The slides from my recent presentation at the Internet Librarian Conference in Monterey, California is now up on slideshare.
It was a really stimulating conference with a lot of good feedback and hope that I could add a bit to the discussion with some of the material in this presentation.
Let me know what you think!
As I look back over the past 15+ years I have been working within the Internet space, I never could have predicted the changes that have come about as a result of this amazing technology. From the first early days of just trying to get connected using SLIP/PPP, to the birth of multimedia content and now the rise of the social web, I feel really blessed to have contributed, even in small way, to how the Internet has changed the world.
Over that time, I have learned a ton! From innovative product and service concepts, to how brands are engaging customers, the pace of change has been incredibly invigorating. In my practice, I have focused on Customer Experience and Innovation with a particular emphasis on the social web. I’ve tried to delve into not only social media tools, but how attitudes have changed within companies as they look at how their business fundamentally interacts with their customers.
I began my company with the goal of “bringing companies closer to customers.” And I like to think that I’ve been able to do that by understanding our clients’ objectives and constructing solutions that help them more effectively interact with their internal and external stakeholders.
But what do you do when you are given a fantastic opportunity to work with a terrifically talented and hard-working team at a great company? As hard as it is to leave what I am doing now, I feel the time is right for me to join the Corporate Development team at LoyaltyOne (AirMiles). This move makes perfect sense for me at this time; I don’t feel that I am leaving anything behind because I am taking all the skills and resources I’ve developed and applying them to a new set of challenges.
At this stage, I won’t be taking on additional clients or projects, but I will, of course, remain engaged in this industry and involved in all the pioneering groups that continue to move it forward. And, I promise to continue to learn and contribute with everyone who has made this medium the great, ongoing experiment in communication and interaction.
We are pleased to announce that Brandsential now offers business model construction and analysis services to its clients. “We realized that our clients were asking for this service to satisfy their internal and external objectives and ensure that resources were deployed in a cost-effective manner,” says Jeffrey Veffer, Partner.
With more and more companies starting to realize that product and service innovation is the way to sustained success, model construction and analysis is certainly part of the product innovation process. With Brandsential’s understanding of customer needs and the product development process, clear actionable steps are put in place as part this process.
McKinsey did an interesting analysis of which sectors either lead or lagged in both the decline and eventual recovery from a recession.
As you might imagine (especially with this current recession) the speed that companies declined going in was much faster than they experienced coming out during the recovery.
The report notes that history suggests some possible indicators of the beginning of a recovery. “In three of the four most recent recessions, higher consumer discretionary and IT spending led the way. When real EBITA growth resumes in these sectors, it may be a useful indication that the economy is turning around.” We will keep an eye on these sectors!
Many executives find themselves facing difficult decisions these days in light of the challenging economic conditions. Short-term results are often scrutinized closely by the market as a way of determining a company’s financial health and direction. Although this can be a viable way of judging whether corporate strategy is translating into market success, what often happens is that short-term thinking permeates the organization leading to a starvation of resources for longer-term initiatives like new products and services.
One can see this happening at large companies in different sectors as they announce cutbacks in spending on innovation to meet customer needs. As the former CTO of Cisco notes, America is facing an “Innovation Crisis,” and needs to find “new ways of funding fundamental research.”
She cites the fact that Bell Labs announced late last year that it was discontinuing basic science research to “align the research work in the Lab closer to areas that the parent company is focusing on.”
The problem is that with these expense reductions, there is a tendency to pull back customer facing programs in order to conserve cash and “reduce” risk. As in an earlier post, I maintain that this may actually be a riskier strategy over the long term as competitors who continue their innovation program will be in better shape once the economy returns to normal growth.
Arguably, innovation can be seen as an “assembly” of tools, techniques, or assets to meet those deep customer needs. But without the foundation of basic research, it is very difficult to source assets to put into a solution. Of course there are grey areas within both fields, but I believe these days it is becoming increasingly difficult to justify investments in basic research which makes partnerships with universities an interesting way to explore getting access to more fundamental work.
In my opinion, innovation (which I define as meeting stated or unstated customer needs) is different than basic research or invention. While both are important, it is harder to make the case in today’s corporate environment for basic research, which is why I believe that many corporations are reducing their investments in these areas to (hopefully) concentrate more on innovation and getting more value from their existing assets. Keep in mind that the best way to use these assets is understanding the needs and taking a simple (but not dumb) approach to serving them.
In this economic climate, we at Brandsential work towards this goal by using “Value Extraction;” to leverage what’s inside the company to satisfy deep customer needs. And as I’ve said before, now is a perfect time to develop and innovate with these existing assets to make sure the company is well positioned to lead the market once the economic climate improves.
With all the talk lately around how to bail out the Big 3 automakers, there have been many comments on how to administer / police the firms that receive government bailouts. Which is all well and good: many of these firms have been less than successful in adapting to the needs and realities of the current market. As a condition of a bailout, the taxpayers should have some measures to ensure that their “investment” is being properly used to rebuild a stronger more responsive industry.
