Mike Walsh on building businesses for the 21st century @ IRI CPG Summit, Orlando-FL...

As I am recovering from the 2 months of prep-work that culminated in IRI’s premier annual event last week in Orlando, I was thinking of some of the keynote speakers and this guy Mike Walsh popped up in my mind. Mike is a self-described “globally renown (ed) futurist and keynote speaker on future trends, innovation and how to build companies for the 21st century. BTW Mike if you read this, not sure if you noticed the typo on your home page meta id descriptor, I know it is nit-picking but Google indexer  has already picked it up with the typo J.

So in his very entertaining presentation, he had these things he calls “mind grenades” (basically key takeaways) and two stood out-

1.       If your kids had your job, what is one thing they would do differently? First I thought, is he asking us to bring the Crayola set or the Wii to work (depending upon how old your kids are)? Then as I thought more, it made perfect sense. Mike's point was to recruit the next generation of thought leaders and see how they would approach your tasks from their vantage view. Cool.

2.       What is something that your customers do today that drives you crazy? (Hmm, where do I start?) So the point here is that the points of friction between the service you are trying to provide somebody and how they are trying to consume it is an opportunity for innovation, and therefore, engagement. Freakin awesome! (and simple, why didn't I think of this??).

My two cents- every business today and in the future needs to create a “simplicity filter”- a device or process that takes every product or service you design and score it- a plus for features that make it simple and a minus for things that make it complex. If the pluses are not twice as many (at least) as the minuses, pull it off the market. Life is getting increasingly complex and if your product adds to that complexity rather than taking away from it, you are doomed from the get go...

Employee Strategy: (in?) Flexible Work Program @ Yahoo!

This past week Yahoo! HR head purportedly issued a memo revoking work-from-home arrangements for employees. If the "internal" memo at the above link is to be believed, the HR Head, among other reasons cited "Speed and quality are often sacrificed when we work from home" as being one of the reasons for the change. Holy smoke! If this is true, then essentially this is an  admission on HR's part that in this day and age when telecommuting is a way of life, they have failed at instilling a corresponding performance management culture that can leverage this awesome advancement in work culture to happen in a 100 years. With the right performance tracking processes and communciations protocols, telecommuting can increase productivity several fold. I say this because I am surrounded by people who do this every day (including myself) and everybody is working well over the mandated 8-hour workday, actually getting stuff done. So if this is all true (I still don't believe it), then Yahoo! just admitted they failed at getting telecommuting right. Corporate culture is a two-way street, the company has as much a responsibility of creating an atmosphere of accountability as well as trust as employees have of being diligent. Every CEO probably has at least one decision they are going to regret for the rest of their career and, if this is really her decision, Marissa Mayer may just have made the one that will top her "I wish I had thought this through a bit more" list!

SetFocus: Revisiting your 2013 Marketing Playbook

 It is halfway into Q1 2013, as you do a reality check of your fiscal year AOP with marketplace conditions, here’s a little cheat sheet on what you need to know as a marketer in order to beat the plan.

The U.S. Economy in 2013…

General consensus among economists is that of weak to moderate growth in early 2013, and a stronger recovery coming in the later half from the Housing sector, but there are other headwinds at play that could have a dampening effect early in the year, including the debt ceiling debate (once again), expiring tax cuts and spending reductions (collectively known as the “fiscal cliff”). On Jan 23, the “No Budget, No Pay Act” temporarily suspending the Debt Ceiling until later in the year, but without congressional action this issue will resurge before year end if there is no budget adopted by Senate by then. The recurrence rate of this issue is taking a toll on consumer confidence and capital investment/job creation, as indicated by low readings of the Michigan Consumer Sentiment- this indicator, has been exceeding consensus expectations for the last couple of months – today’s reading at 76.3 is above expectation of 75, but still well below the low 80 readings going into 2012 year end.

On the positive side, there’s some indication including forecasts from The World Bank Commodity Price Forecast, of lower commodity prices in 2013, which can provide some tailwinds[1]. The DOE also predicts lower gas prices in 2013[2], which generally helps consumption by freeing up disposable income and driving shopping trips up.
The Employment report in February (for January) came in a bit below expectations at +157K, which is lower than the previous revised number of +196K- 2012 average growth was 181K/month.

What does this mean for your 2013 Marketing Strategy?

If economic uncertainty continues building up into mid-2013, then marketing strategy early in the year should emphasize your value proposition, focusing on share growth through Trade and Consumer promotion investment. Any relief in costs from favorable commodity pricing changes should be passed through 100% to consumers. Advertising focus, both online and off-line, should be on lower funnel that aims to increase conversions by “nudging” consumers sitting on the fence on your brands and retaining existing consumers that may be vulnerable to competitive promotional incursions. Paid Search is especially a good way to get in front of consumers one step before the purchase decision. Paid Search importance is going to be even greater in driving conversion with Product Listing Ads (Google Shopping’s new rich ads functionality[3]).

