and companies which cannot be compared to their peers will be eliminated from consideration. Even consumers will be likely to look elsewhere. I have seen success with simultaneously raising prices and discounts. It’s particularly effective internationally in cultures that believe a large discount means that they have received a good deal.

Whatever you select to be the differentiators, remember that there can only be one lowest cost producer in an industry. If that organization is not yours, you’ll be out of business soon. Careful analysis of your strengths and weaknesses vs. rivals and the needs of different market segments should yield a match. If not, it is time to revise your whole strategy.

(HBS Working Knowledge, “When Your Product Become a Commodity,” interview with John Quelch, the Lincoln Filene Professor of Business Administration at Harvard Business School, 12/14/07)

Compete to the Best? No, Says Michael Porter

Michael Porter discussed the barriers to developing effective strategies with Joan Margretta who recently published the book, Understanding Michael Porter: The Essential Guide to Competition and Strategy in the Dec 21, 2011 issue of Working Knowledge.

After not having a strategy, seeking to be the best in an industry is the next most common mistake companies make, posits Porter.

"The granddaddy of all mistakes is competing to be the best, going down the same path as everybody else and thinking that somehow you can achieve better results."

Many internal and external forces push organizations to adopt this strategy. Executives do not assess theirs strengths, their target markets, and their competition correctly. They tend to ignore their biases and the behavior created by internal reward and/or cost systems that may be counterproductive. Managers, says Porter, also hate to make trade-offs because they dislike accepting that they and their firms have limits.

External forces pushing companies to adopt the best strategy include security analysts and consultants who push customer-centric strategies. But, as Porter points out, “If you listen to every customer and do what they ask you to do, you can't have a strategy. Like so many ideas that get sold to managers, there is some truth to it, but the nuances get lost. Strategy is not about making every customer happy. When you've got your strategist's hat on, you want to decide which customers and which needs you want to meet. As to the other customers and the other needs, well, you just have to get over the fact that you will disappoint them, because that's actually a good thing.”

Organizations expanded their definition of their industries based on the work of Theodore Leavitt, losing their ability to place their company in the correct sub-segment. A famous example is the railroad company which should have realized that it was in the transportation business to compete effectively against long-distance trucking and airfreight. But railroads have a unique position in the transportation business which must be considered when developing a strategy. Porter adds, “Defining the industry as transportation can be dangerous if it leads managers to conclude that they need to acquire an airfreight company so they can compete in multiple forms of transportation.”

Other common mistakes are confusing marketing or operational effectiveness with strategy. “It's natural for strategy to arise from a focus on customers and their needs. So in many companies, strategy is built around the value proposition, which is the demand side of the equation. But a robust strategy requires a tailored value chain—it's about the supply side as well, the unique configuration of activities that delivers value. Strategy links choices on the demand side with the unique choices about the value chain (the supply side). You can't have competitive advantage without both.”

How does your firm define its strategy vs. your competition? If multiple companies are seeking to be the best in an industry, they are essentially chasing the same target customers who can then demand price concessions. With this dynamic, some market segments are ill-served and overall profitability of the industry is lower than it would be if organizations had each selected a unique value proposition.

Is this dynamic operating in your industry currently? If so, what can you do to push your management to refine its strategy to be unique? You could:

1. Write an analysis of the competitors’ strategies to show the similarities among them and to your organization’s plans
2. Suggest a war gaming or scenario planning exercise to allow the executives to realize the issues themselves
3. Interview customers, and non-customers if possible, to solicit their views of the various competitors striving to be the best—customer comments usually carry more weight than employee views

You may be able to think of more ways to focus attention on this issue. The important point is to have the issue examined to help your firm succeed and, of course, keep you employed.