The widely rumored Gphone hit the news few days ago in the widely commented Android dogfood diet for the holidays post on Google Mobile blog:

“We recently came up with the concept of a mobile lab, which is a device that combines innovative hardware from a partner with software that runs on Android to experiment with new mobile features and capabilities, and we shared this device with Google employees across the globe. This means they get to test out a new technology and help improve it.”

Many spent few words about this statement and, by reading this post on Zdnet I’ve got too few thoughts about it.

Main points raised on Larry Dignan’s post on ZDnet were about product price point and, in general, commercialization strategy (subsidy, selling it unlocked, carriers involvement): to be true seems that most of them have been outdated in a day by the upcoming news.

In fact, just few hours later, sites like HTC Source substantially sort out all details about handset commercialization model, actually giving the impression that such discussion was started months ago (at least between the members of the Android historic team BigG, HTC and T-Mobile – remember the G1?).

It seems that the handset will be sold online (not very clear where and how) by the 5th of January (!) being cross-subsidized by BigG and T-mobile (that is apparently the first Operator to embrace the product) at an extremely aggressive 199$ price point.

As T. Ricker on engadget refers:

“If this device is sold unlocked (as rumored), at a reasonable price (as hoped), and with a jaw dropping user experience (as tweeted), well, it could be very disruptive to the status quo. Then again, that’s a lot of ifs.”

I was quite sure that the first commercialization of the handset would have gone through an Operator:  despite rumors about direct web support, Google has no retailer network and despite running service desk support for many of its selling products its capability to offer first level support on handset malfunctions it yet to be proved. Someone at phones review is asking if Verizon is going to do the same as T-Mobile, we’ll see.

I’m also quite curious to understand how Google is going to manage the double-subsidization policy: will 199$ price be fixed? will the commercialization model be common for all Operators? basically promoting the same approach adopted by Apple for the iPhone.

Since carriers battled to subsidize iPhones (despite the very little freedom in commercialization) it’s likely to happen the same, when it comes to a lower price point, since BigG looks for less revenues on product sales (with an eye to mobile advertising core market).

To understand how other carriers will react we need to know more about things like tethering, VOIP or Google Voice: for sure the cooperation with operators is one of the key point to evaluate product success.

Google has often been pragmatic and will probably derogate on too disruptive features in case those make the conflict with operators rise threatening the whole project. While has been demonstrated that Google Voice is not under discussion I’m quite sure that tethering can be easily dropped in favor of a better Operator sustainability.

For sure the product has potential: Google is driving innovation by defining a Proof of Concept that Android is capable to deliver the best UX available on market and by creating new ways of communication such as Waveing.

So far the combination seems too appealing for customers to be ostracized from any of the players in the mobile business chain.

A confirmation that the device will be so aggressive in terms of price (199$ IS aggressive!) is the presence of the well known Google partner, the asian, Taiwanese, OEM HTC.

Someone is noticing that no HTC logo is present on mock ups spotted up to now: HTC can use this product to improve its market share and its brand perception, I ‘m sure that HTC logo will appear somewhere on the phone: HTC has surely been asked to keep the BOM low, I’m sure that they spent much effort on the project and seems strange not seeing its brand anyway on the product….but, let’s see, this is just an experiment in a product line, the involvement could be seen at long term, hard to say.

Apparently product will run Android 2.1 Flan, to be released, according to electronista ultra shortly, on Dec. the 11th.

All those big expectations rely on the overall product quality further than price. The user experience delivered by the handset must be absolutely astonishing and shool look at opening to embracing other players of today’s  web experience in the project… did you heard about Phonebook 2.0? Facebook and Twitter?

Google can effectively help them monetize their communities, as it’s doing by indexing their contents. I’m sure they’re already working together to make things work perfectly as a whole.

The threatened player here seems Apple, that will likely soon suffer from a more open, collaborative, probably cheaper and more sustainable competitor (for other chain players): Google is not interested in the same business, BigG only need users, not passionate brand lovers.

At the end of the discussion the true losers here seem handset vendors formerly involved in the OHA: probably Google is getting a bit impatient but, for sure, they looked lazy to the boss making BigG came up with the decision of home brewing the perfect Googlephone (that was meant to be the Moto Droid). It’s indubitably hard to manage for Motorola: actually seems that this handset will compete with the Droid that, anyway, keeps a slight different target in terms of market proposition thanks to its QWERTY Keyboard.

From a features perspective, as said, the phone will be the first being empowered by Android Flan (I don’t believe that the OTA update for Motorola Droid or HTC Hero will be released in advance). Flan has been so far characterized by a hardly arguable feature roadmap, and despite being just 0.1 away from Éclair (rumored for being a somehow Motorola exclusive) will probably introduce some significant changes and UX improvements.

If Google wants to brand this product as strong as it seems I’ld expect also a small set of first fruits such as, a googlewave client (why not?), a Chrome Mobile port (probably not) with flash enabled (hopefully) and truly optimized service integration features such as finally mature location awareness or augmented reality with user generated content such as GoogleGoggles.

What a disruptive start for mobile industry’s 2010! Don’t be too quiet in your Enterprise(s), a Nexus is arriving…

NEXUS arriving

Misconception #5 – Lower Your Prices and Make it Up on Volume

(Read time approx. 3 minutes.)

This is the fifth misconception in a series of six. The concepts being discussed here will likely be counter to your beliefs. The comments left on the previous posts are quite interesting so you may want to go back and read them. Click HERE to go back and begin with the first post related to this series.

Possibly one of the greatest travesties to befall the independent garden center as an industry is the fallacy that if you offer lower prices you will “make it up on volume”.

This is what I  call Fifth Grade Economics. The general level of knowledge about economics in our industry was learned in fifth grade social studies class. In my fifth grade class Mrs. Woods taught us about supply and demand, and how if you lowered the price you would “make it up on volume”. Unfortunately this same macro-economic principle has been perpetuated in higher education and has not been balanced with understanding of the micro-economic application in an independent garden center serving niche demographic and psycho-graphic customers.

It may be true that more units of garden center products and plants are sold to US consumers through the combined efforts of mass merchandise chains and independent garden centers. However, I  do not see any economic benefit of that additional volume to more than a handful of folks who are directly involved in our industry. The downward price pressure of commoditization at wholesale and retail levels is actually depriving our industry supply chain of the margin dollars necessary for continuing a healthy business. Radical change beyond the application of LEAN processes is occurring as the effect of a poor economy forces weaker companies to exit the competitive environment. For now, their volume is being redistributed among the last men standing. Yes, this comes with free enterprise, however it is accelerated by a lack of understanding and incorrect application of this basic supply-demand economic distribution model.

The “Make it up on Volume” trick should be reserved for items sold in high volume through mass market retail stores and that is where it began in our industry. In the earlier days of the independent garden center business some companies in reasonable proximity to larger population centers were able to trade price for volume and come out fairly well off. Remember that some of their brethren were equally as successful promoting a value-added business model and earning even more money during those days preceding the discount format mass merchants entering the garden center business. Now the DNA of those companies demands that they exploit more commodities to drive yet more traffic through their stores.

The “Make it up on Volume” folks that have made it this far are now ensnared in a deadly trap where operating margins are lowering as the costs of doing business rise. To continue to compete on price they must advertise low prices even more aggressively to draw enough able-paying customers past the myriad other mass merchants as well as value-added independent garden centers just to pay their bills. Where does this low price/high volume philosophy lead? Just this week I read that an 82 year old owner of a 90 million dollar garden center chain famous for selling on low price/high volume doesn’t think he can sell his business for more than the value of the real estate and equipment.

Price Elasticity of Demand is the economic principle we’re talking about. It is true that sales volume of some items increases while more consumers are attracted to purchase them as prices drop. Customers who are attracted by lower prices may also use the product more frequently and in greater quantity over a period of time.

For example, Kroger recently advertised gallon jugs of milk for $1.75 in a local market. While Walmart has been aggressively advertising the savings they offer on the total shopping basket everyone knows that the price of milk is  about $3.25 to $3.50 and Kroger wins a shopping trip from nearly everyone in the market. Those milk-buying shoppers include the die-hard loyal Kroger shopper as well as many Walmart low price shopper regulars who intend to “cherry-pick” but inevitably get caught up in other deals that are more lucrative to Kroger. These folks stock-up on milk to save the maximum amount they think they can use before the milk they purchase would spoil. They pour more milk until it is gone, then most of them return to their regular shopping pattern or the next sale-price induced one.

Most garden centers have adjusted to selling fewer Known Price items as discounters and big-box chains have created commodities out of Miracle Gro, Proven Winners, flats of annuals, cell packs of annuals, gallon perennials, etc. (This is NOT to imply that independent garden centers should not sell these items at all.) As more items are commoditized independent retailers have failed to adjust tactics and have no solid game plan on how to  hold onto the margin dollars they need to earn on the high quantity items they sell. Commoditization is fueled by suppliers who offer no control of their distribution to protect their retail outlets.

When 4″ specialty annuals and 5″ Poinsettia are heavily advertised at $.99 during prime buying season by two major mass merchants in many US markets this year the rapid commoditization phase of the Price Elasticity of Demand Game is officially on. Someone – maybe everyone is about to get hurt!

The Price Elasticity of Demand Game

An independent who chooses to remain relevant and competitive in the same market as discount merchants has to play the Price Elasticity of Demand Game the way it is intended. This game has no favorite. In this game the challenger has entered the low price/high volume arena and the incumbent value-added retailer must resist the pull to join them or join the race to the bottom – end of game.  The other side of this game table is the Inelastic side and that is where they must the value-added retailer must choose to sit, but not just wait out the competition if they wish to continue as a viable provider to the customers who choose to purchase their added-value offer. They must devise new tactics.

New Belief #5 – You must do the hard work to add value and differentiate your company to earn the margin dollars you need to sustain your business.

Product Differentiation

On the value-added side of the game table the rules are the same but the game pieces are different. The incumbent (high/value independent) must play with game pieces (products) of Unknown Price, leaving game pieces of Known Price and relatively low operating margin to the challenger.The basic idea is to create in-elasticity by offering highly desired and highly valued products at prices that allow a high operating margin.This is also known as Product Differentiation.