As the economic uncertainty abates towards mid-2013, focus should shift to longer-term brand building and differentiating your brands to reduce dependence on promotions through strong upper funnel advertising activity. Later in the year is also a good time for new product launches as consumers tend to be more open to trial under lesser economic uncertainty. This shift to shoring up brand equity should help position your portfolio for a strong finish to 2013and create a strong momentum into 2014.

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[1] http://www.worldbank.org/prospects/commodities

[2] http://www.eia.gov/forecasts/steo/

[3] http://www.istrategyconference.com/app/media/whitepapers/Products_Up_Whitepaper_en.pdf

Is your Vision damaging your business?

…it is if your business planning cycle is typically 3 years or lesser. The longest planning horizon for most businesses entails new product development or acquisitions at around the 3-year horizon mark and marketing activities like advertising communications and pricing/promotions are typically planned annually.

Brands aren’t built overnight and sustainable brands need an evolving strategy that will navigate economic cycles that are a lot longer than 2 or 3 years, in fact typical economic cycles are 7+ years.

What you are missing out on is an opportunity to understand how your customers are adjusting their consumption behavior as the economy waxes and wanes. Granularity of information flooding researchers in recent years has motivated business strategy to be focused on maximizing short term profits and opportunities. Don’t get me wrong, short-term planning is important- the short-term is the bridge to the long-term and public companies are answerable to shareholders in the short-term. At the same time the most sustainable brands and businesses are the ones that have the information and experience to help them adjust to economic changes. In that respect, Businesses need to be like Neural Networks- learn and adapt based on past experiences, while adjusting to newer paradigm shifts. While lifestyles evolve and change much more rapidly today than they did 10 years back, there are some consistencies that business managers need to take into account especially if they are in the B2C domain.

For example how people adjust to economic upheavals, what spending categories do they curtail during a downturn and which ones do they prioritize coming out of a downturn. If you compare the growth in Retail spend data by segments from the U.S. Census Bureau from 2004 to the spending from 2011 (2 years post the respective recessions), you will notice some remarkable consistencies. The top 3 segments by growth vs. prior year in both cases were Building Materials, General Merchandise and Restaurants, while Electronics, Apparel and Sporting/Music stores were bottom segments.

How cool would it be if you could predict how your customers are going to change their consumption preferences in a sluggish economy and an expanding economy, what trade-offs in terms of share of wallet would they make as the size of their wallet shrinks or expands? And how cool it would be if you were able to anticipate these changes in consumption preferences and adjust your product portfolio, assortment and marketing/pricing strategies accordingly? So one would think it is easy for businesses to compare what their customers did in the Great Recession vs. the 2001 Recession, but you would be surprised even with big data how few companies have less than 5 years of data readily accessible for analysis. However different we are today compared to 10 years back, some elements of history do tend to repeat and if you chose not to learn from history you may well be condemned to repeat it.

Playboy Outsourcing Operations? Times must really be tough!!

Playboy Enterprises Inc. recentlly announced that they will be outsourcing most of their operations to American Media Inc. in a 5-year partnership deal.

Apparently it's not party time anymore at the company Hugh Hefner started (partly with money loaned by his mother). In fact they have seen their margins erode progressively over time. They netted out $2.3MM profits on revenues of $331MM in 2006 (0.7% margin), in 2007 they made $4.9MM in profits on $340MM in revenues (1.4% margin). To put their operating profitability in perspective, consider this- Playboy operating profits in '07 were $10MM, giving an operating margin of 2.9%. Bauer Consumer Media, publishers of FHM magazine had operating profits of £65.4MM during the 12 months to 31 March 2008 on revenues of £313.1MM- a 20.9% margin. So they do need a revamping of their operational strategy. Especially given the manual intensive nature of the publishing business, the economies of scale AMI can bring to the table may reeally unlock the profit potential at this controversial yet iconic brand. I guess they are hoping that AMI, which has a score of successful magazine titles in their portfolio can help them improve operational effectiveness.

Review of "The Shift Index 2009: Industry Metrics and Perspectives” (Deloitte.com Article)

I came across this report from Deloitte “The Shift Index 2009: Industry Metrics and Perspectives” (published November 4, 2009) that takes a deep dive look at Corporate performance across a broad group of industries including Aerospace& Defense, Financial Services Consumer Products and Retail, Technology, Media, Telecommunications, and Automotive. In spite of the vague and cryptic nature of the content, I think there is some real value in going through this (that is if you have the patience to digest a 208-page manuscript- someone should talk to the authors about the need to be succinct when producing content for web-publishing).


