How Old Metrics may strand you strategically

Ever stIMG_0267op to consider how the ever present changes going on around you make your own transformation easier?

John Hagel relatively recent blog post describes the opposite.

In a world of accelerating change, one of our greatest imperatives is to “unlearn” – to challenge and ultimately abandon some of our most basic beliefs about how the world works and what is required for success.

Accenture a few years ago noticed that many different companies had shifted their approach to strategy. Perhaps, the availability of cheap, powerful computing capacity and Big Data are responsible for driving changes in strategy development as more organizations using technology find it easier to build consideration of the future into their present planning.   Hagel, a long time fan of scenario planning would applaud these efforts too.

With the rise of automated business processes, analytics too get incorporated automatically to enhance decision making and may be simultaneously compromising management capabilities to internalize all of these changes or understand the underlying dynamics traditional measures mask. Several articles provided case studies in different industries provided the basis of discussion around transformation (see the bottom of the post for specific article links).

how to lie with staticsSuccessful organizations rely on their strategy to put forward action plans, realize new ideas while averting risk. Statesmen and management alike find themselves in precarious places when they assume a trend will continue without change. Many statistical methods and decision-makers use of data remain unchanged from 1954 when Daniel Huff first published How to Lie with Statistics. His timeless book describes very simply the perils of improper use of methods that were designed to capture and explain if not contextualize the significance of singular observations, or data.   The current transformations enabled by technology have done more to alter behavior than organizations seem to recognize. That’s the path our discussion took.

The capability for insight

Prospective vs retrospective cohort analysis  and data mining techniques are far from new. Though the volume and speed of available data to digest and process with ever The increasingly sophisticated tools and the ease with which volume and speed of available can be processed may help as well as hinder their digestion. Sure the time to test alternative scenarios may be faster, but how do you choose the model?

Do you begin with the intended outcome? The scientific method and numerous models from multiple disciplines make it possible to isolate factors, determine their significance, and estimate alternative scenarios and assess how these variations produce changes in impact.

Similarly, the cross pollination of data modeling from one discipline into multiple industries and use cases continue to shift management beliefs regarding the importance of specific factors and interactions in their processes. The perennial blind spot denies many organizations and their leadership the insight necessary to transform both their internal strategic thinking process and business operating models. Last month’s discussion of McDonald’s and Coca-Cola illustrated how easily leadership misinterpreted fluctuating performance as temporal issues versus recognizing structural factors. It’s one thing to balance efficiency and effectiveness, quality and satisfaction and another to manage awareness of change and insights necessary to your continued survival.

What else thinking

“…both the digital world and the physical one are indispensable parts of life and of business. The real transformation taking place today isn’t the replacement of the one by the other, it’s the marriage of the two into combinations that create wholly new sources of value.  “

The sudden availability of online data tracking provided many organizations with the proper capability to understand user behavior differently. A whole new industry arose to focus on interpretation while creating of new measures while also introducing new thinking about effectiveness in sales, customer service, training etc.  Metrics, once created to prove out a strategy or an idea, now leave many organizations vulnerable until they build up the capacity to understand this new thinking let alone make corresponding operational changes necessary to sustain their business.

This is not the story of companies who fail to adapt such as Kodak who invented digital cameras only to retain their focus on film; but maybe it is.

http://www.cognoise.com/index.php?topic=17598.0Computerized reporting dashboards summarize specific indicators or activity associated with managing process or business relevant factors. The time and reporting cost savings that result from the automatic generation and ready access to information by managers and executives reinforce existing thinking and leave little room for understanding wider changes that may be impacting their business. It wasn’t long ago that analysts, and teams of them, spent their entire day pulling data and then calculating critical statistics detailing the effectiveness and efficiency of organizational activities to create reports for senior management. These efforts also made them accountable by insuring the data was clean, verifying whether outliers were real or indicative of a model failing to fully capture the wider dynamics. I was once one of those managers.  Today, automated reporting has eliminated many of the people capable of deeper data exploration and who chose what data, which statistics and the context necessary to understand the situation. The second problem is that data shared graphically or in tables never tell the whole story, though infographics do try.

A good analyst is taught to review the data and results, double-check whether the model or calculated results makes sense. Sure managers and executives may be quicker to detect aberrations and then raise questions but , how many of them have the time, patience or skills to test their ideas or intuitions? I imagine very few if any. Where are these available resources and how widely known are they to questioning executives?   How might the dashboard provide additional information to help frame the results executives see as they too seek to understand or make sense of the results?

Outside in thinking

Established data flow processes and automated reporting do deliver great advantages but they may also explain why outsiders find it easier than insiders to create new business models.   Where’s the out of the box thinking? And how can different data help?

Sure, it’s easy to blame regulatory requirements or compensation structures incentivized to focus on effectiveness and efficiency that leave little latitude to notice opportunity. For example, in the airline industry route fares were once set by regulations. The minimum fares were intended to cover airlines operating expenses that both insured passenger safety and access to air travel in more locations where market forces may lead airlines to cut corners. Deregulation may have given airlines additional freedom but many manage their business using the same metrics that they report to the Department of Transportation. Likewise in Healthcare, the imposition of new regulatory requirements came with new metrics that forced hospitals to focus on patient outcomes not just their costs.

When executives bottom line focus limits their thinking as an exercise in how making corrections in operation may maximize that number they overlook other contexts. Data quality issues should surface quickly in most organizations, but what if another factor created the data issue? A misplaced data point, or inconsistent treatment of the content of a data field rarely explain all aberrations in the results.   Weather, for example exemplifies a ubiquitous, exogenous variable. Observable data fluctuations may be directly or indirectly responsible by affecting other more directly connected factors, such as a snowstorms that change people’s activity plans. I’m not familiar with any automated reporting system that will automatically create a footnote to the data point associated with the arrival of a snowstorm. The reviewer is forced to remember or manually if possible add the footnote for others.

Bigger transformations to come

Bain believes there are significant implications for every organization that result from this digital and physical combination of innovations , they call Digical. It’s not easy to keep up with the corresponding behavioral shifts that result from these rapidly changing technological capabilities.

Focusing exclusively on efficiency and cost data helped management measure impact in the old era, though still necessary today they may no longer suffice. Do you know how social behaviors of your customers impact your bottom line? The technologies to support your business, such as your website or your cash register misses out on the social behaviors evident on sites like Facebook, Twitter, Yelp or even their bank. Mapping the ecosystem and then aligning the digital tracking data can now be supplemented with sensor data that may be anonymous to specific customers but can inform movement and actions relevant to your engagement.http://intronetworks.com/making-amazing-connections-siggraph-asia/

Naturally, as mentioned earlier bias plays a role in our inability to notice the significance of new data. The more we automate and configure systems to measure what we always knew mattered, the less likely we are to be able to recognize new data and its significance. What should you the analyst and you the executive do to counteract these factors?

Takeaways

Monitor the activity of smaller companies as they experiment to learn what’s most relevant.

Don’t make assumptions, exercise strategic intentions to become more open receptive and curious about anomalies and be more creativity and persistent in identifying the drivers or possible factors.

Historically, metrics were an output designed to assess the validity of your strategy –did it work and/or deliver value. Not it’s time for strategic thinking to view metrics as an input. The use of statistics enabling analysis tools partnered with business knowledge and acumen must be part of communicating to higher levels in the business.

Often we measure the wrong things because the incentives are misaligned. Am I paid based on my proven ability to produce widgets at specific levels , or to produce effective, sustainable results for the business, not just my business unit?