Choosing Supply Chain Partners

Executing this strategy is not easy in a marketplace where person charged with selecting products to sell are matched with suppliers who ignore or are unable to meet the strategic need of their retail partner to offer differentiated products and a margin of protected from high volume/low price competition. I can think of no such product supplier to our industry supply chain other than in the gift categories. Vera Bradley for example sells through a limited number of authorized retailers and strictly enforces discounting within their legal limits. Instead, many garden center suppliers provide exclusive product opportunities and other benefits to their mass retail distribution partners. And those that do partner with independent value-added retailers do not limit distribution within a market, provide suggested retail pricing, or invoke discounting parameters.  Of course one of the reasons they don’t offer these controlled distribution benefits is that most independent garden centers don’t understand them and resist the notion of being restricted by these types of vendor rules. (In other words, we have met the enemy and he is __.)

Environment Differentiation

To the degree products are differentiated by quality of ingredients, performance and design the physical environment in which they are offered to consumers must also be differentiated. The value-added side of this game table looks different to the consumer. From colors to quality of display materials to spacious room for customers the atmosphere is more inviting and comfortable. Meanwhile others are drawn to choose to spend less for less in the low price/high volume retail environment that is often more crowded and less attractively decorated.

The cost of differentiation has been a controlling factor in the past, however low price/high volume providers have been using their economies of scale and design to break the barrier (visit an updated McDonald’s restaurant) and increase margins on commodities such as coffee. Another nemesis of low price/high volume stores in the past has been cleanliness. This has been given much needed attention in mass merchant stores. It is getting to be even more expensive and difficult and even more important to differentiate on the basis of atmosphere.

Service Differentiation

Providing a value-added experience through offering services whether included or optional and additional create in-elasticity or differentiation. Mass merchants have responded to the service edge long possessed by independent garden centers with no-questions-asked guarantees, certified specialists, in-store vendor merchandising, and even plant installation services in some areas. The most viable level of differentiation by service is that of long-term personal relationship and connection between the salesperson and the consumer.

Total Perceived Value

The customer perceived TOTAL VALUE TRIANGLE -  Product, Store Environment, and Service

Achieving a winning level of total value perception by the consumer requires exceeding the minimum expected level of service and provide noticeable difference in all three value areas.

The role of each type of retailer is to represent the total value they offer as completely as possible and in context of how the consumer perceives the value they receive from the products, environment, and services. This is done by product and store design, marketing messages, and ultimately the repeat business and word of mouth from their consumers.

Who Will Win?

We are only concerned with helping the independent value-added retailer succeed, and the only way we know to successfully do that is to differentiate in all three areas of the total value triangle. Those who choose to fully engage in providing the most highly differentiated value have a place at the table where stakes are high and clear separation from mass retailers is a must.

Leave a Reply – How do you differentiate on Product, Store Environment, and Service?

This a quote (long) from What Were They Thinking?: Unconventional Wisdom About Management by Jeffrey Pfeffer (2007), on commoditization of content

This raises the question of why one would buy a paper whose quality and uniqueness is declining because of inadequate investment in staff; why not just buy the paper from which the Chronicle gets a lot of its stories and which has invested in its own, unique news gathering and reporting? The point is that the more newspapers cut their quality, the less incentive there is for anyone to subscribe. So subscriptions fall, more cuts are made, and the death spiral continues, if not accelerates. The only thing that can possibly provide competitive advantage in a saturated media marketplace is the quality of the writing and the ideas. An undifferentiated, unoriginal product of low quality is not going to save any company in the newspaper, or for that matter any other, industry.

Prices of undifferentiated, unoriginal, non-unique, low quality content with unlimited supply will hurtle towards its marginal cost. In the case of digital content the marginal cost is $0. Facing commodotization, newspapers should not be lowering their price to $0 but stop producing such undifferentiated content.

The new media experts are right in saying newspapers cannot succeed by erecting pay walls for their online content – but only half right. If you are not adding unique value, you cannot capture value by erecting pay walls.

http://www.flickr.com/photos/eole/ / CC BY-NC-SA 2.0

From Wikipedia:

A commodity is some good for which there is demand, but which is supplied without qualitative differentiation across a market.

Here’s my take on what suppliers need to do differently when competing for your business.  (This first appeared as an Op-Ed piece in Business Travel News on Nov. 16th)

In these tough times, buyers are extracting favorable pricing across the travel industry. Not surprisingly, this frustrates most suppliers—namely those who don’t have the lowest prices. How many times do we hear suppliers wishing for buyers to “see the bigger picture,” “don’t treat us as a commodity” and “put more value on partnership”?

Translation: “Pick me, even if I don’t have the lowest price.”

What’s troubling is when higher-priced suppliers lose a bid, then complain that buyers are focused on price—and only on price. This is small-minded thinking. Good buyers make good decisions, or they don’t stay buyers for long.  Do buyers pay a lot of attention to price? Yes, for three big reasons:

• Price is the key driver in most savings calculations, and buyers get measured on savings.

• Price is an essential part of the value equation, and buyers are expected to find the best value in the market.

• Price is easier to quantify than benefits, and buyers have only so much time to frame their business cases for or against each supplier.

That last point is where suppliers need to face head-on the dreaded “we’re treated like a commodity” attitude. Start by looking hard at what are your real differentiated benefits. If you don’t have (m)any, then guess what? Price is the only way you can compete, so here’s hoping you’ve got the cost structure for that game.

For those suppliers that really believe they have non-price sources of value, it’s up to them to help buyers see this. Salespeople need to get past whatever brand images that buyers have and focus on getting them to understand your sources of differentiated value. The trick is to do this in ways that are credible and succinct.

By credible, I mean framing a value proposition in ways that buyers can kick the tires. Making fuzzy, feel-good claims about things like comfort, convenience and incredible savings don’t pass this test. Back up your benefits with some solid data or third-party endorsements. Help the buyer put your benefits into a business case. You may have to educate some buyers about how to evaluate the features and benefits in your industry. That’s fine, as long as you don’t wait until the RFP cycle to do the educating.

By succinct, I mean finding ways to clearly and concisely communicate your price/benefit position, aka the value proposition. That is, unless you have a whole lot of faith in your brand’s image or the strength of your relationship with the buyer. Yes, these are two important factors in the selection process, but why take a chance, especially in these tough economic times? Take some of the workload off your buyers by giving them a quick and easy way to explain to their stakeholders why you should win the business.

Finally, suppliers need to put more focus on sales fundamentals. Talk less, listen more—especially about the features that buyers really value and their concerns about your offering. Suppliers that work harder in these areas will do a better job of selling value, and buyers will make their decisions with more confidence.

Scenario 1: What would you think if a friend said  ”You’ll never guess what. I’ve booked myself for abdominal surgery at the general hospital. Found it on a healthcare price comparison website called comparehospitalprices.com. Absolutely the lowest price by a mile!” ? Would your immediate thoughts be that your friend found a bargain? No, of course not

Scenerio 2: Dittto above, but this time your friend has found the cheapest household insurance on an insurance aggregator site. Would you have the same reservations as the first scenario, or would you congratulate him for being such as clever fellow and ask for the website address?

Aside from your health and your family,  arguably the two other highest value assets are your home and your car. So why the puzzling contrast  in buyers behaviour in the acquisition and the perception in value of products protecting health/family vs. house/car ? The obvious answer is in the commoditization of the latter category of personal insurances. Although started with the decline of high street brokering and adoption of telephone and internet distribution channels, the product commoditization of personal lines insurance has been massively fueled in recent years by the incredible rise of the aggregator and comparison sites, where lowest price is definitely king.

Even though these sites have become enormously successful, the irony is that they will prove detrimental to the industry and customers alike. The overwhelming focus of price alone in any market will be harmful in the long run. For the insurance companies:-
-  the aggregator  sites promotes a ‘cheap is best’ culture  (incidentally of which the insurers have managed the unedifying feat of both complaining about and being complicit in propagating!)
-  listed products may require subsidy from another part of the business, eroding the overall company profits
- if they started with relatively strong brand, it will gradually devalue
- they’re acquiring a segment of customers with lowest known loyalty in the whole industry

Even for the buyers
-  the aggregator sites stifles insurers’ drive for innovative products and features
-  winning quotes normally equates to least cover (though this is slowly starting to change)
-  critical facets such as claims management and customer service is often not even on the radar for consideration

So the next time you hear someone boasting on how cheap the car insurance he found on a comparison site, you’re know what you really ought to say to him.

Cry Me A River

Here’s an interesting quote from a post at Engadget.com discussing the Microsoft/Sidekick/T-Mobile cloud fiasco. I’m trying hard to resist saying it was quite a storm.

What’s happening now is the IT-ization of the consumer. It’s a world where the head of house is CIO, the spouse runs the help desk and the kids do tech support. (Johnny, stop practicing piano and please get those Windows 7 security updated installed.) Of course, the consumer does it with no budget, resources, trained professionals or skills. This is a huge problem and the data issues we saw with Sidekick are just the tip of the iceberg.

Hmm… I’m tempted to say this is unique to the technologies of our age, that we are witnessing a truly unfortunate democratization of specialization (yeah, I know it’s a mouthful but bear with me). Except that it isn’t unique to our age or to our technologies and isn’t altogether unfortunate.

History Has A Nasty Habit Of Repeating Itself

Every generation, when faced with vexing problems, almost always laments the uniqueness of its challenges. I’m not entirely certain why this is so but I suspect it may offer some consolation for one’s inability to cope. As far as therapies go this may be a good one. Here are some counter-examples of the uniqueness theorem:

• Healthcare: the medicalization of living, coupled with ready access to health information, has forced many to be virtual healthcare experts. How often do we Google different diagnoses and therapies?
• Investments: shopping for a investment adviser is itself an exercise in mini-specialization. The depth of knowledge required is simply beyond what can safely be categorized as general knowledge. It is specialty knowledge.

As technology, for better or for worse, increases its hold on our lives, greater depth of knowledge will be expected of the general populace (what I call the democratization of specialization). I’m willing to bet on for better, despite the very real problems this view presents. Today’s specialty is tomorrow’s commodity, so dictates the marketplace of ideas.

Why This Is A Good Thing

Just as commoditization of goods and services leads to value creation higher up the chain, so does this transformation of yesterday’s specialty knowledge into today’s general knowledge.

I’m not a social scientist so I cannot back this up, but my feeling is that a better-informed population tends to make better choices, overall, for society.

And that is what progress is all about, right?