But in talking to a colleague with a long history in the automotive industry, they mentioned that this has been coming for a long time based on the structure and bureaucracy rampant in the firms. One example they recalled was that resources were not allocated to the projects with the best chances of success, but those which were championed by persuasive leaders in each silo of the company. So one has to ask; will this bailout give the firms a chance to re-organize for success or just continue along the same path? I believe that what can tip the balance towards the former is a belief from the top down in product/service innovation.
Looking back to the late 1979 and Chrysler’s last brush with insolvency we can see fundamental differences between today’s market conditions, industry players and other elements that make direct comparison difficult. But there are a few notable items to highlight that point toward why they were successful in making it through their earlier crisis.
At the same time as the company asked the U. S. government for $1.5B in loan guarantees former Ford executive (and “car guy”) Lee Iacocca was brought in to lead the company. A persuasive leader, he was able to rally the public behind the comeback and by to some extent, bashing the Japanese imports that were selling in greater numbers in the U.S. (It also helped the company’s cause that the U.S. Military bought thousands of Dodge pickups to bring into service.) Iacocca also brought in quality improvements on the assembly line which made the vehicles more reliable and the factories more efficient.
However what I believe gave the company its most significant boost was the development of the (at the time) innovative models, the K-car and the Minivan. As Iacocca believed in the products, the entire company could see that from the top down, product innovation was being given the support it needed to flourish. (What was interesting is that both of these concepts had been initially investigated at Ford and rejected.) Coming after the oil crisis of the late 70’s, the front-wheel drive K-car platform sold extremely well paving the way for the introduction of the Minivan.
Introduced in late 1983 (a three-year development cycle, which was unprecedented in the U.S. auto industry at the time), the minivan concept met customer needs for a vehicle with the space of a van, but could fit in a residential garage and have a low step-in height for small children. It continues to be the best selling minivan in the industry with over 12 MM units sold to date.
So although there are few direct comparisons that can be made between the two situations, I fear that unless the companies start to do a better job of really listening and responding to deep customer needs, we may be extending the automakers a few more months or years of struggling sales and poor performance.
As we become more entrenched in recession, many companies are thinking that any spending is risky to the health of their companies and are battening down the hatches to cut expenses wherever they can. However, this behavior may actually be contributing to a long-term decline in competitiveness in their industries compared to companies that actually spend strategically during a recession on Innovation to accelerate growth.
An article by McKinsey suggests that companies that invest during a recession actually do significantly better than their peers who choose to cut back. They studied about 1,000 mainly US corporations from 1982-1999 and identified attributes that industry leaders (top quartile performers) or challengers (those that moved into the top quartile) possessed. Including a contrarian approach to M&A (top performers actually increased M&A during periods of uncertainty), they had quite a different strategy when it came to spending.
Successful challengers actually spent significantly more cash than their more conservative peers during a recession. But what is most striking is their approach to expense spending: with greater focus, these challengers spent more on selling, general and administrative (SG&A) than those competitors that lost market share. In addition, relative to their competitors these successful companies more than doubled their spending on R&D during the recession.
The reward for this approach showed as market conditions improved after the recession as the successful companies’ market-to-book ratios were 25% higher than their unsuccessful competitors.
As part of responsibly managing a company, leaders have to look beyond current conditions
and see that a careful scrutiny of expenses is necessary to assess if all parts of the organization are moving in the right direction. But leaders have to be sure that they are not taking on more risk by failing to invest in the right areas now, to pay benefits later.
I have been talking with several business owners about prospects given the uncertainty in the current marketplace. The instinctual reaction is to cut back on spending on Innovation, customer needs investigation and product development. However we feel that now is the best time to Innovate and this can actually decrease risk. Why?
Perhaps not all companies would benefit from a concentrated effort on Innovation, but for those companies who do not just want to compete on price, it is key to maintain focus on Innovation. Investment, not cuts are necessary to keep this focus because cutting talent fosters a bunker mentality. This turns the rest of the company inward concentrating on cutting in all areas to “follow the leader” instead of focusing on growth opportunities.
Proctor and Gamble has put Innovation at the heart of their strategy, focusing on the consumer and the CEO A.G. Lafley even going so far as to call Innovation a “team sport” because “Innovation doesn’t spring fully formed out of the head of one man or woman.” Keeping the right social climate for an innovative culture is part of how they are re-inventing the company.
Apple certainly understands this and as Steve Jobs said in an interview with Fortune:
“We’ve had one of these before, when the dot-com bubble burst. What I told our company was that we were just going to invest our way through the downturn, that we weren’t going to lay off people, that we’d taken a tremendous amount of effort to get them into Apple in the first place — the last thing we were going to do is lay them off. And we were going to keep funding. In fact we were going to up our R&D budget so that we would be ahead of our competitors when the downturn was over. And that’s exactly what we did. And it worked. And that’s exactly what we’ll do this time.”
Not only can Innovation help with growth opportunities, because it is centered around customer needs, it can actually help retain customers through difficult times. In fact you could argue that Innovation decreases risk as a company that retains customers can maintain cash flow on the one side and develop new ideas for increasing growth without see-sawing back and forth between inward and outward focus.
Just as financial discipline is part of the way leading companies operate, Innovation should be part of a company’s strategy not only in good times but also in challenging times.