Computers are useless they can only give you answers. For strategy, validating the questions may be important but so too is taking the time and effort needed to determine even better questions.

ARTICLES

Alternative case examples

Bain’s study and understanding of the state of “digical” transformation:
http://www.bain.com/publications/articles/leading-a-digical-transformation.aspx#sidebar
Fast Food
http://www.qsrmagazine.com/reports/drive-thru-performance-study-2014
Wireless
http://www.rcrwireless.com/20140812/opinion/reality-check-new-metrics-for-a-changing-industry-tag10
Television
http://fortune.com/2014/10/23/adobe-nielsen-tv-ratings-system/
Gaming
http://www.gamesindustry.biz/articles/2014-03-10-social-currency-has-real-value

What strategy will help Coca Cola and McDonald’s continue to Grow?

Publié le 25/03/2010 à 23:33 par papillondereveMcDonald’s and Coca-Cola, two of America’s most iconic brands were the focus of the January 2015 discussion.  Why pick on them?

  1. The market has been digesting repeated disappointments over quarterly earnings and fueling speculations about their future.
  2. The availability of ample data and a broad set of analyses serve up a perfect opportunity to further our own understanding of the strategic challenges related to sustaining growth.

Typically, most organizations begin a strategic assessment with a simple SWOT analysis.  Instead,  we followed the Chicago Booth tradition and began with a look at available data.  We reviewed a  series of articles before discussing these two companies’ prospects for future growth. (Click here for the links and discussion preview.)

Both companies offer evidence demonstrating how their history and initial value proposition continues to dictate their forward strategic paths. Or as Michael Porter would say,

“Strategy 101 is about choices, you can’t be all things to all people.”

Once you decide whether your organization will be a cost or benefit leader, aligning your resources and messaging becomes simpler. Price doesn’t fully substitute for quality, and consumer preferences are not always consistent. An organization’s successful growth demonstrates it’s priorities and reflects its consistency to deliver on its commitments to customers and their preferences centered around price or quality.

McDonald’s and Coca-Cola sensibilities and capabilities embody the management principles of post war industrialization. The hallmarks of efficiency embodied by these two brands commanding distribution networks reflect their unwavering commitment to quality, consistency and convenience. Each however has defined value differently in the eyes of their customer which further enabled their brand’s rapid, organic growth.

McDonald’s initial automation and efficiency enabled it to deliver meals affordably, conveniently,consistently in an atmosphere that maintained a high standard of cleanliness equal or better than its competition. In 1953, these standards proved themselves effective differentiators.

Coca-Cola chose to deliver on the benefit side, historically limiting its physical assets and focusing on relationships, advertising and consistency around quality.

Operating within the boundaries of these original value proposition, both brands performance over time demonstrates how their responsiveness and sensitivity to regional differences and changing customer sensibilities allowed them to continuously add value and grow. Each brand’s commitment to experimentation and innovation proved central to fueling organic growth. Further,  their individual strengths allowed them to leverage new ideas, even when introduced by competitors.

TaB adIn 1963, Coke’s introduction of TaB followed the success of Diet Rite Cola, a first entrant in the sugarless soda category. In 1962, McDonald’s introduced the Filet-o-Fish as a meatless alternative for observant Catholics following the suggestion of an Ohio Franchisee responding to local competition

Eww Arch Deluxe ad For each, their share of successes also included colossal failures. Who can forget New Coke, or McDonald’s Arch Deluxe? Per Daily Finance.com these two were the #1 and #4 biggest product flops of all time. Both however learned from these experiences and were quick to renew the good faith of their customers and keep growing.

That is until now.

The value defined by their strengths, brand status advantages and considerable market dominance delivered significant success, but now cloud their vision and impede their path to future growth. After all, what’s really left for them to tweak? What haven’t they tried and learned?

Beyond Strength

Both companies continue to demonstrate long term value for their shareholders.  Each provide great capital returns and margins.

  • Coca-Cola has paid a rising dividend since 1963 and has a current yield of 2.88%.
  • McDonald’s has paid a dividend since 1976 and has a current yield of 3.72%.

Each holds the leadership position in their category, continue to show signs of forward thinking and planning at levels of coordination and integration that few companies achieve. Their initiatives, irrespective of success rates are also lessons and templates offering competitors a looking glass into the future.

According to data from the National Restaurant Association, fast food accounted for about 28% of the $683.4 billion in overall U.S. restaurant sales in 2014. The Palo Alto Medical Foundation reports that 25% of Americans eat at fast food restaurants every day.  . Quick Service Restaurant (QSR) magazine identified McDonald’s as the world’s biggest restaurant chain by revenue-$36B in US sales in 2014.  This equates to an estimated 18.6 percent market share of the entire fast-food industry. (Per IBISWorld market research 2014 as reported by franchise chatter.)

“McDonald’s stands for value, consistency and convenience,” says Darren Tristano at Technomic,”and it needs to stay true to this. Most diners want a Big Mac or a Quarter Pounder at a good price, served quickly. And, as company executives now acknowledge, its strategy of reeling in diners with a “Dollar Menu” then trying to tempt them with pricier dishes is not working.”

Just as McDonald’s typifies the fast food industry, Coke is the soda industry, or as Mike Weinstein, a former president of A&W Brands told Business Week,

  “Whatever Coke does, it’s seen as what the soda industry does. What happens to Coke eventually happens to everyone.”

And So?

The strengths of these two brands and value propositions sound good for McDonald’s and Coca-Cola. Their future growth however depends on just how they renew their efforts and focus and capitalize on their key strengths. The forward position challenges you to see and respond to changes  in your business environment faster. Their sheer size and market share visibility also make both more vulnerable to wider market pressures.  Especially in the U.S., where both companies current experiences and declining sales volume indicate they somehow misread the significance of changing American attitudes  around nutrition and choice.  For example,  the 3% decline  in 2013 of the entire carbonated drink market in the U.S. hurt both companies’ sales.

For Coca-Cola, the emergent energy drink category displacing their sales creates challenges for which they  have not had an effective response.Similarly, the alternative fast growing Fast Casual category represents McDonald’s biggest threat. Further growth in this category limits further expansion in the corresponding Fast Food category, and McDonald’s too has yet to effectively compete.

In addition, both new categories prove highly appealing to millennials whose behavior and preferences some analysts contend prove influential to other segments. No wonder both brands chose to leverage their considerable resources around what they know. Each reportedly are investing $1bilion in advertising in efforts to re-establish awareness among this key market segment.

Holding the value of your brand

Interbrand’s 2014 Best Global Brands
2014 RANK 2013 RANK BRAND SECTOR 2014 BRAND VALUE (USD $billion) % CHANGE IN BRAND VALUE
1 1 Apple Technology 118.863 21%
2 2 Google Technology 107.439 15%
3 3 Coca-Cola Beverages 81.563 3%
 ….   ….
24 22 Pepsi Beverages 19.119 7%
38 37 Nescafe Beverages 11.406 7%
72 69 Sprite Beverages 5.646 -3%
….   ….
9 7 McDonald’s Restaurants 42.254 1%
68 66 KFC Restaurants 6.059 -2%
76 91 Starbucks Restaurants 5.382 22%

Source: Business Wire, Oct, 9, 2014

As shown above, in 2014 Coca-Cola’s increased its estimated brand value of $81.56 billion 3% from 2013 permitting it to hold it’s #3 position a second year in a row. This is after losing the #1 spot it held in 2012 and a decade long decline of American soda sales. Their continued brand dominance reflects the impact of their recent marketing, acquisition and diversification strategies.  Business Week explains it this way:

“In 2007, Coke found that 20 percent of the sales and 50 percent of the growth in the $120 billion beverage industry came from small, independently owned brands, a third of which hadn’t existed five years before. That year, Coke launched its Venturing & Emerging Brands (VEB) division to cultivate relationships with and ultimately purchase some smaller startups.”