Update (Nov. 1, 2009):

Here is an interesting video on participatory medicine, a.k.a Health 2.0:

Participatory medicine is a product of its time: advances in medical technologies place increasing responsibility on individuals for their health care, while advances in different technologies make it increasingly possible for them to assume those responsibilities without attending medical or nursing school. Both kinds of technologies are tools designed to contribute to better outcomes. But the technologies do not constitute participatory medicine. Rather they enable it. Without tools ? insulin pumps, comparative quality ratings, in-home dialysis, and online patient groups, for example — participatory medicine would simply not be possible.

An excerpt from an article on the technical underpinnings of participatory medicine in the Journal of Participatory Medicine, a great journal even for healthcare laypersons (like me).

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Back in 1997 I finally finished my overworked BA-thesis in archaeology. It discussed Late Formative trade and its importance in the rise of stratified social formations in the Central Maya Lowlands. I particularly focused on the political relations between Cerros in northern Belize and El Mirador in northern Guatemala. My theoretical framework was Bourdieu’s theory of practice. Central in this thesis were “commodities.” 

Late Formative temple mask at Cerros

For Appadurai, “commodities are things with a particular type of social potential…they are distinguishable from “products”, “objects”, “goods”, “artefacts” and other sorts of things – but only in certain respects and from a certain point of view” (Appadurai 1986:6). Kopytoff defines a commodity as a thing with a value that can be exchanged for a counterpart which in the immediate context has an equivalent value. The counterpart is also a commodity at the exchange (Kopytoff 1986:68).

Commodities are often evidence of contacts from outside the local area and they have “life histories” and it might be important to see how the distribution of knowledge affects them at various points. For example, knowledge of producing primary commodities, such as basic food, is more standardized than the knowledge of producing luxuries (Appadurai 1986:41-42).

Individuals at different stages (producers, traders or consumers) create their own mythologies and practices related to the commodities. All commodities are most uniform at production.  When commodities come a long distance from its production (either institutional, spatial or temporal), knowledge becomes partial, contradictory and differentiated, something that lead to demand (Appadurai 1986:48-56).

Commodities are also items of economic value which exists only in the subjects’ mind, not in the commodities themselves. Value is both embodied in commodities and created by economic exchange (Appadurai 1986:3). For Marx, a commodity’s value was determined by the social relations of its production. The exchange system alienates the user from the production and thus endows it with fetish like power different from the items true value. Kopytoff on the other hand, argues that power attributed to a commodity after production is the result of singularization (see below) which is the opposite of commoditization (Kopytoff 1986:83).

There are only a few items in a social formation which becomes commodities. An item may in some context be regarded as a commodity but in another context as a non-commodity. An item can be seen as a commodity by one person but not for another person (Kopytoff 1986:64). Commoditization make items exchangeable for other items, and the opposite, it makes even more items more widely exchangeable.                       

Some part of the environment is usually set apart as sacred, it resists the commoditization of others. These objects have been singularized. Rulers often insist on their right to singularize objects (Kopytoff 1986:73). Singularization may lose its importance when other members of a social formation replicate the singularized objects and the objects lose their value through emulation. It has been argued that after a while, new status goods and symbols must have been made to replace the former ones as they lost the meaning the elite ascribed them (Hodder 1982:207-208). Exclusive status symbols were inalienable possessions which functioned as repositories of genealogies and events. Their unique and subjective identity made them singularized (Weiner 1992:33). Singularization could be extended to architecture as well, such as at Cerros above (LeCount 1999:240). The presence of specialized craftsmen is one indication of rulers’ need for singularized objects (Inomata 2000). The context of osteological remains may indicate how the Maya viewed the animals they utilized. Some animals may have been taboo or sacred due to singularization. Specific animals like the stingray, quetzal and jaguar were most likely sacred and only available for the elite.

After my BA and MA theses in archaeology (1996-1999), which had a strong materialist approach, I entered a period of idealist (cosmological) approaches as seen in my BA thesis in social anthropology (1999-2003). This also affected my early dissertation work, which can be seen in my Licentiate thesis from 2004. After this I entered my current neo-materialist phase and now I can see my earlier materialist approaches in a new light. I’ll have to rewrite a new article on the processes of commoditization and singularization. At least I have made a blog post.

Brocade’s hanging of a “for sale” sign shines the spotlight on the one area of cloud and enterprise expansion that up until now has been largely overlooked: the network. Pick your model — cloud or enterprise — and it’s clear that while the list of server vendors is long, the single-source networking choices are few and far between. And as both cloud and enterprise markets move to commodity architectures that stress scale-out server approaches using IP and Ethernet networking, the importance of robust networking infrastructure becomes even greater. In the face of this transformation, will networking remain the last piece of the data center puzzle in which brand names still matter?

Be it in the form of the rapidly expanding web-scale application approach, or the rapidly consolidating virtualized machine approach, the rise of the homogeneous infrastructure is upon us. Looking at deployments, if Google is a leading indicator of rapidly expanding web-scale applications, data centers will use the simplest server components, including internal disk drives, connected via IP and Ethernet. And when virtualized machines thoroughly permeate enterprise data centers, a similar standard server node with requisite hypervisor(s) will be the building block for large-scale deployments.

Both models rely on an increasingly capable network, and both are causing a ruckus among industry giants. In the race to capture a bigger slice of data center sales, Cisco, HP, IBM and Dell are blurring traditional demarcation lines between servers, networking and storage. So consider the server game well saturated and widely dispersed. And one in which the brand of server equipment is becoming increasingly less important.

Of course, if you need to build a complete networking infrastructure for all these servers, including everything from dense core switching to rack-level aggregation, Cisco emerges as the primary supplier, with everyone else far, far behind. Brocade might be next, thanks to its acquisition of Foundry Networks. And there are a crop of newcomers like Arista Networks, as well as those who got in on the ground floor with 10-Gigabit Ethernet, like Force10. But compared to Cisco, HP and IBM, these emerging networking vendors need a bit more time to get up to scale.

There are pros and cons to this grand data center consolidation. The race, however, is on.

But the bigger implication for infrastructure vendors is how to maintain the technology control points. For years, vendors fought over who could claim to have the best server or storage array. Now, with the migration to cloud computing and enterprise deployments, the focus has changed from the benefits of any individual piece of hardware to how well one can connect hundreds to thousands of servers. Rather than a custom collection of heterogeneous infrastructure components, the software or the virtual machines determine how the hardware resources get presented to applications. The Internet giants adopted this model long ago. Now it appears the traditional data center players are waking up to it as well, and will invest in the final, critical piece of data center infrastructure — the network.

Commoditization, Part III — a New Hope

Blogger’s Note:  This blog first appeared as a column in SCN Magazine (www.systemscontractor.com) in March of 2006.  It was written for low-voltage contractors but applies to just about any industry facing commoditization.

Last year, I wrote two columns on commoditization. In the first column, I argued that our low-voltage industry is fast becoming commoditized. Everything from video projectors to fire alarm inspection contracts is being sold at ever-lower prices and paper-thin margins. In the second column, I discussed three strategies for dealing with commoditization.

After those two columns, I thought that was the end of it. But now, I find myself compelled to write one more. Why? Because there’s another strategy for dealing with commoditization and it’s one that, I’m sorry to say, I just plain missed.

It’s not an obvious strategy so I’m not surprised that I didn’t see it at first. But, any number of companies have been quietly carrying it out for years. And, many of those companies have achieved that most desirable of situations, the “sustainable competitive advantage”.

I’m calling this strategy “embracing commoditization” and, if you read my first two columns, I must apologize here because I’ve redefined the original three strategies to make room for this new discovery.

Strategy #1: Leading Commoditization

Walmart and Dell are examples of companies who are “leading commoditization”. Companies like this cut costs and margins in order to lead the way to lower prices in their markets. They often achieve considerable success through this strategy.

In our low-voltage industry, internet discounters are leading commoditization. So are those bid-market contractors who seem to win all of the fire alarm jobs. So are the Asian manufacturers of low-cost audio and video equipment. Note that, as a rule, these providers are offering quality products and services but they have cut costs and margins to a bare minimum.

Strategy #2: Fighting Commoditization

A second group of companies, like Gillette and Coca-Cola, are “fighting commoditization” using tactics ranging from continuous innovation to brand building and advertising.

In our low-voltage industry, contractors who sell integrated systems in the negotiated markets are fighting commoditization. So are those manufacturers who continue to innovate in their product lines and use advertising and branding to promote their products. Manufacturers who limit distribution and enforce MAP and the music companies who have lobbied for Digital Rights Management (DRM) and the Digital Millenium Copyright Act also belong in this group (whether or not you agree with their actions).

Strategy #3: Embracing Commoditization

Like the first group, companies who “embrace commoditization” work hard to maintain the quality and reputation of their commodity — and its low price. But, these companies have discovered a secret. A well-maintained commodity can become a launch platform for all kinds of innovative and profitable add-on products and services, potentially resulting in a true “sustainable competitive advantage”.

Consider the “open-source” or free software movement. Examples include the Linux operating system and the Open Office applications suite. How could any company profit from this ultimate commodity of free software? Seems impossible. Yet, companies like Red Hat are doing just that. How? By giving away the basic software (the commodity) and using it as a platform to sell subscriptions for updates and support (the profitable add-ons).

Starbucks is one of my favorite examples of embracing commoditization. Starbucks started with a commodity product, a cup of coffee. Then, they used this commodity platform to launch a world-wide chain of Starbucks coffee shops where they sell a variety of innovative (and profitable) coffee-based drinks.

I have yet to find a Red Hat or Starbucks in our low-voltage industry. Retailer Best Buy, however, is pretty close. Best Buy sells its electronics at commodity prices. Then, they make their profits from add-ons like extended service contracts and their “Geek Squad” service crew which offers expert on-site computer configuration and repair.

But, how about those residential security companies who sell a commodity intrusion alarm for $99 and then make their money from add-on monitoring. Aren’t they embracing commoditization?

In a way, yes — but there’s a dangerous flaw in their approach. The idea is to launch innovative add-ons from a commodity platform. But, monitoring service is hardly an innovation. In fact, it’s just another commodity. There’s no sustainable competitive advantage here. When the monitoring contract expires, some competitor is likely to offer the customer a lower-priced service.