The key theme of this rather lengthy report is that Return on Assets across public companies is down 75 percent and corporate performance metrics currently utilized across businesses may not be appropriate.

The report then proposes that there is a “Big Shift” in underlying economic and behavioral trends the convergence of which is the fundamental driver of this performance erosion. The report then goes on to dissect how this so-called Big Shift is playing out across these different industries.

The report further proposes a “Shift Index” to quantify this phenomenon along three dimensions (quantified by 3 other indices- I suppose they need to make it complicated to sound sophisticated!):

Foundation Index: As defined by the report “The Foundation Index reflects new possibilities and challenges for business as a result of new technology capability and public policy shifts.” Put simply this is the infrastructure that has redefined business processes including digital infrastructure, and asynchronous and integration of geographically disparate resources that optimizes productivity. This metric is apparently evaluated at economy-level and therefore not analyzed by industry. Not sure why this would not differ across industries in an economy?

Flow Index: Defined by the report as “the Flow Index, is characterized by the increasing flows of capital, talent, and knowledge across geographic and institutional boundaries.” Translation- this basically builds on the Foundation Index- which is a more static perspective of resources. The Flow Index emphasizes the fact that Knowledge, Technology and other resources are in a constant state of flux and emphasizes the ability to constantly tap into evolving reservoirs of these resources to replenish current resources (not surprisingly- in the spirit of complicating concepts in pursuit of sophistication the report looks at two additional metrics within the Flow Index- Inter-firm Knowledge Flows and Worker Passion metrics).

Impact Index: If the descriptions on the previous two metrics were a bit vague, this one borders the esoteric. “…the Impact Index reflects how well companies are exploiting foundational improvements in the digital infrastructure by creating and sharing knowledge— and what impacts those changes are having on markets, firms, and individuals.” From my humble view-point, I think this is basically a measure of how well companies leverage their abilities around the previous two indices to create competitive advantage- I can buy that.

All in all I think there is some very useful information in this report, as to the effort required to go through this article to get to that information- to tweak a quote from a well-known movie "the juice may be just about worth the squeeze". If you are looking for specific analysis for the industry vertical of your interest, I would recommend going through the corresponding section of the report- what I have summed up above should save you some time on the rest of the material.

Note: This is an independent and unsolicited review of publicly-available material and neither the writer of this commentary nor this website takes any credit or liability for the original material being reviewed in this commentary. Please use your judgment in considering this review.

Riding out the Recession with Lean Business Strategies

Businesses in the present economy are under pressure as the pace of revenue growth slows down to a crawl, compressing profit margins as revenues barely exceed fixed costs. Of course you can still drive growth through share gains and lower costs by targeting jobs for elimination, but when industry growth is nonexistent, your competitors will protect market-share fighting tooth and nail. Also there’s only so many jobs that can be eliminated without cutting into the core of the organization. Here are some measures that can be taken to tighten the organizational belt and drive austerity within the organization- some old ideas and some new.

Internal Impact: Reinforce your core and increase operational agility

Drive Operational Efficiency:
Leverage matrix relationships and pool resources across functional groups. Also evaluate the opportunity of creating smaller multifunctional “SWAT” teams that can rapidly deployed to tackle complex one-time assignments across the organization. Protect cash reserves to compensate for credit paucity during recessions- don’t over-leverage. Acquisitions may seem very attractive during recessions as valuations are low, but acquisitions add a lot of burden on the company in the integration process during a time when corporate energy needs to be conserved- bite only as much as you can chew!

Focus on competitive advantage:
Every firm at some point started with some competitive advantage that enabled them to enter a market effectively and when times get tough, it becomes critical to leverage this inherent expertise. This also offers the surest opportunity for growth- by simply taking your competitive advantage to newer markets, rather than trying to get into markets where you have peripheral or no expertise. Bring the game to where you have an advantage.

Streamline your Product Portfolio:
Innovation is critical to growth, but depending upon the industry, only about 30% of all innovations have the ability to drive incremental growth (without cannibalizing core business). New product trials to identify successful innovations consume precious resources that are critical to corporate health during tough economic times. Plants are masters at evolving through tough environmental conditions and provide us a valuable lesson in growth- you can only grow if you survive. In bad weather, plants conserve resources and do not produce flowers, fruits or seeds. These are critical for it’s proliferation, but consume precious energy in producing, which is better used in staying alive. Take a realistic look at your innovation portfolio, rank them by short-term probability of success and take the top 25% or fewer to trial.

Enhance existing product features:
Leverage customer data and market research to understand what product features are the most valuable to customers and enhance core portfolio. Remember when resources are scarce then innovation needs to be efficient.