In Contrast, McDonalds estimated brand value of  $42.2 billion increased only 1% over 2013 reflected its slowing growth and dropped it to #9,  down from #7 position it held in both 2013 and 2012. (Note the distance between these icons and their nearest category competitors shown for comparison).

The marketplace loves a good story of failed leadership. When the mighty fall the press and public are quick to pounce and in some ways, fresh eyes and alternative experiences and optimism may prove more than beneficial. Will activist investors get their way?

Then again, in taking a close look at the fundamentals of size and respective asset valuations our disccusants were reminded of the difficulties around sustaining organic growth.

Below you’ll find the participants takeaways following our most recent discussion. Read the articles, see if you agree. After our usual wrap-up, you will also find a series of simple questions we plan to raise with a few folks with deeper knowledge and a more intimate understanding of McDonald’s.  We will post their responses when they arrive.

TAKEAWAYS

  • The one size fits all notions that produced cookie cutter efficiency and passed on volume savings to maintain quality suited the growing quick service restaurant category, when there were few comparable alternatives. Today, the US market especially its urban centers, reflects far greater diversity in the category. The growing variation along the price value continuum illustrates the market’s response to changing attitudes, palates and preferences of consumers as well as differentiating  perceptions. Use your strengths to build alternative restaurants, maybe tailoring them  to regional preferences and further diversify your portfolio holdings.
  • Separate the brand from the occasional value meal inspiration.  Sure everyone appreciates getting the best value for the lowest price, but it’s difficult if not impossible to deliver differential value messages within the same location as in the value meal combination vs. purchasing off the dollar menu. Turn your attention to differentiate your value relative to your competitors at similar price points.
  • The strengths that prove appealing to shareholders don’t indicate your understanding of individual customers.  Declining customer counts along with infrequency of return visits suggests the absence of resonating experiences necessary to meet the demands of the increasing segmentation within your broader competitive category. How can you continue to benefit from your existing strengths? Pare down your menu further to deliver the essentials of what your core customers want, assuming you really understand who that is.  Once you do, use a loyalty program to reward them and keep closer tabs on their responses as you continue to test.
  • If increasing customer price points is key to your growth equation then you also need to offer higher value for the price in order to avoid losing the core brand identity.  Obviously in rural areas where the choices are fewer, you retain a firm grip on the market and can delay changes. Unless the $1 menu, or $1 menu plus offers acceptable margins you may need to find alternatives to pass your volume discounts on to consumers.
  • Separate supply and demand functions as you manage the business going forward.  The benefits from your superb asset management capabilities on real estate, currency risk and supply chain have been impeccable and thus puzzling to watch your miss on the demand side. Are there lessons in creativity and management that could prove helpful?
  • The proliferation of segmentation in the marketplace let alone in your customer base requires a more innovative approach than mere brand building activities offer. In focusing on the customer experience you may miss aligning around your core identity. Another reason it may pay to try an alternative diversification strategy through new restaurants, concepts that don’t compromise but complement the existing franchise.
  • One of the problems of being so big and maintaining a healthy distance from your nearest competitor means you were insulated from the small ripples of changing sentiment that others were quicker to seize upon.  Your crumbs became their meal and growth ticket.  In order to get out front again, you may need to get much closer to your customers, and surprise them, delight them or even choose to get cozier with your competitors again to find a way to grow the category together.

Concluding remarks:  We know we didn’t discuss Big Data or social media or even mobile so there’s plenty of things we missed in 90 minutes. Please, share your suggestions or comments on what you find to be effective growth strategies for market leaders who seem to have hit the end of their runway.  We’d love to hear from you.

Taking Aim at Corporate Leadership–

Jamie Dimon, Hugh McCall were just a few exemplary CEOs that were discussed this morning in our discussion around Leadership.  Their ability to deliver, tough minded interactions with their boards, zero tolerance for non-performers and vision for their organization suggested that we seem to recognize good leadership when we see it.  Characteristics or the actual qualities that define leadership, however prove more difficult to understand, identify or measure for impact.

lessons-from-ducks If you invoke the simple rule of followship, then you may end up in a precarious position.  Ducklings naturally follow their mothers and the mother duck in this example shields her offspring from danger but does she really lead?

Our perceptions of leaders and the realities of effective leadership are not always in synch. Robin Hood the hero captures our attention and appears to have attracted quite a following or at least that’s the legend as it’s often told.  Reality illustrates that he was far more enabling and was probably an amazingly talented lieutenant under King John who really had the skills and experiences to inspire and train and command a team. (See Suggested articles at the bottom of this post).

Likewise today’s army does an astonishing effective job of command and control style leadership by focusing on developing people by instilling the philosophy of Be Know and Do.  The trust within a unit and the capabilities of individual members are as critical as the leaders’ vision.  The clarity of rules for succession to command are both important and immediately visible.  Every individual is responsible for every one else on your team.  Effective units require individuals to be both emotionally committed to the task as well as each other.  The army exemplifies meritocracy and demonstrates what it means to instill the construct of success from the imperative that failure is just not an option. Which means every soldier needs to help the other soldiers excel.

How exactly does the US military achieve this level of functionality and effective leadership capability?  They also use scenario planning, simulation and constantly are challenging the relationship and perception of leadership.  But does it effectively translate into business settings, or other situations where the consequences from failure are not life threatening?

One take suggests that leadership gets people to do things they wouldn’t do under their own volition.  Leadership in this frame, inspires providing mutual psychic rewards to those leading as well as those being tasked to perform. In the context of the military it’s easier to imagine how the threat and danger elements are put to effective use, but the problem is translating them into everyday work situations.

Vision obviously matters and mercurial leaders like Steve Jobs or Richard Branson who changed the rules when they entered the business are rare. For those organizations that inherit leaders, or for whom a board replaces the leaders the embedded base may prove difficult if not impossible to move or motivate.  What are the basis or selection criteria that a board uses to choose its next leader?

Alan Mulally was brought into Ford and made big bets with expectations of long-term payoffs.  Not every leadership situation fits every leader.  Situations also change over time as is illustrated by Dov Charney who may have been great at building, growing and even scaling American Apparel until his behavior no longer suited a bigger organization.

In other words, context alone isn’t the only consideration, but boards misjudge the situation or their market or their issues ore than 80% of the time.  Which explains why the failure rate of placed leaders is so high.

when does situational vs. industry competency matter?  Not clear that many people posses capabilities in both.  The ability to adapt, flexibility and even the awareness of the rate or pace of change in an industry can be difficult to assess.  This is why succession planning and preparing your team with the discipline and transparency the military uses may prove invaluable, both as a motivator as well.

Take Aways:

Leadership to be effective must be situational:

  • offensive vs. Defensive
  • Political vs. independent
  • Short term vs. Long Term
  • Intrinsic rewards vs. monetary rewards.

The Be, Kind and Do paradigm useful and instills a discipline of Respect, Flexibility, collaboration, knowledge and courage.

We tell too many war stories that may or may not be enough on point. In Business, the importance of boards hiring, managing and changing leadership process increasingly critical.  Question is how effective are they at choosing the criteria that fits the situation the company faces?