The same warning applies to service contracts. You are “embracing commoditization” when you sell a basic system at a commodity price and then add a more profitable service contract. However, if that service contract is nothing more than an insurance policy (no innovation here), then someone else can undercut you when it comes up for renewal.

Making It Work

So, what’s the secret? What’s the difference between a commodity add-on and an innovative add-on? And, how does an add-on product or service become a sustainable competitive advantage?

Here’s the answer and it’s the key to the whole strategy. The add-on must, in some way, create or reinforce the relationship with the customer.

Consider the most obvious add-on, a service contract. Instead of an “insurance policy”, offer a more innovative service contract. Include preventative maintenance. Replace worn or obsolete equipment before it becomes a problem. Offer upgrades. Schedule training sessions for the customer’s new personnel. Now, you’re building a continuing and positive relationship with the customer instead of showing up only when there’s a problem.

Hardware add-ons can also help build relationships. Sell a customer a basic intrusion alarm and security camera system (the commodity). Then, offer to integrate them in a way that shows a growing understanding of the customer’s business (the innovative add-on).

The Future of Commoditization

In the future, the increasing commoditization of our markets will force most of us into one of the three strategies I’ve described here. And, I predict that the second strategy of fighting commoditization, favored by many contractors, will become more and more difficult to execute successfully. In that case, contractors will be faced with a choice: join the ranks of the discounters, or learn how to “embrace commoditization”.

Embracing commoditization means selling a basic system at a commodity price and making profits from innovative add-ons. Just remember that the add-ons must be designed to build the customer relationship. That’s because a strong customer relationship is the only sustainable competitive advantage.

Google signaled the end of Web 1.0 Infrastructure and the beginning of Web 2.0 Information.

Is WolframAlpha signaling the end of Web 2.0 Information and the beginning of Web 3.0 Knowledge?

I have been thinking about the recent comments of Seth Godin about Social Networks on TED.com.  Personally, I believe Seth is behind the curve and that Social Networking is becoming a bubble as platforms are becoming commoditized and Social Network companies are springing up everywhere without properly thought out business models.  Eventually, venture capitalists will get wise, pull their money out and the bubble will burst.  Web 2.0 is dead.  Long live Web 3.o.

WolframAlpha.com is probably the Web 3.0 shot that is being heard around the world.  A new generation of search engine for a new generation of knowledge-based internet technologies.

Social Networks will continue to exist.  All of the small Social Networks will be gobbled up by the biggies.  However, the center is shifting from the profiling of Web 2.0 focusing on the needs of the business to gather customer information back to the needs of the customer to gather product knowledge.

Relational databases focused on the values, information.  Associational databases will focus on the connections, knowledge.

Look forward to a new economy and a new plethora of business models.

Web 3.0 is here.  Knowledge is Power.  Power is Leadership.  Knowledge is Leadership.

Link:

• Associational Database

Modernist #12

(The Drifters – Up On The Roof)

Modernist / Mod / Mods..for me the label is not the issue it’s the philosophy..the ideology that’s important and how it evolved to influence almost every ‘trend’ that followed. That’s what fascinates me. The narrative of the early sixties is well documented from almost every angle other than the ’street’ perspective in part because the voice of the people is not one that is often heard. As Johnny Spencer said ‘by 1965 the essence and meaning was gutted from the original movement because it was a genuine threat to the staus quo’. For sure the consumer revolution had been managed as far back as the early part of the 20th Century but ‘Mod/ernist’ was never part of the equation because it came up from the street where the establishment had no control or initial interest other than in how to ‘capitalize’.

By the time I was born in 1968 the control was being fought for and for a moment the chance was there to bring down the system but by then the momentum was with the bourgouise intellectuals who when it came down to it didn’t realise that in the words of Martin Luther King there would be ‘No victory without sacrifice’. As the 70’s rolled on everything had been commoditized and the moment passed, (much to the relief of the establishment), who then went on, (in the 80’s), to destroy the working class by giving us ’something’ to lose in the way of our own property which, of course, wasn’t ours anyway as it belonged to the banks that had sold us into debt slavery.

Interpret my musings how you will but I know how it was to live through these times with a narrative of Mod/ernist as the guiding principle which is after all an Attitude rather than merely a fashion trend. In my opinion part of why the lifestyle of Mod/ernist has been, (and continues to be), so enduring is the underlying principle at the heart of it which is to follow your own path and, (as much as you can), decide for yourself what to do, wear, listen to, watch, read, learn etc.

Today’s 1962 cut by the Drifters is so well known that it is easy to dismiss it as nothing more than pop but if you listen to the words it speaks the language of pure Mod/ernist, the cats who met, walked, talked and lived together metaphorically

“Up On The Roof..way up where the air was fresh and sweet and away from the hustling crowd and all the Rat Race noise down below…….right smack dab in the middle of town..”

Listen Tune…

I believe that some companies are unnecessarily commoditized in their market. Value comes from how you sell, not always from what you sell. However, experience alone will not drive optimal results without a sound account strategy. A well-designed strategy gives you greater control and it will help you avoid commoditization.

Companies can avoid commoditization by investing in the skill development of their sales professionals. There is a marked difference in results when your sales team evolves beyond tactical selling and “product expert”. You want a sales team that is capable of strategic selling.

In most instances, where, and with whom you spend your time predicts the sales outcome. In the simplest of terms, it is important to validate the sales opportunity. Additionally, you need to determine whether you can win, the viability of your solution vs. your competitor, and the worthiness of the opportunity (I.e. profitable, growth potential and/or strategic value). These things will help establish your value proposition, and without tangible value, you will be commoditized.

A general rule is that you can increase your value (and possibly institutionalize an account) by increasing purchasing levels. As you assess the immediate opportunity, look to the enterprise to identify others who need your products and services. Can you create a need? (Those are the best, by the way!) Are there unmet needs or gaps that you can address with the right solution? This will aid in building differentiation, particularly if you can offer something unique.

As you assess your business, its fit and the viability of your product or service, your goal is to command a unique advantage. You will need to identify the necessary resources to secure and deliver the new business. As such, you should assess the readiness factor of your company, just as you would assess your prospective client.

It’s easy when selling to want to be the single source provider and meet all the needs of your clients. Sales people are hungry—and that’s a good thing! With many companies, some requirements may fall outside of your core competencies. If you are unable to meet all of their needs, don’t abandon the opportunity. Determine how to adjust your strategy to get what you want. However, your altered position needs to bring a compelling message to your customer because you are forcing a change in their buying pattern.

If your organization and internal resources are flexible, find non-traditional ways to inject them into the selling process and the solution. Your internal resources can create a distinct advantage, beyond the standard value of your products and services. For example, we once offered the time and services of our company’s engineers to assist our client. Their time and effort was in combination with our business solution, and it created a distinct advantage for us. In reality, this was a solution (albeit a meaningful solution) that our competitors could duplicate, but they no longer had the means and opportunity to interject. We created a barrier and an advantage. Our value greatly increased, commensurate with our increased levels of collaboration. All things being equal, find ways to create an imbalance with your competition and take the lead!

An effective strategy and solution comes from an innate knowledge of your customer’s business. Know your customer better than they do and this will lead to previously unrealized opportunities. You should fully understand your customer’s business from start to finish (I.e. from order to end customer)–and know the quantifiable implications of gaps in those processes. I am pretty process oriented, so I would tell you to map the processes, and determine how you can fill in the gaps with your business solution and resources.

I thrive in a complex, major account environment. I love to work with the clients and to assist my employees in complex sales. It is far more fulfilling and exciting than a transactional sale. I believe in the value of a sales person who by nature, is a strategic thinker. A strategic sales rep will find ways to help their customers achieve their goals, not just sell them a widget. They are creative, they leverage internal resources, they look outside the box for solutions and they consistently develop solutions that benefit the client and their business (aka a “win-win”). Find them, keep them, invest in them, train them and help them to become successful; if you do this, they will help you become successful.

p.s. This is a complex topic and hard to do cover everything in a blog, there are some great training companies who specialize in customer-centered and strategic selling to provide greater depth.

The Market Street Books at Arts & Letters Community Center is closing at the end of the month. We heard it first as rumor, then by e-newsletter, the local newspapers, and finally by the absolutely pitiful and undignified butcher paper sign hastily taped in the window with “GOING OUT OF BUSINESS” scratched out in Sharpie giving no credence to either Arts nor Letters.

As I rode by our own little local neighborhood bookshop this morning, it was like the Canary in a Coal Mine: vivid, high-contrast, caution-yellow against the Carolina blue sky. When your indie bookstore dies, is it a sign of times to come? Or has that time already arrived and only now, in your own backyard, do you feel the loss felt across the State, across the Nation and beyond?

Or is the bookseller’s commoditization of information its own predestined demise? It is for certain that an evolution occurred with the massive chain bookstores selling ambiance to sell books…or sell anything. When they were franchised together with coffee shops, fit out with cushy chairs apart and in clusters, wood trim, hunter green, live music.  It seems almost heinous to suggest that kind of evolve-or-die encouragement now.

But Market Street Books evolved too: as travel books and maps approached obsolescence by the internet, “Maps” was dropped and “Community” was added:

“We are a non-profit, full-service independent bookshop and arts-based community center, located in the Southern Village neighborhood of Chapel Hill. Our mission is to provide a destination for people who love books, theater, music, and art to come and hang out. Our motto is Contagious Creativity. Come in and experience the infectious ethusiasm and imaginative energy.

Market Street Books carries a wide selection of fiction, nonfiction, and children’s books. Arts & Letters Community Center is bustling with activities like children’s theater, tai chi, drawing, altered books, and clay classes. Please check our schedule of events for fun things to do. (Click here for Peepfest 2009.)…children and pets welcome!”

Contagious Creativity? Children? Pets? Peeps?

On a business trip, when we first learned that we would be moving back to Chapel Hill, the first place I stopped into was this bookshop. I went in to ask about the neighborhood and soak up anything North Carolina. Later, my daughter did chlidren’s theater camps and clay classes. “Sweet” the candy shop was where lemonade stand proceeds were spent. And you could always find a great gift here. But ambiance came from the people and the community they intertwined, convening in that third place making the neighborhood a better place to live. This shop represented a whole lot more than this to some people, but for sure, there’s at least a little loss felt by most everyone with a place in their heart for the indie bookshop, and Peeps.

If only someday we can harness “imaginative energy ” to keep the lights on.

