Archive for the ‘Product Development’ Category

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A Rolling Stone Gathers No Loss

In this week’s Business Surgery, Conor Wilcock discusses the merits of ringing in the changes

As far as months go, March was pretty tumultuous. I recently upped the proverbial sticks, threw caution to the proverbial wind, and flew across the (not so) proverbial Atlantic Ocean to begin anew a life in the United States. Such an upheaval brings change thick and fast, whether you like it or not. I’ve had to swap my Ss for Zs, and my right-hand drive for my left-hand drive. I’ve even had to kick Elizabeth II from my wallet in anticipation of Messrs Lincoln, Hamilton and Jackson setting up stall (Queenie seems pretty disgruntled about it, even though I keep telling her it’s nothing personal).

All of this got me thinking about change in other arenas as well, namely business (after all, this blog isn’t called “personal surgery”). Why do companies feel the need to change? Is it healthy for companies to initiate change as standard? Are there occasions where change is ill-planned and can jeopardize future performance?

At this point, I did a little digging, and encountered an article by Stephen Hall, Dan Lovallo & Reiner Musters in the McKinsey Quarterly: “How To Put Your Money Where Your Strategy Is.”

Though the full article is available to subscription-readers only, the abstract captures the gist of the argument:

“Most companies allocate the same resources to the same business units year after year. That makes it difficult to realize strategic goals and undermines performance.”

In a nutshell, the article claims that a company which constantly evaluates the performance of business units, and allocates resources according to market opportunities, is likely to be worth more than a company which has a more stagnant strategy: one which allocates capital consistently every year.

“Worth more” to the tune of 40% over 15 years. 40%. Staggering stuff.

The article proceeds to make two interesting observations:

• “Inertia reigns at most companies” – in fact, strategic planning often results in “modest resources shifts.” Put simply, companies aren’t backing their own strategies, preferring instead to leave institutional change by the wayside in favor of caution and stability.
• Executives who reallocated less than their predecessors were more likely to be removed from their posts within five years. Watch out “static” CEOs: McKinsey is coming for you.

Upon first glance, I was waving my researcher arms in the air in celebration at this article. Of course change is good! Of course stagnation is bad! By habitualizing change, companies will ride on an inevitable path to profit and shareholder glory.

Or perhaps it’s not quite as straightforward as that.

To get to the bottom of this, we need to make a number of distinctions. Firstly, evaluation and change are two very different things. To change something for change’s sake can be damaging indeed. Has anyone bought a can of Coca Cola II recently? I didn’t think so. Regular (if not constant) evaluation on the other hand, is necessary and rewarding. Companies should replace the old adage with (the admittedly less memorable), “If it ain’t broke, evaluate it anyway.”

To extend on the point, there is a difference between positioning oneself for change and actually changing. Companies should never allow themselves to sink into the mire by assuming that resources are being allocated appropriately. The “plain sailing” approach renders companies susceptible to the iceberg of spiralling losses. And this is where research comes in. Research can help establish when and where change is necessary. The key here is that evaluation can lead to a “no” decision as well as a “yes” decision. Both have their place, both are valuable, and both can lead to reduced costs and increased margins.

That being said, let’s return to the article in question, which suggested a positive correlation between level of resource allocation and shareholder returns. Given how impactful change can be on future performance, companies need to commit to change and do it in the right way when past the point of no return. A second article published by the London Business School entitled “The New Change Equation,” warns of the perils of the Big Bang approach to change:

“Considerable time and effort is placed on announcing the forthcoming strategic agenda…yet life remains the same. The illusion of change substitutes any reality.”

Once you’ve got the green light, don’t be afraid to put your foot on the gas. If companies are smart enough, there’ll be another set of traffic lights a short distance ahead with another “go/no go” decision to be made. Let’s just hope you’ve remembered to drive on the correct side of the road…

Posted in Business Decisions, Business Development, Conor Wilcock, Product Development, The Business Surgery |
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The Bigger Picture

In this week’s Business Surgery, Cristin Malone comments on the importance of listening to the market.

How does a company that had a 90% share of the photographic film market in 1976, begin to have financial troubles just a few years later and eventually file for bankruptcy in 2012? I am referring to Kodak, whose factory was once the glory of Rochester, NY, and is now described as a relic as employment has plummeted from 62,000 to less than 7,000.