Leadership traits are also complicated and thus vary by context, industry, “charter” etc, this variety of dimensions make it difficult to codify into one description.  This is why there are so many books on the topic!

Leadership–we need to change the paradigm, understand its situational dependence and clearly evident when they plant trees!

Situation specific, leaders good in one may not transfer/translate well in another.  Parameters worth considering include:  the business life cycle, rate of change in the industry, customers, type of business (e.g. retail, government contractor etc), growth or mature or crisis?

Under different conditions, different attributes matter.  need to assess the situation accurately in order to effectively make the call of what type is needed.

Never one set of attributes that make a leader, the context really matters!

Suggested Articles

The following links to articles were merely suggested as background reading to inspire participants thinking:

US Military’s leadership development strategy

Mobile Strategy–an imperative for your future

Note to readers: The graphic to the left was found After the  October 18, 2013 discussion, inspired by articles listed at the bottom of this post.   

Does your near term performance hinge on your understanding of mobile  technology, and if so, how critical a role does it play?

Infographic-2013-Mobile-Growth-Statistics-MediumToday mobile platform adoption rates outpace the technology’s downward pricing.  The dual benefits of convenience and constant connectivity offer irresistible value and overwhelm the initial cost bumps associated with implementation.  It’s not merely the anytime anywhere connectivity with your social network that makes mobile valuable. Mobile technologies offers direct access to increasing varieties of information at the tip of your finger anytime and every where (if there’s wifi).

Questions that used to leave us uncertain, can be easily answered.  For example:  How soon until the next bus arrives?  What’s the best route to any intended destination?  What can I make for dinner? Who has the best price? What’s the name of this song playing right now?

Short message services–SMS, Geo Positioning software – GPS, Google search, untold numbers of product and service applications and internet browser capability are now built into multiple mobile devices.  They allow everyone to travel lighter and access the information needed at the right time.

For business, if you don’t have a mobile strategy yet,  best make it a priority.  At least that’s what the discussion participants concluded.  Skeptical of consumers ability to fully integrate many of these technology opportunities into their daily routine or modify their existing habits and behavior,  companies who have yet to play in this space will find it harder and harder to catch up.

The strategic opportunities continue to evolve in tandem with the spreading  uses for assistive mobile technologies.  For example, a prudent strategy  in consumer marketing might be to incorporate  the technologies to enhance the user experience—especially as no clear killer sales application that deploys these technologies exist.

·         Amazon with all its technology savvy and leadership in the online sales market leveraging its platform hasn’t found a way to fully leverage mobile capabilities to increase sales.  Mobile assistive technologies, like Google maps represent a hybrid.

·         Twitter, hot off its successful IPO has yet to grow actual sales for any business.

·         Facebook’s use of GPS allows business to learn more identifiable information about the consumers as they become proximate to their store,  but have yet to prove predictable in driving retail sales.

Advantage

What advantage then can mobile technologies really deliver?

There seems no limit to the additional utility Search Engines provide.  Mobile technologies allow roving users access to  public, private or personal sources that the engines verify and validate boost both their value and help build loyalty incentive programs.  Increasing numbers of gamification applications also exemplify how mobile technologies drive growth opportunities  by enabling repeat sales through mutual identification of merchants and existing customers.

More interesting,  mobile technologies helping to optimize each stage in the sales cycle sequence.  Applications that make use of two way transmission—driving traffic both by or to customers is just the beginning.  Efforts that allow discovery and exploit more stages in the cycle help determine when, where and how the transmission proves itself  more efficient and effective.  Should your business deploy mobile to simplify checkout? Or simplify merchandise location and availability?

In the ongoing evolution of technology, strategy that focuses on deploying tools for competitive advantage or advancement isn’t enough.  Strategy needs to consider how the new technology influences your revenue flow.

Possessing mobile technology isn’t merely a lower cost play. Strategic opportunities increase when it’s used intentionally to offer stakeholders learning opportunities.  Can you give your sales people the most up to date information on the customer’s past purchases, or your customers’ suggestions for product use, installation or enrichment?   Present technology capabilities and big data offer business opportunity to accumulate metadata and create richer customer profiles.  Mobile brings them together by putting the specific customer into the present transaction equation.

15 years ago, business wondered how, what and when E-Commerce would change their reality.  Today, forward planning organizations recognize mobile technologies as a similar force of permanent change.  Advantage will flow to those organizations who get out to test and experience for themselves the many features mobile technologies offer them directly.  These options offer unique understandings and help them translate mobile technologies’ anytime, anywhere access options into business value.

Strategy that activates customer and supplier value goes beyond capturing attention and offering incentives to drive traffic.  The strategy must consider the fuller customer experience and increase the odds of success by investing in developing future capabilities such as cross training staff and directing resources that  effect cross-promotion , understanding  both crowdsourcing and influence peddling opportunities.

Walmart’s recent experience demonstrates the shifting control customers now possess.  A computer glitch with  the Federal WIC program’s system communications prevented enforcement of  purchase limits at Walmart’s Point of Sale.  A customer tweet  flooded Walmart with these customers who exploited the system failure to their advantage and  Walmart received the short term benefits.

Summary of take aways

  1.  Confirmation that organizations must be actively trying to understand the technology, otherwise they may never get the benefits.  For now, obvious value is limited to facilitating adaptions to  marketing .  Eventually both seller and buyer will reach the same understanding but the advantage will continue to flow to those who worked hard out front and made it easier for their customers to both benefit and settle in as they who to trust and where to be.  Switching costs are always serious and so it pays to be out front.
  2.  Best to think through how you deploy these technologies carefully.  What opportunities will make things easier for you consumers, and then work to simplify the individual steps and actual transactions.  For example, Millenials view mobile as an essential service and continue to need and expect universal Wifi and battery charging wherever they go.  Are you helping them?  If not, your access to this key demographic will be limited.
  3. Balance the cost/benefit of information and investment.  Mobile is a work in progress like any technology, don’t put all your eggs in one basket.
  4. Opening up of information transmission in more places and with more transactions suggests that additional paths to capitalize on this phenomenon.  Your strategy should seek to know and learn, as in where you can produce added convenience, respond and simplify steps in your own or your customers’ process, find out more about customer behavior and your ability to learn with  them  in order to  gain strategic advantage.
  5.  Continue to seek out pockets of advantage—customer  loyalty is easy, instant access, centralize connections for your customer to one place is another.
  6. Transparency too is key. Mobile comes with real time imperatives and be sure your back up plans work.  Open Table app for example failed to deliver real time answers or reservations, which diminished its value and its opportunity to build customer loyalty.

ARTICLES:

Mobile Now—Strategy +Business June 2013

http://www.strategy-business.com/media/file/00196_Mobile_Now.pdf

The 6 Biggest Mistakes Made on Enterprise Mobile Strategy

Posted by Adam Bookman in Wired on August 5, 2013 at 10:30am

 http://insights.wired.com/profiles/blogs/6-biggest-mistakes-mobile-strategy#ixzz2glZMCXXu

 Global mobile statistics 2013 Home

http://mobithinking.com/mobile-marketing-tools/latest-mobile-stats

And, an Optional  case Illustration.

A look At Quiri- Retail Intelligence using mobile crowd workers

http://techcrunch.com/2013/10/02/quri-a-retail-intelligence-platform-using-mobile-crowdworkers-scores-10-million-from-matrix-others/

Sports analogies for business – how effectively do their impact and influence extend beyond the game ?