As Forrester analyst, R Wang, outlined in his blog, the Oracle acquisition of Sun adds to both open source leadership and a chunk of the high end computing business. Many argue this continues Oracle’s march to  consolidate the tech market with Sun adding scale and customers to Oracle’s girth.  A more comprehensive list of the components actually acquired was provided by Joseph Kovar.

The interesting question is what does this imply about the buying behavior of IT customers on what can be called “the stack.”  By stack, I mean the set of technology, from servers, databases, middleware, and applications platforms that sits below the dizzying array of applications that comprise most business environments.  The set of technology that ORCL now owns represents a fully vertical stack.

Control of the stack … finally delivering on PeopleSoft’s “Big TOE”?

Much ado was made at one of Oracle’s earlier acquisitions, PeopleSoft.  PeopleSoft had emphasized the concept of Total Ownership Experience (aka, sometimes referred to as the Big TOE) – decreased click counts, simplified install and maintenance, to better customer engagement.

It wasn’t until, as part of Oracle, I clearly saw the possibilities enabled by cutting across the barriers between applications and technology.  We were able to architect things like near zero downtime upgrades, truly protected and layered customizations, etc – all fundamentally enabled by proprietary linkages across database, middleware, and applications development and infrastructure.

More importantly, Oracle’s promise of “Open, but better together” found receptive customers who saw the benefits of not only buying the Oracle “red” stack, but the Oracle applications frameworks.  This simplified what has become a blizzard of technology acronyms and architectural and implementation choices – any of which, if made poorly, would land a CIO on an isolated technology island, regardless of the standards he chose.

The potential acquisition of Sun  extends Oracle’s stack through the OS, all the way to the hardware.  Like his friend, Steve Jobs, Ellison will have the ability to deliver a compelling IT experience by strategically linking layers of the stack.  I don’t think this fact is lost on Oracle given they have traditionally sold deeply into the high end data centers, as well as in the enterprise markets with the partner, Sun.

History says standards and segmented markets rule … so can Larry create real vertical  market synergy here?

On one hand, the acquisition furthers Oracle’s “account control” that it has been using effectively to become more strategic with its customers – e.g., Oracle moves from being Financials, to suddenly being its CRM, HCM, and middleware and database provider.  In addition, Oracle will continue to deliver obstensibly “open” systems that can take advantage of specific advantages of an all Oracle “red” stack.

On the other hand, history has repeatedly illustrated that monolithic markets naturally fragment, creating multiple markets – each with its own set of competitors, each enabled through the rise of standards.   IBM’s mainframe is a clear example where a customer not only purchased the mainframe from IBM, but also the IBM keyboard, monitor, etc.. … , all the way through to the proprietary cables connecting the proprietary components together.  Obviously, today, those components are separate markets – each with its own cycle of innovation, competitors, as well as substantially lowered total costs to the end customer.  Enterprise software provides multiple examples. We can all remember when SAP, PeopleSoft, etc. all had to deliver their own application servers.  It wasn’t until early 2000 that it became  evident that application servers, process management tools, integration servers, etc. had all become  markets onto themselves where the vendors either competed (e.g., SAP’s Netweaver) or partnered (e.g,. PSFT-IBM $1BLN deal).

So, the question is where are the boundaries of the “natural” markets within which Oracle plays.

Interested to see “open, but better together” play out

The acquisition of Sun raises the question of whether Oracle can create a dominant vertical play.  Similar to Microsoft can Oracle be so dominant in its markets that the word “proprietary” no longer applies to the “de facto” standard (e.g., is Microsoft proprietary when it is the standard for its half of the market)?  What does that imply for innovative players, smaller companies, let alone start-ups, who play in the infrastructure side (e.g., Coghead unceremoniously consumed by SAP)?  What about those highly vertical, highly configured/ customized “last mile” solution providers – whether vendor or systems integrator such as those found on Salesforce.com’s AppExchange?

The rise of “last mile” applications enabled by platforms only reflects the increased willingness on IT customers’ part to assume the stack as “black box” … a “black box” whose proprietary linkages expand the boundaries of the components that go within the box (see the rise of specialty appliances).  Should we look for this to become more commonplace as IT professionals worry less and less about what is going on in the depths of the stack?

Last week, after posting my last blog entry about Sir Ken Robinson’s riveting 2006 TED speech, I added a link to it from my LinkedIn profile status update, asking the question “Do schools kill creativity? Yes, says Sir Ken Robinson in his 2006 TED Talk!”

I didn’t think much of my decision to do so as I’ve been using my LinkedIn profile and my Facebook account to cross-promote my blog entries for quite some time. Additionally my most recent blog posts also display on my LinkedIn profile (as will this one). I typically receive a few comments on Facebook, but very few, if any, on LinkedIn.

This would be the case no longer.

After one positive comment from a colleague within my LinkedIn network, I soon found myself engaged in an unexpected, yet interesting electronic exchange about creativity versus innovation with another colleague.

His essential argument was creativity which does not result in a tangible good or service for which people will pay money is wasteful and void of value.

Further, he added society does not pay for the creative process, but the result of that process.

My counterargument was creativity is the foundation of innovation, that ideation without implementation is another word for brainstorming: an essential, though admittedly inefficient process.

What’s more, I argued the possibility of commoditization should not be the only indicator of value: a society worth living in should value ideas and reward creative thought. Notably, I found myself heretically disagreeing with management guru Peter F. Drucker’s canonical thoughts on the matter.

I’ve included a transcript of the exchange below, but I removed the name of the person with whom I had the conversation out of respect for his privacy (however, if you are in my LinkedIn network I presume it is something to which you have access):

Colleague: Sir Ken is great, but people aren’t paid to be Creative. Innovative, perhaps. The latter is operational; it includes implementation skills.

Me: Certainly the best ideas should be actionable. But can you have innovation w/o creativity?

Me: In a recent interview Guy Kawasaki talked about “ideas vs. action” as related to luck. I blogged about it: http://cli.gs/luck

Colleague: That’s my point. The obverse, that you can have creativity w/o innovation/implementation, is the concern.

Me: A valid concern, but re: ROI/measurement could it be argued that creativity indirectly leads to innovation by stimulating thinking?

Me: I suppose you don’t want to encourage aimlessness or hinder potential (w/ a BA in English and an MBA I see both sides).

Colleague: Everybody loves creative kids, but generally creative adults are misfits. Read Peter F. Drucker on “The Fallacy of Creativity.”

Me: But it is usually the misfits who make the biggest mark and through their rejection of assimilation render real innovation.

Me: Drucker says “creativity is no substitute for analysis and knowledge,” but I counter that creativity combines analysis and knowledge.

Colleague: Society doesn’t pay for (creative) process, it pays for contribution, for results. Process w/o results=waste.

Colleague: Matthew, I’m outta here! Have to create some clients!

Me: A society worth living in values ideas and rewards creative thought. Not everything can be commoditized.

Me: Process w/o results=brainstorming (which eventually leads to an idea that can be implemented).

Me: Thanks for the engaging discourse!

I appreciated this unique opportunity to engage in a spirited debate on LinkedIn. Ironically, one day earlier, I had espoused on Twitter that I often find myself unsure how to leverage LinkedIn because it seems to be the most formal and least interactive of all social media platforms I use.

How perfectly timed was this exchange to disprove my earlier assumption?! Coincidentally, I’ve been making efforts to participate more in the groups to which I belong and to add comments to the status updates of my colleagues.

In reviewing the exchange above, I realize there are some similarities between my colleagues thoughts and those communicated by Guy Kawasaki in my earlier blog post to which I referred my colleague. Specifically consider this passage:

“At the beginning of my career I used to think that the idea is the key, and once you get a good idea, implementation is easy. Now, I’m at the end of my career and I believe the exactly the opposite: I think good ideas are easy and implementation is hard.”

From that perspective I see my colleagues point: you can have all the ideas in the world, but until you do something with them or about them do those ideas really matter? In other words, you can think about doing something all day long, but until you actually do it, have you achieved your goal?

Yet, I also question how you can contribute without having invested time into the creative process? And, any reasonably person accepts that the creative process is, by nature and almost by requirement, inefficient and irregular.

Perhaps this is a chicken and egg scenario? Or, strangely, does it somehow connect to the age old existentialist question of “if a tree falls in a forest and nobody is there to hear it, does it make a sound?”

What do you think: is creativity without contribution a waste?

Back on my now inaccessible blog, I talked about the need for product managers to practice economic indifference. I used the mathematics of manifolds to show how decisions make at one level of a system can be independent to those made a another level. I say “can” here because the decisions made at subordinate levels need to be consistent with the constraints placed on them by those above them. But, there is a flip side. That being enablers provided by those above them. Economic indifference is one such enabler.

When I tell you to build me a car, you can build any car. I can’t come back and say, I want a truck. Nor, can I come back and say I want a red car. My specification error is my problem, not yours. I left you the freedom, and you took it. My bad. Actually, it’s my bad for now wanting something more specific than what I had specified. The granuality of my spec dictates what I will have to accept, or put in different terms the amount of economic indifference I have to accept. Or, from the perspective of the developer, the degrees of freedom I left them. And, Agilists want as many degrees of freedom that they can get.

That said, today I’ll use the mathematics of vectors, to talk about many things around product management.

The Basic Vector

A vector! What does a vector have to do with business? Well, strategy, vision, forecast, capabilities, processes, projects, competition, and ultimately economic indifference.

From Here to There

When we need to figure out where a shop is in the mall, or which bus to take, we look for a map, and hopefully, it has a You Are Here indicator. Then, we look for our objective. The map provides us with a convoluted path to take to get there. We could draw a vector on the map, an as the bird flies view, but it doesn’t help much on the ground. That vector would be representative of our economic indifference. The shops along the way might catch our attention, we might get sucked in, we might buy something, we might have to take that something to the car, or grab a bite to eat before we finally arrive at the pointy end of the vector, our destination. Why did I come here, we wonder. Ah, Saturday, and I’m not at work? What’s wrong with me, playing hooky. The team….

Getting There--How One Vector Summarizes a Bunch of Vectors

Our path around the mall is shown in red. We decompose our objective vector into a collection of vectors. That collection of vectors get us there. That collection of vectors is closer to actuals, or the reality, and a little less economically indifferent than our objective vector.