Kodak’s demise cannot be blamed on the economy. In fact, many sources point to the company’s late entry into the digital film market as its pitfall. As I thought further on this, I came across an interesting contributor article in Forbes, in which the author Avi Dan brings up a note-worthy point in his article entitled, “Kodak Failed By Asking The Wrong Marketing Question”. The author explains that although Kodak invented the first digital camera in 1975, the company was slow to market this new product in fear that it would damage its traditional film business. According to Dan, Kodak focused more on selling its film products than adapting to the new digital marketplace:

“The essence of marketing is asking first, “what business are we in?” and not “how do we sell more products?” … Kodak made a classic mistake: it didn’t ask the right question. It focused on selling more product, instead of the business that it was in, story telling.”

Arguably, the best way to determine “what business are we in?” is by defining who is our customer? It is clear that there was a disconnect between Kodak and its customers. It made me think, could the downfall of such a big company really come down to the fact that they ignored the needs of their customers?

“Immensely successful companies can become myopic and product oriented instead of focusing on consumers’ needs.” – Avi Dan, Kodak Failed By Asking The Wrong Marketing Question

Listening to your customers can be difficult, as it is not easy to tell if you are getting that gold nugget that will move your business forward or if you are receiving feedback that will soon be obsolete. Steve Jobs said it best:

“You can’t just ask customers what they want and then try to give that to them. By the time you get it built, they’ll want something new.”

There is some truth in this statement, as understanding the market’s needs can actually result from providing them with what they think they want and measuring success – but how do you become innovative enough to know what to give them?

Regardless of how I approach all of these questions, I think Kodak’s failure resulted from not listening to the needs of the market. By listening, I am not just referring to simply listening to your customers, but are you listening to changes in the market, are you listening to the voices within your organization, and are you really understanding the impact of what you might hear?

Kodak may actually have been its own enemy; it was probably too big of a company to have one cohesive strategy and was not nimble enough to make the necessary changes. I do believe that whatever hindered Kodak from this decision could have been solved through research: it would have enabled Kodak to better understand how to listen and react to the needs of the market. A good research agency can help a company organize all facets of information (internal and external), and also help the company become more cohesive by providing actionable recommendations and key insights on potential opportunities.

What are your thoughts here? Does Kodak’s fall really come down to its inability to listen to the market? Or are there other issues that may have caused the company’s downfall?

Check out some articles on Kodak:

• Kodak Failed By Asking The Wrong Marketing Question

• Eastman Kodak Files for Bankruptcy

• Despite Long Slide by Kodak, Company Town Avoids Decay

Posted in Cristin Malone, Product Development, The Business Surgery |
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Capturing True Value

 
We at B2B International are fanatical about capturing value. Too often business to business companies are guilty of commoditising their markets. In this article in the Financial Times by Luke Johnson he talks about the opportunities for capturing value beyond the product itself. However, there are dangers. There is a fine line between capturing true value and ripping people off.

Beware the cost of hidden extras

By Luke Johnson
Financial Times

A central belief of modern business theory is the necessity to focus on a core activity – sticking to the knitting, as it were. But in the 21st century, an era of globalisation and digital transparency, I am not sure this maxim strictly applies.

For very many industries, ferocious competition and perpetual pricing comparisons mean an organisation’s main products are sold at little better than break-even. The internet encourages purchasing decisions based only on price. Qualitative issues are harder to discern on a computer screen – but price is plain (in theory). Hence gross and net margins have been relentlessly squeezed across everything from cars to cameras to home furnishings, as everyone tries to match the cheapest vendor.

In business-to-business transactions, procurement departments and online auctions have led to similar cut-throat pricing. Many suppliers now rely upon the “variation” principle that drives most profit for construction firms – a tendered contract will yield minimal margin, but any deviation by the client leads to supplemental work, priced at lucrative rates.

All sort of companies have adopted the approach of capital goods manufacturers. These producers sell their core range at cost and hope to make up profits through the add-ons. For example, engine maker Rolls-Royce essentially generates its profit from spares, service and maintenance once it has sold its aviation turbines for little return.