George Toma Readies Superbowl 48 Giants Stadium Field.
Superbowl XLVIII, Giants Stadium NJ readied by George Toma, official groundskeeper for all 47 preceding superbowls and his crew.

On the day of  Super Bowl XLVIII, it’s impossible to ignore the power of sports to captivate the attention of the world. Few events compare historically to viewership levels and  calls for  the all-consuming air time devoted by the media to a singular recurring event. Think about it, other than religious or national holidays, only acts of pure terror or wonder attract this much attention.

Irrespective of the team match ups, the pinnacle represented by the Super Bowl offers several compelling lessons to further Business Strategy, though we will overlook the obvious promotional marketing option.

Successful business strategy defines itself as a quest for clear advantage.  Sports stories typify this quest and that’s why we wondered about the value of the analogies, given their abundance and frequent invocation.  Do they help business leverage competency, inspire confidence and deliver positive outcomes?  As usual, participants reviewed in advance a few selected articles (linked at the bottom of this post). These thought starters warmed up participants reflective abilities and helped us frame the conversation as follows:

  • A battle of objectives-Winning vs. Value Creation
  • Numbering Success
  • Beyond the action of “the game”
  • Game Changers

The topic was not intended to prove conclusive, and we offer the following post-discussion elaboration of hasty notes for those of you who missed out.  Do feel free to add your thoughts and share the responses with others.

Winning Objectives

Undeniably there is a cross-relevance between many sports philosophies and business. Competition and Sports go hand in hand. Opposition, rivalry and contest make up the elements necessary to motivate both players and observers. The experiences of playing or watching sports evoke great passion and focus, behaviors which naturally pervade our lives and make the contests universally appealing. No wonder, sport stories succeed as shorthand references connecting experiences across a series of interpersonal activities including business.

How and do sports’ stories help or hurt business strategy? The context of a game doesn’t exactly mirror the ongoing demands of business.  A specific sport’s rules, frequency of play and consistency of  playing conditions (e.g. the field, the season, the equipment, ethics etc) make sport’s winners easy to name and likewise test the merits of a particular set of plays or strategy.  Business by contrast strives to eliminate ambiguity and standardize its rules and apply them consistently.  The result is the frequent restatement of results which makes the parallels to sport that much more divergent.

The context of game doesn’t exactly mirror the ongoing demands of business.  For example, is the business of business to win, or create value?  Does strategy offer greater value when it focuses on generating general or more specific outcomes?

The delimiters present in sports—the field,the game, the season –all make possible two fundamental self-sustaining attributes:

  • Emotional fervor, and sheer adrenaline fuels high performance  in individuals, teams and fans but is impossible to sustain naturally.
  • Measurable relationships easily established between actions and rewards—both tangible and intangible .

Business strategy in contrast struggles with these issues and looks to sports for inspiration while persistently under playing the value and resists imposing similar clear and consistent delimiters.

For example, the value of  a win, though always significant accumulates in sports but often dissipates in business.  To get the points, make the down or win the game rarely engages and rewards  employees directly as  it does  players.  To deliver success, employees need more sustainable incentives.

How a business measures or tracks a win or a loss differs dramatically from sports.  It also differs within industries or within an organization based on the business unit.  Are forecasters held accountable for their targets in manners equal to sales professionals?  What about wins in customer service versus IT?

Clear outcomes generate stories that rouse emotions to a degree that no numerical analysis of performance musters. Engagement in a given task or play and the survival lesson it produces can motivate both employees and players to focus, as well as extol the importance of each effort.  The analogy of surviving a skirmish makes clear connections between the single event’s outcome and its impact on the larger mission.

War analogies and larger battles such as the Super Bowl share common language but differ drastically in participant experience. Isolating a single event and elevating its importance can be an effective motivator, but in business performance goals need to be sustained and ever-increasing.

Sports analogies dominate conversation today may be due to the increasing prominence of the business of sports and the remoteness of common war experiences in many American’s lives.  To be successful understood, metaphors need to be familiar to your audience which increases its authenticity and your credibility.  These conditions make it easy to turn to sports for help.  In a single game, the event stakes don’t carry the same consequences as being a general or platoon leader in battle.

The idea of surviving the skirmish and larger battles may be proper in sports but many business problems are often ongoing.  To call for action, any insight the analogy inspires must ring true.

Beyond the action of “the game”

Before any game, a coach and the players generally agree on a strategy.

Coaches help their players gain the knowledge they need to be effective and win. Regular practice, drilled instruction and constant review raise the level of experience and consistency of individual performance.  These factors help coaches recognize the readiness of a player and affect whether to play them in a given game and situation. Since players once they possess the ball often have wide discretion for their actions, the coach’s decisions to play them matters.  In business there’s no overt practice, and few managers and leaders prove effective as coaches, though they remain accountable. In business proven performers get more freedom than in many team sports.  For example, players may blame their poor collective performance on  decisions made by others, as reported by Darin Gannt.

‘‘That was a changeup,’’ Brian Urlacher said, via the Chicago Sun-Times. ‘‘I don’t like coming out of the game. But he’s the head coach. So I do what he says.’’

Few people close to the details willingly write or disclose these facts and their reflections in a timely manner for fear of repercussions.  There’s greater value to silence and avoids becoming the subject of wider scrutiny.  Sure, there are some wonderful tell all stories even if they tend to be extreme– great failures and great successes.  It’s no wonder that everyone confuses tactics and strategy. the failure of planned plays in both business and sport always depend on both the player capabilities and circumstances.  The difference isn’t just whose calling the shots, or is it?

Admittedly different sports offer different learning opportunities for business, but in general business could benefit from more post-mortem reflections on the game and analysis of play.

Organizations that do demand routine project reflection, write and publish  them at least internally demonstrably outperform their peers.  Still the number of organizations who have embraced this practice exemplifies the larger ambiguities that are rampant in business.  Of course sports isn’t immune to the fall out that comes to their industry from these stories but not to the extreme  and speed with which the market punishes business.

Numbering Success

Numerous performance indicators exist in both business and sports.  In sports, wins and losses are the common denominator of success for both players and teams.  Regularly, new scorecards and metrics attempt to track and match up players within an organization or rank the organization in an industry.  The quest for more data and more metrics has led to the rise of numerous successful businesses.

Numbers try to provide great performance inspirations, but fail to rouse people at the level of a great story.  Using alternative statistics to recruit and balance a team ‘s capabilities and diversity of skills plays out in both arenas.  Michael Lewis and his compelling story Moneyball heralding the quants’ efforts  in baseball to change the dynamic of the game, proved to be an ineffective strategy.  Sports management quickly learned  that an over-reliance on more statistical data missed the things that trained scouts or observers of real behavior historically captured.  Situational competence, summarized in statistical measures still requires a great deal of domain knowledge to properly interpret and produce winning combinations. .  Either may be sufficient to generate a strategy, but both are necessary to create effective strategies.

These lessons, business sadly discovers slowly and fails to fully embrace even in the wake of the colossal market disruptions caused by internet and mortgage back investing bubbles. Moneyball profiled the underdogs and arguable changed the consciousness of average America about the power of data analysis, a welcome message to Chicago quants.

Another key lesson was the use of underutilized information to plea the case for alternative strategies.

The NY Times story that second guessed the NFL coaches we read illustrates the common decision-making tension data analysis presents to both sports and business leaders.  Data’s  wide  availability made it possible for the NY Times to create an accurate predictive model and demonstrate the value of punting  in the fourth quarter, an impulse Coaches rarely heed.  Response by Ditka in the comments that follow reminds modelers that the model fails to consider what people in the game may know about the particular event that may be missing from the analysis–may being the operative phrase and tension point.