Decomposed Yet Again, More Vectors

 Leaving our mall example behind, we have a business objective (black), and we have these capabilities, resources, and staff (red) to get us to the our goal. The goal incorporates the matter of time into the vector. We arrive at a time and place. But, one of the capabilities is just a plan. It’s realization shows up as another collection of vectors (blue.) The red vectors represent ongoing operational capabilities. The blue vectors represent a project that will put the process into operation. We don’t have that capability right now, so its a risk.

How did we determine our goal and draw the objective vector? We did our forecast.

Forecast Factors as a Collection of Vectors

You build a forecast with metrics that show where you’ve been over time, and where you expect to be over time. It might be a set of rates. Each forecast factor heads off in its own direction.

Vectors Collected, a Morpheme

We can bring move the vectors around, so that they all start at the same point. Oddly enough, it starts to look like a morpheme, the meaning consitutents of words. Just an aside.

From Forecast Vectors to Strategy VectorHere I've added all the forecast vectors together to arrive at my strategy vector. I did not weight the forecast vectors. Strategy as an Organized Collection of Capabilities

Strategy (Yesterday) and Vision (Tomorrow)

Transition to Vision

Routes to a Feature

The Stick and the Goal

Via the SwampFox Insights blog:

The man has a point.

Check out this brilliant website.

A lot of people don’t think of “design” as being all that important, because our daily interactions with “design” are limited to gadgets like the iPod or the latest pair of Oakley sunglasses, or maybe a faucet or something. Maybe we think of design when it comes to cars and clothes and furniture. But smart design can also save thousands of lives every day. Yes, something as seemingly superfluous as “design” can change the world. (Starting with the first tool, taking a detour via the wheel, and fast-forwarding to the millions of things we now take for granted, like the plasma TV, the hybrid automobile, the artificial heart, and even the ubiquitous bottle of Coca Cola.

If you aren’t the humanitarian type and couldn’t care less about saving lives, bear in mind that design can also create entirely new markets. (We just talked about getting there before the herd, so your ears should be perking up just about now.)

How can smart design can create new markets? According to this article in the New York Times entitled “Design That Solves Problems for the World’s Poor” (annoying subscription required):

So… what are you working on right now?

This is a very nice presentation which relates commoditization products and services: http://events.carsonified.com/fowa/2008/london/videos/simon-wardley/

A few months ago a friend and I were discussing some investment opportunities.  He mentioned that he was considering investing in a company that produces blades for wind turbines.  I had read several research articles related to the economics of wind power and upon first thought it seemed to be a valid investment interest that could warrant further investigation.  At the time I didn’t give it a whole lot more thought than our brief conversation and I’m not even sure if he ever ended up investing in the company, or even which company it was. 

The Economist this last week was littered with articles and ads related to wind power and it got me to thinking on this subject a little more.  I was also reading some of Clayton Christensen’s thoughts on modular and interdependent architectures and how they relate to commoditization and can help managers predict profitability within an industry.  Specifically, I was looking at how to be profitable as a component of an overall modular architecture.  My research was for a completely different issue in a completely different industry, but my mind was sort of set in the mode and it made me wonder how versatile this framework actually was.  Could it be used to gain a better understanding of the wind turbine industry?  Could it reliably predict whether the blade (component) of the overall wind turbine system would be a performance-defining subsystem and command the highest profit margins, ultimately driving a successful company?  If it isn’t the blade, then what are the most profitable components in wind turbines?  I knew that if I wanted to successfully answer these questions, I needed to start by investigating the overall architecture of the industry, finding out where it was in the cycle of integration to modularization.

I briefly touched on modular and interdependent architectures in an earlier post, iPhone and Android: Modular to Interdependent and Back to Modular Again, but taking a quick second to review the concept in a little more depth before diving right in might be needed.

Interdependence and modularity

Interdependent architectures are systems in which one component or subsystem cannot be created independently of the other component.  That is, the design and manufacturing of one component depends on the design and manufacturing of another component.  The interface between two components has unpredictable interdependencies, usually requiring the same company to design and develop both components.  These architectures optimize performance, in both functionality and reliability.  The architecture also tends to be proprietary because of these unique interface designs –think Apple iPhone. Within modular architectures exist clean, specific, predictable interfaces that allow components to fit and work together in a well-understood, specified system.  This allows many component manufactures to compete in the market, as long as their products meet the specifications –think Windows OS.  

When a product or service is not yet good-enough, optimization, reliability and improved functionality are needed.  The goal is to make the best possible product out of the technology that is available.  Interdependent architectures allow firms to achieve this goal through integration of the design and manufacturing of every critical component needed to complete the overall system.  In the early stages of a new technology or service, integrated firms tend to make higher profit margins because their differentiation is straight forward and the high ratio of fixed to variable costs that is intrinsic in the design and manufacturing of interdependent products creates steep economies of scale.

However, there is a progression from interdependent to modular architectures as products improve enough to overshoot customer requirements (see Disruptive Technology subsection in previous post).  This leads to a performance surplus and speed, convenience and customization become important.  Modular architectures help firms compete on these dimensions because they can introduce new products faster by upgrading crucial individual subsystems without redesigning the entire system.  These firms begin to form standard interfaces.  Although standard interfaces may lead to some issues in the overall system performance, these issues will not be noticeable as there is already a performance surplus.  Standard interfaces enable independent, non-integrated firms to buy, sell and assemble components and subsystems. 

Finally, with modularity comes commoditization.  A modular architecture makes it very difficult to see or understand the differentiation in the performance or cost of a product versus those of the competitors, who use many of the same components in their own products due to standardization. Therefore, the attractive profits in the future will most likely be earned elsewhere in the value chain of the overall system or architecture.  Usually this happens in places in the formerly modular and undifferentiable processes, components, or subsystems.  The only way systems providers or assemblers (former interdependent architectures) can make profits in modular architectures is to find the very best performance-defining components in order to make the best possible product.   Their demand for improvements in performance-defining components throws the suppliers of those components back into the not-good-enough arena.  As a result, competitive forces compel suppliers of these performance-defining components to create interdependent, proprietary architectures within the subsystems. Hence, the performance-defining subsystems become de-commoditized as end-use products become modular and commoditized.

The wind turbine industry

Wow, that was a mouth full!  So, from here how do we now apply this framework to the wind turbine industry?  I figured the most important first step was to figure out where the industry is in the integration to modularization cycle.  Is it currently an interdependent architecture or a modular one?  So, I started by wrapping my head around the mechanics of a wind turbine and what components make up the overall unit.

I found that the turbine can be broken down into three major components which can then be broken down even further.  The rotor component includes the blades, hubs, pitch mechanisms and bearings, spinner and nose cone.  This accounts for roughly 20% of the overall turbine cost.  The generator components consists of a low-speed drive shaft, bearings, a gearbox, break, generator, variable speed electronics, hydraulic and cooling systems, a yaw drive and mainframe.  This major component accounts for roughly 34% of the overall system.  The structural support component is made up of the tower and the rotor pointing mechanism and is roughly 15% of the overall cost.  Each one of these components within the three major components has a material and labor cost that can be broken down into a percentage of the overall component.  For instance, in an advance blade component, the fiberglass fabric accounts for 60% of the cost, whereas the threaded metal fasteners accounts for 3% of the blade costs.  I’m not going to take the time to list all of these figures out here , they can be found in the sited document, but it is important to remember this concept.

O.K.  So there’s a lot of components here.  If we were to assume for the time being that the industry was currently working in an interdependent architecture –it is as will be discussed shortly– we would want to be able to reliably predict which of these components were best positioned to become the performance-defining components in the overall system as the industry moves to a more modular architecture.  Now whether it does or not and when, is still to be seen.  But, if this cycle was actually predictable in any industry, we would expect these turbines to eventually become good enough, be it in efficiency (the theoretical maximum efficiency of a turbine, worked out by Albert Betz, is 59.3% and modern turbines are about 50% efficient) or the price per kWh that would make it cheaper that alternative energy sources.  This would eventually produce a performance surplus, causing the customer to begin demanding improvements along the dimensions of speed, convenience and customization.  So, we would expect many of these turbine systems to start looking very similar in areas of efficiency and cost as their design begins to incorporate best practices, based on years of R&D and operation, and standardization begins to set in.  Customers will begin to exhibit higher bargaining power over turbine assemblers/manufactures because their products will be less differentiable.  Assemblers/manufacturers will turn to their components or subsystem suppliers and require innovative improvements that cut manufacturing or delivery times or allow for more customization and convenience for the customer.  We can see the cycle begin to take shape!

Alright, so this now causes competition among turbine component suppliers and forces their engineers to devise designs that are increasingly proprietary and interdependent in order to differentiate themselves from their competitors.  Their product must deliver the best performance in order to help differentiate the final, seemingly commoditized turbine from competitors’ turbines.  The leading providers of these components will find themselves profitably selling differentiated, proprietary products, increasing their supplier bargaining power.  So, back to the original question, which components are the ones best positioned to be a performance-defining subsystem?

To answer this question, the first thing I did was look to areas where improvements needed to be made.  This usually helps define the complexity of the system and identify those components that determine its performance.  From what I have found, we can expect there to be multiple solutions for these components, as they are not yet good-enough and many firms are developing different technologies to do the same thing, hoping that theirs will be the one that sets the standard.  I then investigated the overall design.  Because it is an interdependent architecture, the overall design plays a large role in the final product.  I wanted to see what components were being used and how many different substitutions there were for the various components.  These component suppliers would also be competing to set the standard.  Many of these may even overlap.  In wind turbine design, bigger is better.  For every increase in 10m of height, the wind speed can increase by 20% and the power output by 34%.  So, getting to those higher wind speeds is the goal.  However, there are barriers to how big these things can get.  There are issues with performance and durability in high wind speeds, geographical location, radar disruption and, oh yeah, transportation, construction and maintenance –ah, components that I had not yet considered.  These too are part of the interdependent architecture of the turbine industry.

Design

So, let’s start with design.  This includes tower height and diameter, blade count, rotation control, furling, and yawing –at least for this discussion as there are many other components that make up the overall design and I’m not trying to write a book here.   The tower, aside from aesthetics and space requirements, seems to be limited by strength of material, transportation and construction.  Doubling the tower height generally requires doubling the diameter and increasing the material by a factor of eight.  That seems pretty straight forward.  So, how about blades?