Consumer industries are not that different. The carpet trade is an example. After discounts, many traders sell basic floor coverings for a negligible contribution. But they then push add-ons at the point of sale, such as protection treatments at super-high margins. Similarly, electronics retailers sell brown goods at derisory margins, but obtain juicy profits from expensive insurance policies they sell on top. Car rental companies do the same, making the bulk of their profits from items such as fuel surcharges and collision damage waivers. The core activity is almost a loss-leader to attract customers.

The hospitality industry follows this trend. Diners focus on the cost of a main course, so restaurants try to keep these low – perhaps £10. On that the gross margin might be only 50 per cent. They then charge a massive £3 or more for a side order of beans or chips, where the gross margin will be 85 per cent or more. And, of course, restaurants add a service charge, which customers may forget to factor in when deciding how much they can spend. Meanwhile, the live performance sector is notorious for “booking fees” that add 10 per cent or more to the cost of a seat.

The arch exponent of this system is the no-frills airline industry. Airlines purport to sell flights for as little as 50p, but then charge for everything from credit card use to priority boarding.

In a way, even Britain’s Labour government adopted the same philosophy. It kept income tax unchanged for years, but introduced dozens of “stealth” taxes and gradually increased many other “minor” taxes to boost the overall tax burden significantly. Business and government both work to confuse and mislead the citizen, understating the true price (or taxes) to win customers (or votes).

The danger is that these tactics undermine trust in business (and indeed politics) among the public. The vast majority of consumers want to know the true, underlying cost of a product or service before they buy. They feel they are being ripped off if incremental costs are added that were not disclosed at the outset.

Yet commercial concerns must make a return, or they cannot reinvest and reward capital providers, and will eventually go bankrupt. That outcome reduces choice and allows the remaining players to price-gouge. Since there remains vast overcapacity in many industries, there is a tendency to over-produce, meaning goods will be sold at marginal cost. The irony is that the really expensive “core” items – an incredibly complex machine such as a car, for example – might make a paltry profit. The simple “ancillary” thing like finance is the method by which the industry makes much of its profits. As ever, capitalism defies logic but somehow still seems to work.

Posted in Product Development, Value |
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Who wants a better mousetrap?

In this Thursday night insight Paul Hague looks at the phenomenon of The Girl With The Dragon Tattoo and argues that “product” isn’t everything.

Have you read The Girl With The Dragon Tattoo? It’s a great story, there’s no doubt about it, but the story of how the book became a bestseller is even more incredible. Written in his spare time as a hard-working journalist, Stieg Larsson first called it Men Who Hate Women. Having finished his whopping manuscript and without publishing it, he began his second book. When this was finished he wrote his third. And then he had a heart attack and died. Only after his death were the books published.

The publishing of his books is another incredible story. The rights to the books in the UK, where it began its huge success, were bought by Quercus, a small and unknown backstreet publisher. The owner of Quercus became so desperate to shift copies he gave them away to people in parks and he planted dozens on the back seats of taxis and on tube trains. Today Quercus has moved to luxurious offices in Bloomsbury Square, and its revenues trebled to £15m in the first six months of 2010 on the back of the Larsson phenomenon.

So what can we learn from this? It seems to me there are at least five lessons:

1. What you call something is critically important. There is no doubt that sales were lifted by the intriguing and catchy label of The Girl With The Dragon Tattoo. When Marks & Spencer first launched its Vichyssoise soup, it didn’t sell. The name of the selfsame product was changed to Leek And Potato Soup and it flew off the shelves. We shouldn’t underestimate the names of our products. They are our brands, they carry a connotation, and they can positively or negatively affect sales to a dramatic degree.
2. The route to market is key. In the case of The Girl With The Dragon Tattoo it may well have helped that the publisher was small. The desperation to move the books may not have existed with a more prosperous and less hungry company.
3. Success requires critical momentum. Giving the books away in the first instance had a big cost but it kick-started growth. Somebody has to start reading and talking about the book and the sooner the better. Like a plane trundling down the runway, products gain height quickly once the wheels leave the ground.
4. Find a good PR story because it costs nothing. Undoubtedly the strange story of Larsson’s life and death captured the imagination of the media. It resulted in acres of newsprint which cost nothing and awakened the interest of the general public.
5. The product is important, but it isn’t everything. Larsson isn’t Dickens and he isn’t Shakespeare. However, his books have been published in 44 countries and have sold more than 40 million copies worldwide so far. They are a great read, there is no doubt about it but a product doesn’t have to be the best in the world to achieve the highest sales in the world. The debate still rages on as to which is best, a Mac or a PC . I won’t join that one but I will point out that Mac’s have less than a 10% market share and this in no way reflects the performance of the excellent product.