Clearly quants have their place but good decisions always include some domain knowledge.  The access to information makes it easy for competitors to rely on the same information and in fact that’s part of why the law of averages continue to pan out.  Statistics are wonderful reference points but one still needs domain knowledge to recognize what made the outlier an outlier.

Important to understand boundaries or the difference between situational competence and domain Knowledge.  Sports metaphors can help more people think differently when used effectively.

Game changers

The business of sports creates value regularly, but what about sport itself?

George Steinbrenner

George Steinbrenner purchased the Yankees at the low point of their competitiveness in 1973 for $8.7 million. According to Forbes, the teams’ worth was $1.7 billion  in 2010, at the time of his death.  Steinbrenner was the first to grasp the handle of the free-agent market and he made it work for him. In effect he made the rules they all had to live by and he dominated the game.  He made offers to players they couldn’t refuse. Mike DeGiovanna writing for the LA Times explained that  lavish spending on free agents became investments that helped fuel five world Series Championships since 1996.  His willingness to pay the premium  for exceeding the league’s salary caps allowed them to keep a winning streak.  Under his tenure, the Yankees started a television network and built a new stadium.

“The bottom line is he put great players on the field, and he delivered championships,” Cashman said. “He built something the fans can be proud of, and that’s what a great owner does.” (see )

Discussion Takeaways

In business turnarounds, surely the numbers matter but they are often not the deciding factor.

Steinbrenner’s leadership style and strategies show how it’s possible for a single individual to usher in sweeping changes in an industry.

When it comes to Big Data, it’s important to differentiate situational vs. statistical know how.  The premium value attached to Baseball statistics could easily explain why Alex Rodriquez got kicked out, because his drug enhanced performance was screwing up the stats.

Business can learn a lot from Sports.  The ready availability of numerous statistics offers a baseline and yet one still needs to overlay good judgment.  Efforts to track results may bring you closer understanding the true nature of  a problem’s structure.  Numbers  balance your  intuition and know how. They  may clarify your findings, but in the end performance is a blend of art and science.

Steinbrenner’s decision to reward players so heavily for performance may have changed the game but it also made it more lucrative for players to juice.  Be careful what lesson you take.

Sports analogies can be intimidating, to those who don’t fully understand the sport or make the connections story tellers perceive as relevant.

Increasingly Sports has taken to applying business analogies to improve its own game, its own business performance.  None the less some of the greatest quotes come from sports players, e.g  yogi Berra. “I like the moment when I break a man’s ego.

Business is a long-term effort toward an ever elusive goal, while sports  and sports management operate in a much more limited, shorter term horizon. The lessons don’t offer much assistance or inspiration for sustaining success over  longer horizons.

Sports has its Black Monday, the day in Januaray when poor performing coaches often get cut.  No singular day of reckoning in business though the swift reaction after annual earnings may produce a similar response.

ARTICLES

Journalism second guessing NFL coaches

http://gigaom.com/2013/12/06/awesome-a-new-york-times-bot-is-second-guessing-nfl-coaches-on-twitter/

be sure to check out the comments and remark by Ditka.

NASCAR second guessing

http://sports.yahoo.com/news/tony-stewart-second-guessing-decision-following-ryan-newman-201900576.html

Adopting analytics

http://www.sportsbusinessdaily.com/Journal/Issues/2013/08/12/Opinion/Sutton-Impact.aspx

Think Tank: sport and business are not a good fit 

http://www.telegraph.co.uk/finance/businessclub/management-advice/9400111/Think-Tank-sport-and-business-are-not-a-good-fit.html

Communicating your strategy

http://gbr.pepperdine.edu/2010/08/communicating-your-strategy/

Optional:
Focus on Game Changer—short video for investors in sports

http://www.sloansportsconference.com/?p=11021

Beyond Social Media, Creating Social Capital

Rich conversation and insights flowed on Friday morning when the Booth Strategy Discussion group happily pondered four key questions on the topic of Social Media, Not just for Marketing.

This month, David Friedman of Bridgewell Partners offered to facilitate and he began inviting us to consider four key questions:

  1. Do social media supported interaction practices represent a fundamental change in how people work?
  2. What barriers exist to adopting these practices and are the practices optional?
  3. How many, and what kind of resources does converting existing social media activities into successful practices require?
  4. What kind of governance and rules makes social media work and how do you find and manage the advocates?

As usual, the conversation flowed from topic to topic, not chaotically, just indicative of authentic interactive thinking. In hindsight, the face to face conversation and personal value participants derive from ongoing, live exchange of perspectives offers a contrast to the online tools we had met to discuss.  I’ll do my best to share some of the key learning and insights. As usual, I took  time to extend, document sources and supplement my notes, so please do add your thoughts.

People are social animals

Learning is a social endeavor. Knowledge sharing, collaboration and innovation processes succeed when they leverage the subtleties of social interactions. Today’s social media tools facilitate social engagement and may solidify associations that typically erode over time and as geographic distance increases. Today, it is easier than ever to stay actively in touch with associates—neighbors, classmates, friends or colleagues that we no longer see regularly. Their value however comes in creating opportunities that go behind the real world encounter.

Business requires connection and by design, social tools enable people to connect to others for every possible purpose. Want to grow your expertise, make new acquaintances, qualify and connect with experts on specific or general problem or topic areas?  The social tools are a two –way street.  The same behaviors gain new understanding and win support for specific activities and perspectives.

Google changed the way we look for ideas, people, places and things. Twitter  compact messages unleash conversations, debates and ongoing thoughts.  The messages are easy to find and monitor. Content once shared in exclusive forums once closed become public. The virtual location and use of links expands the audience once limited to insiders. Dedicated communities of practice consistently create value for participants, and switching up technology choices amplify the reach of these conversations, e.g. threaded topic discussions used by groups on Linked in.

Closed, restricted conversations however too have their place and have been the domain of  membership restricted list-serves such as those used by MENG—the Marketing Executives Network email list serve, or SERMO (http://www.crunchbase.com/company/sermo) for surgeons.  Some individuals have always been keen to share best practices, or seek out the specialized knowledge of admired colleagues.

Social Capital

Businesses don’t make decisions, people do.  In Bowling Alone, Robert Putnam described the growing isolation that technology promotes. Leveraging  work by Gary Becker and others the book opened new conversations.

Social Capital, embedded in the social realm, is not based on assets or individuals.  Social Capital resides in the fabric of relationships between individuals and in individuals’ connections with their communities (Putnam 1995c)

The emphasis to calculate ROI from Social media misses this point.  No wonder many organizations fail to capture value from socially shared knowledge to improve the way people work? Among the articles we reviewed were some promising signs some companies are making the leap, changing the way they work and incorporating social media practices.

How are some companies succeeding? 

“Organizations operate more like machines, their structure a legacy of the industrial age, taking comfort and finding security in maintaining bureaucratic control.”   In 2006, Chris Anderson published The Long Tail: Why the Future of Business is Selling Less of More.  Transitioning from a command control operating model to deliver unlimited variety to meet specific, personalized needs demands a complete upheaval of management practices, organization charts that operate according to very different rules, beliefs and values.

The industrial age made power free. Many industries gained advantage harnessing that power. Similarly, the present social age, enables communications to spread freely. Success flows to those who manage to find and amplify freely exchanged messages, support their business proposition and gain competitive advantage.