External Impact
Maximize Customer Value Proposition
Understand what customer need your product serves and try to maximize the product’s ability to serve that need. This goal determines the focus of internal impacts 2, 3 and 4 above. For instance if functional benefits are the primary need your product serves then minimize packaging and other peripheral costs and increase the functional offering. If quality not quantity is the key benefit your customer derives out of your product, then quantity not quality is what needs to be adjusted to protect margins.

Retention rather than acquisition focus
In most industries, acquisition costs are very high and there is a net negative cash flow of replacing an existing customer with a new customer when factoring these acquisition costs. If there is a moderate to high degree of customer turnover, your marketing dollars are better spent on retention rather than acquisition.

Protect core market
Your core market segment and is what drives your main cash flow and your core customers are the most loyal. It is easy to take this for granted as corporate leaders focus on making their mark on newer areas of growth, but when faced with economically challenging times, the castle needs to be protected from competitive incursions. This is also your most familiar grounds from which to weather out economic storms.

Satisfy broader range of existing customer needs
This is probably the lowest hanging fruit and also the most important in all of your external opportunities available. During economic hardships every single of your customers are trying to stretch their dollars and if there are innovation opportunities available to fulfill multiple customer needs with fewer products, these should be capitalized.

Return on Product Innovation: Measuring your Innovation Pipeline

Innovation is a critical growth driver for most industries, but more so for industries that are mature. Growth industries are less reliant on an ongoing pipeline of innovations because the full potential of the existing portfolio hasn’t been maximized yet, penetration can be further increased and new markets can be expanded into, where success with existing products can be replicated. Products and brands in mature industries on the other hand are characterized by a lack of differentiation outside of price- barriers to entry are low, which increases the number of market players, pushing marginal profits down. In such an environment, innovation provides a strong differentiating factor, allowing a brand to lower dependency on price as a competitive lever.
So if you are responsible for the strategic planning for your firm and not in an early stage industry, you need to be thinking about your innovation pipeline and it’s not enough to say you have a department for innovation- in most industries only 1 in 10 innovations succeed. So you not only need to have a team in place that has a network reach both inside and outside the organization that allows ideas to funnel up, but you need to also have the right metrics in place to evaluate the performance of your innovation strategy vis-à-vis your industry. A study by McKinsey (McKinsey Global Survey Results: Assessing innovation metrics, October 2008) suggests that a large percentage of executives even at companies that actively pursue innovation don’t formally assess innovations at all.
One way to evaluate innovations is using Return on Product Innovation (ROPI) measured through in-market tests (in-market tests are also risky because your competitors can copy it and bring to market faster than you, stealing your thunder). For ‘breakthrough’ innovations that you are planning to take straight to the market without first testing, ROPI can be estimated as ‘one-year out ROPI’, ‘two-year out ROPI’ and so on. At the end of year 1, forecasts can be used to estimate breakeven time for ROPI to turn positive and marketing ROI can be used to evaluate opportunity to optimize marketing strategy to improve ROPI.

ROPI={[Dollar Sales-Cannibalized Sales]/ [Fixed Cost + (Variable Cost*Units Sold)]-1}*100

Fixed costs can include development or other one-time costs related to production, variable costs are usually ongoing production, marketing and distribution costs. You need to deduct cannibalized sales, because these are sales you would have gotten even without the innovation. This equation can be modified for any custom inputs particular to your industry or the nature of innovation. For instance, if estimating ROPI for an in-market test then using the full fixed cost for development is not fair and should be factored down based on the ratio of size of market tested vs. the total market-size.

Evaluating Market Expansion Strategies: Vertical or Horizontal?

With the recent turmoil in the Economy, deals and opportunities are soon to follow as astute business persons hunt for opporunities for consolidating their position by moving into spaces vacated by fallen players. Easiest venues for expansion are horizontal, as they encompass your core area of expertise and help topline growth. Cost efficiency benefits are critical components in evaluating a horizontal expansion opportunity. Horizontal expansion strategies can be further broken out into geo-demographic expansion versus channel expansion strategies, but all these still entail doing what you are good at in new venues. Efficient marketing and distribution networks are important to the success of horizontal strategies.

Vertical expansion on the other hand is a trickier proposition as it entails venturing into an area you are only familiar with but lies outside your core competitive advantage, but done correctly will significantly impact your bottomline. Synergy benefits are very important for vertical expansion opportunities. Operational excellence too can go a long way in making a vertical expansion strategy very successful.

Industry lifecycle is also a big determinant of the feasibility of one versus the other. Growth industries make horizontal expansion very attractive and important for market leadership, whereas for mature phase industries horizontal expansion may not offer as much ROI as margin improvement through vertical expansion.