Modern turbines almost universally use either two or three blades. The aerodynamic efficiency of the system increases with the blade count but with diminishing return. Increasing the blade count from one to two yields a 6% increase in aerodynamic efficiency, whereas increasing the blade count from two to three yields only an additional 3% in efficiency.  Any additional increase in blade count yields minimal improvements in aerodynamic efficiency and sacrifices too much in blade stiffness as the blades become thinner.  However, cyclic stresses fatigue the blades, axel and bearings.  The backwards force and torque on a blade peaks when it is at the top of its rotation and is lowest when the blade is at the bottom of its rotation –when it is aligned with the tower.  These effects twist the bearings.  Therefore an odd number of blades is preferred so that there are no instances of one blade enduring the peak effects of force and torque while another is simultaneously aligned with the tower.  These two variables seem to dictate the three blade design, which is believed to be the dominate design in the industry for some time.  Looks like a standard is forming here!  Blades are also getting larger and larger mostly due to new types of materials and new manufacturing methods.  They are upwards of 80 meters in diameter. Fiberglass seems to be the dominate material currently and makes up 60% of the cost of the blade.  As blades get bigger and bigger, carbon may be necessary to provide the required stiffness.  Mass reduction as a function of blade length appears to be the goal. 

LM Glasfiber is a leader in turbine blade manufacturing.  Its new line of blades takes advantage of lower-weight root design.  Carbon is included in one blade, but not the other two, lower weight blades.  Another blade manufacturer, TPI Composites, is also looking to develop low weight blade designs.  It performed a low weight design study that used several technology improvements to reduce blade weight.  The study produced two blade designs, one was all fiberglass, the other included carbon fiber.  It also developed two root designs, one with 120 studs the other with 60 T bolts.  All four permutations of the blade and root design resulted in blades of similar mass and cost.  Interesting.  It sounds like they have similar products and are both innovating in the same areas of design.  Another point of interest here is what is advertised on the two competitors’ websites.  TPI is focused on its approach to blade supply, having focused factories that produce custom solutions that optimize cost and performance for its customers’ target markets.  It selects manufacturing sites that are local and optimize transportation and labor costs.  It has its own patented technology and combines it with its “error proof” manufacturing and in-house tooling systems.  LM Glasfiber strongly advertises it expertise in design and process/development innovation.  It has over fifty years of experience with glass fiber and holds over 29 patents on key discoveries and innovation.  Very interesting!

As for rotor control, today’s turbines are designed to spin at varying speeds.  These newer turbines can accelerate quickly in gusts of wind, improving the generation of electricity.  Typically wind turbines generate electricity through asynchronous machines that are directly connected with the electricity grid. Often the rotational speed of the wind turbine is slower than the equivalent rotation speed of the grid –typical rotation speeds for wind generators are 5-20 rpm while a directly connected machine will have an electrical speed between 750-3600 rpm. Therefore, a gearbox is inserted between the rotor hub and the generator. This also reduces the generator cost and weight.  Electrical generators inherently produce AC power.  In contrast to older style wind turbines, modern turbines are not governed by AC power line frequency.  This is because they incorporate technologies such as doubly fed induction generators or full-effect converters where the variable frequency current produced is converted to DC and then back to AC, matching the line frequency and voltage.  This requires expensive equipment and may lead to power loss, but at the same time turbines can capture a significantly larger portion of wind energy.  As it does not seem likely that turbines will go back to constant speed rotation or that power line frequency will be adapted for wind turbines, some sort of double fed induction generator, or generator/converter combination will be needed.  This appears to be the beginning of another standard interface.  There seem to be multiple solutions here with no clear winner yet, which means that this is one of those interfaces that is not quite good-enough yet.

Furling has an interesting affect on turbine design because it is needed to reduce induced drag from the lift of the rotor in strong wind gusts that cause sudden acceleration and to decrease audible noise levels.  It is done by changing the angle of the blades using some form of pitch angle control mechanism.  Older turbines used to use stalling methods, but it now seems that furling has become the standard for modern ones.  Currently, there are different types of pitch control systems being used in turbines.  Many turbines use hydraulic pitch control systems. These systems are usually spring loaded so that blades automatically furl in instances of hydraulic failure. Other turbines use an electric servomotor for every rotor blade.  This appears to be the more intelligent system of the two.  A servo is an automatic device which uses error-sensing feedback to correct the performance of a mechanism. These systems provide feedback or error-correction signals that help control mechanical positions –blade pitch– or other parameters.  Within this subsystem it is clear a standard has been set, in the sense that furling is the winning design.  What is not clear is which pitch control system will set the standard as turbines move to a more modular architecture.   At first glance, it would seem that a servomotor would allow for more room to innovate.  However, that additional performance may not be necessary.  Hydraulic systems may prove to be good-enough.

Finally, the yaw drive is used to control the turbine so that it is always facing the direction of the wind.  This usually includes some form of wind measurement and position correction system.  Once again, a standard appears to have formed, mandating efficient yaw angles in order to maximize power output and minimize non-symmetrical loads.  What is not clear is what the standard yaw control system will be.

Procurement, construction and maintenance

I’m not going to spend a lot of time on this, but there are some points of interest.  It is estimated that transportation costs can equal up to 20% of equipment costs.  That’s a lot of money!  This is because of the massive size of the blades, tower, gearbox and more.  Not only are they hard to transport, but they are very difficult to install.  Their components are large and heavy and require large expensive equipment and skilled operators to erect them.  What’s interesting about this component, is that it is part of the current interdependent architecture of the wind turbine system.  What I mean by this is that firms such as GE, Nordex and Vestas not only design and assemble wind turbines and some of their components, but also offer everything from project planning, to shipping and installation, to ongoing turbine maintenance and services.  This points to a very integrated architecture.  The evolution of this component will be very interesting as the industry moves to a more modular architecture.  If this were to be compared to something like the commercial construction industry, one would expect to see a few large general contractors that specialize in turbine construction.  They would be in charge of procuring materials, construction, budget maintenance, schedule and close-out –which may include operation and maintenance training.  They would have to follow some sort of specification put in place by an architect of sorts, whom would be working with the owner.  Who knows, as the turbine system becomes more modular, the contractor may be able to choose from a couple different blade suppliers that have been specified based on budget and subcontractor bids.   The thing to point out here, is that if this type of scenario ever did play out, the modular, more commoditized components would become easier to identify as they would become the components that the contractor would have multiple options from which to choose and then integrate into the overall project –it would be like choosing a brand of paint as long as it’s blue.

Geographic location

Both turbine vendors and power companies that buy the turbines employ teams of meteorologists to find the best places to put turbines. It is important to know when the wind blows and how powerfully. A difference of as little as one or two kilometers an hour in average wind speed can have an adverse effect on electrical output. They also have meteorologists sitting in the control centers, making detailed forecasts a day or two ahead to help a company manage its power load. If the wind stops blowing, the turbines stop turning. This is a great challenge for the spread and adoption of wind power.  Another issue is that people do not necessarily live where the wind blows. It is often the opposite. Resolution to this problem is a task for the electrical engineers who link turbines to places where power is needed. This means electricity grids must become bigger and smarter.  There are multiple components here that are not yet good-enough.  This could lead to an entire article in and of itself.  But for now, something to keep an eye on might be wind energy software that helps with infrastructure planning.

Radar

Ah, last but not least, radar.  Turbines create signal clutter.  They can interfere with radar used for air-traffic control.  There are even arguments that they can provide cover for enemy aircraft, causing security issues.  Again, pointing to an area of design that is not yet good-enough.  However, companies are finding ways to innovate around this problem.  For instance a company called Cambridge Consultants has invented what it calls holographic-infill radar.  In short, the moving blades on a turbine create a Doppler effect that returns signals that look like moving aircraft, making it hard to distinguish between the two.  Holographic-infill radar will create a so called “patch” over the entire wind farm, creating a moving radar picture of the farm.  Any unknown aircraft or object would be easy to spot.  The reason I added this section is because it may be problems and solutions like this that either hinder or advance wind power adoption and a truly innovative solution to a pressing problem could prove to be quite profitable.  After all, it may become standard practice to install holographic-infill radar on every farm. 

And…your final answer?

What’s really interesting to me is that as I really started to peel back all the layers of the turbine industry, I found that there are integration to modularization cycles taking place in many different tiers of the system, and in all different stages of the cycle.  It is not just the overall system that is currently interdependent, but many of its components as well.   There are also hints of components that are becoming more modular and inching ever closer to commoditization.  This has a lot to do with the fact that it is still an emerging technology, still evolving.  It is not clear that the architecture will soon become commoditized and move to a more modular structure, or that all of its components will become interdependent and de-commoditized.  Just the thought of saying turbines are becoming commoditized seems a bit silly.  Still, I find it fascinating how well this framework works.  It’s great for identifying the complexity of the overall system and gaining insight as to how all of the pieces fit together.  With some of the information we have, we can start to predict how the industry might look in the next 10 or so years.  We might be able to reasonably expect certain components and firms to be more profitable than others.  We can begin to see which of the components or subsystems are in good position to become performance-defining.  These will be the ones that set the standards that all other components will have to design and manufacture to.  Some standards will be dictated by natural forces, while others by innovation.  The key is to look for those components that will be dictated by standard interfaces -like a rotor hub that is designed to support exactly three blades.

If the cycle plays out and these large integrated firms do become more modular, it will be interesting to see where they niche, what components they decide to outsource or develop internally, what role they play in the assembly of turbines, the construction of them, or the services they provide for them.  Take for instance Vestas’s patented OptiSpeed technology.  Will this become the standard for double fed induction generators?  Or will its patented OpiTip technology set the standard for blade pitch control systems?  This probably depends on what Vesta’s core resources and capabilities are, and with those resources and capabilities, which component proves to be most profitable.  However it plays out, these are the type of complex components that I feel are best positioned to become performance-defining components and there is currently a lot of competition in these subsystems to become the standard.  Take a closer look at the two turbine diagrams in this post.  One is a GE assembled turbine, the other  a Vestas.  It is interesting to see where all of these components fit into the design and how similar, yet different they are.  You can almost start to picture where the standard interfaces are starting to take shape.