My insight today is that we should always take care to put as much emphasis on the other parts of the marketing mix as the product itself. Ralph Waldo Emerson once said that, If a man can write a better book, preach a better sermon, or make a better mousetrap, than his neighbour, though he build his house in the woods, the world will make a beaten path to his door. I am not so sure that The Girl With The Dragon Tattoo would have had such a large path beaten to its door without a little bit of marketing help.

Posted in Marketing, Paul Hague, Product Development, Routes To Market, Thursday Night Insight |
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The Fruits of Apple’s Success

In this week’s Thursday Night Insight, Julia Cupman takes a brief look at Apple in an attempt to understand how the brand has become so successful.

The iPhone 4 is currently one of the newest and hottest gizmos around, and so in demand that, here in the suburbs of New York, incredibly no Apple store and no AT&T store has one stock.

Back in April this year, Apple announced that it had sold 50 million iPhones so far, 35 million iPod touches, 450,000 iPads, and hundreds of thousands of many of its other products, bringing the total number of devices running on the platform to a staggering 85 million. At the end of April this year, the brand was valued at $83.1 billion – one of the top 10 globally, and up 32% from 2009.

A brief Thursday Night Insight isn’t enough to explore how this global behemoth has risen, consumed, and manipulated the masses, and so I will draw on just three key critical factors that I believe are at the core of Apple’s success:

A strong brand portfolio. Apple has built its own distinct empire: the “i” family, including the iPhone, iPad, iPod, iTunes, iMac, etc. Its brand portfolio covers products in 3 different markets: computers/laptops, mobile phones, and digital music. This means that Apple is protected should there be a downturn in any of these product segments.

In addition, these diverse products have created a platform for new product development, enabling Apple to enter new markets relatively easily (as was the case with the iPad), while also substantiating its leadership position in innovation.

The various products within the Apple family have attracted mass market appeal. Apple’s strong brand portfolio continually nourishes the corporate brand, stimulating and feeding ongoing demand for its offering. Apple and everything it embodies has become a global icon.

A focus on innovation. Apple has revolutionized the consumer electronics industry in bringing the digital world to one’s fingertips – changing communications, maximizing information retrieval, and introducing new forms of entertainment. The company has stood up to giants such as Microsoft, Google and Nokia. In constantly reinventing the wheel, Apple is undeniably a leader in innovation.

Selling an experience. Apple has created a differentiated customer experience model in reconstructing the accessibility and fulfillment of customer wants and needs. Virtually whatever the customer wants, the customer can get, easily and cost effectively. Apps for cooks, apps for traveling, apps for managing money, apps for working out, and hundreds of thousands more. There is even an app that locates public toilets. In short, Apple goes far beyond selling a product; Apple delivers an experience, transcending communications, entertainment, and the infinite world of information.

 
Furthermore, the Apple image plays a key role in seducing and engaging the consumer – from the appeal of the bright, ultra-modern and inviting Apple store; to its attractive products exhibiting elegant design and cutting-edge technologies; to simple yet enticing packaging.

Apple attracts consumers through innovation, and then engages with them by selling an experience, locking them in to the Apple brand. Apple is so in sync with the pulse of the market, that its followers become advocates of the brand.

We probably all want a bite of the Apple. Understandably, b2b marketers might claim they are disadvantaged compared to Apple, as the likes of industrial products are a far cry from sexy consumer gizmos. However, key to successful marketing is the ability to transfer ideas from successful companies, and to adapt and build on these ideas. With that in mind, I leave you with 3 questions as take-aways from this Apple insight:

• What does your brand “look like” today, and what would you like it to “look like” in 5 years’ time?
• Thinking outside the box, and imagining that anything at all could be possible, how would you meet the unmet needs in your market?
• How can the customer’s interaction with your product or service be transformed into more of an experience, encouraging them to engage more with your offering?

Posted in Julia Cupman, Product Development, Thursday Night Insight |
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