The social paradigm’s counter-intuitive approach contrasts sharply to old push process, where a company worked hard to choose the message and then spent ample budget to promote messages designed to attract the interest of buyers. Today, businesses who listen and move to position themselves within the ongoing conversations that match their product or service set, stand to gain.

Examples of social media transformations of work

Edelman’s business is public relations. They turned their entire recruitment process around by pursuing and inviting those people who demonstrate ability to build an active following.

Intuit’s TurboTax built customer comment threads directly  into their interactive software   allowing people using the platform to learn practices and see examples from other users.

Ernst & Young  created mobile applications on ITunes giving customers insights , tax guides, legal tips etc.   They also created EYE, Ernst and Young Executive, an IPAD based magazine .

Two books, Smart customers, Stupid companies  and Opting In, by IBM Lotus Notes Executive and social business thought leader Ed Brill, admirably illustrate how knowledge IS social, the more interactions the smarter each of us get.

Likewise, peer-to-peer interactions occur within a pertinent context. Customer to customer interactions share very different information than when customers are sharing with company representatives.  The relevance of the exchange to the participants by itself offers  insights around customer perceptions and suggest alternatives to address and resolve their pain points.  This is the very stuff companies once paid researchers to find.  Brill describes the process unleashed by social media as “Thou Shall advocacy,” vs. the traditional company approach of thou shalt not employee governance.

The results?  Resources freed from “finding” should be put to use listening and gravitating to where their customers are actively engaged, communities created to talk about a company rarely happen to be the place the company created for its customers.

Changing the way we work

We all believe that change and changing behavior and processes at work continues to prove hard for several reasons.

Legacy workflows with established internal processes supporting hierarchical, command control organizations clash with the general ease people collaborate and bond outside of work.  Monsanto exemplifies a company who learned quickly how to use social media to build and strengthen what were formerly weak relationships.

Communications become conversations, as illustrated by their 2012 letter to shareholders proclaiming “the ways in which we are all interconnected…” Monsanto continues to evolve their communications beginning  with a move beyond stylistic changes to their communications as  this 2009 St. Louis Biz Journal story illustrates. Communications redesigned their department to listen and engage in honest dialogues with a wider audience of stakeholders. The corporate stakeholders no longer bequeath the controversial issues to the opposition. Instead of releasing official stances,  their communications team speaks directly to specific concerns and in so doing taps expertise inside the organization to share and engage employees as well as externally with consumers.

Value above replacement

At the core, social network mechanics leverage an individual’s ability to influence the behavior of others in their circles or network. The CEO of Klout wants everyone to believe that influence is the currency of the social web. Those companies who understand how to leverage their players may very well gain advantage.

 Ron Burt’s work calculates the “value of social capital, showing how in the business world reputation has come to replace authority and …. from other researchers’ studies, provide robust evidence of the value of brokerage.”  If you consider, as Burt does, that social capital is a metaphor for advantage then it’s not that hard to see how the sports world has put this to work.

Value over Replacement, aka VORP, may have begun with baseball but has since infiltrated the fan base of many other sports.  I even found the concept used to evaluate Rock and Roll band members. The adoption of  this concept by other domains illustrates word of mouth at work, and also the nature of social capital flows.  Studies and metrics rarely explain why some words travel and others remain where they were first spoken.

Is the problem workflow design?  The landscape of successful migration to enterprise2.0 practices remains checkered. In part, connected enterprises and successful adoption and implementation of social media platforms and tools require behavior shifts beyond adoption of new tools.  Successful organizations, who do the heavy lifting and restructure their organization, amplify the effects of influencers who in turn, encourage and promote informal collaboration.

The landscape however is littered with numerous unsuccessful change initiatives because they overlook how to put influencers to work. For example, Knowledge management systems, another extension of VORP, sought to capture the tacit as well as explicit understandings and intelligence of workers about to retire. What made them successful also brought success to the organization and it made sense to create the means to keep that knowledge around as people left.  The capture process however proved challenging and few organizations made conscious use of network analysis. This latter tool infiltrated strategic planning activities, but the record of deployment and use remains spotty.

Kraft’s KM initiative in 2000, shows the consequences of missing the opportunity to leverage individual players skills and influence.  The idea was to capture learnings from Consumer Intelligence and Research and Development. In theory, there would be an expert directory, discussion board and an electronic library.  Tagging information properly makes it possible for others to search and find relevant information.  AT Kraft, suppliers were asked to tag their own research, not good for their business model.  But this also diminished the value of the researchers and librarians whose knowledge and tagging skills were never acknowledged as added value.

In contrast, Stack Overflow, illustrates a very different knowledge sharing resource that isn’t dependendent on tagging.  It’s a give and take resource.  The value available depends on people providing good answers and asking good questions.  Participants with high stack overflow scores are deemed experts.

To Be Continued…More on this topic to follow shortly.

If you care to review the articles that were the basis of this discussion, links follow.  So much more to say and so little time, care to share your reaction?  or contribute some new inspirations?  Please do!

ARTICLES

1. Keynote: Invest in Scalable Social Business Programs

by Jeremiah Owyang on Apr 05, 2011

http://www.slideshare.net/jeremiah_owyang/keynote-invest-in-scalable-social-business-programs

2. Large Scale Transformation–how social lies at the core of your strategy
by Dion Hinchcliffe

http://www.informationweek.com/thebrainyard/news/strategy/how-smart-businesses-reorganize-for-soci/240006107

3. The Collaborative Organization: How to Make Employee Networks Really Work
MIT Sloan Management Review Magazine: Fall 2010Research Feature

October 01, 2010 Rob Cross, Peter Gray, Shirley Cunningham, Mark Showers and Robert J. Thomashttp://sloanreview.mit.edu/article/the-collaborative-organization-how-to-make-employee-networks-really-work/

For JC Penney and Ron Johnson experience counts, but which one will deliver growth?

JCPenney in Frisco, TX
JCPenney in Frisco, TX (Photo credit: Wikipedia)

When I noticed the battering Ron Johnson received for attempting to reposition and re-brandthe  stalwart American department store JC Penney, I recognized a great case for peer learning among strategy as well as design thinking innovation professionals.  Johnson seems to have had the best experience for the job and  an attitude that placed the customer experience at the forefront of his proposed changes.  Falling stock price and fleeing customers tell a different story. Chart forJ. C. Penney Company, Inc. (JCP)

The Stock price when he took over as CEO on November 1, 2011 was $31.71.  Less than 14 months later, the day the discussion group met, the stock closed at $18.87.  In the last few days, the stock appears to be improving, most likely with the announcement that Johnson has backtracked on his strategy.  But I’m getting ahead of myself.

Two weeks ago, after reading a few background articles ( links and titles follow this posting), the discussion group met to review  JCP and Ron Johnson’s strategy.  Several questions raised in the course of the discussion prompted me to dig up additional history about this company and the changing conditions heating up the competition in this market sector.

Increased information, increased complexity

The days in which stores stood between buyers and consumer good manufacturers are dwindling. Location or proximity to the consumer may still have an edge but your competition’s ability  to insert themselves into the face to face transaction has dramatically altered the sales dynamic. Mobile communication devices  make it easy for sellers to find buyers anywhere anytime; and yet, the playbook  for many stores , from department stores to specialty retailers,  fail to keep pace with the change in buyer behavior, perception and thus fail to live up to  increased expectations.