But since this whole thing started with turbine blades, that seems as good a place as any to finish, so here it is.  In my opinion, turbine blades are one of the components in the modern overall system, discussed in this posting, that are inching closer and closer commoditization.  This is not a bad thing.  The evolution of standards needs to happen for the overall industry to move to a more modular architecture.  And this is one of those subsytems in which standard interfaces appear to be forming.  When that happens, new opportunities for innovation will take shape.  But, for now it seems that blades are destined for commoditization.  I don’t think they can make up a performance-defining subsystem.  That does not mean that blade suppliers cannot be profitable.  As blade performance becomes good-enough in relation to the capability of the overall turbine, turbine assemblers like GE will begin to demand improvement along the dimensions of speed, convenience and customization.  So, if the design of the blade is good-enough, where might a blade supplier improve along these dimensions?  Transportation and logistics?  Customization for specific markets?  Which of the two blade suppliers that I mentioned earlier do you think is best positioned for modularization?  I’ll give you a hint, it just signed a long term agreement with GE to supply blades for its 1.5 megawatt wind turbine.

If you listen carefully to what Jared Diamond is saying in the TED video above, he is describing not a five part, but a six part power curve into a systemic singularity. This has been one of the core themes of discussion of this blog.  We all seem to be too close to our problems to see the commonality.  The interrogatives come into play here:

1. Goals
2. People
3. Functions
4. Forms
5. Times
6. Distances

Times and Distances being the basis on which the higher orders are built.

When we look at the recent economic “crisis” we see 300 trillion in currency circulating and roughly 1 trillion to 2 trillion shifting suddenly and unexpectedly.  We witnessed a systemic collapse, a singularity, a tipping point, a power curve, an exponential change, a phase transition or whatever label you want to call it.  These have been happening everywhere since Time and Distance began in different contexts and orders both in human and non-human systems.

What Jared Diamond and other alarmists are implying is that human society is now a system approaching its final singularity in this century on this planet.  We are implying that today we are experiencing a less than one percent crisis on a power curve into a singularity.  How many more iterations will the global system withstand?  Will humanity make the step into space successfully before we experience a global dark age?  How will the six or more factors in the power curve play out?

The truth to me appears to be that power curves whether they play out or not result in either a systemic climax or anti-climax followed by a systemic collapse.  Would it not be better if we experienced a systemic climax that led to us expanding into the solar system?

Systemic collapse seems to be the fashion of this generation.  Every generation looks with fascination at its own youth, maturition, reproduction and acceleration into mortality.  Some die early, some die late, but all die.  It is an irrevocable law of nature.  It is not about self-interest.  It is about what self-interest is defined as.

Related Posts:

Beyond the Singularity

Servitas and Libertas

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Interesting post by JP Voilleque over at Marketing 2.0 this week about the use of mythology and archetypes when creating narratives for brands, but also (and more importantly) the generational roadblocks standing in the way of smart marketing being adopted by conservative companies.

Both of these topics are dear to my heart: The first because tapping into hard-coded symbolism and archetypes we project onto our various mythologies to make sense of the world can be the difference between an organization becoming little more than a company with a logo and that same company becoming a global lifestyle brand. The game here being one of identity and purpose, if a brand can tap into the collective need for a particular archetype, it can become a vessel for a culture’s very specific aspirations.

Nike is a perfect example of this type of exercise, from its choice of name to the way its brand is communicated via its many marketing channels. (Tell me Nike ads aren’t designed specifically to inspire the champion in you.)

The second is also crucial, especially in this economy, because it strikes the heart of Marketing’s Achilles’ heel: The seeming absence of R.O.I. (Return On Investment) at least in the minds of so many first wave baby-boomer executives. I have run into this my entire career, and I have to confess that has been one of the most frustrating of hurdles: Most business leaders simply have no faith in Marketing. They don’t see it as an effective business function, they see it as an expense rather than an investment, and more often than not, marketing takes on the form of a formulaic, uninspired afterthought that barely ever ventures beyond the stale world of “marketing deliverables” like brochures, websites, mailers and print ads. Worse yet, these deliverables are often utterly ineffective in both design and purpose, adding insult to injury in the world of pragmatic, no-nonsense business execs. This is not good, and it needs to start changing immediately.

Here’s what JP has to say:

I have a special place in my heart for resistance to change. It is endearing, like sepia-tone photos of families in Wild West garb. But when it comes to grappling with network externalities, it loses that cuteness and becomes a real impediment to rapid adoption of effective messaging. The people who are ordering the message don’t think it “belongs” in the Web 2.0 universe except in very narrowly sliced, buzzword-laden places that are no less guaranteed to provide a return than the entire space.

[...]

We’re talking for the most part about first wave baby boomers, but in some cases we’re discussing some “silent generation” folks. So depending on circumstances, these are people who are focused on toeing the line, “team play” as art form, and (for the most part) a hierarchical model of career development, decision making, and information processes. The 1984 Apple ad was aimed at/authored by the second wave of the baby boom, the ones that came of age during the sixties, and aggressively anti-hierarchy (though no less hard-working). The roadblock is the first wave. Worse, it’s a committee of them.

Read the entire post here.

Anytime someone talks about archetypes, metaphors and marketing all in the same paragraph, they have my undivided attention. There isn’t enough of this kind of thinking in our industry, and it’s a damn shame because it holds so much power. Unfortunately, the silent generation doesn’t always have time for archetypes, Jungian psychology or for peeling back the layers of mythology-inspired metaphor.

Fact: These guys don’t believe in the value of marketing because no one has ever shown them that it indeed has any value. Too many hacks in this business are content to charge exorbitant fees for deliverables without actually ever working towards actual business and brand-building objectives. (And I won’t even touch the topic of the growing number of internal marketing departments whose staff can’t come up with a single original idea, much less write half a page of decent copy.) Many small marketing and PR firms have thus become little more than job shops where a) the talent and the creative have – over time – slipped to the bottom of the commodity ladder, and b) have completely eliminated the strategic in favor of the tactical (if you can even call it that). This may be a great way to keep paying the bills, but it is no way to inject the true value of marketing into a company that needs it. Enough firms and practitioners do this, and the entire profession soon becomes plagued with low rent hacks selling “marketing” to business folks too busy running their businesses to know any better. This is how the marketing field spent the last three decades losing all credibility and value, bringing us to where we are today: A business world in which the first thing that gets cut during tough economic times is marketing. Bravo.

Incidentally, the one line-item in a business’ budget that should actually increase during difficult economic times is marketing. Why? Because the best time to reach out to your customers and possibly gain market share is precisely when your competitors are retreating. We’re upside-down in this scenario because for the last thirty years, hacks have been dragging this discipline down into the commodity gutter. Enough is enough. We need to get back to business now. And I mean right now, starting with the very same first wave boomers who currently have absolutely zero faith in the discipline.

To these folks, marketing is at best fluff. Pretty fluff, sometimes, but fluff nonetheless. And expensive fluff at that. They reluctantly sign off on brochures, flyers, websites, catalogs and the occasional press release (the latter usually aimed at investors and stakeholders rather than their customers) because they feel that they have to. It’s just a cost of doing business. *sigh* Aside from this expensive exercise in seemingly worthless self promotion (a concept they aren’t particularly comfortable with anyway), marketing seems to be an expense rather than a worthwhile investment. This is the biggest fundamental problem faced by marketing departments and firms today.

Another way to look at it is this: There seems to be little to no measurable ROI from most marketing campaigns or activities.

Chances are that if you are dealing with a CEO who has little faith in marketing, it is because no one has ever shown them the link that exists between real marketing (which reaches far deeper than just messaging), and something as simple as F.R.Y. measurements (Frequency, Yield and Reach), for starters. Forget brand valuation for the first couple of quarters. Don’t even bring it up. Just show them how great marketing can increase their sales through an increase in interactions between their company and its customers, a positive change in the average order size, and/or an increase in net new customers. This is something they understand. This is something that puts food on the table, therefore it is tangible. This is how marketing stops being fluff and starts being valuable. This is how cost becomes benefit. This is how risky expense becomes worthwhile investment.

In order to enable this transition, we need to connect the dots by demonstrating clearly and objectively that marketing drives business growth in a measurable, quantifiable way. Not only that, but your efforts have to show that the return outweighs the investment. Not through bullshit metrics but through measurables that actually show up on the P&L.

You aren’t going to turn the older boomers to pay any attention to quests and archetypes (unless they happen to work at Nike or Jaguar or Starbucks), but you can take these concepts and turn them into what they understand: ROI. Simple Business 101. Common sense cost-benefit data. Period.

Does this put marketing practitioners on the spot? You bet. And it’s about time too.

The shift that needs to occur is simply this: Marketing practitioners need to a) stop behaving like commodities salesmen, and b) (to borrow a phrase from the presidential campaign trail) stop slapping lipstick on a pig.

Our job is not to sell deliverables like websites, catalogs, print ads and clever copy (and especially not the mediocre kind). Our job is to help folks who already spend over 80% of their time running the day to day operations of their business connect that business with the outside world in an effective and extraordinary way. More to the point, our job is to help drive sales, create net new customers, and increase the number of positive interactions between the companies we serve and their growing customer base. Our job is to help delight customers so that they will become a) repeat customers and b) brand ambassadors. Our job is to bring context to products, services and companies’ identities in specific cultural subsets. Our job is to bring companies and “markets” together, which is really to say companies and people.

Summed up, our job is to develop all of the strategies and tactics that help companies find their audience, facilitate the first handshake, and develop lasting, delightful, fiercely loyal relationships with as many great people as possible.

Our job is to do this in a remarkable, memorable, delightful way. Our job, if anything, is to inspire our clients and the people they serve to engage in a relationship which benefits both parties equally, and somehow improves their collective condition in the process. Our job is nothing short of ensuring that the marriage between between them is a great and lasting one.

This is not the sort of thing you entrust to just anyone. Yet too many companies do just that – most of the time because they may not be aware that they have other, better options.

I say enough. Seriously. Enough with uninspired, ineffective mediocrity. Enough with chop-shop marketing. Enough with inexistent (upside-down) R.O.I. Enough with the snake oil bullshit.

Enough.

Not until that first wave of boomer execs start to see that Marketing is as vital to their growth and as worthwhile an investment as an acquisition or product innovation will they be able to connect the dots between marketing activity and simple, bottom-line, black-on-white R.O.I.

It’s time to start cleaning up our industry once and for all, one company at a time. If that’s what it takes, then so be it. I hope you’ll join me in this quest, assuming you aren’t fighting the good fight already.

Have a great Thursday, everyone.

image by Chris Wray-McCann