Multi-channel interaction technologies perform double if not triple duty. Enabling information access by consumers for product details can direct attention to sales opportunities and enrich transaction data adding details and insights on behavior related to choice, in-store placement and preference. Investments  to enhance the customer experience easily generate additional sales but can also generate greater operating efficiency. In store sensors  make it possible to track consumer behavior similar to online consumer data collection software.  Once connected to specific consumer transactions the algorithms to generate value based pricing logically follow.  That is, if  pricing leverages the multiple data sources  which is typically the domain of  merchandisers and not a strategic function. RFID technologies and bar codes now  increase  supply chain efficiency all the way up to the checkout counter. (Note, JC Penney benefited from the tenure of VanessaCastagne ,a former SVP from Walmart, and  led online platform development efforts and integrated supply chain controls from 1999-2004. )  This data is just as valuable to suppliers, many experiment with QR codes  that allow them to forge direct relationships to customers via social media channels that can compete or play compatible with the store by directing consumers to specific purchase outlets either online or in store.

The arrival of direct consumer access, anywhere and anytime raises the stakes for all store owners. Setting priorities and synchronizing these technology introductions challenges  management in every sector.  For department stores and retailers alike, they have little time to adapt old school merchandising skills that support the  brand image and staff to client interactions while maintaining the cashflow necessary  to make it all work.  Oh, and figuring out the pricing thing in real time…that too!

Well that’s a tall order for any leader, let alone one who also needs to placate a trigger happy board and investors with high expectations.  It’s not a surprise that within one year of assuming the CEO spot at JC Penney, Ron Johnson  has backtracked on his strategy.  Year over year sales declines of 26%  are bitter pills for any business and the verdict on Johnson’s leadership choices are premature at best.

Additional context specific to JC Penney

A little more background may help. Just as the 2011 holiday sales season  commenced, Ron Johnson took the reigns and immediately set to the task of engineering a massive strategic overhaul of the JC Penney business.  Johnson in his first few months had opportunity to learn  the level of in-house capabilities and competencies of his team  from operating reports generated throughout retail’s peak sales cycle, but did he?

On February 1, 2012, four months into his arrival, he launched plans to update the store designs to a town square model and simplify pricing that would put an end to sales coupons.   The ideas were bold, but not as daring as many armchair critics suggest.

Success required implementation excellence, akin to the level of APPLE retail but at the scale of Target and the execution precision of McDonald’s.  Was that the department store JC Penney?

FYI, Apple had spent a year developing ideas before hiring Johnson in 2000, and built a prototype store near Apple headquarters where they tested their concept.  In May 2001, they opened their first two stores in May 2001, in Virginia’s high-end Tysons’ Corner shopping mall and in Glendale Galleria in Glendale, Calif.  A little over two years later,Apple had opened over 70 stores in locations such as Chicago, Honolulu and Tokyo. (See the full WSJ reported story).  By contrast, Johnson when he arrived at JC Penney threw together a strategy and placed huge bets based on a short-lived prototype experience.

Where was the evidence that the chain’s mix of  products and  brands when pigeonholed into  the three-tier pricing strategy change would match customer assessments of their value?  Note, he  replaced the pattern of ongoing price adjustments and coupon offers with:  every day pricing  40% off list, with the suggested retail price removed;  distinct monthly special offers; and best  prices-clearance items.  All prices would end in $.00, not $.99 .

Casual observations

The 50% failure rate of new product launches Gartner and other studies explain as ” poor knowledge of what price the market will bear for a new product. ”  Greg Petro writing for Forbes 1/22/2013 shared these and other findings, which someone on Johnson’s team must have read and studied.  Price signals to consumers the relative market value of a product or service, but the market dynamics are challenging to manage.  Interestingly,  in 2011 several department stores began to play with intraday  pricing by connecting their awareness of external competitors prices and match or best them at the point of sale. The unique price advantage Apple holds also made Johnson recognize the operating efficiencies gained from static and more constant price communication to customers.  In seeing the efficiency he may have overlooked the market dynamics.

In 2007, Macy’s had its head turned around by customers after it attempted to cut by half the frequency of its coupons and sales.  Of course this move engineered by Federated, the new parent,  followed their large purchase streak  and coordinated efforts to re-brand under the Macy’s name a series of regional based retailers (i.e. the May company, Marshall Field’s etc). The idea was to help regionally loyal customers recognize the opportunities for price the bigger national Macy’s offered.  Consumers were unwilling to adjust and found local alternatives preferable.   There’s something different about what a retailer can do and a department store, Greg Petro learned and reported in a Pricing series for Forbes.

“Compared to Department Stores and Brands, Specialty (and Vertically Integrated) Retailers have the most control when it comes to pricing. Vertically Integrated Retailers control the entire process.  The best ones design product from the beginning to target specific price and margin points. They also control the in-store experience, which can’t be ignored when understanding the value of the brand and how it affects pricing.”

Refreshing retail experiences that  appeal to the millienials as they begin to raise families and need the value that Jc Penney was historically famous for delivering  has all the marks of a sound strategy on paper.  Johnson clearly has the bench strength in delivering both; but,  does he have the stamina and correspondingly the capital for the task.   (http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aU2MttAfdFYU&refer=news)

The bigger the change, the more steps to implementation and the greater the chance to fail.  Shaking up JCP takes capital and cash, especially since sales growth depends on the successful integration of online and in store sales.  Until recently, no links existed between online and in store experiences. The onset of omni-channel  increases the ease with which customers can experience more integrated,  consistent connections.  The closer my online shopping experience finding merchandise, and having it in my hands as well as sharing the social experience of shopping with friends matches the experiences in store creates both great challenges and enormous opportunity for retailers to manage.  To avoid customer confusion, in store sales staff need to have access and awareness of online sales promotions, merchandise and pricing.  Historically, a gifted sales person who knew their customer and purchase history offered assurance of their choice and saving  the customer time. The results  increased their overall satisfaction with the purchase  which by association carried over to the store. Now, online tools offer what the sales associate did  and offering more control to customers who research at home and may venture into a store to get a complete feel but won’t necessarily complete the purchase on the spot.  It may not be reasonable, but the expectations of consistency of offer, price and service between in store and online keeps growing.

JC Penney’s margins, like many of its competitors were shrinking. Getting the experience for customers right  without changing pricing must have seemed ludicrous to Johnson, but from an implementation point of view,  it may have had more immediate impact on the top  line.  As customers adapt to omni-channel opportunities and sales people adjust their relationships with savvier customers, new segments and behaviors may emerge.

Perhaps, Johnson felt that there was no point in putting his team through a drawn out change process and felt it better to catch up all at once.  Being first, may have its advantages but it also comes at great cost which Johnson has begun to experience.

ARTICLES We Reviewed

1. Business model innovations looks at JC Penney

http://www.innovationlabs.com/2012/05/changing-your-business-model-maybe-its-not-so-easy-to-do/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+InnovationAndHighPerformance+%28Innovation+and+High+Performance%29&utm_content=Google+Feedfetcher

2. New York Times Nov. 12, 2012:  A dose of Realism for JC Penney

http://dealbook.nytimes.com/2012/11/12/a-dose-of-realism-for-the-chief-of-j-c-penney/

 3. MIT Sloan Business Review, summer 2012–Is it time to rethink your pricing strategy

http://sloanreview.mit.edu/the-magazine/2012-summer/53413/is-it-time-to-rethink-your-pricing-strategy/

AND as a  Bonus option,   the fitrade blog   5/26/2012

Why clothing retailers suck at posting amazing profits-year-over-year

http://www.fitrade.com/2012/05/26/why-clothing-retailers-suck-at-posting-amazing-profits-year-over-year/